Overview of RBI Interview with the chairman of the Management Board 8 Management Board of RBI 11 Report of the Supervisory Board 12 RBI at a glance 14 RBI’s strategy 16 RBI in the capital markets 20 Corporate governance report 24 Sustainability at RBI 34
All in all, RBI employs about 58,000 employees and has total assets of approximately € 131 billion.
Overview Raiffeisen Bank International Group Monetary values in € million 2013 Change 2012 2011 Income statement 1/1–31/12 1/1–31/12 1/1–31/12
Net provisioning for impairment losses (1,149) 13.9% (1,009) (1,064) Net fee and commission income 1,626 7.2% 1,516 1,490
Statement of financial position 31/12 31/12 31/12 Loans and advances to banks 22,243 (0.4)% 22,323 25,748 Loans and advances to customers 80,635 (3.2)% 83,343 81,576
Key ratios 1/1–31/12 1/1–31/12 1/1–31/12 Return on equity before tax 7.8% (1.8) PP 9.7% 13.7% Return on equity after tax 5.7% (1.3) PP 7.0% 9.7% Consolidated return on equity 5.5% (1.9) PP 7.4% 10.8% Cost/income ratio 58.3% (3.2) PP 61.5% 56.0% Return on assets before tax 0.63% (0.10) PP 0.73% 0.98% Net interest margin (average interest-bearing assets) 3.11% 0.46 PP 2.66% 2.90%
Provisioning ratio (average loans and advances to customers) 1.39% 0.18 PP 1.21% 1.34% Bank-specific information1 31/12 31/12 31/12 Risk-weighted assets (total) 79,897 (3.5)% 82,822 95,302
Dividend per share in € 1.022 – 1.17 1.05 Resources 31/12 31/12 31/12 Employees as of reporting date 57,901 (3.6)% 60,084 59,261 1 Calculated according to the Austrian Banking Act (BWG). Raiffeisen Bank International as part of the RZB Group is not subject to the Austrian Banking Act (BWG). 2 Recommendation to the Annual General Meeting according to the Management Board‘s decision on 17 February 2014 (refers to the increased number of shares due to the capital increase carried out at the beginning of 2014). In this report, Raiffeisen Bank International (RBI) refers to the RBI Group, and RBI AG is used wherever statements refer solely to Raiffeisen Bank International AG. The same applies to RZB and RZB AG.
EUROPE: France: Paris; Germany: Frankfurt/Main; Malta: Sliema; Sweden: Stockholm; UK: London; ASIA And AMERICA: China: Beijing, Harbin, Hong Kong, Xiamen, Zhuhai; India: Mumbai; Kazakhstan: Almaty (leasing company); Korea: Seoul; Malaysia: Labuan; Singapore: Singapore; USA: New York; Vietnam: Ho Chi Minh City.
Costs increased again in 2013. How do you want to reverse the trend? In terms of the numbers, that is correct. However, the main reason why general administrative expenses increased by 2 per cent was as we did not consolidate Polbank until May 2012. This means that it was first reflected over the full financial year in the balance sheet for 2013. Without that effect, we would have succeeded in keeping general administrative expenses virtually on the same level. Although we have already been able to save a considerable amount of costs in a number of network banks, we started to set up and implement a Group-wide cost-cutting program last autumn. Named “Fit for Future 2016”, the program aims to lower costs to the level of 2012 by 2016. This means that over the coming three years, we will more than offset inflation and save about 450 million euros in total. Of importance to us is that costs are not cut at the expense of earnings.
Which measures will you take to attain this goal? We plan to implement a wide range of measures as part of this program. These relate in part to our external expenses, which amount to more than 1 billion euros a year. We want to generate savings by consolidating purchasing activities and Group-wide contracts. This will be done through our procurement – i.e., central purchasing – unit. However, we will also renegotiate existing contracts and optimize the number of our suppliers. Moreover, we will extend the scope of services of our Shared Service Centers, which mainly involves joint processing. In addition, we will evaluate the areas and products for which we can establish further Shared Service Centers throughout the Group, or regionally. We also want to raise the degree of standardization in our IT infrastructure; while at the same time working towards the consolidation of datacenters. Of course, we also regularly review ways to optimize our branch network and expand alternative distribution channels. These are just some of the steps we will take. We will be initiating further measures, and identifying several new projects, in the course of this cost-cutting program. Each and every employee is invited to come up with ideas.
What is your target cost/income ratio? We want to achieve a cost/income ratio of 50 to 55 per cent by 2016. In 2013, we managed to lower it 3.2 percentage points to 58.3 per cent. However, this is only one element; it is far more important that the consolidated profit and return on equity are appropriate, and that RBI, therefore, remains a lucrative investment for shareholders, as well as an attractive employer for its staff. Of course, strengthening our equity – our third strategic area of focus – was, and is, an important step in that direction.
What macroeconomic trends do you expect in 2014? The environment should improve considerably; possibly leading to an increase in demand for credit. According to our analysts, the eurozone will emerge from recession. This process will be driven by the German economy, and the development should also have a positive effect on CEE. In Central Europe, real GDP will probably grow at a markedly faster rate than in recent years. Southeastern Europe should continue to emerge steadily from the crisis and achieve real growth of nearly 2 per cent in 2014. In the CIS, on account of the current political situation in Ukraine, growth may be weaker than in 2013. We are in the fortunate position of operating in Central and Eastern Europe, which generally presents a higher potential for growth than Western Europe – both economically and with regard to the penetration of financial products.
Dear shareholders, In 2013, the difficult economic situation in some countries of the eurozone, as well as Central and Eastern Europe, again presented a challenging business environment for banks. Moreover, the capital requirements that were increased at short notice, as well as the numerous, complex regulatory provisions and bank levies, posed and continue to pose additional strains and inhibited lending.
To better meet the challenges and further strengthen the Group for the coming years, the Supervisory Board drew up a strategy in cooperation with the Management Board. This strategy aims at concentrated growth in defined focus markets while using an efficiency program to optimize the use of funds and make RBI‘s organizational structure more fit for the future.
As in fiscal year 2013, the members of the Supervisory Board, and its committees, were fully informed by the Management Board during regular meetings about all pertinent business developments, including risk management of the bank and subsidiaries, in a timely and comprehensive manner. Information was provided verbally as well as in writing.
At the regular meetings, the Management Board reported to the Supervisory Board on business developments in the various business areas and explained current risk developments. In addition to the regular meetings, the Chairman of the Supervisory Board also had numerous discussions with the Management Board. The decision-making by the Supervisory Board and the Management Board, as well as the informal dialog, are based on open discussions conducted in the spirit of mutual trust.
On 24 May 2013, Herbert Stepic announced he was making his position as Chairman and Member of the Management Board available. The Supervisory Board accepted this resignation offer at its meeting on 7 June. At the same time it appointed Karl Sevelda, the former Deputy Chairman of the Management Board with responsibility in the Management Board for Coporate Banking, as Chairman of the Management Board and appointed CRO Johann Strobl as Deputy Chairman.
The Supervisory Board expressed its gratitude and appreciation to Herbert Stepic for his work. His vision and assertiveness made RBI a leading banking group in Central and Eastern Europe, as well as in Austria.
At the Annual General Meeting held on 26 June 2013, Klaus Buchleitner, CEO of Raiffeisenlandesbank Niederösterreich-Wien AG and Raiffeisen-Holding Niederösterreich-Wien reg.Gen.m.b.H., was elected to the Supervisory Board. He succeeded Friedrich Sommer, the former corporate counsel of Raiffeisen Zentralbank Österreich AG, who resigned from his position with effect from 26 June 2013.
Annual financial statements and consolidated financial statements The consolidated financial statements (income statement, statement of financial position, statement of changes in equity, cash flow statement and notes) as well as the annual financial statements of RBI AG have been audited by KPMG Austria AG Wirtschaftsprüfungs- und Steuerberatungsgesellschaft. The audit revealed no reason for objections. All legislative provisions were fully satisfied. Therefore, the unqualified auditor‘s report was issued.
In conclusion, I would like to express, on behalf of the Supervisory Board, our gratitude to the Management Board, the Works Council and all employees for their high commitment in the past year.
RBI at a glance A leading bank in CEE as well as Austria Raiffeisen Bank International AG regards Central and Eastern Europe (including Austria) as its home market. For over 25 years, RBI has been operating in Central and Eastern Europe (CEE), where today it maintains a closely knit network of subsidiary banks, leasing companies and numerous specialized financial service providers in 15 markets. As a universal bank, RBI ranks among the top five banks in twelve countries. This role is supported by the Raiffeisen brand, which is one of the most widely recognized brands in the region. RBI has positioned itself in CEE as a fully integrated corporate and retail banking group with a comprehensive product offering, and thus profits from the extensive potential of the region. This potential is due, on the one hand, to the comparably higher economic growth in comparison to Western Europe, and on the other, to the still existing catch-up prospects for banking services. At the end of 2013, around 55,000 RBI staff served approximately 14.6 million customers in around 3,000 business outlets in CEE.
1 Change of total assets versus figures from 31 December 2012 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.
RBI has been listed on the vienna stock exchange since 25 April 2005 (as Raiffeisen International up until 12 October 2010). RZB, which functions as the central institution of the Austrian Raiffeisen Banking Group (RBG), remained the majority shareholder following the merger, holding approximately 78.5 per cent of the shares as of 31 December 2013. The remaining approximate 21.5 per cent of RBI’s shares were in free float. Due to the capital increase at the beginning of 2014, the free float rose significantly to about 39.3 per cent after RZB waived its subscription rights, reducing its share in RBI to 60.7 per cent. In course of the preplacment, RZB participated in the capital increase in the amount of € 750 million.
Southeastern Europe Retail and corporate customers in Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Moldova, Romania, and Serbia
Corporate Center Services performed by Group head office, such as liquidity and balance sheet structure management
The overall environment for banks is still subject to a dynamic development. This applies particularly to the markets in which RBI operates. Changes in the market environment (introduction of or increase in bank-specific taxes, competitors withdrawing, continued restrained economic dynamics, tighter supervisory regulations, etc.) call for constant adaptation of the business model and accompanying shifts in the allocation of resources to the business divisions. Group-wide cost management contributes to competitiveness . It is supported by strong coordination and collaboration among the individual corporate units. Consistent focus on customers and transparent decision-making processes determine the bank’s success in the market. The open corporate culture embodied at RBI contributes to employee motivation and thereby to the achievement of the bank’s strategic objectives. RBI‘s role is supported by the Raiffeisen brand, with its high level of brand recognition.
Strategic business focus ■ RBI concentrates primarily on financial services relating to CEE as the region of origin of the service or business relationship, with a particular country focus placed on Russia, Poland, the Czech Republic, Slovakia, Romania, and Austria. In Asia, RBI follows a niche strategy for selected markets. Geographic expansion of this sphere of operation is generally not planned.
■ As a universal bank, RBI directs its focus toward corporate customers and retail customers. The respective market environment or relative market position may require specialization in order to ensure a sustainable and profitable market presence.
■ In Austria, RBI focuses on the corporate customers with the highest turnover and on private banking activities. ■ Business activities with other customer groups that are directly related to existing customers are considered to be equivalent
(e.g., trade financing, treasury services for corporate customers, asset management). ■ RBI‘s focus is on business with customers. Proprietary trading activities only serve to support RBI‘s strategic focus. ■ As far as it is possible, RBI‘s business development is organic. ■ Active business portfolio management is not among RBI‘s strategic objectives per se but may be necessary in order to achieve them (e.g., portfolio acquisitions and sales, reduction or development of specific business divisions, etc.).
Strategy by segment RBI’s business is subdivided into seven segments. While the focus in the Central Europe, Southeastern Europe, Russia, and CIS Other segments is on retail and corporate banking, business relationships with Austrian companies and with major international customers are handled by Group Corporates. Group Markets deals with capital market customers, as well as proprietary trading, and the Corporate Center segment encompasses various services that are provided by the Group head office and that assist in the implementation of the Group’s overall strategy; they are assigned to this segment to ensure comparability.
In Hungary, where RBI likewise operates as a universal bank, the business model has been adapted to the difficult market environment . Corporate customers, for instance, were segmented more strongly by industrial sector in order to better serve customers ‘ different needs. The focus is on international corporate customers with good credit ratings, who – as in other countries – are increasingly being targeted with capital and liquidity-light products, as well as on domestic small and medium-sized enterprises (SMEs). For the latter, the emphasis is increasingly on advisory- and transaction-driven services such as cash management solutions. In the retail customer business, the sales network has been further optimized. In principle, lending is governed by strict rules with regard to credit ratings. Lending (particularly in foreign currencies) is defensively oriented, while the focus for affluent private individuals is on conservative products (e.g., in deposits and mutual funds business). Due to the historically low interest rate level, an increasing number of attractive investment products are sold to customers. The streamlining of the organization is being driven forward, e.g., by expanding the central operations, back office, and call center business beyond major urban areas.
In Poland, the acquisition of Polbank has strengthened RBI’s retail banking business in particular, making it a strong universal bank in terms of market share and local presence. In corporate banking, decreasing interest income in Poland – partly triggered by the historically low interest rate level – is to be offset by expanding relationships with major customers, which is wholly in line with RBI‘s strategy of promoting capital and liquidity-light products. This also includes a targeted focus on cash management, factoring , treasury products and investment banking services, which should at the same time help to strengthen customer relationships. In retail banking, the main focus is on the acquisition of affluent private individuals using products that require a high level of advising, as well as on cross-selling and the marketing of bancassurance products (e.g., insurance solutions). The additional acquisition of small business and private individuals through repositioning of the product range is anticipated to further boost business performance. The merger of Polbank and Raiffeisen Bank Polska also generates synergies in sales, as well as in processing and infrastructure.
In Albania, the focus is on corporate and retail banking, with lending generally carried out on a selective basis. Other business activities , such as lending to financial institutions or sovereigns, are only conducted under strict conditions. Further expansion of the branch network is currently not planned due to the strict cost management measures in place.
