- Rise in risk provisions has clear negative impact on the consolidated result for the first half of 2009
- The bank is pushing through major restructuring project
- Positive net interest income development: 14.5 % rise to EUR 389.8 m.
- Solid fee and commission surplus.
- Optimisation measures starting to come through: 3.7 % reduction in net assets to EUR 41.7 bn, locations rationalised from 384 to 376.
- Positive operating result unable to compensate for the negative effects of the financial crisis, in particular the rise in credit risk provisions: negative consolidated result for the period of EUR -162 m.

Hypo Group Alpe Adria has had a successful first half of 2009 as far as operations are concerned. The Bank was able to boost net interest income significantly and – assisted by the positive development of the financial result – to increase operating income by a substantial amount. Operating expenses rose only marginally in the first half of the year as a result of cost control measures. In total the Bank has achieved a significantly higher operating result before risk provisions. These successes have been cancelled out by charges arising out of the economic crisis and the corrections needed in the credit and leasing portfolios. Overall, the market successes could not compensate for the ongoing negative effects.

Franz Pinkl, who has been the new Chairman of the Executive Board of Hypo Group Alpe Adria since June 2009, commented: “The prospects for Hypo Group Alpe Adria are good and the Group can tap into a huge seam of motivation and commitment, which gives me great confidence looking to the future. At the same time, there is a lot of work ahead of us. Our operational successes in the first half of the year have shown not just that we can operate successfully in the market, but also that we are working hard to do justice to the trust placed in us. We will rationalise our portfolios further in the coming months and work on reducing risk. The momentum given to us by operations will make these steps easier.”

Pinkl said he was still assuming that the difficult economic situation in the Bank’s main markets would persist. At the same time some first – albeit weak – signs that the recession might be ending were discernible. “The Bank’s most important markets went into recession late and they will come out of recession late. But they will come out,” he went on to say. This was why the Bank had such a promising future. In Pinkl’s words: “Firstly, the Bank is established in the right markets. When the crisis ends, our core regions have an excellent chance of becoming economic drivers again. Secondly: there are only a few banks with such motivated employees as those with Hypo Group Alpe Adria. That is an asset which must not be underestimated. And thirdly: the Bank’s Tier 1 core capital ratio stands at 8.1 % at half-year end.”

Restructuring measures
In the first half of 2009, the Group embarked on a comprehensive restructuring project, with the aim of concentrating the target market area in the Alps to Adriatic region and achieving a sustainable reduction to the cost base. As part of this, wide-ranging changes to the internal organisation and efficiency improvements will be defined. The ongoing restructuring project is part of the restructuring plan being implemented by BayernLB, and was presented both to the Austrian authorities and to the Commission of the European Union. The restructuring project has a time horizon of five years and is currently in the implementation phase.

Development of results
The developments in the operative customer business were satisfactory: net interest income, compared to the already high figure for the same period of the previous year (1.1.-30.6.2008) of EUR 340.3 m, grew by a substantial amount to EUR 389.8 m. This equates to an increase of EUR 49.5 m or 14.5 %. This growth is due to the increase in margins in both new and existing business, the increase in the average volume of loans and advances to customers by around EUR 3.6 bn to EUR 30.6 bn compared to the same period in the previous year, and to the measures to increase capital undertaken in the fourth quarter of 2008.

Net interest income was negatively impacted on by the reductions in interest rates introduced by the European Central Bank in the fourth quarter of 2008. The effect of the various adjustments to interest rates in the 2008 financial year, totalling EUR -44.1 m, were recorded as expenses and accrued under the item Result from hedge accounting. Correspondingly, however, a positive result from hedge accounting totalling EUR 36.3 m was posted as a result of releasing the accruals made at 31 December 2008.

Risk provisions for loans and advances had to be increased by EUR 190 m (or 119%) over the comparable period for the previous year, to EUR 349 m. The main drivers for this were in the area of leasing in Croatia, Ukraine and Bulgaria: the latter two countries have been particularly hard hit by the economic crisis. On the banking side of the business, cross-border financing portfolios, which are run from Austria, were affected by this negative development.

Operating expenses rose only slightly by EUR 3 m to EUR 266 m, reflecting the tight and systematic control of costs being exercised.

