RBI at a glance Raiffeisen Bank International AG (RBI) regards Austria, where it is a leading corporate and investment bank, as well as Central and Eastern Europe (CEE) as its home market. 13 markets in the CEE region are covered by subsidiary banks. Additionally, the Group comprises numerous other financial service providers, for instance in the areas of leasing, asset management and M&A.
Corporate Governance Report and non-financial report The Supervisory Board also discussed the efficiency of its activities, its organization and work procedures in accordance with Rule 36 of the Austrian Corporate Governance Code, and a self-evaluation and efficiency assessment was conducted with support from KPMG.
■ RBI utilizes the strengths of country-specific business strategies combined with central business management standards.
Capital market communication RBI offered investors and analysts numerous opportunities to obtain first-hand information at 64 capital market events in 2018. This represents another significant year-on-year increase in these activities.
In May, the Vienna Stock Exchange Award, Austria’s most important prize for the country’s premier listed companies, was presented for the 11th year running. In the presence of numerous representatives from business and politics, the Vienna Stock Exchange and its partners selected winners in four categories. RBI took second place in the ATX category. It was recognized for its excellent work and accomplishments in financial reporting, investor relations, strategy, corporate governance and sustainable orientation and for technical market-related factors such as stock performance and liquidity.
■ The Supervisory Board member shall not have, or have had in the previous year, any significant business relationships with the company or a subsidiary of the company. This also applies to business relationships with companies in which the Supervisory Board member has a significant financial interest, albeit not with regard to carrying out executive functions within the Group. The approval of individual transactions by the Supervisory Board according to L Rule 48 of the ACGC does not automatically lead to a non-independent qualification.
Bettina Selden 3) 2/4 3/5 0/1 1/2 1/1 1/2 0/2 8
Provisions for Supervisory Board remuneration were booked for the 2018 financial year.
Syndicate agreement concerning RBI Due to a syndicate agreement relating to RBI, the regional Raiffeisen banks and direct and indirect subsidiaries of the regional Raiffeisen banks are parties acting in concert as defined in § 1 6 of the Austrian Takeover Act (see notification of voting rights most recently published on 7 September 2018). The terms of the syndicate agreement include a block voting agreement for all matters that require a resolution from the Annual General Meeting of RBI, rights to nominate members of the RBI Supervisory Board and preemption rights among the syndicate partners. The terms also include a contractual restriction on sales of the RBI shares held by the regional Raiffeisen banks (with a few exceptions) for a period of three years from the effective date of the merger between RZB and RBI if the sale would directly and/or indirectly reduce the regional Raiffeisen banks’ aggregate shareholding in RBI to less than 50 per cent of the share capital plus one share (at the end of the three-year period, the threshold drops to 40 per cent of the share capital).
The following payments were made for 2017 based on the Annual General Meeting resolution of 21 June 2018: O VE
The Management Board is aware of the need to continue to pursue the existing initiatives as well as to maintain openness to new measures in order to further increase the percentage of women in highly qualified positions. To achieve this end, it encourages women to take advantage of these opportunities and to actively participate in further development.
Net trading income and fair value result 9 (1) 18 4 (3)
Levies and expenses from special governmental measures declined € 4 million compared to the third quarter to € 13 million, with the sale of the Polish core banking operations resulting in a € 4 million reduction in bank levies.
In the fourth quarter of 2018, impairment losses on financial assets amounted to € 222 million, compared with € 28 million in the previous quarter. The sharp rise in impairment losses derived mainly from provisions of € 105 million due to fine-tuning of the IFRS 9 models, and provisions of € 54 million for expected credit risks not fully captured by the model due to specific events (primarily potential sanctions relating to Russia).
Since the beginning of the year, cash balances increased € 5,652 million to € 22,557 million, primarily at head office as a result of deposits at the Austrian National Bank. Other assets fell € 872 million to € 6,916 million, mainly due to the decline in tangible fixed assets, financial derivatives and tax receivables.
