Good winding-up progress has been made

Looking back on 2021, it was a good fiscal year in operational terms, in which the EAA made further progress in winding up the portfolio. In the past fiscal year 2021, the EAA posted a positive result after taxes of EUR 1.7 million, due to a one-off effect. The reserves remained constant.

The EAA also put in place important conditions to ensure it is in an efficient and cost-effective position for the remaining tasks.

This provides a solid basis to continue reducing the remaining portfolios. The quality of the banking book portfolio has improved slightly during the winding-up process. As of 31 December 2021, exposures with very good, good and average ratings accounted for 75%, which represents a 3% increase over the previous year.

The focus of fiscal year 2022 is on our key tasks comprising the management and controlled further winding up of the portfolio.

Banking book portfolio

From 1 January to 31 December 2021, the notional volume of the banking book was reduced from EUR 12.7 billion to EUR 10.6 billion. That equates to a decline in notional volume of EUR 2.1 billion (16.5%). The total banking book portfolio has decreased by EUR 115.8 billion or 91.6% since 1 January 2012. The portfolio of securities, in particular, declined disproportionately by EUR 1.0 billion.

The loan portfolio is dominated by project financing in the energy sector. This accounts for about one third of the total volume and includes conventional power plants as well as renewable energy projects. The volume of project financing in the infrastructure sector is considerably lower, at around 10%. On the basis of current information, the EAA does not expect the war in Ukraine to have any significant overall impact on its credit risk.

Despite the COVID-19 pandemic, active portfolio reduction continued in 2021, including sales of project finance exposures in the infrastructure and in the energy sector. The EAA continues to focus on reducing the number of borrowers in the remaining portfolio. This is not just a matter of rapidly reducing the volume of the loan portfolio further. Reducing the number of customers will mainly result in a decrease in the cost of managing the remaining portfolio in future.

The securities portfolio at the end of the year consisted of 85% government bonds. Exposures to eurozone countries predominated (80%), with the remaining volume coming from EMEA countries outside the eurozone (7%), America (11%) and APAC countries (2%).

Italy, Portugal and Spain accounted for a total of about 61% of the total securities portfolio as of 31 December 2021, of which around 50% was government bonds.

61.3% of structured products relate to the Phoenix portfolio – securitised loans which are closely linked to the US real estate market and lost a large part of their value during the financial crisis. A second focus is on securitised US student loans, which are backed by government guarantees and are therefore low-risk from today’s perspective.

The EAA’s banking book portfolio is denominated primarily in US dollars (46%) and euros (51%). Exposures with medium and longer maturities predominate. The regional focus is on North America (58%) and Europe (35%). 5% of the banking book volume is accounted for by the Near and Middle East.

Long-term equity investments

The EAA’s banking book portfolio still contains 33 direct and 28 indirect shareholdings / affiliated companies. In addition to the liquidation or merger of a number of small shareholdings, the material effect of the reduction of the carrying amount of the shareholdings and affiliated companies was due mainly to the capital repatriation of Erste EAA Ireland plc, the former EAA CBB, in March 2021 and to capital withdrawals at domestic companies (EUR 134.1 million).

Positive result from the winding-up of the Irish subsidiary

The return of the full banking licence of Erste EAA Ireland plc (formerly EAA Covered Bond Bank Plc) and the licence as a so-called designated credit institution – comparable to a covered bond bank licence – which was applied for in October 2020, was approved in March 2021. Following the transfer of almost all assets to the EAA in the second half of 2020 and capital repatriations in March 2021 and September 2021, the company essentially only reports bank balances, provisions and equity. The capital repatriation in March 2021 exceeded the carrying amount of the company. Erste EAA Ireland plc has been in liquidation (Members Voluntary Liquidation) since 29 June 2021.

Trading portfolio

The nominal volume of derivative products in the EAA’s trading portfolio fell by 30.8% in 2021 to EUR 65.5 billion, due in particular to active reduction measures. Additional measures for an advance reduction will be taken in the current year.