Overview of RBI Interview with the Chairman of the Management Board 8 Management Board of RBI 14 Report of the Supervisory Board 16 RBI at a glance 18 RBI’s strategy 21 RBI in the capital markets 28 Corporate Governance Report 33 Corporate responsibility 44
As in previous years, members of the Supervisory Board and its committees were fully informed by the Management Board in a timely and comprehensive manner during regular meetings about all pertinent business developments, including risk management of the bank and associated companies. Information was provided in writing as well as verbally.
In the meetings, as well as during talks held outside the meetings, the eff ects of the fi nancial and economic crisis, in particular the risk situation, were discussed at length. Thus, the Supervisory Board regularly received reports on the current earnings situation and the Group’s liquidity and risk situation. In light of the amplifi cation of the sovereign debt crisis in Southern Europe, appropriate stress tests were presented to the Supervisory Board.
RBI has been listed on the Vienna stock exchange since 25 April 2005 (until 12 October 2010 as Raiff eisen International). It is represented in several leading national and international indices, including the ATX and EURO STOXX Banks. RZB, which functions as the central institution of the Austrian Raiff eisen Banking Group (RBG), remained the majority shareholder following the merger, holding approximately 78.5 per cent of the shares. The remaining 21.5 per cent of RBI’s shares are in free fl oat.
The Central Europe segment encompasses the most mature banking markets in Central and Eastern Europe, namely the Czech Republic, Hungary, Poland, Slovakia and Slovenia. Southeastern Europe comprises Albania, Bosnia and Herzegovina, Croatia, Kosovo, Moldova and Serbia, as well as Bulgaria and Romania, which both joined the EU in 2007. Moldova is included as part of Romania because of its close economic ties to that country and the way it is managed in the Group as a result. In addition to the Russia segment, which contains a bank, a leasing company and a capital management company, there is also the CIS Other segment, which includes RBI’s activities in Belarus, Kazakhstan and Ukraine.
In the course of the merger of Raiff eisen International with RZB’s principal business areas, the markets strategy was also overhauled in 2010. Its core elements are concentration on customer business in the bank’s home market and the further expansion of competence in capital market and investment banking products. The main focus, also in the present market environment, is on supporting companies in initial public off erings, acquisitions and sales. Support is provided to governments, fi nancial institutions and companies in their medium- and long-term fi nancing. These services protect equity and liquidity for RBI, strengthen profi tability and simultaneously relieve pressure on the balance sheet. A particular focus here is on the strategic hedging of customers’ currency, interest rate and raw materials risks. Business transactions for the bank’s own account (proprietary trading) are only carried out to support the markets strategy.
Raiff eisen Bank International AG Group Investor Relations Am Stadtpark 9 1030 Vienna Austria
Flughafen Wien AG (chairman as of 31 August 2011) ■ Ludwig Scharinger: voestalpine AG, Austria Metall AG (as of 31 March 2011) ■ Christian Teufl : AGRANA Beteiligungs-AG, VK Mühlen AG ■ Hannes Schmid: UNIQA Versicherungen AG ■ Kurt Geiger: Demir Bank OJSC
It should be noted that the Management Board remuneration paid in 2011 is not directly comparable with that for 2010, as two members left the Management Board and three members transferred from RZB to RBI in 2010.
Engaging in regular dialog with stakeholders A central pillar of RBI’s business practices is the respectful interaction with all stakeholders in the spirit of partnership. An active and open dialog with all stakeholders provides the essential basis, which also serves to broaden the perspectives of the company and its decision-makers. An open exchange thus not only broadens the perspective on relevant topics for stakeholders, but also on RBI’s internal and external perception.
Environmental and climate protection One declared objective of RBI is to promote environmental and climate protection and to take positive action against climate change. The creation of a meaningful connection between a profi t-oriented business policy and climate protection represents a major ecological and economic challenge. In the environmental management of the company itself, the highest priority has been assigned to climate protection measures, a subject area that presents considerable risks, but also off ers great opportunities.
Return on equity before tax, an important fi gure for measuring performance, stood unchanged yearon -year at 13.7 per cent. This is primarily due to the straight-line increase in the components used to calculate it. Besides profi t before tax, the average equity that underlies the calculation of ROE grew by 7 per cent to € 10,032 million. While retained earnings made a positive contribution, currency movements and dividend distributions had a dampening eff ect. Excluding the impairment of goodwill, at 15.6 per cent, ROE would have been higher year-on-year. Consolidated ROE – based on the capital attributable to RBI shareholders – fell as a result of higher taxes by 2.1 percentage points to 10.8 per cent.
