RBI at a glance Raiffeisen Bank International (RBI) regards Central and Eastern Europe (including Austria) as its home market.
Why did you announce, just one month after publishing your half-year results for 2014, that you expected a net loss for the full year – was this not foreseeable a few weeks earlier? When our half-year results were published, we were unable to foresee the impact of the events that made it necessary to adjust our outlook. It was only in the weeks that followed that the Ukrainian army lost control again over the eastern parts of the country to the separatists. The increased fighting not only stopped us from reopening many of our branches there, but of course also greatly exacerbated the economic situation. Ultimately, in mid-September, the Ukrainian parliament decided that the Donbass region should become partially autonomous. This had serious consequences for our branches there. Today, we have permanently shut down most of our 80 business outlets in the region. Then in Hungary, we had initially hoped to win the legal battle with the government concerning the retrospective reduction of interest and fees for private loans. When we lost the case some weeks later, we had to make corresponding provisions. However, with regard to Hungary I would like to state that in the meantime the government has promised to put an end to the burdens on banks.
1 Change of total assets versus figures from 31 December 2013 expressed in local currencies varies due to fluctuations in euro exchange rates. 2 Allocation of staff to Group Corporates, Group Markets and Corporate Center is not possible.
One focus is on capital market and investment banking products, as well as on the transaction business (e.g. trade financing and payment transactions). Particular strengths lie in the strategic hedging of currency, interest rate and credit risks, the intermediation between capital providers and local investment opportunities, as well as supporting companies with IPOs and takeovers.
Business activities in the capital market business have been realigned in prior years. Own-account trading has been reduced, with activities now focused on supporting the capital market-oriented customer business. RBI‘s direct access to all major stock exchanges in CEE, as well as its leading position on the Vienna stock exchange, makes it possible to cover all important asset classes (e.g. shares, currencies, certificates, exchange-traded derivatives).
Annual General Meeting The Annual General Meeting on 4 June 2014 approved a dividend payment of € 1.02 per share for the 2013 financial year. As the new shares resulting from the capital increase, carried out in early 2014, were also entitled to full dividend rights for the previous financial year, this resulted in a total dividend payout of around € 298 million.
■ Erwin Hameseder AGRANA Beteiligungs-AG (Chairman), STRABAG SE, UNIQA Insurance Group AG, Südzucker AG, Flughafen Wien AG
Principles of remuneration policy and practices in accordance with Section 39 (2) in conjunction with Section 39b of the Austrian Banking Act (BWG) In accordance with Section 39 (2) in conjunction with Section 39b of the Austrian Banking Act (BWG) including annexes, RBI’s Supervisory Board approved the “General Principles of the Remuneration Policy and Practice” in 2011. Remuneration of all employees, including the Management Board and other “risk personnel” must comply with these principles. These principles apply to bonus payments for 2011 and subsequent years. The Remuneration Committee is responsible for the regular monitoring of these policies and practices and their implementation. Taking the current version of Section 39 (2) in conjunction with Section 39b of the Austrian Banking Act (BWG) including annexes into account, following the implementation of Directive 2013/36/EU, the Remuneration Committee of RBI’s Supervisory Board approved a new version of the “General Principles of the Remuneration Policy and Practice” in 2014, which were applied as of 2014.
In the event of a function or contract termination, two members of the Management Board are entitled to severance payments in accordance with the Salaried Employees Act and the Banking Sector Tariff Agreement, one member in accordance with contractual agreements and three members in accordance with the Employee Benefit Act. In principle, the severance payment claims under the Salaried Employees Act or contractual agreements expire if the Management Board member resigns.
The economic momentum in Russia, Ukraine and Belarus, which already showed signs of slowing in 2014, is expected to continue in 2015. Following a de facto stagnation in 2014, Russia looks set to experience a recession in 2015, with GDP projected to decline 4.0 per cent. A similar trend is emerging in Belarus, where at least a slight GDP decline is expected. Barring a further escalation of the geopolitical situation, the Russian economy could return to moderate growth in 2016. In Ukraine, the adjustment recession that began in 2014 is set to continue in 2015, with GDP expected to decline at least 5.5 per cent. If comprehensive reforms are unsuccessful, economic and financial restructuring in Ukraine may prove to be much more difficult to implement. Overall, GDP in the CEE Other region (Ukraine, Belarus) will contract in 2015, continuing the trend from 2014. Ukraine is likely to remain dependent on substantial financial support from the international community in both 2015 and 2016.
