BAWAG : Disclosure acc. to Regulation (EU) No. 575/2013 ("CRR") FY 2023 (qualitative)

BAWAG GROUP AG QUALITATIVE DISCLOSURE REPORT ACCORDING TO REGULATION (EU) NO. 575/2013 ("CRR")

2023

CONTENTS

CONTENTS

QUALITATIVE DISCLOSURE

10 GENERAL PRINCIPLES

10 Scope of consolidation and consolidation methods

12 Impediments to the transfer of own funds

12 Total shortfall in own funds of all subsidiaries not included in the scope of consolidation 12 Usage of Articles 7 and 9 CRR

13 RISK MANAGEMENT

13 Group-wide risk management

19 Internal Capital Adequacy Assessment Process (ICAAP) and Group-wide stress test 24 Capital allocation and limitation at total Bank level

26 CREDIT RISK

26 Objectives and principles of credit risk management

30 Counterparty default risk arising from derivatives, repurchase transactions, securities and commodities lending transactions, margin lending transactions and long settlement transactions

33 Credit risk mitigation

35 Value adjustments and reserves

37 Rating systems and rating processes

45 MARKET RISK

45 Objectives and principles of the management of market risk 47 Internal models for limitation of market risk

47 Interest rate risk from positions not held in the trading book

53 OPERATIONAL RISK

53 Strategies, processes and management

53 Structure and organization of operational risk management

54 Risk measurement systems

56 Risk hedging and mitigation

56 Own fund requirements

57 LIQUIDITY RISK

57 Strategies, processes and management

59 Structure and organization of relevant risk management functions

59 Risk measurement systems

60 Risk reporting systems

61 Risk hedging and mitigation

61 Liquidity coverage ratio

62 Net stable funding ratio

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CONTENTS

63 CONCENTRATION RISK

63 Strategies, processes and management

63 Structure and organization of relevant risk management functions

63 Risk measuring systems and limitation

64 Reporting systems

65 ESG RISK

65 Qualitative information on environmental risk

65 Business strategy and processes

66 Governance

68 Risk management

75 Qualitative information on social risk

75 Business strategy and processes

77 Governance

87 Risk management

88 Qualitative information on governance risk

88 Governance

101 Risk management

102 RISK OF MONEY LAUNDERING AND FINANCING OF TERRORISM 102 Strategies, processes and management

102 Structure and organization of relevant risk management functions

103 Risk measurement systems

103 Risk reporting systems

103 Risk hedging and mitigation

1. RESIDUAL RISK FROM TECHNIQUES OF CREDIT RISK MITIGATION 104 Strategies, processes and management
   104 Structure and organization of the relevant risk management functions 104 Risk hedging, risk mitigation and risk measurement systems
2. MACROECONOMIC RISKS
   105 Strategies, processes and management
   105 Structure and organization of relevant risk management functions
   105 Risk measurement, risk reporting system and risk hedging or mitigation

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CONTENTS

106 PARTICIPATIONS NOT HELD IN THE TRADING BOOK

106 Objectives and principles for the management of participations

107 Accounting and valuation methods

108 SECURITIZATIONS

108 Disclosure of exposure to securitization positions

1. LEVERAGE RATIO
2. REMUNERATION POLICY DISCLOSURE

1. APPENDIX

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Qualitative disclosure

LIST OF TABLES

Table 1:	Divergent consolidation basis	11
Table 2	Risk appetite statement	14
Table 3:	Functions held by Management Board and Supervisory Board members	19
Table 4:	Types of collateral and collateral valuation and management	34
Table 5:	Mapping of external ratings to the individual credit quality steps	38
Table 6:	Rating notches and classes for all segments	39
Table 7:	Description of the validation methods	40
Table 8:	Description of the reference definitions for default	41
Table 9:	Overview of rating and scoring systems	42
Table 10:	Interest rate sensitivities	48
Table 11:	Instantaneous change of the economic value of equity	49
Table 12:	Change in the forecasted net interest income within 12 months	50
Table 13:	Scope of risk materiality assessment	69
Table 14:	Results and outlook of risk materiality assessment	70
Table 15:	Financed emissions overview according to PCAF asset classification	74
Table 16:	Material topics (related to ESG)	90

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QUALITATIVE DISCLOSURE

LIST OF ABBREVIATIONS

ALM	Asset Liability Management
AML	Anti money laundering
AS	Application scoring
BCBS	Basel Committee on Banking Supervision
BP	Basis point
BPV	Basis point value
BS	Behavioral scoring
BWG	Bankwesengesetz (Austrian Banking Act)
CAC	Credit Approval Committee
CCF	Credit conversion factor
CEO	Chief Executive Officer
CFO	Chief Financial Officer
CHAID	Chi-square automatic interaction detectors
CHF	Swiss franc
CLO	Collateralized loan obligation
CMM	Capital Management Meeting
CRD	Capital Requirements Directive
CRO	Chief Risk Officer
CRR	Capital Requirement Regulation
CSA	Credit Support Annex
CET1	Common Equity Tier 1
EAD	Exposure at default
EBA	European Banking Authority
ECB	European Central Bank
ECL	Expected credit loss
EDP	Electronic data processing
EEA	European Economic Area
ERM	Enterprise Risk Meeting
ESG	Environmental, social and governance
EUR	Euro
EV	Economic value
EVE	Economic value of equity
FACE	Free Available Cash Equivalent
FMA	Financial Market Authority
FTP	Funds transfer pricing
FVPL	Fair value through profit or loss
FVOCI	Fair value through other comprehensive income
FX	Foreign exchange
GBP	British pound
GDP	Gross domestic product
HQLA	High-quality liquid assets
IAS	International Accounting Standards
ICS	Internal control system
ICT	Information and communications technology
ICAAP	Internal Capital Adequacy Assessment Process
ID	Identity document
IFRS	International Financial Reporting Standards
IKS	Internal control system
ILAAP	Internal Liquidity Adequacy Assessment Process
IRB	Internal ratings-based approach