Net interest income was infl uenced by various factors in the reporting year. Business with customers improved considerably in Russia, Romania, Austria and Slovakia, and in addition, the more favorable refi nancing conditions boosted net interest income. Net interest income from fi nancial investments benefi ted from higher interest on government bonds acquired in Ukraine and Poland to place excess liquidity.
Staff expenses, which constituted the largest item in administrative expenses at 49 per cent, rose by 6 per cent or € 87 mil l ion year- on -year, to € 1,540 million.
Operating income General administrative expenses Cost/income ratio 1 Excl. impairment of goodwill
The number of business outlets decreased by 33 to 2,928 at year-end. The bulk of these reductions were recorded in Ukraine (down 22) and Serbia (down 10), while the number of outlets increased in the Czech Republic by 17 and in Romania by 8.
Compared to the end of 2010, fi nancial investments (including those held-for-trading) decreased by 2 per cent or € 0.5 billion to € 27.2 billion. While assets held-for-trading increased by approximately € 2.5 billion due to the valuation of derivatives, fi nancial investments contracted (minus € 3.1 billion). This reduction in fi nancial investments was mainly due to the sale of fi nancial assets held-to-maturity to meet the higher EBA regulatory own funds requirement, as well as to market developments.
Equity Equity on the statement of fi nancial position The bank’s balance sheet equity, consisting of consolidated equity, consolidated profi t and non-controlling interests, increased since the end of 2010 by 5 per cent or € 532 million to € 10,936 million.
Consolidated own funds pursuant to BWG amounted to € 12,858 million as of 31 December 2011, which represents an increase of 2 per cent or € 250 million.
The consolidated fi nancial statements and management report are reviewed by the Audit Committee of the Supervisory Board and also presented to the Supervisory Board for information. The consolidated fi nancial statements are published on the Company’s website and in the Wiener Zeitung’s offi cial register and are fi led with the commercial register as part of the annual report.
■ The brand agreement concluded with RZB AG on the unrestricted use of the name and logo of Raiff eisen Bank International for an indefi nite period of time in all jurisdictions in which the brand is registered now or in the future includes a right of cancellation upon a change of control.
To ensure the quality of the model, daily back testing is performed. The results of these tests were always within the limits of the model expectations and have also featured no signifi cant deviations in recent months. Based on these positive results, the internal model is to be allocated to the best class (“green status“) from a regulatory perspective.
In 2011, RBI also made signifi cant process improvements in the early recognition of troubled loans and their processing, thus largely preventing a further increase in non-performing loans. The larger range of the portfolios considered and the improved process effi ciency, the further development of the reporting system and the continuous exchange of experience between the individual members of the Group are signifi cant cornerstones here.
On the completion of this measure – which is still subject to approval from the relevant regulatory authorities – RBI’s equity share in Tatra banka in Slovakia will increase from 65.8 per cent to 78.6 per cent and from 51.0 per cent to 75.0 per cent in Raiff eisenbank in the Czech Republic. The purchase price for the shares will total approximately € 344 million, which will initially impact RBI’s core tier 1 ratio by around 0.35 percentage points.
Business divisions 124 Corporate Customers 125 Retail Customers 127 Financial Institutions & Public Sector 129 Capital Markets & Treasury 130 Participations & Other 131
Raiff eisenbank is one of the leading foreign banks in the country and focuses on corporate and retail customers. Through its nationwide branch network it also targets products at affl uent retail customers. The leasing business rounds off the product range. As in the other segments, future growth in Russia is expected to be organic, notably through continuous expansion of its existing presence in regional and national centers. In addition to this, RBI is increasingly supporting the expansion of Russian companies into the countries of Central and Eastern Europe. In view of the size of the banking market and the great potential yet to be exploited, the segment is of key signifi cance to RBI.
Return on equity before tax 6.6% 8.0% (1.4) PP 8.6% – –
Net provisioning for impairment losses (6) (6) 1.2% (3) (1) 154.7%
Net provisioning for impairment losses (68) (72) (5.3)% (17) (18) (6.5)%
Return on equity after tax 19.3% 23.4% (4.1) PP 29.1% 17.3% 11.9 PP
Net fee and commission income 45 56 (20.7)% 8 12 (29.2)%
Return on equity after tax 2.8% 27.1% (24.3) PP – 28.6% –
Net provisioning for impairment losses was € 14 million, confi ned nearly entirely to the Financial Institutions & Sovereigns profi t center and largely related to a fi nancial institution in Denmark and a customer in the Middle East. Non-performing loans made up 0.8 per cent of the segment’s total credit exposure.