Banks come under Hungarian government's scrutiny The measures introduced by the Hungarian government against Hungarian banks were associated with negative effects on the results again in 2014. Since the Home Protection Law of 2011, under which the Hungarian government allowed private borrowers to repay foreign currency loans prematurely at favorable terms and which led to losses for RBI, a number of new government programs favoring foreign currency borrowers have been drafted and adopted by parliament. The new legislation resulted in a provision of € 251 million recognized under sundry operating expenses in Hungary in the reporting year. The law related to the foreign exchange margins which can be applied to foreign currency loan disbursements and installments, as well as to unilateral rate changes on consumer loans.
Net income from financial investments improved € 5 million to € 62 million year-on-year. The valuation result for securities from the fair value portfolio increased € 31 million to € 38 million, and net proceeds from the sale of securities rose € 33 million to € 52 million, respectively. These increases resulted mainly from significant, largely currency-related gains from the valuation and sale of bonds in Ukraine, which were partially reduced by losses from the valuation and sale of bonds – predominantly corporate bonds – in Russia.
Sundry net operating income fell € 43 million in the fourth quarter to minus € 26 million. Net income from the disposal of tangible fixed assets declined € 9 million, mainly in Hungary and Poland. In addition, allocations to other provisions increased € 8 million, especially in Romania, Slovakia and Hungary. Other net operating income also declined to minus € 9 million, due to an impairment of a building held for sale in Croatia.
Goodwill impairments stood at € 306 million in the fourth quarter, of which Russia accounted for € 148 million, Poland € 101 million and Albania € 51 million.
Loans and advances to banks (net) Loans and advances to customers (net) Securities Other assets
One of the key focal points in the reporting year was the changes pertaining to the Single Supervisory Mechanism (SSM), notably the associated Comprehensive Assessment by the ECB, which included an Asset Quality Review and a Europe-wide stress test. As part of the RZB credit institution-group, RBI represents one of the focal points for regulatory reviews within the framework of these processes. The tests conducted by the ECB a massive impact on the Group's financial resources due to the scope and duration, and the intensive exchange with authorities and external auditors.
The company’s 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 AktG in a total nominal amount of up to € 2 billion within five years from 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 of Raiffeisen International with RZB AG’s principal business areas to form RBI AG, with effect from 10 October 2010, the mutual loans and liabilities of the receiving and 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 AG. This authorization expired on 8 June 2014 and no further participation rights were issued.
 Furthermore, the syndicate agreement concluded by RBI AG in relation to a subsidiary bank with the relevant shareholders will automatically be terminated upon a change of control.
In an effort to diversify its funding sources, RBI also actively works on developing additional secured refinancing options, where existing assets can be used to secure long-term funding.
Alternative forms of learning such as e-learning, but also cross-functional and international rotation/exchange programs were further expanded. Employees in the corporate and retail customer business, in particular, made use of the numerous opportunities offered by the Group for the international exchange of knowledge and for targeted further development of talent through a wide variety of trainee programs and project visits. In 2014, the “International Young Potentials” program was successfully implemented for the fourth time with nine participating network banks.
The appreciation of the Swiss franc (CHF) against the euro, following the withdrawal of the Swiss National Bank’s exchange rate peg, had a negative effect on RBI’s CHF-denominated foreign currency loans. RBI’s portfolio of these loans is approximately € 4 billion, € 2.8 billion of which are in Poland. Overall, the short-term impact on RBI is deemed low.
The Group Markets segment’s profit before tax fell 12 per cent, or € 15 million, to € 111 million year-on-year, mainly due to the negative valuation result from securities and derivative financial instruments attributable to the interest rate development.
Sundry net operating income for the region declined € 68 million to minus € 53 million. Net allocations to other provisions declined € 18 million. On the one hand, the release of a provision for VAT liabilities in Poland (down € 9 million) led to a better result in the previous year, and on the other, provisions for pending litigation were made in Hungary during the reporting period (down € 6 million). Sales revenues from non-banking business declined € 29 million due to lower intra-Group service charges. The financial transaction tax in Hungary led to a € 9 million increase in expenses in the reporting year.
Net income from financial investments declined € 5 million to € 4 million year-on-year. The valuation of securities from the fair value portfolio led to a € 13 million decline in net income, mainly caused by the valuation of municipal bonds in Hungary. This was partly compensated by reduced impairment of equity participations (decline of € 6 million) – above all in Slovakia – as well as slightly higher net proceeds from the sale of securities (up € 2 million) predominantly in Hungary.
The segment’s income taxes rose € 34 million to € 92 million. This is primarily due to improved net income in Poland, the Czech Republic and Slovakia, whereas losses in Hungary did not lead to any tax income (recognition of deferred tax assets).
