Dear shareholders, Although 2011 brought relief to some areas of the economy, the recession in the Eurozone’s periphery over the course of 2012 caused an ever increasing downturn in the rest of Europe as well. Similar to Germany, economic growth in Austria shrank to below 1 per cent in 2012. CEE also saw a considerable drop in real GDP growth in 2012, but with the region as a whole reporting 2.0 per cent growth, still well ahead of the Eurozone’s (minus 0.5 per cent).
In Slovakia, RBI possesses one of the best-known and most valuable brands in the Slovak banking sector through Tatra banka, which focuses on the affluent customer segment. Its innovation leadership with regard to new technologies (e.g., internet and mobile banking, instant card issuance services or contactless payment services) is set to be further extended. Workflows are constantly being optimized in Slovakia, as they are throughout the entire network. In addition to the Tatra banka brand, the Raiffeisen brand was introduced in Slovakia with ten branches via a franchising model. The goal of this initiative is to address families and private individuals in the middle-income segment in particular.
In Bosnia and Herzegovina, the focus is on SMEs, as well as on special offerings (e.g., investment fund solutions) for affluent retail customers. Centralized product processing is the cornerstone of a profitable branch network. Other business activities, such as the government bond portfolio, are handled on a restrictive basis.
Shareholder structure As of 31 December 2012, RZB held approximately 78.5 per cent of RBI’s shares, with the remaining balance in free float. At the end of 2012, approximately 70 per cent of RBI free float shares were held by institutional investors. This investor base continued to be diversified internationally. RBI’s shares were held by investors from the USA (approximately 23 per cent), Austria (approximately 20 per cent), United Kingdom and Ireland (approximately 17 per cent), other EU countries (approximately 30 per cent), as well as from other countries such as Singapore, Japan, and Australia. The remaining approximately 30 per cent of the free float was held by private investors, mostly from Austria.
RBI bonds Continued divergence of European government bonds There were two aspects to the development of the European bond markets in 2012. On the one hand, the bond prices of socalled safe haven countries – especially Germany, Austria, Switzerland and the UK – climbed and broke record after record. This flight to safety into stable-country government bonds, however, pushed their yields to record lows. For instance, yields on Austrian and German ten-year bonds declined briefly to below 2 per cent for the first time. On the other hand, prices of government bonds from crisis countries in the Eurozone came under pressure repeatedly. The focus was particularly on Italian and Spanish government debt where these two countries’ risk premiums rose sharply toward the middle of the year. Ten-year government bond yields rose to over 7 per cent. However, in the wake of the stabilization of the financial markets, the economic situation eased again at the end of the year.
Successful bond issues With a successful three-year senior benchmark issue totaling € 500 million – which was oversubscribed fourfold within a short period of time – RBI boasted its position in the first quarter of 2012 as an attractive bond issuer on the market. In March 2012, RBI issued its first Chinese currency bond with a volume of CNY 750 million.
The Annual General Meeting approved a dividend payment of € 1.05 per share for the 2011 financial year, the same as for 2010. Excluding treasury shares, which received no dividend, the payment totaled € 204 million. The dividend was paid to the shareholders on 27 June 2012.
Raiffeisen Bank International AG Group Investor Relations Am Stadtpark 9 1030 Vienna, Austria o v er v ie w o f rB i
Heinrich Schaller, 1959 20 June 2012 Annual Second Deputy Chairman General Meeting 2017 (since 20 June 2012)
Rainer Franz (former member of the Management Board, pro-rata tranche 2009) 12,317 12,317 322 39 16
For six members of the Management Board the same rules essentially apply as for employees, which provide for a basic contribution to a pension fund on the part of the company and an additional contribution, if the employee makes his/her own contributions in the same amount. One member of the Management Board has a defined benefit pension plan. Additional individual pension benefits, which are financed by a reinsurance policy, apply to four members of the Management Board.
Different trends in CEE The economic recovery that began during 2011 in Central and Eastern Europe (CEE) slowed down somewhat during the course of 2012. While the region had registered growth of 3.7 per cent in 2011, it will probably post 2.0 per cent in 2012. Exports remained the main driver of growth, while domestic demand was predominantly weak. Economic trends in CEE therefore continue to be influenced by the Eurozone as the region’s main export market. In addition, ongoing consolidation efforts by the public sector are having a negative impact on economic growth.
