BCV to increase provisions on its credit portfolio

For several years, BCV has applied a strategy that enabled the bank to promote the economy of the canton of Vaud efficiently, strengthen its position in different markets and improve profitability. In order to be able to continue along this route in the best conditions possible, BCV has decided to increase its provisions so as to face risks on debtors. These risks are located up to 85% in the canton of Vaud and 12% elsewhere in Switzerland, and are arising mostly from the economic crisis suffered in the nineties.

Results of the analysis

A month ago, BCV announced that it had launched an analysis of its risk credit provisioning method to ascertain whether it was still adapted to the current context. Carried out jointly by its external auditing organ and a second auditing firm, the conclusion of this study is as follows :

• There are no shortcomings in the risk detection method or in the evaluation of potential risks, which are known and monitored adequately. The total of non-performing loans, as shown by the analysis, is therefore in line with the information previously released by the Bank.
• However, the provisioning method is no longer deemed to be adequate. As a consequence, BCV has decided to equip itself with the necessary additional means, to be charged to fiscal 2001, by substantially increasing its provisions to CHF 1.7 billion.

Measures taken

On the basis of this report, the Board of Directors has taken several measures to be implemented in the course of the closing of fiscal 2001, the principle of which have received the approval of the Swiss Federal Banking Commission.

In order to increase provisions to CHF 1.7 billion, a total of 1.125 billion will be allocated to the "valuation adjustments, provisions and losses" account, 240 million of which will be charged to gross profit for 2001. The remaining allocation of 885 million will be covered, to the amount of 685 million, by the transfer to provisions of part of the Bank's free and legal reserves. The balance, as well as a rebate on the value of the real estate intended for sale that belongs to BCV, will be added to operating losses for the fiscal year, which will show a net loss of about 390 million. Consequently, the Board of Directors will propose to the general meeting that no dividend be paid for fiscal 2001.

As a result of the above, the Bank's equity capital will no longer meet legal requirements by about CHF 500 million. To redress this situation and allow the Bank to continue its development, a capital increase of CHF 600 million (including agio) will take place in 2002. The terms and conditions of this issue will be established when the general assembly of shareholders is convoked to pronounce itself on the matter. Negotiations are under way with a major international bank in order to implement this capital increase. The cantonal Government has agreed in principle to participate in this operation proportionally to his stake in BCV's capital. Furthermore, the BCV may, if this is called for by its development needs, increase its equity capital through the issue of subordinate loans.

Outlook

Once its new provisioning policy has been implemented, the Bank will be able to pursue its development strategy on a firm foundation and continue to fully play its role within the Vaud economy. In future, its annual provision needs will drop to about 0.5% of overall credits, or CHF 100 to 150 million. The Bank's earnings visibility will improve markedly, with gross profit coming close to the record heights of 1999-2000 as from 2002.

Lausanne, 18 Decembre 2001