Despite a decline in fee and commission income from securities and current account transactions as a consequence of the financial crisis, total fee and commission income remained constant at EUR 60.2 m in the first half of 2009 compared to the corresponding period in the previous year (EUR 60.2 m), thanks to a rise in fee and commissions from the loans business.

Although operating income has improved overall and there was success in controlling costs, reflected in the operating expenses total, a negative consolidated result of EUR -162.1 m was recorded for the first six months of the 2009 financial year, caused principally by the sharp increase in risk provisions for loans and advances.

Balance sheet development
The sum of total assets for Hypo Group Alpe Adria reduced, as scheduled, from EUR 43.3 bn at the end of the 2008 financial year to EUR 41.7 bn at 30 June 2009. This reduction of EUR 1.6 bn or 3.7 % is mainly attributable to the fact that while the volume of loans and advances to customers remained constant, the liquidity which existed in the previous year was reduced through the scheduled repayment of liabilities. The number of Hypo Group Alpe Adria locations was reduced from 384 to 376.

The focus in the past – on volume-based, quantitative growth – will in the future, regardless of the recovery of the financial markets and of the economies of the core countries, no longer be a part of the business strategy of the Group. The Bank will strive for growth only if it is profitable growth and will not take on inappropriate risks.

Own capital funds
Overall, total creditable own capital funds pursuant to the Austrian Banking Act (BWG) came to EUR 3,943 m as of 30 June 2009 (2008: EUR 4,173 m). The legal minimum requirement stood at EUR 2,668 m: this therefore corresponds to a surplus of EUR 1,275 m. (2008: EUR 1,376 m) or to coverage of 147.8 %. The Tier 1 ratio (relating to credit risk) came to 8.1 % at the balance sheet date.

The resulting own capital funds ratio stood at 11.8 % as of 30 June 2009 (31 December 2008: 11.9 %), which was clearly above Austria’s statutory minimum ratio of 8.0 %.

Outlook for the second half of 2009
With regard to the development of the overall result for the Group, it is expected that, on the basis of the measures already implemented to increase income from the interest-bearing areas of the business as well as the limits on spending set throughout the Group, there will be a clearly positive result prior to risk provisions. The Executive Board expects, nevertheless, a negative consolidated full-year result for the whole year 2009 because of the possible effects of the economic crisis on risk provisions.

Along with the focus on credit risk management, in the second half of 2009 the Bank will also take all the necessary measures to complete the restructuring of the Group, to push efficiency optimisation further, and to bring the total project to secure sustained profitability to a successful conclusion.

The detailed interim financial report can be viewed electronically from Tuesday 25 August 2009 from 12.00 hours onwards at www.hypo-alpe-adria.com.

Hypo Group Alpe Adria
Hypo Group Alpe Adria is an international financial group with about 380 banking and leasing locations in 12 countries (Austria, Italy, Slovenia, Croatia, Bosnia-Herzegovina, Serbia, Montenegro, Germany, Hungary, Bulgaria, Macedonia and Ukraine), which can look back on a history of more than 110 years. The principal company of Hypo Group Alpe Adria is Hypo Alpe-Adria-Bank International AG, which has its head office in Klagenfurt (Austria). Its owners are BayernLB (67.08%), the GRAWE group (20.48%), Kärntner Landesholding (12.42%) and Hypo Alpe-Adria Mitarbeiter Privatstiftung (0.02%). The network of Hypo Group Alpe Adria currently has around 7,500 employees serving more than 1.3 million customers.

Leasing of Hypo Group Alpe Adria
The leasing business of Hypo Group Alpe Adria started in 1990 with the foundation of the first leasing company in Austria; further subsidiaries were opened in Slovenia, Croatia, Bosnia-Herzegovina, Serbia, Germany, Italy, Montenegro, Hungary, Bulgaria, Macedonia and Ukraine. Currently, Hypo Group Alpe Adria Leasing has about 1.100 employees and approximately 80 locations by serving more than 83,000 customers, and, within a business field, is steered by Hypo Alpe-Adria-Bank International AG.

Contact:
Hypo Alpe-Adria-Bank International AG
Group Marketing & PR
Mag. Martina Uster
Telephone: 0043 (0)50202-2893
Mobile: 0043 (0)664 856 89 03
martina.uster@hypo-alpe-adria.com
www.hypo-alpe-adria.com