At the start of 2018, RBI placed € 500 million of perpetual additional tier 1 capital (AT1). Taking into account the issuance costs and the discount, this increased capital by € 496 million. According to IAS 32, the AT1 is classified as equity due to the terms and conditions of the issue.
In 2018, RBI also worked extensively on blockchain technology. The focus was on specific applications in trade finance, capital markets business and in clearing, settlement and payment services. Moreover, the first feasibility studies for the necessary identification processes were successfully concluded. To further develop blockchain solutions, RBI entered into a cooperation agreement with the Institute for Cryptoeconomics at the Vienna University of Economics and Business. It has been a member of the international blockchain consortium R3 since the end of 2017.
The proportion of non-bank non-performing loans in the loan portfolio was 3.6 per cent on 31 December 2018 (down 1.3 percentage points). The NPL coverage ratio improved 10.8 percentage points to 78.6 per cent, mainly as a result of the adoption of IFRS 9.
Net trading income and fair value result 21 9 8 7
Net fee and commission income 17 15 40 39 49 45
In the reporting period, impairment losses on financial assets of € 32 million were recognized for the segment, compared to a net release of € 5 million booked in the corresponding period of the previous year. In Russia, there were impairment losses of € 57 million in the reporting period, versus impairment losses of € 50 million in the comparable prior year period. This development was attributable largely to sales of non-performing loans to non-financial corporations set against impairments due to the fine-tuning of IFRS 9 models and the recognition of uncovered risks (potential sanctions). The decrease in the net release of loan loss provisions in Ukraine - from € 55 million in the same period of the previous year to € 20 million in the reporting period - primarily reflected lower sales of non-performing loans. An improved macroeconomic environment and loan sales were responsible for the net release of € 5 million in Belarus.
IAS 19 requires remeasurements of defined benefit plans to be shown in other comprehensive income. This resulted in other comprehensive income of minus € 27,047 thousand in the reporting year, which was primarily attributable to adjustments made to the mortality tables by the head office.
Financial liabilities - designated fair value through profit/loss [24, 31] (394,125) 629
The following table shows the cash and non-cash effects according to IAS 7: in € thousand Subordinated financial liabilities
The impairment model according to IFRS 9 differs materially from the impairment model of IAS 39. In the impairment model pursuant to IFRS 9, in contrast to IAS 39, provisions are recognized for expected losses. The application of RBI's accounting policies requires accounting judgments of the management. RBI assesses on a forward-looking basis the expected credit losses
associated with its debt instrument assets carried at amortized cost and FVOCI and with the exposure arising from loan commitments, leasing receivables and financial guarantee contracts. The calculation of expected credit losses (ECL) requires the use of accounting estimates that by definition rarely match actual results. The amount of impairment to be allocated depends on the change in the default risk of a financial instrument after it was added. In order to determine the amount of the impairment, significant credit risk parameters such as PD (Probability of Default), LGD (Loss Given Default) and EAD (Exposure at Default) as well as future-oriented information (economic forecasts) are to be estimated by management. The provision for credit risks is adjusted for this expected loss at each reporting date. The methods for determining the amount of the impairment are explained in the section Impairment general (IFRS 9). The quantitative effects of the first-time adoption of IFRS 9 as of 1 January 2018 are presented in the section IFRS 9 transition.
Fair value is the price received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This applies regardless of whether the price can be directly observed or has been estimated on the basis of a measurement method. In determining the fair value of an asset or liability, the Group considers certain features of the asset or liability (e.g. condition and location of the asset, or restrictions in the sale and use of an asset) if market participants would also consider such features in determining the price for the acquisition of the respective asset or for the transfer of the liability at the measurement date. Where the market for a financial instrument is not active, fair value is established using a valuation technique or pricing model. For valuation methods and models, estimates are generally used depending on the complexity of the instrument and the availability of market-based data. The inputs to these models are derived from observable market data where possible. Under certain circumstances, valuation adjustments are necessary to account for other factors such as model risk, liquidity risk or credit risk. The valuation models are described in the notes in the section on financial instruments – recognition and measurement. In addition, the fair values of financial instruments are disclosed in the notes under (31) Fair value of financial instruments.
