La identidad en la filosofía de Heráclito

1 Balance sheet 16

2 Income statement 18

Notes to the company financial statements

1 General information on accounting policies 19

2 Notes to the balance sheet 20

3 Regulatory capital under the Austrian Banking Act 27

4 Notes to the income statement 28

5 Supplementary disclosures 29

Economic environment in 2012

In 2012 the growth of the world economy slowed visibly:

Global economic output rose by a real 3.3%, down from an average annual growth rate of 4.5% in 2010 and 2011. Several inhibiting factors coincided in 2012:

The euro crisis worsened and the eurozone slid into recession, with real gross domestic product declining by 0.4%. This affected the world economy both di-rectly through foreign trade flows, and indidi-rectly as more and more market participants around the world lost confidence in the effectiveness of economic po-licy tools.

What is more, the drag on world economic growth in 2012 was not exerted only by the eurozone. In the entire OECD region, greater budget consolidation was high on government agendas last year and was pursued largely by cutting expenditures. Estimates put the growth reduction in the OECD at about 1 to 1.5 percentage points for 2012. Additionally, econo-mic activity in the emerging markets — the prime movers of the world economy — slowed unexpectedly sharply last year, caused both by weaker exports and the past several years of restrictive economic policies.

Along with the global economy as a whole, world trade also lost momentum significantly in the year under re-view. The World Trade Organization, the WTO, expects that growth in world trade fell by half, from 5% in 2011 to 2.5% in 2012. One of the reasons for this drop is the more cautious lending by banks, especially for project and trade finance worldwide. Particularly the euro area banks, which according to the World Bank accounted for 36% of worldwide trade finance in 2011, noticeably reduced their trade financing in 2012. Al-though non-European banks were able to make up some of the credit shortfall created in regions such as Asia by reduced financing from European banks, the global volume of trade finance in the first nine months of 2012 as reported by data vendor Dealogic slumped by 15% compared with the same period one year earlier. Likewise, the worldwide volume of guarantees provided by export credit agencies fell by 13% in the first three quarters of the year.

The global economic trend in 2012 varied by region:

While the eurozone slipped into recession, economic growth in the United States held up well despite

drought-related crop losses and the destruction wrought by Hurricane Sandy: The OECD is estimating that real US economic output grew by 2.2%, slightly more than the rate of 1.8% reached in 2011. Similar to the eurozone, in the USA the crucial requirement for lasting future growth is the restoration of sustainable public finances. After lengthy negotiations, a budget compromise was reached in Congress as 2012 turned into 2013, just in time to avoid triggering spending cuts and tax increases totalling USD 600 billion that could have plunged the American economy into reces-sion. Experts now project US economic growth of about 2% in 2013.

In Japan the first half of 2012 was defined by recon-struction after the seismic disaster of March 2011. In the second half of the year, the softening world trade and diminishing domestic demand made themselves felt the Japanese economy. For the full year 2012 the OECD estimates Japan's real economic growth at 1.6%. Japan’s budget situation too is critical. In 2012 the budget deficit reached approximately 10% of GDP and the public debt climbed to about 214% of the country’s entire economic output.

Asia provided less impetus for the world economy in 2012 than in the previous year: According to the Asian Development Bank, the developing Asia region (which consists of 44 emerging markets) recorded economic growth in 2012 of 6%, down from 7.2% in 2011. With China and India leading the decline, the region’s economic momentum ebbed significantly last year. A similar trend was observed in Latin America’s largest economy, Brazil, which decelerated in 2012.

After already relatively modest economic growth of 2.7% in 2011, GDP expansion slowed further to 1.5%

in the year under review.

In Europe the economic and debt crisis heated up again in 2012, leading to a GDP contraction of 0.3% in the 27-member European Union. As in the prior years, economic realities were harshest in the southern European periphery. Yet the EU’s core too was not spared the consequences of the crisis: While France, for instance, was confronted with a stagnating eco-nomy in 2012, the United Kingdom actually went into recession. An economy that proved comparatively re-silient was that of Germany, with growth just short of the 1% mark.

