BAWAG Group AG: Strong Q1-3 2018 profit before tax of EUR 429 million, +14% vs. Q1-3 2017

Vienna (pta009/08.11.2018/07:00 UTC+1) -

- Profit before tax (PBT) of EUR 429 million, up 14% vs. prior year
- Net profit of EUR 327 million, up 9% vs. prior year
- Return on tangible equity (@12% CET1) of 16.8%
- Core revenues of EUR 836 million, +13% vs. prior year
- Cost-income ratio of 43.3%, ahead of 2018 target of <46%
- Fully loaded CET1 ratio of 15.3% (including interim profit), +180bps versus year-end 2017
- Pre-tax earnings per share of EUR 4.23 for Q1-3 2018

VIENNA, Austria - November 8, 2018 - BAWAG Group today reports a strong profit before tax of EUR 429 million for the first three quarters 2018, up 14% versus the prior year. The increase was primarily driven by higher net fee and commission income as well as net interest income. The return on tangible equity (@12% CET1) came in at 16.8%. The cost-income ratio was up 1.5pts versus the prior year to 43.3%, reflecting the impact of the acquisitions closed in the fourth quarter 2017. The fully loaded CET1 ratio increased by 180bps to 15.3% versus year-end 2017, including the interim profit.

"Besides having delivered strong results in the first three quarters 2018, we made very good progress on the execution of our key strategic initiatives. The integration and transformation of PayLife and Südwestbank is on track and we closed the acquisition of Deutscher Ring Bausparkasse in the third quarter. Concept 21, our stand-alone strategy in BAWAG P.S.K., is progressing well and we signed another retail partnership agreement. We are continuing our work on the M&A front, assessing a number of opportunities while staying disciplined in following our underwriting guidelines on both strategic fit and value. Our focus remains on driving operational excellence and profitable growth, and we are confident in exceeding all of our 2018 targets," commented Chief Executive Officer Anas Abuzaakouk.

Delivering strong results in the first three quarters 2018

Core revenues increased by EUR 97 million, or 13%, to EUR 836 million. Net interest income rose by 6% to EUR 623 million, primarily driven by the acquisition of Südwestbank we closed in the fourth quarter 2017, growth in our core products as well as balance sheet optimization measures. Net fee and commission income increased by EUR 62 million, or 41%, to EUR 213 million mainly due to the acquisition of PayLife and Südwestbank as well as lower commission expenses paid to Austrian Post. The net interest margin of 2.28% (Q3 2018) improved by 13bps compared to the second quarter 2018.

Operating expenses in the first three quarters 2018 increased by 19% compared to the first three quarters 2017, which was mainly due to the acquisition of PayLife and Südwestbank. The cost-income ratio increased by 1.5pts to 43.3%, which remains well ahead of our 2018 target of <46%.

The risk cost ratio of 11bps in the first three quarters 2018 reflects our continued focus on proactive risk management and a conservative risk profile in a persistently benign credit environment. The NPL ratio stood at 1.7%.

Loans and advances with customers remained largely stable compared to December 2017. The overall customer loan book continued to be comprised of approximately 75% exposure to the DACH region and approximately 25% exposure to Western Europe and the United States. The total new origination volume in the first three quarters 2018 was EUR 4.7 billion, up 28% versus the prior-year period.

We maintained a strong capital position. At the end of the first three quarters 2018, our fully loaded CET1 ratio was 15.3% (December 2017: 13.5%). The increase of 180bps compared to year-end 2017 reflects earnings accretion as well as lower RWAs, while absorbing negative impacts resulting from the Tier 2 buyback, the share buyback program and the first-time application of IFRS 9.

Customer business performance in the first three quarters 2018

Segment	PBT (EUR million)	Pre-tax RoTE (@12% CET1)	Cost-income ratio
BAWAG P.S.K. Retail	177	38.3%	44.5%
easygroup	106	34.2%	31.5%
International Business	88	31.1%	20.5%
DACH Corporates & Public Sector	33	13.7%	51.7%
Südwestbank	33	12.7%	62.6%

The BAWAG P.S.K. Retail segment achieved a profit before tax of EUR 177 million in the first three quarters 2018, up 17% compared to the same period last year. The increase was primarily driven by higher net interest income as well as increased net fee and commission income. The latter also includes lower commission expenses paid to Austrian Post following the separation agreement. Lower operating expenses also contributed to the increase in profit before tax.

