consolidated annual report 2010 - bawag p.s.k....cent). this position includes sales within the...

ConsolidatedannUal RePoRt

2010

Key FigURes

1) UnderIFRS,theitemGainsandlossesonfinancialassetsandliabilitiesalsoincludesthevaluationofsecuritieswhoseriskisbornebyshareholdersofnon-controllinginterests.Thesesecuritiesaresubjecttosubstantialfairvaluefluctuations.Inordertoimprovethecomparabilityoftheresults,thevaluationresultsattributabletoshareholdersofnon-controllinginterestshavebeenexcludedinthefigurespresentedonthispage.ComparedtotheProfitorLossStatementpresentedintheConsolidatedFinancialReportaccordingtoIFRS,theitemGainsandlossesonfinancialassetsandliabilitiesisEUR11.2millionlower(2009:EUR186.6millionlower).Accordingly,theitemProfitbeforetaxpresentedaboveisEUR11.2millionlower(2009:EUR186.6millionlower)thantheProfitbeforetaxpresentedintheConsolidatedFinancialReportaccordingtoIFRS.

2) Operatingincome:netinterestincome,incomeandexpensesfromfeesandcommissions,otherincomeandexpenses,gainsandlossesonfinancialassetsandliabilities;Operatingexpenses:administrativeexpenses,amortisationanddepreciationonintangibleandtangibleassets.

3) Ratingupdatedated14January2011.

Statement of Financial Position (in millions of Euros) 2010 2009 Change in per centAssets 38,556 41,225 -6.5%Financial assets 10,855 14,543 -25.4%Receivables from customers 22,288 21,066 +5.8%Payables to customers 21,733 22,674 -4.2%Own issues 8,867 9,279 -4.4%Eligible own funds 2,908 2,826 +2.9%

Profit or Loss Statement (in millions of Euros) 2010 2009 Change in per centNet interest income 649.9 564.3 +15.2%Net fee and commission income 159.4 154.8 +3.0%Gains and losses on assets and liabilities adjusted for non-controlling interest 1)

155.9

138.9

+12.2%

Operating income 960.8 887.9 +8.2%Administrative expenses and depreciation and amortisation

-618.3

-608.1

-1.7%

Provisions and impairment losses -199.7 -236.7 +15.6%Profit before tax adjusted for non-controlling interest 1) 138.1 35.1 >+100%

Key figures (in percentages) 2010 2009Tier I capital ratio 9.9% 10.0%Own funds ratio 12.4% 13.6%Cost-income ratio 2) 64.4% 68.5%

Resources, as of 31.12. (in numbers) 2010 2009Workforce (in full-time equivalents) 4,812 4,954Bank branches 150 153Post office branches 1,038 1,230

Rating 2010 2009Long-term senior unsecured debt Baa1 Baa1Short-term liabilities P2 P2Moody’s outlook January 2011 3) stable stable

Retail Banking & small Business Wolfgang KleinMarketingRetailBanking&SmallBusiness

AlternativeSalesBAWAGBranchesFinancialDistributionPostCenter&RegionalBranchesFinancialDistributionPostStandardBranches&LoansSmallBusinessMobileSalesRetailServices

2

Managing BoaRd

Chairman of the Managing Board and Ceo Byron Haynes

CorporateOfficeCommunications&SponsoringHumanResourcesStrategy&EconomicsInternationalCorporates

deputy Chairman / Chief Risk officer stephan Koren

CreditRiskRetail&SMECorporate&InstitutionalRiskMarketRiskLegal&ComplianceRiskReporting

Chief Financial officer andreas arndt

AccountingControlling&AssetLiabilityManagement(ALM)ParticipationsandMergers&Acquisitions

Chief operating officer sanjay sharmaPaymentsProcurement,RealEstate&FacilityManagementInformationTechnologyCustomerServiceCenterOperations

Corporate & Financial Markets Christoph Raninger

Corporates&Markets:BusinessDevelopmentCorporates&Markets:SalesCorporates&Markets:SolutionsFinancialMarketsTrading&Investments

Remits of the Managing Board as a BodyComplianceOfficeInternalAudit

3

Managing BoaRd

Contents

Preface by the Chairman of the Managing Board 5

Focuses in 2010 10

Group Management Report 13

TheEconomy 14

BAWAGP.S.K.:Customer-FocusedInvestmentandGrowth 18

KeyEventsduringtheFinancialYear 26

NotestotheAnnualFinancialStatements 32

RiskManagement 42

Non-FinancialPerformanceIndicators 42

EventsaftertheReportingDate 48

Outlook 49

InternalControlandRiskManagementSystem 50

Consolidated Financial Report Prepared in Accordance

with the International Financial Reporting Standards (IFRS) 53

ConsolidatedAccounts 57

Notes 63

RiskReport 138

StatementofAllLegalRepresentatives 169

BoardsandOfficers 170

Auditor’s Opinion 172

Supervisory Board’s Report 174

5

PReFaCe By tHe CHaiRMan oF tHe Managing BoaRd


year 2010Asexpected,2010wasadifficultyearfortheworldwideeconomyaswellasfortheAustrianmarket,althoughtherewerealreadysomesignsofaslowrecovery.Externalmarketfactorshavecontinuedtoinfluencethebankingbusinessacrosstheworld,forexampletheon-goingsovereigndebtcrisisinthehigh-deficitcountries.Additionally,theconsequencesoftheglobalfinancialcrisisresultedinincreasedliquiditycostsandhighercapitalrequirements.

Regulatorsin2010havealsoreactedtothefinancialcrisisanddifficulteconomicenvironmentbysettingnew,tighterregulationsforthebankingindustry.BaselIIIhasbeenintroducedwhichresultsinhighercapitalandliquidityrequirementsforbanksinthefuture.TheCapitalRequirementsDirective(CRD)IIIhasalsobeenlaunched,

addressingcapitalrequirementsfortradingbooks,securitisations,aswellasdefiningstructuralchangesinremunerationpolicies.Additionally,thenewlyraisedbanklevyinAustriawillbecomeduein2011forthefirsttime.

ThesemarketfactorsandregulatorychangeswillhavesomeimpactonBAWAGP.S.K.goingforward.TheBank’ssovereignexposuretoEuropeanhigh-deficitcountriesishoweverlimited(EUR53million),duetotheprudentmeasurestakeninthepastyear.BAWAGP.S.K.’sliquiditypositionremainsstrong,despitetheincreasedcostsandcompetitionforsavingsdeposits,withourRetailBankingandSmallBusinessfranchisefirmlyanchoredinprovidingsavingsandcurrentaccountproductstocustomersacrossAustria.TheBank’sdeposittoloanratiofortheyearremainsstrongatapproximately100percent.TheBank’scapitalpositionhasalsostrengthenedduringtheyear.TheissuanceofparticipationcapitalintheamountofEUR550milliontotheRepublicofAustriainDecember2009wasapprovedbytheEuropeanCommissioninJune2010.Inaddition,throughthecontinueddiligentmanagementofrisk-weightedassetsanddeploymentofcapitalduringtheyear,theBankhaspreparedwellforthenewcapitalregulationsofBaselIII.BAWAGP.S.K.morethanfulfilstheBaselIIIcriteriaalreadyin2010andisconfidenttocontinuetobeBaselIIIcompliantatthetimeofitsimplementationin2013.

InFebruary2011,theRemunerationCommitteeoftheSupervisoryBoardapprovedanamendedremunerationpolicycoveringallpersonnelwithinBAWAGP.S.K.,incompliancewithCRDIIIandtheAustrianBankingAct.

ThebanklevyinAustriahasnowbeendeterminedandsetandwillbechargedagainsttheBank’sfutureearningsfrom2011.

6

Konzernrechnungslegung nach IFrsPReFaCe By tHe CHaiRMan oF tHe Managing BoaRd

good Results in 2010 Despitethecontinueddifficulteconomicenvironmentandtheincreasingregulatoryburden,BAWAGP.S.K.realisedgoodresultsin2010,withanannualoverallnetprofitrecordedforthefirsttimeinfouryears.

TheIFRSprofitbeforetaxofEUR138.1millionissignificantlybetterthanlastyear(EUR35.1million)andshowsthecontinuedsuccessfuleffortsbytheBanktoincreaseprofitabilityandefficiency.Themaindriversbehindthissignificantincreaseinprofitsaftertaxinclude:4 NetInterestIncomeincreasedby15.2percentcomparedtolastyear

toEUR649.9million(2009:EUR564.3million).Thisreflectsthedeploymentofourexcessliquiditysupportingourcustomers’needsandimprovingprofitabilitythroughtheconsistentusageofrisk-adjustedpricing.

4 NetCommissionIncomeofEUR159.4millionwasslightlyhigherthanlastyear(2009:EUR154.8million),asourcross-sellofdifferentproductstoourcustomerscontinuedtoincrease.

4 GainsandLossesonFinancialInstrumentsofEUR155.9millionwashigherthanlastyear(+12.2percent).ThispositionincludessaleswithintheInvestmentBooksandrealisedprofitsfromthesaleofasso-ciateinvestments,netofnegativeimpactsfromvaluationmovementsofownissuesandhedgingcosts.

4 OperatingexpensesfortheyearareEUR618.3million(2009:EUR608.1million)andweretoalargeextentdrivenbystaffcostsofEUR371.7million.Operatingexpensesslightlyincreasedcomparedtolastyear(+1.7percent),entirelyduetorestructuringprovisionsofEUR25.8million.OtheradministrativeexpensesofEUR172.8millionareEUR6millionlowerthanlastyear,reflectingtheearlybenefitsofourefficiencyandproductivityprogrammeandcontinuedtightcostmanagementthroughouttheyear.

4 ProvisionsandImpairmentLossesofEUR199.7millionaresignificantlylowerthanlastyear(2009:EUR236.7million),reflectingthecontinuedconservativeriskprofileofourloanbook.

4 NetProfitaftertaxandminoritiesfortheyearamountedtoEUR121.8million(2009:EUR–30.0million).

AllbusinessareassuccessfullycontributedtothesignificantlyimprovedBank’sresultsfor2010.

TheBank’sStatementofFinancialPositionshowedlendingwithanin-creaseofEUR1,222million(+5.8percent),reflectingthegrowthofourcorporatecustomerbusiness.BothAustrianCommercialBankingandtheInternationalBusinessweresuccessfulindeployingourexcessliquidity

realisingreasonablerisk-adjustedreturns.

Ourleasingbusinesscontinuedtogrow,withnewbusinessvolumesincreasingourmarketshareinAustriafrom4.9percentin2008toover6.8percentin2010.

FinancialMarketsbusinesshadagoodyear,successfullysteeringtheBankthroughextrememarketvolatilitywhileatthesametimecapturingnewclientflowsandre-enteringthecapitalmarketsforthefirsttimesince2004,withEUR2.0billionofnewfundsraised.

IFRSprofitbeforetaxofEUR138.1millionissignifi-cantlybetterthanlastyear(EUR35.1million)andshowsthecontinuedsuccessfuleffortsbytheBanktoincreaseprofitabilityandefficiency.

Allbusinessareassuccess-fullycontributedtothesignificantlyimprovedBank’sresultsfor2010.

7


RetailBankingandSmallBusinesscontinuedtheirfocusonthedevelopmentandroll-outofthenew“Branchoffensive”,improvingcustomerservice,introducingnewsavingsandsecurityproductsaswellascontinuingtosecurethedepositbaseoftheBank,despiteverycompetitivemarkets.

Oursubsidiaryeasybankhadarecordyearin2010,withnowover300,000accountsandEUR1.7billionofcustomerdeposits.

BAWAGInvest,theBank’sassetmanagementbusiness,continuedtogrowwithfundvolumesincreasedbyover10percentandwithnowoverEUR4.0billionofassetsundermanagement.

Despitethesignificantinvestmentsmadeandcontinuedsupportforgrowthforallourbusinesses,theBankmaintainedastrongcapitalandliquiditypositionthroughout2010.

Yearend2010CredittierIratioof10.2percentwasinlinewith2009of10.4percent,throughcontinuedtightmanagementofrisk-weightedassets.TheBankmaintainssignificantexcessliquidityofoverEUR5.3billionasat31December2010.

enhanced Customer experience through increased investmentAcontinuedimprovementofourcustomerservicehasalwaysbeentheclearfocusoftheBank.In2010,anumberofmajorinitiativeshavebeenlaunchedtoenhancetheexperienceofexistingandnewcustomers:4 PartofourstrategyfortheBankgoingforwardwasthedecisiontakenin

2010tocombineourtwostrongbankingbrandsBAWAGandPSKBankintoone:“BAWAGP.S.K.”.ThisbrandwaslaunchedinMarch2011andwillbevisibleaspartofthebranchoffensiveroll-out,unitingthebestofourtwophysicaldistributionchannelsandofferingourcustomersfullbankingservicesinallourbranchesgoingforward.

4 ThenewbrandissupportedbyanintensifiedcooperationwithÖster-reichischePostAG.Goingforward,wewillincreaseourbankbranch

networkfrom150to520brancheslocatedacrossAustria.Theimplementationofthenewbranchconceptwillbedonegraduallyoverthenexttwoyears.TheBankwillmakesignificantinvestmentsofEUR100millionaspartofthisbranchoffensiveinitiative,whichshowsourcontinuedcommitmenttocustomersacrossAustria.

Thisbranchinitiativeprovidesgreatopportunitiesandbenefitstoourcustomers,byhavingthelargestcentrallysteeredbranchnetworkinAustria.ThissignificantlyexpandscustomercoverageandaccessacrossAustria,particularlyinruralareas,providingfullbankingservicesandattractiveproducts.

4 During2010,theBankopeneditsCustomerServiceCentrewithextensiveopeninghours,providingcustomerswiththeabilitytocontacttheBankbytelephonetomeettheiron-goingneedsandrequirements.

4 Ontheotherhand,AustrianCommercialBankingandFinancialMarketshavebeenmergedintooneManagingBoardresponsibilityinthesecondhalfof2010inordertoexploitplatformsynergiesanddriveenhancedcross-sellingopportunitiesforourclients.Corporatecustomerswillprofitfromthebundledknow-howofthecombinedbusinessareasprovidingbusinesssolutionstomeettheirneeds.

CombineourtwostrongbankingbrandsBAWAGandPSKBankintoone:“BAWAGP.S.K.”.

8


4 AnothermajorprojectlaunchedbytheBankinthefirsthalfof2010wastoimproveefficiencyandproduc-tivitythroughenhancedprocessesandincreasedtechnologyinvestmenttobeabletofreeupresourcestobetterserveourcustomers.Thecleargoaloftheprojectistofurtheralignourproducts,simplifyprocessesandtomaketheorganisationmoreresponsivetocustomers’needs.TheprojectisontracktodeliveritsoveralltargetofcostsavingsofEUR60millionbytheyear-end2013whileinvestinganincrementalEUR40millionintotechnologytoimplementnewcapabilities(e.g.,workflowsolutions)andenhanceprocessstandardisation.

4 Increasingefficiencyandimprovingthecustomerservicewasthemaintargetofourinternalreorganisationsin2010.Theoverallorganisationwasstreamlinedinordertoeliminateduplicationandtoprovidegreateraccountabilityandresponsibility,ensuringquickerdecisionmaking.Thishasledtodecreasingadministra-tionandloweroverheadcosts.

Changes in the Managing Board – experienced team going ForwardInthecourseof2010,fourmanagersjoinedtheManagingBoardoftheBank.Withthesenewmembers,theBankhasanexperiencedManagementteamcapableofleadingtheBanktofaceandrealisetheupcomingopportunitiesgoingforward.

SanjaySharmajoinedtheManagingBoardofBAWAGP.S.K.on1January2010.PriortojoiningtheManagingBoard,hewasManagingDirectorresponsibleforOperationsforBAWAGP.S.K.ChristophRaningerjoinedinMay2010fromUniCreditGroupandisresponsiblefortheAustrianCommercialBusinessandFinancialMarkets.AndreasArndthasformerlybeenworkinginleadingpositionsforDeutscheBankGroup,becameChiefFinancialOfficerofBAWAGP.S.K.inOctober2010.WolfgangKleinassumedresponsibilityfortheareaRetailBankingandSmallBusinessinNovember2010aftermanyyearsofretailandmanagementexperienceatDeutschePostbankAG.Iamreallylookingforwardtoworkingwiththisteamoverthenextyears.

IwouldalsoliketotakethisopportunitytoexpressmythankstoReginaPrehoferandCarstenSamusch,whobothlefttheManagingBoardin2010,fortheirdedicationandcontributiontotheBank’ssuccess.Iwishbothofthemthebestfortheirfuturecareers.

9


outlook

2011willcontinuetobeadifficultyearfromamacroeconomicpointofview.However,wedoexpecttheeconomicenvironmenttoimprove,albeitverygradually.BanksacrossEuropewillcontinuetobesubjecttoexternalshocksandtonewregulations.Strongcompetitionisexpectedtoremaininthemarketplace.

Nevertheless,BAWAGP.S.K.willuseitsgoodmomentumfrom2010toovercometheseexternalshocksandstrongmarketcompetitionsuccessfully.Inaddition,theBankwillcontinuetoworkhardonimplementinganumberofinitiativesandprojects,includingthenewbranchoffensive,withtheprimaryfocusonfurtherimprovingourcustomerservice.

Finally,IwouldliketothankallemployeesofBAWAGP.S.K.fortheircontinuedhardworkanddedicationinrealisingourgoalsandtargetsandinmeetingthechallengesandchangesthattookplaceduringtheyear.In2011,wewillcontinuetofocusontheBank’sday-to-dayoperations,meetingourcustomers’needsandworkingtogethertoourcommongoal:TofurtherimproveourcustomerserviceandprofitabilityinordertocontinuetostrengthentheBank’spositionasastrongAustrianRetailandCommercialbank.

ByronHaynesm.p. ChairmanoftheManagingBoardandCEO Vienna,March2011

Workingtogethertoourcommongoal:TofurtherimproveourcustomerserviceandprofitabilityinordertocontinuetostrengthentheBank’spositionasastrongAustrianRetailandCommercialbank.

10

Konzernrechnungslegung nach IFrs

FoCUses in 2010

a year of “Unternehmen Österreich”The initiative thatwas launched inSeptember2009was continuedthroughout 2010. “Unternehmen Österreich” is the conceptual um-brellaforaseriesoftailoredproductsandservicesforprivate,businessandmunicipalcustomersaimedatstimulatingthedomesticeconomy,andhassustainablystrengthenedAustriaasabusinesslocation.1 1

one Billion for energyAnotheraspectofthisconceptisaprogrammeunderwhichBAWAGP.S.K.grantsloanstoprivatecustomerstofinancerenovationworkthatwillim-provetheenergybalanceoftheirhome.Thisprogrammehasgeneratedagreatdealofdemand,andnumerouscustomershavealreadytakenthisopportunitytoimprovethequalityoftheirlife. 2

BaWag P.s.K. one Billion for MunicipalitiesAspartofits“UnternehmenÖsterreich”initiative,BAWAGP.S.K.ex-tendedroughlyEUR1billioninlow-costcredittoAustriancommuni-tiestofinanceinfrastructuremodernisationprojects.RoughlyEUR600millionmadeitpossibletocompletesome540infrastructureprojectsin 2010, including the renovation of the secondary school in Saal-felden. 3

FoRMat and Women entrepreneursAcontestwasheldincooperationwiththefinancialmagazineFORMATtofindwomenwithcreativeandpromisingbusinessideasthatdonotcon-formwith“traditional”women’scareers.Andplentywerefound.Thework-shopwasheldwithrespectedtrainersinareasincludingfinance,marketresearch,law,taxes,presentation,rhetoricandadvertising,allofwhichareimportantforsettingupanewbusiness. 4

online account BoxAnewproduct that isnot tiedtoabranch,andwitha loweraccountmanagementfee.AlltransactionsarecompletedovertheInternet.TheOnlineAccountBox(Online-Kontobox)alsooffersmoreattractivetermsandisavailablearoundtheclock,evenwhenthebankisclosed.

Focuses In 2010

1

3

4

2

11

non-Profit Housing ConstructionBAWAGP.S.K.Wohnbaubankisthefifthlargestprovideroffinancingfornon-profithousingconstructioninAustriabasedonmarketshare.Wealsoplayakeyroleinsocialhousingconstruction.Thesehousingconstruction projects (including the Sonnenpark Rust PRO MENTEREHAcentreforpsychosocialhealth)arefinancedprimarilyfromthefundsraisedthroughourWohnbaubankbonds,and2010wasagainaverysuccessfulyearwithEUR370millioninnewissuance. 5

association of austrian savings associationsThe3,800savingsassociationsandsavingspoolswithover260,000saversinAustriaincreasedthevolumeofassetsundermanagementtooverEUR2billioninsavingsdepositsandEUR500millioninfinanc-ing. BAWAG P.S.K. is highly successful with these particular targetgroupswithcustom-tailoredservicessuchastheVÖSCard/CompanyServiceCard. 6

Facebook “schmetterlingskinder” youth CampaignBAWAG P.S.K. launched an interactive youth campaign on the socialnetworkingplatformFacebookunderthemotto“Borntobefirst”(Born to be vorn).ThegroupBoysfacedoffagainstthegroupGirls.Inadditiontocommunicatingourproductmessages,theinitiativeincludedonlinegamesinwhichparticipantscouldcollectpoints.Thepointswerecon-vertedintoEurosattheendofthecampaign,andatotalofEUR5,000wasdonatedtotheSchmetterlingskinderassociationforchildrensuffer-ingfromepidermolysisbullosa. 7

Business Customer Centres Become establishedThenewBusinessCustomerCentresbeganoperatingunderthemotto“Everythingyouneed

fromBAWAGP.S.K.”Thecentrescovertheprivateandbusiness-relatedneedsoftheirclients,andgeneratedagreatdealofpositiveresponse.TheSmallBusinessunitinViennawasrestruc-

tured,andnowoperateswiththethreecustomersegments“service”,“individual”and“premium”.Thisnewstructureandapproachistobeimplementedintheotherprovincesin2011.BAWAGP.S.K.

heldThinkBusinesseventsinUpperAustria,StyriaandCarinthia.Theeventswereverysuccessfulandcoveredtopicsincludingthenewprofitexemption,companypensions,thePOSpaymentterminalcam-

paign,theextensiveservicesofferedbytheBAWAGP.S.K.BusinessCustomerCentres,leasingasafinanc-ingalternative,andtheproductsofBAWAGP.S.K.VersicherungandBAWAGP.S.K.Invest.

Corporate BondsBAWAGP.S.K.againassistedmanycorporatecustomersintheirbondissuanceactivitiesin2010.AtotalofeighteenissueswerefloatedontheAustrianmarket.BAWAGP.S.K.wasinvolvedinfourteenofthesebonds,enablingourBanktocoverover70percentoftheissuevolume.Byassistingwiththeseissues,BAWAGP.S.K.successfullyenablesitsclientstotapadifferentformofbusinessfinancingthantraditionalcreditproducts.

Focuses In 2010

5

6

7

“The clear focus of BAWAG P.S.K. is on our core competence, retail and corporate banking in Austria. While the emphasis in past years lay on repositioning the Bank, we are now entering a new phase of investment and growth in which our successful business model will be expanded and enhanced for the benefit of our customers.”

gRoUP ManageMent RePoRt

14


14

group ManageMent report

gRoUP ManageMent RePoRt

the economy

economic Conditions in 2010

TheEurozoneeconomystartedtorecoverin2010.Realgrossdomesticproductgrewby1.7percentaftercontractingby4.1percentintheprioryear,thusremainingsubstantiallylowerthanbeforethecrisis.Theupswingwastriggeredbyexports,butthespringof2010sawmoreandmoreimpetuscomingfromdomesticdemand.Inadditiontocompaniesrestockingtheirinventories,revivingdemandforequipmentwasakeysourceofbusinessactivity.Consumerspendingincreasedonlymoderately,butsteadily.

TheeconomiesoftheindividualEurozonecountriesfaredverydifferently.WhileeconomiessuchasGermany,FinlandandSlovakiasawsubstantialgrowth,recoverywasslowornon-existentincountrieswithhighbudgetdeficitsandforeigntradeimbalances.Governmentspendingcutsandhighunemploymentinthesecountrieshamperedbusinessactivityanderodedconsumerconfidence.

Thesovereigndebtcrisisdominatedmediaandinvestorattention,althoughtheEurozoneasawhole,andAustriainparticular,sawareturntoamodestgrowthpath.

AustriaisamongthetopthirdoftheEurozoneeconomiesintermsofperformanceandbetteredtheregion’saveragein2010witheconomicgrowthof2.0percent.Inthefirsthalfofthereportingperiod,theAustrianeconomyprofitedfromthemarkedexport-orientationofitsindustry.InadditiontorobustdemandfromSoutheastAsia,theeconomicupswinginGermanywasakeysourceofstimulus.Worldtradebegantolosesomeofitsconsiderablemomentuminthemiddleoftheyear,butanotherimportantcornerstoneofeconomicstabilitybegantoimprove:corporateinvestment.Inadditiontothereversaloftheinventorycycle,demandforinvestmentgoodsalsostartedtopickupattheendoftheperiod.Incontrast,constructioninvestmentdeclinedovertheentireyear.Unlikeotherdemandcomponents,privateconsumptiondidnotslideduringtherecession,andprovedtobeakeysourceofsupportfortheeconomyagainin2010.Thesavingsratefellforthesecondyearinarowto10.6percentofdisposableincome.

Austrianconsumersshowedincreasingconfidenceinthereportingperiod,andtheEUCommission’sconsum-erconfidenceindexsurpasseditslong-termaverageinthespring.Inadditiontotheimprovedeconomicoutlook,akeyreasonforthiswasthemoreoptimisticexpectationsforthelabourmarket.AustriaisoneoftheveryfewmembersoftheEurozonethatrecordedadeclineinthejoblessratein2010.Thiscanofcoursebeattributedinsubstantialparttotheincreasedtrainingmeasuresbeingconductedbythenationalemploymentservice,butthenumberofjobsalsoincreased.AccordingtoAustrianstatistics,theseasonallyadjustedunemploymentratefellbyonehalfofapercentagepointinannualcomparisontoreach6.8percent.

15


15


Austria: Consumer Confidence

20

10

0

-10

-20

-30

-40

-50

-60

-70

Jan

07

Apr

07

Jul 0

7

Oct

07

Jan

08

Apr

08

Jul 0

8

Oct

08

Jan

09

Apr

09

Jul 0

9

Oct

09

Jan

10

Apr

10

Jul 1

0

Oct

10

Jan

11

Consumer confi dence indicator Financial situationGeneral economic prospects Employment expectations Source: EU Commission (EcoWin)

Thegeneralgovernmentbalanceworsenedbythreepercentagepointsto–3.5percentofGDPin2009asaresultofthefinancialandeconomiccrisis.Thebudgetdeficitroseagainto4.1percentofGDPin2010.Thisislesscauseforconcernininternationalcomparison,butdoesmeanthatAustria,alongwithnearlyeveryothermemberoftheEurozone,hasexceededthethresholdspecifiedbytheStabilityandGrowthPact.

Creditdemandintheprivatesectorwasveryrestrainedinthereportingperiod.Corporatefinancinghititslowpointatayear-on-yeardeclineof1.5percentinthefirstquarterof2010,andbusinessinthissegmenthasonlybeenexpandingslightlyforAustrianbankssincethen.Consumerlendingstagnatedovertheentirereportingperiod;onlydemandforhousingloansprovedtoberobust,growingatanaverageof2.5percentcomparedtotheprioryear.

16


16


interest Rates and exchange Rates

TheEuropeanCentralBank(ECB)leftitskeyinterestrateunchangedat1percentovertheyear.Theso-called“unconventionalmeasures”forprovidingthebankingsectorwithliquiditywereexpandedinMaywhentheECBbeganpurchasingEuropeangovernmentbondsonthesecondarymarkettocountertheeffectsoftheworseningEuropeansovereigndebtcrisis.ThegradualreductionoftheunconventionalmeasuresthatwasinitiallyannouncedforJanuary2011(butthathassincebeenpushedbacktoApril)causedtheinterbankratestoriseslowly.Thethree-monthEuriborrosebyapproximately40basispointsfromitslowinAprilto1.01percentattheendof2010.

However,thepositiveeffectsfromthelowbaseratewereatleastpartiallyerodedbyaveryvolatiledevelopmentofthecreditspreads,thusincreasingtherefinancingcostsforbanks.

Eurozone: Interest Rates

5.5

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Jan

07

Apr

07

Jul 0

7

Oct

07

Jan

08

Apr

08

Jul 0

8

Oct

08

Jan

09

Apr

09

Jul 0

9

Oct

09

Jan

10

Apr

10

Jul 1

0

Oct

10

Jan

11

10-year German Bund 3-month EuriborECB policy rate Source: EcoWin

Thebondmarketwasextremelyvolatileandperformeddifferentlyfromcountrytocountry.YieldsonGermangovernmentbonds,thebenchmarkfortheEurozone,fellsubstantiallyinthefirsteightmonthsofthereport-ingperiodandreachedanall-timelowof2.11percentforten-yearmaturitiesattheendofAugust.YieldsongovernmentbondsfromAustria,FranceandotherhighlyratedEurozonemembersdevelopedsimilarly.Incontrast,riskpremiumsonGreek,IrishandPortuguesegovernmentbondsrosedramatically,andSpain,ItalyandBelgiumsawtheirspreadsincreasestartinginautumn.YieldsforAAAcountriesroseagaininthelastmonthsoftheyear.Theten-yearGermangovernmentbondclosed2010at2.96percent,andthepremiumforcomparableAustriangovernmentbondswasapproximately50basispoints.

17


17


Risk Premia of 10-Year Bonds on 10-Year German Bunds, Percentage Points

1,000

900

800

700

600

500

400

300

200

100

0

Jan

08

Apr

08

Jul 0

8

Oct

08

Jan

09

Apr

09

Jul 0

9

Oct

09

Jan

10

Apr

10

Jul 1

0

Oct

10

Jan

11

Greece Ireland PortugalItaly Spain Source: Reuters (EcoWin), BAWAG P.S.K.

Theforeignexchangemarketsalsohadaverytumultuous2010.Thenominal-effectiveEuroexchangerateindex,whichmeasuresitsvalueagainstthecurrenciesofitsmaintradingpartners,lost9percentinannualcomparison.Comparedtotheindividualcurrenciesintheindex,theEurolostthemostversustheJapaneseyen(–18percent)andtheSwissfranc(–16percent).InJune,theEuroreacheditslowfortheyearoflessthan1.20USD/EUR,butreboundedto1.42USD/EURbythebeginningofNovemberandthenfellbackto1.34USD/EURinthelasttwomonthsoftheperiod.Overall,thevalueoftheEurorelativetotheworld’sothermajorcurrenciesduring2010wasdrivenprimarilybythefrequentlychangingmarketassessmentofthesovereigndebtsituationintheEurozone.

18


18


BaWag P.s.K.: Customer-Focused investment and growthBAWAGP.S.K.isoneofthelargestbanksinAustria,offeringawiderangeofproductsandservicespredomi-nantlyinAustria,butalsoinothercountries.TheBank’sbusinessactivitiescoverretailandcorporatebankingaswellasthefinancialmarketssegment.

TheclearfocusofBAWAGP.S.K.isonourcorecompetence,retailandcorporatebankinginAustria.WhiletheemphasisinpastyearslayonrepositioningtheBank,wearenowenteringanewphaseofinvestmentandgrowthinwhichoursuccessfulbusinessmodelwillbeexpandedandenhancedforthebenefitofourcustom-ers.

KeystepsforthegrowthoftheBankwerealreadytakeninthefinancialyear2010including:1. ExpansionofourAustrianretailbankingfranchise,withitsstrongdepositbase,continuestobethemain

pillaroftheBank’sexcellentliquidityposition.AninvestmentbudgetofoverEUR100millionforthecomingyearsunderscoresthestrategicimportanceofthissegment.ThemergeroftheBAWAGandP.S.K./postofficebranchesintoauniformlymanagedoutletnetworkthatwasstartedinOctober2010willopenupsignificantgrowthpotential.

2. TheprofitabilityofAustriancorporatebankingwasimprovedsubstantially,andlendinginthissegmentgrewmarkedly.Ourfocusonprovidingintegratedfinancialandcapitalmarketsolutionswillcreateaddi-tionalvalueforourcustomers.

3. WeareselectivelycomplementingourAustrianbusinessactivitieswithacarefulandrisk-mitigatingexpansionofourinternationalcorporatebankingbusiness,focusedprimarilyinWesternEurope.

4. Inthefirsthalfof2010,weinitiatedacomprehensiveprogrammetodrivetheimprovementofourcus-tomerserviceandcost-incomeratio,basedonextensiveinvestmentsinefficiencyandproductivity,cover-ingallcustomer-relatedandinternalunitsoftheBank.

Retail Banking and small Business

TheBankhasatraditionallystrongpositionintheretailmarketwith1.6millioncustomers,andtogetherwithourpartnerÖsterreichischePostAG,wehavethelargestcentrallymanagedbranchnetworkinAustria.Thanks

toourcoverageofalmosttheentireAustrianmarket,BAWAGP.S.K.wasabletoholditsstrongdepositbasedespitethechallengingmarketconditions.ThissupportstheBank’sstrongliquidityposition.

TheexpansionandintensificationofthecollaborationbetweenBAWAGP.S.K.andÖsterreichischePostAGin2010willenabletheBanktoofferitsfullspectrumofbankingservicesinapproximately520branches(280outletsinruralareasand240inurbanareas)throughoutAustriainthefuture.Postalserviceswillalsobeavailableattheseoutlets.

Theexpansionandintensifi-cationofthecollaborationbetweenBAWAGP.S.K.andÖsterreichischePostAGin2010willenabletheBanktoofferitsfullspectrumofbankingservicesinapproxi-mately520branchesthroughoutAustria.

FInanzIerungsserVIce

Machen sIe sIcheIn wÄrMeBIldVon IhrenenergIeKosten.

Die BAWAG Energiemilliardemit besonders günstigen Kreditenfür Bauen, Wohnen und Sanieren. Inklusive gratis SanierService.

Mehr darüber hier in Ihrer BAWAG Filiale und auf www.unternehmenösterreich.at

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Eachofthebrancheswillhavethreeareas:4 Self-servicezonesinthefoyerarea

Aself-serviceareawillofferaccountstatementprinters,paymenttransferscannersandcashdispenserstoenablecustomerstoconvenientlycovertheirbasicbankingneeds24hoursaday.

4 CounterzoneTransactionsforfinancialandpostalserviceswillbehandledinthecounterzone

4 AdvisoryzoneforfinancialservicesAdviceonbankproductsandserviceswillbeprovidedintheadvisoryzonethatisclearlyseparatedfromtheremainderofthebranch.

Thisnewbranchconceptwillbeimplementedconsistentlythroughoutthecountry.Theexperiencegatheredduringdailyoperationswillbeusedtoimprovethefurtherimplementationofthismajorbranchconcept.ThisgroundbreakingprojectofBAWAGP.S.K.andÖsterreichischePostAGistobecompletedby2012.

Thenewsalesstrategywillalsobeunderpinnedbyanewbrandimage,astheBankwillbeoperatingunderasinglestrongbrandthroughoutAustria:BAWAGP.S.K.

Our first joint branch with Österreichische Post AG was successfully opened in Innsbruck on 15 December 2010.

FInanzIerungsserVIce

Wir unterstützen Sie bei Ihrer Aus- und Weiterbildung mit maßgeschneiderten Konten, Krediten und Vorsorgeangeboten, denn:Wir vertrauen in Ihre Zukunft.

Mehr darüber in jeder BAWAG- oder Postfi liale und aufwww.unternehmenösterreich.at

JoB und FortBIldung?da Kann Man VoM schlaFen nur trÄuMen.

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Inadditiontoexpandingourbranchnetwork,wearealsocontinuouslyworkingtoimproveandbroadenourproductrange.Whendevelopingourproducts,wealwaystakeintoaccountthewishesandneedsofourcustomers,andfocusonprovidingtransparentandfairlypricedproducts.OurSecurityBarometerclearlyshowsourcustomersthesecurityandearningsprofileofeachofourproductsataglance.Ourproductrangeincludesourstrongcurrentaccountrange“Kontobox”,attractivesavingsproductssuchasour“KletterzinsSparbuch”,investmentproductssuchasthe“MinMaxFloater”andoursuccessfulWohnbaubankbonds,andfairlypricedloanssuchasthe“SuperschnellKredit”privateloanorhousingloanswithenergysavingsservice.OursubsidiarieseasybankandBAWAGP.S.K.Investofferadditionalretailproducts.

easybankisthesecond-largestdirectbankinAustriaandmanagesover300,000accounts.Akeygoalistoexpanditspositionasamaindirectbankforretailcustomers.easybankoffersitscustomersclear,simplesolutionsfortheirfinancialneeds.Leanorganisationalstructuresmakeitpossibletoofferitsproductsatextremelycompetitiveterms.ItisalsothecentreofcompetenceforcreditcardbusinesswithinBAWAGP.S.K.Group.The2010financialyearbroughtthebestresultinthehistoryofeasybank.AsurveybytheChamberofLabour(AK)namedeasygratis,easybank’ssalaryandpensionaccount,thebestofalltestedaccountsinAustriaforthefifthtime.

BAWAGP.S.K.Investgrewitsfundvolumebyover10percentdespitethedifficultmarketconditionsin2010.Inachievingthis,thecompanynotonlyoutperformedthemarket,butalsopassedtheEUR4billionassetsundermanagementmark.BAWAGP.S.K.Invest’sfundstookprizesattheLipperFundAwards,theAustrianFundPrize,theAustrianUmbrellaFundAwardsandtheVisioFundAwardinmultiplecategoriesin2010.

Corporate Customers and Financial Markets

Incommercialbanking,theBankispursuingthesamesuccessfulstrategythatithasbeenfollowingoverthepastyears.MostofthecustomersinthissegmentarelocatedinAustria,andBAWAGP.S.K.offersabroad

rangeofproductstomeettheirneedsfordoingbusinesslocallyaswellasexpandingtheirinternationalactivities.Theseincludestandardproductsaswellastailor-madefinancingandinvestmentsolutionsthatmakeBAWAGP.S.K.aparticularlyvaluableandreliablepartnerforAustria’seconomy.

Ithasbecomeclearinrecentyearsthatdevelopmentsonthefinancialmarketshaveadirectimpactontherealeconomyandviceversa.ThismadeitalogicalsteptomergetheformerlyseparatebusinessareasAustrianCorporatesandFinancialMarketsintoasingleareaofcompetenceatBAWAGP.S.K.Thisapproachisbeingsupplementedbytheintroductionofauniquebusinesssolutionpartnerconcept.Inthefuture,ourcorporatecustomerswillhaveasinglepointofcontactthatwillbeabletoreactmorequicklytoeachcustomer’sneedsbycreatingcomprehensivebutindividualisedfinancialsolutionswithouthavingtocoordinatewithdifferentoperatingunitswithintheBank.

Businesssolutionpartner–ourcorporatecustomerswillhaveasinglepointofcon-tactthatwillbeabletoreactmorequicklytoeachcus-tomer’sneedsbycreatingcomprehensivebutindividu-alisedfinancialsolutionswithouthavingtocoordinatewithdifferentoperatingunitswithintheBank.

www.pskbank.atStand: 25.8.2010 / Änderungen vorbehalten

Trari, Trara, die neue gratis* Online-Konto-Box ist da!

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TheFinancialMarketsunitconductsfinancialmarkettransactionsforourcustomersandisalsoresponsiblefortradingfortheBank’sownaccount.FinancialMarketsworkscontinuouslytodesignattractiveandinnova-tivefinancialmarketproductstosupplementourretailspectrumandtheofferingsfromthird-partybanks.In2010,theBankwastheleadorco-leadmanagerfornearlyallcorporatebondplacementsontheAustrianmarket.Thus,wewereabletooptimallyleverageourmanyyearsofexperienceincorporatebankingincombinationwithourstrongretailsalesbase.

Anothersuccessin2010wasBAWAGP.S.K.’sreturntotheinternationalcapitalmarkets,whichledtoanenthusiasticinvestorresponse.TheBankissuedalmostEUR2billioninfinancialinstrumentsinthereportingperiod,includingWohnbaubankbondsandfourcoveredbondsdenominatedinEurosandSwissfrancs.

TheBAWAGP.S.K.LeasingGroupstrengtheneditspositionasoneofthetopleasingprovidersintheAustrianmarketin2010.EspeciallythestablegrowthofmotorvehicleleasingthroughthedistributionpartnersofBAWAGP.S.K.Leasingandtherealisationofanumberofmajorrealestatetransactionsinclosecollaborationwiththebankingsalesunitsplayedakeypartinthissuccess.BAWAGP.S.K.Leasingincreaseditsnewbusinessvolumeby10percentinAustria,theCzechRepublic,Hungary,PolandandSlovakiacomparedto2009.

