Active market – an active market meets the following three criteria: homogenous products are traded on it; willing purchasers and sellers can be found at any time; and prices are in the public domain.

Asset-backed securities (structured credit products) – Financial assets are not shown in the balance sheet, but are separated out into a Special Purpose Entity (SPE) and refinanced on the international money and capital markets. The refinancing is accomplished through the issue of asset-backed securities.

Banking book – the capital backing of positions on the banking book does not have to be determined in the same way as the calculation method for the trading book.

Basel II – revised version of Basel I on the definition of capital adequacy for banks. Basel II helps to increase stability in the international financial system, for example through risk-dependent capital backing of credit and explicit accounting for operational risk, through increasing the role of the financial markets supervisory body and through greater market transparency.

Basis for assessment according to the Austrian Banking Act (BWG) – the basis on which own capital requirement is assessed is the sum of risk-weighted assets and the off-balance-sheet positions of the banking book.

BWG – Bankwesengesetz = Austrian Banking Act.

Capital consolidation – capital consolidation means the netting of the carrying amounts for participations in the parent company’s separate financial statements with the share of the consolidated subsidiary’s equity.

Cashflow calculation – the cashflow calculation shows the composition and change in the holdings of cash and cash equivalents due to business, investment and financing activity in a financial year.

CEE – Central and Eastern Europe; and SEE – South- Eastern Europe. In HGAA’s case, the latter refers to: Slovenia, Croatia, Bosnia & Herzegovina, Serbia and Montenegro.

Core capital (Tier 1) – paid-in capital, reserves and net income less intangible assets.

Corporate Governance – Corporate Governance describes the international standards for good management of a corporation. The Corporate Governance Code rules exist to help further transparency and the control of a corporation; and should strengthen trust in that organisation’s management and protect shareholders’ interests.

Cost/income ratio – The cost/income ratio shows the ratio of administration expense to operating income (net interest income, net fee and commission income, fair value result, result from financial investments and other operating result). The key figure shows the percentage of operating income used up by administrative expense.

Creditworthiness – the assessment of how creditworthy a private individual or a business is. This involves looking at the would-be borrower’s past and assumed future conduct with regard to repayment of debt. The lower the credit rating, the higher the likelihood of default and therefore the higher the risk premium paid by the borrower.

Debt consolidation – the receivables and corresponding liabilities of Group companies included in the consolidation are netted out against each other.

Defined benefit obligation (DBO) – DBO is the present value of pension benefits earned as at the balance sheet date.

Derivatives – The term derivatives normally refers to financial instruments whose value is derived from the market price of one or more instruments (e.g. securities). The value of a derivative varies contingent upon an underlying value (such as interest rates, share prices).

Economic capital – is the amount required to cover unexpected losses. This cannot be compared with the equity shown in the balance sheet.

Eligible own funds – only eligible own funds may be used in the calculation of own capital funds coverage. This comprises Tier 1 and Tier 2 capital.

Embedded derivative – structured products (loans and advances, liabilities) are linked to one or more derivative financial instruments (e.g. swaps, futures) to make a legally recognised and economic unit.

Equity valuation – a consolidation method for participations in which the HGAA does not have the controlling interest but does exercise significant interest. The equity share is shown as a participation in the balance sheet and a proportional share of the result is included in the income statement.

Expected loss – the measure for the potential loss in a credit portfolio which, on the basis of historical data, is to be expected in a financial year.

Exposure – is the name for the expected amount which is at risk if there is a default on credit repayment.

Fair value – this means the amount which can be made through a sales transaction at arms’ length between two knowledgeable, willing business partners. Stock exchange rates, expert valuations or internal valuation models may be used to reach a valuation.

Fair value hedge – this is when assets or liabilities are hedged against changes in fair value (e.g. through a swap).

Fair value level I – quoted prices in an active market – the fair value is expressed through a market price where there is an active market.

Fair value level II – a valuation method relying on observable parameters – in cases where no quoted prices for individual financial instruments are available, the market value of similar financial instruments, or recognised valuation models using observable prices or parameters, are used to arrive at fair value.

Fair value level III – a valuation method relying on parameters which cannot be observed – if there are no stock exchange rates or prices available, the fair value is calculated using valuation models appropriate to the instrument in question.

Finance leasing – a leasing arrangement in which essentially all the opportunities and the risks in connection with ownership of the leased object are transferred to the lessee.

Full consolidation method – with the full consolidation method, materially associated companies (> 50 % participation) are included in the scope of consolidation and fully included in the consolidated financial statements, even if – for example – only 70 % is held by HGAA; in which case 30 % will be shown as minority interests.

Futures – transactions which are not to be transacted immediately but at a future point in time. At the point of set-up, the quality, quantity, price and settlement date are determined.