After RBI had defi ned its corporate banking strategy and the cornerstones thereof in 2010, the 2011 fi nancial year in the Corporate Customers business division was greatly infl uenced by the successful implementation of strategic initiatives throughout the entire Group. Emphasis was placed on the adaptation and optimization of customer service and acquisition models in the large customers and SMEs segment, the implementation of initiatives in product development and sales, the intensifi cation of know-how transfer within the Group, and the increase in effi ciency of business processes.
Furthermore, in Austria and in a number of network banks, e.g. in Russia, Bulgaria, Croatia and Serbia, a stronger industry focus was realized in acquisition and corporate customer services, in order to provide customers with services in a more targeted manner.
The general administrative expenses increased by 10 per cent to € 634 million. In Russia, higher ancillary salary costs, bonus payments and IT expenses caused an increase in this regard, while in Slovakia, the reasons were higher social security costs and staff -related taxes, as well as a rise in the number of staff . The cost/income ratio increased by 1 percentage point, to reach 33.0 per cent.
Also in 2011, the private banking business was continued to be promoted in RBI’s CEE network, under the brand “Friedrich Wilhelm Raiff eisen.” Here, the goal is to off er a unique service level for the more than 30,000 customers in this subsegment.
Profi t before tax in the Retail Customers business division amounted to € 61 million in the year under review. Compared with 2010, this represents a decline of € 70 million, which is largely attributable to higher general administrative expenses.
Due to a change in hedging strategy some cash flow hedging was ended in the second quarter 2011 and replaced by portfolio hedging. The valuation losses on the termination of cash flow hedges amounted to € 36 million (after deferred tax).
Net income from derivatives and designated liabilities 2,798 37,841 108,412 263,776
Corporate Center The Corporate Center segment encompasses all of the services provided by Group headquarters in various divisions that serve to implement the Group’s overall strategy and that are allocated to this segment to ensure comparability. Moreover, this segment includes the following areas: Liquidity management and balance sheet structure management as part of proprietary trading, participations (in particular those of subsidiaries in CEE), income from banking operations carried out by Group headquarters and by the Maltese subsidiary for refinancing Group units, the Austrian transaction services business operated by Raiffeisen Daten Service Center GmbH, which offers a wide range of order processing products and services for financial services providers, as well as income from the holding and other companies that do not fall directly under another segment.
A list of fully consolidated companies, companies valued at equity and other equity participations may be found on page 258 ff.
The entirety of the provision for impairment losses arising from loans reported in the statement of financial position (individual loan loss provisions and portfolio-based loan loss provisions) is shown as a separate item on the assets side, below loans and
The net interest income position includes interest income and expenses from items of banking business, dividend income, and fees and commissions with interest-like characteristics.
In the year 2011 there was a change in the method of valuation used for given capital guarantees due to legislative changes. This adjustment had an effect on earnings in the amount of € 81,224 thousand in other transactions. The effect on the previous year’s figures cannot be quantified.
Rental income from investment property incl. operating lease (real estate) 21,037 12,616
The following reconciliation shows the relation between profit before tax and the effective tax burden: Profit before tax 1,373,355 1,287,322
Provisions for impairment losses are formed in accordance with uniform Group standards and cover all recognizable credit risks. A table with the development of the impairment losses on loans and advances can be found in the risk report on page 209. Provisions for impairment losses are allocated to the following asset classes according to the Basel II definition: Corporate customers – large corporates 2,619,090 2,431,647
Deposits from customers classified regionally (counterparty’s seat) are as follows: Consolidated financial statements Page 193
Participation rights The Annual General Meeting of 9 June 2009 authorized the Management Board of the Company to issue, in one or more tranches, participation rights having equity characteristics pursuant to Section 174 of the Austrian Joint Stock Corporation Act (AktG) in a total nominal amount of up to € 2 billion within 5 years as of the date of the resolution with the approval of the Supervisory Board in accordance with the terms for participation rights to be set by the Management Board and to the exclusion of shareholders’ subscription rights. It should be noted that, under the provisions of the relevant laws, participation rights confer no voting rights or other membership rights. Issuing participation rights therefore entails no change of ownership structure from the standpoint of stock corporation law and shareholders’ voting rights. The Company decided on 15 July 2009 to strengthen its capital by issuing participation rights in the amount of € 600 million based on the authorizing resolution of June 2009. In the course of the merger with effect from 10 October 2010, the mutual loans and liabilities of the receiving and the transferring company were wiped out. The same is true of the participatory rights in the amount of € 600 million, which had been subscribed in full by RZB. No further participation rights have been issued to date.