For2011,theBank’sbusinesssolutionpartnersandtheleasingproductspecialistswillbeworkingcloselytogethertoofferBAWAGP.S.K.’scorporatecustomersleasingproductsinamorefocusedandeffectivemanner.Atthesametime,BAWAGP.S.K.LeasingwillbeincreasingitsfocusonindirectsalesthroughdistributionpartnersandonitscollaborationwithGeneraliVersicherung.

international Business

Ourservicerangeisroundedoutbyselectivetransactionswithkeyinternationalaccountswithinapre-definedandconservativeriskframework.Ingeographicalterms,ourInternationalBusinessfocusespredominantlyonWesternEurope.

Additionally,selectedcommercialpropertiesweregraduallyfinancedinWesternEuropeinthefinancialyear2010.Thisbusinessareaistobeexpandedfurtherinthefollowingyears.

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efficiency and Productivity enhancement Programme

Aprojectwaslaunchedinthefirsthalfof2010toincreasetheefficiencyandproductivityoftheBankandtoimprovethestandardofservicethatweprovidetoourcustomers.ItistorunforthreeyearsandwillfocusonimprovingprocessesandworkflowswithintheBankandonstreamliningtheBank’sorganisationalstructure.Alargeshareoftheprojectedcostsavingsenvisagedintheprogrammewillresultfromnaturalstafffluctua-tionandretirements,andwillreducethenetnumberoffull-timestaffby500by2013.

TheBankalsoplanstoinvestapproximatelyEUR40millioninnewtechnologyoverthecomingthreeyearstosupportthisprogramme.

outlook

BAWAGP.S.K.ispositioningitselftosuccessfullymasterthecontinuedchallengingconditionsontheAustrianandinternationalfinancialmarketsthroughanexpansionofourAustrianretailfranchise,bycombiningthecompetencesforAustrianCorporatesandFinancialMarketsintoasingleunit,andbyselectivelyexpandingourInternationalBusinessactivities.Thestrategicpositionthatwehaveachievedandtheconsistentimprove-mentofourprocesseshavecontributedsignificantlytothegrowthofourearningspowerinthereportingperiod,andwillensurestablegrowthinthecomingyears.

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Key events during the Financial year

Changes in the Managing Board

SanjaySharmawasappointedChiefOperatingOfficereffective1January2010.HecandrawonmanyyearsofexperienceatBarclaysBankplcandhasbeenManagingDirectorforOperationsatBAWAGP.S.K.sinceAugust2008.

ChristophRaningerjoinedtheManagingBoardon17May2010asHeadofFinancialMarkets.HesucceededCarstenSamusch,whoannouncedinJanuary2010thathewouldnotbeseekinganextensionofhisfixedtermcontract.ChristophRaningerisnowresponsibleforCorporateandFinancialMarketsandtookovertheAustrianCorporatesdivisionfromReginaPrehofer,wholefttheManagingBoardattheendofAugust2010.Beforetakingontheseduties,ChristophRaningerwasmanagingdirectorandmemberofthemanagingboardofUniCreditCAIBAG,wherehewasresponsiblefortheMarketsandInvestmentBankingdivision.

AndreasArndtbecameChiefFinancialOfficeron1October2010.Priortothis,hespentmanyyearsinmanagerialpositionsintheDeutscheBankgroup,includingatenureontheboardofDeutscheBankPrivat-undGeschäftskundenAG.

ThebusinessareasRetailBankingandSmallBusinesshavebeendirectedbyWolfgangKleinsince1November2010.WolfgangKleinworkedatDeutschePostbankforthelasttenyears.Duringthistime,hewasamemberoftheboardandwasresponsibleforthevariousaspectsofretailbanking.HewasCEOforhislasttwoyearsatthebankpriortojoiningBAWAGP.S.K.

Changes in the supervisory Board

ScottParkerlefttheBank’sSupervisoryBoardon30June2010.

TheSupervisoryBoardwasexpandedwiththeappointmentofRonaldE.Kolkaon6August2010andKeithTietjenon5October2010.

Die Hauptschule am Bahnhof wurde generalsaniert.

Die Kläranlage Glasing wurde erweitert.

Florian Fischer geht den zweiten Bildungsweg.

Mag. Ursula Zewell wird sich ihren Traum vom Haus am See erfüllen.

Das Schulzentrum Oberau wird komplett modernisiert.

Familie Visinteiner freut sich auf ihr neues Eigenheim.

Die Haussanierung spart Familie Hradil Heizkosten.

Die Bewohner des Altenheims genießen ihr renoviertes Zuhause.

Adrian Stamboli profi tiert vom Gratis-Konto für Polizeischüler.

Das Sonderpädagogische Zentrum wird neu errichtet.

Thomas Wurzer hat sämtliche Fenster und Türen erneuert.

11 von über 11.000 Erfolgsgeschichten,die wir mit der Kommunal- und Energiemilliarde sowie mit der Veranlagungs- und Ausbildungsoffensive ermöglichen konnten.Weil unser Erfolg der Erfolg unserer Kunden ist.

www.unternehmenösterreich.at

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Capital and guarantee Contributions by the Republic of austria and shareholders

Aframeworkagreementwassignedin2009betweenBAWAGP.S.K.,itsshareholdersandtheRepublicofAustriainwhichtheRepublicofAustriaundertooktosubscribeparticipationcapitalinBAWAGP.S.K.intheamountofEUR550millionandtoissueaguaranteeforcertainassetsinthemaximumamountofEUR400million.Inaddition,theBank’sshareholdersgrantedacapitalcontributiontotallingEUR205millioninAugust2009.TheBankcancelleditsentitlementtotheguaranteefromtheRepublicofAustriainfullasof22June2010.

On30June2010,theEuropeanCommissionapprovedtheparticipationcapitalpackage.ThisapprovalincludedcertainconditionsandcompensatorymeasuresthattheBankmustfulfillintheupcomingyears.

Thesecompensatorymeasuresincludethesaleofcertainnon-coreparticipations,atemporaryprohibitiononthepaymentofshareholderdividends,limitsoninvestmentsinbusinessactivitiesoutsideofAustriaandtheearlyredemptionofcertainsecurities.

Moody’s Rating for BaWag P.s.K.

TheratingagencyMoody’scompletedareviewofitsratingforBAWAGP.S.K.inOctober,basedonthefiguresforthefirsthalfof2010.

Despitethechallengingbusinessconditions,theagencyconfirmeditsratingforBAWAGP.S.K.on14January2011andassignedtheBankastableoutlook,asitdidlastyear.Thisresultissatisfactory.

Long-termbondsfromBAWAGP.S.K.areratedatBaa1,short-termliabilitiesatP2andtheBank’sfinancialstrengthratingisD.TheratingforhybridcapitalinstrumentsremainedunchangedatB2.

Initsratingillustration,Moody’sspecificallyrecognisedtheextensiveimprovementsalreadymadebytheBank;italsoincludedspecialpraisefortheimprovementsmadeintheareaofriskandtheintensivecollabo-rationwithÖsterreichischePostAG,whichwillhaveapositiveeffectontheretailnetwork.

Theratingclassificationis“stableoutlook”.

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legal aspects

sPhinXSPhinXcompaniesfiledalawsuitwiththeSupremeCourtoftheStateofNewYorkinMarch2008againstoverfiftyparties,oneofthembeingBAWAGP.S.K.Nospecificamounthasbeennamedfortheallegeddamages.

Variousmotionsforthedismissalofthissuitarestillpending.Inaddition,documentsarebeingcollectedandreviewedtogatherevidenceforthecase,andwitnesseshavealreadybeenquestionedinhearingslastingseveraldays.BAWAGP.S.K.hasfiledclaimswiththeliquidatorsofSPhinXforinvestmentsinSPhinXfundsthathavenotbeenredeemedintheamountofapproximatelyUSD29.4million.

Theproceedingsareprovingtobearduous,anditcannotbeforeseenwhentheywillbecompleted.

TheBank’sclaimsstillhavenotbeenrecognised,andtheliquidator’sproposalsforthedistributionoftheavailableassetshavebeensubjecttodebate.

Changes in the group’s Holdings

BaWag P.s.K. VersicherungTheBanksolda24.99percentshareinBAWAGP.S.K.VersicherungAGtoGeneraliHoldingViennaAGinJanuary2010,reducingitsstakefrom49.99percentto25percentplusoneshare.

Toaccountfortherequirementsofthemarketandthesignificantgrowthofthecompany,ashareholders’contributionwasagreedin2010tostrengthentheequitybaseofBAWAGP.S.K.Versicherung.BAWAGP.S.K.participatedinthecontributioninaccordancewithitsstakeinthecompany.

MKB Bank Zrt.TheHungarianMKBBankZrt.completedacapitalincreaseequaltoEUR172millionon1December2010.BAWAGP.S.K.GroupparticipatedinthiscapitalincreasethroughP.S.K.BeteiligungsverwaltungGmbHinaccordancewithitsstakeinthebank,andstillholdsashareof9.77percent.ThecapitalcontributiontotalledapproximatelyEUR17million.AntoinetteHoldingLtd.,whichisaffiliatedwiththeshareholders,didnotparticipateinthecapitalincrease.Together,P.S.K.BeteiligungsverwaltungandAntoinetteHoldingLtd.nowholda10.11percentstake.

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Restructuring of Foreign CompaniesAspartofthecomprehensivereorganisationofoursubsidiariesinLiechtensteinandIreland,anumberofstepsweretakentostreamlineourstructure.AfterthecompletionoftheliquidationproceedingsofoursubsidiariesinIrelandthatwereinitiatedin2010andthatarenearingtheirconclusion,theBankwillexittheIrishmarketentirely.Duetomergers,thenumberofcompaniesthatareactiveinLiechtensteinwasreducedtoone.

other Material Changes in the group’s HoldingsFurther Companies in Liquidation

TheliquidationofBAWAGInternationalFinanceLtd.(Ireland),BAWAGP.S.K.JerseyAutoFinanceLtd.,AutoFinanceJerseyILtd.andAutoFinanceJerseyIILtd.wascompletedin2010.

Real Estate

Wecontinuedtoconsistentlyapplyourrealestatestrategyinthe2010financialyear.PropertiesworthapproximatelyEUR41.4millionintotalweresold,inpartthroughassetandsharedeals.

The Leasing and Real Estate Project “Simple”

Thecomprehensiverestructuringandstreamliningoftheleasingstructurewasdecidedduringthecurrentfinancialyear.Theprojectconsistsofthefollowingsteps:4 Liquidationormergerofcompaniesthatarenolongerneeded4 Structuringaccordingtobusinesssegments4 Liquidationofthedormantcompanies

Someofthesestepshavealreadybeencompleted,andtheincorporationoftheCEEsubsidiariesintoanewholdingcompanyiscurrentlybeingprepared.

Intherealestatesegment,BPIHoldingGmbHandIDGImmobilienDevelopmentGesellschaftm.b.H.weremergedwithBAWAGP.S.K.IMMOBILIENGmbH.

Sale of BAWAG P.S.K. Versicherungsdienst GmbH

Inthefinancialyear2007,a49.99percentminorityshareintheinsurancebrokeragecompanyBAWAGP.S.K.VersicherungsdienstGmbHwassoldtoGenerali.Theremaining50.01percentweresoldtoBAWAGP.S.K.VersicherungAGinthereportingperiod.

Sale of APK-Pensionskasse Aktiengesellschaft

The4.25percentshareinAPK-Pensionskassewassoldattheendof2010.

www.unternehmenösterreich.at

Dies ist eine Marketingmitteilung der BAWAG P.S.K. Die Informationen stellen kein Angebot, keine Anlageberatung sowie keine Kauf- oder Ver-kaufsempfehlung dar. Der Inhalt der Informationen kann ein individuel-les Beratungsgespräch nicht ersetzen. Die Emission unterliegt nicht der Prospektpfl icht gemäß Kapitalmarktgesetz.

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notes to the annual Financial statementsTheGroup’sreportswerepreparedinaccordancewiththeInternationalFinancialReportingStandards(IFRS).

AllreportsweremadeusingtheGuidelinesonFinancialReporting(FINREP)frameworkrequiredforreportingtoOesterreichischeNationalbank(theAustrianNationalBank,OeNB),whichconformstotheframeworkrecommendedbytheCommitteeofEuropeanBankingSupervisors(CEBS)foruniformfinancialreportingbyinternationallyactivebanks.ThisframeworkclearlydepictsthemeasurementcategoriesstipulatedinIAS39.

TheGroupconsistsof55entitiesinAustriaandabroad(2009:57).Therewerenosignificantchangesinthescopeofconsolidationin2010.

AsidefromBAWAGP.S.K.,theotherbanksintheGroupareeasybank,ÖsterreichischeVerkehrskreditbank,BAWAGP.S.K.Wohnbaubank,BAWAGP.S.K.Invest,BAWAGBankad.d.inSloveniaandBAWAGMaltaBank.Materialnon-creditinstitutionsaretheleasinggroup,theBAWAGP.S.K.realestatesub-group,theshoeretailerStiefelkönigandfourassetmanagementcompaniesthatholdthemajorityofthestructuredcreditportfolio.BAWAGP.S.K.Versicherungisaccountedforusingtheequitymethodafteramajoritystakeinthecompanywassoldin2007.In2010Stiefelkönigisreportedundertheitemassetsheldforsaleforthefirsttime.

BAWAGP.S.K.planstosellfurtherholdingsthatarenotpartofitscorebusiness.PursuanttoIFRS5,theassetsandliabilitiesofthesesubsidiariesthatareclassifiedasheldforsalearereportedunderaseparateitemontheStatementofFinancialPosition.

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Assets

in millions of Euros 2010 2009 ChangeCash reserves 511 615 -104 -16.9%Financial assets 10,855 14,543 -3,688 -25.4%

Fair value through profit or loss 2,284 2,980 -696 -23.4%Available for sale 6,644 3,250 3,394 >+100%Held to maturity – 6,560 -6,650 –Held for trading 1,927 1,753 174 9.9%

Loans and receivables 26,173 24,879 1,294 5.2%Debt instruments 2,358 – 2,358 –Customers 22,288 21,066 1,222 5.8%Credit institutions 1,527 3,813 -2,286 -60.0%

Hedging derivatives 55 33 22 66.7%Tangible non-current assets 219 287 -68 -23.7%Intangible non-current assets 229 266 -37 -13.9%Other assets 478 602 -124 -20.6%Assets held for sale 36 – 36 –Total assets 38,556 41,225 -2,669 -6.5%

TheBank’s consolidated assetsasof31December2010amountedtoEUR38,556million,EUR2,669mil-lionor6.5percentlessthanattheendofthepreviousfinancialyear.TheBankreduceditsportfoliooflow-returninvestmentsandselectivelyenteredintopositionsofferinghigherreturns.

TheEUR104million(minus16.9percent)reductioninthecash reservetoEUR511millionisduetoalowerminimumreserveheldwiththeOeNBonthereportingdate.

Theitemfinancial assets recognised at fair value through profit or losscontainsthesecuritiesandloansforwhichchangesinfairvaluearerecognisedintheProfitorLossStatement.ThefinancialinstrumentsinthiscategorydecreasedbyEUR696millionor23.4percenttoEUR2,284millioninthefinancialyearprimarilyasaresultofplannedredemptionsanddisposals.

BecauseoftheBank’schangedinvestmentconcept,theassetsinthecategoryofheld-to-maturity financial assets,whichtotalledEUR6,560millionattheendoftheprioryear,wereeithersoldorreclassifiedasavailable-for-salefinancialassets(furtherinformationispresentedintheNotes).Overall,theavailable-for-sale financial assetsincreasedfromEUR3,250millionattheendof2009toEUR6,644millionatthereportingdate.Inadditiontooursecuritiesportfolio,whichconsistsprimarilyofinvestmentsinliquidbank,corporateandgovernmentbonds,thisitemalsocontainsthecarryingamountsofournon-consolidatedequityholdingsintheamountofEUR245million(2009:EUR279million).

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Held for tradingcoversnotonlythepositionsinthetradingbook,butalsoallpositivefairvaluesofderivativefinancialinstruments,includingthoseheldtohedgepositionsinthebankingbookbutforwhichhedgeaccountingisnotapplied.TheincreaseofEUR174million(9.9percent)toEUR1,927millioncanbeattributedprimarilytohighervaluesofcurrency-basedderivativesinthetradingbook.Asimilartrendwasseenforthetradingliabilities.

Theitemloans and receivablescontainstheloanstocustomersandcreditinstitutionsthatarerecognisedatamortisedcost.ThenetincreaseofEUR1,294millionisrelatedtoEUR2,358millionindebtinstrumentsandEUR1,222millioninloansandadvancestocustomers.Incontrast,loansandadvancestocreditinstitu-tionsfellbyEUR2,286million.

Theincreaseinthecarryingamountsofdebt instrumentsreportedinthisitemtoEUR2,358millioncanbemainly(EUR1,897million)attributedtothetransferofnottradedsecuritiesfromthecategoryofavailable-for-salefinancialassetstoloansandreceivables.Theremainingincreaseresultedfromthepurchaseofsecuritiesin2010.

Thereceivables from customersincludeanencouragingincreaseinloanstocommercialcustomersin2010,boostingtheitembyEUR1,222millionor5.8percenttoEUR22,288million.

Receivables from credit institutionsfellfromEUR3,813millionin2009toEUR1,527millionattheendof2010.Thiscontractioncanbeattributedabovealltoshort-termdepositsatotherbanks,whichwerereducedbecauseofthelowreturnstheyoffered.

Tangible non-current assetstotalledEUR219millionon31December2010,downfromEUR287millionattheendof2009.Thiscanbeattributedtodepreciationandthesaleofproperties.

Schluss mit hohen Kontokosten! Ganz Österreich fl iegt jetzt auf easy gratis – das Gehalts- oder Pensionskonto der easybank. Sparen auch Sie bis zu € 100,– jährlich. Wechseln Sie zu Österreichs günstigstem Gehaltskonto mit den GRATIS-Vorteilen:

• GRATIS Kontoführung • GRATIS Bankomatkarte • GRATIS Kreditkarte

Gleich Infopaket anfordern unter www.easybank.at oder unter 05 70 05-507. * Quelle: www.arbeiterkammer.com/konsument, November 2010. Getestet wurden 15 Banken in Oberösterreich.Das Gratis-Gehaltskonto ist an keine weiteren Bedingungen wie Mindestumsatz oder Nutzung weiterer Bankprodukte geknüpft.

easybank_easygratis_154x217.indd 1 09.03.11 10:00

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Liabilities

in millions of Euros 2010 2009 ChangeFinancial liabilities 35,194 38,054 -2,860 -7.5%

Fair value through profit or loss 4,900 6,371 -1,471 -23.1%Customers 117 435 -318 -73.1%Issued securities 4,783 5,936 -1,153 -19.4%

Held for trading 2,271 2,198 73 3.3%At amortised cost 28,023 29,485 -1,462 -5.0%

Customers 21,733 22,674 -941 -4.2%Credit institutions 2,205 3,468 -1,263 -36.4%Issued securities 4,085 3,343 742 22.2%

Hedging derivatives 40 60 -20 -33.3%Provisions 436 441 -5 -1.1%Other obligations 462 378 84 22.2%Obligations in disposal groups held for sale 38 – 38 –Equity 2,016 1,919 97 5.1%Non-controlling interests 370 373 -3 -0.8%Total equity and liabilities 38,556 41,225 -2,669 -6.5%

Theitemfair value through profit or lossunderfinancialliabilitiescomprisestheBank’sissuedsecuritiesanddepositsthatarereportedatfairvalueandthatarenotassignedtothecategoryheldfortrading.TheseliabilitiestotalledEUR4,900millionon31December2010,EUR1,471millionor23.1percentlessthanattheendoftheprioryear.ThisdeclineisprimarilyduetotheredemptionofsecuritiesissuedbyBAWAGP.S.K.InvestmentproductswhoseinterestdependsnotonlyonthegeneralinterestratelevelbutalsoonotherfactorssuchastheinflationrateorthedevelopmentofspecificindexesdecreasedbyEUR318milliontoEUR117million.Becausetheseproductsarehedgedagainsttherelevantrisksusingderivativefinancialinstruments,theyarerecognisedatfairvaluethroughprofitorlosstoensurethattheyarereportedproperly.Nonewproductsarebeingissuedinthiscategory.

Theheld-for-trading financial liabilitiesrosebyEUR73millionor3.3percenttoEUR2,271millionin2010.Thisincreasecanespeciallybeattributedtohighervaluationsofthecurrency-basedderivativesinthetradingbook.Asimilartrendwasseenforthefairvaluesofthetradingassets.

Payables to customersfellbyEUR941millionor4.2percenttoEUR21,733million.Theratherconserva-tiveconditionsbeingofferedbyBAWAGP.S.K.overthepastmonthsaswellastheshiftofsomeinvestmentsinsecuritiesandotherbankdepositsresultedinaEUR1,219milliondecreaseinsavingsdeposits,whichwaspartiallyoffsetbyaEUR477millionincreaseinsavingsthroughsavingscardaccounts.Togetherwiththeinvestmentproductsmeasuredattheirfairvaluesmentionedabove,depositstotalledEUR13,001millionasat31December2010,oronethirdoftheBank’sconsolidatedassets.Otherdeposits(includingsavingscardaccounts)grewsatisfactorilybyEUR278milliontoreachEUR8,732million.

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Payables to credit institutionsfellbyEUR1,263millionor36.4percenttoEUR2,205million.

Theissued securitiesrecognisedatamortisedcostincreasedduetosuccessfulnewissuesintheamountofEUR2billion.Netofscheduledredemptions,issuedsecuritiesincreasedbyEUR742millionandcametoEUR4,085millionattheendofthereportingperiod.

TheBank’sprovisionsweredownbyEUR5milliontoEUR436millionon31December2010.

IFRSequityincreasedbyEUR97million(+5.1percent)toEUR2,016millionresultingfromcreditingtotalcomprehensiveincomein2010ofEUR123millionandcreditingthecouponpaidforparticipationcapitalfor2009ofEUR25.6million.Non-controlling interestsremainedvirtuallyunchangedatEUR370million.

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Profit or Loss Statement (adjusted for valuation results attributable to non-controlling interests)

in millions of Euros 2010 2009 ChangeNet interest income 649.9 564.3 +85.6 +15.2%Net fee and commission income 159.4 154.8 +4.6 +3.0%Gains and losses on financial assets and liabilities adjusted for non-controlling interests 1)

155.9

138.9

+17.0

+12.2%Other operating income and expenses -4.4 29.9 -34.3 –Operating income 960.8 887.9 +72.9 +8.2%Administrative expenses -544.5 -527.7 -16.8 -3.2%Depreciation and amortisation on tangible and intangible non-current assets

-73.8

-80.4

+6.6

+8.2%

Operating expenses -618.3 -608.1 -10.2 -1.7%Operating profit 342.5 279.8 +62.7 +22.4%Provisions and impairment losses -199.7 -236.7 +37.0 +15.6%Share of the profit or loss of associates accounted for using the equity method

-4.7

-8.0

+3.3

+41.3%

Profit before tax adjusted for non-controlling interests 1)

138.1

35.1

+103.0

>+100%

Income taxes -12.7 -56.6 +43.9 +77.6%Profit (loss) after tax (without gains and losses on financial assets attributable to non-controlling interests)

125.4

-21.5

+146.9

>+100%

Profit (loss) after tax (without gains and losses on financial assets attributable to non-controlling interests)

125.4

-21.5

+146.9

>+100%Gains and losses on financial assets attributable to non-controlling interests 1)

11.2

186.6

-175.4

-94.0%

Profit after tax 136.6 165.1 -28.5 -17.3%Thereof attributable to non-controlling interests

14.8

195.1

-180.3

-92.4%

Thereof attributable to owners of the parent

121.8

-30.0

+151.8

–

1) UnderIFRS,theitemGainsandlossesonfinancialassetsandliabilitiesalsoincludesthevaluationofsecuritieswhoseriskinbornebyshareholdersofnon-controllinginterests.Thesesecuritiesaresubjecttosubstantialfairvaluefluctuations.Becauseoftherestructuringofoneofthesesecuritiesinthe2009financialyear,impairmentlossesfromprioryearswerereversedinthereportingperiodandvaluationgainsofEUR186.6millionwerecreditedtotheshareholdersofnon-controllinginterests.Inordertoimprovethecomparabilityoftheresults,thevaluationresultsattributabletoshareholdersofnon-controllinginterestsareshowninaseparateline.ComparedtotheProfitorLossStatementpresentedintheConsolidatedFinancialReportaccordingtoIFRS,theitemGainsandlossesonfinancialassetsandliabilitiesisEUR11.2millionlower(2009:EUR186.6millionlower).Accordingly,theitemProfitbeforetaxpresentedaboveisEUR11.2millionlower(2009:EUR186.6millionlower)thantheProfitbeforetaxpresentedintheConsolidatedFinancialReportaccordingtoIFRS.

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Net interest incomeincreasedbyEUR85.6millionor15.2percenttoEUR649.9millionin2010thankstoconsistentimprovementsintheprofitabilityofourbusinessareas.Theselectiveexpansionofourinternationalbusinessactivitiesalsoplayedamajorroleinboostingnetinterestincomeintheperiod.

Net commission incomeincreasedmoderatelyby3.0percentcomparedtotheprioryear,amountingtoEUR159.4million.CommissionexpensesinthefinancialyearincludepaymentsintheamountofEUR5.7millionfortheguaranteeissuedbytheRepublicofAustriaforcertainassetsinthemaximumamountofEUR400million,whichwasterminatedon22June2010.

Thegains and losses on financial assets and liabilitiesaredrivenprimarilybythevaluationofourinvestmentsandissuedsecuritiesandgainsfromthesaleofsecurities.

TheFinancialMarketsunitachievedaresultofEUR19.2millioninthereportingperiodbytradinginsecuri-tiesandderivatives.

Riskpremiumsonthecapitalmarketdeclinedagainin2010,asin2009.ThisledtopositivevaluationresultsinthestructuredcreditportfolioofEUR28.8millionandrealisedgainsfromthesaleandredemptionofsecuritiesofthestructuredcreditportfoliointheamountofEUR10.3million.

AfurtherEUR21.2millioninincomewasgeneratedbythesaleofassociatedcompaniesandsubsidiaries.Investmentstrategychangesandrevisedinterestratepositioningresultedinthesaleofsecuritiesandrealisa-tionofcapitalgainsinthereportingperiod.Theseprofitswereusedtocoverexpensesfromthevaluationofissuedsecuritiesrecognisedatfairvaluethroughprofitorlossandothereffectsofhedgingmeasuresandvaluations.ThesemeasuresresultedinanetsurplusofapproximatelyEUR76million.

Theother operating income (expenses)resultedinnegativeEUR4.4millioninthereportingyear,mainlyduetovaluationlossesfromourretailsubsidiary.ThehigherotheroperatingincomeinthepriorperiodresultedfromrevenuefromthesaleofpropertiesandcompensationpaidtotheBankforlegaldamages.

Administrative expensestotalledEUR544.5millioninthereportingperiodandwereupbyEUR16.8millionor3.2percentcomparedto2009.ThisincludesrestructuringexpensesofEUR25.8millionarisingfromourefficiencyandproductivityenhancementprogramme.Withouttheserestructuringexpenses,thepersonnelandadministrativecostswerereducedbyEUR9.0millionforthereportingperiod.

TheEUR6.6millionreductionindepreciationtoEUR73.8millioncanmainlybeattributedtothesaleofpropertiesinthe2009and2010financialyears.

Expensesforprovisions and impairment lossesfellbyEUR37.0millionor15.6percenttoEUR199.7millioninthereportingperiod.ThisencouragingtrendwasmainlytheresultofaEUR38.9millionreductionintheprovisionsrequiredforourloanportfoliotoEUR135.6million.Impairmentlossesforequityinvest-mentsandgoodwillcametoEUR50.2millioninthefinancialyear,andwererelatedprimarilytointerestsincreditinstitutions.ImpairmentlossesonpropertiesintheamountofEUR12.0millionwererecognisedbecauseoftheongoingrestructuringmeasuresandtheplannedcombinationofBAWAGandpostofficebranches.Nosubstantialwrite-downswererecordedforthestructuredcreditportfolioin2010.

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Theresultfromtheassociates accounted for using the equity method(minusEUR4.7million)primarilycontainstheproportionatelossofZEUSRecoveryFundS.A,whichisduetothevaluationofinvestments.

Byconsistentlyimprovingtheprofitabilityofourbusinessactivitiesandthankstotheprocessoptimisationsimplementedtodate,BAWAGP.S.K.achievedaprofit before taxofEUR138.1millionin2010,substantiallyexceedingtheprofitofEUR35.1millionrecordedin2009.

Thetax expensesintheamountofEUR12.7millionconsistprimarilyofcurrenttaxes.ThesignificantdeclineintaxexpensescomparedtothepriorfinancialyearistheresultoflowerexpensesfordeferredtaxesresultingfromdifferentmeasurementapproachesaccordingtotaxlawandIFRS.Noadditionaldeferredtaxeswerecapitalisedin2010forBAWAGP.S.K.’sexistingtaxlosscarryforwards.

Thegains and losses on financial assets attributable to non-controlling interestspertaintofairvaluefluctua-tionsthatarebornebyshareholdersofnon-controllinginterests.TheIFRSProfitorLossStatementintheNotesshowsthesefairvaluefluctuationsundertheitemgainsandlossesonfinancialassetsandliabilities.Inordertoimprovethecomparabilityoftheresults,thevaluationresultsattributabletoshareholdersofnon-controllinginterestsareshownunderaseparateiteminthisProfitorLossStatement.

Theresultfortheyearattributabletotheownersoftheparentcompanyin2009intheamountofminusEUR30.0millionwasincreasedtoplusEUR121.8millionin2010.

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Consolidated own funds of the BAWAG P.S.K. bank group pursuant to the Austrian Banking Act (BWG)

in millions of Euros 31.12.2010 31.12.2009Share and participation capital 800 800Reserves (including fund for general banking risks) 1,118 954Goodwill, minorities and deductions 307 346Core capital (Tier I) 2,225 2,100Less shareholdings held for investment purposes -35 -51Core capital (Tier I) after deductions 2,190 2,049Reserve under § 57 BWG, revaluation reserve 49 85Supplementary and subordinated debt capital 593 746Additional items (Tier II) 642 831Less shareholdings held for investment purposes -35 -51Eligible own funds 2,797 2,829Tier III 115 67Own funds 2,912 2,896

OwnfundsarecalculatedonthebasisoftheresultsofthemembersofthebankgroupaccordingtoAustrianGAAP(UGB)andBWG.

Own funds requirement

in millions of Euros 31.12.2010 31.12.2009Credit risk 1,714 1,579Market risk 115 67Operational risk 146 150Capital requirements 1,976 1,796

ThisresultsinaTierIcapitalratioof9.9percent(2009:10.0percent)andanownfundsratioof12.4percent(2009:13.6percent).Bothratiosarewellabovetheminimumlegalstandards,whichamountto4percentand8percent,respectively.TheTierIcapitalratiobasedoncreditrisk(excludingoperationalrisk)amountsto10.2percent(2009:10.4percent).

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Risk Management

WithrespecttotheexplanationsonfinancialrisksatBAWAGP.S.K.aswellasthegoalsandmethodsofriskmanagement,wewouldlikedrawthereader’sattentiontotheinformationintheNotestotheconsolidatedfinancialstatements.

non-Financial Performance indicators

Corporate governance

supervisory BoardTheSupervisoryBoardofBAWAGP.S.K.,whichisresponsibleformonitoringbutalsoassistingtheManagingBoard,consistsofsixnationalandinternationalrepresentativeselectedbytheAnnualGeneralMeeting.AnadditionalthreemembersaredelegatedbytheWorksCouncil.(TheindividualmembersoftheSupervisoryBoardandthecompositionofthecommitteesarepresentedintheBoardsandOfficerssection.)

TheRulesofProcedureoftheSupervisoryBoardcomprisetherightsandobligationsofthisboardandalsodefinetheindividualcommitteesoftheSupervisoryBoardandtheirresponsibilities.Aspartoftheamend-mentoftheSupervisoryBoard’sRulesofProcedure,someoftheprovisionsweresimplifiedandharmonised.

UndertheultimateresponsibilityofthefullSupervisoryBoard,theapprovalofloansandotherformsoffinancingandcredittoindividualborrowersorgroupsofconnectedcustomersforthepurposesofsection27oftheBankingAct(exposuresthatequal10percentormoreoftheBank’seligibleownfunds)hasbeendelegatedtotheCreditCommittee.AnannualreportaboutthelargeexposuresapprovedbytheCreditCommitteeissubmittedtotheSupervisoryBoard.TheCreditCommitteealsoapprovestransactionswiththeBank’saffiliatedparties(exceptfortransactionswithmembersoftheSupervisoryBoardorManagingBoardthataredelegatedtotheRemunerationCommittee)andmaterialcreditpolicies.ItalsoadvisestheManagingBoardinbasiccreditriskpolicyissues.

TheAuditCommitteereviewstheBank’saccountsandtheannualfinancialstatements,andmonitorstheBank’sriskmanagementandinternalcontrolsystems.Thiscommitteeisalsoinregularcontactwiththeexternalauditor,theInternalAuditdivisionandtheComplianceOffice.TheannualauditplansandreportsabouttheactivitiesoftheInternalAuditdivisionandtheBank’sComplianceOfficearealsosubmittedtotheAuditCommittee.

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WhiletheNominationCommitteedealswithsuccessionplanningandselectingsuitablecandidatesfortheManagingBoard,theRemunerationCommitteedealswithrelationshipsbetweentheBankandthemembersoftheManagingBoardaswellastheexecutives.Forexample,itdecidestheperformancetargetsfortheManagingBoardandalsotheremunerationpaidtoandcontractssignedwiththemembersoftheManagingBoard.TheRemunerationCommitteealsoapprovestransactionswithmembersoftheSupervisoryBoardandManagingBoardanddeterminestheRemunerationPolicyaccordingtoCRDIIIandtheAustrianBankingAct.

TheRelatedPartiesSpecialAuditCommitteereviewsallfinancingcommitmentsandtransactionsaboveacertainamountinvolvingcompanieswithcontrollinginfluenceasdefinedinIAS24orcompaniesrelatedtothesecontrollingcompanies.TheRelatedPartiesSpecialAuditCommitteeisintendedtoensuretransparencyinalltransactionsinvolvingtheBank’sshareholders.

Managing BoardAspertheendoftheyear2010,theManagingBoardconsistedofsixmembers.

TheRulesofProcedureoftheManagingBoarddefinetheresponsibilitiesandtasksofthisboard.AccordingtotheseRulesofProcedure,theManagingBoardhastherighttoformcommitteesandtoissuestatutesforthesecommittees.Thefollowingexecutivecommitteeshavebeenformed: 4 TheEnterpriseRiskMeetingforsteeringthetotalbankrisk; 4 TheCreditPolicyCommittee,whichfocusesoncreditguidelinesandstrategies; 4 TheCreditApprovalCommittee,whichdecidesonfinancingtransactionsaboveacertainthreshold; 4 TheStrategicAssetLiabilityCommittee,whichdealswithstrategicissuesregardingcapitalandliquidity

planning; 4 TheTacticalAssetLiabilityCommittee,whichdealswithoperativetopicsoftheasset-liabilitymanagement;

and 4 TheLegalandComplianceCommittee,whichdiscussestheimplicationsofneworrelevantlegalregula-

tionsontheBank.

TheBankhasalsoestablishedaseriesofadditionalnon-executivecommittees.Theseinclude: 4 TheExposureReviewCommittee,whichwassetupin2009fortheongoinganalysisofcertaincredit

exposures; 4 TheCapitalManagementMeeting,whichmonitorsthedevelopmentoftheregulatorycapitalratiosandthe

changesinrisk-weightedassets;and 4 TheCapitalExpenditureCommittee,whichdecidesoninvestmentsaboveacertainthreshold.

Corporate governance Code BAWAGP.S.K.voluntarilyadoptedtheAustrianCorporateGovernanceCodeforlistedcompaniesin2006.AdditionalamendmentstotheCodeweremadein2010andwereimplementedinBAWAGP.S.K.’sowncodeinthesecondhalfoftheyear.

TheBankprepareditsfirst-everannualcorporategovernancereportforthefinancialyear2009andpublisheditontheInternet.Acorporategovernancereportwasalsopreparedforthefinancialyear2010.

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CompliancewiththeCorporateGovernanceCodewasauditedbyindependentthirdpartiesin2010andrevealedthatallkeyprovisionsoftheCodewerefulfilledwiththeexceptionofthosethatdonotapplyduetoitsclosedshareholderstructure.

ComplianceTheComplianceOfficeisasub-unitofBAWAGP.S.K.’sLegaldivisionbutreportsdirectlytotheManagingBoard.RegularreportsarealsosubmitteddirectlytotheBank’sAuditCommittee.

ThekeyresponsibilitiesoftheComplianceOfficearepreventingmoneylaunderingandcombatingterrorism,monitoringcompliancewithsanctions,securitiescompliance,aswellasthepreventionofinsidertrading,marketabuseandconflictsofinterest.Aseriesofdetailedguidelineshavebeenputintoplacetoensurecompliancewithalllegalrequirements.

InadditiontoallrelevantlawssuchastheSecuritiesSupervisionAct,allemployeesarealsoboundbyaCodeofConductthatcontains,amongotherthings,guidelinesforbusinessconductandcustomerservice,forhowconflictsofinterestaretobehandledandforpreventingmarketabuseandmoneylaundering.

Personnel development

Management developmentOurworkontheestablishmentofasuccessfulleadershipculturecontinuedduringtheyear,includingintheformoftheinitiative“ErfolgreichFühren–MeineBank”.TheBank’sstrategy,currentpositionanddevelop-mentsinconnectionwiththestateoftheeconomywerediscussedatlargegroupeventsinwhichManagingBoardmembersparticipated.

“LEAD–neueFührungskräfte”,anewleadershipdevelopmentprogramme,waslaunchedintheautumnof2010andwillhelpmiddle-andlower-levelmanagersgetofftoagoodstartintheirfirstmanagerialpositions.Arangeofunit-specificactivities,primarilytailoredteam-buildingandstrategyworkshopsformanagementteams,werealsoconductedin2010.

talent developmentThefirstrunofthe“EMERGE”talentdevelopmentprogrammewascompletedsuccessfullyinthespringof2010.Someoftheparticipants,employeeswithconcretepotentialtofillrelevantexpertandmanagerialpositions,havealreadytakenonnewresponsibilities.Preparationsforasecondrunin2011arealreadyunderway.

InRetailSales,the“SalesTalentManagement”process,whichwascompletedforthesecondtimealreadyin2010,hasproventobeaneffectiveinstrumentforsuccessionplanningandformanagingtrainingrequire-ments.Partofthecomputer-assistedprocessisthenominationofparticipantsforthe“TOPTeamVertrieb”programmeforthedevelopmentoffutureretailsalesmanagers.

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InCorporates,theSalesEmpowermentProgramme,whichisaimedatincreasingcross-selling,wasamaintopicin2010.Thistailoreddevelopmentprogrammenurturedthecross-sellingskillsandcustomerrelation-shipmanagementcapabilitiesofrelationshipmanagers.Apartfromthat,controlandcoachingmeasureswereimplementedinatargetedmanneronthemanagementleveltosupporttheachievementofobjectives.

trainingThenewlydevelopedtrainingplanforbranchsaleswasintroducedin2010.Trainingplansandseminarswerepreparedbasedonnewrequirementsprofiles.

TailoredinitiativessuchasspecialistandbehaviouraltrainingwerealsocompletedagaininmanydifferentareasoftheBanksuchastheCustomerServiceCentre.Thee-learningsystemwasalsorevisedaspartofthis.

Performance ManagementThenewManagementbyObjectives(MBO)processwassuccessfullyintroducedin2010.Ahighimplemen-tationratewasalreadyachievedinthefirstphase.ThenewBAWAGP.S.K.SuccessFactorswerealsoappliedforbehaviouralassessmentintheMBOprocess,andrepresentaBank-widestandardforaperformance-orientedandopencorporateculture.