In Bosnia and Herzegovina, the focus is on SMEs, as well as on special offerings for affluent retail customers (e.g., investment fund solutions and customized financing arrangements). 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.
In Romania, the focus is likewise on large and medium-sized corporate customers, as well as on retail customers. The ongoing optimization of processes (e.g., loan processing for retail customers, other processing in the branches, and centralization in a new operations center) allows costs to be reduced while at the same time improving the quality of service. Business performance is based on organic growth and driven by smaller acquisitions in the affluent private individual, as well as leasing business. The integration of local subsidiaries for investment banking strengthens core competencies and further enhances efficiency. Capital market and treasury products are increasingly on offer through close cooperation between the corporate customer and capital market trading divisions. In the retail customer business, the market position is being further expanded through optimization of online and mobile banking, as well as enhanced advisory services.
The market environment in Serbia continues to demand strict cost and risk management. The main focus here is on cost-cutting measures and process optimization. For both corporate and retail customers, the key aim from a market perspective is to further develop business relationships with existing customers that have good credit ratings. High-end services and a broad product portfolio form the basis therefore.
The Group Corporates segment covers two key areas: firstly, the Corporate Customers division, which services those Austrian companies and international – primarily Western European – corporate customers that generate the highest revenues ; and secondly , business with major Central and Eastern European customers, which is handled by the Network Corporate Customers & Support division. For 2014, an organizational merger of these two areas is planned. In line with the customer relationship approach , corporate customers are offered comprehensive financial services with a particular focus on advisory- and service -intensive banking services from the treasury and investment banking, and on capital and liquidity-light products. RBI’s comprehensive network in the CEE region enables it to provide cross-border customer service to both Austrian and Western European corporate customers that are also active in these markets. The Corporate Customers division is structured in a way that, in addition to a regional orientation, customers are also supported by teams with a special industry focus. Sales management was also substantially strengthened through Group-wide strategic planning of customer-oriented activities. This permits more efficient and comprehensive customer service and is a substantial success factor in international corporate banking. In the Network Corporate Customers & Support division, the Global Account Management System was further optimized to enable RBI to offer its many customers with cross-border operations a customer service that is coordinated across the entire Group and – in conjunction with specialized product experts – an even more comprehensive product portfolio (Group products) across the whole network. The focus in the Asian branches and at RB International Finance in the US is on expanding existing customer relationships, focusing on trade finance.
The escalating discussion about military intervention in the Syrian civil war, and its possible consequences for the entire Middle East, cast a brief shadow over the equity markets in the third quarter. Accordingly, they received a boost in September when Syria agreed to accept the United Nations resolution to destroy its chemical weapons. Also conducive was US Fed chairman Ben Bernanke‘s surprising statement that the central bank intends to maintain its loose monetary policy as an economic stimulus until a turnaround has been achieved in the labor market. Stock markets rose sharply on the news.
Equity prices further climbed in the US, after the budget dispute was resolved last minute in October. Positive signals also emerged from Europe: firstly, the recession in the eurozone seems to have come to an end in 2013, at least on a quarterly basis; secondly, the ECB‘s unexpected cut in the base rate to an all-time low of 0.25 per cent boosted markets at the beginning of November; and finally, in mid-December, the Fed announced that it would gradually reduce its bond purchasing program as early as January 2014. As such a move had been anticipated for some time, the financial markets reacted positively to the news.
Price performance since 1 January 2013 compared to ATX and EURO STOXX Banks in € Index basis = € 30.12
RBI’s market capitalization at the end of 2013, with the number of outstanding shares at 195.5 million, stood at € 5.0 billion. At the beginning of 2014, the number of shares rose to 293 million by way of a capital increase; at € 21.61 per share – as of the editorial deadline – this led to a market capitalization of € 6.3 billion.
In 2013, a total of 44 million RBI shares were traded, amounting to a total value of € 1.2 billion and an average daily volume of 178,569 shares.
Number of shares issued as of editorial deadline (11 March 2014) 292,979,038
RBI bonds Favorable market environment for bonds in the second half of the year Against the backdrop of Cyprus‘ imminent insolvency, yields on Italian and Spanish ten-year government bonds initially rose in 2013, causing prices to drop accordingly. At the same time, yields on German ten-year government bonds declined further from their already low level. As the European markets stabilized in summer, bond yields in the peripheral markets fell again – mainly in Italy but also in Spain – while yields of so-called “safe havens”, such as Germany, saw an upswing. In the second half of the year ,
the prospect of continued cheap liquidity – as a result of the loose monetary policy in the US – enabled bond prices in the pe ripheral countries to rise in conjunction with falling yields, while remaining more or less stable in countries such as Germany, France and Austria.
Successful bond issues RBI‘s first benchmark transaction in 2013 – a CHF 250 million subordinated bond issued in May, with a ten-year maturity and an interest rate of 4 per cent – aroused a great deal of interest. RBI also took advantage of the favorable market environment in the second half of the year by issuing a ten-year subordinated benchmark bond, with a volume of € 500 million at an interest rate of 6 per cent, in October. The high demand, also confirming RBI‘s attractiveness as a bond issuer, resulted in the bond being threetimes oversubscribed. A five-year senior bond of € 500 million at 1.875 per cent, which RBI issued in November, was also oversubscribed.
Annual General Meeting RBI‘s Annual General Meeting, unlike investor conferences, also provides private investors the opportunity to be informed by the Management Board on business developments, and was held in vienna on 26 June 2013.
The Annual General Meeting approved a dividend payment of € 1.17 per share for the 2012 financial year, up € 0.12 on the previous year. This represented a total dividend payout of around € 228 million, whereby no dividend was paid on own shares. As well as passing resolutions which enable the flexible reaction to future capital requirements, the Annual General Meeting elect ed Klaus Buchleitner, CEO of Raiffeisen-Holding and Raiffeisenlandesbank Niederösterreich-Wien, as Friedrich Sommer‘s successor in RBI‘s Supervisory Board.
Dividend The next ordinary Annual General Meeting will take place on 4 June 2014. On 17 February 2014, the Management Board decided to propose a total dividend payout of approximately € 300 million to the Annual General Meeting for the reporting year 2013, representing a dividend of € 1.02 per share. Subject to approval by the Annual General Meeting, this amount will be paid to the shareholders on 11 June 2014, and the stock will be traded ex-dividend from this date.
RBI also attracted a great deal of interest as an investment in 2013. This is evident from its coverage by 29 equity and 22 bond analysts, making RBI the Austrian company with by far the greatest number of regular recommendations by analyst firms. In 2013, around 450 analyst reports on RBI were published.
RBI continuously strives to keep market participants fully informed. In the interest of making its communications as easily accessible and widespread as possible, RBI makes conference call presentations, as well as other important events, available as online webcasts. These can be viewed at any time at www.rbinternational.com → Investor Relations → Reports & Presentations → Presentations & Webcasts.
Financial calendar 2014 27 March 2014 2013 Annual Report, Conference Call 28 March 2014 RBI Investor Presentation, London 8 May 2014 Start of Quiet Period 22 May 2014 First Quarter Report, Conference Call 4 June 2014 Annual General Meeting 11 June 2014 Ex-dividend and Dividend Payment Date 7 August 2014 Start of Quiet Period 21 August 2014 Semi-Annual Report, Conference Call 6 November 2014 Start of Quiet Period 20 November 2014 Third Quarter Report, Conference Call
RBI deviates from the below C Rule, but conducts itself in accordance with the Codex through the following explanation and justification : C Rule 45: a non-competition clause for members of the Supervisory Board RBI is a company of the Austrian Raiffeisen Banking Group (RBG), which is also a majority shareholder through its central institution, RZB. Some members of the Supervisory Board therefore also hold executive roles in RBG banks. In addition to that, a number of members of the Supervisory Board hold executive roles with other banks and financial services institutions. Consequently, knowhow and experience specific to the industry are applied in exercising the control function of the Supervisory Board, to the benefit of the company.
In regards to R Rule 62 of the ACGC, the company commissioned – as it has done in previous years – an external evaluation by the research company, Univ.Prof.DDr. Waldemar Jud Corporate Governance Forschung CGF GmbH. The report on this external evaluation is public and available at www.rbinternational.com → Investor Relations → Corporate Governance → External Evaluation of the CG Codex.
Karl Sevelda 1950 22 September 20102 30 June 20173 Chairman 1
Herbert Stepic 1946 14 June 2001 7 June 2013 Chairman 1 Karl Sevelda was Deputy Chairman until 7 June 2013 and has been Chairman of the Management Board since 7 June 2013. 2 Effective as of 10 October 2010. 3 The contract was extended by the Supervisory Board until 30 June 2017, as of 7 June 2013. 4 Johann Strobl was a member until 7 June 2013, and has been Deputy Chairman of the Management Board since 7 June 2013.
■ Klemens Breuer FMS Wertmanagement AöR (supervisory board member since 6 January 2014)
■ Herbert Stepic OMv AG (supervisory board member) Oesterreichische Kontrollbank AG (supervisory board member until 8 October 2013)
Composition of the Supervisory Board During the 2013 financial year, the Supervisory Board comprised of: Supervisory Board member Year of birth Original appointment End of term
Walter Rothensteiner 1953 11 May 2001 Annual General Meeting 2016 Chairman
Heinrich Schaller 1959 20 June 2012 Annual General Meeting 2017 Second Deputy Chairman
Markus Mair 1964 8 July 2010 1 Annual General Meeting 2015 Third Deputy Chairman
■ 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 company. The approval of individual transactions by the Supervisory Board according to L Rule 48 of the ACGC does not automatically lead to a qualification of ‘not independent’.
■ Company circumstances and the mere exercise of the function of a board member or leading employee by a Supervisory Board member does not, as a rule, lead to the company concerned being regarded as a “company in which a Supervisory Board member has a significant financial interest,” to the extent that circumstances do not support the presumption that the Supervisory Board member derives a direct personal advantage from doing business with the company.
■ The Supervisory Board member shall not be a member of the management board of another company in which a management board member of the company is a member of the Supervisory Board.
■ The Supervisory Board member shall not be a close family relation (direct descendant, spouse, partner, father, mother, uncle, aunt, brother, sister, nephew, niece) of a member of the Management Board or of persons who fill one of the positions described in the preceding points.
Stewart D. Gager and Kurt Geiger, as members of the Supervisory Board are neither shareholders, with a shareholding of greater than 10 per cent, nor do they represent the interests of such shareholders. They are therefore “free float representatives“ according to C Rule 54 of the ACGC.
■ Erwin Hameseder AGRANA Beteiligungs-AG, STRABAG SE, UNIQA Insurance Group AG, Südzucker AG, Flughafen Wien AG (chairman)
Heinrich Schaller Second Deputy Second Deputy Second Deputy Second Deputy Chairman Chairman Chairman Chairman
Markus Mair Third Deputy Chairman Third Deputy Chairman Third Deputy Chairman Third Deputy Chairman
Functions of the Management Board and the Supervisory Board Allocation of duties and procedures/functions of the Management Board
Group & Austrian IT Group Capital Markets Trading & Sales Investor Relations
The Working Committee was responsible for all matters that were referred to it by the Supervisory Board in 2013. Thus, it was called on to approve those matters not reserved only for the Supervisory Board. In particular, these included the creation and alteration of subsidiaries as well as the acquisition of shares up to a certain book value, the execution of functions in the management bodies of other companies by members of the Management Board, or the appointment of persons to the management boards and supervisory bodies of banks within the Group. Furthermore, the Working Committee approved the assumption of operational banking risk above a certain level.
The Personnel Committee dealt with the remuneration of Management Board members as well as their employment contracts. In particular, it was responsible for approving bonus allocation and stock allocation to members of the Management Board through the Share Incentive Program.
In the period under review, the Supervisory Board held six meetings. In addition, the Management Board informed the Supervisory Board promptly and on a regular basis of all relevant matters of the company’s performance, including the risk position and risk management of the company and key Group companies, in particular at important and special events.
In addition, the Supervisory Board, the Working and the Remuneration Committees also passed circular resolutions.
Measurement of bonuses is linked to the achievement of company goals related to profit after tax, return on risk-adjusted capital (RORAC) and cost/income ratio, as well as to annually consented personal goals. Payment of bonuses is deferred as set forth in the Austrian Banking Act (BWG) and implemented according to internal RBI regulations.
No tranche of the share incentive program matured in 2013 as no SIP tranche was issued in 2010 owing to the abovementioned merger. Moreover, the maturity of the programs was extended to five years in accordance with legal regulations, with the result that the next SIP tranche will not mature before 2016.
Under the SIP, new tranches have been issued each year – including 2011, 2012 and 2013. This means that on the reporting date, contingent shares for currently three tranches were allocated. As of 31 December 2013, the number of these contingent shares was 987,740 (of which 215,032 were attributable to the 2011 allocation, 406,040 to the 2012 allocation and 366,668 to the 2013 allocation). The number of contingently allocated shares originally announced changed due to various personnel alterations within Group units. It is aggregated in the following table: number of contingently alloca- Minimum allocation Maximum allocation Group of persons ted shares as of 31/12/2013 of shares of shares
In the event of 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, two members 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, with the exception of one Management Board member, if the employee terminates the employment relationship.
Report on measures taken by the company to promote women to the Management Board, the Supervisory Board and into executive positions (Section 80 of the Austrian Stock Corporation Act [AktG]) as laid down in Section 243b (2) 2 of the Austrian Commercial Code (UGB) One of Raiffeisen’s fundamental values has always been to offer equal opportunities for equal performance regardless of gender or other factors. This begins with the recruitment process, in which suitable measures are used to ensure that the same standards are always applied in staff selection. The relatively high proportion of 67 per cent of female employees at RBI underscores the efficacy of these activities.
