Growth and capital efficiency

According to the principles of value-based management, which we continue to apply with top priority within UniCredit Group, the value creation which we seek (beyond the cost of capital) results from growth multiplied by capital efficiency. In the strongly expanding banking sectors in Central and Eastern Europe, growth will be achieved from the very start with a high return on equity while keeping capital requirements as low as possible. In the other business segments, which are mainly active in mature markets and in financial markets, priority is given to optimising capital employment (e.g. through portfolio management using the secondary market for loans and credit risk) and enhancing profitability.

As a result, average risk-weighted assets (RWA) of BA-CA in 2006 increased by over 3 % to € 79.8 bn. In the three segments of Austrian customer business, RWA were only 2 % higher than in 2005, despite the continued expansion of loans to private individuals. In the CEE business segment, average risk-weighted assets increased by 15 %; CEE now accounts for 31 % of total RWA. In this context, it should be noted that two end-of-quarter figures for HVB Splitska banka, and one end-of-quarter figure for BPH, were no longer taken into account in the calculation of average RWA. A projection of the “missing” data gives an increase of 27 % in RWA for the CEE business segment, and 7 % for the bank as a whole. The planned expansion of the perimeter of BA-CA’s activities to include large high-growth markets will result in substantial growth of risk-weighted assets.

As in previous years, the return on equity (ROE after tax) increased in 2006. The ROE after tax for BA-CA in 2006 was 39.5 %; adjusted for one-off effects in 2006 and 2005, it reached 15.8 %, after 13.5 % in 2005. While Austrian customer business became more profitable overall, the Retail segment newly formed in 2006 showed a negative ROE before tax (minus 10.1 %) and did not earn the cost of capital even on an adjusted basis (plus 5.6 %). Given the loss of income in the second half of the year in connection with the above-mentioned deconsolidation, the ROE before tax in the CEE business segment was
18.0 %; on a like-for-like perimeter basis, it would be over 20 %. (According to the Group standard, ROE figures do not relate to the standardised capital based on RWA but to average equity capital actually employed).

Return on equity