The easygroup segment generated a profit before tax of EUR 106 million in the first three quarters 2018, up 1% compared to the first three quarters 2017. We made significant progress with the PayLife integration, where positive net credit card growth was achieved for the first time since 2013 and only one year after the acquisition. In September 2018, we successfully completed the acquisition of Deutscher Ring Bausparkasse.

The International Business segment's profit before tax was EUR 88 million in the first three quarters 2018, up 45% compared to the same period last year. This was mainly due to lower risk costs and a low NPL ratio of 0.2%.

The DACH Corporates & Public Sector segment contributed EUR 33 million to BAWAG Group's profit before tax. Our focus continues to be on underwriting business with appropriate risk-adjusted returns.

The Südwestbank segment contributed EUR 33 million to BAWAG Group's profit before tax. In the first three quarters 2018, the integration and transformation process was fully launched and is progressing ahead of plan. Our transformation plan is set up to improve operating performance across all products and channels with a focus on profitability, efficiency and capital with a goal to deliver results in line with the overall BAWAG Group targets.

Additional highlights

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

- Share buyback program completed
In June 2018, we announced a share buyback program for up to 1,285,000 shares for a total consideration of up to EUR 70 million by year-end 2018, which was launched on 3 July 2018. The share buyback program was completed on 7 November 2018 as the maximum buyback volume of 1,285,000 shares was reached. The total value of the repurchased shares amounts to EUR 51 million.

- Agreements on strategic partnerships
In May 2018, we agreed to an exclusive sales partnership with MediaMarktSaturn Austria, which will start in January 2019 and is set for the long term. This strategic partnership complements our omni-channel strategy aimed at strengthening our presence in the consumer lending segment on the Austrian market and leveraging cross-selling potential.

In October 2018, we agreed to a strategic partnership with METRO Cash & Carry Austria focusing on current account products and credit cards for entrepreneurs and SMEs. The collaboration, part of a multi-year partnership, will allow us to provide tailored financial products and services to their more than 500,000 customers.

- Closing Deutscher Ring Bausparkasse
In September 2018, we announced the successful completion of the acquisition of Deutscher Ring Bausparkasse by BAWAG P.S.K. Deutscher Ring Bausparkasse is a building society bank headquartered in Hamburg that is active throughout Germany and has been offering building society products and retail housing products since 1972. The bank complements BAWAG Group's business model while providing a bolt-on opportunity for retail growth in Germany.

Outlook and targets

BAWAG Group delivered strong results in the first three quarters 2018 and anticipates that this performance will continue throughout the remainder of the year.

Our targets for 2018 are as follows:

- Grow profit before tax (PBT) by more than 5%
- Achieve a cost-income ratio below 46%
- Deliver a return on tangible equity (@12% CET1) above 15%
- Maintain a CET1 ratio (fully loaded) of at least 12%

In addition, we have the following 3-year targets from 2018 through 2020 in place:

- Grow profit before tax at more than 5% CAGR and deliver a PBT of greater than EUR 600 million in 2020
- Deliver pre-tax average annual earnings per share of greater than EUR 5.70
- Achieve a cost-income ratio below 40%
- Maintain a RoTE (@12% CET1) in a range of 15% to 20%
- Maintain a CET1 ratio (fully loaded) of at least 12%
- Total excess capital accretion (>12% CET1) of greater than EUR 2 billion through 2020

In terms of capital generation and return, we target an annual dividend payout of 50% of net profit attributable to shareholders and will deploy additional excess capital (above 12% CET1) through 2020 to invest in organic growth and pursue earnings-accretive M&A at returns consistent with our RoTE group targets. To the extent excess capital is not deployed via such organic growth and M&A, we are committed to distributing excess capital to shareholders, based on a yearly assessment in the form of stock buybacks.

About BAWAG Group

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

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

Contact:

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

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

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

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

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