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Corporate social Responsibility (CsR)

CsR ReportBAWAGP.S.K.releaseditssecondCorporateSocialResponsibilityreportinApril2010.ThisreportdiscussesthemeasuresBAWAGP.S.K.hasimplementedandtheprogresswehavemadeinoureffortstoconductourbusinessinasustainablemanner.Italsocontainsanactionplanforfurtherimprovements.ThiswasalsothefirstreporttoincludetheCommunicationonProgress(COP)requiredduetoourmembershipintheUNGlobalCompact.

TheBankjoinedtheUNGlobalCompactinApril2009.BAWAGP.S.K.’sCorporateSocialResponsibilityofficerisalsoamemberofthesteeringcommitteeoftheAustrianGlobalCompactNetwork.RepresentativesofBAWAGP.S.K.participatedinworkinggroupsonthetopicsofsustainabilityreportingandanti-corruptionundertheframeworkoftheUNGlobalCompactNetworkinAustria.

new Chance accountOn1April2009,PSKBankbecamethefirstbankinthecountrytoofferabasiccurrentaccounttoanycustomerregardlessofhisorhercreditrating.ThisNewChanceAccount(Neue Chance Konto)isavailabletoanyonewithoutlimitations,doesnotincludeanoverdraftfacilityandisofferedalloverAustria.Thisproductisdesignedfortheroughly50,000peopleinAustriawhootherwisehavenoaccesstooneofthemostimpor-tantbankingservices,electronicpaymenttransactions,becauseoftheircredithistory.

TheNewChanceAccounthasgeneratedagreatdealofpositiveresponse.Attheendof2010,animpressive7,712customerswerealreadyusingthisproduct.TheNewChanceAccountisoneofthefruitsofourpro-activecommitmenttohumanrights,andforusisawaytocounterdiscriminationandsocialexclusion.

ItsnominationforthemostimportantsustainabilityawardinAustria,theTRIGOS,inJune2010wasalsoamajorhonourfortheNewChanceAccount.

diversity CharterInreflectionofourcommitmenttopromotingdiversity,BAWAGP.S.K.inNovemberbecameoneofthefirstcompaniesinAustriatosigntheDiversityCharter.Thischarterhasclearlydefinedgoalsandisintendedasaguidelineforallofitsmembers.TheDiversityCharterspotlightsthemanybenefitsofdiversityintheeconomyandsociety,andpromotesdialoguebetweendifferentstakeholdergroups.Themembersactivelycommittoincreasingmutualrespect,toleranceandappreciationwithregardstodiversityintheirorganisations.

AcompleteoverviewofourCSRactivitiesandfactsandfiguresonourenvironmentalimpactandstaffcanbefoundintheCSRReport2010.

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sponsoring

BAWAGP.S.K.’skeysponsoringareasin2010wereagainthearts,educationandsocialissues.Inthearts,oureffortsfocusedonthenewopeningoftheBAWAGContemporarygalleryneartheBank’sheadquarters.Thegallery,whichisintendedtobeameetingpointfortheartscenesofdifferentcities,islocatedatFranz-Josefs-Kai3andisavenueforthedisplayofthecreativevisionsandenergiesofyoungcontemporaryartists.

TheBankalsosupportsprojectsinmusic,design,architecture,theatreandfilm.Inthesocialarea,wecollaboratecloselywithcharitableorganisations,especiallyCaritasandtheREDNOSESClownDoctors,andalsolaunchedthewww.meinespende.atinteractivedonationplatforminthelatterpartoftheyear.Ineduca-tion,wearestrivingtoenterintoadditionalcollaborationprojectswithvocationalsecondaryschools.

Inalloftheseprojects,BAWAGP.S.K.seesitselfasanactivesponsoringpartner.Weaimtoestablishlong-termpartnershipstojointlydevelopprojectsandideas.Thisoftenresultsincooperationwithindividualinstitutionsandprojectpartnersovermanyyears,andmakesiteasiertoidentifyandusesynergies.

AnoverviewofBAWAGP.S.K.’ssponsoringactivitiescanbefoundathttp://www.bawagpsk.com/sponsoring.

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events after the Reporting date

equity Holdings

Effective31January2011StiefelkönigSchuhhandelsGesellschaftm.b.H.soldits19Geoxshops,whichwererunbasedonafranchisecontract,toawholly-ownedAustriansubsidiaryoftheItalianshoemanufac-turerGEOXS.p.A.inthecourseofanassetdeal.Simultaneously,theframeworkfranchisecontractbetweenStiefelkönigandGEOXwasterminated.

StiefelkönigSchuhhandelsGesellschaftm.b.H.andSchuhquadratGmbH&CoKG,acompanyownedbySalamanderAustria,agreedonthesaleofthedistributionlineDelka,whichruns35shops.Theassetpurchaseagreementwassignedon15February2011.

exposure to libya

TheBankhasarelativelyminorexposuretoLibyaandtheotherMiddleEasterncountriesrecentlyaffectedbyinternalunrest.Intotal,theBankhassomeEUR28millioninexposuremostlyagainstcollateraloutsidetheregiontosixindividualclientsthatareeitherbasedinLibyaorthattransactamaterialpartoftheirbusinesswithLibya.Weareinclosecontactwiththeseclientstoassistthemwhereverpossible.

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outlookThestateoftheeconomyandthedevelopmentoftheleadingindicatorsattheturnoftheyeararepointingtoacontinuationoftheupswingintheEurozonein2011,which,however,remainsovershadowedbytheafter-mathofthesovereigndebtcrisis.ThedevelopmentoffoodpricesandtheuprisingofcitizensintheMENAregionresultinginhighercrudeoilpriceshaveledtoadiscussionabouttheprobabilityofsubstantiallyhigherinflationrates.

Domesticconsumptionwilllikelybecomeamoreimportantsourceofsupportforeconomicgrowth,whileforeigntradewillmakelessofacontribution.Theindividualeconomiesintheregionwillcontinuetogrowatdifferentrates,buttheplannedspendingcutsandbudgetconsolidationmeasureswillhaveaslowingeffectontheentireEurozoneeconomy.Becauseofthecontinuingdoubtsabouttheviabilityofthepublicfinancesofanumberofmemberstates,thefinancialmarketsarelikelytoremainhighlyvolatile.Thismayhaveanegativeimpactontherealeconomy.

InlightofthecurrentlyprecariousdebtsituationofsomecountriesintheEurozone,Austria’seconomicprospectsfor2011arecomparativelygood.TheAustriangovernmentmustalsoconsolidateitsbudget,butthegrowth-hamperingeffectswillberelativelyminor.AustriahasoneofthelowestunemploymentratesintheEurozone,andtheconditionsonthelabourmarketareexpectedtoimprovefurtherduringthecurrentyear.Thedomesticeconomycouldgainsubstantialmomentumduring2011andbalanceouttheslowdowninexports.RealGDPisprojectedtogrowbyabout2percent,aslastyear.Thusfar,itisnotclearwhetherandtowhatextenttherecentinternationaldevelopmentswillaffectAustria.

TheAustrianeconomyhascopedwellwiththeeconomiccrisis.Sofar,thenumberofpersonalbankruptciesandcorporateinsolvencieshasnotbeenashighaspreviouslyexpected.However,aftereffectsoftherecessionorasignificantriseininterestratesin2011couldleadtoanincreaseofpersonalbankruptciesandcorporateinsolvencies.Inaddition,negativeimpactsonfinancialresultsfromfairvaluechangescannotberuledoutduetothecontinuedhighfinancialmarketvolatility.

AsthemajorityoftheBank’sloanportfolioiscomposedofdomesticcustomers,BAWAGP.S.K.’sperformanceispartlydependentonthedevelopmentoftheAustrianeconomy,andthecurrenteconomicforecastsarecautiouslyoptimistic.In2011theBankwillbesubjecttostrongcompetitioninthemarketplace,whichwillresultinatightmarginsituationonboththecreditandthedepositside.Furthermore,newregulationsandadditionalfinancialburdens(e.g.thebanklevy)willleadtoatoughbusinessenvironment.

Nevertheless,BAWAGP.S.K.willuseitsgoodmomentumfrom2010tosuccessfullyovercometheseexternalshocksandthestrongmarketcompeti-tion.Inaddition,theBankwillcontinuetoworkhardonimplementinganumberofinitiativesandprojects,includingthenewbranchoffensive,withthefocusonfurtherimprovingourcustomerservice.Fromaneconomicpointofview,BAWAGP.S.K.isoptimallypreparedforthefinancialyear2011duetoitsfinancialstrength,thegrowthofitscorebankingbusinessanditsstrongliquidityposition.

BAWAGP.S.K.isoptimallypreparedforthefinancialyear2011duetoitsfinancialstrength,thegrowthofitscorebankingbusinessanditsstrongliquidityposition.

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internal Control and Risk Management system

introduction

Thedesignation“internalcontrolsystem”referstoallprocessesdesignedbymanagementandexecutedwithintheBanktofacilitatethemonitoringandcontrolof: 4 Theeffectivenessandefficiencyofitsoperatingactivities(includingprotectingassetsagainstlosses

resultingfromdamagesormisconduct); 4 Thereliabilityofthefinancialreports;and 4 TheBank’scompliancewithmateriallegalregulationstowhichitissubject.

Theriskmanagementsystemcoversallprocessesthatservetoidentify,analyseandmeasurerisksandthatservetodetermineandimplementappropriatemeasuresthatwillensurethattheBankcanstillreachitsobjectiveswhenrisksareincurred.

AccordingtotheinternationallyrecognisedCOSOframeworkforthedesignofriskmanagementsystems,theinternalcontrolsystemisonepartofanorganisation-wideriskmanagementsystem.Otheraspectsincludethemanagementandmonitoringofrisksthatcanaffectthecorrectnessandreliabilityoftheaccountingrecords.

TheBank’smanagementisresponsibleforthefundamentaldesign,implementationandongoingadaptationandrefinementoftheinternalcontrolandriskmanagementsystemaswellasforthealignmentofthesesystemsandprocesseswiththeexistingrequirementsinawaythattakesaccountoftheBank’sstrategy,thescopeofitsbusinessandotherrelevanteconomicandorganisationalaspects.

Characteristics of the internal Control and Risk Management system

Control environmentTheCodeofConductthathasbeenadoptedbytheBankandthefundamentalvaluesdescribedinitapplytoeveryemployeeintheGroup.TheCodeofConductcreatesaclimaterootedinfocusonthecustomer,achieve-ment,mutualrespect,teamworkandtrust.

TheAccountingdivisionisresponsibleformaintainingtheBank’saccountingrecords.Materialsubsidiariesalsooperatetheirownaccountingdepartments,whichworkinclosecooperationwiththeAccountingdivision.TheprimaryresponsibilitiesoftheAccountingdivisionarepreparingtheannualandinterimfinancialstate-mentsofBAWAGP.S.K.AG,theGroupandcertainsubsidiaries,maintainingthefinancialandconsolidatedaccounts,managingtaxesandregulatoryreporting.

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TheAccountingdivisionisresponsibleforsettingdirectivesonallmattersofaccountingandexercisesthepowertoensuretheapplicationofuniformstandardsacrosstheentireGroup.Tosupporttheoperationalimplementation,corporateguidelinesweredrawnuppartlyintheformofmanuals,suchastheGroupaccountingmanual.Thispolicyappliestoallconsolidatedsubsidiaries.Forallotherholdings,theadherencetotheseprinciplesandstandardsisrealisedasfaraspossible.

Risk assessment and Control MeasuresOurinternalcontrolandriskmanagementsystemscontaininstructionsandprocessesfortheaccountingworkflows: 4 Toensurethecorrectandappropriatedocumentationofbusinessactivities,includingtheuseofGroup

assets; 4 Torecordallinformationrequiredforthepreparationoftheperiod-endfinancialstatements;and 4 Topreventunauthorisedpurchasesorsalesthatcouldhaveamaterialeffectonthefinancialstatements.

TheAccountingdivisionisintegratedintotheBank’sentireorganisational,structuralandoperationalwork-flows.Customerandtransactiondataisgenerallycollectedinthemarketandoperatingunits,andsupplemen-taryinformationisenteredbytheriskunits.Theelementsofthisinformationthatareneededfortheaccount-ingrecordsareusuallytransferredautomaticallyintotheBank’selectronicaccountingsystems.Inthis,theAccountingdivisionfulfilsacontrolandmonitoringfunctiontoensurethatthisautomaticallytransmitteddataishandledproperlyinaccordancewiththeapplicableaccountingrules,andalsocompletesthevariousitementryandotherstepsneededtopreparethefinancialstatements.

TheaccountingofBAWAGP.S.K.AGandthesignificantdomesticsubsidiariesofthecorporationarecon-tainedinSAPNewGL.ThepreparationoftheconsolidatedfinancialstatementsunderIFRSisdoneinSAP-ECCS,whichreceivesthevaluesoftheindividualfinancialstatementsofconsolidatedcompaniesthroughinterfaces.Theaccountingandallupstreamsystemsareprotectedbyaccesspermissions,andautomaticandobligatorymanualcontrolstepsprovidedforintheprocess.

information and CommunicationAcomprehensivereportabouttheStatementofFinancialPosition,theProfitorLossStatementandothercontrollingandriskdataissubmittedtotheSupervisoryBoardatleasteveryquarter.HighlydetailedreportsaboutthisinformationarealsosubmittedtotheManagingBoardonaregular(monthlyormorefrequent)basis.TheManagingBoardhasalsosetupitsowncommitteesthatcollect,analyseandmonitorthisinformation.

MonitoringInordertolimitoreliminateoperationalrisksandcontroldeficiencies,riskidentificationthroughRiskControlSelfAssessments(RCSA)isperformedannually.Thus,themeasurestominimiseriskagreeduponwiththeAccountingdivisionaretrackedproactivelybytheOperationalRiskdepartmentinregardtoimplementation.Damageincidentsaredocumentedseparately,andarealsousedtoidentifynecessaryimprovementsinthesystemsandinthemonitoringandcontrolmeasures.

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TheGroup’sInternalAuditdivisionconductsregularaccountingsystemaudits.Thefindingsoftheseauditsarealsousedtomakeongoingimprovementsintheinternalcontrolandriskmanagementsystemsastheypertaintotheaccountingprocess.

Vienna,7March2011

ByronHaynes� m.p.ChairmanoftheManagingBoard

StephanKorenm.p.DeputyChairmanoftheManagingBoard

AndreasArndtm.p. WolfgangKleinm.p. MemberoftheManagingBoard MemberoftheManagingBoard

ChristophRaningerm.p. SanjaySharmam.p. MemberoftheManagingBoard MemberoftheManagingBoard

Consolidated FinanCial RePoRt PRePaRed in aCCoRdanCe WitH tHe inteRnational FinanCial RePoRting standaRds (iFRs)

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consolIdated FInancIal report prepared In accordance wIth IFrs

Consolidated FinanCial RePoRt PRePaRed in aCCoRdanCe WitH tHe inteRnational FinanCial RePoRting standaRds (iFRs)

Contents

Consolidated accountsConsolidated Statement of Financial Position as of 31 December 2010Consolidated Profit or Loss Statement for the Financial Year 2010Consolidated Statement of Comprehensive Income for the Financial Year 2010Consolidated Statements of Changes in Equity for the Financial Year 2010Cash Flow Statement

notesKey Events during the Financial YearNotes to the Consolidated Financial Statements 1|Accountingpolicies

Details of the Consolidated Statement of Financial Position

2|Cashreserves 3|Financialassetsdesignatedatfairvaluethroughprofitorloss 4|Available-for-salefinancialassets 5|Held-to-maturityinvestments 6|Assetsheldfortrading 7|Loansandreceivables 8|Receivablesfromcreditinstitutionsandcustomers 9|Assetmaturities10|Tangiblenon-currentassets11|Intangiblenon-currentassets12|Otherassets13|Financialliabilitiesdesignatedatfairvaluethroughprofitorloss14|Liabilitiesheldfortrading15|Financialliabilitiesatamortisedcost16|Payablestocreditinstitutionsandcustomers17|Liabilitiesmaturities18|Provisions19|Otherobligations20|Hedgingderivatives21|Equity

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Disclosures Required by Austrian Law

49|Fiduciaryassets50|BreakdownofsecuritiespursuanttoAustrianBankingAct(BWG)51|Collateralreceivedforcontractualliabilities52|Hybridcapital53|Humanresources54|OtherdisclosuresrequiredbyBWGandAustrianGAAP(UGB)55|Eventsafterthereportingdate

statement of all legal Representatives

Boards and officers

Note:Differencesinthetablesaretheresultofrounding.

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Consolidated accounts

Consolidated statement of Financial Position as of 31 december 2010

assets

in millions of Euros (Notes) 31.12.2010 31.12.2009Cash reserves (2) 511 615Financial assets designated at fair value through profit or loss (3) 2,284 2,980Available-for-sale financial assets (4) 6,644 3,250Held-to-maturity investments (5) – 6,560Assets held for trading (6) 1,927 1,753Loans and receivables (7) 26,173 24,879

Securities 2,358 –Customers 22,288 21,066Credit institutions 1,527 3,813

Hedging derivatives (20) 55 33Tangible non-current assets (10) 219 287Intangible non-current assets (11) 229 266Other assets (12) 478 602Assets held for sale (35) 36 –Total assets 38,556 41,225

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equity and liabilities

in millions of Euros (Notes) 31.12.2010 31.12.2009Financial liabilities designated at fair value through profit or loss (13) 4,900 6,371Liabilities held for trading (14) 2,271 2,198Financial liabilities at amortised cost (15) 28,023 29,485

Customers 21,733 22,674Credit institutions 2,205 3,468Issued bonds, subordinated and supplementary capital 4,085 3,343

Hedging derivatives (20) 40 60Provisions (18) 436 441Other obligations (19) 462 378Obligations in disposal groups held for sale (35) 38 –Equity (21) 2,016 1,919Non-controlling interests 370 373Total equity and liabilities 38,556 41,225

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Consolidated Profit or loss statement for the Financial year 2010

in millions of Euros (Notes) 2010 2009Net interest income (22) 649.9 564.3Net fee and commission income (23) 159.4 154.8Gains and losses on financial assets and liabilities (24) 167.1 325.5Other operating income and expenses (25) -4.4 29.9Administrative expenses (26) -544.5 -527.7

Depreciation and amortisation on tangible and intangible non-current assets (27)

-73.8

-80.4

Provisions and impairment losses (28) -199.7 -236.7Share of the profit or loss of associates accounted for using the equity method (29)

-4.7

-8.0

Profit before tax 149.3 221.7Income taxes (30) -12.7 -56.6Profit after tax 136.6 165.1

Thereof attributable to non-controlling interests 14.8 195.1Thereof attributable to owners of the parent 121.8 -30.0

UnderIFRS,theitemGainsandlossesonfinancialassetsandliabilitiesalsoincludesfairvalueadjustmentsofsecuritieswhoseriskisbornebyshareholdersofnon-controllinginterests.Infinancialyear2010,valuationgainsofEUR11.2millionthathavebeenshownintheitemGainsandlossesonfinancialassetsandliabilitieshavebeenpassedontonon-controllinginterestsintheitemProfitattributabletonon-controllinginterests.In2009,valuationgainsintheamountofEUR186.6millionhavebeenincludedintheitemGainsandlossesonfinancialassetsandliabilities.Excludingthevaluationresultsbornebyshareholdersofnon-controllinginterests,theitemGainsandlossesonfinancialassetsandliabilitieswouldamounttoEUR155.9millionin2010(2009:EUR138.9million).TheitemProfitbeforetaxwouldamounttoEUR138.1million(2009:EUR35.1million).

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Consolidated statement of Comprehensive income for the Financial year 2010

in millions of Euros (Notes) 2010 2009Profit recognised in the Profit or Loss Statement 136.6 165.1Other comprehensive income

Foreign exchange differences 0.1 –AFS reserve -0.2 60.8Actuarial gains (losses) on defined benefit pension plans -6.7 10.4

Share of other comprehensive income of associates accounted for using the equity method

-2.5

2.6

Deferred taxes on items recognised directly in equity (30) -3.5 -17.8Income and expenses recognised directly in equity -12.8 56.0Total comprehensive income 123.8 221.1

Thereof attributable to non-controlling interests 0.8 195.1Thereof attributable to owners of the parent 123.0 26.0

Consolidated statements of Changes in equity for the Financial year 2010

in millions of Euros Subscribed capital

Participation capital 1)

Capital reserves

Retained reserves 2)

AFS reserve

Foreign exchange

differences

Actuarial gains / losses 2)

Equity w/o non-

controlling interests

Non-controlling interests

Equity including

non- controlling interests

Balance as of 1.1.2009 250.0 – 1,042.4 -144.1 -30.1 – 19.6 1,137.8 188.5 1,326.3

Transactions with owners – – 205.0 – – – – 205.0 -10.6 194.4

Dividends to minority shareholders – – – – – – – – -10.6 -10.6

Owner's contribution – – 205.0 – – – – 205.0 – 205.0

Issuance of participation capital – 550.0 – – – – – 550.0 – 550.0

Total comprehensive income – – – -30.0 48.2 – 7.8 26.0 195.1 221.1

Balance as of 31.12.2009 250.0 550.0 1,247.4 -174.1 18.1 – 27.4 1,918.8 373.0 2,291.8

Balance as of 1.1.2010 250.0 550.0 1,247.4 -174.1 18.1 – 27.4 1,918.8 373.0 2,291.8

Transactions with owners – – – – – – – – -3.4 -3.4

Dividends – – – – – – – – -3.4 -3.4

Dividend on participation capital – – – -25.6 – – – -25.6 – -25.6

Total comprehensive income – – – 121.8 6.1 0.1 -5.0 123.0 0.8 123.8

Balance as of 31.12.2010 250.0 550.0 1,247.4 -77.9 24.2 0.1 22.4 2,016.2 370.4 2,386.6

1) Participation capital according to section 23 (4) BWG. 2) Retained reserves have been restated due to the change in the accounting method for actuarial gains and losses for defined benefit plans as

required by IFRS. Further details are presented in Note 1.

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Cash Flow statement

in millions of Euros 2010 2009I. Profit (loss) (after tax, before non-controlling interests) 137 165

Non-cash items included in the profit (loss) and reconciliation to net cash from operating activities

Depreciation, amortisation, impairment losses, write-ups 216 330Changes in provisions -4 -21Changes in other non-cash items -60 154

Proceeds from the sale of financial investments, tangible non-current assets, intangible non-current assets and subsidiaries

-7

-7

Other adjustments -531 -562Subtotal -249 59

Change in assets and liabilities arising from operating activities after corrections for non-cash items

Loans and advances to customers and credit institutions -1,373 147Other financial assets (not including investing activities) 512 1,325Other assets 44 -120Payables to customers and credit institutions -2,519 -16Other financial liabilities (not including investing activities) -50 -1,302Other obligations 115 -26

Interest and dividend receipts 1,391 1,691Interest paid -806 -1,121Income taxes paid -20 –

II. Net cash from operating activities -2,955 637

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in millions of Euros 2010 2009Cash receipts from sales of

Financial investments 3,880 3,173Tangible and intangible non-current assets 29 63

Cash paid forFinancial investments -776 -4,773Tangible and intangible non-current assets – –

Sale of subsidiaries -28 -23Other changes – –

III. Net cash used in investing activities 3,105 -1,560Capital contributions – 755Dividends paid -3 -11Subordinated liabilities (including those designated at fair value through profit or loss) and other financing activities

-251

77

IV. Net cash from financing activities -254 821Cash and cash equivalents at end of previous period 615 717

Net cash from operating activities -2,955 637Net cash used in investing activities 3,105 -1,560Net cash from financing activities -254 821Effect of exchange rate changes – –

Cash and cash equivalents at end of period 511 615

TheCashFlowStatementprovidesinformationaboutthecurrentstateanddevelopmentoftheGroup’scashandcashequivalentsasofthereportingdate.Itshowsinflowsandoutflowsofcashbrokendownbyoperationalactivities,investingactivitiesandfinancingactivities.Theamountofcashandcashequivalentsreportedcomprisescashonhandandbalancesatcentralbanks.

TheCashFlowStatementisoflowsignificanceforBAWAGP.S.K.Group.Itisnotasubstituteforliquidityorfinancialplanningandisnotusedasamanagementinstrument.

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notes

Key events during the Financial year

PleaseseetheGroupmanagementreportforinformationonkeyeventsduringthefinancialyear.

notes to the Consolidated Financial statements

1 | accounting policies

Theconsolidatedfinancialstatementswerepreparedapplyingsection59aBWG,accordingtoRegulation(EC)No.1606/2002oftheEuropeanParliamentandoftheCouncilof19July2002,andinaccordancewiththeprovisionsofthestandards(IFRS)publishedbytheInternationalAccountingStandardsBoard(IASB)andtheinterpretationsbytheIFRSInterpretationsCommittee(IFRIC/SIC)asapplicableonthereportingdate.AllstandardscontainedintheInternationalFinancialReportingStandardspublishedbytheIASBandadoptedbytheEUandmandatorywithrespecttotheconsolidatedfinancialstatementsasof31December2010wereapplied.

TheseconsolidatedfinancialstatementsforBAWAGP.S.K.accordingtoIFRSarebasedontheindividualannualfinancialstatementsforallfullyconsolidatedGroupcompaniesaccordingtoIFRSasof31December2010.Allmaterialassociatesareaccountedforusingtheequitymethod.

ThepreparationofconsolidatedfinancialstatementsaccordingtoIFRSrequiresthatassumptionsandestimatesbemadeaboutfactorsthathaveamaterialinfluenceontheBank’sbusinessoperations.Theseassumptionsareregularlyreviewedandadjustedwheneverneeded.Suchadjustmentsaretakenintoaccountinthecurrentperiodandalsoforfutureperiodswhentheadjustmenthaslong-termeffects.

Therecognitionandmeasurementprinciplesdescribedbelowhavebeenapplieduniformlywithrespecttoallofthefinancialyearsstatedintheseconsolidatedfinancialstatements.

Inprinciple,wehavemaintainedtheaccountingandvaluationmethodsthatwereappliedintheconsolidatedfinancialstatementsasof31December2009.Theaccountingtreatmentofactuarialgainsandlossesresultingfromdefinedbenefitobligationshasbeenchanged.Inpreviousperiodsactuarialgainsandlosseswererecognisedintheprofitorlossandarenowrecognisedinothercomprehensiveincome.Furtherexplanationsarepresentedinthesection“ChangeinAccountingMethods”.

ThereportingcurrencyisEuro.Unlessindicatedotherwise,allfiguresareroundedtomillionsofEuros.

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Allfiguresinforeigncurrenciesaretranslatedatthemiddleexchangerateonthereportingdate.Financialstatementsfromforeignsubsidiariesareincludedintheconsolidatedfinancialstatementsusingthefunc-tionalcurrencymethod.

Scope of Consolidation and Consolidation Principles

ThescopeofconsolidationincludesalldirectandindirectmaterialequityinvestmentsofBAWAGP.S.K.Asof31December2010,theconsolidatedfinancialstatementsincluded55(2009:57)fullyconsolidatedcompaniesand2(2009:2)companiesthatareaccountedforusingtheequitymethod.Intheinterestofmateriality,thecriteriaforinclusionareboththeamountofanentity’sassetsanditsrelativecontributiontotheGroup’sconsolidatedprofit.Allnon-consolidatedsubsidiarieshadonlyaminorinfluenceontheGroup’sassets,financialpositionandtheresultsofitsoperations.Note43Listofconsolidatedsubsidiariescontainsalistofallfullyconsolidatedsubsidiariesandassociatesaccountedforusingtheequitymethod.ThecarryingamountoftheassociatesthatarenotaccountedforusingtheequitymethodtotalledEUR67million(2009:EUR72million)on31December2010.ControlledcompanieswithacarryingamountofEUR41million(2009:EUR58million)werenotconsolidatedbecausetheydidnothaveamaterialeffectontheGroup’sassets,financialpositionortheresultsofitsoperations.

In2010twopreviouslyconsolidatedsubsidiariesoftheleasinggroupHafnerSee-Liegenschaftsverwaltungs-gesellschaftm.b.H.andGaraFeuerwehrzentralenLeasingGesellschaftm.b.H.weremergedwithBAWAGP.S.K.LEASINGGmbH.Additionally,twosubsidiariesoftherealestategroup,BPIHoldingGmbHandBPIHoldingGmbH&CoImmobilienundAnlagenKG,weremergedwithBAWAGP.S.K.IMMOBILIENGmbHin2010.Duetomaterialitytwoadditionalsubsidiaries,RFBAWAGLeasingGesellschaftm.b.H.andCVGImmobilienGmbH,havebeenconsolidatedforthefirsttimein2010.

TheacquisitionmethodaccordingtoIFRS3isusedforcapitalconsolidation.Underthismethod,theacquisitioncostsfortheentityinquestionmustbecomparedwiththevalueofthenetassetsatthetimeofacquisition.Thevalueofthenetassetsisthefairvalueofallidentifiableassets,liabilitiesandcontingentliabilitiesassumedatthetimeofacquisition.

Allintragroupreceivablesandpayables,expensesandincome,andinterimprofitsareeliminatedunlesstheyareinsignificant.

CapitalisedgoodwillisrecognisedunderIntangiblenon-currentassetsontheStatementofFinancialPosition.InaccordancewithIFRS3inconjunctionwithIAS36andIAS38,therecognisedgoodwillofallcashgeneratingunits(CGUs)issubjecttoannualimpairmenttestinginaccordancewithIAS36.

Allotherequityinvestmentswerealsotestedforimpairment.

Allnon-consolidatedequityinstrumentsaremeasuredaccordingtoIAS39andcategorisedasavailable-for-salefinancialassets.

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Financial Instruments

Financialinstrumentsarerecognisedonthedateoftransaction.

a) Held-to-MaturityInvestments

Since31January2010BAWAGP.S.K.hasnotheldanysecuritiesofthiscategoryinitsportfolio.Duringthepreviousyearsthiscategoryhasincludedallfinancialinstrumentswithfixedordeterminablepaymentswhichwereintendedtobeheldtomaturity.Ifsecuritieswereassignedtothiscategory,BAWAGP.S.K.hadthepositiveintentionandtheabilitytoholdtheinstrumentstomaturity.

Held-to-maturityinvestmentswerecarriedatamortisedcost.Therecoverableamountoftheassetwasdeter-minedattheendofeveryreportingperiod,andacorrespondingimpairmentwasrecognisedifthisamountwaslowerthanthecarryingamount.Therecoverableamountwascalculatedbydiscountingtheexpectedfuturecashflowswiththeoriginalinterestrateofthefinancialinstrument.Ifthisimpairmentdecreasedinsubsequentperiods,awrite-upwasrecogniseduptotheamortisedcostvalidatthattime.

Premiumsanddiscountsonsecuritiesclassifiedasfinancialinvestmentswererecognisedproratatemporisviatheeffectiveinterestrate.Expensesandrevenues,respectively,weresetoffagainstinterestincomefromthesamesecurities.

b) FinancialAssetsRecognisedatFairValuethroughProfitorLoss

Held for trading

Thiscategorycoversfinancialassetsheldfortradingpurposes.Thesefinancialinstrumentsarerecognisedattheirfairvalue.Allderivativesinthetradingandbankingbookthatarenotpartofahedgingtransactionareassignedtothiscategory.

Financial assets designated at fair value through profit or loss

Certainfinancialassetsandliabilitiesthatdonotmeetthedefinitionoftradingassetsandliabilitiesaredesignatedatfairvaluethroughprofitorlossusingthefairvalueoption.

BAWAGP.S.K.exercisedthefairvalueoptioninthefollowingcases:4 Toavoidanaccountingmismatch – Forfixed-incomeownissues,securitiesheldascurrentfinancialassetsandloanswhosefairvalueonthe

dateofacquisitionhasbeenhedged; – Investmentproductswhosefairvaluechangeshavebeenhedgedwithderivatives.4 Managementonafairvaluebasis – ThesecuritiesandloansthataremanagedonafairvaluebasisbytheAssetLiabilityCommittee,which

alsopreparesdecisionsontheextentoftheopeninterestrateriskexposures.TheManagingBoardisinformedaboutthesepositionsregularly.

4 Presenceofembeddedderivatives – Structuredfinancialinstrumentswithembeddedderivatives

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c) LoansandReceivables

ReceivablesarerecognisedontheStatementofFinancialPositionatamortisedcostinclusiveofdeferredinterestfollowingdeductionofimpairmentallowances.Thefairvalueisusuallycomputedbydeterminingthepresentvaluesofthecontractuallyagreedcashflowswitharisk-adjustedinterestrate.

d) Available-for-SaleFinancialAssets

Thiscategorycoversfinancialassetswhicharenotclassifiedas4 Loansandreceivables;4 Held-to-maturityinvestments;or4 Financialassetsrecognisedatfairvaluethroughprofitorloss.

InadditiontothesecuritiesthatBAWAGP.S.K.hasassignedtothecategoryAvailable-for-salefinancialassets,thisitemalsoincludessharesinnon-consolidatedsubsidiaries.

TheAvailable-for-salefinancialassetsaremeasuredatfairvalue.Changesinthefairvaluearerecogniseddirectlyinequity(AFSreserve)untiltheassetissoldorrepaid.ImpairmentsarerecognisedontheProfitorLossStatementunderImpairmentprovisionsforfinancialassets.

Ifafairvaluecannotbereliablymeasuredforunlistedequityinstruments,itismeasuredatcostaccordingtoIAS39.

Premiumsanddiscountsarerecognisedproratatemporisviatheeffectiveinterestrate.Expensesandrevenues,respectively,weresetoffagainstinterestincomefromthesamesecurities.

e) FinancialLiabilities

InaccordancewithIAS39,financialliabilitiesnotheldfortradingordesignatedasFinancialliabilitiesatfairvaluethroughprofitorlossaremeasuredatamortisedcost.

Significant Reclassifications

Reclassificationoffinancialassetsoutofthecategoryheld-to-maturityinvestments

IAS39requiresthatfinancialinstrumentsthatareclassifiedasheld-to-maturityinvestmentsbereclassifiedasavailable-for-saleassetswhenitisnolongerjustifiabletoclassifythemasheldtomaturitybecauseofchangedintentionsorability.Ifdisposalsorreclassificationsaffectmorethanamarginalportionoftheheld-to-maturityinvestments,allotherheld-to-maturityinvestmentsmustbereclassifiedasavailable-for-saleassets,andnofinancialinstrumentsmaybeclassifiedasheld-to-maturityinvestmentsforthefollowingtwofinancialyears.

Whenanassetisreclassifiedasavailable-for-sale,itmustberemeasuredatitsfairvalue,andanydifferencebetweenitscarryingamountanditsfairvaluemustberecogniseddirectlyinequity(AFSreserve).

DetailsarepresentedinNote5.

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Reclassificationoffinancialassetsintothecategoryloansandreceivables

Financialassetscanbereclassifiedfromthecategoriesofheldfortradingandavailable-for-saletothecategoryofloansandreceivableswhen4 thefinancialassetmeetstherequirementsforinclusioninthecategoryloansandreceivablesaccordingto

IAS39onthedateofreclassification;and4 theentityhastheabilityandthemanagementhastheintentiononthereclassificationdatetoholdthe

reclassifiedassetsfortheforeseeablefuture.

Financialassetsarereclassifiedattheirfairvalueonthereclassificationdate.Thefairvalueofthefinancialinstrumentonthereclassificationdateisthenewamortisedcostoftheinstrument.Theexpectedcashflowsofthefinancialinstrumentareestimatedonthereclassificationdate,andtheseestimatesareusedtocalcu-latetheneweffectiveinterestrateoftheinstrument.Iftheexpectedfuturecashflowsofthereclassifiedinstrumentincreaseatalaterdateasaresultofavalueimprovement,theeffectofthisincreaseisaccountedforbyadjustingtheeffectiveinterestrateandnotbyadjustingthecarryingamountoftheinstrumentatthetimethattheestimateschange.Intheeventofasubsequentdecreaseintheexpectedfuturecashflows,theinstrumentissubjectedtoanimpairmenttestandmeasuredinaccordancewiththemeasurementrulesforthecategoryloansandreceivables.

Whenavailable-for-saleassetsarereclassifiedintoloansandreceivables,theunrealisedprofitorlossthathasbeenrecognisedinequityisdistributedovertheremainingtermoftheinstrumentusingtheeffectiveinterestmethodandrecognisedasinterestincomeorinterestexpense.Shouldtheinstrumentbediscoveredtobeimpairedatalaterdate,theunrealisedlossoftheinstrumentthatisrecognisedinequityasofthatdateisrecognisedimmediatelyontheProfitorLossStatementunderImpairmentprovisionsforfinancialassets.

DetailsarepresentedinNote7.

Hedge Accounting

Inlinewithgeneralregulations,derivativesareclassifiedasassetsheldfortradingpurposesorliabilitiesfromtradingactivitiesandarerecognisedatfairvalue.ThevaluationresultisshowninthelineitemGainsandlossesonfinancialassetsandliabilitiesasgains(losses)onfinancialassetsandliabilitiesheldfortrading.Ifderivativesareusedtohedgerisksofnon-tradingtransactions,BAWAGP.S.K.applieshedgeaccountingiftheconditionsaccordingtoIAS39aremet.

Attheinceptionofthehedgerelationship,wedocumenttherelationshipbetweenthehedginginstrumentandthehedgeditem,ourriskmanagementobjectivesandthemethodusedforassessingthehedgeeffectiveness.Furthermore,BAWAGP.S.K.documentsattheinceptionofthehedgeandoneachreportingdatewhetherthehedginginstrumentishighlyeffectiveinoffsettingchangesinfairvaluesofthehedgeditemattributabletothehedgedrisk.

BAWAGP.S.K.usesfairvaluehedgeaccountingforeffectivehedgingrelationshipsthatreducemarketrisk.Inafairvaluehedge,anassetorliabilityishedgedagainstchangesinitsfairvalue,andchangesinthevalueofthehedgeditemandthehedginginstrumentarerecognisedintheProfitorLossStatementinthesameperiod.Thefairvaluechangesofthehedginginstrumentaswellasthechangesinthefairvalueofthehedgeditemresultingfromthehedgedriskarerecognisedinprofitorloss.

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Assoonasthehedginginstrumentissold,exercisedorcomesdue,orwhentheeligibilityrequirementsforhedgeaccountingarenolongermet,thehedgingrelationshipisnolongerrecognisedontheStatementofFinancialPosition.Anychangesinthevalueofthehedgeditemarerecognisedthroughprofitorlossdistributedovertheremainderoftheterm.

Impairment Provisions

Theimpairmentprovisionscoverprovisionsforpotentialloandefaultsandareformedasindividualandgeneralprovisionsonthebasisofpastexperience.TheimpairmentprovisionsfromlendingarenettedoffagainstthecorrespondingreceivablesontheStatementofFinancialPosition.Provisionsforoff-balance-sheetloansarereportedasprovisions.

Impairmentprovisionsareformedformaterialcreditrisksinaccordancewiththeriskanalysts’estimates,andtheseestimatesarebasedontheexpectedfuturerepayments.Theapprovalprocedureforimpairmentsisdescribedinthehandbookoncompetenciesandauthorisations.Receivablesarederecognisedincoordinationwiththerespectivedivisionswhenallattemptstocollectthedebthavefailed.

AnimpairmentprovisionwasformedonaportfoliobasisinaccordancewithIAS39AG89forlossesincurredbutnotdetectedasofthereportingdate.TheamountofthisprovisioniscalculatedonthebasisoftheBaselIIExpectedLossModel.Theactuallossthathasbeenincurredisextrapolatedfromtheexpectedloss,takingintoaccountthedurationfromoccurrencetodetectionoftheloss(thelossidentificationperiodortherecognitionperiod).

Treatment of One-Time Fees

BAWAGP.S.K.chargesaprocessingfeewhenawardingaloantoacustomer.FortheBank,thisiscompensa-tionforthecostsincurredinawardingtheloan.Ifsubstantial,processingfeesaredeferredoverthetermoftheloanandrecognisedinthenetinterestincomeafterdeductingthedirectlyattributablecosts.

Methods for Determining the Fair Value of Financial Instruments

Tomeasureexchange-tradedinstrumentssuchasfuturesandoptionsonfutures,exchangepricesareused.DetailsarepresentedinNote31.Somesynopticinformationispresentedhere:

ThebasicvaluationmodelusedforplainvanillaOTCoptionsistheBlack-Scholesoptionpricemodel,whichvariesaccordingtotheunderlyinginstrument.CurrencyoptionsaremeasuredusingtheGarman-Kohlhagenmodel(adaptedBlack-Scholesmodel)andinterestrateoptionsaremeasuredusingtheBlackorHull-Whitemodels.

Thetotalvalueofaninterestrateswapisderivedfromthepresentvaluesofitsfixedandvariableratelegs.Similarly,thetotalvalueofacrosscurrencyswapisderivedfromthepresentvaluesofthetwocashflowsexpressedintermsoftheGroup’sfunctionalcurrency.