1 Economic and capital markets situation and financial results

One of the key reasons for Europe’s travails was the high level of uncertainty in the business environment, which made companies quite reluctant to invest. In the southern countries this effect was exacerbated by banks’ reluctance to lend. However, private consump-tion too was subdued in 2012 — the result not just of high unemployment (at 10.7% in the EU-27) but of the in some cases substantial household debt levels in the crisis countries. On the bright side, exports were a positive driving force. Notably in the first half of the year, shipments to Asia and the Americas increased more strongly than imports. Towards the end of 2012, how-ever, new orders for exports slowed, thus signifi-cantly reducing the growth contribution derived from trade with the rest of the world.

The euro area was severely affected by the debt problems in Portugal, Italy, Ireland, Greece and Spain.

Besides the still precarious state of troubled euro member country Greece, it was above all the ailing Spanish banking system that attracted a spate of negative news headlines. In these five countries an-other expansion of the austerity programmes was therefore undertaken. In autumn 2012 the calming of financial market jitters was greatly helped by the coming into force of the European Stability Mecha-nism (the ESM) and the readiness of the European Central Bank to buy government bonds of stricken eurozone countries. Nonetheless, informed commen-tators agree that there is no way around a structural shift in the countries at the heart of the crisis. The first signs of an economic recovery in the eurozone are therefore not expected until spring 2013 at the earliest.

The persistent difficulties in the euro area had ripple effects in Central and Southeastern Europe. Although in 2012 the region as a whole grew somewhat more strongly than Western Europe, there was much heterogeneity between nations. Thus, economic contractions in the year under review occurred in future EU member Croatia, in crisis-ridden Hungary and in Slovenia with its staggering banking problems.

Russia, Poland and the Baltics meanwhile reported relatively solid GDP growth as these countries benefit from more stable domestic demand and/or their trade relations are not as exposed to

the eurozone.

For 2013, economic researchers are predicting an — albeit moderate — economic recovery for Central and Southern Europe (except Slovenia). Foreign direct in-vestors in Central and Eastern Europe, by contrast, are less optimistic for the future, as demonstrated by the OeKB CEE Business Climate Index. This indicator of business expectations fell in the fourth quarter of 2012 for the second time in succession, pointing to declining optimism about performance in the next six months. The region’s high potential, however, remains unquestioned: A glance at the investment strategies shows that most direct investors are maintaining their local presence even in difficult economic times.

In Austria, GDP growth in 2012 receded to 0.6%. The economy lost vigour in the second half of the year in particular, due in part to the challenging international environment. Thus, the economic frailty in important European markets like Italy, the Czech Republic and Hungary weighed on exports. The significant rise in exports to non-EU countries only partly offset the drop in intra-EU demand. On balance for 2012, the Austrian Institute of Economic Research (WIFO) predicts slender real growth of 0.8% in merchandise exports.

While the investment climate in the year under review was also hurt by the level of uncertainty in Europe, private consumption again had a stabilising effect.

Remarkably, inflation pressure decreased from the prior year and prices in Austria, at average inflation of 2.4%, thus were among the most stable in Europe.

Conditions in the labour market as well compared fa-vourably to the rest of the region. The Austrian unem-ployment rate last year by the Eurostat definition was 4.3%. In 2013 joblessness is expected to rise moder-ately, not least because of the somewhat lacklustre macroeconomic outlook for Austria (with forecast GDP growth of just 1%).

International financial markets

In the world’s financial markets, 2012 was a year of sometimes high volatility. The escalation of the euro crisis, the slowdown in the world economy and world trade, and political tension in the Middle East heightened the global uncertainty and market partici-pants’ general loss of confidence. However, from the middle of 2012, various measures by central banks, especially the ECB, led to a significant easing of the strain in financial markets. The main events that turned the tide included the decision to conduct Out-right Monetary Transactions, the establishment of the European Stability Mechanism, initiatives to strengthen financial stability through a banking union, the reaching of an agreement on the bailout for Greece, and generally the monetary policy easing in the European core markets, the USA, Japan and emerging markets. Heartened by these measures, equity markets rallied vigorously. For the year as a whole, important stock indices such as the S&P 500 and the Euro Stoxx 50 registered gains of 13% to 14%, and the Nikkei 225 even rose by 23%.