Year Proportion of women of the Proportion of women of the Management Tier 2 Tier 3 total number of employees total number of executives Board management management
A corresponding framework has been established, within the company, and is being regularly refined to continue promoting the advancement of women, which seeks to particularly improve the balance of family and work. Other benefits include flexible working hours, part-time models and home office. These models are implemented in nearly all countries the Group is active in, and in accordance with the local statutory provisions. The measures are supplemented with further national initiatives, such as the company’s kindergarten with employee-friendly operating hours at the vienna site, and the “Mother Care” program at Raiffeisenbank Polska S.A. The program supports women from the first announcement of pregnancy until the child’s first birthday.
Accounting and audit of financial statements RBI’s consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as applied in the EU. They also comply with the regulations of the Austrian Banking Act (BWG) in conjunction with the Austrian Commercial Code to the extent that these are applicable to the consolidated financial statements. The consolidated annual financial statements are published within the first four months of the financial year following the year under review. Interim reports are published no later than 57 days after the end of the respective period under review.
Group-wide sustainability strategy The strategy “We create sustainable value“ published in 2013, uses nine strategic and operational key areas to define RBI‘s short, medium and long-term direction for sustainability. The strategy is based on three roles relating to sustainable corporate and social development which, as well as describing RBI‘s responsibility, also outline the company‘s self-established claim: ■ At its core, RBI is a responsible banker that ensures the gradual development of its products and services to create a sustainable portfolio of financial products.
■ Moreover, RBI sees itself as an engaged corporate citizen that works to achieve sustainable development of society and the environment. In doing so, RBI advocates a climate and environmentally friendly society, as well as the promotion of cultural life. It also supports endeavors to foster sustainable business and an open civil society.
RBI has been a member of the vÖNIX, the vienna Stock Exchange‘s sustainability index, for several years. The free float weighted price index contains companies whose shares are traded on the vienna Stock Exchange, and which are leaders in terms of social and ecological performance.
The Carbon Disclosure Project (CDP) is a non-profit organization whose goal is reducing CO2 emissions. It aims to encour age companies to increase transparency in terms of their reduction targets and strategies. In 2012, “Rate the Raters“ recognized the CDP as the best sustainability ranking organization. Among other things, it is used and recommended by the UN Global Compact‘s Caring for Climate initiative, the Dow Jones Sustainability Index, and the Global Reporting Initiative, as a standard in matters of climate change.
RBI has been accountable to the CDP for three years. On November 5, 2013, it received its first award for its presentation of climate -related performance, which was above average for the financial sector. This success is based on an evaluation of meas ures of significance for operational ecology that, when implemented, make an important contribution to climate protection. Analysis identified electricity consumption as the area in which RBI generates the highest CO2 emissions. As a result, all vienna locations switched to purely green electricity at the start of 2013. This award was also a factor in RBI‘s inclusion in the Carbon Performance Leadership Index, which contains the companies with the highest ratings.
On 26 November 2013, the RZB Group‘s 2011/2012 Sustainability Report received the Austrian Sustainability Reporting Award (ASRA) in the “large companies“ category from the Austrian Chamber of Chartered Accountants (Kammer der Wirtschaftstreuhänder ). In particular, it commended the exemplary stakeholder process for defining the sustainability strategy, which was consistently translated into key areas of action and embedded in the organizational structure.
Recovery in Europe, weak economic growth in the US During 2013, the eurozone gradually climbed out of the recession which began in late 2011. Economic growth declined 0.4 per cent year-on-year in 2013, compared to a 0.6 per cent decrease in the previous year. In the course of this, positive quarterly growth rates were being posted as of the second quarter, accompanied by an increased upward trend in early economic indicators. Towards the end of the year, factual data confirmed the economic upturn that was gaining momentum and also spreading to Southern European countries. This was supported, on the one hand, by the extremely expansive monetary policy of the ECB, and on the other, by the significant progress made in reducing foreign trade imbalances in Southern European countries. While the economic upturn was predominantly driven by increasing foreign trade, in a number of core countries – first and foremost Germany – domestic demand also played an important role. The greatest risk factor remains to be policies and their neglected reforms, followed by problematic developments in real estate and credit markets that have yet to be fully corrected in individual countries.
Within the Central Europe region (CE), the economic performance of Poland and Slovakia stood out (as in the previous year), though economic growth also slowed in those countries. While Poland’s economy grew 1.9 per cent in 2012, it probably settled at 1.6 per cent in 2013. During the same period, Slovakia posted a decline in growth, falling from 1.8 per cent to 0.9 per cent. After the Hungarian economy continued to contract in 2012, it returned to moderate growth in 2013 with an increase of 1.1 per cent. The Czech Republic proved to be less resilient; although economic conditions improved in the second half of 2013, the country’s economy was down 0.9 per cent and once again failed to reach positive growth for the full year. In Slovenia, economic output contracted for the second consecutive year, down 2.0 per cent in 2013 – following a decline of 2.3 per cent in the previous year.
Economic activity in the CIS weakened significantly over the course of 2013. In Russia, the growth rate decreased, down from 3.4 per cent in 2012 to around 1.3 per cent in the reporting period. This was triggered by stagnating industrial production and declining investment; whereas, consumer demand continued to support growth. The Ukrainian economy stagnated in the reporting period, for a second year in a row, due to a lack of positive stimuli from both exports and domestic demand.
For 2014, economic growth of 1.2 per cent is, once again, projected in CEE, with CE, and partly also SEE, contributing more to the development than CIS. Development in the eurozone is to remain highly relevant for the entire region in 2014.
The significant economic recovery expected in Central Europe (CE) is based on growth in Poland, Hungary, the Czech Republic, and Slovakia, putting the economy on a firm footing. Poland, in particular, is projected to achieve a higher growth rate of 3.1 per cent, with economists forecasting a return to a pattern of growth for the Czech economy. In Slovenia, however, there is also the perceived risk of the recession continuing in 2014. Southeastern Europe (SEE) is set to achieve growth of 1.7 per cent in 2014. Romania’s economic growth of 2.3 per cent is more than the regional average. In Russia, GDP growth of only 1.0 per cent is anticipated for 2014, following 1.3 per cent in 2013. Expectations for investment and industrial production in Russia remain subdued. Moreover, due to the recent developments in Ukraine, the outlook for the Ukrainian, as well as Russian economy is marked by significant downside risks.
Moderate economic revival in Austria In Austria, economic growth markedly slowed again during 2012, after a brief acceleration at the beginning of the year. Not until the second half of 2013, did economic recovery start gaining momentum again. As of the second quarter of 2012, key stimuli came from foreign trade, while domestic demand dampened GDP growth. However, in the course of 2013, active consumer spending and investment increased slightly, while the total contribution to GDP quarterly growth from foreign trade declined slighty. Economic momentum is expected to accelerate further in 2014. This is reflected in a real GDP growth forecast of 1.5 per cent for 2014, following an increase of 0.4 per cent in 2013 (2012: up 0.9 per cent).
The Swiss franc enjoyed a strong start to 2013, slightly above the intervention threshold of EUR/CHF 1.20 introduced by the Swiss National Bank in 2011. In the wake of increased economic optimism and a greater appetite for risk on the part of investors, the Swiss franc depreciated to above EUR/CHF 1.28 in the first quarter. In the following quarter, confidence was dampened by disappointing economic surveys in Europe, as well as problems in Cyprus and Italy. The resulting increase in risk aversion caused the Swiss franc to appreciate to EUR/CHF 1.25. As of mid-2013, the Swiss franc fluctuated within a narrow range of between EUR/CHF 1.22 and EUR/CHF 1.24. The currency movements were largely driven by interest rate spreads between the eurozone and Switzerland.
CEE currencies While CE and SEE currencies remained comparatively stable, CIS currencies fell more steeply against the euro in 2013. This trend was even more pronounced in other emerging markets (outside the CEE region), mainly due to concerns that massive liquidity injections by central banks would come to an end – potentially resulting in liquidity outflows from emerging markets. This primarily affected countries with previously higher liquidity inflows. However, in comparison with other emerging market currencies, the CEE region benefitted from a cutback in existing imbalances (including a sharp reduction in current account deficits).
Ongoing cuts to key interest rates had a relatively weak impact on currencies. For example, Hungary lowered its key interest rate significantly without causing marked weakening of the forint. One reason for this has been continued low risk aversion, which has kept investors invested in emerging market countries. Conversely, the Czech central bank launched an FX intervention to weaken the koruna versus the euro after the key interest rate was lowered to virtually zero (0.05 per cent).
CEE and SEE currencies are expected to develop steadily in 2014, in spite of possible weak phases due to a reduction in liquidity. As CIS currencies have already depreciated since the beginning of 2014, further downside risks are foreseen for the Russian rouble, the Ukraininan hryvnia and the Belarusian rouble. These developments might also weigh heavily on other currencies of the region, thus further influencing the outlook negatively.
Monthly credit growth rates in CEE reached around 10 per cent year-on-year in the second half of 2013, significantly exceeding the weak eurozone level (down 2.7 per cent year-on-year). This trend was principally driven by positive developments in CE, and contrasted with SEE, where signs of a sustainable return to higher credit growth rates have yet to be seen. This was mainly due to the three largest SEE markets – Croatia, Romania and Serbia – whose banking sectors have either stagnated, or else lost significant growth momentum. As in the past, strong correlation has been observed between CEE credit growth and asset growth. With the exception of only a few countries (e.g., Poland, Hungary, Serbia, and Albania), assets have grown more sharply than credit volumes. However, this has been largely attributable to market-specific factors such as a marked rise in demand for corporate bonds in Poland, and the increase in (short-term) holdings of government bonds in Hungary and Serbia.
Regional trend differences in terms of asset quality are also clearly reflected in the divergent profitability ratios of the regional banking sectors. Profitability indicators in the CE banking sector have remained at encouragingly positive levels, (with the exception of Hungary where the banking sector’s profitability was negative). Although profitability in the Russian banking market has decreased somewhat, it still ranked among the highest in CEE with a return on equity of 16 per cent (before tax) in 2013. In SEE, profitability was low in 2013 and attributable in part to diminishing asset quality, as well as to weak demand for credit in new business.
Performance and financials The consolidated financial statements of RBI are prepared in accordance with the International Financial Reporting Standards (IFRS) as applied in the EU. RBI AG also prepares separate financial statements in accordance with the Austrian Commercial Code (UGB) in conjunction with the Austrian Banking Act (BWG), which provides the formal basis of assessment for calculating dividend distributions and the tax assessment. For more information on the disclosures required by the UGB and BWG, please see the relevant sections of this Group management report, including the notes section.
The Management Board decided on 17 February 2014 to propose to the Annual General Meeting that a dividend of € 1.02 per share be paid for the 2013 financial year. As the new shares, following the capital increase performed at the beginning of 2014, have full dividend entitlement for the financial year 2013, this will result in a total dividend payout of up to € 299 million.
Compared to the previous year, net provisioning for impairment losses rose 14 per cent, or € 140 million, to € 1,149 million. Thereby, individual loan loss provisions increased € 33 million to € 1,215 million, while in the case of portfolio-based loan loss provisions there were net releases amounting to € 52 million.
Net income from derivatives and liabilities amounted to minus € 257 million compared to minus € 127 in the previous year. This decline was due in part to valuation losses from other derivatives and in part to profit resulting from the partial repurchase of hybrid bonds (€ 113 million) in the previous year. Net income from financial investments declined € 261 million to € 58 million year-on-year. This was mainly attributable to the prior-year net proceeds from the sale of bonds at Group head office, in the amount of € 245 million.
Statement of financial position Total assets declined 4 per cent, or € 5.5 billion, to € 130.6 billion year-on-year. A large part of this decrease (around € 3.4 billion) was attributable to currency effects, which largely consisted of the weakening of the US dollar, Russian rouble, Czech koruna, and the Ukrainian hryvnia against the euro.
On the asset side, loans and advances to customers (before deduction of loan loss provisions) fell 3 per cent, or € 2.7 billion, to € 80.6 billion. Besides the mentioned currency effects, the principal reason for the decrease was weak credit demand from corporate customers. Short-term receivables from repurchase agreements and securities lending also fell € 1.4 billion. In addition, trading assets declined € 2.2 billion. On the liabilities side, the fall was essentially due to debt securities issued – a reduction of € 1.8 billion to € 11.5 billion on the basis of net repayments – and a decrease, mainly in Group head office, of € 3.6 billion in trading liabilities.
Equity including non-controlling interests recorded a decline of € 509 million to € 10,364 million. Total comprehensive income amounted to € 137 million. Profit after tax of € 603 million contrasted with currency devaluations amounting to € 460 million. Furthermore, equity decreased as a result of dividend distributions totaling € 485 million for the 2012 financial year. Of this amount, € 228 million was attributable to shareholders of RBI, € 200 million to participation capital, as well as € 56 million to non-controlling interests. The acquisition of 25 per cent of the non-controlling interests in Raiffeisenbank Austria d.d., Zagreb reduced equity by € 161 million.
Regulatory own funds Tier 1 capital in accordance with Basel II recorded a decline of € 311 million to € 8,968 million, which primarily resulted from currency devaluations amounting to € 460 million. Regulatory own funds amounted to € 12,686 million at 31 December 2013.
The own funds requirement fell € 234 million to € 6,392 million. The decline was caused primarily by own funds requirements for credit risk (down € 224 million) and for operational risk (down € 38 million). Besides the currency devaluations, this was also due to the slight reduction in the corporate customer portfolio.
Please consult the “Events after the reporting date” chapter, for information on the capital increase carried out at the beginning of 2014.
In the reporting year, other net operating income fell € 41 million to € 53 million. This was due mainly to the new financial transaction tax introduced in Hungary, which made an impact of € 35 million. Net income from the allocation and release of other provisions declined due to releases of provisions for litigation in the previous year. A € 6 million default event also arose at F.J. Elsner Trading GmbH commodity trading. The release of an € 11 million provision for VAT liabilities in Poland, and a rise in income from operating leasing, also helped to increase net income.
RBI's general administrative expenses rose 3 per cent, or € 81 million, to € 3,340 million in the reporting period, due mainly to increases in Russia, the Czech Republic and Poland (resulting from the consolidation and integration of Polbank in May 2012). However, the cost/income ratio improved 3.2 percentage points to 58.3 per cent due to increased operating income.