Inthecaseofforeigncurrencyforwardsandfutures,theagreedforwardrate,whichdependsonmovementsinexchangeandinterestratesforbothcurrencies,iscomparedwiththeforwardrateonthereportingdateandtheresultisusedtocalculatetheinstrument’svalue.

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Forcredit-linkednoteswherenoactivemarketsexist,fairvaluesaredeterminedbyapplyingavaluationmodel.Credit-linkednotes(CLNs)arebondswithanembeddedcreditdefaultswap(CDS)allowingtheissuertotransferaspecificcreditrisktoinvestors.ThevaluationmodelforCLNsusesbondorCDSspreadsoftheissuerandthereferenceentity,aswellascouponandmaturity.

Valuationsbyoutsideexpertsarealsousedwhenmeasuringcomplexstructures.Appropriatetestsandverifi-cationsarecarriedout.

Measurement for the Structured Credit Portfolio

Whereveranactivemarketforatransactionexists,quotedmarketpricesareusedasfairvalues.

Forstructuredcredittransactionswherenoactivemarketsexist,fairvaluesaredeterminedbyapplyingavaluationmodel.Themodelsare,however,calibratedtomarketdata,e.g.liquidindicessuchastheABX1,iTraxx2,CDX3andLCDX4.

ForABS-CDOs(assetbackedsecurities–collateraliseddebtobligations)withsubprimeexposure,noreliablemarketpricesareavailable.ThemodelassumptionsoncumulativelossesanddiscountratesareextractedfromABXprices(theonlyliquidmarketpricesforcomparabletransactions).Acashflowprojectionmodelwasdevelopedcoupledwithcollateralperformanceanalysesusingdataonloanlevelandgeneralmarketinforma-tion(ABXindices,housepriceindices).ThemodelgeneratesforecastsoneachABSwithinaCDO,i.e.scenariosonfuturedelinquencies,defaults(CDR–constantdefaultrate),prepayments(CPR–constantprepaymentrate)andseverities(LGD–lossgivendefault).ThesescenariosareobtainedfromhistoricalABSpoolperformancesandarecalibratedtoABXlevelsasof31December2010,i.e.modelpricesforABXindicesreflectobservedmarketpricesandthusimplicitlyreflectthedefaultratesandlossesanticipatedonthemarket.TheapplieddiscountrateisalsoderivedfromtheABXindices.BAWAGP.S.K.usesvaluationmodelsforitsABSCDOswithsubprimeexposurethatcomplywithmarketstandards.Nevertheless,itshouldbenotedthatanymodelhasinherentlimitations.

Thevaluationmodelfor(synthetic)corporatetransactions(e.g.corporateCDOs,CDO²)wasdevelopedincompliancewithmarketstandards.Themodelusesmarketinformation(iTraxx,CDX,CDSspreads,ratings,interestrates)asof31December2010todeterminethevalueofatransaction.Asingle-factorGaussiancopulamodelisusedtoextractasset-valuecorrelationsfrommarketdata;theMonteCarlomethodisappliedtosimulatedefaulteventsandcalculateexpectedcashflows.Toobtainafairvalue,thecorrespondingspotratesareusedtodiscountthecalculatedexpectedcashflowsofthetransaction.

1) ABX is a series of marketable indices, each of which references 20 residential mortgage backed securities of subprime loans.

2) iTraxx is a marketable index composed of credit default swaps of the 125 most liquid investment grade rated European companies.

3) CDX is a marketable index composed of credit default swaps of the 125 most liquid investment grade rated US companies.

4) LCDX is a marketable index referencing 100 US first lien loans.

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AvaluationmodelforCLOs(collateralisedloanobligations)wasdevelopedbyanalogywiththemodelforsyntheticcorporatetransactions.CurrentmarketpricesoftheloanswithintheCLOsareusedtodeterminemarketimplieddefaultrates(defaultintensities)andrecoveryrates(severities,LGD–lossgivendefault)takingintoaccountadiscountmargin.Applicationofasingle-factorGaussiancopulamodeltoLCDXtranchesyieldsmarketimplieddefaultcorrelation.Basedontheseparameters,marketconsistentdefaultscenariosaregeneratedforeveryCLOtransaction(MonteCarlosimulation)andthecorrespondingCLOcashflowsareprojected.ThefairvalueoftheCLOtransactionsisthenderivedbydiscountingtheexpectedcashflowswiththereferencerateplusadiscountmargin,wherethelatterisderivedfromcalibrationofthemodeltoactualcurrentCLOtradelevels.Allmarketdatathatareusedinthemodel(loanpricesandspreads,LCDXprices,interestrates)areasof31December2010.

Transfers of Financial Instruments

FinancialinstrumentsarederecognisedassoonastheGroupisnolongerentitledtoreceivethefinancialrewardsfromtheinstruments.Asarule,thisoccurswhentherightsandobligationsunderthefinancialinstrumentspasstoathirdpartybyexercise,lapse,saleorassignmentoriftheGrouphaslostitsrightofdisposal.

WhenfinancialassetsaretransferredbutBAWAGP.S.K.hassignificantcontinuingrightsandobligationsunderthem,suchassetsarestillreportedontheconsolidatedStatementofFinancialPosition.

Repurchaseagreements,alsoknownas“repos”or“saleandrepurchaseagreements”,arecontractsunderwhichfinancialassetsaretransferredtoatransferee(lender)inreturnforacashpaymentwhilealsospecify-ingthatthefinancialassetsmustlaterbetransferredbacktothetransferor(borrower)foranamountofmoneyagreedinadvance.ThefinancialassetstransferredoutbyBAWAGP.S.K.GroupunderrepurchaseagreementsremainontheGroup’sStatementofFinancialPositionandaremeasuredaccordingtotherulesapplicabletotherespectiveStatementofFinancialPositionitem.Thecashreceivedunderrepoarrangementsisrecordedwithintradingliabilities.

Conversely,underagreementstoresell,knownas“reverserepos”,financialassetsareacquiredforaconsid-erationwhileatthesametimecommittingtotheirfutureresale.Cashoutflowsunderreversereposarerecordedwithintradingassets.

Insecuritieslendingtransactions,thelendertransfersownershipofsecuritiestotheborrowerontheconditionthattheborrowerwillretransfer,attheendoftheagreedloanterm,ownershipofinstrumentsofthesametype,qualityandquantityandwillpayafeedeterminedbythedurationoftheloan.Securitieslenttocounterpartiesareaccountedforinthesamewayasrepos:TheyareretainedintheGroup’sfinancialstate-mentsandaremeasuredinaccordancewithIAS39.Securitieslendingandborrowingtransactionsaregenerallycollateralised.Collateralfurnishedbythesecuritiesborrowercontinuestoberecordedintheborrower’sfinancialstatements.

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Intangible Non-Current Assets, Tangible Non-Current Assets

Intangiblenon-currentassetsconsistmainlyofacquiredgoodwillandotheracquiredintangibleassets(inparticularsoftware)andprojectsrecognisedinaccordancewithIAS38.

Intangiblenon-currentassetswithanunlimitedusefullifearemeasuredatcost.Intangibleandtangiblenon-currentassetswithlimitedusefullivesaremeasuredatcostlessstraight-lineamortisationordeprecia-tion.Buildingsaredepreciatedatanannualrateofbetween2.5and4percent,whileothertangiblenon-currentassetsaredepreciatedatannualratesbetween5and20percent.Purchasedandself-producedintangibleassets(otherthangoodwill)areamortisedatannualratesof10percentand20percent.

Landandbuildingsheldforinvestmentpurposes(investmentproperty)aremeasuredatcostlessstraight-linedepreciationwhichrangesbetween2.5and4percentperyear(IAS40).Inadditiontoreviewingthemethodofdepreciationandusefullives,impairmenttestsarealsoperformedasofeachreportingdate.

Impairment Testing

InaccordancewithIFRS3inconjunctionwithIAS36andIAS38,therecognisedgoodwillofallcashgeneratingunits(CGUs)issubjecttoannualimpairmenttestinginaccordancewithIAS36.Allotherequityinvestmentswerealsotestedforimpairment,providedthatapreliminaryexaminationhasnotruledoutimpairmentindicators.

TodeterminethevalueinuseoftheCGUorthesingleentity,thepresentvalueoftheprojectedpre-taxprofitswascalculatedbyusingtherisk-weightedpre-taxdiscountrateinthemarketapplicabletotheCGUinquestion.Asarule,theplanninghorizonusedforvaluationpurposesisbetweenthreeandfiveyears.Long-termgrowthratesusedinthecalculationvarybetween2and4percent.

Thediscountrateiscomposedoftherisk-freerate,thelocalmarketriskpremiumandthebetafactor:4 Therisk-freerate(3.10percent)isthethirty-yearspotratecalculatedinaccordancewiththeSvensson

method,basedontheparameterspublishedbyDeutscheBundesbank.4 Thesourceforthecountry-specificmarketriskpremiumisthewebsiteDamodaran.4 TheappliedbetafactorforbanksistheaveragebetaoftwelvebankslistedonEuropeanstockexchanges.

Basedontheaforementionedassumptions,thevalueinuseoftheCGUorequityinvestmentwascalculatedfortheyearunderreview,inaccordancewithIAS36.Valueinuserepresentsthepresentvalueoftheestimatedfuturecashflowsexpectedfromacashgeneratingunit.

Leasing

Forfinanceleases,therightsofclaimsagainstthelesseearerecognisedintheamountofthepresentvalueofthecontractuallyagreedpayments,takinganyresidualvalueintoaccount.Bycontrast,operatingleases,whereBAWAGP.S.K.Groupretainsallrisksandrewardsincidentaltoownershipoftheleasedasset,arereportedunderTangiblenon-currentassets.Eachleasedassetisdepreciatedasappropriate.LeasepaymentsreceivedarerecognisedintheProfitorLossStatement.

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Income Taxes and Deferred Taxes

AccordingtoIAS12,incometaxesmustbecomputedandreportedusingtheliabilitymethod.Thecomputa-tionisbasedonthelocaltaxratesthatarelegallybindingatthetimetheconsolidatedfinancialstatementsareprepared.

DeferredtaxassetsandliabilitiesresultfromthedifferentmethodsusedtomeasureassetsandobligationsontheStatementofFinancialPositionunderIFRSandtherespectivetaxcode.Thisgenerallyleadstopositiveornegativedifferencesintheincometaxtobepaidforfutureperiods(temporarydifferences).Adeferredtaxassetisrecognisedforthecarryforwardofunusedtaxlosseswhenitisprobablethatfuturetaxableprofitwillbegeneratedbythesametaxableunit.Deferredtaxassetsandliabilitiesarenotdiscounted.

TaxexpensesallocabletothetaxableprofitwererecognisedintheProfitorLossStatementunderIncometaxesandbrokendownintocurrentanddeferredincometaxes.OthertaxesthatarenotattributabletoprofitarerecognisedunderOtheroperatingincomeandexpenses.

AccordingtoIAS12.34,adeferredtaxassetisrecognisedfortaxlosscarryforwardsifitisprobablethatfuturetaxableprofitwillbeavailableagainstwhichtheunusedtaxlossescanbeutilised.Asof31December2010unusedtaxlossesamountedtoEUR1,770millionatthelevelofBAWAGP.S.K.andEUR197millionatthelevelofmembersofthetaxgroupincludedintheconsolidatedfinancialstatements,henceatotalofEUR1,967million.

TheutilisabilityofunusedtaxlossesbyBAWAGP.S.K.wastestedonthebasisoftheBank’slong-termplanapplyinganadditionalcontingencycharge.TheexpectedutilisationofunusedtaxlossesisprojectedtoamounttoEUR1,128million.Intotal,deferredtaxassetsfortaxlosscarryforwardsintheamountofroughlyEUR282million(2009:EUR283million)arerecognisedwithinBAWAGP.S.K.Group(taxrate25percent).

Thetaxgrouppursuanttosection9KStGthathadbeenheadedbyBAWAGP.S.K.since2005wasdissolvedinthefinancialyear.Afinalsettlementof25percentfornotyetcreditedtaxlosseswaspaidtoindividualmembersoftheformertaxgroup.Somemembersofthetaxgroupdidnotmeettheminimumgroupmember-shiprequirementofthreeyears.Asaresult,alltaxeffectsappliedtothesecompaniesonthebasisoftheirmembershipinthetaxgroupwerereversed,andthegroupparentreversedallpositivetaxallocationsfromthesecompanies.

Asofthestartofthefinancialyear,anewtaxgroupwasformedpursuanttosection9KStG;thisgroupisheadedbyBAWAGHoldingGmbHandhas25membersinAustria.Anewtaxallocationagreementwasconcluded.Theallocationmethodwaschosenfordeterminingthetaxallocations.Thismethodisbasedonthetaxresultofthegroupasawhole.Thepayabletaxisallocatedtoeachgroupmemberwithapositivetaxresultonthebasisofitsproportionateshareofthegroup’staxresult.Inthis,aninternaltaxlosscarryforwardistakenintoaccountfortaxlossesallocatedtothegroupparent.Afinalsettlementforuncreditedtaxlossesmustbeeffectedbythegroupparentupondissolutionofthenewtaxgrouporwhenamemberentityleavesthegroup.

TheitemIncometaxesincludesexpensesintheamountofEUR4.1millionfromincometaxpaymentsinconnectionwiththedissolutionoftheformertaxgroup.

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Provisions

AccordingtoIAS19,provisionsforpost-employmentandterminationbenefitsandforjubileebenefitsarecalculatedusingtheProjectedUnitCreditMethod.

Thepresentvaluesofobligationsoutstandingasofthemeasurementdatearecalculatedonthebasisofactuarialassumptionsapplyinganappropriatediscountrateandtakingintoaccounttheexpectedratesofincreaseinsalariesandpost-employmentbenefits.TheyarerecognisedasaprovisionintheconsolidatedStatementofFinancialPosition.Actuarialgainsandlossesarerecognisedinfullintheyearinwhichtheyareincurred.Inprioryears,actuarialgainsandlosseswererecognisedinprofitorloss.In2010,BAWAGP.S.K.changeditsaccountingmethodretrospectivelyandactuarialgainsandlossesarerecognisedentirelyinothercomprehensiveincome.Detailsarepresentedinthesection“ChangeinAccountingMethods”.

Theprincipalparametersunderlyingtheactuarialcalculationsare:

Forpost-employmentobligations: Interestrate 5.00%p.a. Yieldgrowth 2%p.a. Fluctuationdiscount individualcalculation

Forterminationbenefitsandanniversarybonuses: Interestrate 5.00%p.a. Wagegrowth 4%p.a. Fluctuationdiscount individualcalculation Retirementage 57–65years*)

*)TheearliestpossibleindividualretirementageasperASVGwasassumed.

In2009thediscountrateamountedto5.25percent.Theotherparametersusedhavenotbeenchangedcomparedto2009.

ThegenerationmortalitytablesPensionsversicherung AVÖ 2008-P-Angestelltewereusedwhencalculatingthelong-termemployeebenefitprovisions.

Thepost-employmentbenefitrightsofsomeemployeeswerecoveredbyAllianzPensionskasseAGandAPK-PensionskasseAGin2010.Thecontributionsthataremadetothesepensionfundsarerecognisedasexpensesinthecurrentperiod;therearenofurtherobligations.

ForonegroupofBAWAGP.S.K.employees,amountsweretransferredtoapensionfundin2005.Theeligiblepensionfundassetsfromthiswereusedagainstexistingobligationsfromthedefinedbenefitplan.Forthisreason,thegrossdefinedbenefitobligationforthisgroupofemployeesisreducedbytheeligibleassetsinthepensionfundon31December2010.

Theexistingpost-employmentbenefitplansinBAWAGP.S.K.Groupthatarefinancedentirelythroughreservesbecausetheyaredefinedbenefitobligationspertainprimarilytopost-employmentbenefitrightsandfuturerightsofemployeesoftheparentcompany,BAWAGP.S.K.AG.

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Theallocatedassetsdisclosedbythepensionfundaresetoffagainstthedeterminedamountsofprovisionsforpost-employmentbenefits.

Otherlong-termemployeebenefitspertaintoreservesforanniversarybonuses.

Otherreservesforuncertainobligationstothirdpartiesareformedinaccordancewiththeexpectedamountoftheobligation.

Non-Current Assets Held for Sale and Discontinued Operations

Non-currentassets(ordisposalgroupsconsistingofassetsandliabilities)mustbeclassifiedasheldforsalewhenthecorrespondingcarryingamountisprimarilytheresultofasaletransactionandnotofcontinueduse.Immediatelybeforethefirst-timeclassificationasheldforsale,theassets(ordisposalgroups)aremeasuredaccordingtotheGroup’saccountingpolicies.Then,thenon-currentassets(ordisposalgroups)arewrittendownattheloweroftheircarryingamountorfairvaluelesssellingcosts.

Impairmentsofassets(ordisposalgroups)arefirstoffsetagainstgoodwillandthenagainsttheremainingassetsandliabilitiesonaproportionatebasisiftheimpairmentdoesnotpertaintoinventories,financialassets,deferredtaxassetsorstaffbenefits.ThesemuststillberecognisedinaccordancewiththeGroup’saccountingpolicies.First-timeandsubsequentimpairmentlossesandreversalsarerecogniseddirectlyinincome.Reversalsofimpairmentsmayonlybecompleteduptotheamountofthecumulativerecognisedimpairmentlosses.

Equity

EquityisthecapitalprovidedbytheBank’sowners(issuedcapitalandcapitalreserves),participationcapitalandthecapitalgeneratedbytheBank(retainedearnings,reservesfromcurrencytranslation,AFSreserve,profitbroughtforwardandtheprofitfortheperiod).

Latitude of Judgement and Uncertainty of Estimates

Themeasurementoffinancialinstrumentsandtherelatedestimatesinrespectofmeasurementparameters,inparticularthefuturedevelopmentofinterestrates,haveamaterialeffectontheresultsofoperations.TheparametervaluesappliedbytheBankarederivedlargelyfrommarketconditionsprevailingasofthereportingdate.

ThedeterminationoffairvalueforfinancialassetsandliabilitiesforwhichthereisnoobservablemarketpricerequirestheuseofvaluationtechniquesasdescribedinNote1Accountingpolicies.Forfinancialinstrumentsthattradeinfrequently,calculationoffairvaluerequiresvaryingdegreesofjudgementdependingonliquidity,uncertaintyofmarketfactors,pricingassumptionsandotherrisksaffectingthespecificinstrument.

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Assessmentsastowhetherornotcashgeneratingunits(CGUs)wereunimpairedarebasedonplanningcalculations.Thesenaturallyreflectthemanagement’sevaluations,whichareinturnsubjecttoadegreeofpredictiveuncertainty.Similarly,assessmentsoftherecoverabilityoflong-termloansarebasedonassump-tionsregardingtheborrower’sfuturecashflows,andthesetooaresubjecttoadegreeofpredictiveun-certainty.

Intheseconsolidatedfinancialstatementsfortheperiodended31December2010,goodwillanddeferredtaxassetshavebeenrecognised,thevalueofwhichwilldependcruciallyontheoccurrenceofprojectedresultsinthefuture.AmountsrecognisedinconnectionwiththeAllegrosoftwaresystemarebasedonestimatesofitsfuturevalueinuse.

Change in Accounting Methods

During2010,BAWAGP.S.K.changeditsaccountingpolicyforthetreatmentofdefinedbenefitplans(excludingthedefinedbenefitplanforjubileebenefits)byrecognisingactuarialgainsandlossesinothercomprehensiveincome.Inpreviousperiods,thedefinedbenefitplanshadbeenrecognisedinprofitandloss.BAWAGP.S.K.isoftheopinionthatthenewpolicyprovidesmorerelevantinformationbecauseitresultsinanimprovedpresentationoftheincomeandexpensesresultingfromourcorebankingbusinessintheProfitorLossStatementandthereforemakesthefinancialstatementseasiertounderstand.

Thedisaggregationofchangesinthedefinedbenefitobligationsbyhighlightingthevariouscomponentslikeserviceandinterestcostscomparedtoactuarialgainsandlosseshelpstoreflectrisksmoreclearly.Recognis-ingactuarialgainsandlossesinothercomprehensiveincomereducesvolatileswingsinprofitorlossthatarenotrelatedtotheentity’sunderlyingoperations.

Overall,thenewaccountingpolicyisconsistentwiththeCentralEuropeanbankingindustry,makingBAWAGP.S.K.’sfinancialstatementmorecomparablewithitspeers.

TheIASBhasissuedanexposuredraftinwhichitproposesthatcompaniesshouldrecogniseactuarialgainsandlossesimmediatelyandthattheseitemsshouldbepresentedinothercomprehensiveincome.Intheirview,thisaccountingtreatmentprovidesimprovedinformationabouttherisksfromacompany’sinvolvementindefinedbenefitplans.TheaccountingpolicyadoptedbyBAWAGP.S.K.isthereforeinlinewiththecurrentproposalsofinternationalstandardsetters.

Thischangeinaccountingpolicyhasbeenaccountedforretrospectivelyandthecomparativestatementshavebeenrestated.AsBAWAGP.S.K.’sStatementofFinancialPositionisnotaffectedbytheapplicationofthenewaccountingpolicy,BAWAGP.S.K.willonlyshowtwocomparativeStatementsofFinancialPosition.

Thechangeintheaccountingmethodfordefinedbenefitplans(excludingthedefinedbenefitplanforjubileebenefits)onlyaffectsthepresentationofprofitorlossandothercomprehensiveincome;totalequitydoesnotchange.Theeffectofthechangeissummarisedinthetablesbelow.

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Effect on profit or loss:

in millions of Euros 2010 2009Increase (-) / decrease (+) of administrative expenses 6.7 -10.4Increase (-) / decrease (+) of tax expenses -1.7 2.6Increase (+) / decrease (-) of profit after tax 5.0 -7.8

Effect on other comprehensive income:

in millions of Euros 2010 2009

Actuarial gains (+) and losses (-) recognised in other comprehensive income

-6.7

10.4

Taxes recognised in other comprehensive income 1.7 -2.6Increase (+) / decrease (-) of other comprehensive income -5.0 7.8

Effect on retained reserves:

in millions of Euros 2009Retained reserves as of 1 January 2009 as previously reported -124.5Change in accounting policy for defined benefit plans -19.6Retained reserves as of 1 January 2009 as restated -144.1

in millions of Euros 2009

Actuarial gains and losses recognised in other comprehensive income as of 1 January 2009 as previously reported

–

Change in accounting policy for defined benefit plans 19.6

Actuarial gains and losses recognised in other comprehensive income as of 1 January 2009 as restated

19.6

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Effects of Adopting Amended and New Standards

Thefollowingstandards,amendmentsandinterpretationstoexistingstandardsweremandatoryforthefirsttimeforthe2010consolidatedfinancialstatements:

TheamendmentsclarifythescopeofIFRS2,aswellastheaccountingforgroupcash-settledshare-basedpaymenttransactionsintheseparatefinancialstatementsofanentitywhenanothergroupentityhastheobligationtosettletheaward.ThischangehasnoeffectontheconsolidatedfinancialstatementsofBAWAGP.S.K.

TheamendedIAS27Consolidated and Separate Financial Statementsrequiresthatchangesintheownershipstructurearereportedasequitytransactionsaslongastheentityretainscontrolofthesubsidiary.Iftheentitylosescontrolofthesubsidiary,theremaininginterestinthesubsidiarymustberemeasuredatitsfairvalueatthetimethesaleiseffected.TheapplicationhasnoeffectonBAWAGP.S.K.’sconsolidatedfinancialstate-ments.

IFRIC17Distributions of Non-cash Assets to Ownersprovidesguidanceonaccountingforarrangementswherebyanentitydistributesnon-cashassetstoshareholders.TheapplicationhasnoeffectonBAWAGP.S.K.’sconsolidatedfinancialstatements.

IFRIC18Transfers of Assets from Customersaddressestheaccountingbyrecipientsfortransfersofproperty,plantandequipmentfromcustomers.TheapplicationhasnoeffectonBAWAGP.S.K.’sconsolidatedfinancialstatements.

Thefollowingstandards,amendmentsandinterpretationstoexistingstandardswereapprovedandendorsedbytheInternationalAccountingStandardsBoard(IASB)andtheEUbutarenotyetmandatoryfortheprepa-rationofIFRSfinancialstatementsfortheperiodended31December2010:

TheamendmentstoIFRS3Business Combinationsrequireanentitytoaccountforcontingentconsiderationsasanadjustmenttotheoriginalcostofthebusinesscombination.Furthermore,theIASBlimitedthemeas-urementchoicetocovernon-controllinginterestsandextendedthecurrentIFRS3accountingtreatmenttoreplacementawards.Theseamendmentsbecomemandatoryforthe2011consolidatedfinancialstatements.

TheamendmenttoIFRS7Financial Instruments: Disclosures – disclosure of the financial effect of the extent to which collateral and other credit enhancements mitigate credit riskprovidesclarityintheinteractionbetweenthequalitativeandquantitativedisclosureofthenatureofrisksarisingfromfinancialinstruments.TheamendedIFRS7becomesmandatoryforthe2011consolidatedfinancialstatementsandwillhaveminoreffectsonthenotespresentedbyBAWAGP.S.K.

AmendmenttoIAS1Presentation of Financial Statements – clarification of statement of changes in equityclarifiespresentationrequirementsforothercomprehensiveincome.Thisamendmentbecomesmandatoryforthefinancialyear2011andwillhavenoeffectontheconsolidatedfinancialstatementsofBAWAGP.S.K.

IAS21The Effects of Changes in Foreign Exchange Rates, IAS28 Investment in Associates andIAS31Interests in Joint Ventures havebeenamendedinaccordancewith IAS27 Consolidated and Separate Financial Statements.Therearenoamendmentstodisclosurerequirements.

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Theseamendmentsbecomemandatoryforthe2011consolidatedfinancialstatementsandwillhavenoeffectontheconsolidatedfinancialstatementsofBAWAGP.S.K.

IAS24Related Party Disclosuresmodifiesthedefinitionofarelatedpartyandsimplifiesdisclosuresforgovernment-relatedentities.ThedisclosureexemptionsintroducedinIAS24donotaffecttheconsolidatedfinancialstatementsofBAWAGP.S.K.;however,disclosuresregardingrelatedpartytransactionsmaybeaffectedwhentherevisedversionofthestandardisappliedinfutureaccountingperiodsduetothereviseddefinitionofarelatedparty.

TheamendedIFRIC13Customer Loyalty Programmesrequiresthattheamountofproceedsallocatedtotheawardcreditsismeasuredbasedontheirfairvalue.IFRIC13willnothaveanimpactontheconsolidatedfinancialstatementsofBAWAGP.S.K.

IFRIC19Extinguishing Financial Liability with Equity InstrumentsprovidesclarificationontherequirementsofInternationalFinancialReportingStandardswhenanentityrenegotiatesthetermsofafinancialliability.Theinterpretationiseffectiveforthefinancialyear2011andwillhavenoeffectontheconsolidatedfinancialstatementsofBAWAGP.S.K.

ThefollowingstandardsandamendmentshavenotyetbeenendorsedbytheEuropeanUnion:

TheIASBissuedamendmentstoIFRS7Financial Instruments: Disclosures – Transfer of Financial Assetsaspartofitscomprehensivereviewofoff-balance-sheetactivities.Theamendmentswillallowusersoffinancialstatementstoimprovetheirunderstandingoftransfersoffinancialassets(forexamplesecuritisations),includingthepossibleeffectsofanyrisksthatmayremainwiththeentitythattransferredtheassets.Theamendmentsalsorequireadditionaldisclosuresifadisproportionateamountoftransfertransactionsareundertakenaroundtheendofareportingperiod.Applicationoftheseamendmentsismandatoryforannualperiodsbeginningonorafter1July2011.ThenewrequirementswillleadtoadditionaldisclosuresforrepotransactionsinthenotesofBAWAGP.S.K.

TheIASBhaspublishedIFRS9Financial Instruments: Classification and Measurement,whichispartofthewiderprojecttoreplaceIAS39Financial Instruments: Recognition and Measurementover2010and2011.IFRS9retainsthemixedmeasurementmodelandestablishestwoprimarymeasurementcategoriesforfinancialassets:amortisedcostandfairvalue.Thebasisofclassificationdependsontheentity’sbusinessmodelandthecontractualcashflowcharacteristicsofthefinancialasset.ClassificationandmeasurementrequirementsforfinancialliabilitiesareonlyslightlychangedcomparedtoIAS39,withfairvaluechangesrelatedtochangesintheentity’sowncreditriskrecognisedinothercomprehensiveincome.Inaddition,theIASBhasissuedexposuredraftsforthecalculationofamortisedcostandfortheimpairmentoffinancialassets(basedonan“expectedlossmodel”)andhedgeaccounting.TheIASBcurrentlyproposesthatIFRS9shouldbecomemandatoryforannualperiodsbeginningonorafter1January2013.TheprospectiveimpactofIFRS9isexpectedtobematerialbuthasnotyetbeendetermined.

TheEuropeanUnionhasnotyetendorsedIFRS9astheEFRAGhasdecidedtotakemoretimetoconsidertheoutputfromtheIASBprojectaimedatimprovingaccountingforfinancialinstruments.

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details of the Consolidated statement of Financial Position

2 | Cash reserves

in millions of Euros 31.12.2010 31.12.2009Cash on hand 230 245Balances at central banks 281 370Cash reserves 511 615

3 | Financial assets designated at fair value through profit or loss

in millions of Euros 31.12.2010 31.12.2009Bonds and other fixed income securities 1,207 1,611

Public sector debt instruments 9 19Bonds of other issuers 1,198 1,592

Shares and other variable rate securities 69 173Investment certificates 54 51Other 15 122

Loans and advances to customers 1,008 1,196Customers 1,008 1,196

Designated at fair value through profit or loss 2,284 2,980

ThecategoryFinancialassetsdesignatedatfairvaluethroughprofitorlosscontainsallfinancialinstrumentsthatarecarriedattheirfairvaluethroughprofitorlossbecausethefairvalueoptiondefinedinIAS39hasbeenexercisedforthem.FurtherinformationonthefairvalueoptioncanbefoundinNote1.

Themaximumcreditriskofloansandadvancestocustomersequalsbookvalue.

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4 | available-for-sale financial assets

in millions of Euros 31.12.2010 31.12.2009Debt instruments 6,399 2,971

Bonds and other fixed income securities 6,396 2,968Public sector debt instruments 1,286 –Bonds of other issuers 5,110 2,968

Other variable rate securities 3 3Equity investments 245 279

Recognised at costInvestments in non-consolidated subsidiaries 39 58Interests in associates 67 72Other shareholdings 139 149

Available-for-sale financial assets 6,644 3,250

Theincreaseindebtinstrumentsincludesthereclassificationofheld-to-maturityinvestmentsinJanuary2010.

ThefollowingtableshowskeyfinancialindicatorsfortheBank’sassociates:

Associates not accounted for using the equity method

in millions of EurosCumulated

assetsCumulated

equityCumulated net profit

2010 1,511 191 482009 1,373 174 23

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5 | Held-to-maturity financial investments

in millions of Euros 31.12.2010 31.12.2009Bonds and other fixed income securities

Public sector debt instruments – 2,814Bonds of other issuers – 3,746

Held-to-maturity investments – 6,560

BAWAGP.S.K.soldasignificantportionofitsheld-to-maturityinvestmentsin2010,andthereforetheremainingpositionswerereclassifiedasavailable-for-salefinancialassets.

Theeffectsofreclassificationfromheld-to-maturitytoavailable-for-saleareshowninthefollowingtable:

in millions of Euros Carrying amount Fair valueHeld-to-maturity investments -5,480 -5,454Available-for-sale financial assets +5,454 +5,454

6 | assets held for trading

in millions of Euros 31.12.2010 31.12.2009Bonds and other fixed income securities 71 160

Public sector debt instruments – –Bonds of other issuers 71 160

Positive fair values of derivative financial instruments 1,856 1,493Derivatives trading book 1,169 822

Foreign currency derivatives 726 223Interest rate derivatives 436 590Credit related derivatives 7 9

Derivatives banking book 687 671Foreign currency derivatives 45 6Interest rate derivatives 601 614Credit related derivatives 41 51

Other trading assets – 100Thereof repurchase agreements – 100

Assets held for trading 1,927 1,753

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7 | loans and receivables

ThefollowingbreakdowndepictsthecompositionoftheitemLoansandreceivables.Thefinancialassetsinthiscategoryarerecognisedatamortisedcost.

31.12.2010in millions of Euros

Unimpaired assets

Impaired assets (total gross carrying

amount)

Allowances for individually

impaired financial assets

Allowances for collectively

impaired financial assets 1)

Total net carrying amount

Securities 2,358 – – – 2,358 Public sector debt instruments 164 – – – 164 Debt instruments of other issuers 2,194 – – – 2,194

Receivables from credit institutions 1,527 25 -25 – 1,527 Receivables from customers 22,004 1,014 -580 -150 22,288

Central governments 146 – – – 146 Corporates 12,407 326 -174 -4 12,555 Retail 6,488 688 -406 -109 6,661 Other customers 2,963 – – – 2,963 Portfolio impairment provision – – – -37 -37

Total 25,889 1,039 -605 -150 26,173

1) Includes allowances for incurred but not reported losses.


Unimpaired assets

Impaired assets (total gross carrying

amount)

Allowances for individually

impaired financial assets

Allowances for collectively

impaired financial assets 1)

Total net carrying amount

Receivables from credit institutions 3,812 34 -33 – 3,813 Receivables from customers 20,668 1,217 -470 -349 21,066

Central governments 409 – – – 409 Corporates 10,693 353 -180 -2 10,864 Retail 6,405 864 -290 -312 6,667 Other customers 3,161 – – – 3,161 Portfolio impairment provision – – – -35 -35

Total 24,480 1,251 -503 -349 24,879

1) Includes allowances for incurred but not reported losses.

TheReceivablesfromcustomersarebrokendownintothereceivablesclassesspecifiedintheOeNBreportingstructureaccordingtotherequirementsofBaselII.

ThecategoryCentralgovernmentsincludesreceivablesfromcentralgovernments,primarilyfromtheRepublicofAustriainthecaseofBAWAGP.S.K.

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TheCorporatesincludelargerenterpriseswithanexposureinexcessofEUR1millionorrevenueofoverEUR50million,andspecialfinancingagreements(projectfinance)asdefinedinBaselII.

TheRetailcategorycoversreceivablesfromretailbanking.Thissegmentcomprisesjobholdersandsmallandmedium-sizedenterpriseswithanexposureoflessthanEUR1millionorrevenueoflessthanEUR50million.

ThecategoryOthercustomerscoverspublicsectorentities,churchesandreligiousgroups,politicalpartiesandsecuritiestradinghouseswithoutabankinglicence.

ThePortfolioimpairmentprovisionrepresentsaprovisionforlossesincurredbutnotdetected.

BAWAGP.S.K.transferredavailable-for-salefinancialassetstotheStatementofFinancialPositionitemLoansandreceivablesusingtheirfairvaluesasof1June2010.

Thesereclassifiedassetsarestructuredloansandcreditsurrogateswithoutderivativecomponents.BAWAGP.S.K.isoftheopinionthattheintrinsicvalueofthereclassifiedassetsoffersrelevantinformationforreadersofthefinancialreport.

Theeffectsofthereclassificationofavailable-for-saleassetsareshowninthefollowingtable:

in millions of Euros Carrying amount Fair valueAvailable-for-sale financial assets -1,897 -1,897Loans and receivables +1,897 +1,897

Theeffectiveinterestratesofthereclassifiedfinancialassetsaveraged2.2percentwithexpectedachievablecashflowsofEUR2.2billion.

Iftheassetshadnotbeenreclassified,unrealisedfairvaluechangesintheamountofEUR+13millionwouldhavebeenrecogniseddirectlyinequity(intheAFSreserve)foravailable-for-salefinancialassets.

Afterreclassification,thefinancialassetsinquestioncontinuedtomakethefollowingcontributiontothepre-taxprofitfor2010:

in millions of Euros 2010Interest income 24.2Profits from disposals 3.0Impairments –

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84


Beforereclassification,unrealisedfairvaluelossesofEUR–38million(beforetax)wererecogniseddirectlyinequityforreclassifiedavailable-for-salefinancialassetsinthefirsthalfof2010.Noimpairmentprovisionswereformedintheconsolidated2010ProfitorLossStatementforthenowreclassifiedavailable-for-salefinancialassetsbeforetheirreclassification.

Allavailable-for-salefinancialassetsthatwerereclassifiedinthefirsthalfof2010wereclassifiedasheld-to-maturityinvestmentsinthepriorfinancialyear.Nounrealisedfairvaluelossesforthenowreclassifiedavailable-for-salefinancialassetswererecogniseddirectlyinequityinprioryears.

Changes in impairment provisions

in millions of EurosIndividual and

collective impairment

Impairment provisions for incurred but not

reported lossesTotal

Balance as of 1.1.2010 817 35 852

AdditionsProvisions created through profit or loss

180

3

183

DisposalsChanges in the scope of consolidation

–

–

–

Used as intended -174 – -174Provisions released through profit or loss -101 -1 -102Reclassification -4 – -4Balance as of 31.12.2010 718 37 755

in millions of EurosIndividual and

collective impairment

Impairment provisions for incurred but not

reported lossesTotal

Balance as of 1.1.2009 678 29 707

AdditionsProvisions created through profit or loss

238

6

244

DisposalsChanges in the scope of consolidation

–

–

–

Used as intended -29 – -29Provisions released through profit or loss -70 – -70Balance as of 31.12.2009 817 35 852

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85


Theimpairmentprovisionforsignificantindividualcounterpartyriskswascreatedonthebasisofexpectedfuturerecoveries.Provisionsforcounterpartyrisksthatwerenotindividuallyofsignificancewerecreatedgenerally,onapercentagebasis,dependingontheamountsoverdueandbasedonourhistoricallossexperience.

TheconsolidatedfinancialstatementsofBAWAGP.S.K.asof31December2010containanimpairmentprovisionofEUR36.5million(2009:EUR34.6million)forloanlossesincurredbutnotyetreported.ThecalculationoftheseimpairmentprovisionsisexplainedinNote1.

Theimpairmentprovisionsbreakdownbyregionasfollows:

in millions of Euros 31.12.2010 31.12.2009Austria 625 699Abroad 130 153

Western Europe 80 83Central and Eastern Europe 49 65North America 1 1Asia/Pacific – –Rest of the world – 4

Impairment provisions 755 852

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8 | Receivables from credit institutions and customers

Thefollowingbreakdownsdepicttheregionaldistributionofthereceivablesfromcustomersandcreditinstitutionsasofthereportingdate,basedonthelocationofthecounterparty’sregistereddomicile.

Receivables from credit institutions – Regional breakdown

in millions of EurosDesignated at fair value

through profit or lossAt amortised cost Total

31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009Austria – – 292 2,273 292 2,273Abroad – – 1,235 1,540 1,235 1,540

Western Europe – – 1,012 1,275 1,012 1,275Central and Eastern Europe – – 93 108 93 108North America – – 13 41 13 41Asia/Pacific – – 80 62 80 62Rest of the world – – 37 54 37 54

Receivables from credit institutions – – 1,527 3,813 1,527 3,813

Receivables from customers – Regional breakdown



31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009Austria 1,008 1,196 17,125 17,184 18,133 18,380Abroad – – 5,163 3,882 5,163 3,882

Western Europe – – 2,748 1,962 2,748 1,962Central and Eastern Europe – – 1,560 1,382 1,560 1,382North America – – 456 250 456 250Asia/Pacific – – 6 7 6 7Rest of the world – – 393 281 393 281

Receivables from customers 1,008 1,196 22,288 21,066 23,296 22,262

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Thefollowingtabledepictsthebreakdownofreceivablesfromcustomersandcreditinstitutionsbycredittype.

Receivables from credit institutions – Breakdown by credit type



31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009Demand deposits – – 188 183 188 183Time deposits – – 1,055 3,238 1,055 3,238Loans – – 277 385 277 385Other – – 7 7 7 7

Receivables from credit institutions

–

–

1,527

3,813

1,527

3,813

Receivables from customers – Breakdown by credit type



31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009Current accounts – – 1,236 1,758 1,236 1,758Cash advances – – 553 728 553 728Loans 1,008 1,196 19,445 17,470 20,453 18,666

One-off loans 1,008 1,196 19,278 17,249 20,286 18,445Current account loans – – 7 28 7 28Other – – 160 193 160 193

Debt instruments 1) – – – – – –Leasing – – 1,054 1,110 1,054 1,110Receivables from customers 1,008 1,196 22,288 21,066 23,296 22,262

1) Not traded on an active market.

