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In the course of preparations for Basel II, better methodologies and quantitative methods in the area of default risk have enabled Bank Austria Creditanstalt to put loan loss provisioning on a new basis in respect of the large numbers of low-volume loans to retail customers and in the SME sub-segment; a similar change took place in the corporate banking sector in previous years. This means that expected risk can now be calculated more accurately also in retail business and defaults can be detected at an earlier stage, so that the bank can also make loan loss provisions earlier. Based on a refined retail scoring procedure, BA-CA can identify problem loans more quickly. In addition, risk standards (default criteria) were raised and the transfer to Special Accounts Management specialists can take place earlier and on stricter terms than before. The refinement of methods used for making estimates results in anticipatory effects.
In the third quarter of 2006 we added € 79 m to loan loss provisions. This related mainly to the increase in flat-rate specific provisions for low-volume loans to private customers and small businesses; a smaller amount was accounted for by higher provisioning rates for doubtful loans exceeding € 50,000 against which specific provisions have been made, and provisions for losses caused by fraud in transactions for which sales partners acted as intermediaries. In the fourth quarter of 2006 we increased loan loss provisions by a further € 199 m: on the basis of data, now available for the first time, for customers with payments past due more than 90 days or other defaults (which in themselves did not lead to a specific provision being made), we made group-specific provisions. Moreover, the methodologies used for calculating losses “incurred but not yet reported (IBNR)” were restructured in line with analyses of comprehensive data collected for the planned use of the advanced internal ratings-based approach. Together, these changes resulted in a one-off increase of € 278 m in net writedowns of loans.