Financial assets - fair value through other comprehensive income 6,589,446 368,486 3,413 6,961,345
Additions from financial assets - fair value through other comprehensive income – 159,526 (3,107) – (17) (3,090)
Elected subtractions to financial assets - designated fair value through profit/loss – (10,790) 0 – – –
Elected subtractions to financial assets - fair value through other comprehensive income – (1,187) 0 – – –
Elected subtractions to non-trading financial assets - mandatorily fair value through profit/loss – (78,335) 0 – – –
Required subtractions to financial assets - held for trading – (13,257) 0 – – –
Other net operating income reduced year-on-year to € 87,523 thousand. The item gains/losses on derecognition of financial assets and liabilities not measured at fair value through profit/loss includes gains of € 24,577 thousand from the derecognition of financial assets carried at amortized cost. The net expense from allocation and release of other provisions amounted to € 17,784 thousand, mainly in connection with litigation at head office. This includes income of € 25,518 thousand generated at head office from the release of a provision in connection with the termination of a long-standing legal dispute with an Icelandic bank, although this was offset by minor allocations to provisions in connection with other litigation. Net rental income from investment property including operating leases decreased € 21,624 thousand to € 57,092 thousand. Of this amount, € 9,875 thousand was attributable to Hungary due to the loss of revenues from a property fund deconsolidated in the previous year and € 11,103 thousand to Croatia due to lower income from operating leases. The result from the derecognition of financial assets and liabilities, mainly due to asset sales, decreased € 16,504 thousand due to higher income in the previous year in Poland and the Czech Republic. The reduction in sundry operating income mainly affected head office, Poland, Albania and Ukraine.
The customer relationships of Raiffeisen Bank Polska S.A., Warsaw, were derecognized as part of the deconsolidation of the Polish core banking operations.
Other debt securities issued 7,239,063 6,622,800 hereof convertible compound financial instruments 1,339,644 1,552,730 hereof non-convertible 5,899,418 5,070,070
In current deposits from banks, a reduction in deposits at head office was offset by an increase in Russia. Overall, this item stagnated year-on-year. The increase in deposits with agreed maturity from banks and in repurchase agreements (repos) was largely attributable to head office.
Negative fair values of derivatives in micro cash flow hedge 5,390 0
Due to the initial adoption of IFRS 9, off-balance-sheet risks are measured in accordance with IFRS 9. The initial adoption effect of € 30,070 thousand is firstly presented in the chapter IFRS 9 transition, in the section transition impairments and secondly under (37) Development of impairments.
Plan assets developed as follows: Plan assets as at 1/1 51,156 14,203
Future salary growth (0.5 per cent change) 735 (712) 700 (651)
Pursuant to Section 169 of the AktG, the Management Board has been authorized from the Annual General Meeting of 4 June 2014 until no later than 25 August 2019 to increase the capital stock – in one or more tranches – by up to € 446,793,032.95 by issuing up to 146,489,519 new common bearer shares with voting rights against contributions in cash and/or in kind (including by way of the right of indirect subscription by a bank pursuant to Section 153 (6) of AktG) and to fix the offering price and terms of the issue with the approval of the Supervisory Board. The Management Board is further authorized to exclude shareholders ’ subscription rights, with the approval of the Supervisory Board, (i) if the capital increase is carried out by contributions in kind or (ii) if the capital increase is carried out by contributions in cash and the shares issued under the exclusion of subscription rights do not exceed 10 per cent of the company’s capital stock (exclusion of subscription rights).
The following table contains financial information of subsidiaries which are held by the Group and in which material noncontrolling interests exist. The amounts reported below refer to the non-controlling interests that were not eliminated.