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88


9 | asset maturities

Thefollowingtablecontainsabreakdownoffinancialassetswithadefinedmaturitybyremainingperiodtomaturity:

Financial assets – Breakdown by remaining period to maturity 2010

in millions of Euros Up to 3 months

3 months up to 1 year

1–5 years

Over 5 years Total

Designated at fair value through profit or loss31.12.2010 Receivables from customers

5

12

849

142

1,008

Bonds and other fixed-income securities 82 155 700 270 1,207

Available-for-sale financial assets31.12.2010 Bonds and other fixed-income securities

272

890

4,128

1,106

6,396

Held-to-maturity investments31.12.2010 Bonds and other fixed-income securities

–

–

–

–

–

Loans and receivables31.12.2010 Receivables from customers

4,275

1,824

6,391

9,798

22,288

Receivables from credit institutions 1,357 33 59 78 1,527

Bonds and other fixed-income securities 4 19 907 1,428 2,358

Total as of 31.12.2010 5,995 2,933 13,034 12,822 34,784

Financial assets – Breakdown by remaining period to maturity 2009

in millions of Euros Up to 3 months

3 months up to 1 year

1–5 years

Over 5 years Total

Designated at fair value through profit or loss31.12.2009 Receivables from customers

4

13

1,085

94

1,196

Bonds and other fixed-income securities 58 419 797 337 1,611

Available-for-sale financial assets31.12.2009 Bonds and other fixed-income securities

226

1,064

1,627

51

2,968

Held-to-maturity investments31.12.2009 Bonds and other fixed-income securities

196

689

3,174

2,501

6,560

Loans and receivables31.12.2009 Receivables from customers

4,044

1,670

6,250

9,102

21,066

Receivables from credit institutions 3,527 148 68 70 3,813

Bonds and other fixed-income securities – – – – –

Total as of 31.12.2009 8,055 4,003 13,001 12,155 37,214

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89


10 | tangible non-current assets

Changes in tangible non-current assets 2010

in millions of EurosCarrying amount

31.12.2009 1)

Acquisition cost

01.01.2010 1)

Change in scope of con-

solidationAcquisition

cost

Change in scope of

consolidation Cumulative

depreciation

Change in foreign exchange

differences

Additions Disposals Reallocations Write-downscumulative

Subtotal31.12.2010

Reclassi- fication to held for sale 2)

Carrying amount

31.12.2010

Deprecia- tion (-), impair-ments (-) and reversal of

impairments (+) Financial

year

Tangible non-current assets 287 924 -28 – – 19 -75 – -616 225 -6 219 -49

Land and buildings used by the enterprise for its own operations

139

242

–

–

–

1

-7

–

-104

133

-1

132

-4

Investment properties

64

127

-28

–

–

–

-16

–

-50

33

–

33

-5

Office furniture and equipment

83

554

–

–

–

15

-52

1

-462

56

-5

51

-40

Plant under construction

1

1

–

–

–

3

–

-1

–

3

–

3

–

1) The balance as of 1.1.2010 refers to the amounts on 31.12.2009 prior to reclassification to assets held for sale.2) Reported on the Statement of Financial Position under Non-current assets and disposal groups classified as held for sale.

Changes in tangible non-current assets 2009


31.12.2008

Acquisition cost

01.01.2009

Change in scope of con-

solidationAcquisition

cost

Change in scope of

consolidation Cumulative

depreciation

Change in foreign exchange

differences


Subtotal31.12.2009

Reclassi- fication to held for

sale

Carrying amount

31.12.2009

Deprecia- tion (-), impair-ments (-) and reversal of

impairments (+) Financial

year

Tangible non-current assets

379

1,053

5

-4

–

22

-152

–

-637

–

–

287

-43

Land and buildings used by the enterprise for its own operations

186

293

–

–

–

–

-51

–

-103

–

–

139

-3

Investment properties

82

149

–

–

–

7

-29

–

-63

–

–

64

-4

Office furniture and equipment

110

610

5

-4

–

15

-72

–

-471

–

–

83

-35

Plant under construction

1

1

–

–

–

–

–

–

–

–

–

1

-1

ThelineitemInvestmentpropertiesincludestherealestatethatmeetsthecriteriafordesignationasinvest-mentpropertywithinthemeaningofIAS40.5.Thesepropertiesareprimarilyheldtoearnrentals.Toalimiteddegree,theBankalsousessomeofthesepropertiesitself.However,becausetheseportionscannotbesoldseparatelyandareinsignificantforthepurposesofIAS40.10,theentiretyofsuchpropertiesisincludedinInvestmentproperties.

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90


11 | intangible non-current assets

ThecorebankingsystemAllegroisoneoftheBank’smostimportantintangibleassets.Ofthetotalcarryingamountforallintangiblenon-currentassets,EUR130millioncanbeattributedtoAllegroprojectscarriedoutinthiscontext.Allegro’sremainingaverageusefullifeis3.5years.

Changes in intangible non-current assets 2010


31.12.2009

Acquisition cost

01.01.2010

Change in scope of

consolidationAcquisition

cost

Change in scope of

consolidationCumulative amortisation

Change inforeign

exchange differences


Carrying amount

31.12.2010

Amortisation (-), impairments (+) and reversal of impairments (+)Financial year

Intangible non-current assets

266

539

–

–

–

9

-2

–

-317

229

-44

Goodwill 85 115 – – – – – – -38 77 -8Software and other intangible non-current assets

180

423

–

–

–

6

-2

1

-279

149

-36Thereof purchased 124 283 – – – 6 -2 1 -184 104 -26Thereof internally generated

56

140

–

–

–

–

–

–

-95

45

-10

Intangible non-current assets in development

1

1

–

–

–

3

–

-1

–

3

–

Thereof purchased 1 1 – – – 3 – -1 – 3 –

Changes in intangible non-current assets 2009


31.12.2008

Acquisition cost

01.01.2009

Change in scope of

consolidationAcquisition

cost

Change in scope of

consolidationCumulative amortisation

Change inforeign

exchange differences


Carrying amount

31.12.2009

Amortisation (-), impairments (+) and reversal of impairments (+)Financial year

Intangible non-current assets

295

527

10

-4

–

6

–

–

-273

266

-40

Goodwill 88 116 – – – – – – -30 85 -2Software and other intangible non-current assets

207

411

10

-4

–

5

–

–

-243

180

-38Thereof purchased 139 271 10 -4 – 5 – – -159 124 -26Thereof internally generated

68

140

–

–

–

–

–

–

-84

56

-12

Intangible non-current assets in development

–

–

–

–

–

1

–

–

–

1

–

Thereof purchased 0 – – – – 1 – – – 1 –

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91


Thefollowingtableshowsthegoodwillrecognisedasof31December2010:

Goodwill

in millions of Euros 31.12.2010 31.12.2009BAWAG P.S.K. Fuhrparkleasing GmbH, Vienna 1 1BAWAG P.S.K. Invest GmbH, Vienna 75 75easybank AG, Vienna 1 1Österreichische Verkehrskreditbank AG, Vienna – 8Goodwill 77 85

ThegoodwillofÖsterreichischeVerkehrskreditbankAGwaswrittendowntozerointhecurrentfinancialyear.

12 | other assets

in millions of Euros 31.12.2010 31.12.2009Tax assets 277 292

Thereof for current taxes 16 29Thereof for deferred taxes 261 263

Associates accounted for using the equity method 17 30Accruals 36 34Leasing objects not in operation 21 49Other items 127 197Other assets 478 602

ThefollowingtableshowskeyfinancialindicatorsfortheBank’sassociates:

Associates accounted for using the equity method

in millions of EurosCumulated

assetsCumulated

equityCumulated net profit

2010 1,818 3 -102009 1,688 34 -19

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ThedeferredtaxassetsreportedontheStatementofFinancialPositionaretheresultoftemporarydifferencesbetweenthecarryingamountspursuanttoIFRSandthevaluationsofthefollowingitemsaccordingtothetaxrequirements:

Net deferred tax assets on Statement of Financial Position

in millions of Euros 31.12.2010 31.12.2009Financial assets designated at fair value through profit or loss 21 47Available-for-sale financial assets 2 –Held-to-maturity investments – 1Loans and receivables 21 10Hedging derivatives – 7Financial liabilities designated at fair value through profit or loss 15 22Provisions 30 29Tax loss carryforwards 282 283Other 6 5Deferred tax assets 377 404Financial assets designated at fair value through profit or loss 10 21Available-for-sale financial assets 22 27Held-to-maturity investments – 2Assets held for trading 58 66Hedging derivatives 5 –Internally generated intangible assets 11 14Tangible non-current assets 10 11Deferred tax liabilities 116 141Net deferred tax assets on Statement of Financial Position 261 263

ForeachGroupmember,thedeferredtaxassetsandliabilitiespertainingtothesamelocaltaxauthoritywereoffsetagainsteachotherandreportedunderOtherassetsorTaxprovisions.

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93


13 | Financial liabilities designated at fair value through profit or loss

in millions of Euros 31.12.2010 31.12.2009Payables to customers 117 435

Investment products 117 435Other deposits – –

Issued bonds, subordinated and supplementary capital 4,783 5,936Issued bonds (own issues) 2,774 3,566Subordinated capital 601 847Supplementary capital 32 31Other obligations evidenced by paper 1,376 1,492

Financial liabilities designated at fair value through profit or loss 4,900 6,371

Thefairvaluesoftheinvestmentproductsarehedgedbyderivatives.

TheIssuedbondsarelistedissues,theOtherobligationsevidencedbypaperareshort-termnotesandnon-listedprivateplacements.

ThecarryingamountofthesecuritiesissuedbyBAWAGP.S.K.andrecognisedattheirfairvalueasof31December2010wasEUR53millionabovetheirnominalvalue(2009:EUR33millionabovethenominalvalue).ThecarryingamountoftheinvestmentproductsrecognisedattheirfairvaluewasEUR5millionabovetheirnominalvalue(2009:EUR13million).

14 | liabilities held for trading

in millions of Euros 31.12.2010 31.12.2009Negative fair values of derivative financial instruments 1,938 1,372

Derivatives trading book 1,356 861Foreign currency derivatives 704 235Interest rate derivatives 625 611Credit related derivatives 27 15

Derivatives banking book 582 511Foreign currency derivatives 419 180Interest rate derivatives 120 228Credit related derivatives 43 103

Other trading liabilities 333 826Thereof repurchase agreements 333 826

Liabilities held for trading 2,271 2,198

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94


15 | Financial liabilities measured at amortised cost

in millions of Euros 31.12.2010 31.12.2009Payables to credit institutions 2,205 3,468Payables to customers 21,733 22,674

Savings deposits 13,001 14,220Other deposits 8,732 8,454

Issued bonds, subordinated and supplementary capital 4,085 3,343Issued bonds 2,331 1,808Subordinated capital 251 256Supplementary capital 277 325Other obligations evidenced by paper 1,226 954

Financial liabilities at amortised cost 28,023 29,485

ThebondsissuedbyBAWAGP.S.K.werelistedsecurities.TheOtherobligationsevidencedbypaperwereshort-termnotesandunlistedprivateplacements.

16 | Payables to credit institutions and customers

Thefollowingbreakdownsdepicttheregionaldistributionofthepayablestocustomersandcreditinstitutionsasofthereportingdate,basedonthelocationofthecounterparty’sregistereddomicile.

Payables to credit institutions – Regional breakdown



31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009Austria – – 1,252 2,226 1,252 2,226Abroad – – 953 1,242 953 1,242

Western Europe – – 378 814 378 814Central and Eastern Europe – – 2 22 2 22North America – – 13 20 13 20Asia/Pacific – – – – – –Rest of the world – – 560 386 560 386

Payables to credit institutions – – 2,205 3,468 2,205 3,468

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95


Payables to customers – Regional breakdown



31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009Austria 115 429 21,291 22,095 21,406 22,524Abroad 2 6 442 579 444 585

Western Europe 1 4 281 298 282 302Central and Eastern Europe 1 2 99 201 100 203North America – – 19 21 19 21Asia/Pacific – – 8 8 8 8Rest of the world – – 35 51 35 51

Payables to customers 117 435 21,733 22,674 21,850 23,109

Thefollowingtabledepictsthebreakdownofpayablestocustomersandcreditinstitutionsbysector.

Payables to customers – Breakdown by sector



31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009Savings deposits – – 13,001 14,220 13,001 14,220

Savings accounts – – 5,238 6,651 5,238 6,651Savings associations – – 379 416 379 416Fixed-term investment savings accounts

–

–

7,384

7,153

7,384

7,153

Investment accounts 117 435 – – 117 435Other deposits – – 8,732 8,454 8,732 8,454

Central governments – – 393 412 393 412Non credit institutions – – 356 489 356 489Corporates – – 2,655 3,137 2,655 3,137Retail – – 5,328 4,416 5,328 4,416

Payables to customers 117 435 21,733 22,674 21,850 23,109

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96


17 | liabilities maturities

Thefollowingtablesdepictabreakdownofthefinancialliabilitiesbymaturity.

Financial liabilities – Breakdown by remaining period to maturity 2010

in millions of EurosUp to

3 months3 months

up to 1 year1–5 years

Over 5 years

Total

Liabilities designated at fair value through profit or loss31.12.2010 Payables to customers

11

9

7

90

117

Bonds, subordinated and supplementary capital

435

118

2,614

1,616

4,783

Liabilities at amortised cost31.12.2010 Payables to customers

9,669

3,819

3,443

4,802

21,733

Payables to credit institutions 1,221 80 240 664 2,205


141

417

2,178

1,349

4,085

Total as of 31.12.2010 11,477 4,443 8,482 8,521 32,923

Financial liabilities – Breakdown by remaining period to maturity 2009

in millions of EurosUp to

3 months3 months

up to 1 year1–5 years

Over 5 years

Total

Liabilities designated at fair value through profit or loss31.12.2009 Payables to customers

43

40

27

325

435


39

1,217

2,495

2,185

5,936

Liabilities at amortised cost31.12.2009 Payables to customers

10,721

2,586

4,175

5,192

22,674

Payables to credit institutions 1,553 1,075 333 507 3,468


101

848

912

1,482

3,343

Total as of 31.12.2009 12,457 5,766 7,942 9,691 35,856

Ofthethreehybridnotesissuedtodate(BCF,BCFII,BCFIII),thetermsofone(BCF)provideforacouponstep-upatitsfirstcallingdate,whereasnochangesinthetermsoftheothertwonotes(BCFII,BCFIII)areprovidedforduringtheirmaturity.InthecaseoftheBCFnote,thecouponwillchangefromfixedtovariableonthefirstcallingdate.Onlytheissuerhasanordinaryrightofredemption.Thecallingdatesofthenotesareasfollows:4 BCF:callablequarterly(showninFinancialliabilitiesdesignatedatfairvaluethroughprofitorloss)4 BCFII:callablequarterly(showninFinancialliabilitesmeasuredatamortisedcost)4 BCFIII:firstcallingdateis5April2014,andsemi-annuallythereafter(showninFinancialliabilities

designatedatfairvaluethroughprofitorloss)

97


97


18 | Provisions

in millions of Euros 31.12.2010 31.12.2009Provisions for social capital 362 356

Thereof for severance payments 86 89Thereof for pension provisions 246 236Thereof for jubilee benefits 30 31

Tax provisions 18 19Thereof for current taxes 3 4Thereof for deferred taxes 15 15

Anticipated losses on pending business 18 17Credit promises and guarantees 3 2Provisions for troubled contracts 15 15

Other items 38 49Provisions for pending litigation 38 43Other – 6

Provisions 436 441

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98


Changes in social capital

in millions of EurosProvisions for

post-employment benefits

Provisions for severance

payments

Provisions for jubilee benefits

Total social capital

Defined benefit obligation as of 01.01.2010 247 89 31 367Service cost 1 5 2 8Interest cost 12 4 1 17Payments -13 -3 -1 -17Others – -2 – -2Actuarial gain/loss as of 31.12.2010 10 -3 -1 6Defined benefit obligation as of 31.12.2010 257 90 32 379Fair value of plan assets -11 – – -11Reclassification to Non-current assets and disposal groups classified as held for sale

–

-4

-2

-6

Balance as of 31.12.2010 246 86 30 362

in millions of EurosProvisions for

post-employment benefits

Provisions for severance

payments

Provisions for jubilee benefits

Total social capital

Defined benefit obligation as of 01.01.2009 245 92 30 367Service cost 1 5 2 8Interest cost 12 4 1 17Payments -13 -4 -1 -18Actuarial gain as of 31.12.2009 5 – – 5Elimination from scope of consolidation -3 -8 -1 -12Defined benefit obligation as of 31.12.2009 247 89 31 367Fair value of plan assets -11 – – -11Balance as of 31.12.2009 236 89 31 356

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99


Assignable unit-linked pension fund assets

in millions of Euros 2010 2009Pension fund assets as of 1 January 11 5Additions – 5Fair value changes – 1Pension fund assets as of 31 December 11 11

TheFairvaluechangescontainexpectedreturnsonplanassets,actuarialgainsandlosses,contributionsbytheemployer,contributionsbyplanparticipantsandbenefitspaid.

Changes in tax and other provisions

in millions of EurosBalance

01.01.2010Added Used Released

Disposal scope of con-

solidation

Balance 31.12.2010

Tax provisions 19 3 -3 – -1 18Current taxes 4 1 -3 1 – 3Deferred taxes 15 2 – -1 -1 15Other provisions 66 5 -8 -7 – 56Anticipated losses from pending business

17

2

–

-1

–

18

Other items 49 3 -8 -6 – 38

in millions of EurosBalance

01.01.2009Added Used Released

Disposal scope of con-

solidation

Balance 31.12.2009

Tax provisions 22 2 -1 -4 – 19Current taxes 5 1 – -2 – 4Deferred taxes 17 1 -1 -2 – 15Other provisions 78 6 -4 -14 – 66Anticipated losses from pending business

27

1

–

-11

–

17

Other items 51 5 -4 -3 – 49

Otheritemsmainlycompriseprovisionsforpendinglegalproceedings.

100


100


Provisions for deferred taxes

ThedeferredtaxliabilitiesreportedontheStatementofFinancialPositionaretheresultoftemporarydifferencesbetweenthecarryingamountspursuanttoIFRSandthevaluationsofthefollowingitemsaccordingtothetaxrequirements:

in millions of Euros 31.12.2010 31.12.2009Financial assets designated at fair value through profit or loss – –Available-for-sale financial assets 7 7Loans and receivables 2 1Tangible non-current assets 2 3Other 4 4Deferred tax liabilities 15 15Net deferred tax liabilities on Statement of Financial Position 15 15

Temporarydifferencesforwhichnodeferredtaxliabilitieswererecognised,aspermittedbyIAS12.39,cametoEUR466million(2009:EUR458million).

19 | other obligations

in millions of Euros 31.12.2010 31.12.2009Other liabilities 441 347Accruals 21 31Other obligations 462 378

20 | Hedging derivatives

in millions of Euros 31.12.2010 31.12.2009Hedging derivatives in fair value hedges

Positive market values 55 33Negative market values 40 60

101


101


BAWAGP.S.K.usesfairvaluehedgeaccountingtoaccountforhedgesofinterestrateriskinherentinfixed-ratefinancialinstruments.Interestrateswapsareusuallyusedashedginginstruments.ThehedgeditemsaresecuritiesinthecategoryAvailable-for-salefinancialassetsaswellastheBank’sownissuesandsavingsaccountsthatarerecognisedatamortisedcost.

in millions of EurosNotional of

hedged itemsNet book value of

hedging instruments

Net valuation of hedged item and hedging

instrument recognised in the financial year

31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009Available for sale financial assets 926 1,254 -16 -59 4 -2

Securities 926 1,254 -16 -59 4 -2

Financial instruments recognised at amortised cost

7,722

3,699

31

32

10

-8

Own issues 2,941 686 9 31 7 -8

Savings deposits of customers

4,706

3,013

20

1

3

–

Loans to customers 75 – 2 – – –Total 8,648 4,953 15 -27 14 -10

TheeffectsofchangesinthevalueofthehedginginstrumentandthehedgeditemareshownunderNote24Gainsandlossesonfinancialassetsandliabilities.

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102


21 | equity

Share Capital

BAWAGP.S.K.hassharecapitalofEUR250milliondividedinto250,000,000shares.

Participation Capital

PursuanttotheagreementinprincipleconcludedwiththeRepublicofAustriaonthesubscriptionofpartici-pationcapitalandthesubscriptionagreement,theRepublicofAustriasubscribed11,000participationcertificateswithanominalvalueofEUR50,000each,fortotalparticipationcapitalofEUR550millionin2009.

Theholdersoftheparticipationcertificatesareentitledtoadividendof9.3percentp.a.,whichwillincreaseby0.5percentinboth2014and2015,by0.75percentin2016,andby1.0percenteveryfinancialyearstartingin2017.Thisdividendiscappedattheamountofthetwelve-monthEuriborplus10.0percentp.a.

AdividendmayonlybepaidonparticipationcertificateswhenitiscoveredbytheprofitforthepriorfinancialyearafterchangesinreservesinaccordancewithAustrianGAAP(UGB)andacorrespondingmotionispassedbytheAnnualGeneralMeetingofBAWAGP.S.K.ThedividendshallbepaidatthediscretionofBAWAGP.S.K.;thepresenceofdistributableprofitsdoesnotobligatetheBanktopayadividend.

Theparticipationcertificatesareissuedforanindefiniteperiodoftime,butcanberedeemedbytheissuerinaccordancewiththelegalrequirements.Theholdersoftheparticipationcertificateswaivetheirrighttotheordinaryandextraordinaryterminationofthecertificates.

TheparticipationcapitalisreportedasequitycapitalinBAWAGP.S.K.’sconsolidatedfinancialstatements;dividenddisbursementsfortheparticipationcapitalwillbereportedasappropriationofprofits.Theparticipa-tioncapitalwillberecognisedassupervisorycorecapitalforthepurposesofcalculatingtheBank’sownfundspursuanttotheAustrianBankingAct.

In2011,BAWAGP.S.K.planstopayadividendofEUR51.2milliontotheholdersoftheparticipationcapitalrelatedtotheperformancein2010.

103


103


Changes in reserves

in millions of Euros 2010 Capital reserves

Retained reserves

AFS reserve

Foreign exchange

differences

Actuarial gains/ losses

Equity w/o non-



Equity includ-ing non-


Total comprehensive income – 121.8 6.1 0.1 -5.0 123.0 0.8 123.8Consolidated profit/loss – 121.8 – – – 121.8 14.8 136.6Income and expenses recognised directly in equity

–

–

6.1

0.1

-5.0

1.2

-14.0

-12.8

Foreign exchange differences – – – 0.1 – 0.1 – 0.1Changes in AFS reserves – – 13.8 – – 13.8 -14.0 -0.2

Income and expenses recognised directly in equity (before taxes)

–

–

89.2

–

–

89.2

–

89.2

Reclassified due to realised profit/loss (before taxes)

–

–

-75.4

–

–

-75.4

–

-75.4

Share of other comprehensive income of associates accounted for using the equity method

–

–

-2.5

–

–

-2.5

–

-2.5

Actuarial gains (losses) on defined benefit pension plans

–

–

–

–

-6.7

-6.7

–

-6.7

Income taxes – – -5.2 – 1.7 -3.5 – -3.5

104


104


in millions of Euros 2009 Capital reserves

Retained reserves

AFS reserve

Foreign exchange

differences

Actuarial gains/ losses

Equity w/o non-



Equity includ-ing non-


Total comprehensive income – -30.0 48.2 – 7.8 26.0 195.1 221.1Consolidated profit/loss – -30.0 – – – -30.0 195.1 165.1Income and expenses recognised directly in equity

–

–

48.2

–

7.8

56.0

–

56.0

Changes in AFS reserves – – 63.4 – – 63.4 – 63.4

Income and expenses recognised directly in equity (before taxes)

–

–

68.2

–

–

68.2

–

68.2

Reclassified due to realised profit/loss (before taxes)

–

–

-4.8

–

–

-4.8

–

-4.8

Actuarial gains (losses) on defined benefit pension plans

–

–

–

–

10.4

10.4

–

10.4

Income taxes – – -15.2 – -2.6 -17.8 – -17.8

Income taxes recognised directly in equity

in millions of EurosBefore taxes

Incometaxes

After taxes

Before taxes

Incometaxes

After taxes

1–12/2010 1–12/2009AFS reserve 11.2 -5.1 6.1 63.4 -15.2 48.2Actuarial gains (losses) on defined benefit pension plans

-6.7

1.7

-5.0

10.4

-2.6

7.8

Income and expenses recognised directly in equity

4.5

-3.4

1.1

73.8

-17.8

56.0

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105


details of the Consolidated Profit or loss statement

22 | net interest income

in millions of Euros 2010 2009Interest income 1,429.5 1,584.8

Cash reserves 3.8 5.7 Financial assets held for trading 284.7 202.9 Financial assets designated at fair value through profit or loss 105.6 134.0Available-for-sale financial assets 221.5 103.2 Loans and receivables 798.5 886.9 Held-to-maturity investments 15.4 252.1

Interest expenses -787.4 -1,028.1 Financial liabilities held for trading -114.3 -99.9 Financial liabilities designated at fair value through profit or loss -257.0 -288.1 Financial liabilities measured at amortised cost -416.1 -640.1 Other liabilities – –

Dividend income 7.8 7.6 Available-for-sale financial assets 7.8 7.6

Net interest income 649.9 564.3

Ingeneral,interestincomeandsimilarincomearerecognisedonanaccrualbasis.Interestincomealsoincludespremiumsonsecuritiesclassifiedasfinancialinvestmentsontheaccrualbasisofaccounting.Interestincomeonimpairedreceivablesduring2010cametoEUR15.5million(2009:EUR10.8million).

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106


23 | net fee and commission income

NetfeeandcommissionincomecanbebrokendownbyBAWAGP.S.K.operationsasfollows:

in millions of Euros 2010 2009Payment transfers 151.8 151.1Lending 28.3 26.1Securities and custody business 36.7 36.2Foreign business, currency and notes-and-coin business 0.4 0.4Payments to Österreichische Post AG -73.0 -80.5Other services 20.9 21.5Fee relating to guarantee granted by the Republic of Austria -5.7 –Net fee and commission income 159.4 154.8

TheguaranteeissuedbytheRepublicofAustriaforcertainassetsinthemaximumamountofEUR400millionwasterminatedon22June2010.

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107


24 | gains and losses on financial assets and liabilities


Realised gains and losses on financial assets and liabilities not measured at fair value through profit or loss, net

209.2

-27.1

Available-for-sale financial assets 55.5 10.0 Loans and receivables (including finance leases) 1.7 -2.1 Held-to-maturity investments 130.7 -35.1 Financial liabilities measured at amortised cost 0.1 0.1 Gain from the sale of consolidated subsidiaries 21.2 –Gains (losses) on financial assets and liabilities held for trading, net 23.0 96.1 Interest rate instruments and related derivatives 24.0 -46.0 Foreign exchange trading 11.2 4.8 Credit risk instruments and related derivatives -12.2 137.3

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net

-82.9

266.1

Gains (losses) from fair value hedge accounting 14.3 -10.2 Fair value adjustment of hedged item -33.2 -6.7 Fair value adjustment of hedging instrument 47.5 -3.5 Exchange differences revaluations, net 3.5 0.6 Gains and losses on financial assets and liabilities 167.1 325.5

TheGains and losses on financial assets and liabilitiesaredrivenprimarilybythevaluationofourinvestmentsandissuedsecuritiesandgainsfromthesaleofsecurities.

TheFinancialMarketsunitachievedaresultofEUR19.2millioninthereportingperiodbytradinginsecuritiesandderivatives.

Riskpremiumsonthecapitalmarketdeclinedagainin2010,asin2009.ThisledtopositivevaluationresultsinthestructuredcreditportfolioofEUR28.8millionandrealisedgainsfromthesaleandredemptionofsecuritiesinthestructuredcreditportfoliointheamountofEUR10.3million.

AfurtherEUR21.2millioninincomewasgeneratedbythesaleofassociatedcompaniesandsubsidiaries.Investmentstrategychangesandrevisedinterestratepositioningresultedinthesaleofsecuritiesandtherealisationofcapitalgainsinthereportingperiod.Theseprofitswereusedtocoverexpensesfromthevaluationofissuedsecuritiesrecognisedatfairvaluethroughprofitorlossandothereffectsofhedgingmeasuresandvaluations.ThesemeasuresresultedinanetsurplusofapproximatelyEUR76million.

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25 | other operating income and expenses

in millions of Euros 2010 2009Net income from investment properties 4.5 3.8Net income from the sale of tangible and intangible non-current assets 0.2 7.0Net income from retailing -10.8 -9.2Other income and expenses 1.7 28.3Other operating income and expenses -4.4 29.9

IncomefrominvestmentpropertiesamountedtoEUR6.8millionin2010(2009:EUR6.8million);expensesdeclinedtoEUR1.9millionin2010(2009:EUR2.5million).VacancycostsamountedtoEUR0.4million(2009:EUR0.5million).

26 | administrative expenses

in millions of Euros 2010 2009Staff costs -371.7 -348.9Wages and salaries -279.2 -259.6Statutory social security contributions -62.4 -60.5Voluntary fringe benefits -4.5 -3.8Post-employment benefit costs -6.0 -6.0(Increase) decrease of pension provision -12.9 -11.2(Increase) decrease of provision for severance payments -4.1 -5.3(Increase) decrease of provision for jubilee benefits -1.5 -1.4Staff benefit fund costs -1.1 -1.1Other administrative expenses -172.8 -178.8Administrative expenses -544.5 -527.7

Post-employmentbenefitcostsincludepaymentstopensionfundsunderdefinedcontributionplans.

Otheradministrativeexpensesinclude,amongothers,advertisingexpenses,advisoryfees,rentalexpensesandITcosts.

ThewagesandsalariesstaffcostsincludecostsofrestructuringintheamountofEUR25.8million,whicharosefromourprogrammetoincreaseefficiencyandproductivity.Withouttakingintoaccountthecostsofrestructuring,the2010totaladministrativeexpenseswereEUR9.0millionlowerthanin2009.

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109


27 | depreciation and amortisation on tangible and intangible non-current assets

in millions of Euros 2010 2009Depreciation and amortisation

Intangible non-current assets -36.4 -37.8Tangible non-current assets -37.4 -42.6

Depreciation and amortisation -73.8 -80.4

28 | Provisions and impairment losses

in millions of Euros 2010 2009Changes in provisions for credit risk 2.3 7.9Impairment losses on financial assets -182.0 -241.5Impairment losses on non-financial assets -20.0 -3.1Provisions and impairment losses -199.7 -236.7

Impairment losses on financial assets

in millions of Euros 2010 2009Financial assets measured at cost -42.2 -8.8Available-for-sale financial assets not measured through profit or loss -1.9 –Held-to-maturity investments at amortised cost – -50.3Loans and receivables at amortised cost (including finance leases) -137.9 -182.4Direct write-downs and charges for losses on loans and advances to credit institutions and customers

-241.3

-252.9

Released from loan loss provisions for loans and advances to credit institutions and customers

101.7

69.5

Recoveries on loans previously written off 1.7 1.0

Impairment losses on financial assets not measured at fair value through profit or loss

-182.0

-241.5

Oftheimpairmentlossesonheld-to-maturityinvestmentsin2009,EUR48.1millioncanbeattributedtothestructuredcreditportfolio.In2010impairmentsofthestructuredcreditportfoliowerenotnecessary.

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110


Impairment losses on non-financial assets

Thefollowingtabledepictstheimpairmentsandreversalofimpairmentsmadeonindividualnon-financialassets.

in millions of Euros 2010 2009Property, buildings and equipment -8.4 0.5Investment property -3.6 -1.0Intangible non-current assets -8.0 -2.6

Goodwill -8.0 -2.6Other intangible non-current assets – –

Impairment losses on non-financial assets -20.0 -3.1

29 | share of the profit or loss of associates accounted for using the equity method

ThelossreportedforthecurrentyearofEUR–4.7million(2009:EUR–8.0million)isprimarilyduetotheproportionateshareinBAWAGP.S.K.VersicherungAGandZEUSRecoveryFundS.A.

TheunrecognisedshareofthelossesofentitiesthatwereaccountedforusingtheequitymethodasprovidedbyIAS28.37(g)cametoEUR0.0million(2009:EUR0.0million).

30 | income taxes

Income taxes recognised in profit or loss

in millions of Euros 2010 2009Current tax income / expense -13.6 0.6Deferred tax income / expense 0.9 -57.2Income taxes -12.7 -56.6

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Thefollowingreconciliationshowstherelationshipbetweencomputedtaxexpensesandreportedtaxexpenses:

in millions of Euros 2010 2009Profit before tax 149.3 221.7Tax rate 25% 25%Computed tax expenses -37.3 -55.4Reductions in taxDue to tax-exempt income from equity investments 2.4 –Due to gains and losses from the valuation of equity investments 0.9 –Due to tax neutral revaluations – 51.8Due to other tax-exempt income – 2.6Due to differing foreign tax rates 5.0 4.1Due to use of tax loss carryforwards without recognition of deferred taxes 58.4 –Due to other tax effects 0.9 8.1Increases in taxDue to the sale of equity investments -3.8 –Due to gains and losses from the valuation of equity investments – -1.4Due to unrecognised deferred taxes on tax loss carryforwards – -64.7Due to non tax deductable expenses -0.4 -1.5Due to other tax effects -26.4 -1.4Income tax in the period -0.3 -57.8Out-of-period income tax -12.4 1.2Reported income tax (expense) -12.7 -56.6

TheGroup’sassetsincludeddeferredtaxassetsaccountedforonthegroundsoftherecognisedbenefitsarisingfromasyetunusedtaxlossesintheamountofEUR282million(2009:EUR283million).Themajorityofthetaxlossescouldbecarriedforwardforanunlimitedperiod.TheuntaxedportionoftheliabilityreservewasEUR317.6million(2009:EUR317.6million).

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segment Reporting

ThisinformationisbasedontheGroupstructureasof31December2010.

ThesegmentreportingpresentstheresultsoftheoperatingbusinesssegmentsofBAWAGP.S.K.Group.ThefollowingsegmentinformationisbasedonIFRS8Operating Segments,whichfollowstheso-calledmanage-mentapproach.Inthis,thesegmentinformationispreparedonthebasisoftheinternalreportsusedbytheManagingBoardtoassesstheperformanceofthesegmentsandtomakedecisionsonallocatingresourcestothesegments.

Theprofitabilityofeachindividualsegmentismeasuredusingtheoperatingresultandtheindicatorsreturnonequityandcost-incomeratio.Thereturnonequityiscalculatedbydividingtheoperatingresultbeforetaxesbytheregulatorycapital(TierI).Thecost-incomeratioinoperatingbusinessactivitiesreflectsthecostefficiencyofthesegments;itiscalculatedbydividingoperatingexpensesbyearningsbeforeriskprovisions.

Inthemanagementreporting,netinterestincomeisallocatedtotheindividualsegmentsusingthemarketinterestratemethod.Accordingtothismethod,itisassumedthatassetsandliabilitiesarerefinancedbymoneyandcapitalmarkettransactionswithcorrespondingmaturities,leadingtonointerestraterisk.

Changesinthesegmentstructurecanresultfromorganisationalchangesorfromalteredmanagementrespon-sibilities.Thefollowingreorganisationsthathadamaterialeffectonthesegmentreportingtookplaceinfinancialyear2010:4 Duringthereportingperiod,managementresponsibilityforallrealestateandleasingbusinesswastrans-

ferredtotheCorporatessegment.4 InternationalBusinesswascarvedoutoftheCorporatessegmentandpresentedasaseparatesegment

startingin2010.4 TheformerTreasurysegmentwasextensivelyrestructuredduringthefinancialyear.Theresultfromtrading

andinvestmentsisnowallocatedtotheFinancialMarketssegment,whileequityinvestments,fundingandallassetliabilitymanagementarewithintheresponsibilityofCorporateCenter/AssetLiabilityManagement.

4 Theassignmentofsubsidiariestothesegmentswasmodifiedaccordinglyaspartoftheseorganisationalandmanagementresponsibilitychanges.

Comparisonperiodswereadjustedforallofthechangesmentionedabove.

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113


The segments in detail:

in millions of Euros Retail Banking

CorporatesInternational

BusinessFinancialMarkets

Total Business

Corporate Center/ALM

Total

Net interest income 2010 2009

305.0335.6

178.2173.5

78.234.9

60.677.1

621.9620.9

28.0-56.6

649.9564.3

Net fee and commission income 2010 2009

122.8110.0

77.166.4

-4.09.2

1.50.1

197.5185.7

-38.0-30.9

159.4154.8

Gains and losses on financial assets and liabilities

2010 2009

3.83.5

3.35.2

0.3–

19.219.0

26.727.7

129.1111.2

155.8138.9

Other operating income (expenses)

2010 2009

0.3-1.1

3.113.7

– –

– –

3.412.6

-7.817.3

-4.429.9

Total revenues 2010 2009

431.9448.0

261.7258.7

74.544.1

81.496.2

849.5846.9

111.241.0

960.8887.9

Provisions and impairment losses 2010 2009

-85.5-89.1

-13.1-65.1

– –

–-0.7

-98.6-154.9

-101.1-81.9

-199.7-236.7

Revenues after risk costs 2010 2009

346.4358.9

248.7193.7

74.544.1

81.495.4

751.0692.1

10.1-40.8

761.1651.2

Administrative expenses 2010 2009

-352.7-356.6

-100.2-98.9

-14.2-6.9

-29.6-24.5

-496.8-486.9

-47.7-41.0

-544.5-527.8

Depreciation and amortisation on tangible and intangible non-current assets

2010 2009

-32.9-38.4

-12.3-14.7

-0.9-0.8

-2.4-2.7

-48.5-56.6

-25.3-23.7

-73.8-80.3

Operating expenses 2010 2009

-385.6-395.0

-112.6-113.6

-15.2-7.6

-32.0-27.2

-545.3-543.5

-73.1-64.7

-618.3-608.1

Operating profit 2010 2009

-39.2-36.2

136.180.0

59.336.5

49.468.3

205.7148.6

-62.9-105.5

142.743.1

Share of the profit or loss of associates accounted for using the equity method

2010 2009

– –

– –

– –

– –

– –

-4.7-8.0

-4.7-8.0

Profit/Loss before tax 2010 -39.2 136.1 59.3 49.4 205.7 -67.6 138.02009 -36.2 80.0 36.5 68.3 148.6 -113.5 35.1

Assets 2010 2009

7,189.96,935.1

16,983.916,149.2

1,846.61,133.0

4,464.05,411.4

30,484.429,628.7

8,072.011,595.8

38,556.441,224.5

Refinancing of business 2010 2009

18,894.719,606.4

3,515.34,167.0

–2.1

––

22,410.023,775.6

16,146.417,449.0

38,556.441,224.6

Risk-weighted assets 2010 2009

3,897.63,924.8

9,123.67,968.3

1,886.81,541.9

968.21,623.7

15,876.215,058.7

5,549.84,605.0

21,426.019,663.7

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TheRetail Bankingsegmentcoversbankingservicesprovidedbybranches,alternativesaleschannelsandtheSmallBusinessunit.

ItalsocoversthesubsidiarieseasybankandBAWAGP.S.K.Invest.

TheinterestincomeintheRetailBankingsegmentisinfluencedsignificantlybyrevenuesfromdeposit-takingbusiness.Inthereportingperiodwefacedcontinuedfiercecompetitionandsustainedmarginpressure.BecauseoftheBank’sgoodliquidityposition,wewerenotforcedtofullyabsorbchangesonthemarket.However,thedeclineincustomerdepositsandtheremainingpressureonmarginsindeposit-takingbusinessstillreducedthecontributionthattheseactivitiesmadetotheBank’sresult.Incontrast,agoodlevelofnewlendingbusinessinthissegmentresultedinaslightlyimprovedcontributiontonetinterestincomefromtheseactivities.Commissionincomeimprovedconsiderablycomparedtothepriorfinancialyear,inpartthankstothestrongincreaseinsecuritiescommissions.Theimprovedcostbasisalsohadapositiveeffectonthesegment’sresults.

TheCorporatessegmentincludestheprofitcentrescommercialcustomers,publicsector,projectfinance,socialhousing,institutionalcustomersandfinancialinstitutions.MostofthecustomersinthissegmentarelocatedinAustria,andBAWAGP.S.K.offersabroadrangeofproductstomeettheirneeds.Theseincludestandardproductsaswellastailor-madefinancingandinvestmentsolutionsthatmakeBAWAGP.S.K.aparticularlyvaluableandreliablepartnerforAustria’seconomy.

