Market environment
As exports increased by 23% in real terms as against the previous year, the Slovak economy grew by an estimated 4.1% (2002: 4.4%) despite a temporary decline in domestic demand. The automotive industry achieved particularly strong growth. The inflation rate was 8.5%, a consequence of the harmonisation of value added tax rates and the adjustment of regulated prices. Parliament passed major reform laws, including changes in the tax and pension systems. The introduction of a flat tax rate of 19% attracted strong attention.

During the year the Slovak crown was under considerable pressure to appreciate against the euro. Therefore the Slovak central bank intervened by reducing key interest rates in two steps, by 0.25% each, in September and December. At the end of 2003, the most important interest rate, the 14-day repo rate, stood at 6%. These interest rate cuts followed a reduction of 1.50% made at year-end 2002 and led to a significantly lower level of interest rates.

Profile
In 2003, HVB Bank Slovakia a.s. – created in 2001 through the merger of Bank Austria Creditanstalt Slovakia a.s. and HypoVereinsbank Slovakia a.s. – became the fifth-largest bank in the country. The bank opened seven new branches. Through a country-wide network of 24 branches, HVB Bank Slovakia currently serves 23,800 customers, including 21,900 retail customers.

In July 2003, Bank Austria Creditanstalt took over 100% of CAC Leasing Slovakia, with HVB Bank Slovakia increasing its interest to 19.9%. This transaction made Bank Austria Creditanstalt the number one in the leasing sector in Slovakia.

The renowned Slovak business magazine “Trend” named HVB Bank Slovakia “Bank of the Year 2003” in November, thereby confirming its leading position among banks in Slovakia.

Business development in 2003
Despite good volume growth, the bank’s business was affected by the significantly lower level of interest rates following the reduction of key interest rates by the Slovak central bank. The effect was offset by a very favourable trend in risks and by increases in net fee and commission income and in the net trading result. But as the business expansion led to a rise in general administrative expenses, net income before taxes was slightly lower, at € 18.6 m, than in the previous year.

Throughout 2003 the bank continued to implement the retail banking strategy it started to pursue in 2002. Volume growth in this customer segment was mainly supported by mortgage loans, a sector in which the bank achieved a growth rate that significantly exceeded the market average. In summer 2003, HVB Bank Slovakia became the first bank to launch a “genuine” credit card in the market. This was a decisive factor for Slovak Telecom’s decision to cooperate with HVB Bank Slovakia in launching a co-branded credit card, giving the bank an acquisition potential of 140,000 Slovak Telecom customers.

The bank responded to growing demand for fund products in Slovakia by launching two money market funds denominated in Slovak crowns (SKK). In October 2003, “Hospodarske noviny”, a daily newspaper, named the SKK Cash Fund the “Best SKK Cash Fund in the Slovak Republic”.

In the corporate banking sector, the bank acquired additional medium-sized companies as customers and developed specific account and loan products for this customer group. Our Slovak banking subsidiary also recorded strong growth in business with major corporates and in the real estate business segment. Foreign investors in Slovakia see HVB Bank Slovakia as a leading banking institution in the area of financing.