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QUALITATIVE DISCLOSURE

ISDA	International Swap and Derivatives Association
ISTC	ICAAP & Stress Test Committee
KRI	Key risk indicator
KSHK	Kreditsicherheitenkatalog (Credit Collateral Catalogue)
KSV	Kreditschutzverband
KYC	Know your customer
LAS	Liquidity adequacy statement
LCR	Liquidity coverage ratio
LGD	Loss given default
LTIP	Long-term incentive program
LTV	Loan-to-value
NFR & ESGC	Non-Financial Risk and Environment Social Governance Committee
NII	Net interest income
NPL	Non-performing loans
PD	Probability of default
PIP	Product implementation process
P&L	Profit and loss
PSC	Portfolio Steering Committee
PVBP	Present value of a basis point
RAP	Risk-adjusted pricing
RBC	Risk-bearing capacity
RCC	Risk and Credit Committee
RCSA	Risk control self-assessment
RM	Risk Modelling
RMBS	Residential mortgage-backed securities
ROC	Receiver operating characteristic
RWA	Risk-weighted assets
SA-CCR	Standardized approach for counterparty credit risk
S-ALCO	Strategic Asset and Liability Committee
SEQ	Sicherheitenerlösquotient (collateral return rate)
SICR	Significant increase in credit risk
SME	Small and medium-sized enterprises
S&P	Standard & Poor's
SSPE	Securitization Special Purpose Entity
TM	Treasury & Markets
TMA	Asset Liability Management
TPU	Temporary partial use
UGB	Unternehmensgesetzbuch (Austrian Commercial Code)
USD	US dollar
VaR	Value-at-risk
WAL	Weighted average life
WAM	Weighted average maturity
WGG	Wohnungsgemeinnützigkeitsgesetz (Austrian Non-profit Housing Act)

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QUALITATIVE DISCLOSURE

DISCLOSURE INDEX

Review of risk management systems	Consolidated Annual Report IFRS 2023
according to Article 435	(1) point (e) CRR
Figures and information		Consolidated Annual Report IFRS 2023
according to Article 435	(1) point (f) CRR

Information according to Article 41 FMA circular letter on accounting issues in connection with derivatives for controlling interest rates

Details on accounting and valuation methods according to Article 447 point (a) CRR

BAWAG P.S.K. Annual Financial Report according to Section 124 Stock Exchange Act

Consolidated Annual Report IFRS 2023

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QUALITATIVE DISCLOSURE

GENERAL PRINCIPLES

According to Article 13 of Regulation (EU) No 575/2013 (hereinafter abbreviated to "CRR"), this Disclosure Report is published on the BAWAG Group AG level. BAWAG Group AG is a financial holding company in the form of a corporation. Its main business purpose is the management of the company's assets. From a risk perspective, the main Bank-wide steering processes are performed by its subsidiary, BAWAG P.S.K. AG. These processes are disclosed in this report.

SCOPE OF CONSOLIDATION AND CONSOLIDATION METHODS

Article 436 points (a), (b) sublit (i-iv) CRR

Owing to diverging regulations in the International Financial Reporting Standards ("IFRS") and the CRR, there are two different sets of consolidation guidelines, one for accounting and one for regulatory purposes, which also lead to two different scopes of consolidation. The following paragraphs present the scopes of consolidation and explain changes that occurred in 2023.

Consolidation for accounting purposes

In accordance with IFRS 10, the scope of consolidation includes BAWAG Group AG and all material subsidiaries owned directly and indirectly.

The Group's share in the total assets and profit or loss of the subsidiary are the criteria for materiality. The proportionate total assets (higher than € 30 million) and profit or loss (higher than € 3 million) of the subsidiary are the criteria for inclusion.

The consolidated financial statements as of 31 December 2023 contained 40 fully consolidated companies and 2 companies that are accounted for using the equity method. The book value of associated equity interests including banks not consolidated at equity amounted to € 0 million as of 31 December 2023.

Controlled companies with a book value of € 16 million were not consolidated because of their negligible effect on the assets, financial and earnings position of the Group. Subsidiaries with a negligible effect on the assets, financial and earnings position of the Group are not included in the consolidation.

Changes in the scope of consolidation with no material impact on the consolidated financial statements

In 2023, one company was deconsolidated, as the requirements for consolidation in accordance with IFRS 10 were no longer met. One company was added to the scope of consolidation, due to materiality. Two newly established companies were included in the scope of consolidation and five companies were merged within the scope of consolidated entities.

Changes in the scope of consolidation with material impact on the consolidated financial statements

In the fourth quarter of 2023, two companies were included in the scope of consolidation due to the successful completion of the acquisition process for Idaho First Bank.

For further details, please refer to Note 48 List of consolidated subsidiaries in the BAWAG Group consolidated annual report 2023.

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