Dividends paid to non-controlling interests during the year1 40,832 13,055 26,478 8,969 0 1 Included in net cash from financing activities
In 2014, the share incentive program (SIP) was terminated due to regulatory complexities. The last tranches of the SIP were issued in 2011, in 2012 and in 2013. The respective duration periods were five years. Therefore, the 2013 tranche matured in 2018. In accordance with the terms and conditions of the program (published by euro adhoc on 27 June 2013), the number of shares actually transferred was as follows: Share incentive program (SIP) 2013 Group of persons
Members of the management board of RBI AG 29,170 791,090 24,233
 Retail mortgages and other retail lending: The loss given default is generated by stripping the downturn adjustments and other margins of conservatism from the regulatory loss given default. Forward-looking information is incorporated into the loss given default using various satellite models.
The table below provides a comparison between the reported accumulated impairment for expected credit losses for financial assets in Stage 1 and 2 (weighted by 25 per cent optimistic, 50 per cent base and 25 per cent pessimistic scenarios) and then each scenario weighted by 100 per cent on their own. The optimistic and pessimistic scenarios do not reflect extreme cases, but the average of the scenarios which are distributed in these cases. This information is provided for illustrative purposes.
The table below shows the impact of staging on RBI's accumulated impairment for financial assets by comparing the reported amounts accumulated for all performing assets subject to impairment with the special case where all accumulated impairment is measured based on lifetime expected losses (Stage 2). As there is no historical data for the use of staging it is currently not possible to estimate what would be a reasonable increase, however we do not expect the percentage of Stage 2 assets to ever reach 100 per cent. This information is provided for illustrative purposes.
The contractual amount outstanding on financial assets that were written off and are still subject to enforcement activity was € 1,844,101 thousand.
Past due assets without significant increase in credit risk since initial recognition (Stage 1)
In 2018, assets which were not subject to legally enforceable netting agreements amounted to € 130,310,110 thousand (2017: € 124,216,707 thousand), of which an immaterial part was accounted for by derivative financial instruments and cash balances from reverse repo business. Liabilities which were not subject to legally enforceable netting agreements totaled € 125,248,281 thousand in 2018 (2017: € 122,371,132 thousand), of which only an immaterial part was accounted for by derivative financial instruments and cash deposits from repo business.
The Group enters into transactions that result in the transfer of trading assets, financial investments and loans and advances to customers. The transferred financial assets continue to be recognized in their entirety or to the extent of the Group’s continuing involvement, or are derecognized in their entirety. The Group transfers financial assets that are not derecognized in their entirety or for which the Group has continuing involvement primarily through sale and repurchase of securities, securities lending and securitization activities.
The following table shows the total credit exposure according to internal corporate rating (large corporates, mid-market and small corporates). For presentation purposes, the individual grades of the rating scale have been combined into nine main rating grades.
6.3 Acceptable project risk profile – average risk 113,598 1.6% 516,829 6.2%
Electricity, gas, steam and hot water supply 3,045,296 3.8% 2,765,441 3.5%
The following table shows the total credit exposure to retail customers by internal rating: in € thousand 2018 Share 2017 Share 4.0 Weak credit standing / sub-standard 413,993 1.1% 368,020 1.0%
This section refers exclusively to exposures without grounds for default pursuant to Article 178 CRR. In the corporate business, when loan terms or conditions are altered in favor of the customer, the Group distinguishes between modified loans and forborne loans according to the applicable definition contained in the Implementing Technical Standard (ITS) on Supervisory Reporting (Forbearance and non-performing exposures) issued by the EBA and the ECB guidance to banks on non-performing loans.
The Group has a substantial database along with expertise in forecasting cash flows arising from all material on- and off-balance sheet positions. The modelling of liquidity in- and outflows is carried out on a sufficient granular level, differentiating between product and customer segments, and, where applicable, currencies as well. Modelling of retail and corporate customer deposits includes assumptions concerning the retention times for deposits after maturity. The model assumptions are quite prudent, e.g. there is a "no rollover" assumption on funding from banks and all funding channels and the liquidity buffer are stressed simultaneously without taking mitigating effects from diversification into account.