In bond markets, long-term government bond yields tended to fall, with some countries’ instruments reaching record lows. Thus, in July 2012, yields of 10-year US Treasury notes were at their lowest level in over 200 years. In Europe the countries which had been hit hardest by the crisis also saw bond yields de-cline, along with spreads of credit default swaps: Be-tween the end of August and early December, yields of Greece’s long-term sovereign debt instruments fell by more than 800 basis points, while Portugal’s saw a decrease of 184, Spain's declined by 148 and Italy’s eased by 141 basis points.

Austrian financial market

The Austrian equity market experienced significant swings in 2012, as documented by the performance of the ATX. After a strong advance in the first quarter, Austria’s headline blue chip index lost considerable ground in the middle of the year amid the general state of trepidation in financial markets. Only in the second half of the year did equity investors slowly regain their confidence, driving a continual rising

trend for the index. At the end of 2012 the ATX stood at 2,401.21 points, a gain of 26.9% for the year. On the other hand, the all-time high around 5,000 marked in summer 2007 remained a distant memory.

In 2012 the Vienna stock exchange struggled with receding turnover and falling liquidity. The year’s average monthly trading volume of EUR 3.0 billion was well below the 2011 figure of EUR 5.0 billion. In equity corporate actions as well, market activity was limited:

2012 brought only three capital increases and no initial public offering. In a striking trend, overall, barely one-fifth of equity deals in Austrian securities now occur on the exchange. To save expenses and by-pass regulations, most transactions are already executed off exchange.

The picture was much more positive in the Austrian bond market, particularly for corporate bonds. In total last year, 29 corporate bonds were placed with a volume of EUR 5.5 billion, further improving on the already strong prior year’s 23 bond issues worth a total of EUR 3.3 billion. As the cost of bank credit has risen with banks' own higher borrowing costs and more stringent capital and liquidity requirements, companies are increasingly turning to the capital market for funding.

Regarding government bonds, investors continue to see Austrian treasury instruments as a safe haven.

Thanks to comparatively good fundamentals, the yield for the country’s ten-year federal bonds eased in 2012 from 2.9% to 1.75%. As a result the Republic of Austria was able to borrow relatively inexpensively, despite the loss of the top rating from bond rating agency Standard & Poor’s. The favourable conditions are illustrated by the yield spread to the German benchmark 10-year Bund, which in 2012 narrowed from 107 to 43 basis points.

Financial results in 2012

The only slight Austrian export growth in 2012 showed in the amount of funding provided under OeKB’s Ex-port Financing Scheme. Thus, the EUR 6.8 billion of loans disbursed were exceeded by repayments of EUR 10.4 billion received. The resulting decrease in net export loans outstanding, despite positive one-off effects from early loan repayments, was reflected in net interest income, which amounted to EUR 87.5 mil-lion in the year under review (2011: EUR 89.8 milmil-lion).

Income from securities and investees, at EUR 7.9 million, was EUR 1.0 million more than the year-earlier result of EUR 6.9 million, owing largely to an increase in dividends from the investments in private credit insurance companies.

The turmoil in capital markets and the resulting lower trading volumes led to a slight dip in account and transaction fees, while the financial data service and notification office benefited from an increase in de-mand. A small increase was also seen in the income from fees for the processing of export guarantees on behalf of the Austrian government and for adminis-tering the guarantees under the Corporate Liquidity Support Act (ULSG). In total, OeKB recorded net fee and commission income of EUR 44.8 million in 2012 (2011: EUR 42.3 million).

Net expense from financial operations was essentially stable compared with one year earlier.

Other operating income, at EUR 9.5 million, represen-ted mainly service fees and staff costs (for seconded staff) charged to subsidiaries.

Total operating income was thus EUR 149.7 million (2011: EUR 148.3 million).

Within administrative expenses of EUR 73.4 million (2011: EUR 71.2 million), there were increases both in staff costs and other administrative expenses. Most of the rise in staff costs was attributable to the change in discount rates for pension and termination benefit provisions. The increase in other administrative expen-ses, at 1.6%, was held below the rate of inflation. As the additional office space from the top-floor

expan-sion at the Strauchgasse 1-3 address was taken into use in 2012, depreciation and amortization of non-current assets increased as previously predicted, by about EUR 0.5 million.

Operating expenses totalled EUR 79.4 million, which was EUR 2.9 million more than the prior-year level of EUR 76.5 million.