Net fee and commission income 123 118 4.0% 32 31 0.8%
Return on equity after tax 5.8% 2.8% 3.0 PP 10.5% 6.7% 3.9 PP
Employees as at reporting date 5,462 5,985 (8.7)% 5,462 5,594 (2.4)%
Net trading income for the Southeastern Europe segment increased € 4 million to € 56 million year-on-year. The improvement in currency-based transactions, up € 4 million to € 28 million, was mainly attributable to valuation gains on foreign currency positions in Romania and Croatia, as well as higher income from securities positions in Bulgaria. Stood against these were valuation losses from currency-based derivatives in Serbia. In contrast, net income from interest-based transactions marginally fell. Slight declines in government bonds in Albania, due to lower volumes and interest rates, were almost entirely offset by the business performance in Croatia and Romania, which reported higher valuation results from bonds in the trading portfolio and valuations gains from interest -based derivatives.
Loans and advances to customers 1,176 1,223 (3.8)% 1,176 1,196 (1.7)%
Net fee and commission income 165 168 (1.8)% 38 47 (17.5)%
Loan/deposit ratio (net) 109.9% 96.7% 13.2 PP 109.9% 111.9% (2.1) PP
The segment’s net interest income fell 2 per cent, or € 9 million, to € 469 million year-on-year. The margin-related increase in net interest income at Group head office’s Corporate Customers profit center (Austrian and multinational corporate customers serviced from Vienna) was fully offset by decreases in other segment areas. In Asia, reduced lending volumes to corporate customers and higher impairment resulted in a decline. Despite lower refinancing costs, the segment’s net interest margin fell 3 basis points to 2.31 per cent. Total assets decreased 11 per cent to € 18.6 billion year-on-year, while risk-weighted assets (total RWA) fell 9 per cent to € 12.6 billion.
Corporate Center in € million 2014 2013 Change Q4/2014 Q3/2014 Change
Remeasurements of defined benefit plans (13,033) 3,820 (13,033) 3,820 0 0
Gains (losses) from disposals of tangible fixed assets and financial investments (57,539) (38,015)
Profit before tax in the Southeastern Europe segment increased 26 per cent, or € 71,381 thousand, to € 348,468 thousand year-on-year. The increase was primarily due to lower net provisioning for impairment losses in Bulgaria, Romania, and Serbia.
Amortization of intangible fixed assets capitalized in the course of initial consolidation amounted to € 3,204 thousand (2013: € 3,916 thousand) which relates to scheduled amortization of customer relationship intangibles.
Purchased loans amounting to € 1,805,454 thousand (2013: € 1,442,344 thousand) are assigned to the measurement category loans and advances.
Equity participations valued at amortized cost for which fair values could not be measured reliably amounted to € 85,714 thousand (2013: € 61,850 thousand).
A sensitivity analysis was carried out based on the above-mentioned assumptions in order to test the stability of the impairment test for goodwill. From a number of options for this analysis, two parameters were selected, namely, the cost of equity and the reduction of the growth rate. The following overview demonstrates to what extent an increase in the cost of equity or a reduction in the long-term growth rate could be made without the value in use of cash generating units declining below the respective carrying value (equity capital plus goodwill).
According to IAS 36.9 at the end of each reporting period, an entity is required to assess whether there is any indication that an asset may be impaired based on a list of external and internal indicators of impairment. In the third quarter, there were such indicators due to the ongoing political and economic problems in Ukraine. As a result, impairment of € 28,456 thousand was made for the brand of Raiffeisen Bank Aval.
The Group has customer relationship intangibles activated at Raiffeisen Bank Polska S.A., Warsaw (RBPL) and Raiffeisen Bank Aval JSC, Kiev (AVAL). In the reporting year the book values of the customer relationships as well as the gross amount and cumulative impairments have developed as follows: 2014 in € thousand AVAL RBPL Total
Land and buildings used by the Group for own purpose (256,617) 1,421 (40,859) 711,804 of which land value of developed land (6) 0 0 13,439
The weighted average duration of the net defined benefit obligation was 17.0 years (2013: 16.0 years).
The table below presents an analysis of the change in insurance contract liabilities:
Members of the management boards of bank subsidiaries affiliated with the company 409,539 122,862 614,309
Impairment losses on loans and advances (6,069,233) 0 0 0 0 2013 Short-term assets/liabilities Long-term assets/liabilities in € thousand Due at call or without maturity Up to 3 months
Future Flow Securitization ROOF Russia DPR Finance Company S.A. AO Raiffeisenbank, Moscow (RU)
A synthetic securitization of loans and advances to corporate customers, securities and guarantees of the Group head office was made in 2012. The tranches were mainly placed to Group internal investors and partly placed to external investors, with the latter amounting to € 47,000 thousand.
Other financial instruments (legally enforceable) 6,244,589 231,823 6,012,766 6,012,766 0 0
Closed end real estate fund 237 Net asset value Haircuts 20 – 50%
Negative fair value of banking book derivatives without hedge accounting OTC options 19,088 Option model
The central Risk Controlling division assumes the independent risk controlling function required by banking law. Amongst others, this division is responsible for developing the Group-wide framework for overall bank risk management (integrating all risk types) and preparing independent reports on the risk profile for the Risk Committee of the Supervisory Board, the Management Board and the heads of individual business units. It also measures required risk coverage capital for different Group units and calculates the utilization of the allocated risk capital budgets in the internal capital adequacy framework.