The number of business outlets decreased by 81 to 3,025 compared to year-end 2012. The largest declines were posted in Poland (down 46), Ukraine (down 27) and Bulgaria (down 15).
During the reporting period, Group investment in fixed assets totaled € 451 million, 47 per cent (€ 209 million) of which was in own fixed assets. Investments in intangible assets, mainly related to software projects, amounted to 43 per cent. Investment in assets of the operating leasing business, accounted for the rest.
Net provisioning for impairment losses rose 14 per cent, or € 140 million, to € 1,149 million year-on-year. Individual loan loss provisions increased € 33 million to € 1,215 million, while net releases of portfolio-based loan loss provisions fell € 112 million. In 2013, net releases of portfolio-based loan loss provisions amounted to € 52 million, after € 164 million in the previous year. Net provisioning for impairment losses includes income from the sale of impaired loans amounting to € 14 million (2012: € 9 million).
Impairment needs in the Group Corporates segment, where various loans to major customers became non-performing, were € 145 million higher year-on-year. In Russia, net provisioning for impairment losses of € 48 million was made for both large corporate customers and retail customers, whereas net releases of € 16 million were booked the previous year. Similarly, in Slovenia, net provisioning for impairment losses increased € 31 million year-on-year, particularly due to non-performing loans and the revaluation of collateral. A positive trend was revealed in Hungary and Poland, where net provisioning for impairment losses was significantly lower year-on-year. Net provisioning for impairment losses declined € 89 million in Hungary, and decreased by € 41 million in Poland.
Net income from financial investments fell € 261 million to € 58 million year-on-year. This decline was due above all to the prior year € 163 million result from the sale of high-quality bonds from the available-for-sale securities portfolio at Group head office. Net income from securities at fair value through profit and loss fell € 129 million to € 26 million. The valuation of securities from the fair value portfolio led to gains of € 7 million, whereas gains of € 73 million were incurred the previous year. Significant valuation losses on bonds arose at Group head office, while valuation gains on government and municipal bonds were posted in Ukraine and Hungary. Net income from the sale of securities from the fair value portfolio amounted to € 19 million after € 82 million the previous year, and was earned primarily at Group head office. € 12 million of the net proceeds for the reporting year were generated in Romania through the sale of government bonds.
Net income from securities held-to-maturity amounted to € 3 million (2012: € 1 million) and was attributable primarily to gains from the sale of government bonds in Slovakia and at Group head office.
Compared to the third quarter of 2013, net interest income rose 1.3 per cent, or € 12 million, to € 953 million in the fourth quarter of 2013. Similarly, the net interest margin improved 6 basis points quarter-on-quarter to 3.21 per cent. This was in particular due to improved assets margins in both corporate and retail customer business.
Net trading income fell € 19 million to € 81 million quarter-on-quarter, mainly attributable to a decrease in currency-based transactions in Russia. Belarus also contributed to the decline in net trading income as a result of the application of IAS 29 (hyperinflation accounting). The opposite trend was reported in interest-based transactions, which increased primarily in Hungary, as a result of gains on derivative financial instruments. Net income from other transactions declined € 6 million due to the valuation of capital guarantees issued.
Other net operating income totaled € 5 million in the fourth quarter compared to minus € 3 million in the third quarter. Expenses for the newly introduced financial transaction tax in Hungary were down in the fourth quarter due to lower volumes.
The portfolio of non-performing loans to customers was up € 180 million to € 8,657 million in the fourth quarter, with currency effects in the amount of € 56 million leading to a decline. On a currency-adjusted basis, the increase came to € 236 million, and was largely attributable to the Group Corporates segment.
In the fourth quarter of 2013, a tax income of € 4 million arose versus tax expenses of € 80 million in the previous quarter. This change was mainly due to income booked from the RZB AG tax allocation in the amount of € 45 million, in the fourth quarter, as well as lower quarterly results from various Group units with higher tax rates (especially in the Czech Republic and Russia).
Interbank business remained stable in 2013 at € 22.1 billion. At the same time, money market business – primarily at Group head office – declined € 1.1 billion, as a result of the continued optimization of liquidity. Long-term receivables increased € 0.5 billion, primarily at Group head office, and receivables from repurchase and securities lending transactions also rose € 0.5 billion.
The item securities rose € 1.5 billion, predominantly as a result of bond purchases for liquidity purposes at Group head office. The € 4.2 billion decline in other assets was primarily attributable to the € 4.0 billion reduction in derivatives. This was due to close-out netting with contract partners.
Although RBI's refinancing volume via banks (chiefly commercial banks) remained stable at € 30.1 billion, refinancing revealed a shift from long-term to short-term deposits.
Equity on the statement of financial position RBI’s equity decreased € 509 million to € 10,364 million compared to year-end 2012.
Consolidated equity, consisting of subscribed capital, participation capital, capital reserves, and retained earnings decreased € 102 million to € 9,322 million. The retention of earnings from financial year 2012 was € 302 million. Other comprehensive income made a further contribution of minus € 450 million: Exchange-rate differences had a negative effect of € 440 million, additionally, net income from the valuation of assets available-for-sale amounted to minus € 35 million – mainly due to the sale and the subsequent reclassification of the results in the income statement. The related deferred taxes amounted to € 7 million. The impact from applying hyperinflation accounting generated a positive effect of € 27 million.
Capital of non-controlling interests decreased € 234 million to € 485 million, in 2013. This was principally attributable to the purchase of 25 per cent of the non-controlling interests in Raiffeisenbank Austria d.d., Zagreb. Furthermore, dividends of € 56 million were paid to minority shareholders in the reporting year.
Own funds pursuant to the Austrian Banking Act (BWG) RBI does not form an independent credit institution group (Kreditinstitutsgruppe), as defined by the BWG, and therefore is not subject to the regulatory provisions for banking groups, on a consolidated basis, as it is part of the RZB credit institution group. The following consolidated figures have been calculated in accordance with the provisions of the BWG and are assumed in calculations of the RZB credit institution group.
Credit risk is predominantly calculated according to the internal ratings-based approach (foundation IRB approach), in accordance with Section 22 BWG. This affects almost all non-retail business at RBI AG, as well as its subsidiaries in Croatia, the Czech Republic, Hungary, Malta, Romania, Russia, Slovakia, and the USA. A large portion of the risk from loans and advances to retail customers in the Czech Republic, Hungary, Romania and Slovakia is measured using the advanced IRB approach. Market risk is predominantly measured using the standardized approach. RBI AG carries out the calculation in part according to the internal model.
Consolidated own funds pursuant to BWG amounted to € 12,686 million as of 31 December 2013, which represents a decline of € 200 million for the reporting year.
Tier 1 capital fell 3.4 per cent, or € 311 million, to € 8,968 million, particularly due to the negative development of the Russian rouble, the Ukrainian hryvna, the Czech koruna and the Polish zloty. Another negative effect resulted from the purchase of 25 per cent of the non-controlling interests in Raiffeisenbank Austria d.d., Zagreb in July 2013. The profit for the financial year is included in the calculation. However, the projected dividends to be paid out for the financial year 2013 have been deducted.
Short-term subordinated capital increased € 55 million to € 357 million. The deduction items relating to participations, securitizations and insurance came to € 26 million (2012: € 36 million).
Own funds stood vis-a-vis a lower own funds requirement of € 6,392 million, which decreased € 234 million. The own funds requirement for the credit risk accounted for € 5,227 million (a decrease of 4 per cent or € 224 million year-on-year), of which € 2,278 million related to the standardized approach, and € 2,949 million to the IRB approach. The own funds requirement for the position risk in bonds, equities and commodities increased € 24 million to € 297 million. The own funds requirement for open currency positions, in contrast, remained virtually unchanged. The requirement for operational risk was € 808 million, a decline of 4 per cent, or € 38 million, year-on-year.
This led to a 4.0 percentage points higher excess cover ratio of 98.5 per cent, or € 6,294 million.
In the context of financial engineering, however, it does develop customized solutions for investment, financing or risk hedging. Financial engineering encompasses not only structured investment products, but also structured financing, i.e. financing concepts that go beyond the application of standard instruments and are used in acquisition or project financing. RBI also develops individual solutions to hedge a broad spectrum of risks, from interest rate risk and currency risk through to commodity price risk. Besides financial engineering, RBI is actively working on the further development of integrated product solutions for international financial transactions within cash management.
The Management Board and the Controlling department are responsible for ongoing internal monitoring. In addition, the department heads are responsible for monitoring their areas which includes performing regular controls and plausibility checks.
Group Audit regularly and independently verifies compliance with the internal rules within the RZB Group units. The head of Group Audit reports directly to the RZB AG and RBI AG Management Boards.
Capital, share, voting and control rights The following disclosures cover the provisions of Section 243a (1) of the Austrian Commercial Code (UGB): (1) The company’s capital stock amounted to € 596,290,628.20 and was divided into 195,505,124 voting common bearer shares as of reporting date 31 December 2013. Of those, 557,295 were own shares, which means that 194,947,829 shares were outstanding as of reporting date 31 December 2013. Please consult the notes on equity (34) for more information.
The controlling parent company is Raiffeisen-Landesbanken-Holding GmbH, holding around 82.4 per cent (2012: approximately 78.5 per cent) of the shares of RZB AG, directly and indirectly. The direct share amounts to around 3.9 per cent (2012: 0.0 per cent) and the indirect share is approximately 78.5 per cent (2012: around 78.5 per cent) held by the wholly owned subsidiary RLandesbanken -Beteiligung GmbH.
(6) Pursuant to the articles of association, a person who is 68 years or older may not be appointed as a member of the Management Board or be reappointed for another term in office. The rule for the Supervisory Board, is that a person who is 75 years or older may not be elected as a member of the Supervisory Board, or be re-elected for another term in office. Moreover, no person who already holds eight Supervisory Board mandates in a publicly traded company may become a member of the Supervisory Board. Holding a position as chairman of the Supervisory Board of a publicly traded company would count twice for this purpose. The Annual General Meeting may choose to waive this restriction through a simple majority of votes if permitted by law. Any candidate who has more mandates to, or chairman positions in, Supervisory Boards in publicly traded companies must disclose this to the Annual General Meeting. Beyond that, there are no regulations regarding the appointment or dismissal of members of the Management Board and the Supervisory Board beyond the provisions of the relevant laws. The articles of association stipulate that the resolutions of the Annual General Meeting are, notwithstanding any mandatory statutory provisions or articles of association to the contrary, adopted by a simple majority of the votes cast. Where the law requires a capital majority in addition to the voting majority, resolutions are adopted by a simple majority of the share capital represented in the votes. As a result of this provision, members of the Supervisory Board may be dismissed prematurely via a simple majority. The Supervisory Board is authorized to adopt amendments to the articles of association that only affect the respective wording. This right may be delegated to committees. Furthermore, there are no regulations regarding amendments to the company articles of association beyond the provisions of the relevant laws.
The Annual General Meeting of 20 June 2012 also authorized the Management Board, under the provisions of Section 65 (1) 7 of AktG, to acquire own shares for the purpose of securities trading, which may also be conducted off-market, during a period of 30 months from the date of the resolution, of up to a maximum of 5 per cent of the company’s respective capital stock. The consideration for each share to be acquired must not be less than half the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice this closing price. This authorization may be exercised in one or several installments by the company, by affiliated enterprises or, for their account, by third parties. This authorization replaces the authorization for the purpose of securities trading that was granted in the Annual General Meeting of 8 July 2010.
(9) There are no indemnification agreements between the company and its Management Board, Supervisory Board members or employees for the case of a public takeover bid.
Funding Banks essentially refinance themselves using their own funds, customer deposits, as well as various capital and interbank market tools. In the first half of 2013, banks profited from the moderate economic recovery in some markets and the refinancing situation improved. As a result of turbulence on emerging markets, such as Russia and Turkey, as well as the announcement of a more stringent US monetary policy, capital markets became more volatile by the second half of the year.
Diversified funding sources RBI focused on diversifying funding sources for the Group units again in 2013. More than 40 per cent of the wholesale funding of subsidiaries in Central and Eastern Europe came from external sources.
Long-term funding, from sources that are less susceptible to changes on the international capital markets, plays a key role for RBI. For this, RBI actively collaborates with supranational institutions that have been important and reliable partners for the Group for some time. This funding, amongst other purposes, is used to support SME and energy efficiency projects in Central and Eastern Europe. Group head office and the Group units in Central and Eastern Europe, however, do not only cooperate with these institutions for financing, but also for other areas such as risk-sharing programs that optimize risk-weighted assets.
Additional sources of funding for RBI include bond issuances by single Group units, such as an unsecured bond denominated in Romanian leu, issued by the Romanian Raiffeisen Bank in July 2013. Furthermore, Austria's Raiffeisen Banking Group is an important funding partner for RBI.
Due to its good liquidity situation, RBI AG issued a buy-back offer for an outstanding, government guaranteed bond, in July. It thus reduced its future interest costs through buy-backs amounting to € 500 million.
This function crosses the entire organizational structure, including all levels of management, and is also implemented in each of the subsidiaries by local risk management units. Risk management is structured to ensure the careful handling and professional management of credit risk and country risk, market risk and liquidity risk, investment risk, as well as operational risk, in order to ensure an appropriate risk-reward ratio. More detailed information on the structure of the risk organization and key figures can be found in the risk report.
Loan portfolio strategy The following graph, lists RBI's outstanding exposure by business area and region at the end of the reporting period. The portfolio remained very stable throughout 2013 and thus reflected the Group's business model. On the reporting date, the total credit exposure used to manage the portfolio was € 163,323 million. This amount includes exposures on and off the statement of financial position, prior to the application of credit conversion factors and thus represents the total credit exposure.
Corporate customers are a central element of the portfolio in all regions. At the end of 2013, outstanding exposure to corporate customers for the Group totaled € 78,518 million, down € 2,378 million year-on-year. This decrease is attributable to a credit portfolio reduction at some network banks, compensated in part by an increase in loans in the Austrian portfolio. As new loans are granted primarily to customers with very good ratings, due to stricter lending policies, credit quality in the new business is significantly higher than that of the existing portfolio.