Following a plus of 13 and 14 per cent, respectively, in 2010 and 2011, the total assets of the CEE banking sector grew at a slightly lower rate in the reporting period. These growth rates – like those for credit volumes – were considerably below the precrisis levels achieved between 2004 and 2008. Forecasts for the coming years predict total assets in CEE to grow at a singledigit percentage rate, with growth rates varying considerably between individual countries. For instance, a plus in the double-digitpercentage range should still be possible in Russia over the next few years, while the increase is likely to be in the high-single-digit percentage range in Central European countries (except for Hungary). In contrast, only low-single-digit growth in total assets appears possible in many Southeastern European countries in light of the challenging environment. This reflects the high loan portfolios compared with deposits and economic potential, which should lead to low demand for credit in the coming years.
Following a profit of € 413 million in the previous year, net income from derivatives and liabilities declined to minus € 127 million in the reporting period. Particularly liabilities designated at fair value recorded a valuation loss of € 312 million after a valuation gain of € 184 million in 2011. Credit spreads of own liabilities, which are included in this figure, posted a valuation loss of € 145 million in the reporting year after a valuation gain of € 249 million in the previous year. Partial repurchasing of hybrid bonds led to a net income of € 113 million; in contrast, net income from the valuation of derivatives entered into for hedging purposes decreased to minus € 92 million.
Net income from financial investments increased € 459 million during the reporting period, improving from minus € 141 million in 2011 to plus € 318 million in 2012. The sale of high-quality securities from the available-for-sale portfolio at Group head office, initiated to meet the EBA requirements, resulted in a gain of € 163 million. Valuation of the fair-value portfolio of securities resulted in a gain of € 73 million (2011: loss of € 124 million), which was predominantly attributable to valuation gains on bonds at Group head office and municipal bonds in Hungary. Sales from this securities portfolio led to further positive net income of € 82 million.
Net income from the sale of own and third-party products increased € 4 million to € 45 million year-on-year, mainly in Poland and Ukraine.
Net income from other business stemmed largely from capital guarantees issued by Group head office. It declined from a gain of € 79 million in 2011 to a loss of € 25 million in 2012 due to the lower level of long-term interest rates. The € 81 million net income in the previous year had resulted from a change in the valuation method to comply with statutory requirements.
This increase mainly resulted from the consolidation of Polbank as well as from salary adjustments in Russia. It was partially offset by declining staff expenses due to lower costs and headcount reductions in Hungary, the Czech Republic and Romania.
Net interest income improved € 42 million to € 876 million in the fourth quarter of 2012. The net interest margin (calculated based on interest-bearing assets) rose 28 basis points to 2.77 per cent. Average interest-bearing assets fell 6 per cent or € 7,583 million to € 126,653 million.
Net fee and commission income remained almost unchanged at € 396 million in the fourth quarter 2012. Higher earnings from the payment transfer business, other banking services and the securities business nearly compensated for profit decline from loan and guarantee business as well as from foreign currency, notes/coins and precious metals business.
Net income from additional leasing services made a positive contribution in the fourth quarter, predominantly in Poland. In contrast, net proceeds from the disposal of tangible and intangible fixed assets in addition to the bank levies increased expenses in the fourth quarter.
RBI AG’s Annual General Meeting in June 2012 approved the payment of a dividend of € 1.05 per share for the financial year 2011, which equated to a distribution totaling € 204 million. In addition, a dividend of € 200 million was paid on the participation capital.
beginning of May reduced core capital by another € 229 million. The profit of the financial year is included in the calculation. However, the projected financial year 2012 dividend has been deducted. In contrast, the appreciation in particular of the Polish zloty, the Hungarian forint and the Russian rouble against the euro had a positive impact on own funds.