Members of the management board of the company 11,839 461,721 7,866
As of 31 December 2011, the transactions with related parties were as follows: 31/12/2011
In the financial year 2011 no new securitizations were made. Both true sale transactions (Warehousing) ROOF Bulgaria 20081 and ROOF Romania 2008-1 already closed in 2008 have not yet been transferred to final securitization. The reason for this is the developments on the international capital markets, and the resulting narrow liquidity. Instead, the warehousing has been prolonged and the current warehousing structures kept alive by the placement of notes to Group internal investors until further notice. Hence, the portfolio’s significant chances and risks remain within the Group as well. At year-end 2011 the nonderecognized loans of ROOF Bulgaria 2008-1 amounted to € 73,099 thousand (2010: € 104,031 thousand), those of ROOF Romania 2008-1 came to € 103,899 thousand (2010: € 140,747 thousand).
The following table provides a breakdown of the maximum credit exposure according to the internal rating of corporates (large corporates and small business) in € thousand. In the overall assessment of credit risk collateral and recovery rates must also be taken into account: 4.0 Weak credit standing/sub-standard 6,384,399 7.2% 7,663,581 9.5%
The total credit exposure of retail customers breaks down by RBI segments as follows: Central Europe
The lower credit rating grades (rating C and D) has increased, due to local government financing in Hungary and higher exposures at the central bank in Belarus.
Limit system RBI uses a comprehensive risk management approach for both the trading and banking book (total-return approach). Market risks are managed consistently in the trading and banking book. The following values are measured and limited on a daily basis in the market risk management system: Value-At-Risk (confidence level 99%, risk horizon 1 day)
Sensitivity limits shall ensure that concentrations are avoided in normal market situations and are the main steering instrument under extreme market situations, in illiquid markets, and in markets that are structurally difficult to measure.
Stable capital ratio: The goal of this hedging strategy is to balance core capital and risk-weighted assets in all currencies according to the targeted core capital ratio (i.e. reduce excess capital or deficits in relation to risk-weighted assets for each currency) such that the core capital ratio remains stable even if foreign exchange rates change.
Funding liquidity risk Funding liquidity risk is mainly driven by changes in the risk strategy of lenders or by a rating downgrade of a bank that needs external funding. Funding rates and supply rise and fall with credit spreads, which change due to the market- or bank-specific situation.
As a consequence, long-term funding depends on restoring confidence in banks and the increased effort in collecting customer deposits. RBI’s banking activities are refinanced by combining wholesale funding and the retail franchise of deposit-taking network banks. RBI is the central liquidity balancing agent for the local Group units in Central and Eastern Europe.
For managing and limiting liquidity risks, the targets for loan-/deposit ratios (the ratio of customer loans to customer deposits) have been revised for individual network banks taking into account expected Basel III regulations. The limits incorporate planned future business volumes as well as the feasibility for increasing customer deposit in different countries. On the one hand, this initiative reduces external funding requirements. On the other hand, it also reduces the need for internal funding operations and the risk associated with such liquidity transfers.
Derivatives in the trading book 8,405,930 15,818,157 6,605,117 2,610,327 5,449,666 1,153,048 31/12/2010
Loans and advances to customers 75,982,501 76,750,667 (768,165) 71,399,994 71,156,209 243,785
Capital was and is an integral part of bank management. RBI as an international Group considers several control parameters. From a regulatory view, RBI is part of the RZB credit institution group. Moreover, RBI – on an individual basis – has to adhere to the legal own funds regulations.
Risk-weighted assets for the credit risk according to asset classes break down as follows: Risk-weighted assets according to section 22 BWG on standardized approach 38,201,238 37,175,443
The average number of staff employed during the financial year (full-time equivalents) breaks down as follows: Full-time equivalents 2011 2010
Collections, Consumer Banking, Group & Austrian IT, Group Project Management Office, International Operations & IT, IT - Markets & Treasury, Lean & Service Excellence, Small Business & Premium Banking and
Core capital – So called tier 1 capital, involves regulatory core capital as defi ned in Section 23 BWG.
Fair value – The amount for which an asset can be exchanged or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.
Scorecard – A statistical tool in risk management for estimating risk parameters, typically used to determine probability of default or the loss-given defaultratio.
Serbia Raiff eisen Leasing d.o.o. Milutina Milankovića 134a 11000 Novi Beograd Phone: +381-11-201 7700 Fax: +381-11-313 0081 www.raiff eisen-leasing.rs
Raiff eisen Centro Bank AG Tegetthoff straße 1 1050 Vienna www.rcb.at