In the retail business, particular focus was placed on the cautious expansion of the consumer loans and credit cards portfolio, on the basis of selective and differentiated lending criteria, as well as the use and wide-ranging coverage of application and behavioral scorecard models. By doing so, the retail business made use of proven Group practices and successfully continued the implementation of the refined lending policies. In the underwriting process, value was placed on further simplification and automation of decision rules.
Management of non-performing loans The management of non-performing loans continued to be one of the priorities of risk management in 2013. Above all, the targets and measures were aimed at improving the early recognition of potential problem cases, reporting on restructuring measures, as well as rapid and effective reduction of the non-performing loan portfolio. Continual measures to improve employee training in this area, as well as the ongoing exchange of experience among individual members of the credit institution group, were further key points. This prevented a more extensive increase in non-performing loans.
Continuing macroeconomic difficulties in RBI's home markets in 2013 were reflected in the rise in non-performing loans to € 8,657 million (up 6 per cent, or € 474 million, in comparison with year-end 2012). The non-bank loan portfolio, particularly in the Group Corporates segment and Slovenia, suffered from the default of some large corporate customers, which also led to an increase in planned risk costs during the second half of the year. In contrast, the non-performing loan portfolio in the retail business registered a slight fall of 4 per cent, or € 131 million, to € 2,922 million.
The allocation of corresponding loan loss provisions was, however, partly offset by high returns from reorganization measures. In doing so, adequate coverage was ensured through provisions.
Liquidity risk RBI's liquidity position is subject to regular monitoring and is included in the RZB Group's weekly report to the Austrian banking supervisory authority. It continued to remain stable and revealed a comfortable liquidity buffer during the 2013 financial year.
To manage its liquidity risk, RBI uses a long-established and proven limit model which requires high excess liquidity for short-term maturities and is based on contractual and historically observed capital inflows and outflows. Limits have also been established for medium and long-term maturities, to lessen the negative impact of a possible refinancing cost increase on the operating result. In addition to the limit models, regular liquidity stress tests are also undertaken to evaluate and limit the effects of potential reputation and market crisis scenarios.
Liquidity management incorporates findings from past years into the cash flow modeling in order to adjust the resulting forecasts for capital commitment and refinancing needs. On the one hand, this should increase transparency with respect to actual costs and risks. On the other hand, it should also provide the right management impetus.
To ensure model quality, daily back testing is performed. The results of these tests were always within the limits of the model's expectations. Based on these good results, the internal model is to be allocated to the best class ("green light") from a regulatory perspective.
Changes in the regulatory environment RBI concerned itself intensively with the current and the upcoming regulatory developments in 2013. One of the most important subjects was the preparation for the amended legal regulations, which came into effect with the EU directives on Basel III (CRD IV/CRR) at the beginning of 2014, and corresponding analysis of their impact.
The focus, during the second half of 2013, was on preparing for the changes pertaining to the single supervisory mechanism, especially the related statement of financial position reviews ("comprehensive assessment") by the ECB, which will also lead to an asset quality review and a pan-European stress test during the first half of 2014. As part of the RZB Group, the regulatory reviews will also focus on RBI during these processes. An internal project was implemented to ensure optimum preparation for the reviews to be conducted by the ECB and to guarantee good data quality.
In addition to preparations surrounding the new Basel III regulations, risk management continued to focus on ongoing implementation of the advanced Basel II approach in 2013. The Basel II related activities included the implementation of the internal ratings-based (IRB) approach in the retail and non-retail segments of the Central and Eastern European subsidiaries, further development of the internal market risk model as well as Group-wide further development of the standard approach for operational risk.
Some network banks placed special attention on improving the (internal and external) quality of customer service. Corresponding surveys were conducted to identify critical areas and thus facilitate improvement measures. Numerous measures were also implemented in the area of management and employee development, such as the “Meet your customer” program, organized by Raiffeisen Bank Kosovo, in which managers based at head office swapped roles with branch managers for a certain period.
The integration process for Raiffeisen Polbank, which followed the merger between Raiffeisen Bank Polska and Polbank, included the launch of an “Employee Value Proposition” project designed to position the newly created bank as an attractive employer.
Following growth rates in the vicinity of 4 per cent during the period of 2010 to 2012, the CIS region posted an increase of just 1.2 per cent in 2013, with only limited upside potential expected for 2014 as well. On the one hand, further growth is impaired by slower investment and export momentum. On the other hand, developments in Ukraine pose a significant downside risk to the Ukrainian as well as the Russian economy. High political and economic uncertainty will force Ukraine, supervised by the IMF, to carry out severe structural reforms in 2014, in order to adjust current economic imbalances. Russian economic growth is expected to remain weak at 1 per cent, while the economic performance in Ukraine is expected to decrease 3 to 7 per cent. The Russian state budget should continue to only show a slight deficit. However, this masks the structural weakness that its non-oil deficit would be very high, at roughly 8 to 10 per cent of GDP. Belarus will continue to depend on financial support.
The eurozone should see a continuing acceleration of economic growth in the course of 2014. The robust economic momentum of important trading partners (USA, UK), and the improved competitiveness of many crisis-affected countries, bodes well for a sustained recovery of the export sector. At the same time, the dampening effect from the consolidation of state finances should diminish further. In Germany, in particular in the domestic economy, potential growth is seen thanks to favorable financing conditions, as well as to pent-up consumer and investment demand. In the Netherlands, Ireland and Finland, consumption and investment growth in 2014 should likewise contribute to new growth, following hefty setbacks. In contrast, France is becoming more of a problem child, with growth forecasts below the eurozone average as a result of weak domestic and export demand. Southern Europe also continues to be exposed to heightened economic and political risks. In addition, the private sector in Italy, Spain, Portugal, and Greece, is held back by continued restrictive lending. Hence, economic recovery in these countries should be driven, in particular, by a rebound in foreign trade. However, differing trends can also be observed in Southern Europe. For example, Spain and Portugal are experiencing a much more dynamic recovery compared to Italy. Greece will not move out of recession until sometime later in 2014. Regarding inflation, low wage increases and weak consumer demand in the eurozone suggests that pressure on prices will continue to be subdued.
Over the course of 2013, consumption and investments showed initial signs of a halting recovery. This should increasingly continue in 2014. Private consumption should again profit from increasing employment momentum in the course of 2014. Investments should gain tailwind from the growing exports. In addition, the favorable financing environment is conducive to investment activities. However, as rising exports are also up against increasing imports, foreign trade contribution to GDP quarterly growth is expected to remain on the same level overall. On the other hand, contributions to growth from domestic demand are anticipated to rise significantly, thus becoming the driving force behind the continued economic recovery. Overall, due to increasing economic momentum, real GDP growth of 1.5 per cent is anticipated for 2014 after just 0.4 per cent in 2013. The highpoint of economic development should fall within the winter period of 2014/2015.
Following acceptance of Herbert Stepic's offer of resignation, Karl Sevelda took over his area of responsibility. Karl Sevelda also assumed responsibility for Participations and International Banking Units from Management Board member Peter Lennkh, who is now in charge of corporate customer business.
Whereas RZB, through its subsidiary Raiffeisen International Beteiligungs GmbH, waived all of its subscription rights, the remaining shareholders exercised 35.7 per cent of their subscription rights. Consequently, 90,074,789 new shares were allocated to the qualified institutional investors from the pre-placement. This corresponds to 92.4 per cent of the total 97,473,914 shares issued by way of the capital increase, with existing shareholders receiving the remaining 7,399,125 new shares.
At the time of completion of RBI’s annual financial statements on March 11, 2014, the performance of all currencies of relevance to RBI resulted in a reduction in common equity tier 1 (CET1) of around 25 basis points.
Central Europe 71 Southeastern Europe 78 Russia 87 CIS Other 90 Group Corporates 94 Group Markets 96 Corporate Center 98
The details on the division of the segments are explained in the segment reports section of the consolidated financial statements.
In Central Europe, profit before tax increased from € 53 million to € 65 million due to a higher operating result. Reductions in net provisioning for impairment losses, predominantly in Hungary and Poland, were fully offset by the newly introduced financial transaction tax in Hungary, as well as by higher bank levies and lower net income from financial investments.
Profit before tax in the Southeastern Europe segment declined 8 per cent to € 277 million year-on-year. This was due to higher net provisioning for impairment losses, especially in Bulgaria, Albania, Serbia and Croatia.
Russia made by far the largest regional contribution to earnings with profit before tax of € 615 million (up 3 per cent). While the operating result rose 8 per cent year-on-year and net income from financial investments substantially increased – following the sale of equity participations – net provisioning for impairment losses also increased.
In the CIS Other segment, profit before tax doubled to € 217 million, primarily due to a significant increase in operating income in Belarus and a substantial rise in net income from financial investments in Ukraine.
Despite higher operating income, profit before tax in the Group Corporates segment decreased from € 319 million to € 174 million mainly due to higher provisioning for impairment losses on loans to large corporate customers.
In the Group Markets segment, profit before tax fell 52 per cent to € 125 million year-on-year. This was attributable to a decline in net income from financial investments, which was influenced in the previous year by a one-off effect relating to sales of securities.
The Corporate Center segment reported a net loss before tax of € 130 million compared to a loss of € 399 million in the previous year. A significant improvement in net interest and dividend income, as well as lower depreciation of equity participations served to offset higher valuation losses on derivatives.
Central Europe In Central Europe, profit before tax rose 23 per cent to € 65 million in 2013. While a significantly lower net provisioning for impairment losses positively affected the results for the region, there was a negative effect from the lower net income from financial investments and higher bank levies. Return on equity before tax rose 0.3 percentage points to 2.0 per cent.
Net fee and commission income in the segment increased, by an overall, 10 per cent, or € 50 million, to € 546 million. Income from payment transfer business increased 19 per cent to € 240 million, largely driven by higher fees charged to customers in connection with the financial transaction tax recently introduced in Hungary. Income from securities business also rose 35 per cent to € 44 million due to an increase in Hungary. Similarly, income from foreign currency, notes/coins and precious metals business increased € 5 million to € 154 million, primarily as a result of the development in the Czech Republic and Poland.
Other net operating income for the region fell € 21 million to € 14 million year-on-year. In particular, the newly introduced financial transaction tax in Hungary, most of which, however, could be passed on to customers as shown in net fee and commission income, had a negative effect on net income. The release of a provision for VAT liabilities in Poland provided a positive contribution to other net operating income.
The Central Europe segment revealed a favorable trend in provisioning for impairment losses, in 2013. Overall net provisioning for impairment losses fell € 114 million to € 403 million. Net allocations to individual loan loss provisions fell € 152 million to € 429 million, while net releases of portfolio-based loan loss provisions decreased € 45 million to € 16 million. Hungary, Poland and the Czech Republic reported decreases, whereas higher net provisioning for impairment losses was needed in Slovenia and Slovakia. In Hungary, provisioning for impairment losses dropped to € 152 million (2012: € 241 million) following additional loan loss provisions, in the previous year, due to the legally defined right to early repayment of foreign currency loans at an exchange rate below the market rate. Net provisioning for impairment losses fell € 41 million in Poland, where sales of large NPL portfolios had a positive effect. The Czech Republic reported a € 23 million decrease in net provisioning for impairment losses, following the prior year rise as a result of higher mortgage loans allocations. Net provisioning for impairment losses almost doubled in Slovenia due to an increase in volumes of non-performing loans to corporate customers. Higher net provisioning for impairment losses was required in Slovakia for both corporate and retail customers.
Other results of the Central Europe segment decreased from plus € 25 million to minus € 90 million year-on-year. This was mainly attributable to bank levies in Slovakia and Hungary, as well as the newly introduced financial transaction tax in Hungary. This led to a negative € 93 million impact on income – an increase of € 40 million compared to last year – as well as to a significantly reduced net income from financial investments and negative net income from derivatives.
Net provisioning for impairment losses (52) (75) (31.0)% (26) (7) 291.6%
hereof foreign currency % 11.7% 7.1% 4.6 PP 11.7% 9.4% 2.3 PP
Employees as of reporting date 2,773 3,066 (9.6)% 2,773 2,832 (2.1)%
Net fee and commission income 118 77 53.4% 34 30 13.3%
Loans and advances to customers 4,990 5,231 (4.6)% 4,990 5,161 (3.3)%
Loans and advances to customers 9,744 10,451 (6.8)% 9,744 9,832 (0.9)%
hereof foreign currency % 55.4% 54.0% 1.4 PP 55.4% 55.6% (0.2) PP
Net fee and commission income 135 132 1.9% 34 34 0.8%
Loans and advances to customers 6,879 6,645 3.5% 6,879 6,911 (0.5)%
Return on equity before tax 14.1% 14.2% (0.1) PP 11.9% 17.0% (5.1) PP
Return on equity after tax 10.8% 11.2% (0.4) PP 8.4% 13.3% (5.0) PP
Net fee and commission income 8 8 (1.5)% 2 2 5.3%
Net provisioning for impairment losses (65) (34) 92.9% (31) (19) 66.5%
Loans and advances to customers 1,051 1,225 (14.3)% 1,051 1,097 (4.2)%
hereof foreign currency % 4.2% 4.9% (0.7) PP 4.2% 4.3% 0.0 PP
Return on equity before tax – – – – – –
Employees as of reporting date 245 310 (21.0)% 245 253 (3.2)%
Net provisioning for impairment losses (326) (287) 13.4% (107) (70) 51.6%
The segment’s net interest income fell 1 per cent to € 862 million year-on-year. This was largely attributable to declines in Romania and Bulgaria. Lower market interest rates and falling interest income from securities were responsible for the fall in Romania. In Bulgaria, lower lending volumes in the retail and corporate business, and clearly lower market interest rates, led to a drop in net interest income. In contrast, net interest income in Serbia increased due to reduced interest expenses for customer deposits. The segment’s net interest margin rose 16 basis points to 4.37 per cent. Total assets, however, decreased 1 per cent year-on-year to € 21.2 billion, while credit risk-weighted assets also declined 5 per cent to € 12.5 billion.