The Annual General Meeting of 20 June 2012 authorized the Management Board to acquire own shares, under the provisions of Section 65 (1) 8 of AktG, during a period of 30 months from the date of the resolution, up to a maximum of 10 per cent of the company’s respective capital stock and, if deemed appropriate, to retire them. The authorization may be exercised in one or more installments, for one or more purposes – with the exception of securities trading – by the company, by affiliated enterprises or, for their account, by third parties. The acquisition price for repurchasing the shares may be no lower than € 1.00 per share and no higher than 10 per cent above the average unweighted closing price over the 10 trading days prior to exercising this authorization. The Management Board was further authorized to decide, with the approval of the Supervisory Board, on the sale of own shares by means other than the stock exchange or a public tender, to the exclusion of shareholders’ subscription rights. Shareholders’ subscription rights may only be excluded if the own shares are used to pay for a contribution in kind, to acquire enterprises, businesses or branches of activity of one or several companies in Austria or abroad, or for the purpose of implementing the company’s Share Incentive Program (SIP) for executives and members of the Management Boards of the company and affiliated enterprises. In addition, if convertible bonds are issued in accordance with the Annual General Meeting resolution on 10 June 2008, shareholders’ subscription rights may be excluded in order to issue (own) shares to the holders of these convertible bonds who exercise the conversion or subscription rights granted them under the terms of the convertible bonds to shares of the company. This authorization replaces the authorization to buy back and use own shares that was granted in the Annual General Meeting of 8 July 2010. No own shares have been bought since the authorization was issued in June 2012.
Shortly after the Swiss francs bond’s debut, RBI offered existing investors to exchange supplementary capital with a tier 2 subordinated bond, which approximately half of the investors accepted.
Following a period of weak economic growth in the first three quarters of 2012, the Chinese economy regained momentum in the fourth quarter. This trend is likely to intensify in the first half of 2013, supported primarily by infrastructure projects initiated in 2012. Due to the global economic recovery, exports should also increase again significantly in the second half of 2013. Overall, experts therefore forecast GDP growth of 8.5 per cent for 2013. Despite low inflation, further monetary easing is unlikely to occur as the government is trying to counteract an increase in real estate prices and growth in shadow banking. From a fiscal policy perspective, however, further tax reforms and reductions, among other initiatives, are pending. The Indian economy should likewise regain momentum in 2013, following a decline in growth in 2012. Significant recovery is to be expected, particularly in the second half of the year. Reduced interest rates and an improved business environment are likely to lead to a considerable surge in investment, on the condition of a positive global environment favoring foreign capital inflows. India is likely to achieve economic growth of 6.7 per cent for the full year.
In light of the economic prospects, the situation remains tense in several of our markets. In 2013, we therefore expect a similar net provisioning requirement as in the previous year.
Return on equity before tax 16.3% 20.8% (4.5) PP – 18.5% –
hereof foreign currency % 0.9% 0.9% (0.1) PP 0.9% 0.7% 0.1 PP
hereof foreign currency % 4.9% 6.9% (2.0) PP 4.9% 5.0% (0.1) PP
Return on equity before tax 14.7% 17.5% (2.8) PP 8.0% 14.0% (6.0) PP
The segment’s net interest income declined 5 per cent to € 869 million year-on-year. This decrease is attributable to different developments in several of the region’s countries: In Croatia, maturities in the loan portfolio led to lower net interest income, while in Bulgaria, an adjustment to the expected cash flows for non-performing loans led to a decline. Although net interest income in Romania increased 13 per cent, this increase was mainly caused by a reclassification and came at the expense of net fee and commission income, which declined 20 per cent. The segment’s net interest margin declined 20 basis points to 4.21 per cent. Total assets also decreased year-on-year from € 22.8 billion to € 21.3 billion, while credit risk-weighted assets declined 19 per cent to € 13.2 billion.