A default and thus non-performing loan (NPL) is according to Article 178 CRR defined as the event where a specific debtor is unlikely to pay its credit obligations to the bank in full, or the debtor is overdue more than 90 days on any material credit obligation. The Group has defined twelve default indicators which are used to identify a default event in the non-retail segment. These include the insolvency or similar proceedings of a customer, if an impairment provision has been allocated or a direct write-off has been carried out, if credit risk management has judged a customer account receivable to be not wholly recoverable, or the workout unit is considering stepping in to help a company restore its financial soundness.
The following table shows the share of non-performing loans in the defined asset classes loans and advances to customers and loans and advances to banks as reported in the statement of financial position (excluding items off the statement of financial position) according to segments: NPL NPL ratio NPL coverage ratio in € thousand 2014 2013 2014 2013 2014 2013
Portfolio-based loan loss provisions 529,379 1,190 271,338 (316,773) (39) (44,285) 440,810
The Market Risk Management department ensures that the business volume and product range comply with the defined and enacted strategy of the Group. It is responsible for implementing and enhancing risk management processes, risk management infrastructure and systems, manuals and measurement techniques for all market risk categories and secondary credit risks arising from market price changes in derivative transactions. Furthermore this department independently measures and reports market risks on a daily basis.
Interest rate risk in the banking book is not only measured in a value-at-risk framework but also managed by the traditional tools of nominal and interest rate gap analyses. Since 2002, interest rate risk is subject to quarterly reporting in the context of the interest rate risk statistic submitted to the banking supervisor. This report shows the change in the present value of the banking book as a percentage of total capital in line with the CRR requirements. Maturity assumptions needed in this analysis are defined as specified by regulatory authorities or based on internal statistics and empirical values.
The following table contains the funds managed by the Group: Retail investment funds 7,063,551 6,156,910
ROOF Poland Leasing 2014 Ltd, Dublin (IE) 0.0% 1/6 Start of operations
Roof Russia DPR Finance Company S.A., Luxembourg (LU) 50,000 EUR 0.0% OT
Raiffeisen Investment Zagreb d.o.o. - in liquidation, Zagreb (HR) 300,000 HRK 100.0% OT
ARR Rail Rent Transportmittel Vermietungs Gesellschaft m.b.H., Perchtoldsdorf (AT) 500,000 ATS 30.0% OT
Open Joint Stock Company Kyiv Special Project and Design Bureau Menas, Kiev (UA) 3,383,218 UAH 4.7% OT
Scanviwood Co. Ltd., Ho Chi Minh City (VN) 2,500,000 USD 6.0% OT
If market prices are available, the fair value is reflected best by the market price. This category contains equity instruments traded on the stock exchange, debt instruments traded on the interbank market, and derivatives traded on the stock exchange. The valuation is mainly based on external data sources (stock exchange prices or broker quotes in liquid market segments). In an active market, transactions of financial assets and liabilities are traded in sufficient frequency and volumes, so that price information is currently available. Indicators for active markets are the number, the frequency of update or the quality of quotations (e.g. banks or stock exchanges). Moreover, also narrow bid/ask spreads and quotations of market participants within a certain corridor are indicators for an active liquid market.
Due to first-time application of IFRS 10, the structured entity Compass Variety Funding Limited, Dublin (IE), was firstly integrated into the group as RBI has control on certain financial assets (leasing claims) according to IFRS 10.B76–IFRS 10.B79 which are separated from the general entity. Due to full integration, the financing obtained by the structured entity of € 18.4 million (2013: € 66.8 million) is shown under deposits from banks.
Core tier 1 ratio, total – Core capital without consideration of hybrid capital divided by risk-weighted assets (total RWA).
Loan to local stable funding ratio (LLSFR) – The sum of total loans and advances to customers less impairment losses on loans and advances, divided by the sum of deposits from non-banks, funding from supranational institutions, capital from third parties and the total outstanding bonds (with an original maturity of at least one year issued by a subsidiary bank to investors outside the bank ś consolidated group).
Kazakhstan Raiffeisen Leasing Kazakhstan LLP Shevchenko Str. 146, No. 12 050008 Almaty Phone: +7-727-37 8-5430 Fax: +7-727-37 8-5431 www.rlkz.at
Poland Raiffeisen-Leasing Polska S.A. Ul. Prosta 51 00-838 Warsaw Phone: +48-22-32 636-66 Fax: +48-22-32 636-01 www.rl.com.pl