Theleasingsub-grouphasbeenassignedtothissegmentsince2010.

Thepre-taxresultoftheCorporatessegmentimprovedconsiderablycomparedtothepreviousperiod.Thiswastheresultoftheincreaseinlendingcombinedwithanewwideningofinterestratemargins,aswellasincreasedcross-selling.Theriskprovisionsalsodevelopedwellinthe2010financialyear,reflectingtheconservativeprofileoftheloanportfolio.

TheBank’sInternational Businessincludestwounits,InternationalCorporatesandCommercialRealEstate.

Businessvolumeexpandedinthereportingperiod,butinstringentcompliancewiththerestrictiveriskguidelines.InternationalCorporatesinvestsprimarilyininvestmentgradeandnon-investmentgradecorporatebondsandloansdenominatedinEurosand,toalimitedextent,USdollars.ThisportfoliohadacarryingvalueofapproximatelyEUR1.8billionattheendof2010(approximatelyEUR1.1billionattheendof2009).

ThestructureoftheFinancial Marketssegmentwasadaptedtobetteraccountforthemarketandcustomerrequirementsin2010andnowcomprisestheunitsFX,CommoditiesandExecution,RatesandCreditMarkets.Fundingandequitycapitalinvestmentswerecarvedout,andhavebeenundertheresponsibilityofCorporateCenter/ALMsince2010.FinancialMarketsmanagestheGroup’sinvestmentandtradingactivities.Whilesubstantialgainsweremadeinoperationaltradingandinvestmentactivities,netinterestincomefellasaresultofthetargetedreductionofsecuritiesinvestmentsinthebankingbookastheBankadapteditsinterestrateposition.

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115


TheCorporate Center/ALMsegmentprimarilycoversassetandliabilitymanagement,fundingportfolios,investmentsofourequitycapital,thestructuredcreditportfolio,andadditionalbankandnon-banksub-sidiariesandportfolios.ItalsoincludestheresultofequityinvestmentsoutsideoftheBank’scorebusinessaswellasconsolidationeffectsandtranslationitemstocompensateforvaluationandreportingdifferencesbetweenthesegmentreportingandtheProfitorLossStatement.

Thegainsandlossesonfinancialassetsandliabilitiesaredrivenprimarilybythevaluationofourinvestmentsandissuedsecuritiesandgainsfromthesaleofsecurities.Riskpremiumsonthecapitalmarketdeclinedagainin2010,asin2009.Thisledtopositivevaluationresultsinthestructuredcreditportfolio.Furtherincomewasgeneratedbythesaleofassociatedcompaniesandsubsidiaries.Investmentstrategychangesandinterestratepositionchangesresultedinthesaleofsecuritiesandprofittakinginthereportingperiod.Theseprofitswereusedtocoverexpensesfromthevaluationofissuedsecuritiesrecognisedatfairvaluethroughprofitorlossandothereffectsofhedgingmeasuresandvaluations.Overall,thesemeasuresresultedinanetsurplus.

Theimpairmentsincludeloanlossprovisionsinsubsidiaries,whichareassignedtothissegment,aswellasimpairmentsofequityinvestments(EUR42.2million),ofgoodwill(EUR8.0million)andofrealestate(EUR12.0million).Thesegment’sadministrativeexpensesincludeexpensesaccruedinsubsidiariesallocatedtothissegment,centralitemssuchasfromoverallBankprojectsandinparticulartherestructuringcostsforthe2010financialyear.

ThesegmentresultisreconciledwiththeconsolidatedProfitorLossStatementasfollows:


Gains and losses on financial assets and liabilities according to segment report

155.9

138.9

Gains and losses on financial assets attributable to non-controlling interests

11.2

186.6

Gains and losses on financial assets and liabilities according to consolidated profit or loss statement

167.1

325.5

in millions of Euros 2010 2009Profit before tax according to segment report 138.1 35.2Gains and losses on financial assets attributable to non-controlling interests

11.2

186.6

Profit before tax according to consolidated profit or loss statement 149.3 221.8

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116


Capital Management

TheAustrianBankingAct(BWG)requirestheBanktomaintainaminimumamountofownfundsthatiscalculatedonthebasisofitsrisk-weightedassets.ThecapitalmanagementsystememployedbyBAWAGP.S.K.isbasedonownfundsasdefinedbytheBWGandtheInternalCapitalAdequacyAssessmentProcess(ICAAP)capitalmanagementapproach.

TheICAAPofBAWAGP.S.K.ismodeledtakingintoaccounttheBank’sbusinessandriskprofileandisanintegralpartoftheplanningandthecontrolsystem.InthecourseoftheICAAP,therisk-bearingcapacityandthecapitalforriskcoverageaccordingtopillar2oftheBaselframeworkaremonitored.EquityaccordingtoIFRS,certainhiddenreservesandthenominalvalueofTierIIemissionsareusedfortheICAAP.Furthermore,stresstestsareconductedunderICAAP.

TheregulatoryownfundsarebrokendownintothethreecategoriesTierItoIII,wherebytherearerecognitionlimitsforTierIIandIII.

BAWAGP.S.K.continuallymonitorsitscompliancewiththestipulatedownfundsratiosonthebasisofthenotificationssenttoOesterreichischeNationalbank(theAustrianNationalBank)attheendofeverymonthandonthebasisofcurrentbusinessdevelopments.

Thebudgetedbusinessvolumesarealsocomparedwiththeexpectedchangesintheeligibleownfundsatthebeginningofeveryfinancialyear.Inadditiontotherisk-weightedassets,thecalculationalsoincludestheownfundsrequirementforthesecuritiestradingbook(usinganinternalvalue-at-riskmodel)andtheownfundsrequirementtocoveroperationalrisk.Besidesregulatorycapitalmanagement,capitallimitsareassignedtothebusinesssegmentsbasedontheirplanningaspartoftheICAAPprocess.

TheBankemploysacentralisedcapitalmanagementsystembasedonamonthlyCapitalManagementMeeting.ThemainresponsibilitiesofthisfunctionaretocontinuouslymonitorthedevelopmentoftheBank’sbusiness,toanalysechangesinitsrisk-weightedassetsandtoreconciletheseassetswiththeavailableregulatoryownfundsortheICAAPlimitandutilisationspersegment.TheimplementationoftheBaselIIIregulationsisalsodiscussedatthemeetings;BAWAGP.S.K.hasalreadyincludedtheBaselIIIcriteriainitscapitalmanagement.TheCapitalManagementMeetinggivesrecommendationstotheManagingBoardforincreasingtheownfundscoveragewhennecessaryandreportstotheManagingBoardandtheEnterpriseRiskMeetingonceamonth.

TheapplicationfiledbyBAWAGP.S.K.withtheFinancialMarketAuthority(FMA)inDecember2009fortheapprovaloftheuseoftheInternalRatingBased(IRB)approachforcalculatingitsownfundsrequirementsstemmingfromcreditriskinsteadofthepreviouslyusedBaselIIstandardisedapproachwaswithdrawnbytheBankinthefirsthalfof2010.TheBankintendstosubmitanewapplicationtotheFMAatalaterpointintime.

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ThefollowingtableshowsthebreakdownoftheGroup’sownfundsanditsownfundsrequirementpursuanttoBWG:

in millions of Euros 31.12.2010 31.12.2009Share capital, participation capital 800 800Reserves (including fund for general banking risks) 1,118 954Goodwill, minorities and deductions 307 346Core capital (Tier I) 2,225 2,100Less shareholdings held for investment purposes -35 -51Core capital (Tier I) after deductions 2,190 2,049Reserve under § 57 BWG, revaluation reserve 49 85Supplementary and subordinated debt capital 593 746Additional items (Tier II) 642 831Less shareholdings held for investment purposes -35 -51Eligible own funds 2,797 2,829Tier III 115 67Own funds 2,912 2,896

Ourownfundscomparedwiththefollowingownfundsrequirement:

Credit risk 1,714 1,579Market risk 115 67Operational risk 146 150Capital requirements 1,976 1,796

The core capital ratio (Tier I) of 9.9 per cent (2009: 10.0 per cent) and the own funds ratio of 12.4 per cent (2009: 13.6 per cent) are well above the legally stipulated minimum requirements of 4 per cent and 8 per cent, respectively. The Tier I capital ratio based on credit risk is 10.2 per cent (2009: 10.4 per cent). The expected appropriation of earnings is considered in this presentation.

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Further disclosures Required by iFRs

31 | Fair value

ThefollowingtabledepictsthefairvaluesoftheStatementofFinancialPositionitems.Thesearetheamountsforwhichassetscouldhavebeenexchanged,orliabilitiessettled,betweenknowledgeable,willingpartiesinanarm’slengthtransactiononthereportingdate.Ifmarketpriceswereavailableonastockex-changeorotherfunctioningmarket,theywereused.

Ifnocurrent,liquidmarketvalueswereavailable,generallyaccepted,standardstate-of-the-artmethodsofmeasurementwereused.Thisappliestothecategoryliabilitiesevidencedbypaper(issuedbyBAWAGP.S.K.),structuredcredittransactionsforwhichtherearenoactivemarkets,and,inindividualcases,othercurrentfinancialassetsintheBank’stradingportfoliowherethevaluationofplainvanillasecuritieswasperformedonthebasisoftheyieldcurveplusthecurrentcreditspread.

Themeasurementtofairvalueofcustomers’businesswascarriedoutbyapplyingcreditspreadsforeachcustomercategory.Theblanketcreditspreadsareappliedforthefollowingcustomercategories:creditinstitutions,commercialcustomers,publicsectorandprivatecustomers,forwhichmortgageloansandotherloansareconsideredseparately.Thecreditspreadsincustomerbusinessarederivedbyanalysingbothexternaldata(marketdevelopmentsandOeNBstatistics)andinternaldefaultstatistics.

Linearderivativefinancialinstrumentscontainingnooptionalcomponents(suchasinterestrateswaps,currencyforwardsandfutures)werealsorecognisedusingapresentvaluetechnique(discountingoffuturecashflowsapplyingthecurrentswapcurve).

OptionalinstrumentsweremeasuredusingoptionpricemodelssuchasBlack-Scholes(swaptions,caps,floors),Garman-Kohlhagen(currencyoptions)ortheHull-Whitemodel(swapswithmultiplecancellationrights),whichwereimplementedandappliedconsistentlyinthefrontofficesystems.

Thebasicparametersonwhichthemodelsarebased(yieldcurves,volatilitiesandexchangerates)areinputintothesystembytheMarketRiskunitindependentlyoftheTreasurydivision,whichensurestheseparationoffrontofficefunctionsfrombackofficeprocessingandcontrol.

Formorecomplexderivativesthatareheldforhedgingpurposesandthatareconcludedbacktoback,externalvaluationsareobtainedbytheMarketRiskunitinisolatedcasesandinputintothesystemsforcorrectprocessing.

StandardproviderssuchasBloomberg(spreadsfrombenchmarkbonds)andMarkit(toevaluatethetermstructure)areusedtoevaluatethespreadsofissuedsecuritiesrecognisedatfairvaluethroughprofitorloss.ThesecuritiespricesforBAWAGP.S.K.issuesarethencalculatedbydiscountingtheswapcurveadaptedbythespread.

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In2010,theportionofthechangeinthefairvaluesofthesecuritiesissuedbyBAWAGP.S.K.accountedforsolelybychangesinourcreditspreads(followingthenettingofassetandliabilityportfolios)wasEUR–95million(EUR–58millionasof31December2009).Asof31December2010thecumulativefairvaluechangeresultingfromchangesinourcreditratingamountedtoEUR144million(EUR240millionasof31December2009).

Intheyearthereafter,aonebasispointnarrowingofthecreditspreadisexpectedtoreducetheirfairvaluebyEUR1.2million.

ThecumulativefairvaluechangeofreceivablesrecognisedatfairvaluethroughprofitorlossthatwasrecognisedduetochangesincreditspreadsamountedtoEUR+0millionasof31December2010(EUR0millionasof31December2009).

Thecarryingamountwasusedasthefairvalueforpartoftheinterest-bearingreceivablesandpayableswithoutfixedinterestperiods.

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Fair values of selected items on the Statement of Financial Position

ThefollowingtabledepictsacomparisonofthecarryingamountsandfairvaluesforselecteditemsontheStatementofFinancialPosition.


12/2010

Fair value 12/2010

Carrying amount

12/2009

Fair value 12/2009

AssetsCash reserves 511 511 615 615


2,284

2,284

2,980

2,980

Available-for-sale financial assets 6,644 6,644 3,250 3,250Held-to-maturity investments – – 6,560 6,632Assets held for trading 1,927 1,927 1,753 1,753Loans and receivables 26,173 26,645 24,879 25,160Hedging derivatives 55 55 33 33Tangible non-current assets 219 n/a 287 n/a

Thereof investment properties 33 39 64 70Intangible non-current assets 229 n/a 266 n/aOther assets 478 n/a 602 n/aNon-current assets in disposal groups held for sale 36 n/a – –Total assets 38,556 41,225

Equity and liabilities

Financial liabilities designated at fair value through profit or loss

4,900

4,900

6,371

6,371

Liabilities held for trading 2,271 2,271 2,198 2,198Financial liabilities designated at amortised cost 28,023 28,408 29,485 29,669Hedging derivatives 40 40 60 60Provisions 417 n/a 441 n/aOther obligations 481 n/a 378 n/aObligations in disposal groups held for sale 38 n/a – –Equity 2,016 n/a 1,919 n/aNon-controlling interests 370 n/a 373 n/aTotal equity and liabilities 38,556 41,225

TheAvailable-for-salefinancialassetsincludeequityinvestmentsintheamountofEUR247million(2009:EUR279million).Thecarryingamountwasusedasthefairvaluebecauseamarketvaluecannotbedeterminedreliably.

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Fair value hierarchy

ThefollowingtabledepictsananalysisofthefinancialinstrumentsrecognisedattheirfairvaluesonthebasisofthefairvaluehierarchyinIFRS7.Thebreakdownconsistsofthefollowinggroups:4 Level1:Thevalueoffinancialinstrumentsismeasuredusingaquotedpricewithoutadjustment.This

includesgovernmentbonds,bondswithquotedpricesandexchange-tradedderivatives;4 Level2:Thevalueismeasuredbyusinginputfactors(defaultrates,costs,liquidity,volatility,interest

rates,etc.)toderivevaluesfromquotedprices(Level1).Thispertainstopricesthatarecalculatedusinginternalmodelsorusingvaluationmethods,aswellastoexternalpricequotesforsecuritiesthataretradedonmarketswithlimitedliquidityandthataredemonstrablybasedonobservablemarketprices.Thiscategoryincludesalargeshareofthestructuredcreditportfolio.ItalsoincludesthemajorityoftheOTCderivativecontracts,corporatebondsandotherbondsforwhichnoquotedpriceisavailable,aswellastheGroup’sownissuesthatarerecognisedattheirfairvalues;

4 Level3:Themeasurementisbasedonunobservableinputfactorsthathaveamaterialinfluenceonthemarketvalue.Thispertainsprimarilytoilliquidstructuredsecuritisationinstrumentswhosevalueisdeter-minedbyunobservableassumptions(theoutcomeoflitigation,investordecisions,triggerevents,etc.);

4 Other:Thispertainstostakesinnon-consolidatedsubsidiariesthatareclassifiedasavailableforsale.

in millions of EurosLevel 1

12/2010Level 2

12/2010Level 3

12/2010Others 1)

12/2010Total

12/2010

Assets


466

1,712

106

–

2,284

Available-for-sale financial assets 6,040 357 – 247 6,644Assets held for trading 71 1,856 – – 1,927Hedging derivatives – 55 – – 55Total assets 6,577 3,980 106 247 10,910Liabilities


14

4,796

90

–

4,900

Liabilities held for trading 333 1,938 – – 2,271Hedging derivatives – 40 – – 40Total liabilities 347 6,774 90 – 7,211

1) Investments in equity that are measured at cost in accordance with IAS 39.AG80-81 because their fair value cannot be measured reliably.

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in millions of EurosLevel 1

12/2009Level 2

12/2009Level 3

12/2009Others 1)

12/2009Total

12/2009

Assets


2,212

705

63

–

2,980

Available-for-sale financial assets 2,749 222 – 279 3,250Assets held for trading 460 1,293 – – 1,753Hedging derivatives – 33 – – 33Total assets 5,421 2,253 63 279 8,016Liabilities


159

6,212

–

–

6,371

Liabilities held for trading 942 1,256 – – 2,198Hedging derivatives – 60 – – 60Total liabilities 1,101 7,528 – – 8,629

1) Investments in equity that are measured at cost in accordance with IAS 39.AG80-81 because their fair value cannot be measured reliably.

ThechangesinfinancialinstrumentsintheLevelIIIcategorywereasfollows:

in millions of EurosFinancial

assetsFinancial liabilities

Opening balance as of 1.1.2010 63 –Gains and losses in profit and loss

for assets held at the end of the period -10 -36for assets no longer held at the end of the period 2 –

Redemptions/Sales -24 –Foreign exchange differences 4 -23Transfers into or out of Level 3 71 -31Closing balance as of 31.12.2010 106 -90

in millions of EurosFinancial

assetsFinancial liabilities

Opening balance as of 1.1.2009 75 –Total gains and losses in profit and loss

for assets held at the end of the period -1 –Purchases 1 –Redemptions -12 –Closing balance as of 31.12.2009 63 –

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Movements in Level 3 financial instruments measured at fair value

Inthefinancialyear2010,significantpartsofsecuritiespresentedinLevel3asof31December2009weresold.Ontheotherhand,structuredcreditsecuritiesandownissueshavebeenreclassifiedtoLevel3becauseunobservableparametershavebeenincludedinthefairvaluecalculationduetochangedcircumstancesin2010.

Sensitivity analysis of unobservable parameters

Ifthevalueoffinancialinstrumentsisdependentonunobservableinputparameters,thepreciselevelfortheseparameterscouldbedrawnfromarangeofreasonablypossiblealternatives.Iftheseunobservableparametersaremovedtotheouterrangeasof31December2010itcouldhaveincreasedfairvaluebyEUR47millionordecreasedfairvaluebyEUR12million.Themainfactorsthatwerevariedinestimatingtheseimpactsweretheprobabilitiesofdefaultandtheexpectedredemptiondatesofownissues.

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32 | Receivables from and payables to subsidiaries and associates

BAWAGP.S.K.Group’sreceivablesfromandpayablestonon-consolidatedsubsidiariesandassociateswereasshownbelow.Businessrelationshipswiththeseentitiesweresubjecttonormalbankingtermsandconditions.

Receivables from and payables to subsidiaries

in millions of Euros 31.12.2010 31.12.2009Receivables from credit institutions – –Receivables from customers 222 169Receivables from subsidiaries 222 169Payables to credit institutions – –Payables to customers 33 62Payables to subsidiaries 33 62Other obligations 48 48

Thistableonlydepictsreceivablesandpayables(nosecurities).

Interestincomefrombusinesswithsubsidiariesin2010totalledEUR6million(2009:EUR4million)andinterestexpensesEUR1million(2009:EUR1million).

Receivables from and payables to associates

in millions of Euros 31.12.2010 31.12.2009Receivables from credit institutions – –Receivables from customers 233 227Impairment provisions – –Receivables from associates 233 227Payables to credit institutions 1 1Payables to customers 48 74Payables to associates 49 75

Thistableonlydepictsreceivablesandpayables(nosecurities).

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33 | Related parties

Owners of BAWAG P.S.K.

99.62percent BAWAGHoldingGmbH 0.38percent Pa-ZweiundsechzigsteWTBeteiligungsverwaltungsGmbH

Pa-ZweiundsechzigsteWTBeteiligungsverwaltungsGmbHisa100percentsubsidiaryofBAWAGHoldingGmbH(formerly:Pa-ZweiundfünfzigsteWTPBeteiligungsverwaltungsGmbH).

BAWAGHoldingGmbH(calledBAWAGHoldinginthefollowing)iswhollyownedbytheDutchfinancialholdingfirmPromontoriaSacherHoldingN.V.,whichisinturnwhollyownedbytheDutchfinancialholdingfirmPromontoriaSacherCoöperatieU.A.Thelatterisa51.25percentsubsidiaryoftheDutchfinancialholdingfirmBAWAGHoldingsCoöperatieU.A.BAWAGHoldingsCoöperatieU.A.isdirectlyandindirectlyownedbyaconsortiumofcompaniesincludingÖsterreichischePostAG,GeneraliHoldingAGandWüstenrotVerwaltungs-undDienstleistungenGmbH,andismanagedbyawiderangeofprivateinvestmentfundsthatareinturnassociatedwithCerberusand,asCerberus,areultimatelyunderthecontrolofStephenA.Feinberg.

TheBankalsohasbusinessdealingswiththefollowingcompanies,whicharerelatedtoCerberus:4Ableco(agent)4AntoinetteHoldingLtd.(contractualrelationship)4BAWAGHoldingGmbH(currentaccount,timedeposit,headoftaxgroup)4CerberusOperationsandAdvisoryCompany,LLC(consultant)4KomagataHoldingB.V.(CLNfromStröerOut-of-HomeMediaAG[StröerTurkey]loan)

Subsidiaries, Joint Ventures and Equity Investments of BAWAG P.S.K.

BAWAG P.S.K. Versicherung Aktiengesellschaft

ThebusinessdealingsbetweenBAWAGP.S.K.andBAWAGP.S.K.VersicherungAG,amajority-ownedsub-sidiaryoftheGeneraliGroup,coversecuritiesaccountsandcurrentaccounts,allofwhichareofferedatstandardmarketterms.ThebusinessrelationsbetweenBAWAGP.S.K.andGeneraliaregovernedbycontractswithstandardmarketterms,includingacooperationagreement,alicenseagreement,apensionagreementandothers.Toaccountfortherequirementsofthemarketandthesignificantgrowthofthecompany,anadditionalshareholders’contributionwasagreedin2010tostrengthenBAWAGP.S.K.Versicherung’sequitybase.

Versicherungsdienst BAWAG P.S.K. GmbH

Inthefinancialyear2007,aminorityshareintheinsurancebrokeragecompanyVersicherungsdienstBAWAGP.S.K.GmbHwassoldtoGenerali.BAWAGP.S.K.ispaidstandardmarketcommissionsforbrokeringinsurancepolicies.Theremaining50.01percentwassoldtoBAWAGP.S.K.VersicherungAGinthereportingperiod.

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Omnitec Informationstechnologie-Systemservice GmbH

BAWAGP.S.K.holds50percentofOmnitecInformationstechnologie-SystemserviceGmbHthroughoneofitssubsidiaries.Theremaining50percentisownedbyÖsterreichischePostAG.Thebusinessofthiscompanyistheplanning,installationandoperationofauniformITsystemforAustria’spostoffices.TheapplicationsinthissystemcanbeusedbythepostalserviceandbyBAWAGP.S.K.

BAWAG Allianz Vorsorgekasse AG

HalfofthiscompanyisownedbyBAWAGP.S.K.GroupandhalfbyAllianzElementarVersicherungs-Aktien-gesellschaft.TheassetsundermanagementtotalledapproximatelyEUR531millionattheendof2010,andaremanagedinequalpartsbyBAWAGP.S.K.InvestGmbHandAllianzInvestmentBankatstandardmarketterms.

Associated but not consolidated companies in the real estate group and in the leasing group

Thefollowingcompaniesareindirect100percentsubsidiariesofBAWAGP.S.K.:4BAWAGLeasing&fleetKft(Hungary)4BAWAGLeasing&fleetSp.z.o.o.(Poland)4BAWAGLeasing&fleets.r.o.(CzechRepublic)4BAWAGLeasing&fleets.r.o.(Slovakia)4BAWAGLeasingZrt.(Hungary)4BAWAGRealEstateLeasings.r.o.(CzechRepublic)4BAWAGLeasings.r.o.(Slovakia)4BPLCZOnes.r.o.(CzechRepublic)4GaraRPKGrundstücksverwaltungsgesellschaftm.b.H.4PTImmobilienleasingGmbH4REALESTATELeasings.r.o.(Slovakia)4IDGImmobilienDevelopmentGmbH&CoKG4IngebeImmobilienhandels-undvermittlungsGmbH4PlatoGrundstücksverwertungsGmbH

IDGImmobilienDevelopmentGmbHwasmergedwithBAWAGP.S.K.ImmobilienGmbHin2010,andthesharesinMARVEImmobilienentwicklungsgesellschaftm.b.H.weresold.

EachofthefollowingleasingcompaniesisheldindirectlybyBAWAGP.S.K.andonecooperationpartner:KommunalleasingGmbH(50percent),RealplanBetaLiegenschaftsverwertungGmbH(50percent),HFEAlphaHandels-GmbH(50percent),ImmoconsultUriahLeasinggesellschaftm.b.H.(45percent),FidesLeasingGmbH(50percent)andGeneraliLeasingGmbH(25percent).

ImmobiliengesellschaftB.A.O.ImmobilienvermietungsGmbHisheldtogetherwithtwocooperationpartners;eachownerhasaone-thirdstake.

TheleasingcompaniesthataremajorityownedbyBAWAGP.S.K.havebeenrefinancedwithoutriskpremiumsorprofitmarginssofarandwillberefinancedwithoutprofitmarginsinthefuture.AdministrativecostsareassessedagainstBAWAGP.S.K.LeasingGmbHandBAWAGP.S.K.IMMOBILIENGmbHfortheirmanagement.

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Foreign Companies

BensorTrust,theBiamoFoundation,TrevalTrust,theGlenStarFoundationandCelesteTrustREG.wereconvertedintoprivate-lawinstitutionsduringthe2010financialyear.AustinvestAnstaltandtheseconvertedentitieswerethenmergedintoAustostAnstalt,whichisnowtheonlyremainingcompanyinLiechtenstein.

AustostHandels-undTreuhandLtd.(Guernsey),ShrivenhamLtd.(acquiredbyAustostAnstaltin2010)andPolestarLtd.wereplacedunderliquidation.

TheliquidationofBAWAGInternationalFinanceLtd.(Ireland)wasfinalisedduringthereportingperiod.

DatchetLtd.(Ireland)isnotaholdingofBAWAGP.S.K.However,BAWAGP.S.K.holdsacalloptionforthepurchaseofsharesinthecompanyandissuedanauthorisationanddischargedeclarationinfavourofthecurrentshareholdersanddirectorsfromLiechtenstein.Thiscompanywasalsoplacedunderliquidationin2010.

BAWAGInvestmentsLtd.(Jersey)isanindirect100percentsubsidiaryofBAWAGP.S.K.Itsbusinessfocusesoninvestmenttransactionsandisconductedatstandardmarketterms.

TheliquidationofBAWAGP.S.K.JerseyAutoFinanceLtd.,AutoFinanceJerseyILtdandAutoFinanceJerseyIILtd.wascompletedin2010,andtheliquidationofBAWAGP.S.K.CapitalAdvisorsLtd.isstillunderway.

Amongothers,thefollowingcompaniesarenotconsolidated:4 VindobonaalphaS.a.r.l.(Luxembourg,100percent);thiscompanywasestablishedtoprovideprivate

healthinsuranceforforeignemployeesandforManagingBoardmembersofBAWAGP.S.K.andtheirfamilymembers.

4BAWAGP.S.K.EquityFinanceLtd.(Jersey,100percent;isnotconductingbusinessatthistime)

Other Contractual Relationships with Related Entities

AletterofcomfortforthebenefitofB.I.S.BAWAGInternetServicesGmbHwasissuedbyBAWAGP.S.K.in2001andhasnotermoramountlimit.BAWAGP.S.K.hasalsofullyindemnifiedPlatoGrundstücksverwer-tungsGmbHagainstanydamagesresultingfromthird-partyclaims,lawsuitsorfinanciallosses.

Private Equity and Venture Capital Companies

Inadditiontoanumberofnon-controllinginterests,thisalsoincludesthe50percentinterestinAthenaWienBeteiligungenAGandthe100percentinterestinuniventureBeteiligungsAG.

ThebusinessdealingsbetweenthesecompaniesandBAWAGP.S.K.areconductedatarm’s-lengthtermswiththefollowingexception:NopersonnelchargesareassessedagainstuniventureforworkcompletedbyBAWAGP.S.K.employeesforthecompany.

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MKB Bank Zrt.

AfterthecapitalincreasescompletedforMKBBankZrt.in2010tostrengthenitsequitybase,P.S.K.BeteiligungsverwaltungGmbHholds9.77percentofthebankor2,025,420shares.Inadditiontothis,AntoinetteHoldingLtd.,acompanycontrolledbyCerberusCapitalManagement,L.P.,holds70,472sharesorastakeof0.34percent.

Paysafecard.com Wertkarten AG

BAWAGP.S.K.holds11.24percentoftheparentcompanyoftheinternationallyactivePaysafecardGroup,whichspecialisesinprepaidpaymentsolutions.AndroschPrivatstiftungholds38percentoftheshares.

BWA Beteiligungs- und Verwaltungs-Aktiengesellschaft

BAWAGP.S.K.hasa3.88percentinterestinthecompany,whichisthesoleownerofBausparkasseWüsten-rotAG.BAWAGP.S.K.isrepresentedonbothsupervisoryboardsbyDeputyCEOStephanKoren.

BAWAGP.S.K.exclusivelysellsbuildingassociationsavingsproductsfromBausparkasseWüstenrotAGthroughitsdistributionnetworksonthebasisofacooperationagreement.

Zeus Recovery Fund S.A.

Thecompany,whichisdomiciledinLuxembourg,holdsthreeportfoliosofdistressed,non-securedGreekconsumerloansandisa50:50jointventurewiththeBankofAmerica.ItisheldthroughBAWAGP.S.K.JerseyCapitalLtd.

The Members of the Managing Board, the Supervisory Board and Key Management Personnel

ExpensesforremunerationpaidtoactivemembersoftheManagingBoardduringthefinancialyearcametoEUR9,358thousand(2009:EUR6,662thousand).Expensesforpost-employmentbenefitsforformermembersoftheManagingBoardandtheirsurvivingdependantscametoEUR1,674thousand.Duetothereleaseofprovisionsforbeneficiaries,earningsofEUR456thousandwererecognisedintheperiod(2009:earningsofEUR1,669thousand).

Expendituresforseverancepayandpost-employmentbenefitsfortheManagingBoardandkeymanagementpersonnelcametoEUR10,729thousand(2009:EUR11,549thousand).ExpenditureswithrespecttootheremployeescametoEUR32,219thousand(2009:EUR39,400thousand).

SixmembersoftheManagingBoardhadapost-employmentbenefitarrangementasof31December2010.ProvisionswereformedontheStatementofFinancialPositionfordirectbenefitobligations.ThepensionclaimsofManagingBoardmemberswereshiftedtoapensionfundforthemostpart.

Asofthereportingdate,therewasoneoutstandingloantoamemberoftheManagingBoardintheamountofEUR38thousand(2009:nooutstandingloans).LoanstomembersoftheSupervisoryBoardtotalledEUR29thousand(2009:EUR33thousand).Repaymentsofloansgrantedtoboardmemberstookplaceascontractuallyagreed.

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Furthermore,ManagingBoardmembersdidnotmakeuseofcurrentaccountlimitsasofthereportingdate.Intotal,thecurrentaccountlimitsmadeuseofbymembersoftheSupervisoryBoardamounttoEUR26thousand(2009:EUR32thousand).TurnoversofguaranteedcreditcardsthatbelongtoManagingBoardmembersamountedtoEUR0inDecember2010.TurnoversofguaranteedcreditcardsthatbelongtomembersoftheSupervisoryBoardamountedtoEUR2thousandinDecember2010(2009:EUR1thousand).

AlistoftheBank’sBoardsandOfficerscanbefoundinanappendixtotheNotes.

Notallmanagerialstaffareentitledtopost-employmentbenefitsfromtheBank.Themanagerialemployeeswhoareentitledtopost-employmentbenefitsfromtheBankwereawardedtheseentitlementsundertheprovisionsofthe1961pensionreformoronthebasisofindividualcommitmentsbytheBank.Allemployeesareentitledtopensionbenefitsfromapensionfundundertheprovisionsofthecollectivebargainingagree-mentforpensionfunds.

Thefollowingbreakdowndepictsthebusinessrelationswithrelatedindividualsandtheirfamilymembers.Allbusinessisconductedatstandardindustryandgrouptermsforemployeesoratstandardmarketterms.

in thousands of Euros 31.12.2010 31.12.2009Current account deposits 5,028 5,243Savings deposits 3,245 3,789Loans 1,667 1,468Leasing 70 142

TheremunerationschemeforSupervisoryBoardmembersapprovedattheAnnualGeneralMeetingstipulatesthattheChairmanoftheSupervisoryBoardshallreceiveEUR60,000percalendaryear,theDeputyChairmanshallreceiveEUR40,000percalendaryearandthemembersoftheSupervisoryBoardselectedattheAnnualGeneralMeetingshalleachreceiveEUR30,000percalendaryear.ThechairmenoftheCreditandAuditCommitteeseachreceiveEUR20,000andallothermembersoftheCreditandAuditCommitteeseachreceiveEUR10,000(theseadditionalcompensationmeasuresdonotapplyfortheChairmanoftheSuper-visoryBoard).RemunerationofmembersoftheSupervisoryBoardcametoEUR253thousandin2010(2009:EUR308thousand).WorksCouncilDelegatestotheSupervisoryBoarddonotreceiveanyremuneration.

In2008somemembersoftheSupervisoryBoardandManagingBoardenteredintoalong-termincentiveplanwithBAWAGHoldingsCoöperatieU.A.,anaffiliatedcompanyoftheBAWAGP.S.K.Group.Thisplanprovideslong-termincentiveremunerationlinkedtothecreationofshareholdervalue.Theawardsvestoveranaverageperiodoffouryearsbasedpartiallyonthemembers’continuedemploymentandpartiallyontheattainmentofperformance-basedtargetsofBAWAGP.S.K.Theconditionsaresuchthattheawardshavenovalueatincep-tionandthereforenoliabilitieshavebeenrecordedinthe2010financialstatements(2009:0).Thefuturevalueofthelong-termincentiveplanisalsouncertaininlightofthecurrenteconomicenvironment.

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34 | Remuneration policy according to CRd iii directive

BAWAGP.S.K.hasagreedandamendeditsremunerationpolicycoveringManagingBoardmembersandemployeesoftheBankthatwaspresentedandapprovedbytheRemunerationCommitteeinFebruary2011.ThisamendedremunerationpolicytakesintoaccounttheprinciplesoftheEU’sCRDIIIDirectiveandtheassociatedamendmentstotheAustrianBankingAct.Thisremunerationpolicyisvalidforvariableremunera-tionawardspaidoutinthefirstquarterof2011basedonBAWAGP.S.K.’s2010financialresults.

ForemployeeswhoseactivitieshaveamaterialinfluenceontheBank’sriskprofile,thisguidelinestipulatesaremunerationpolicythatdoesnotimpedeeffectiveriskmanagement.Itisdesignedtoalignthepersonalobjectivesoftheemployeeswiththelong-terminterestsoftheBankandtoensureanappropriatebalancebetweenfixedandvariableremunerationcomponents.Italsotakesintoaccountthelegalregulationsstipulat-ingthatthepolicymustbeappliedtothemanagementandtorisktakers,toemployeeswithcontrollingduties,aswellastoemployeeswhoareinthesamewagegroupasthemanagementandtherisktakersandwhoseactivitieshaveamaterialinfluenceontheriskprofileoftheBank.

Themandatoryelementswereaccountedforasfollows:4 Toensureriskadequacy,thevariableremunerationmustnotprovideanincentivetoenterintoinappropri-

aterisks;4 Toensuresustainability,successisdeterminedbasedonlonger-termobservationperiods;4 Theappropriatenessandmarketadequacyofremunerationisensured,applyingabalancedrelationship

betweenfixedandvariablecomponents;and4 Thevariableremunerationisdeterminedonthebasisoftheindividual’ssuccess(inquantitativeand

qualitativeterms)aswellasonthesuccessoftherespectiveorganisationalunitandtheBank.

TheannualbudgetforvariableremunerationcomponentsisbasedonthedegreetowhichtheBankachievesitsstatedtargets.

BAWAGP.S.K.hasaRemunerationCommittee,whichisaSupervisoryBoardcommittee.ThisRemunerationCommitteeapprovestheremunerationpolicy,monitorsitsimplementationandsubmitsregularreportsonitsactivitiestothefullSupervisoryBoard.

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35 | disclosures in compliance with iFRs 5 – non-current assets Held for sale and discontinued operations

TheapprovalgrantedtotheBankfortheacceptanceofparticipationcapitalfromtheRepublicofAustriaincludedcertainconditionsandcompensationmeasuresimposedbytheEUCommission.Thesecompensa-torymeasurescoverthesaleofcertainnon-coreholdings,suchastheshoeretailerStiefelkönigSchuhhandelsGesellschaftmbH.

AccordingtoIFRS5,subsidiaries(disposalgroupsconsistingofassetsandliabilities)aretobeclassifiedasheldforsalewhentheassociatedcarryingamountstemsprimarilyfromasaletransactionandnotfromcontinuedusage,andthesaleisexpectedtobeeffectedwithintwelvemonths.Forthisreason,thecarryingamountsoftheassetsandliabilitiesofStiefelkönigSchuhhandelsGesellschaftmbHarereportedontheconsolidatedStatementofFinancialPositionundertheitemNon-currentassetsanddisposalgroupsclassifiedasheldforsale.Thefollowingtableshowsabreakdownofthisitem.

Non-current assets and disposal groups classified as held for sale

in millions of Euros

31.12.2010

thereof consolidated on

31.12.2010

thereof not consolidated on

31.12.2010

Assets in disposal groups classified as held for sale 36 – 36 Available-for-sale financial assets 2 – 2 Loans and receivables 15 – 15

Customers 15 – 15 Credit institutions – – –

Tangible non-current assets 6 – 6 Other assets 13 – 13

Obligations in disposal groups classified as held for sale 75 37 38 Financial liabilities 29 24 5

Valued at amortised cost 29 24 5 Customers 5 – 5 Credit institutions 22 22 –Issued bonds, subordinated and supplementary capital 2 2 –

Provisions 7 – 7 Other obligations 39 13 26

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36 | assets pledged as collateral

in millions of Euros 31.12.2010 31.12.2009Receivables and securities assigned to Oesterreichische Kontrollbank AG 985 993Collateral pledged to the European Investment Bank 518 329Cover pool for trust savings deposits 39 47Cover pool for covered bonds 3,586 2,802Other collateral 50 43Assets pledged as collateral 5,178 4,214

37 | total collateralised debt

ThecollaterallistedinthetableabovecorrespondedtothefollowingpayablesofBAWAGP.S.K.:

in millions of Euros 31.12.2010 31.12.2009

Liabilities to Oesterreichische Kontrollbank secured with assigned receivables

985

993

Payables arising due to refinancing by the European Investment Bank 495 378Trust savings deposits 29 33Payables secured by the cover pool for covered bonds 2,605 2,177Total collateralised debt 4,114 3,581

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38 | subordinated assets

LineitemsontheassetssideoftheStatementofFinancialPositionincludedthefollowingsubordinatedassets:

in millions of Euros 31.12.2010 31.12.2009Loans and receivables 27 36Subordinated assets designated at fair value through profit or loss 21 7Subordinated assets designated as available for sale – 14Subordinated assets 48 57

39 | Contingent assets, contingent liabilities and commitments

in millions of Euros 31.12.2010 31.12.2009Contingent assets 1 –Contingent liabilities 938 1,479Arising from guarantees 929 1,466Other contingent liabilities 9 13Commitments 9,729 7,440

ThemostimportantcomponentoftheitemCommitmentsisunusedlinesofcredit.

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40 | Foreign currency amounts

BAWAGP.S.K.Grouphadassetsandliabilitiesinthefollowingforeigncurrencieson31December2010:

in millions of Euros 31.12.2010 31.12.2009USD 1,854 1,770CHF 3,424 3,226JPY 174 192SKK – –CZK 155 126Other 378 268Foreign currency 5,985 5,582EUR 32,571 35,643Total assets 38,556 41,225

in millions of Euros 31.12.2010 31.12.2009USD 767 756CHF 1,295 1,843JPY 592 599SKK – –CZK 6 4Other 356 561Foreign currency 3,016 3,763EUR 35,540 37,462Total liabilities 38,556 41,225

ThistableincludesonlyStatementofFinancialPositionitemsandprovidesnoinformationaboutopencurrencypositions.