The bank uses a range of customized measurement tools and early warning indicators that provide board members and senior management with timely and forward-looking information. The limit framework ensures that the bank can continue to operate in a period of severe stress.
Cash, cash balances at central banks and other demand deposits 22,557,484 23,126,102 23,126,102 0 0 0
Post-employment benefits comprise payments to pension funds and payments according to Retirement Plan Act (Mitarbeitervorsorgegesetz ), severance payments, leave compensation as well as net allocations to provisions for retirement benefits and severance payments.
Raiffeisen-Rent Immobilienprojektentwicklung Gesellschaft m.b.H. Objekt Wallgasse 12 KG, Vienna (AT) 4,886,449 EUR 100.0% OT
Abrawiza Immobilienleasing GmbH & Co. Projekt Fernwald KG, Eschborn (DE) 5,000 EUR 6.0% OT
First Leasing Service Center GmbH, Vienna (AT) 35,000 EUR 100.0% OT
HERA Raiffeisen Immobilien Leasing Gesellschaft m.b.H., Vienna (AT) 36,400 EUR 49.0% FI
RSC Raiffeisen Service Center GmbH, Vienna (AT) 2,000,000 EUR 50.3% BR
CONATUS Grundstückvermietungs Gesellschaft m.b.H., St Pölten (AT) 36,360 EUR 24.5% FI
Euro Banking Association (ABE Clearing S.A.S.), Paris (FR) 51,000 EUR 2.0% FI
PSA Payment Services Austria GmbH, Vienna (AT) 285,000 EUR 11.2% FI
RSAL Raiffeisen Steiermark Anlagenleasing GmbH, Graz (AT) 38,000 EUR 19.0% FI
Further expected regulatory changes and developments are monitored on an ongoing basis, included in scenario calculations, and analyzed by Group Regulatory Affairs. Potential effects are taken into account in planning and governance, insofar as their scope and implementation are foreseeable.
 Whether sales activity and the collection of contractual cash flows are each integral or incidental to the business model (holdto -collect versus hold and sell business model).
The differentiation between other net operating income and other result is mainly based on the reporting according to FINREP (Financial Reporting), which is specified by Implementing Regulation (EU) No. 680/2014.
All expenses related to the share incentive program were recognized in staff expenses in accordance with IFRS 2 (share-based payment) and charged to equity. They are described in greater detail in the notes under (30) Equity. The final allocation under a SIP tranche was made in 2018.
For lessees, the new standard establishes an accounting model which does not distinguish between financial leasing and operating leasing. In future, most lease agreements will have to be recognized in the statement of financial position. The standard requires lessees to recognize assets and liabilities in the statement of financial position for all leases of more than twelve months, unless the underlying asset has a low value. The lessee recognizes an asset which represents its right to use the underlying asset. It also recognizes a lease liability which represents its liability to effect the lease payments. For lessors, the rules under IAS 17 (Leases) remain largely valid, meaning that in future it will still also be necessary to distinguish between financial and operating leasing with corresponding different accounting consequences. In addition, the standard also requires entities to provide users of financial statements with more informative, relevant disclosures in the notes.
Amendment to IAS 28 (Long-term interests in associates and joint ventures; entry into force 1 January 2019)
LCR – Liquidity Coverage Ratio. The LCR supports the short-term resilience of banks by ensuring that they have an adequate stock of unencumbered high-quality liquid assets (HQLA) to meet potential liability run offs that might occur in a crisis, which can be converted into cash to meet liquidity needs for a minimum of 30 calendar days in a liquidity stress scenario.
Austria Raiffeisen-Leasing G.m.b.H. Mooslackengasse 12 1190 Wien Telefon: +43-1-71 601-0 www.raiffeisen-leasing.at
Austria Kathrein Privatbank Aktiengesellschaft Wipplingerstraße 25 1010 Vienna Phone: +43-1-53 451-300 www.kathrein.at