In the reporting year, the deconsolidation of a subsidiary in Southeastern Europe led to a loss of € 2 million.
Income taxes for the region declined 19 per cent to € 29 million year-on-year, largely as a result of a one-off effect, due to the release of a deferred tax liability in the amount of € 12 million in Romania. In contrast, a higher income tax rate resulted in a rise in tax expense in Albania. The tax rate in the Southeastern Europe segment fell 1 percentage point to 11 per cent.
Detailed results of individual countries: Albania in € million 2013 2012 Change Q4/2013 Q3/2013 Change
Net fee and commission income 9 8 11.6% 1 3 (52.0)%
Employees as of reporting date 1,371 1,388 (1.2)% 1,371 1,389 (1.3)%
Return on equity after tax 10.9% 8.1% 2.7 PP 0.7% 16.2% (15.6) PP
Employees as of reporting date 1,491 1,561 (4.5)% 1,491 1,504 (0.9)%
Net fee and commission income 38 37 1.2% 10 10 (0.5)%
Net provisioning for impairment losses (91) (76) 20.4% (37) (22) 71.3%
Loans and advances to customers 2,526 2,883 (12.4)% 2,526 2,629 (3.9)%
Return on equity before tax – 2.2% – – – –
hereof foreign currency % 68.8% 61.2% 7.6 PP 68.8% 67.0% 1.8 PP
Return on equity before tax 7.9% 7.7% 0.2 PP 10.9% 13.1% (2.2) PP
Return on equity after tax 6.3% 6.2% 0.1 PP 8.7% 10.5% (1.7) PP
Employees as of reporting date 2,036 2,066 (1.5)% 2,036 2,040 (0.2)%
Net fee and commission income 8 8 1.9% 2 2 (8.0)%
Net provisioning for impairment losses (4) (5) (6.5)% (1) (1) (1.2)%
Loans and advances to customers 458 428 6.9% 458 454 0.9%
Return on equity after tax 17.6% 14.9% 2.7 PP 13.9% 19.1% (5.1) PP
Net fee and commission income 168 143 18.0% 51 42 20.4%
Employees as of reporting date 5,308 5,486 (3.2)% 5,308 5,383 (1.4)%
hereof foreign currency % 69.8% 66.6% 3.2 PP 69.8% 67.0% 2.8 PP
Return on equity before tax 11.9% 10.8% 1.1 PP 7.5% 10.6% (3.1) PP
Return on equity after tax 10.2% 10.0% 0.2 PP 6.2% 9.0% (2.8) PP
Employees as of reporting date 1,602 1,769 (9.4)% 1,602 1,666 (3.8)%
Russia In Russia, profit before tax was up 3 per cent to € 615 million year-on-year, due to an increased operating result. Net income from financial investments based on the sale of participations partly offset the rise in net provisioning for impairment losses. Return on equity before tax fell 0.5 percentage points to 38.7 per cent.
Net provisioning for impairment losses (48) 16 – (29) (27) 7.8%
Net trading income amounted to € 156 million (up € 86 million), which was well above the comparable prior year figure. Net income from currency-based transactions markedly increased € 90 million to € 147 million as a result of higher gains from foreign currency derivatives carried out for hedging purposes. By contrast, net income from interest-based transactions was down € 4 million to € 9 million as a result of valuation losses. The main reason for the rise in currency-based transactions was a reclassification of the interest portion of foreign currency derivatives from net interest income to net trading income.
The segment’s other net operating income improved € 5 million to break-even. In the previous year, the disposal of assets led to a negative result.
In the reporting year, net provisioning for impairment losses in Russia totaled € 48 million, which compared to a net release of € 16 million in the previous year. The increase was, first and foremostly, due to higher net allocations to individual loan loss provisions for major customers and non-performing loans to retail customers. A net release of € 13 million was posted in portfoliobased loan loss provisions; however, it was € 3 million below the comparable figure in the previous year. The decline was mainly due to the introduction of a new rating model for major customers. The share of non-performing loans in the credit portfolio fell 0.2 percentage points to 4.8 per cent year-on-year. The NPL coverage ratio fell to 77.8 per cent (2012: 100.0 per cent) as a result of sales and the writing off of impaired loans and releases of portfolio-based loan loss provisions.
Other results in the Russia segment improved from minus € 5 million in the previous year to plus € 29 million in the reporting year. Net income from derivative financial instruments increased € 13 million to € 4 million, as a result of the improved valuation of interest rate swaps carried out to mitigate interest rate structure risk. Net income from financial investments increased € 20 million to € 25 million. It included net proceeds of € 24 million from the sale of VISA shares. The valuation results and net proceeds from the sale of securities in the fair value portfolio fell € 4 million year-on-year.
Return on equity before tax 31.7% 31.9% (0.2) PP 22.4% 32.3% (9.9) PP
CIS Other In the CIS Other segment profit before tax doubled year-on-year to € 217 million mainly due to the significant increase in operating income in Belarus, as well as higher income from financial investments in Ukraine. The segment’s return on equity before tax increased 12.4 percentage points to 26.1 per cent.
Return on equity before tax 26.1% 13.7% 12.4 PP 32.7% 25.5% 7.2 PP
The segment’s net interest income increased 1 per cent, or € 5 million, to € 422 million. This was mainly attributable to the development in Belarus, where higher lending volumes and margins led to a 36 per cent increase in net interest income to € 88 million. In Ukraine, in contrast, net interest income fell 5 per cent to € 332 million due to lower lending volumes and declining interest income from securities. The segment’s net interest margin improved 48 basis points to 7.60 per cent. The segment’s total assets decreased 8 per cent year-on-year to € 5.8 billion. Credit risk-weighted assets declined 2 per cent to € 5.0 billion due to the discontinuation of largely impaired loans.
The segment’s net fee and commission income increased 1 per cent year-on-year to € 210 million, with net income from the payment transfer business, which increased 3 per cent to € 158 million, still representing the largest contribution. The increase was achieved mainly as a result of a higher number of transactions in Belarus. Net income from the foreign currency, notes/coins and precious-metals business developed conversely, declining 10 per cent to € 37 million, predominantly due to lower transaction volumes in Ukraine. The sale of own and third party products generated net income growth of € 2 million, mainly in Ukraine, while net income from other banking services declined to the same extent.
Net trading income improved year-on-year from minus € 19 million to plus € 12 million. Net income from currency-based transactions benefited from significantly lower valuation losses on a strategic currency position in Belarus, held to hedge equity, and from positive effects from foreign currency positions in Ukraine. Additionally, valuation gains from bonds in Ukraine led to an increase of € 2 million in net income from interest-based transactions. As in the previous year, the application of hyperinflation accounting in Belarus had an almost unchanged strain of € 22 million on net trading income.
The region’s net provisioning for impairment losses rose 21 per cent, or € 19 million, to € 108 million year-on-year, with net allocations to individual loan loss provisions increasing € 10 million to € 120 million. Portfolio-based loan loss provisions reported a net release at € 11 million, albeit € 9 million lower than in the previous year. At € 121 million, the overall impairment requirement in Ukraine was € 14 million higher than in 2012. This was mainly due to the lower valuation of retail customers’ collateral. In Belarus, in contrast, net releases declined to € 13 million (2012: € 18 million). This was mainly due to portfolio-based loan loss provisions, due to lower default rates.
Other results improved year-on-year from minus € 21 million to plus € 44 million. This was mainly due to net income from financial investments. A narrowing of the yield spreads of the portfolio of fixed-income Ukrainian government bonds carried at market values led to valuation gains of € 23 million after valuation losses of € 21 million in the previous year. In addition, the sale of VISA and MasterCard shares in Ukraine resulted in a profit of € 20 million in the reporting period.
The segment’s income taxes remained, despite a doubling of net income, unchanged at € 47 million, and the tax rate was halved to 22 per cent. This was essentially due to lower statutory income tax rates in Ukraine and Belarus, as well as a lower tax rate on income from securities in Ukraine.
Below please find the detailed results of the individual countries in the segment: Belarus in € million 2013 2012 Change Q4/2013 Q3/2013 Change
Net provisioning for impairment losses (121) (107) 13.5% (27) (36) (26.7)%
hereof foreign currency % 46.9% 51.6% (4.7) PP 46.9% 48.0% (1.1) PP
Employees as of reporting date 13,053 13,849 (5.7)% 13,053 13,324 (2.0)%
The segment’s net interest income increased 18 per cent year-on-year to € 478 million. A further increase in asset margins, as well as in the lending volume in the Corporate Customers profit center of Group head office (Austrian and multinational corporate clients serviced from Vienna) contributed to an improvement of 16 per cent in net interest income to € 193 million. In the Network Corporate Customers & Support profit center (predominantly international corporate customers with a CEE relationship) net interest income also increased 5 per cent to € 80 million. In Asia higher interest income from loans and advances to customers led to an increase in net interest income. The segment’s net interest margin rose 40 basis points to 2.34 per cent. The segment’s total assets increased 10 per cent year-on-year to € 20.8 billion due to an increased volume of lending to Western European corporate customers. The acquisition of a loan portfolio from Österreichische Volksbanken-AG accounted for around € 0.7 billion of this. Credit risk-weighted assets, in contrast, decreased 2 per cent to € 12.9 billion due to rating changes.
Net fee and commission income declined € 3 million year-on-year to € 159 million. While net fee and commission income declined in business outlets in Asia, Group head office reported an increase based on higher net fee and commission income from bond issues by Austrian, and by Western and Eastern European corporate customers, as well as on the lending and projectfinancing business.
Net provisioning for impairment losses increased € 145 million year-on-year to € 258 million. This increase was primarily the result of high individual loan loss provisioning. Individual loans to large corporate customers in Group head office, and in Asia, led to higher risk costs. The share of non-performing loans in the segment’s loan portfolio rose 1.9 percentage points to 6.7 per cent.
Return on equity before tax 18.9% 24.6% (5.7) PP 10.6% 20.8% (10.2) PP
Other net operating income, consisting of diverse smaller expenses and income items, improved 59 per cent to € 22 million.
Net provisioning for impairment losses was € 2 million lower than in the previous year at € 15 million and related above all to the Financial Institutions & Sovereigns profit center at Group head office. Non-performing loans accounted for 1.7 per cent of the segment’s total credit exposure.
The segment’s other results fell from € 176 million to € 18 million year-on-year. The main reason for the decline was a one-off effect in net income from financial investments. In the previous year, the high-quality securities portfolio at Group head office was sold and further securities portfolios were reduced. Net income from derivatives, on the other hand, improved due to valuation results at Group head office.
The segment’s income taxes declined from € 68 million to € 23 million as a result of the aforementioned sale of securities in the previous year, while the tax rate dropped 8 percentage points to 19 per cent.
Net interest margin (average interestbearing assets) – – – – – –
Other net operating income declined € 7 million to € 139 million. This was mainly the result of a bad debt loss from the commodity trading activities of F. J. Elsner Trading GmbH.
Net provisioning for impairment losses generally plays a minor role in this segment due to the intra-Group nature of its business activities. Special Customers business recorded a net release of € 6 million in the reporting year.
Other results improved € 60 million to minus € 580 million year-on-year. Although net income from financial investments contained therein remained strongly negative, at minus € 213 million, it improved year-on-year due to lower impairments on intra-Group participations. Valuation result on securities held-to-maturity declined € 32 million to minus € 106 million.
The Austrian bank levy had a negative impact of € 103 million on net income, unchanged from the previous year. This was due to the fact that RBI AG’s 2010 total assets had to be used for the calculation.
Tax income of € 108 million (2012: € 132 million) was recorded in the reporting year. This was, on the one hand, the result of the € 45 million in tax allocation received by RZB AG, and, on the other, the result of the deferred tax on valuation result related to liabilities measured at fair value.
1 Adaption of previous year figures due to the retrospective application of IAS 19R.
Items which are not reclassified to profit and loss 2,862 (4,310) 2,862 (4,310) 0 0
Net gains (losses) on derivatives hedging fluctuating cash flows (16,364) (1,245) (16,364) (1,245) 0 0 hereof unrealized net gains (losses) of the period (16,364) (1,245) (16,364) (1,245) 0 0 hereof net gains (losses) reclassified to income statement 0 0 0 0 0 0
Changes in equity of companies valued at equity 224 5 224 5 0 0
In 2013, exchange differences derived especially from changes of Russian rouble, Czech koruna and Ukrainian hryvnia to Euro.
The following components of retained earnings developed as follows: ments reserves Exchange differences Capital hedge
Unrealized net gains (losses) of the period (5,747) 150,303 225 29,827 (1,245) 15,670 (1,705)
Unrealized net gains (losses) of the period 3,820 (439,938) 4,656 27,338 (16,364) 6,429 118
Loans and advances to customers [16, 35, 53] 80,634,618 83,343,269 (3.2)%
Impairment losses on loans and advances [17, 35] (5,605,475) (5,641,897) (0.6)%
Effects of the retrospective application of IAS 19R 0 0 0 (513) 513 0 0
Own shares/share incentive program 1,179 0 3,247 0 0 0 4,426
Changes in assets and liabilities arising from operating activities after corrections for non-cash positions: Loans and advances to banks and customers (422,067) 6,756,715
Payments for purchase of: Tangible and intangible fixed assets (450,457) (531,140)
As a rule, internal management reporting at RBI is based on the current organizational structure. This matrix structure means that each member of the Management Board is responsible both for individual countries and for specific business activities (country and functional responsibility model). A cash generating unit within the Group is either a country or a business activity. Accordingly, the RBI management bodies – Management Board and Supervisory Board – make key decisions that determine the resources allocated to any given segment based on its financial strength and profitability, which is why these reporting criteria are an essential component in the decision-making process. Thus, the division into segments was also undertaken in accordance with IFRS 8. The reconciliation contains mainly the amounts resulting from the elimination of intra-group results and consolidation between the segments.