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41 | genuine repurchase agreements

in millions of Euros 31.12.2010 31.12.2009Repurchaser – receivables from credit institutions – 100Repurchaser – payables to credit institutions -333 -826Repurchase agreements -333 -726

42 | leasing

Thefollowingtableshowsreconciliationbetweengrossinvestmentvalueandpresentvalue,brokendownaccordingtomaturity:

31.12.2010 in millions of Euros

Up to 1 year

1–5 years

Over 5 years

Total

Total outstanding leasing instalments (gross investment value) 302 531 293 1,126As yet unrealised financial income 28 48 26 102Receivables from finance leases (net investment value) 274 483 267 1,024


Up to 1 year

1–5 years

Over 5 years

Total

Total outstanding leasing instalments (gross investment value) 312 580 301 1,193As yet unrealised financial income 31 54 31 116Receivables from finance leases (net investment value) 281 526 270 1,077

Asof31December2010thenon-guaranteedresidualvalueamountstoEUR69million(2009:EUR11million).

ImpairmentsrecognisedinrespectofirrecoverableminimumleaseinstalmentscametoEUR0million(2009:EUR0million).

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43 | list of consolidated subsidiaries

ThefollowingtableshowstheconsolidatedsubsidiariesofBAWAGP.S.K.Group:

Entities consolidated in accordance with IFRS as of 31.12.2010Method of inclusion

Stake

BanksBAWAG Banka d.d., Ljubljana F 100.00%BAWAG Malta Bank Limited, Sliema F 100.00%BAWAG P.S.K. Invest GmbH, Vienna F 100.00%BAWAG P.S.K. Wohnbaubank Aktiengesellschaft, Vienna F 100.00%easybank AG, Vienna F 100.00%Österreichische Verkehrskreditbank AG, Vienna F 100.00%

Real estateBAWAG P.S.K. IMMOBILIEN GmbH, Vienna F 100.00%BPI Holding GmbH & Co KEG., Vienna F 100.00%CARNI Industrie-Immobiliengesellschaft m.b.H., Vienna F 100.00%R & B Leasinggesellschaft m.b.H., Vienna F 100.00%RVG Realitätenverwertungsgesellschaft m.b.H., Vienna F 100.00%

LeasingBAWAG P.S.K. Fuhrparkleasing GmbH, Vienna F 100.00%BAWAG P.S.K. IMMOBILIENLEASING GmbH, Vienna F 100.00%BAWAG P.S.K. Kommerzleasing GmbH, Vienna F 100.00%BAWAG P.S.K. LEASING GmbH & Co. MOBILIENLEASING KG., Vienna F 100.00%BAWAG P.S.K. LEASING GmbH, Vienna F 100.00%BAWAG P.S.K. MOBILIENLEASING GmbH, Vienna F 100.00%BAWAG P.S.K. Vermietungs- und Leasing GmbH, Vienna F 100.00%B.L.H. BAWAG Leasing Holding GmbH, Vienna F 100.00%CVG Immobilien GmbH, Vienna F 100.00%HBV Holding und Beteiligungsverwaltung GmbH, Vienna F 100.00%KLB Baulandentwicklung GmbH, Vienna F 100.00%M. Sittikus Str. 10 Errichtungs GmbH, Vienna F 100.00%P.S.K. IMMOBILIENLEASING GmbH, Vienna F 100.00%RF BAWAG Leasing Gesellschaft m.b.H., Vienna F 100.00%RF 17 BAWAG Immobilienleasing GmbH, Vienna F 100.00%RF elf Realitätenverwertungsgesellschaft m.b.H., Vienna F 100.00%RF fünfzehn BAWAG Mobilien-Leasing Gesellschaft m.b.H., Vienna F 100.00%RF sechs BAWAG P.S.K. LEASING GmbH & Co. KG., Vienna F 100.00%RF zwölf BAWAG Leasing Gesellschaft m.b.H., Vienna F 100.00%START Immobilienleasing GmbH, Vienna F 100.00%

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Entities consolidated in accordance with IFRS as of 31.12.2010Method of inclusion

Stake

Other non credit institutionsA.U.S. Alpha Holding GmbH, Vienna F 100.00%A.U.S. Alpha Vermögensverwaltung GmbH, Vienna F 100.00%A.U.S. Beta Holding GmbH, Vienna F 100.00%A.U.S. Beta Vermögensverwaltung GmbH, Vienna F 100.00%A.U.S. Delta Holding GmbH, Vienna F 100.00%A.U.S. Delta Vermögensverwaltung GmbH, Vienna F 100.00%A.U.S. Gamma Holding GmbH, Vienna F 100.00%A.U.S. Gamma Vermögensverwaltung GmbH, Vienna F 100.00%BAWAG CAPITAL FINANCE II LIMITED, Jersey F 100.00%BAWAG CAPITAL FINANCE III LIMITED, Jersey F 100.00%BAWAG CAPITAL FINANCE LIMITED, Jersey F 100.00%BAWAG Finance Malta Ltd., Sliema F 100.00%BAWAG Investments Ltd., Jersey F 100.00%BAWAG P.S.K. Jersey Capital Limited, Jersey F 100.00%BAWAG P.S.K. Versicherung AG, Vienna E 25.00%Bodensee Limited, Sliema F 51.00%BV Holding GmbH, Vienna F 100.00%BV Vermögensverwaltung GmbH, Vienna F 100.00%FCH beta Finanzierungsvermittlung GmbH, Vienna F 100.00%NAVENSIS Zahlungsverkehrsabwicklungs GmbH, Vienna F 99.66%P.S.K. Beteiligungsverwaltung GmbH, Vienna F 100.00%Rhein Limited, Grand Cayman F 51.00%Stiefelkönig Schuhhandels Gesellschaft m.b.H., Graz F 100.00%Vindobona Finance Beta S.A., Luxembourg F 100.00%ZEUS Recovery Fund S.A., Luxembourg E 50.00%

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Risk Report

introduction and overview

RiskManagementandthecorrespondingcommitteesofBAWAGP.S.K.identify,measure,monitorandmanageallriskstowhichBAWAGP.S.K.Groupisexposed.Atallorganisationallevels,startingwiththefunctionoftheChiefRiskOfficerasamemberoftheManagingBoard,MarketandRiskarestrictlyseparated.TheGroupissubjecttothefollowingrisksthatareaddressedinriskmanagementthroughclearmonitoringandcontrolprocesses: 4 Creditrisk 4 Marketrisk 4 Liquidityrisk 4 Participationrisk 4 Operationalrisk

ThisriskreportprovidesinformationontheGroup’spositioningwithregardtoeachoftheriskslistedabove.

Risk Management – Risk organisation

BAWAGP.S.K.’sManagingBoarddefinestheBank’sriskstrategyandtheprinciplesofriskmanagement.Thedeterminationoflimitsforallrelevantrisksaswellastheproceduresformonitoringtheserisksaredocumentedinriskmanualsandworkguidelines.TheManagingBoardisinformedoftheoverallrisksituationandthesituationregardingspecificrisktypesonamonthlybasis.QuarterlyriskreportsaresubmittedtotheSupervisoryBoard’smonitoringandcontrolcommittees.

Theriskmanagementguidelinesandrisksystemsarereviewedregularlytoreflectchangesinmarketconditionsandintheproductsandservicesoffered.In2010BAWAGP.S.K.Group’sriskmanagementwasconcentratedintothefollowingfourdivisionsaspartofaBank-wideprojectaimedatimprovingtheBank’sefficiencyandproductivity: 4 CommercialandInstitutionalRisk 4 CreditRiskRetailandSME(creditriskofthesegmentsandoperationalrisk) 4 MarketRisk(market-specificrisksandliquidityrisks) 4 RiskReporting

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specific Risks of BaWag P.s.K. group

44 | Credit risk

Creditriskisthegeneralriskthatacustomerwillnotbeabletomeetitspaymentobligations.Withintheframeworkofitsriskmanagement,BAWAGP.S.K.considersandconsolidatesallelementsofcreditrisk,suchascounterpartydefaultrisk,countryriskandindustryrisk.

AseparatefunctionalspecialisationinriskcontrolexistsforthespecificcustomersegmentsCommercialandInstitutionalandRetail,SmallBusinessandSME.TheaggregationofspecificriskindicatorsandperiodicalreportingiscoveredbyaconsistentprocessundertheresponsibilityoftheorganisationalunitRiskReporting.

CreditworthinesswithinthecustomersegmentRetail,whichincludesretailprivateandsmallbusinesscus-tomers,isassessedbymeansofanautomatedscoringmethod.Thisconsistsofanapplicationscoringonthebasisofprovenandrecognisedmathematicalandstatisticalmodels,andbehaviouralscoringonthebasisofthecustomer’saccountuse.Onthisbasis,thecustomer’screditworthinessisupdatedeverymonth.

NoratingsareavailablefromexternalagenciesforthemajorityofBAWAGP.S.K.’scommercialcustomers.Beforenewcommitmentsaremade(orwhenexistingcommitmentsaretobeexpandedorriskassessmentsneedtobeupdated),theborrower’screditratingisassessedusinganinternalratingmethodforthecustomer’sspecificbusinesssegment.TheratingmethodsthathavebeendevelopedbyBAWAGP.S.K.forthisarebasedonabroadspectrumofquantitativeandqualitativefactors.ThedeterminedriskclassificationistransformedbasedonauniformBAWAGP.S.K.masterscaleandrepresentsthecustomer’sindividualestimatedprobabilityofdefault.

Allriskcomponents(withtheexceptionofsmall-scaleprivatecustomers)areaggregatedatthecustomerandcustomergrouplevel.DependingonriskclassandtheamountoftheoutstandingclaimcertainexposuresmustbereportedtotheManagingBoardandSupervisoryBoardfordecision.

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Revised Risk Policy for Retail and Small Business Customers

Implementation of Late Payment Notice Software for Retail and Small Business Customers

NewsoftwareformanagingdunningprocessesbytelephoneorbyletterforprivateandsmallbusinesscustomerswasintroducedinAugust2010.Thisnewsoftwareresultedinthefollowingimprovements: 4 Thesoftwareenablestheautomaticdifferentiationofcustomersbyprobabilityofdefault,andallowsthe

individualsegmentstobeprocessedinatargetedmanner. 4 AnextremelyhighdegreeofautomationmakesitpossibletoeffectivelyfocustheBank’sresourcesforearly

intervention,whichreducesriskandincreasescustomersatisfaction. 4 Offeringrepaymentagreementsandconsistentlyenforcingthempreventsthedefaultofsignificantpartsof

theportfolio.

Continuation of Efforts to Increase Efficiency for Credit Processes in the Small Business Segment

TheprogrammethatwaslaunchedinNovember2009toimprovethecreditprocessesintheSmallBusinesssegmentwascontinuedinthereportingperiod.

Theprimarygoalsofallmeasuresare: 4 Increasedcustomersatisfactionthroughshorterdecision-makingtimes. 4 Increasingthelevelofautomationtofreeupadditionaladvisorcapacitiesforourcustomers. 4 Consistentimplementationoftheregulatoryrequirementsforportfolioriskassessment.

Theimplementationofanautomatedprocessforcreditreviewsandlimitextensionsforcustomerswithindefinedexposurelimitsinthereportingperiodwasanotherkeymilestone.

Improved Interfaces in the SME Segment

WorkintheSmallandMedium-SizedEnterprisessegmentfocusedonimprovingtheinterfacesbetweenthemarketandriskunits.Existingprocesseswerestreamlinedandexistingsystemswereexpanded.

Keyachievementsincludedtheexpansionofthecustomerrelationshipmanagementsystemtosignificantlysimplifytheprocessingandmonitoringofspecificconditionsforcreditdecisionsandfortheprocessingandmonitoringoftheannualriskreviews.

Valuation of Residential and Commercial Properties

ThevalueofallresidentialpropertiesinAustriaisdeterminedbythecentralrealestatevaluationdepartmentonthebasisofalargelystandardisedmethodandusingavaluationtool.Altogether,nearly45,000residentialpropertieswerepledgedtoBAWAGP.S.K.ascollateral.TheperiodicreviewandupdatingofthepropertyvaluesisautomatedonthebasisofthechangesintherealestatepriceindexpublishedbytheAssociationofRealEstateandAssetTrusteesoftheAustrianFederalEconomicChamber(Fachverband der Immobilien- und Vermögenstreuhänder der Wirtschaftskammer Österreich).

Commercialpropertiesareappraisedindividuallybyexpertsinthecentralrealestatevaluationdepartment,byselectedexternalappraiserscommissionedbytheBankorbyasyndicatepartnerafteraninspectionofthepropertyandcompletionofafullreport.Approximately2,800commercialpropertieshavebeenpledgedtoBAWAGP.S.K.ascollateral.

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Improvement and Refinement of the Scorecards and Rating Systems

Thefollowingmeasuresweretakenaspartoftheperiodicrevisionofthescorecardsandratingsystems:

Thestandardcommercialratingsystemwasrevisedinthesecondandthirdquarterof2010.Thisbroughtanimprovementinthediscriminatorypowerofthesystemandincreasedtheacceptanceofthesystembythesalesunits.Anewratingsystemwasalsoadoptedforthestandardforeigncommercialcustomerssegment.ThesystemwasimplementedintheITsystemsinthefourthquarterof2010,andbecameoperationalinthefirstquarterof2011.

Theresultsofthevalidationwereincludedinthebehaviouralscorecardstoimprovediscriminatorypowerintheannualassessment.

Theprivateleasingandconsumerloanscorecardswerealsorevisedandimplemented.

Portfolio Development in 2010

Theportfoliovolumeinthecorporateandretailsegmentsincreasedagainin2010,whilethevolumeofloanstopublicsectorborrowersdeclinedslightly.

Credit risk by customer segment as of 31.12.2010, in millions of Euros 1)

SegmentBook value credits 2) Bonds Off-balance business Total risk

31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Banks 1,502 2,640 4,646 5,006 754 802 6,902 8,448 Public sector 4,697 6,199 1,459 3,258 746 692 6,902 10,149

Corporates 11,608 10,391 3,912 3,022 2,654 2,411 18,174 15,824 Small business 1,352 1,377 18 16 139 132 1,509 1,525 Retail private customers

5,664

5,467

–

–

213

88

5,877

5,555

Others – 1 – – 1 36 1 37 Total 24,823 26,075 10,035 11,302 4,507 4,161 39,365 41,538

1) Total risk includes book values and off-balance-sheet items like guarantees and committed but currently unutilised limits.

2) Including fair value assets.

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Number of customers and volume by size as of 31.12.2010

Geographical distribution of the loan portfolio as of 31.12.2010, in millions of Euros

Theoverviewshowsthenetexposureineachregionbyultimaterisk.Theoutstandingvolumesareassignedtotheactualcountryofrisk(e.g.anexportpromotionloanthatisguaranteedbytheRepublicofAustriaisallocatedtoAustria).

22,000

20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

12,000

10,000

8,000

6,000

4,000

2,000

0100–1,000 �5,000

1,451

�20,000 �50,000 �100,000 �500,000 �500,000

21,348

Number of customers | Exposure in thousands of Euros | Exposure total in millions of Euros

387 185 76 50 1

30,000

25,000

20,000

15,000

10,000

5,000

0Austria Western Europe CEE North America Others

4,161

22,065

1,672595 274

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143


ThemajorityofBAWAGP.S.K.Group’soutstandingloanscanbeattributedtoAustriancustomers,followedbyoutstandingloanstoWesternEuropeanborrowers.IncludedwithintheseareasmallnumberofloanstoborrowersinEuropeancountrieswithhighbudgetdeficits,whichareshowninthefollowingoverview.

Credit portfolio in states with high budget deficits

in millions of EurosNet exposure Bank Non-bank Sovereign

31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Greece 41 99 – 4 – – 41 95 Ireland 108 529 40 181 68 39 – 310 Italy 648 572 559 503 90 67 – 1 Portugal – 66 – 44 – – – 22 Spain 532 486 212 135 308 285 12 65

TheclaimsinGreececonsistalmostentirelyofgovernmentbonds,whiletheoutstandingbalanceofreceivablesinSpainandItalyconsistprimarilyofclaimsagainstthreemajorbanks.ThereceivablesinIrelandconsistofclaimsagainstcommercialcustomersthatareregisteredinIrelandandcollateralisedclaimsagainstaforeignbankthatisdomiciledinIreland.

AfterthesaleofIstrobankainSlovakiaandBAWAGBankCZintheCzechRepublic,theBankonlyhasmoderatenetexposuresinCentralandEasternEurope,primarilyinconnectionwithaminorityshareinaHungarianbankandBAWAGBankad.d.inSlovenia.

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Geographical distribution of the loan portfolio: CEE as per 31.12.2010

in millions of EurosNet exposure 1) Bank Non-bank Sovereign

31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Slovenia 606 843 20 27 586 817 – –Slovakia 48 51 – – 48 51 – –Eurozone 654 895 20 27 634 868 – –Hungary 234 310 121 169 113 131 – 10 Czech Republic 158 136 10 6 141 123 6 7 Romania 66 20 12 16 54 5 – –Poland 60 16 – 3 59 13 – –Latvia 7 10 3 10 – – 5 –Estonia 7 8 – – 7 8 – –Bulgaria – – – – – – – –Non Eurozone 531 500 147 203 373 279 11 17 Russia 177 166 4 7 174 159 – –Croatia 124 100 – 1 104 100 19 –Turkey 94 5 51 2 43 2 1 1 Kazakhstan – – – – – – – –Serbia 10 2 – – 10 2 1 –Montenegro – – – – – – – –

Bosnia and Herzegovina

1

1

–

–

1

1

–

–

Ukraine – – – – – – – –Non EU 407 274 54 10 332 264 21 1 Total 1,592 1,669 221 240 1,339 1,411 32 17

1) The net exposure values include equity investments in non-consolidated CEE subsidiaries.

Impaired Loans

Impairmentprovisionsareformedforloansforwhichitcanbeassumedthattheopenclaimswillnotbeentirelyfulfilled.Thesecorrespondtotheestimatedincurredlossesinthecreditportfolio.Theprimarycomponentsare: 4 specificloanlossprovisionsthatareformedmanuallyafterdetailedanalysisbasedontheestimatesofthe

CreditRiskunitandunderresponsibilityoftheWorkoutGroupandLegalCollection,and 4 loanlossprovisionsthatareformedautomaticallybythecorebankingsysteminthecaseofmorethantwo

unpaidinstalments,whenlimitsarecontinuouslyexceededoncurrentaccounts,aswellaswhenlegalactionisinitiated.

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Non Performing Loans (NPLs)

Exposuresrelatingtoallcustomersindefaultriskclass“8”arecategorisedasnonperformingloans,regard-lessofwhetheralimithasbeenexceededorapaymentmissedonanindividualaccountornot.Onceacustomerexposureismorethanninetydayspastdueoracustomer-relatedcriterionofdefaultapplies,thecustomerandallproductswithexposurearesettodefaultandareassignedtodefaultriskclass“8”.

Afterincreasingcontinuouslyoverthepastyears,thevolumeofNPLsdeclinedsignificantlyin2010.Thisimprovementcanbeattributedprimarilytothefollowing: 4 Alowlevelofnewdefaults 4 RepaymentandsaleoflargerindividualNPLpositions 4 SaleofaportionoftheretailNPLbook

Development of and provision for NPLs

in millions of Euros

Exposure Provisions Collateral Net position Coverage*)

31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Banks 30 39 25 33 – – 5 6 83.3% 84.6%State/Public sector

–

–

–

–

–

–

–

–

–

–

Corporates 435 523 201 202 92 96 142 225 67.4% 57.0%Retail SME 245 291 145 165 69 76 31 50 87.3% 82.8%

Retail private customers

506

627

331

412

83

88

92

127

81.8%

79.7%

Others/Not related

5

5

40

30

–

–

-35

-25

800.0%

600.0%

Total 1,221 1,485 742 842 244 260 235 383 80.8% 74.2%

*) (Provisions+Collateral)/Exposure

IFRS Portfolio Impairments pursuant to IAS 39 AG 89

AgeneralimpairmentprovisionisformedonaportfoliobasisforincurredbutnotdetectedlossesintheGroup’screditportfolioasofthereportingdate.Forthis,itisassumedthatacertainpercentageofcustomersthathavenotbeenidentifiedasbeingindefaultareinfactindefaultonthereportingdate.

Tocalculatetheselossprovisions,thereceivablesaregroupedintohomogeneousportfolioswithcomparableriskcharacteristics.Theprovisionsarequantifiedonthebasisoftheexpectedloss,takingintoaccountthelossidentificationperiod.Thisisdeterminedindividuallyforeachcustomersegmentonthebasisoftheaveragetimeuntilthenextexpectedpayment.Asof31December2010,theIFRSportfolioimpairmentamountedtoEUR36.5million,comparedtoEUR34.6millionon31December2009.

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Credit quality overview: Outstanding loan book amounts in different categories as of 31.12.2010

in millions of EurosBook value loan book

before provisionsProvisions Book value Collateral

31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Outstandings with specific provisionsBanks 25 34 25 33 – 1 – –Public sector – – – – – – – –Corporates 320 339 174 180 146 159 46 32Retail SME 174 179 140 144 34 35 30 16Retail private customers 319 180 266 146 53 34 24 11Total 838 732 605 504 233 228 100 58

Outstandings with general provisionsPublic sector – – – – – – – –Corporates 6 14 4 2 2 12 1 10Retail SME 33 73 19 33 14 39 9 21Retail private customers 162 432 90 279 72 153 19 33Portfolio provision – – 37 35 -37 -35 – –Total 201 519 150 348 51 171 29 64

Outstandings past due unprovisionedDays past due

30–60 days 23 73 – – 23 73 12 2060–90 days 40 10 – – 40 10 21 390–180 days 44 42 – – 44 42 6 19More than 180 days 84 98 – – 84 98 67 58

Total 191 223 – – 191 223 106 99

Normal outstandings (not past due/not provisioned)

Not rated 26 75 – – 26 75 17 19Rating 1 4,043 5,808 – – 4,043 5,808 298 771Rating 2 2,277 2,500 – – 2,277 2,500 1,009 842Rating 3 4,508 5,251 – – 4,508 5,251 2,093 2,263Rating 4 6,558 5,191 – – 6,558 5,191 2,383 1,868Rating 5 4,425 4,198 – – 4,425 4,198 1,676 1,996Rating 6 1,507 1,322 – – 1,507 1,322 667 606Rating 7 901 967 – – 901 967 496 473Rating 8 105 139 – – 105 139 52 73Total 24,348 25,453 – – 24,348 25,453 8,692 8,911

Total book value 25,578 26,927 755 852 24,823 26,075 8,927 9,133

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Past Due Loans with No Provisions

Noprovisionsareformedforpastdueloanswhenthecreditworthinessofthecustomerappearstobestable,whensufficientcollateralhasbeenprovidedorwhentheoutstandingamountwillbepaidinthenearfuture.

Collateral

AlltypesofcollateralthatareacceptedbyBAWAGP.S.K.arelistedintheGroupCollateralHandbook.Conservativediscountsaredefinedforeachtypeofcollateral.TheamountsinthetableaboveshowtherecognisedvaluesofthecollateralheldbytheBankafterapplicationofthesediscounts.

Workout Group and Legal Collections

TheWorkoutGroupandLegalCollectionsunitsareresponsiblefortheprocessingandadministrationoftroubledanddefaultedcreditcommitments.Theprimaryobjectiveistominimiselossesbyprovidingrestructuringexpertiseandmaximisetheamountcollectedifcollectionisrequired.

Early Recognition of Troubled Assets

TheBankseekstoidentifycustomerswithcreditproblemsatanearlystage.Manyfactorsareusedtodrivethemonitoringprocessincludingdeclinesinstockprices,ariseinCDSspreads,deteriorationincredit-worthiness,negativereportsinthenewsoradeclineinriskrating.Suchcustomersareplacedonareviewlistandaresubjecttoreviewandmonitoringatshorterintervals.

Structured Credit Portfolio

BAWAGP.S.K.’ssecuritiesportfolioincludesaportfolioofstructuredcreditinstrumentswithanominalvalueofEUR1.48billionandacurrentbookvaluepursuanttoIFRSofEUR842million(excludingsecuritieswhoseriskisbornebynon-controllinginterests).Theresultingriskpositionisdetailedinthefollowingtablesbyrating,maturityandorigin.Scheduledrepaymentssignificantlyreducedthevolumeofthisportfolioagainin2010.Furtherstepsweretakeninthereportingperiodtoreducetheremainingrisk,includingmicrohedg-ingthecorporateCDO²assetclassandadditionalrestructuring,forexampleforcorporateCDOs.

Thereducedcarryingamountsareaneffectofscheduledandearlyrepaymentsaswellassales.

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Structured credit portfolio as of 31.12.2010 – Breakdown by rating (IFRS book value)

in millions of Euros AAA AA A BBBBB and below

Not rated

Total

CDO-of-ABS – 12 3 5 3 – 23 CDO-of-ABS w/ subprime 10 – – 16 38 – 65 CLO 17 81 100 76 21 – 296 CMBS 6 14 2 5 – 5 32 Corporate CDO – 1 1 – 79 45 126 Corporate CDO² – – – – – 84 84 Corporate CPDO – – 20 – 11 42 74 Corporate LSS – – – – – 90 90 European RMBS 27 5 9 – – – 41 US RMBS – – – – 13 – 13 Total 60 114 134 102 165 266 842

Structured credit portfolio as of 31.12.2009 – Breakdown by rating (IFRS book value)

in millions of Euros AAA AA A BBBBB and below

Not rated

Total

CDO-of-ABS – 19 8 1 2 – 30 CDO-of-ABS w/ subprime 11 – – 19 42 – 72 CLO 54 86 115 73 18 – 347 CLO² – – – – – – –CMBS 9 21 2 – – 4 36 Corporate CDO 27 23 9 – 83 48 190 Corporate CDO² – 98 – – – 73 170 Corporate CPDO – – 20 – 12 48 80 Corporate LSS 49 – – – – 125 174 European RMBS 31 8 8 – – – 47 US RMBS – – – – 14 – 14 Total 181 254 161 94 171 298 1,159

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Structured credit portfolio as of 31.12.2010 – Breakdown by maturity (IFRS book value)

in millions of Eurosuntil

end of 2011 2012 – 2014 2015 – 2017 2018 and later Total

CDO-of-ABS – 21 3 – 23 CDO-of-ABS w/ subprime 2 3 26 33 65 CLO – 146 149 – 296 CMBS – 12 20 – 32 Corporate CDO 5 80 41 – 126 Corporate CDO² – 84 – – 84 Corporate CPDO – – 74 – 74 Corporate LSS – 90 – – 90 European RMBS – 16 7 17 41 US RMBS – 3 9 – 13 Total 7 455 330 50 842

Structured credit portfolio as of 31.12.2009 – Breakdown by maturity (IFRS book value)

in millions of Eurosuntil

end of 2011 2012 – 2014 2015 – 2017 2018 and later Total

CDO-of-ABS – 30 – – 30 CDO-of-ABS w/ subprime 16 14 23 19 72 CLO – 184 163 – 347 CLO² – – – – –CMBS 11 24 – – 36 Corporate CDO 57 76 57 – 190 Corporate CDO² 98 73 – – 170 Corporate CPDO – – 80 – 80 Corporate LSS 94 80 – – 174 European RMBS 5 14 6 22 47 US RMBS 1 4 10 – 14 Total 281 499 337 41 1,159

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150


Structured credit portfolio as of 31.12.2010 – Breakdown by origin (IFRS book value)

in millions of Euros USAContinental

EuropeUK Other Total

CDO-of-ABS 3 17 3 – 23 CDO-of-ABS w/ subprime 45 1 18 – 65 CLO 137 130 28 – 296 CMBS 22 10 – – 32 Corporate CDO 51 68 6 – 126 Corporate CDO² 45 30 9 – 84 Corporate CPDO 34 35 5 – 74 Corporate LSS 60 17 12 – 90 European RMBS – 35 6 – 41 US RMBS 13 – – – 13 Total 410 344 88 – 842

Structured credit portfolio as of 31.12.2009 – Breakdown by origin (IFRS book value)

in millions of Euros USAContinental

EuropeUK Other Total

CDO-of-ABS 1 23 6 – 30 CDO-of-ABS w/ subprime 43 9 20 – 72 CLO 163 151 33 – 347 CLO² – – – – –CMBS 22 14 – – 36 Corporate CDO 82 92 16 – 190 Corporate CDO² 86 64 20 – 170 Corporate CPDO 37 38 5 – 80 Corporate LSS 102 48 24 – 174 European RMBS – 42 5 – 47 US RMBS 14 – – – 14 Total 550 481 128 – 1,159

Abbreviations:

ABS Asset backed security

CDO Collateralised debt obligation

CDO² Collateralised debt obligation on collateralised debt obligation

CLO Collateralised loan obligation

CMBS Commercial mortgage backed security

CPDO Constant proportion debt obligation

LSS Leveraged super senior

RMBS Residential mortgage backed security

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BAWAGP.S.K.usesinternalvaluationmodelstodeterminethefairvaluesoftransactionsforwhichthereisnoactivemarket.SuchmodelsareusedforCDOsofABSwithsubprimeexposure,corporateCDOsandCDO²,corporateCPDOs,corporateLSS,CLOs,USRMBSandcorrespondingmicrohedges.AllofBAWAGP.S.K.’smodelsarecalibratedtoactivelytradedinstrumentssuchasABX,tranchediTraxxandCDX,andtranchedLCDXanduseallavailablemarketdata(suchasyieldcurves,CDSspreads,loanprices,etc.)asinputs.

PositivefairvaluechangesintheamountofEUR29millionwererecognisedontheProfitorLossStatementunderGainsandlossesonfinancialassetsandliabilitiesforthestructuredcreditportfolioin2010.Inthesameperiod,bookgainsofEUR10millionwereachievedthroughredemptionsandsales.

TheBanksoldalargeshareoftheassetscategorisedasheld-to-maturityfinancialassetsinthecurrentfinancialyear.AccordingtotheprovisionsofIAS39,thisrequiresthatallsecuritiesinthiscategorybereclassifiedasavailable-for-salefinancialassets.Duringthisreclassification,theaffectedsecuritiesfromthestructuredcreditportfolioweremeasuredattheircurrentfairvalues.On1June2010,thesecuritiesinthestructuredcreditportfolioweretransferredfromthecategoryofavailable-for-salefinancialassetstothecategoryofloansandreceivables.UnrealisedfairvaluechangesofEUR–43millionhavebeenrecognisedinequityandwillnowbedistributedoverthetermofthesecurities.UnrealisedfairvaluechangesofEUR–37millionwererecognisedinequityasof31December2010.

Stress Tests and Sensitivity Analysis of the Structured Credit Portfolio

Stresstestsandsensitivityanalysesforthestructuredcreditportfolioarecompletedonaquarterlybasis.Inthis,theeffectsofvariousscenariosontherecoveryvalue,fairvalueandrisk-weightedassets(RWAs)areanalysed.TheresultsarereportedtotheManagingBoard.

Foreachassetclassinthestructuredcreditportfolio,thefirststepistheidentificationofthematerialriskfactorsandthecreationofabasecasescenariofortheseriskvaluesthatreflectsthecurrentlossexpecta-tions.Individualormultipleriskfactorsarethenworsenedtosimulatevariousstressscenarios.

Thebasecaseisthescenariothatisbasedontheexpectedrecoveryvalue.Therecoveryvalueisdefinedasthepresentvalueoftheexpectedcashflows(discountedwiththeriskpremiumspecifieduponconclusionofthetransaction).Asub-parrecoveryvaluemeansthattheexpectedcashflowsarelowerthanthecontractuallyagreedcashflows.

Allassumptionsapplyinadditiontothelossesalreadyincurredintheportfolio;downgradesthathavealreadyoccurredarealsoconsidered.

Toassesstheeffectsthatthestressscenarioscouldhaveonthefairvalues,thecurrentimplieddiscountmarginsareincreaseddependingonthelevelofriskinthescenarioandtheexpectedmarketreaction.

ThefollowingtablesshowtheeffectsthatthestressscenarioshaveontheIFRSvalueandtherecoveryvalueoftheportfolio.ThedifferencebetweenthevalueaccordingtoIFRSandtherecoveryvalueisduetothefactthatthemajorityoftheassetsintheportfolioaremeasuredattheirfairvalues,whicharelowerthantheirrecoveryvaluesbecauseofthecurrentlyhigherriskpremiums.

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152


Thedepictedstressscenariosaredefinedasfollows: 4 Defaults+20percent:Thedefaultandarrearsratesareincreasedby20percent. 4 Combinedscenario:thesimultaneousworseningofthedefault,arrears,LGDandprepaymentratesby

20percentanda10percentworseningofthecorrelation.

Effects of stress scenarios on the IFRS value of the structured credit portfolio

in millions of EurosScenario p.d.

+20 %Combined scenario

CDO-of-ABS -2 -3CDO-of-ABS w/ subprime -13 -19CLO -3 -6CMBS -6 -10Corporate CDO -5 -9Corporate CDO² – –Corporate CPDO -7 -13Corporate LSS -8 -24European RMBS -3 -3US RMBS – –Total -46 -88

Recovery value of the structured credit portfolio; effects of stress scenarios on the recovery value of the structured credit portfolio

in millions of Euros Recovery valueDiff. btwn. recovery

value and IFRS value

Change of recovery valueScenario p.d.

+20 %Combined scenario

CDO-of-ABS 36 13 -1 -2CDO-of-ABS w/ subprime 95 30 -14 -20CLO 369 73 -4 -17CMBS 51 19 -7 -14Corporate CDO 143 17 -5 -9Corporate CDO² 84 – – –Corporate CPDO 105 31 -1 -2Corporate LSS 100 10 – –European RMBS 45 4 -1 -1US RMBS 17 5 – -4Total 1,044 202 -34 -69

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45 | Market risk

Marketriskistheriskoflosscausedbyopenriskpositionsinthemarketandtheadversedevelopmentofmarketriskfactors(interestrates,foreignexchangerates,equityprices,volatilities).Marketriskcanariseinconjunctionwithtradingandnon-tradingactivities.

AtBAWAGP.S.K.particularemphasisisplaceduponmarketriskidentification,measurement,analysisandmanagementperformedbytheMarketRiskdivisionforallmarketrisksintheGroup.

MarketriskisboundedbytheBAWAGP.S.K.ManagingBoard’sapprovedmarketrisklimitswhichconsistofvalue-at-risk,sensitivity,volumeandworst-caselimits.

Forriskmanagementpurposes,theManagingBoardisinformedoftheBank’smarketriskposition,theutilisationoflimitsandtheprofitandlosssituation.ThesereportsareprovidedonadailybasisforBAWAGP.S.K.asanindividualinstitutionandonamonthlybasisfortheGroup.

Allstrategies,organisationalprocedures,principlesofriskmanagementandriskmonitoringaswellasmarketrisklimitsapprovedbytheManagingBoardaredocumentedinaninternalGroupMarketRiskManualandinaspecificBAWAGP.S.K.FinancialMarketsManual.

Market Risk in the Trading Book

BAWAGP.S.K.usesthevalue-at-risk(VaR)ofaninternalmodelthathasbeenauditedbyOesterreichischeNationalbank(theAustrianNationalBank)andapprovedbytheFederalMinistryofFinancetocontrolandlimitthemarketriskarisingfromtradingactivities.Itincludestheriskcategoriesinterestrate,equitymarketandforeignexchangerisk(therewasnoactiveequitydeskinthetradingbookin2010)andthelinearandnon-lineargammaandvegarisksbrokendownbyrisktype.

Becauseoftheuniformdepictionofthemarketrisk,theVaRresultsareusedforinternalriskcontrolpurposesandarealsoincludedinthereportstothesupervisoryauthorities.Theregulatorycapitalrequire-mentsforeachspecificriskinthetradingbookarecalculatedusingthelegallyspecifiedstandardprocedure.

Themodelisbasedonavariance-covarianceapproachinwhichthevalue-at-riskiscalculatedforalltradingpositionsataconfidencelevelof99percenttakingintoaccountthecorrelationsforaholdingperiodofonedayandtendaysusingthecomputersystemPMS.Inordertotestthereliabilityofthemodel,thetradingbookisalsosubjectedtoaMonteCarlosimulation,andtheresultsofbothanalysesarecompared.

TheVaRlimitsaresupplementedbysensitivitylimitsandworst-caselimits.

On31December2010,thevalue-at-risk(withgammaandvegariskincluded)wasmeasuredatEUR4.51million(31December2009:EUR1.26million),basedonaconfidenceintervalof99percentandaholdingperiodofoneday.

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TheresultoftheaggregatedVaR,whichtakesthediversificationeffectintoconsideration,differsfromthesumoftheindividualVaRresultsoftheriskcategoriesasfollows:

VaR (99 per cent, one-day holding period), financial year 2010, in millions of Euros

Risk class Minimum Maximum Average 31.12.2010FX risk -0.23 -4.17 -1.62 -4.17 Interest rate risk -0.70 -2.07 -1.39 -0.70 Total (without correlations) -1.18 -5.21 -3.02 -4.87 Total (with correlations) -1.04 -4.90 -2.71 -4.51 Diversification n/a n/a -0.31 -0.36

Theaccuracyandreliabilityofthemodelisverifiedbymeansofdailybacktestingbycomparingthehypotheti-callyrealisedgainsandlossesfortwoconsecutivetradingdayswiththevalue-at-riskofthefirstday.IfanegativebacktestingresultislowerthantheVaR,thisisdesignatedasan“exception”.

TherewerenoexceptionsatBAWAGP.S.K.duringthereportingperiod,whichconfirmsthehighqualityofthemodelandwhichmeansthatthebest-possiblemultiplierof3forthecalculationofownfundsasspecifiedbytheFederalMinistryofFinance(whichhasbeenappliedcontinuouslysince1998)canbemaintained.

ThedailyVaR(99percent,one-dayholdingperiod)valuesarecomparedwiththebacktestingresults(delta)forthereportingperiodinthefollowingchart.

VaR (99 per cent, one-day holding period) compared with the backtesting results (delta), financial year 2010, in thousands of Euros

3,0002,5002,0001,5001,000

5000

-500-1,000-1,500-2,000-2,500-3,000-3,500-4,000-4,500-5,000

01/2

010

Delta VaR

02/2

010

03/2

010

04/2

010

05/2

010

06/2

010

07/2

010

08/2

010

09/2

010

10/2

010

11/2

010

12/2

010

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Theriseinthevalue-at-riskinAugust2010canbeattributedtoacustomer-inducedposition.Withregardtothisincreasedriskposition,anappropriateprovisionwasformedforpartsoftheposition.

Asameasureofrisk,thevalue-at-riskquantifiesthepotentiallossundernormalmarketconditions.VaRmethodologyisbasedontheassumptionthatthepricedatafromtherecentpastcanbeusedtopredictfuturemarketevents.Ifmarketconditionsdiffersubstantiallyfrompastmarketdevelopments,thentheriskpredictedbyvalue-at-riskmaybetooconservativeortooliberal.Itisnotintendedtoassesslossesinconjunc-tionwithunexpectedmarketdevelopments.Thevaluationiscoveredbyadditionalstresstests.

Inthecourseofsuchstresstests,whichwereexpandedduringthe2010financialyear,thetradingbookisstressedbyscenariossimulatingextrememarketconditionswhicharenotcoveredbytheconfidenceinterval.Theresultsofthesetestsarecomparedwiththeworst-caseforeignexchangeandinterestratelimits.

Adistinctionismadebetweentime-basedandevent-basedstresstests,wherebystatisticalmethods(changesincorrelations,higherconfidencelevel,etc.)andextrememarketmovementsofriskfactorsareassumedandapplied.TheresultsarereportedtotheManagingBoard,theAssetLiabilityCommittee(ALCO),tradingmanagementandtheresponsiblegroupheads.

Market Risk in the Banking Book

TheprimarycomponentsofmarketriskforBAWAGP.S.K.Groupresultfrominterestraterisk,foreigncurrencyriskandliquidityrisk.

Interest Rate Risk in the Banking Book

Interestrateriskinthebankingbookisthepotentiallossresultingfromnetassetvaluechangesandthefuturedevelopmentofnetinterestincomeduetoadverseinterestrateshifts.

TheAssetLiabilityCommittee(ALCO)hasassignedinterestraterisklimitstotheFinancialMarketsdivisiontomanagetheinterestrateriskintermsofanoptimalrisk/returnratioattheGrouplevel.TheMarketRiskdivisionreportstotheALCOonadailybasisforsomeareasandmonthlyattheGrouplevelonlimitutilisationaswellasonthedistributionofrisk.