Loans and advances to customers 974 972 0.3% 974 968 0.7%
Net provisioning for impairment losses (21) (20) 4.6% (5) (4) 27.6%
Loans and advances to customers 1,259 1,358 (7.3)% 1,259 1,307 (3.6)%
Return on equity after tax 8.1% 9.5% (1.4) PP 2.6% 10.8% (8.2) PP
The segment’s net trading income declined from minus € 1 million to minus € 19 million year-on-year. The decline included a drop in net income from currency-based transactions from plus € 5 million to minus € 21 million. A strategic currency position established in Belarus to hedge equity resulted in a valuation gain of only € 3 million in 2012 after a gain of € 77 million in the same period last year, a result of the unstable currency market and the devaluation of the Belarusian rouble. However, the negative impact on net trading income due to the application of hyperinflation accounting in Belarus totaled only € 21 million, whereas the initial application of this accounting standard in the comparable period had resulted in a loss of € 84 million. Income from interest-based transactions declined € 4 million to € 1 million year-on-year. This decrease was caused by lower income from the valuation of fixedincome securities in Ukraine.
Corporate Center In the Corporate Center segment, net loss before tax increased € 335 million to € 399 million year-on-year due to declining other results and the absence of net loan loss provisions releases.
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The consolidated financial statements are based on the principle of going concern. A financial asset is recognized when it is probable that the future economic benefits will flow to the company and the acquisition or conversion costs or another value can be reliably measured. A financial liability is recognized when it is probable that an outflow of resources embodying economic benefits will result from the settlement of the obligation and the amount at which the settlement will take place can be measured reliably.
The estimation of the future development of the cash generating units starts with macroeconomic facts (gross domestic product, inflation expectations) and considers specific market conditions and the business policy. The data is then used to capture the terminal value on a going concern concept. Discounting of the earnings relevant for the measurement (expected dividends) is made on different country-specific equity capital cost rates, which are based on the capital asset pricing model. The individual components (risk-free interest rate, inflation difference, market risk premium, country-specific risks and beta factors) are defined by using external information sources. A planning horizon of 10 years was assumed for the calculation of the recoverable amount, in order to better represent the medium-term developments in the CEE region. The planning period is divided into two phases, whereby phase I covers the first ten years, phase II covers the period over ten years.
RBI LEA Beteiligungs GmbH, Vienna (AT) 100.0 % 1/2 Start of operations
Total consideration transferred1 816,650 1 The total consideration transferred is based on a guaranteed equity of Polbank or Raiffeisen Bank Polska. The final total consideration transferred is depending on audited equity in the closing balance of Polbank or Raiffeisen Bank Polska. Amounts above equity quaranteed are to be paid 1:1.
As the nature of the financial instruments is already shown by the classification of the items of the statement of financial position, the formation of categories is built in line with these items, which include financial instruments. Categories of financial instruments on the asset side are primarily cash reserve, loans and advances to banks, loans and advances to customers, trading assets, derivative financial instruments, derivatives for hedge accounting, and financial investments (among this category are separately financial assets not traded on an active market and which are shown at cost of acquistion). Categories of financial instruments on the liability side are most notably trading liabilities, derivative financial instruments, derivatives for hedge accounting, deposits from banks, deposits from customers, debt securities issued and subordinated capital.
Shareholdings in subsidiaries not included in the consolidated financial statements because of their minor significance and shareholdings in companies that are not valued at equity are shown under financial investments and are measured at amortized cost if no shares prices are available.
The actuarial calculation of pension obligations for active employees is based on the following assumptions: Per cent 2012 2011
Net income from securities at fair value through profit and loss 155,168 (134,958)
The sale of bonds of the securities portfolio available-for-sale of the Group head office led to net proceeds of € 163,045 thousand.
Net losses of € 1,245 thousand (2011: minus € 45,951 thousand) relating to the effective portion of cash flow hedges were recognized in other comprehensive income.
Members of the management board of the company 245,205 73,562 367,808
Parent companies are Raiffeisen-Landesbanken-Holding GmbH, Vienna, and Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna. Disclosures on Raiffeisen Bank International’s relations to key management are reported under note (53) relations to key management.
Assets under finance leases break down as follows: Real estate leasing 537,160 581,392
The maximum credit exposure in project finance amounted to € 8,421,433 thousand (2011: € 8,465,817 thousand) at year-end 2012. Projects rated either in categories Excellent project risk profile – very low risk (rating 6.1) or Good project risk profile – low risk (rating 6.2) account for 74.3 per cent and thus represents the highest share of the portfolio. This reflects mainly the high level of collateralization in specialized lending transactions. The decline of € 742,301 thousand in rating category 6.2 resulted from rating improvements, especially within the Austrian and Czech portfolio. Correspondingly, rating category 6.1 increased. The remaining increase in rating category 6.1 is due to new business and expansion of existing credit financings. Unrated projects increased slightly to 0.3 per cent (€ 28,826 thousand) year-on-year.