Markets in Central and Eastern Europe are thereby grouped together into regional segments in which countries with comparable economic profiles and similar long-term economic growth expectations are bundled into the same segment. Business activities outside the CEE region are divided according to business area.
This segment encompasses the most advanced banking markets in the EU-countries in Central and Eastern Europe, namely the Czech Republic, Hungary, Poland, Slovakia and Slovenia. They are also the markets in which RBI has been operating the longest. In each of the countries, RBI is represented by a bank, leasing companies and other specialized financial institutions. In Poland, in addition to the main activity of the credit business with corporate customers and small and medium-sized enterprises (also via leasing and factoring), the focus is also on retail banking and on affluent customers. In Slovakia, RBI is likewise active in its business divisions of Corporate and Retail Customers, including leasing, and in retail business with a multibrand strategy. In Slovenia, the Group provides universal banking services and also leasing, with Group units concentrating in particular on local corporate customers; a reduction of business volume is in progress. In the Czech Republic, RBI offers real estate leasing in addition to traditional banking services with corporate and retail customers. The focus is based on the extension of relations to first-class regular customers. In Hungary, the Group provides services to private and corporate customers via the Bank's tightly knit network and also through leasing companies. In addition, RBI is represented in Slovakia and the Czech Republic with its direct bank ZUNO.
Raiffeisenbank is one of the leading foreign banks in Russia and services both corporate and retail customers. The national branch network also offers products tailored for upper class private individuals and small and medium-sized entities. RBI takes a strong position in the underwriting business. The product range in Russia is rounded off by leasing business. In view of the size of the banking market and its high natural and industrial potential, the Russia segment is of key significance for RBI.
The performance of the CGUs is evaluated as follows:  Profitability
The profitability is measured by the return on equity (ROE) and return on risk-adjusted capital (RORAC) based on the internal management systems. The return on equity shows the profitability of a CGU and is calculated as the proportion between profit /loss after deduction of non-controlling interests and the average consolidated capital employed. The return on equity reflects the yield of the capital of each segment. The calculation of the RORAC indicates the risk adjusted capital, which reflects the demand of own funds and which has to be brought forward in case of unexpected losses by the bank. In RBI this capital requirement is calculated within the economic capital model for credit, market and operational risk. That ratio shows the interest of the risk-adjusted equity (economic capital), which is no indicator according to IFRS. Within the different countries and business lines the real earned RORAC will be compared with the predetermined minimal value for the RORAC (Hurdle), which reflects the market adequate yield expectations.
The cost/income ratio represents the cost efficiency of the segment. The cost/income ratio shows the proportion of the administrative expenses and the operating income, meaning the sum of net interest income, net fee and commission income, net trading income and the other net operating income (less bank levies and impairment of goodwill).
In accordance with Basel II framework, specific determining factors have to be considered. The proportion of core tier 1 capital to risk-weighted assets (core tier 1 ratio) is an important indicator if the capital underlying for the business volume is adequate. The industry sector specifics are tending to different risk weights within the calculation of risk-weighted assets according to the Austrian Banking Act (based on Basel II). These factors are crucial for the calculation of the regulatory minimum own funds requirements. Moreover the efficient use of the available capital is calculated internally, whereby the actual usage is brought in proportion to the theoretical available risk coverage capital. The long-term liquidity ratios are additionally restrictive and they are defined in accordance with the regulatory guidelines. The performance is also measured with the risk/revenue ratio.
The presentation of segment performance is based on the income statement and geared to the reporting structure internally used. Income and expenses are attributed to the country and/or business division in which they are generated. Operating income positions are the net interest income, net fee and commission income, net trading income and the other net operating income. The other results include the net income from financial investments, the net income from derivatives (hedging) and liabilities, the net income from disposal of group assets, the bank levies and impairment of goodwill. The segment result is shown till the profit/loss after deduction of non-controlling interests. The segment assets are represented by the total assets and the risk-weighted assets. The item liabilities includes all positions of the liabilities side except the equity. The reconciliation implies mainly the amounts resulting from the elimination of intra-group results and consolidation between the segments. Finally, financial ratios – usual in the line of business – are added to evaluate the results. The values shown in the segment reporting are retrieved from the IFRS individual financial statements which are also used for the compilation of the consolidated financial statements. In some units profit center results are taken from the internal management income statement.
Profit/Loss after deduction of non-controlling interests (21,065) 247,536 467,118 157,974 137,912
Net interest margin (average interest-bearing assets) 2.92% 4.37% 4.80% 7.60% 2.34%
Business outlets 853 1,129 186 926 8 1 Excl. impairment of goodwill and bank levies. 2 Adaptation of previous year's values due to retrospective application of IAS 19R. 3 Incl. impairment of goodwill and bank levies.
Provisioning ratio (average loans and advances to customers) 0.38% 0.01% – 1.21%
Raiffeisen Bank International AG (RBI AG) is registered at the Vienna Commercial Court (Handelsgericht Wien) under Companies Register number FN 122.119m. The company is domiciled at Am Stadtpark 9, 1030 Vienna. The consolidated financial statements are lodged in the Companies Register in accordance with Austrian disclosure regulations and published in the official register of the Wiener Zeitung. Raiffeisen-Landesbanken-Holding GmbH indirectly holds the majority stake in Raiffeisen Bank International AG and therefore RBI is included in the consolidated financial statements of Raiffeisen-Landesbanken-Holding GmbH. Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna, is the superordinated credit institution and RBI forms part of this credit institution group.
Raiffeisen Bank International (RBI) is a universal bank focusing on corporate and retail customers in Central and Eastern Europe (CEE) and exclusively on corporate customers in Austria. In CEE, RBI consists of a closely-knit network of banks, leasing companies and numerous specialized financial service providers with 3,025 business outlets. In Austria, RBI concentrates on the top 1,000 corporate customers and is one of Austria's most prominent corporate finance and export and trade finance banks. Cash and asset management, treasury operations and investment banking are further fields of activity. RBI's focus as a highly specialized financial engineer is on serving Austrian and foreign key accounts, multinationals and providers of financial services. RBI has branches, subsidiaries and representative offices in the world's major financial centers and in Asia, which have selective business with corporate customers and financial institutions.
The consolidated financial statements were signed by the Management Board on March 11, 2014 and subsequently submitted to the Supervisory Board for review and notice.
The consolidated financial statements for the 2013 financial year and the comparative figures for the 2012 financial year were prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) insofar as they were adopted by the EU on the basis of IAS Regulation (EC) 1606/2002. The interpretations of the International Financial Reporting Interpretations Committee (IFRIC/SIC) that were already applicable have been considered. All standards published by the IASB as International Accounting Standards to be applied to financial statements for 2013 and adopted by the EU have been applied. The consolidated financial statements also satisfy the requirements of Section 245a of the Austrian Commercial Code (UGB) and Section 59a of the Austrian Banking Act (BWG) regarding exempting consolidated financial statements that comply with internationally accepted accounting principles. IAS 20, IAS 31, IAS 41 and IFRS 6 have not been applied as there were no relevant business transactions in the Group.
The consolidated financial statements are based on the reporting packages of all fully consolidated Group members, which are prepared according to IFRS rules and uniform Group standards. With the exception of three subsidiaries – which have a reporting date on June 30 and which are therefore accounted for on the basis of interim financial statements – all fully consolidated companies prepare their annual financial statements as of and for the year ended December 31. The deviating reporting dates are due to dividend policy reasons and to the seasonality of the business transactions. Figures in these financial statements are stated in € thousand. The following tables may include rounding differences.
The amendment to IFRS 1 makes it clear that government loans are now excluded from the retrospective application of IFRS on transition to IFRS. These amendments will have no impact on the consolidated financial statements of RBI.
IFRS 7 (Disclosures: offsetting financial assets and liabilities; entry into force on January 1, 2013)
IFRS 13 (Fair value measurement; entry into force on January 1, 2013)
In May 2011, the IASB published IFRS 13 (Fair value measurement), which consolidates the rules on the measurement of fair value, which had been included in the individual IFRS, in one single standard and replaces with a uniform framework. The scope of IFRS 13 is broad; it applies to both financial instrument items and non-financial instrument items for which other IFRS require or permit fair value measurements and disclosures about fair value measurements, except in specified circumstances. IFRS 13 is prospectively applicable to financial years that start on or after January 1, 2013. The transitional arrangements provide that the mandatory disclosures do not have to be applied to comparative information provided for periods prior to the first-time application of this standard. The first-time application has no material impact on the measurement of RBI’s assets and liabilities. However, the application gives rise to changes especially in the notes. For example, information on the market values of financial instruments and on the classification of financial instruments, which previously had to be disclosed only in the annual financial statements, will now also have to be disclosed during the year. These quantitative disclosures are set out in “Other disclosures”.
The income taxes attributable to the items of other comprehensive income must be assigned to those items. However, this does not rule out the presentation of the items of other comprehensive income before tax. The changes were applied retrospectively by the Group and the items of other comprehensive income adjusted correspondingly. Apart from the changes in presentation, the application of IAS 1 as amended has no further consequences for the presentation of the statement of comprehensive income.
IAS 19 (Employee benefits; entry into force on January 1, 2013)
In the reporting year, IAS 19 (Benefits to employees, revised 2011, IAS 19R) was applied retrospectively in the Group for the first time. The most significant amendment to IAS 19 relates to accounting for changes in defined benefit obligations and plan assets. The amendment requires the immediate recognition of changes in defined benefit obligations and in the fair value of the plan assets at the date of the change. As a result of the elimination of the corridor approach, all actuarial gains and losses are recognized immediately in other comprehensive income. As RBI did not apply the corridor method in previous periods, no material adjustments are necessary. The impact of the retrospective application of IAS 19R is evident, first, in the opening balance of the statement of changes in equity at January 1, 2012 and, second, in the transition to total comprehensive income. The comparative figures were adjusted correspondingly. In addition, IAS 19R provides for changes in the presentation of defined-benefit costs and requires more extensive disclosures. These are set out in note (29) Provisions.
Impact of application of IAS 19R: Impact of retrospective application of IAS 19R on 2012 total comprehensive income: Income statement
Impact of retrospective application of IAS 19R on the 2012 balance sheet: Consolidated profit 4,310
Impact on 2013 total comprehensive income if IAS 19R had not been applied: Income statement
The Annual Improvements to IFRS – 2009–2011 cycle include a variety of amendments to different standards. The amendments are effective for annual periods beginning on or after January 1, 2013. These amendments will have no impact on the consolidated financial statements.
IAS 28 (Investments in associates and joint ventures; entry into force on January 1, 2014)
The amendments of IAS 32 clarify existing application issues relating to the offsetting of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of “currently has a legally enforceable right to set off” and “simultaneous realization and settlement”. The revised version of IAS 32 is not expected to have any impact on the consolidated financial statements.
IFRS 10 replaces the parts of IAS 27 (Consolidated and Separate Financial Statements) that deal with consolidated financial statements. SIC-12 (Consolidation – Special Purpose Entities) will be replaced by IFRS 10. In IFRS 10, there is only one basis for consolidation, namely control. Under IFRS 10, control exists if an investor has all three of the following elements: (a) controlling influence over an investee, (b) exposure, or rights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of the investor's return. Extensive guidance has been added in the standard to deal with complex scenarios. From the perspective of RBI, the future application of IFRS 10 will not have a significant impact on the consolidated group.
IFRS 11 (Joint arrangements; entry into force on January 1, 2014)
IFRS 11 replaces IAS 31 (Interests in Joint Ventures) and SIC-13 (Jointly Controlled Entities – Non-Monetary Contributions by Ventures). IFRS 11 deals with how a joint arrangement should be classified. Joint arrangements are classified as a contractual agreement in which two or more parties practice joint management. Joint management can extend to a joint venture or a joint operation. In contrast to IAS 31, accounting for jointly controlled assets is no longer addressed separately in IFRS 11; the rules for joint ventures are applied. The classification of a joint arrangement as joint operation or joint venture depends on the rights and obligations of the parties to the agreement. In addition, joint ventures under IFRS 11 must be accounted for using the equity method, whereas jointly controlled entities under IAS 31 can be accounted for using proportionate consolidation or the equity method. RBI does not expect the future application of IFRS 11 to have an impact on the consolidated financial statements.
IFRS 12 (Disclosures of interests in other entities; entry into force on January 1, 2014)
The changes represent a correction of the disclosure rules that were changed more extensively than intended in connection with IFRS 13. These relate to impaired assets for which the recoverable amount is equivalent to fair value less costs of disposal. At present, the recoverable amount must be disclosed regardless of impairment. The correction now restricts the disclosure to actual impairments, but extends the disclosures to be made in such cases. RBI assumes that, apart from the possible need to make additional disclosures in specific cases, the changes will have no material influence on the consolidated financial statements.
As a result of the amendments, derivatives remain designated as hedging instruments in existing hedging relationships despite novation. Novation refers to cases in which the original parties to a derivatives contract agree that a central counterparty shall replace their original counterparty to become the counterparty to each of the original parties. The fundamental requirement is that the use of a central counterparty is required by law or regulation. Moreover, changes to contractual arrangements must be limited to those that are necessary for novation. The objective of the amendments is to avoid any impact on hedge accounting as a consequence of the write-off of the derivative on the conversion of the contract to a central counterparty. RBI assumes that the changes will have no material impact on the consolidated financial statements.
IFRS 9 (financial instruments), issued in November 2009, introduced new requirements for the classification and measurement of financial assets. IFRS 9 was amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition. Key requirements of IFRS 9 are: All recognized financial assets must be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are measured at amortized cost at the end of subsequent accounting periods. All other instruments must be measured at fair value.