The operating profit of EUR 70.3 million in 2012 represented a reduction of 2.1% from the prior year.

The significant net gain of EUR 8.4 million on disposal and valuation of loans, advances and securities was strongly driven by the price appreciation of bonds, which was realised on redemption because of the con-servative measurement of non-current assets at the lower of cost or market value.

In measuring interests in subsidiaries and other inves-tees in 2012, an impairment charge of EUR 1.2 million was recognised on the investment in the Budapest Stock Exchange. This resulted both from the volatility of the Hungarian forint against the euro and from re-duced income expectations in light of the difficult economic and political situation in Hungary.

Profit before tax amounted to EUR 77.4 million (2011: EUR 59.1 million). After income tax, profit for the year of EUR 59.5 million was substantially higher than the prior year’s EUR 44.9 million.

In view of the coming more stringent regulatory capital requirements under Basel III, OeKB transferred EUR 29.2 million to reserves in 2012 (2011: EUR 24.6 million) to strengthen the capital base. The reported profit available for distribution was EUR 30.3 million, up from EUR 20.3 million.

To conclude the review of the income statement, as a result of positive one-time effects from early loan re-payments, the decrease in income from the Export Financing Scheme was less pronounced than had been expected at the beginning of the year. The result on disposal and valuation of loans, advances and se-curities also improved markedly.

At 31 December 2012, liquid assets in the form of balances at central banks stood at EUR 124.2 million (2011: EUR 586.2 million). Correspondingly, the item

“deposits from banks” decreased from EUR 670.5 million in 2011 to EUR 441.4 million at the 2012 balance sheet date.

Loans and advances to banks rose (as a result largely of higher time deposits) from EUR 101.7 million in the prior year to EUR 441.4 million at the end of December 2012.

The size of OeKB’s investment portfolio eased somewhat in 2012 as, amid the uncertainty in finan-cial markets, not all redemption proceeds were reinvested immediately. The portfolio’s carrying amount at 31 December 2012, determined by conser-vative measurement at the lower of cost or market value, was EUR 384.6 million (2011: EUR 439.2 mil-lion), while the market value was EUR 458.3 million (2011: EUR 492.3 million).

The liquid assets portfolio, used to support the Export Financing Scheme and consisting of bonds, remained constant at EUR 830 million by nominal value.

The balance sheet amount related to export financing decreased in 2012 by EUR 4,405.2 million or 14.3%, to EUR 26,427.6 million. A major reason for this was the decrease in loans and advances to banks. Accor-dingly, the volume of debt securities in issue was re-duced.

Total assets at 31 December 2012 amounted to EUR 27,566.5 million (2011: EUR 32,138.5 million).

Financial performance indicators

The cost/income ratio increased to 53.0% from the prior year’s 51.6%, helped mainly by the drop in operating expenses.

Available regulatory capital under section 23 Austrian Banking Act increased in 2012 by EUR 28.9 million to a new total of EUR 510.2 million.

The Tier 1 capital ratio (Tier 1 capital under the Banking Act as a percentage of risk-weighted assets) was 108.7% at the end of 2012 (2011: 116.9%) as a consequence of the increased regulatory capital requirement for credit risk.

Return on equity (profit for the year as a percentage of Tier 1 capital) increased in 2012 from 12.1%

to 14.9% as a result of the higher profit for the year.

Non-financial performance indicators are presented in section 4, Human resources.

Research and development

In view of OeKB’s business purpose, no research and development is conducted.

Claims for Damages

There are two law suits of investors pending who bought certificates issued by OeKB for registered shares of Meinl European Land Ltd. (“MEL”). The law suit served on 30 July 2011 amongst others on OeKB asks for payment of about EUR 2,790,000 and was dismissed by judgment of 24 January 2013 (appeal still possible). The second law suit for damages is a model law suit claiming for payment of around EUR 48,500. It is based on the grounds that OeKB as issuer of the MEL certificates did not arrange for an ad-hoc notice pursuant to the Stock Exchange Act on the share-buy-back action in spring 2007 under-taken by MEL (nowadays: Atrium). In the evaluation of OeKB’s general counsel chances of success of this law suit are practically zero, taking in account judgments of the first and second instance in another model law suit based on other legal grounds and decided in favor of OeKB.

Events after the balance sheet date

Events after the balance sheet date