Goodwill – goodwill is the amount above the value of the assets themselves and after deduction of debts (i.e. the net asset value) that a purchaser buying a business is prepared to pay after taking into account future earnings expectations (the value of the business, income value).

Gross investment value – the value of all minimum lease payments for finance leasing and the non-guaranteed residual value.

Hedge – a hedge is a method for securing a share portfolio against declining share prices using share warrants.

Hedge accounting – the presentation of contrasting changes in value for an underlying and a hedging transaction.

Hedging – the changes in value of an underlying transaction (e.g. changes in interest rates, share prices) are compensated for by agreeing a hedge transaction to cover the reverse movement.

IFRIC, SIC – the International Financial Reporting Interpretation Committee, previously known as the Standing Interpretation Committee. The committee issues official interpretations of the International Financial Reporting Standards.

IFRS, IAS – International Financial Reporting Standards. These describe the international accounting standards issued by the IASB (International Accounting Standards Board) with the objective of creating a transparent and comparable standard for accounting at international level.

Joint venture – a company which is held by two or more partners, each with an equal share.

Micro hedge – a hedge on an individual asset or liability.

Option – The right to buy or sell a financial title or commodity at a price previously determined within an agreed time frame or at a time previously agreed.

OTC transactions – in over-the-counter transactions, financial instruments are not traded on a stock exchange but directly between market participants.

Own capital funds as defined by the BWG – the BWG’s provisions (section 22 (1)) on own capital funds set out how much own funds credit institutions must hold in their respective businesses to cover their exposure to risk. According to the BWG, own funds are comprised of core, or Tier 1, capital; supplementary and subordinate capital (Tier 2); and shortterm subordinate capital and unsecured Tier 2 capital (Tier 3).

Own capital funds requirement – credit institutions are required to hold an amount of eligible own funds equivalent to 8 % of the basis for assessment in accordance with the BWG (solvency provision).

Primary funds – primary funds include liabilities to customers, liabilities evidenced by securities and subordinated capital.

Projected unit credit method – method by which future obligations are estimated taking the actuarial present value of the existing benefit entitlement on the balance sheet date.

Rating – the judgement of a business’s creditworthiness on the basis of standardised qualitative and quantitative criteria. The result of the rating process is the basis for determining the likelihood of a credit default. The bank carries out its own internal ratings; external ratings are carried out by a rating agency (e.g. Standard & Poor’s or Moody’s).

Repo (repurchase agreements) – in a repo transaction, asset values are made over to a business partner (transferee) who is obliged to return the assets, while the transferor is definitely obliged to take them back. At the point of return, the transferor must pay back the amount received for the asset values.

Return on Assets (ROA) – this is the ratio of the annual profits prior to or after tax and minority interests to average total assets, expressed as a percentage.

Return on Equity (ROE) – describes the earnings position of a company and shows the yield from capital invested in a company. The figure is calculated by setting the annual profits (pre-tax or after tax) in relation to average equity (either including or excluding minority interests).

Revaluation reserve – changes in the market price of securities and participations which have no impact on profit or loss are booked to this reserve.

Risk assets – see: basis for assessment according to the Austrian Banking Act (BWG)

Risk/earnings ratio – calculates the ratio of credit risk to net interest income and shows the percentage of net interest income that is burdened by credit risk.

Solvency – the term solvency describes the ratio of assets to off-balance-sheet transactions and the resulting amount of own funds that the credit institution must hold.

Solvency ratio – eligible own funds less the own capital funds requirement for the position risk for bonds and net asset values; for foreign exchange and commodities risk; and the own capital funds requirement for operational risk as a % of risk-weighted assets, in accordance with section 22 (2) of the BWG.

Spot transaction – sale/purchase transaction which must be executed immediately (delivery and payment).

Spread – the difference between two points of reference, e.g. the range between the purchase and sale price of securities.

Stress test – stress tests are carried out to monitor market movements which are not accounted for in the VaR model.

Swaps – A swap is a financial instrument in which payment streams are exchanged between two business partners. There are interest swaps (in which, for example, fixed interest rates are swapped against variable rates) and foreign currency swaps.

Tier 1 capital ratio – this is the ratio of core capital (Tier 1) to the basis for assessment (at least 4 %).

Total capital ratio – the ratio of eligible capital to the basis for assessment according to the BWG

(at least 8 %).

Trading book – special calculation procedures apply for calculating the own capital funds requirement for trading book positions which are being held with a view to short-term disposal.

UGB – Unternehmensgesetzbuch = Austrian Enterprise Code: stipulates the basic accounting principles to be applied in Austria.

Value-at-Risk – the method for quantifying risk. The VaR figure shows the upper limit of losses which will not be exceeded during the holding period.