Everytwoweeks,alternatingmeetingsareheldbytheStrategicALCO(fullManagingBoard)andtheTacticalALCO(ManagingBoardmemberresponsibleforAustrianCorporates&FinancialMarkets,CFO,CRO).InadditiontothemembersoftheManagingBoard,theALCOmeetingsarealsoattendedbytheheadsoftheFinancialMarketsdivisions,MarketRisk,Controlling/ALMandAccounting.

Onthebasisoftheriskreportsandalsousingthescenarioanalysesandstresstests,themarketriskanditseffectsareanalysedandsteeringmeasuresaredecidedtoreduceriskandoptimiseearningsfortheBankasawhole.

TherisksarealsopresentedtotheManagingBoardaspartofanoverallriskreportsubmittedtotheEnterpriseRiskCommitteeonamonthlybasis.

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Forthepurposeofinterestrateanalysis,allinterest-bearinginstrumentsareassignedtocorrespondingtimebucketsbasedupontheircontractualrepricingperiods(inthecaseoffixedandvariablerateinstruments)orassumptionsregardingthese(inthecaseofaccountswithundefinedmaturityprofilesorwheninterestrateandminimumcommitmentperiodsarenotcontractuallyagreed).

Interestrateriskismeasuredusingthepresentvalueofabasispoint(PVBP)concept.ThePVBPisanabsolutevaluethatisderivedfromthedurationofinterest-bearingfinancialinstruments.Itindicatesinmonetaryunitsthechangeinthenetcashvalueduetoashiftoftheyieldcurvebyonebasispoint(0.01percent).

ThefollowingtabledepictstheGroup’sinterestrateriskasof31December2010onthebasisofthePVBPconcept.ThenetassetvaluechangesofallfinancialpositionsintheGroup’sbankingbookduetoanincreaseintheyieldcurveofonebasispointareassignedtothecorrespondingtimebucketsasfollows:

PVBP

in thousands of Euros < 1Y 1Y–3Y 3Y–5Y 5Y–7Y 7Y–10Y > 10Y TotalEUR -28 23 -146 -21 569 113 511USD – -5 -8 -4 -3 -19 -39CHF -18 – -7 -9 -14 -40 -87JPY 3 -1 -4 1 2 17 18Other currencies -14 4 12 -1 4 -14 -9Total 31.12.2010 -56 21 -152 -35 558 58 394

Total 31.12.2009 -62 -130 61 31 118 -112 -94

ThePVBPofallpositionswhosefairvaluechangesarisingfrominterestratechangesimpacttheProfitorLossStatementiscalculated,limitedandmonitoredseparately.ThePVBPsoftheGroupbytimebucketareasfollows:

P&L and equity-relevant PVBP

in thousands of Euros < 1Y 1Y–3Y 3Y–5Y 5Y–7Y 7Y–10Y > 10Y Total31.12.2010 60 27 -133 316 113 78 460

31.12.2009 16 -313 275 90 240 16 323

Inadditiontothetraditionalapproachestomeasuringinterestraterisk,avalue-at-riskcalculationfortheGroupisconductedwithintheframeworkoftheinternalcapitaladequacyassessmentprocess(ICAAP)onamonthlybasis.

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Foraparticularportfolio,thevalue-at-riskmeasurestheworstexpectedfutureloss(intermsofmarketvalue)overagiventimehorizonwithaspecificconfidencelevel.Thecalculationofvalue-at-riskisbasedonthevariance-covarianceapproachandusesaconfidencelevelof99percentandatimehorizonoftendays.Asof31December2010,thevalue-at-riskforinterestrateriskintheGroup’sbankingbookamountedtoEUR12.4million(comparedtoEUR4.2millionasof31December2009).

Netinterestincomeisoneofthekeyparametersinperiodicincomemanagementandconsistsofthedifferencebetweeninterestincomeandinterestexpensesinagivenperiod.Todeterminethenetinterestincomeforaspecificfutureperiod,theaveragevolumeandaverageinterestratesofallinterest-bearingassetsandliabilitiesthataresubjecttointerestrateriskarecompared.Asoftware-basedmodelforthedynamicinterestratesimulationisusedtodeterminetheinterestincomeandexpenseattheindividualcontractlevelusingtheinterestratecharacteristicsextractedfromthecorebankingsystem.

Additionalinputsrequiredforthismodelareexpectedfutureproductmarginsaswellasestimatesconcerningthevolumeofnewcontractsandtheextensionofexistingcontracts.Themarketyieldcurveiskeptconstantinthemodelfortheentiresimulationperiod,andplaysakeyroleindeterminingfutureinterestratesfortheindividualproducts.Thisbaseprojectionisknownasthe“stableratesscenario”.

Thepossibleeffectsofshiftsintheyieldcurve(bothstandardisedinterestratescenariosaswellasforwardratesandinternalinterestprojectionsfromtheStrategy&Economicsdivision)arecalculatedusingthisbaseprojection.TheresultsofthesesimulationsareanalysedandpresentedonamonthlybasistotheAssetLiabilityCommitteeandtotheEnterpriseRiskMeetingaspartoftheoverallriskreport.

Thequalityimprovementsachievedintermsofmanaginginterestrateriskinthebankingbookin2010includetheexpansionofthemethodfordeterminingthereplicationassumptionsforpositionswithunspeci-fiedinterestrateterms,whichisbasedonmathematicalmodels,aswellasthequalitativerefinementofthedynamicnetinterestincomesimulation.

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Derivative financial transactions as of 31.12.2010

in millions of EurosNominal amount/maturity* Fair value*

Up to 1 year 1– 5 years Over 5 years Total Positive NegativeInterest-rate related business 18,786 32,170 14,028 64,983 1,343 -968

Thereof interest rate swaps banking book

13,034

13,238

4,807

31,079

647

-341

interest rate options banking book 82 170 90 342 2 -3

forward rate agreements banking book 307 – – 307 – –

interest rate swaps trading book 3,843 11,207 6,118 21,168 548 -472

interest rate options trading book

1,438

7,554

3,013

12,005

146

-152

forward rate agreements trading book

83

–

–

83

–

–

Currency related business 7,477 9,541 3,186 20,204 506 -914Thereof currency swaps banking book 83 906 457 1,446 16 -139

foreign currency forward transactions and options banking book

2,013

10

279

2,302

21

-70

currency swaps trading book 20 1,261 5 1,286 3 -262

foreign currency forward transactions and options trading book

5,361

7,364

2,445

15,170

466

-444

Securities related business 88 1,575 1,249 2,913 62 -95

Thereof securities related business banking book

78

363

999

1,441

56

-68

securities related business trading book

10

1,212

250

1,472

7

-27

Total 26,351 43,286 18,463 88,100 1,911 -1,977Thereof banking book business 15,597 14,688 6,632 36,917 742 -621 trading book business 10,754 28,598 11,831 51,183 1,169 -1,356

* Banking book derivatives include fair value hedging instruments.

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Derivative financial transactions as of 31.12.2009

in millions of EurosNominal amount/maturity* Fair value*

Up to 1 year 1– 5 years Over 5 years Total Positive NegativeInterest-rate related business 11,782 27,691 14,096 53,569 1,274 -952

Thereof interest rate swaps banking book

4,013

11,068

3,502

18,582

616

-340

interest rate options banking book

1,896

163

16

2,075

2

-1

forward rate agreements banking book

20

–

–

20

–

–

interest rate swaps trading book 4,950 10,790 6,716 22,456 528 -476

interest rate options trading book

684

5,670

3,863

10,217

128

-135

forward rate agreements trading book

220

–

–

220

–

–

Currency related business 9,820 3,343 921 14,083 174 -337Thereof currency swaps banking book 138 388 30 555 14 -17

foreign currency forward transactions and options banking book

1,745

72

233

2,051

3

-86

currency swaps trading book – 1,083 2 1,085 4 -70

foreign currency forward transactions and options trading book

7,937

1,800

655

10,392

153

-165

Securities related business 569 1,355 1,233 3,158 78 -143

Thereof securities related business banking book

539

630

1,013

2,183

69

-128

securities related business trading book

30

725

220

975

9

-15

Total 22,171 32,389 16,250 70,810 1,526 -1,432Thereof banking book business 8,351 12,321 4,794 25,466 704 -571 trading book business 13,821 20,067 11,456 45,345 822 -861

* Banking book derivatives include fair value hedging instruments.

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Alternative Investments

InNovember2009,theManagingBoardofBAWAGP.S.K.decidedtodiscontinuetheBank’salternativeinvestmentsstrategy.Asaresultofthisdecision,BAWAGP.S.K.submittednoticeoftheterminationofallfundsinitsalternativeinvestmentsportfolioin2009.

Asof31December2010,approximately10percent(whichamountstoapprox.USD21million)oftheoriginalportfoliowasstillinvested;therepaymentshavebeencompletedasscheduledtodate.

FX Risk in the Banking Book

TheextentoftheopenforeignexchangepositionsinBAWAGP.S.K.’sbankingbookisconstrainedbyconservativelimitstoensurethatonlymarginalFXrisksarecarriedinthebankingbook.

Compliancewiththeselimitsisobservedbymeansofadailyprocess.AnotherreconciliationroutinecomparestheoutstandingFXpositionsaccordingtoTreasuryapplicationswiththeaccountingpositionandinitiatesanalysisandclearingactivitiesincaseofdifferences.

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46 | liquidity risk

Liquidityriskmanagementhastwoimportantgoals: 4 securingtheBank’ssolvencyand 4 managingtheriskresultingfromchangesinrefinancingcosts.

BAWAGP.S.K.usesamulti-stageprocessforthis:

a)Managementofstructuralliquidity MarketRiskpreparesamonthlyliquiditygapreportthatincludesscenariocalculationsforchangesinthe

StatementofFinancialPositionstructureandvariousassumptionsaboutcustomerbehaviourandpresentsittotheTacticalALCOtocontrolstructuralliquiditymanagement.

b)Annualprojection Aliquidityprojectionispreparedonamonthlybasisfor(atleast)thefollowingtwelvemonthsanddepicts

thedevelopmentoftheBank’scashposition,collateralpositionandregulatoryliquidityposition,takingintoaccountthebudgetedcustomerbusinessandanyplannedrefinancingmeasures.LimitshavebeendefinedfortheBank’sregulatoryliquiditypositionandcashpositionandmustbecompliedwithinanycurrentorplannedscenarios.TheGroup’soverallliquidityandcollateralpositionismanagedwithintheframeworkofthisreport.

SimulationsarealsoruntoassesstheimpactsontheBank’sliquiditypositionwhenindividualrefinancingmeasurescannotbecompletedasplannedorwhentheBankexperiencesunexpectedcashoutflows.

TheprojectionsarepresentedtotheStrategicALCOonamonthlybasistoenabletheManagingBoardtotakeappropriateaction(forexampleinitiatingadditionalrefinancingmeasures).

Theactualliquidityusageisalsocomparedwiththeprojectionsinmonthlybackteststoidentifywaystoimprovethemethodsforgeneratingtheliquidityforecast.

c)Operationalliquiditymanagement Aone-weekbalancepreviewispreparedfortheaccountseverydayfordailyliquiditypositionmanagement

purposes.Thisthenformsthebasisforselectingtheindividualactionsthatneedtobetakeneachday.

Thankstotheseprocesses,BAWAGP.S.K.wasabletomeetallofitspaymentobligationsandtofullycomplywithalllegalrequirementsin2010.

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Thefollowingtableshows 4 Theconsolidatednominal(non-discounted)cashflowsincludinginterestpaymentsonfinancialliabilitiesin

thebankingbookonthebasisoftheearliestcontractualmaturitieswiththeexceptionofvariablesavingsdepositswithavolumeofEUR3.8billion,forwhichthenextcontractuallyagreedinterestadjustmentdateswereused;

4 CapitalsavingsaccountsintheamountofEUR7.4billion,despitethefactthatthesedepositsareusuallyextendedonmaturityandgenerallyincreaseovertime.TheexpectedcashflowdatesinBAWAGP.S.K.Groupdeviateconsiderablyfromthedatesinthisanalysisinotherareas;aswellas

4 UnderDepositsfromcustomers,currentaccountswithavolumeofEUR5.8billion;and 4 OtherdemanddepositswithavolumeofEUR4.2billionarereportedinthelessthan1monthtimeperiod,

buttheexpectedinvestmentdurationisconsiderablylongeronthebasisofyearsofhistoricalexperience.

Liability maturities as of 31.12.2010

in millions of Euros Gross nominal inflow/outflow

Less than 1 month

1–3 months3 months to 1 year

1–5 yearsMore than

5 years

Non-derivative liabilitiesDeposits from banks -2,976 -1,743 -27 -226 -300 -681Deposits from customers -21,944 -13,585 -800 -3,259 -4,063 -238Debt securities issued -12,186 -51 -596 -733 -6,323 -4,482

Subtotal -37,107 -15,379 -1,422 -4,218 -10,687 -5,401Derivative liabilities

Net inflow/outflow 54 32 -272 113 18 163

Other off-balance-sheet financial obligations

-938

-938

–

–

–

–

Total -37,991 -16,286 -1,694 -4,105 -10,668 -5,238

Liability maturities as of 31.12.2009

in millions of Euros Gross nominal inflow/outflow

Less than 1 month

1–3 months3 months to 1 year

1–5 yearsMore than

5 years

Non-derivative liabilitiesDeposits from banks -5,210 -2,642 -209 -1,305 -531 -523Deposits from customers -23,470 -14,683 -1,676 -2,532 -4,330 -248Debt securities issued -12,466 -14 -169 -2,485 -4,641 -5,157

Subtotal -41,146 -17,339 -2,055 -6,322 -9,501 -5,929Derivative liabilities

Net inflow/outflow 534 -19 68 95 177 213Other off-balance-sheet financial obligations

-1,479

-1,479

–

–

–

–

Total -42,091 -18,837 -1,987 -6,227 -9,325 -5,716

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47 | Participation risk

Participationriskincludespotentiallossesinthefairvalueofnon-consolidatedequityinvestments,potentialimpairmentsandlowprofitabilityofnon-consolidatedequityinvestments.ParticipationriskdoesnotincludeoperatingGroupsubsidiariesbecausetheirrisksareassessedseparatelyaccordingtothespecificrisktypesandarealreadyaccountedforinthisway.

ImpairmenttestsareconductedeveryyeartovalidatethevaluesoftheequityinvestmentsintheBank’sportfolioandtodeterminethehiddenreservesintheequityinvestmentportfolio.Theseimpairmenttestsarecompletedonthebasisoftheplanningprojections(budgetedincomestatements,budgetedbalancesheets,budgetedcashflows)preparedforfutureperiodsbythemanagementofeachentity.Thefreecashflowsindicatedintheprojectionsarediscountedusingrisk-adjustedrates.Thetotalofthediscountedfreecashflowsfromthedetailedplanningperiodasofthereportingdateistakenasthevalueofthecompanyintoperpetuity.TheproportionatevalueofthecompanybasedontheBank’sshareholdingisthencomparedwiththecarryingamountoftheinvestment.Ifthecurrentproportionatevalueofthecompanyislowerthanthecarryingamount,theequityinvestmentiswrittendownbythecorrespondingamount.Ifthecurrentpropor-tionatevalueofthecompanyishigherthanthecarryingamount,thedifferenceisrecognisedasahiddenreserve.

Incontrasttotheproceduredescribedabove,moresimplifiedtechniquesareadoptedformicro-participationsandthosereportingbookvaluescoveredbyeitherprorataequity,byproratacapitalisedaverageEBTsofthelastthreeyearsorbyotherproofsofvalue.

TheresultsoftheimpairmenttestsarereviewedbytheParticipationRiskteamwithinCorporateandInstitutionalRisk.

Shares in non-consolidated companies

in millions of Euros 31.12.2010 31.12.2009Shares categorised as available-for-sale assets 247 279

Shares in credit institutions 145 177Associates 36 36Other shares 109 141

Shares in other companies 102 102Subsidiaries 41 58Associates 31 36Other shares 30 8

Shares accounted for using the equity method 17 30Associates 17 30

Total shares in non-consolidated companies 264 309

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48 | operational risk

BAWAGP.S.K.definesoperationalriskastheriskoflossresultingfrominsufficientorfailedinternalprocesses,externalevents,misconductorstafferrors.Thisdefinitionofoperationalriskincludeslegalrisks,butnotstrategicrisksorriskstotheBank’sreputation,whichareassessedandmanageddirectlybytheManagingBoard.

BAWAGP.S.K.’sManagingBoardspecifiesGroup-wideprinciplesformanagingoperationalriskinitsEnter-priseRiskMeeting.InordertoensurethatmeasuresandprinciplesareapplieduniformlythroughouttheGroup,theseactivitiesarecoordinatedbythecentralOperationalRiskdepartment.Thedetailedmanagementofoperationalrisksintheindividualbusinesssegmentsiscompletedlocallyintherespectiveunitsbythedivisionheadsandtheiroperationalriskagents.

BAWAGP.S.K.usesthebasisindicatorapproachpursuanttosections182ffSolvaVtocalculateitsownfundsrequirementsinconnectionwithoperationalriskattheGrouplevelandforitselfasanindividualinstitution.

Lossesincurredinthebusinesssegmentsanddivisionsasaresultofoperationalrisksarecontinuouslydocumentedinacentrallossdatabasethroughaninstitutionalisedlossreportingsystemtocollectdatafortheinternalmanagementofoperationalrisks.Subsequentcentralanalysisallowstheclusteringoflossestobeidentifiedearlyandfurtherlossestobeprevented.

AdditionalinformationiscollectedthroughRiskControlSelfAssessments(RCSAs).Allunitsandsubsidiariesassesstheirmaterialoperationalrisksandtheeffectivenessoftheircontrolmeasuresonayearlybasisusingauniformframework.Thisincludestheassessmentofindividualcontrolmeasures,theestimationofprobabili-tiesandtheextentoflossesarisingfromindividualrisks.

BAWAGP.S.K.hascreatedaneffectivebasisforlimitingoperationalriskswithacompartmentalisedorganisa-tionalstructure,clearauthorisationlevelsandworkinginstructions.Additionally,consistentguidelinesregard-ingauthoritylevelsandarisk-adequateinternalcontrolsystemincludingcomputer-assistedplausibilityreviewsisdesignedtoallowtheBanktomaintainacontrolledrisksituation.

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additional disclosures Required by austrian law

49 | Fiduciary assets

in millions of Euros 31.12.2010 31.12.2009Fiduciary assets 210 216Receivables from credit institutions 4 –Receivables from customers 206 216Fiduciary liabilities 210 216Payables to credit institutions 28 33Payables to customers 182 183

50 | Breakdown of securities pursuant to the austrian Banking act (BWg)

Thefollowingtablebreakssecuritiesdowninaccordancewithsection64paragraph1line10andline11BWGasof31December2010:

in millions of Euros Not listedListed BAWAG P.S.K.

Group Total 2010Total

Loans and receivables

Other valuations

Bonds and other fixed income securities 1,157 8,874 1,326 7,548 10,031Shares and other variable income securities 20 54 – 54 74Shares in associates and other shares 206 – – – 206Shares in non-consolidated subsidiaries 39 – – – 39Total securities 1,422 8,928 1,326 7,602 10,350

Thedifferencebetweencarryingamountsandlowerrepaymentamountsforthepurposesofsection56paragraph2BWGwasEUR160million(2009:EUR66million).Thedifferencebetweencarryingamountsandhigherrepaymentamountsforthepurposesofsection56paragraph3BWGwasEUR63million(2009:EUR65million).

LiabilitiesandsubordinatedcapitalamountingtoanominalEUR978millionwillcomedueunderthecorrespondingcontractsin2011.

166


166


51 | Collateral received for contractual liabilities

DifferenttypesofcollateralhavebeenpledgedtotheBankaspartofitsbusinesstransactions.ThefollowingbreakdownisbasedontheBaselIIcollateralmanagementsystem.

in millions of Euros Collateralised

on-balance-sheet claims

Collateralised off-balance-sheet

claimsTotal

Financial collateralStocks 83 146 229Cash deposits 109 686 795Bonds 45 9 54

Real estateCommercial properties 656 21 677Private properties 3,767 67 3,834

Personal collateralGuarantees 3,021 92 3,113Credit derivatives 37 – 37

Other forms of collateralLife insurance policies 48 – 48

Collateral received 7,766 1,021 8,787

Toreducecreditriskforderivativeinstruments,theBankreceivedconsideration(collateraldeals)intheamountofEUR359million(2009:EUR368million)andpaidconsideration(collateraldeals)intheamountofEUR831million(2009:EUR393million).

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167


52 | Hybrid capital

Theconsolidatedfinancialstatementsrecognisehybridcapitalwithinthemeaningofsection24paragraph2lines5and6BWGintheamountofEUR404million(2009:EUR404million).TheentiretyofthisamountwasreportedontheIFRSStatementofFinancialPositioninthelineitemSupplementarycapitalandsub-ordinateddebtcapital.

53 | Human resources

TheGrouphad5,534employees(headcount)asof31December2010(2009:5,659employees).Averagedovertheyear2010,theGroup’shumanresourcesincluded5,595(2009:5,879)salariedemployeesandcivilservants.

54 | other disclosures required by BWg and austrian gaaP (UgB)

TheStatementofFinancialPositionentryforLandandbuildingsshowspropertywithacarryingamountofEUR50million(2009:EUR56million).

Obligationsarisingfromtheuseoftangiblenon-currentassetsnotrecognisedontheStatementofFinancialPositionwereexpectedtocometoEUR19millionin2010(2009:EUR22million);theexpectedamountinthefiveyearsfollowingtheyearunderreviewwasEUR99million(2009:EUR100million).

TheStatementofFinancialPositionasof31December2010containsdeferredinterestonsupplementarycapitalbondsintheamountofEUR9million(2009:EUR16million).

ExpensesforsubordinatedliabilitiesamountedtoEUR81million(2009:EUR86million).

ExpensesforBAWAGP.S.K.’sgroupauditorinthecurrentfinancialyearamounttoEUR3.6millionandcompriseauditfeesintheamountofEUR2.4million,taxadvisoryfeesofEUR0.1millionaswellasotheradvisoryfeesintheamountofEUR1.1million.

BAWAGP.S.K.usestheInternetasthemediumforpublishingdisclosuresundersection26BankingActandtheDisclosureRegulation.DetailsareavailableonthewebsiteofBAWAGP.S.K.at:www.bawagpsk-annualreport.com.

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168


55 | events after the reporting date

Pleaseseethemanagementreportforinformationonkeyeventsaftertheendofthereportingperiod.

Vienna,7March2011

ByronHaynes� m.p.ChairmanoftheManagingBoard




169


169


statement of all legal Representatives

“Weconfirmtothebestofourknowledgethattheconsolidatedfinancialstatementsgiveatrueandfairviewoftheassets,liabilities,financialpositionandprofitorlossofthegroupasrequiredbytheapplicableaccountingstandardsandthatthegroupmanagementreportgivesatrueandfairviewofthedevelopmentandperformanceofthebusinessandthepositionofthegroup,togetherwithadescriptionoftheprincipalrisksanduncertaintiesthegroupfaces.”

Vienna,7March2011

ByronHaynesm.p.ChairmanoftheManagingBoard




170


170


Boards and officers of BaWag P.s.K. Bank für arbeit und Wirtschaft und Österreichische Postsparkasse aktiengesellschaft

the Managing Board of BaWag P.s.K. as of 31 december 2010

ByronHAYNES,MemberoftheManagingBoard(from1August2008),ChairmanoftheManagingBoardandCEO(from16September2009)

StephanKOREN,DeputyChairmanoftheManagingBoard(from1October2005)

AndreasARNDT(from1October2010)

WolfgangKLEIN(from1November2010)

ChristophRANINGER(from17May2010)

SanjaySHARMA(from1January2010)

Managing Board appointments that ended during the yearReginaPREHOFER(until31August2010)

CarstenSAMUSCH(until14May2010)

the supervisory Board of BaWag P.s.K. as of 31 december 2010

ChairmanCeesMAAS(from15October2009,MemberoftheSupervisoryBoardfrom27July2009totheAnnualGeneralMeeting2011*)

deputy ChairmanPieterKORTEWEG(from15December2009,MemberoftheSupervisoryBoardfrom27August2007totheAnnualGeneralMeeting2011*)

MembersMariusJ.L.JONKHART(from18July2007totheAnnualGeneralMeeting2011*)

RudolfJETTMAR(from15May2007totheAnnualGeneralMeeting2011*)

RonaldE.KOLKA(from6August2010totheAnnualGeneralMeeting2011*)

KeithTIETJEN(from5October2010totheAnnualGeneralMeeting2011*)

Works Council delegatesIngridSTREIBEL-ZARFLBrigitteJAKUBOVITSBeatrixPRÖLL

state CommissionerBeateSCHAFFER(from1August2009,previouslyDeputyStateCommissionerfrom1March2007to31July2009)

deputy state CommissionerMarkusCHMELIK(from1March2010)

supervisory Board appointments that ended during the yearScottPARKER(until30June2010;MemberoftheAudit,NominationandRemunerationCommittees)

state Commissioner appointments that ended during the yearSusanneSPIESZ(until28February2010;DeputyStateCommissioner)

*UntiltheendoftheAnnualGeneralMeetingadoptingtheAnnualFinancialStatementsfor2010.

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171


Committees of BaWag P.s.K. as of 31 december 2010

Credit CommitteeCeesMAAS,Chairman

MariusJ.L.JONKHART,DeputyChairman

RudolfJETTMARKeithTIETJENIngridSTREIBEL-ZARFL,WorksCouncilDelegate

BeatrixPRÖLL,WorksCouncilDelegate

audit CommitteeMariusJ.L.JONKHART,Chairman

RonaldKOLKA,DeputyChairman

RudolfJETTMARCeesMAASIngridSTREIBEL-ZARFL,WorksCouncilDelegate

BrigitteJAKUBOVITS,WorksCouncilDelegate

nomination CommitteeCeesMAAS,Chairman

RonaldKOLKA,DeputyChairman

PieterKORTEWEGIngridSTREIBEL-ZARFL,WorksCouncilDelegate


Remuneration CommitteeCeesMAAS,Chairman

PieterKORTEWEG,DeputyChairman

KeithTIETJEN

Related Parties special audit CommitteeMariusJ.L.JONKHART,Chairman

CeesMAAS,DeputyChairman

PieterKORTEWEGRudolfJETTMARIngridSTREIBEL-ZARFL,WorksCouncilDelegate


172

aUditoR’s oPinion

aUditoR’s oPinion

WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofBAWAG P.S.K. Bank für Arbeit und

Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft, Vienna,forthefiscalyearfrom1January

2010to31December2010.Theseconsolidatedfinancialstatementscomprisetheconsolidatedstatementof

financialpositionasof31December2010,theconsolidatedprofitorlossstatement,theconsolidated

statementofcomprehensiveincome,theconsolidatedstatementofchangesinequityandthecashflow

statementforthefiscalyearended31December2010,andtheNotes.

Management’s Responsibility for the Consolidated Financial Statements and for the Accounting Records

TheCompany’smanagementisresponsiblefortheGroupaccountingrecordsandforthepreparationandfair

presentationoftheseconsolidatedfinancialstatementsinaccordancewithInternationalFinancialReporting

Standards(IFRSs)asadoptedbytheEU.Thisresponsibilityincludes:designing,implementingandmain-

tainingasystemofinternalcontrolsrelevanttothepreparationandfairpresentationofconsolidatedfinancial

statementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror;selectingandapplying

appropriateaccountingpoliciesandmakingaccountingestimatesthatarereasonableinthecircumstances.

Auditor’s Responsibility and Description of Type and Scope of the Statutory Audit

Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudit.We

conductedourauditinaccordancewithlawsandregulationsapplicableinAustriaandAustrianStandardson

Auditing,aswellasinaccordancewithInternationalStandardsonAuditing(ISAs)issuedbytheInternational

AuditingandAssuranceStandardsBoard(IAASB)oftheInternationalFederationofAccountants(IFAC).

Thesestandardsrequirethatwecomplywithprofessionalguidelinesandthatweplanandperformtheaudit

toobtainreasonableassurancewhethertheconsolidatedfinancialstatementsarefreefrommaterialmis-

statements.

Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthe

consolidatedfinancialstatements.Theproceduresselecteddependontheauditor’sjudgment,includingthe

assessmentoftherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherdueto

fraudorerror.Inmakingthoseriskassessments,theauditorconsidersthesystemofinternalcontrolsrelevant

totheGroup’spreparationandfairpresentationoftheconsolidatedfinancialstatementsinordertodesign

auditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinion

ontheeffectivenessoftheGroup’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriatenessof

accountingpoliciesusedandthereasonablenessofaccountingestimatesmadebymanagement,aswellas

evaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.

173

aUditoR’s oPinion

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideareasonable

basisforourauditopinion.

Opinion

Ourauditdidnotgiverisetoanyobjections.Inouropinion,whichisbasedontheresultsofouraudit,the

consolidatedfinancialstatementscomplywiththelegalrequirementsandgiveatrueandfairviewofthe

financialpositionoftheGroupasof31December2010andofitsfinancialperformanceanditscashflows

forthefiscalyearfrom1January2010to31December2010,inaccordancewithInternationalFinancial

ReportingStandards(IFRSs)asadoptedbytheEU.

Comments on the Group Management Report

Pursuanttostatutoryprovisions,themanagementreportfortheGroupistobeauditedastowhetheritis

consistentwiththeconsolidatedfinancialstatementsandastowhethertheotherdisclosuresarenotmis-

leadingwithrespecttotheCompany’sposition.Theauditor’sreportalsohastocontainastatementasto

whetherthemanagementreportfortheGroupisconsistentwiththeconsolidatedfinancialstatementsand

whetherthedisclosurespursuanttosection243apara2UGB(AustrianCommercialCode)areappropriate.

Inouropinion,theconsolidatedmanagementreportfortheGroupisconsistentwiththeconsolidated

financialstatements.Thedisclosuresaccordingtosection243apara2UGB(AustrianCommercialCode)

areappropriate.

Vienna,7March2011

Deloitte Audit Wirtschaftsprüfungs GmbH

Dr.PeterBitzykm.p. ppaMag.WolfgangWurmm.p.

CertifiedPublicAccountants

Thepublicationortransmissionoftheconsolidatedfinancialstatementsinaformdifferentfromtheonewehaveauditedisonly

permittedwithourconsentifinthecourseofdoingsoreferenceismadetoourauditopinionorouraudit.Theauditor’sopiniononly

referstotheGermanversionoftheconsolidatedfinancialstatementsincludingthegroupmanagementreport.Foranyamendedversion

theprovisionsofsection281para2ACCneedtobeobeyed.

174

sUPeRVisoRy BoaRd’s RePoRt


supervisory Board

BAWAGP.S.K.’sSupervisoryBoarddulyfulfilledallofitsobligationsassetforthinthelaw,intheArticlesof

AssociationandinitsRulesofProcedure.Inaddition,regularadviceandsupportweregiventotheManaging

Board,whileatthesametimetheactionsofthemanagementwerecloselymonitored.TheManagingBoard

reportedallrelevantissuestotheSupervisoryBoardinatimelyandcomprehensivemanner.Therewasan

opendiscussionintheSupervisoryBoardaswellasbetweentheSupervisoryandManagingBoardatalltimes.

IndividualissuesandtopicswerediscussedonanongoingbasisbetweentheChairmanoftheManaging

BoardandtheChairmanoftheSupervisoryBoard.

supervisory Board Members

ScottParkersteppeddownfromtheSupervisoryBoardin2010duetoacareerchange.Iwouldliketotake

thisopportunitytowishScottParkerallthebestforhisprofessionalfutureinthenameoftheentireSuper-

visoryBoard.

RonaldKolkawasappointedtotheSupervisoryBoardinAugustandKeithTietjeninOctobertoachievethe

requirednumberofsixequityholderrepresentatives.

supervisory Board Meetings

TheSupervisoryBoardconvenedforsevenmeetingsin2010,andallmemberswerepersonallypresentatthe

majorityofthemeetings.

TheSupervisoryBoarddiscussedthestrategyoftheBank,possiblestrategicalliancesandtheoverallrisk

profileofBAWAGP.S.K.onaregularbasis.

TheagendaofeachmeetingincludedthediscussionoftheBank’sbusinessandcapitalsituation,among

otherthings.TheSupervisoryBoardwasalsoinformedonaregularbasisabouttheBank’smarketposition,

aboutrelevantlegalandcomplianceissuesandaboutpersonnelandManagingBoardmatters.

ThefocusesoftheindividualmeetingsincludedthediscussionofkeysubsidiariesofBAWAGP.S.K.,thenew

salesstrategyandtheintensificationofcooperationwithÖsterreichischePostAG,theefficiencyboosting

programmeandtheEuropeanCommissionprocedureforapprovingtheacceptanceofparticipationcapital

fromtheRepublicofAustria.AnotherkeytopicwastheeffectthatregulatorychangessuchasBaselIIIwill

haveontheBank.InMarch2010,thediscussionsfocusedontheresultsforthe2009financialyear.

175


Additionalreportsandpresentationsdealtwiththemanagementletterandtheapprovaloftheincorporationof

amendmentstothegeneralAustrianCodeofCorporateGovernanceintheBank’sowncode.TheRulesof

ProcedurefortheManagingBoardandSupervisoryBoardwerealsorevisedandamended.

Onceayear,theSupervisoryBoarddiscussesitsownefficiencyandpotentialmeasuresforimprovementof

discussionsandprocedures.

ThecommitteesoftheSupervisoryBoardalsoreportedregularlyabouttheirdiscussionsanddecisions.

Meetings of the supervisory Board Committees

TheAuditCommitteeheldsixmeetingsin2010.ThemeetingsinFebruaryandMarchfocusedonreviewing

theBank’sannualfinancialstatementsandtheCorporateGovernanceReportfor2009.InJuly,thecommittee

discussedtherecommendationfortheappointmentoftheauditor,amongotherthings.Quarterlyreportsfrom

InternalAuditandtheCompliancedepartmentwerepresented.TheannualauditplansforInternalAuditand

theCompliancedepartmentwerepresentedandapproved.Thereareregularprivatesessionswithoutpartici-

pationoftheManagingBoard,forexamplewiththeexternalandinternalauditoraswellaswiththeheadof

LegalandCompliance.

Reportsonauditsandenquiriesfromtheregulatoryauthoritieswerealsoprovidedonaregularbasis.Therisk

reportfortheBank,whichincludesthecalculationoftheBank’srisk-bearingcapacityandreportsoncorpo-

rate,retailandmarketrisk,wasaregularitemontheAuditCommittee’sagenda.

Theauditorswerepresentatallofthemeetingsandwereinvolvedinthediscussions.Inadditiontothe

meetings,themembersoftheAuditCommitteealsohelddiscussionswithrelevantdivisionmanagers.

TheCreditCommitteeheldsixmeetingsin2010.Therewerealsoanumberofcreditapplicationsthatwere

decideduponbywayofcircularresolution.Inadditiontodecidingoncreditapplications,thiscommitteealso

discussedgeneralcreditriskissues.AfocusinFebruarywastheguidelinesfortheInternationalBusiness

unit.TheresultsofastudyonriskreturnswerepresentedinMay.ReportsontheBank’smostimportant

equityholdingswerepresentedinJuly.

TheRelatedPartiesCommitteegenerallymeetsonlywhenneeded.Therewerenomeetingsin2010.

TheNominationCommitteeconvenedfourtimesinthereportingperiod.Themostimportanttopicsof

discussionwerethepostsoftheManagingBoardmembersandsuccessionplanning.Recommendationson

theappointmentofManagingBoardmemberswerealsosubmittedtotheSupervisoryBoard.

TheRemunerationCommitteeheldfivemeetingsinwhichitdiscussedthecompensation,objectivesand

contractsoftheManagingBoardmembers.Thenewremunerationregulations(CRDIII)werealsodiscussed.

176


Managing Board

TheSupervisoryBoardwelcomedfournewmemberstotheManagingBoardin2010.

SanjaySharmawasappointedasthenewChiefOperatingOfficerinJanuary.HehadbeentheManaging

DirectorofOperationsforBAWAGP.S.K.sinceAugust2008.Priortothat,hewasatBarclaysBankplc,where

hegainedinternationalexperienceespeciallyintheimplementationofstrategiesandoperationalandstruc-

turalchanges.

ChristophRaningerjoinedtheBankinMay2010andtookoverresponsibilityfortheFinancialMarketsunit

asthesuccessortoCarstenSamusch,whodecidednottoextendhiscontractinMay2010.InSeptember

2010,hewasalsoassignedresponsibilityforAustriancommercialbankingintheplaceofReginaPrehofer,

wholefttheManagingBoardattheendofAugust2010.IwouldliketousethisopportunitytothankRegina

PrehoferandCarstenSamuschfortheirworkandtheircommittmentandwouldliketowishthemallthebest

fortheirfutureonbehalfoftheentireSupervisoryBoard.

AndreasArndtwasbroughtonboardasChiefFinancialOfficereffective1October2010.Beforethat,he

workedfortheDeutscheBankgroupandRolandBergerStrategyConsultants,amongotherpositions,where

hegainedextensiveexperienceinvariousaspectsofbanking.

WolfgangKlein,whowasnewlyappointedduringthereportingperiod,assumedresponsibilityforRetail

BankingandSmallBusinesseffective1November2010.WolfgangKleincancontributehisexperiencefrom

positionsatMcKinseyandDeutschePostbankAG,amongothers,toenhanceBAWAGP.S.K.’sretailactivities.

AllofthenewManagingBoardmembershavemanyyearsofexperienceinbankingandintheirspecificareas

ofresponsibility,andarecertaintoprovidevaluableinputforthemanagementoftheBank.

IlookforwardtoworkingwiththeBank’sManagingBoardandtoconstructivediscussionsattheSupervisory

Boardmeetings.

177


annual Financial statements

Theaccounts,the2010annualfinancialstatementsandthemanagementreportwereauditedbyDeloitteAuditWirtschaftsprüfungsGmbH.Theauditrevealednocauseforobjection.Thelegalrequirementsweremetinfull,andanunqualifiedauditor’sopinionwasissued.

Afteranin-depthdiscussion,theSupervisoryBoardconcurredwiththeresultsoftheaudit,raisednoobjectionsagainsttheannualfinancialstatementsandmanagementreportincludingtheproposalfortheappropriationofprofitssubmittedbytheManagingBoardandherebyapprovestheannualfinancialstate-mentsfor2010pursuanttosection125paragraph2Aktiengesetz.

Theconsolidatedannualfinancialstatementsfor2010includingthenotespursuanttotheInternationalFinancialReportingStandards(IFRS)andtheGroupmanagementreportwereauditedbyDeloitteAuditWirtschaftsprüfungsGmbH.Theauditrevealednoreasonsforobjection,andthelegalrequirementsweremetinfull.TheauditorconfirmedthattheconsolidatedannualfinancialstatementsprovideatrueandaccuratepictureofthefinancialpositionoftheGroupasof31December2010andoftheearningspositionandcashflowsforthefinancialyearstartedon1January2010andended31December2010inaccordancewiththeInternationalFinancialReportingStandards.

TheauditorsalsoconfirmedthattheGroupmanagementreportiscongruentwiththeconsolidatedfinancialstatementsandthatthelegalrequirementsforexemptionfromthepreparationofconsolidatedannualfinan-cialstatementsaccordingtoAustrianlawhavebeenmetinfull.

TheSupervisoryBoardagreedwiththeopinionoftheauditorafterextensivediscussion.

Inconclusion,IwouldliketosincerelythankalloftheBank’semployeesfortheirhardworkanddedicationin2010inthenameoftheentireSupervisoryBoard.

Vienna,15March2011

TheSupervisoryBoard CeesMaas� m.p.� ChairmanoftheSupervisoryBoard

Owner and Publisher

BAWAGP.S.K.

BankfürArbeitundWirtschaftund

ÖsterreichischePostsparkasseAktiengesellschaft

Georg-Coch-Platz2,1018Vienna,Austria

CompaniesRegistrynumber:205340x

DataProtectionAuthoritynumber:1075217

EUVATnumber:ATU51286308

Telephone:+43(0)59905-0

E-mail:[email protected]

Internet:www.bawagpsk.com

Editors:ChristianMader,CarolinePranzl,JuliaWiesinger-Knie,SebastianWitek(BAWAGP.S.K.)

Translation:LanguageLinkSprachdienste,Vienna

LayoutandProduction:GottfriedNeubauer,HelmutWernbacher(BAWAGP.S.K.)

TypesettingandPrinting:AV+AstoriaDruckzentrum,Vienna

www.bawagpsk.infowww.bawagpsk-annualreport.com

consolidated annual report 2010 - bawag p.s.k....cent). this position includes sales within the...

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