The total credit exposure of retail customers breaks down by RBI segments as follows: 2012 Central Europe Southeastern Europe Russia CIS Other Group Markets € 000
The following table shows the maximum credit exposure by internal rating for financial institutions. Due to the small number of customers (and number of defaults respectively), default probabilities of individual rating grades in this asset class are estimated based on a combination of internal and external data.
The share of not rated financial institutions was 0.1 per cent at year end 2012. This exposure was mainly caused by short-term loans to small banks, where the rating process had not yet been completed.
Loans and advances to customers 4,145,010 90,013 1,672,415 (510,781) (841,254) 37,698 4,593,102
The regional breakdown of the loans reflects the broad diversification of credit business in RBI’s markets. The following table shows the regional distribution of the credit exposure of all asset classes by the borrower’s home country grouped by regional segments.
RBI’s strategy for the structured credit portfolio is to reduce these investments step-by-step. This will be achieved either through repayment at maturity date or through assets sales depending on the market situation. The size of the structured credit portfolio is shown in note (39) securitization. Around 98 per cent of this portfolio is rated A or better by external rating agencies. The pools mainly contain exposures to European customers.
Value-at-risk (VaR) is the main steering instrument in liquid markets and normal market situations. VaR is measured based on a hybrid simulation approach, where 5,000 scenarios are calculated. The approach combines the advantages of a historical simulation and a Monte-Carlo simulation and derives market parameters from 500 days historical data. Distribution assumptions include modern features like volatility declustering, random time change, and extreme event containers. This helps in reproducing fat-tailed and asymmetric distributions accurately. The Austrian Financial Market Authority has approved this model such that it can be used for calculating own funds requirements for market risks. Value-at-risk results are not only used for limiting risk but also in the internal capital allocation.
The risk measurement approaches employed are verified – besides analyzing returns qualitatively – on an ongoing basis through backtesting and statistical validation techniques. If model weaknesses are identified, then they are improved accordingly. In the reporting period, there was no backtesting violation for RBI’s trading book (including equity positions in network banks) as shown in the backtesting chart. This chart compares VaR and theoretical profits and losses on a daily basis. VaR denotes the maximum loss that will not be exceeded with 99 per cent confidence level on the next day. It is compared to the theoretical profits and losses, which shows the hypothetical returns that the bank would have realized due to the actual changes in market parameters on the next day. It is possible to see that the model correctly reproduces market volatility regimes and quickly reacts to changed market conditions. Additionally, since 2012 stressed-VAR results have been limited. In 2012, an additional module within the internal model was implemented for a better measurement of the option risk. This measures vega risks in the Group with a hybrid simulation approach.
 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.
Other (16) (11) 25 43 (11) (1) (18) (10) (12) (12) (8) 0 1 The presentation of currencies has changed year-on-year depending on the absolute value of inteest rate sensitivity.
Helge Rechberger2 10 October 2010 Until further notice 1 Effective as of 10 October 2010 2 Staff council delegates
Ludwig Scharinger1 2nd Deputy Chairman 2nd Deputy Chairman 2nd Deputy Chairman 2nd Deputy Chairman
Liquidity risk – Risk that a bank could be unable to meet its current and future financial obligations in full or in good time. This arises from the danger that, e.g. refinancing can only be obtained at very disadvantageous terms or is entirely impossible.
Operating result – In IFRS-compliant financial statements, it consists of operating income less general administrative expenses (operating expenses).
Croatia Raiffeisen Leasing d.o.o. Radnicka cesta 43 10000 Zagreb Phone: +385-1-659 5000 Fax: +385-1-659 5050 www.rl-hr.hr
India RBI Representative Office Mumbai 803, Peninsula Heights C.D. Barfiwala Road, Andhere (W)