IFRS 9 also includes an irrevocable option to recognize subsequent changes in the fair value of an equity instrument (not held for trading purposes) in other comprehensive income and to recognize only dividend income in the profit and loss statement. With regard to the measurement of financial liabilities (designated as measured at fair value through profit or loss), IFRS 9 requires that changes in fair value arising out of changes in the default risk of the reporting entity are to be recognized in other comprehensive income. However, this does not apply if recognition of such changes in other comprehensive income were to create or increase an accounting inconsistency in or compared to the profit and loss statement. Changes in fair value attributable to a reporting entity’s own credit risk may not be subsequently reclassified to profit or loss. RBI anticipates that the application of IFRS 9 in the future may have a significant impact on amounts reported in respect of the Group's financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of the impact of IFRS 9 until a detailed review has been completed.
The amendments will clarify the provisions that relate to the allocation of employee or third-party contributions linked to service to periods of service. In addition, a solution that simplifies accounting practice is permitted if the amount of the contributions is independend on the number of years of service performed. These amendments will have no material impact on RBI’s consolidated financial statements.
IFRIC 21 contains guidance as to when a liability is to be recognized for a levy imposed by a government (e.g. bank levies). The obligating event for the recognition of a liability is identified as the activity that triggers payment according to the relevant legislation. Levies do not have to be recognized until the obligating event has occurred. The obligating event may also occur gradually over a period of time and the liability is therefore recognized progressively. RBI does not expect that IFRIC 21 has material impact on the consolidated financial statements
The Annual Improvements to IFRS – 2010–2012 cycle include numerous amendments to various IFRS. The amendments are effective for annual periods beginning on or after January 1, 2014. These amendments will have no material impact on RBI’s consolidated financial statements.
Annual Improvements to IFRS – 2011 – 2013 cycle (entry into force on July 1, 2014)
At each reporting date, all financial assets not measured at fair value through profit or loss are subject to an impairment test to determine whether an impairment loss is to be recognized through profit or loss. In particular, it is required to determine whether there is objective evidence of impairment as a result of a loss event occurring after initial recognition and to estimate the amount and timing of future cash flows when determining an impairment loss. Risk provisions are described in detail in note (42) Risks arising from financial instruments, in the section on credit risk.
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 takes account of 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 take account of 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 in order to account for 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 shown in note (44) Fair value of financial instruments not recognized at fair value and the fair value hierarchy is shown in note (45) Fair value of financial instruments recognized at fair value.
All material subsidiaries in which RBI AG directly or indirectly, holds either more than 50 per cent of the voting rights or otherwise has control over the financial and operating policies are fully consolidated. In principle, these subsidiaries are firstly integrated in the consolidated group on the date when RBI AG obtains control of the company and are excluded from the date on when it no longer has control of the company. Control exists if the control criteria listed in IAS 27 are met and RBI, as parent company, is therefore able to influence the financial and business policy of an affiliated company in order to benefit from the latter’s activities. The Group reviews the adequacy of previous decisions on which companies to consolidate at least every quarter. Accordingly, any organizational changes are immediately taken into account. Apart from changes in ownership, these also include changes to the Group’s existing or new contractual obligations concluded with a unit. Subsidiaries with deviating reporting dates are accounted for on the basis of their interim financial statements. The results from subsidiaries acquired or disposed of during the year are recorded in the consolidated income statement, either from the actual date of acquisition or up to the actual date of disposal.
If, in the case of existing control, further shares are acquired or sold without loss of control in subsequent consolidation, such transactions are recognized directly in equity. Intra-group business combinations (transactions under common control) are accounted for by carrying over book values.
Non-controlling interests are shown in the consolidated statement of financial position as part of equity, but separately from RBI's equity. The profit attributable to non-controlling interests is shown separately in the consolidated income statement.
Material interests in associated companies – in other words, companies whose financial and operating policies are significantly influenced by the Group – are consolidated according to the equity method under “investments in associates. “ Profit or losses of companies valued according to the equity method are netted and recognized in “current income from associates.“ The rules applicable to companies valued according to the equity method are the same as those for fully consolidated companies (offsetting acquisition costs against proportional fair net asset value). As a rule, the IFRS financial statements of associated companies are used. Changes in the equity of companies valued according to the equity method are included in other comprehensive income in the consolidated financial statements.
Shares in subsidiaries not included in the consolidated financial statements because of their minor significance and shares companies that have not been valued according to the equity method are included in "financial investments" and are measured at acquisition cost.
In debt consolidation, intra-group loans and liabilities are eliminated. Remaining temporary differences are recognized in "other assets/other liabilities" in the consolidated balance sheet.
Intra-group income and expenses are also eliminated and temporary differences resulting from bank business transactions are included partly in net interest income and partly in net trading income. Other differences were shown in "other net operating income."
In capital consolidation, all identifiable assets, liabilities and contingent liabilities of a subsidiary are measured at fair value on the acquisition date according to IFRS 3. The acquisition costs are set off against the proportionate net assets. The resulting positive goodwill is capitalized and subject to an impairment test at least annually. Negative goodwill on first-time consolidation is recognized immediately in profit or loss.
The average inflation rate in Belarus was 16.5 per cent in the reporting period (2012: 70.7 per cent).
The individual financial statements of RBI subsidiaries in Belarus are adjusted before translation into the Group currency and before consolidation, so that all assets and liabilties are stated with the same level of purchasing power. Amounts in the statement of financial position which are not stated in the valid measuring unit as of the reporting date, are adjusted according to a general price index. All non-monetary items in the statement of financial position carried at cost of acquisition or cost of acquisition less depreciation are adjusted by changes in the index between the transaction date and the reporting date. Monetary items are not adjusted. All components of equity are adjusted at the time of inflow according to a general price index. The gain or loss on the net monetary position is shown in the income statement under item net trading income, subitem currency-based transactions.
Included for the first time in the financial period 14 15 0 0
RLRE Alpha Property s.r.o., Prague (CZ) 75.0% 31/10 End of operations
ROOF Consumer Romania 2008 – 1 B.V., Amsterdam (NL) 0.0% 28/2 Immaterial
The liquidity effect of the sold Group unit amounted to € 7 thousand.
According to IAS 39, all financial assets, financial liabilities and derivative financial instruments are to be recognized in the statement of financial position. A financial instrument is defined as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. On initial recognition, financial instruments are to be measured at fair value, which generally corresponds to the transaction price at the time of acquisition or issue. For subsequent measurement, financial instruments are recognized in the statement of financial position according to the respective measurement category pursuant to IAS 39, either at (amortized) cost or at fair value.
Capital-guaranteed products (guarantee funds and pension plans) are shown as sold put options on the respective funds to be guaranteed. The valuation is based on a Monte-Carlo simulation. RBI has provided capital guarantee obligations as part of the government-funded state-sponsored pension plans according to Section 108h (1) item 3 EStG. The bank guarantees that the retirement annuity, available for the payment amount, is not less than the sum of the amounts paid by the taxpayer plus credits for such taxable premiums within the meaning of Section 108g EStG.
These instruments are bonds, notes and other fixed-interest securities as well as shares and other variable-yield securities. These financial instruments are valued at fair value under IAS 39. In the statement of financial position, they are shown under the item "financial investments". Current income is shown under net interest income, valuation results and proceeds from disposals are shown in net income from financial investments.
Non-derivative financial assets (securities with fixed or determinable payments and fixed maturities) purchased with the intention and ability to hold them to maturity are reported in the item "financial investments". They are recognized at amortized cost and differences are amortized over the term to maturity and recognized in the income statement under net interest income. If impairment occurs it is taken account of when determining the amortized cost and shown in net income from financial investments. Coupon payments are recognized under net interest income. A sale of these financial instruments is only allowed in cases explicitly stated in IAS 39.
Non-derivative financial assets with fixed or determinable payment for which there is no active market are allocated to this category. These financial instruments are mainly recorded in the item "loans and advances to banks" and "loans and advances to customers". Moreover, loans and advances relating to finance lease business, which are recognized in accordance with IAS 17, are stated in the item "loans and advances to banks" and "loans and advances to customers".
They are measured at amortized cost. If there is a difference between the amount paid and face value – and this has interest character – the effective interest method is used and the amount is stated under net interest income. If impairment occurs it is taken account of when determining the amortized cost. Impairment provisions and provisions for losses that have occurred but have not yet been identified are reported in the statement of financial position under the item "impairment losses on loans and advances". Profits from the sale of impaired loans are recognized in the income statement in the item "net provisioning for impairment losses".
equity instruments classified as available-for-sale, but rather this should be recognized in other comprehensive income under the item fair value reserve (available-for-sale financial assets). This means that only impairments or disposals are to be shown in the income statement.
A financial asset is derecognized when the contractual rights to the cash flows arising from a financial asset expired or when the Group has transferred the rights or if the Group has the obligation in case that certain criteria occur to transfer the cash flows to one or more receivers. A transferred asset is also derecognized if all material risks and rewards of ownership of the assets are transferred.
The Group securitizes several financial assets from transactions with private customers and business customers by selling them to a special purpose entity that issues securities to investors. The assets transferred are derecognized fully or partly. Rights to securitized financial assets can be retained in the form of junior or subordinated tranches, interest claims or other remaining claims (retained rights).
Within the operating activity, the Group carries out different transactions with derivative financial instruments for trading and hedging purposes. The Group uses derivatives including swaps, standardized forward contracts, futures, credit derivatives, options and similar contracts. The Group applies derivatives in order to meet the requirements of the clients concerning their risk management, to manage and secure risks and to generate profit in proprietary trading. Derivatives are initially recognized at the time of the transaction at fair value and subsequently revalued to fair value. The resulting valuation gain or loss is recognized immediately in net income from derivatives, unless the derivative is designated as a hedging instrument for hedge accounting purposes and the hedge is effective. Here the timing of the recognition will depend on the type of hedging relationship.
Within the management of interest rate risks, in RBI the hedging of interest rate risk is also made on the portfolio level. Individual transactions or groups of transactions with similar risk structures, divided into maturities according to the expected repayment and interest rate adjustment date in a portfolio, are hedged. Portfolios can be assets only, liabilities only or both. For hedge accounting, the change in the value of the hedged asset or liability is shown as a separate item in other assets/liabilities. The hedged amount of the hedged items is determined in the consolidated financial statements excluding sight or savings deposits (the rules of the EU carve-out are thereby not applied).
Cash flow hedge accounting according to IAS 39 applies for those derivatives that are used to hedge against the risk of fluctuating future cash flows. Variable-interest liabilities, as well as expected transactions such as expected borrowing or investment, are especially subject to such cash flow risks. Interest rate swaps used to hedge against the risk of fluctuating cash flows arising from specific variable interest-rate items, are recognized as follows: The hedging instrument is recognized at fair value, changes in its clean price are recorded as a separate item in other comprehensive income. The ineffective portion is recognized in profit or loss on the other hand, in the position net income from derivatives and liabilities.
When current bid and asking prices for financial instruments are unavailable, the prices of similar financial instruments provide evidence of the current fair value or are determined by accepted measurement methods enclosing observable prices or parameters (in particular present value calculation or option price model). These methods concern the majority of the OTC-derivatives and non-quoted debt instruments.
To determine the fair value a credit value adjustment (CVA) is necessary to reflect the counterparty risk associated with OTC derivative transactions, especially of those contractual partners with whom hedging via credit support annexes has not yet been conducted. This amount represents the estimated fair value of a security which could be used to hedge against the credit risk of the counterparties to RBI-OTC derivative portfolios. The CVA will depend on the expected future exposure, the probability of default of the contractual partner and recovery rates. In the CVA collateral, netting agreements, termination options and other contractual factors are taken into account. The net valuation due to the changed credit risk of the counterparty is shown in note (5) net trading income, interest-based transactions.
At each reporting date an assessment is made as to whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred, when:  there is objective evidence of impairment as a result of a loss event that occurred after the initial recognition of the asset until the reporting date (a "loss event");  that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets, and
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.
Software is capitalized if it is probable that the future economic benefits attributable to the asset will accrue to the enterprise and the cost of the asset can be measured reliably. Expenses for research are recognized as an expense when they are incurred.
This means property that is held to earn rental income and/or for capital appreciation. Investment property is reported at amortized cost using the cost model permitted by IAS 40 and is shown under tangible fixed assets because of minor importance. Straight line depreciation is effected on the basis of useful life. The normal useful life of investment property is identical with that of buildings recognized under tangible fixed assets. Depreciation is recorded under item "General administrative expenses".
On each reporting date, goodwill is examined with a view to their future economic utility on the basis of cash generating units (CGUs). A cash generating unit is defined by the management and represents the smallest identifiable group of assets of a company that generates cash inflows from operations. Within RBI, all segments according to segment reporting are determined as cash generating units. Legal entities within the segments form their own CGU for the purpose of impairment testing of goodwill. The carrying value of the relevant entity (including any assigned goodwill) is compared with its recoverable amount. This is, as a general principle, defined as the amount resulting from its value in use and based on expected future profits from the entity discounted using rate of interest reflecting the risk involved. The estimation of the future results requires an assessment of previous as well as future performance. The latter must take into account the likely development of the relevant markets and the overall macroeconomic environment.
Impairment tests for cash-generating units are based on a multi-year plan drawn up by the relevant management team and approved by the bodies responsible. This covers the CGU's medium-term prospects for success taking into account its business strategy, overall macroeconomic conditions (gross domestic product, inflation expectations, etc.) and the specific market circumstances. The data is then used to capture the terminal value on a going concern concept. Discounting of the earnings relevant for the measurement, i.e. potential dividends, is made using risk-adapted and country-specific equity capital cost rates determined by means of the capital asset pricing model. The individual interest rate parameters (risk-free interest rate, inflation difference, market risk premium, country-specific risks and beta factors) were defined by using external information sources. The entire planning horizon is divided into three phases with phase I covering the management planning period of three years. Detailed planning, including macroeconomic planning data, is extrapolated in phase II, which takes another two years. The terminal value is then calculated in phase III based on the assumption of a going concern. Details on impairment testing can be found under item (22) Intangible fixed assets
All defined benefit plans relating to so-called social capital (provisions for pensions, provisions for severance payments and provisions for anniversary bonuses) are measured using the Projected Unit Credit Method in accordance with IAS 19 – Employee Benefits. The biometrical basis for the calculation of provisions for pensions, severance payments and anniversary bonuses of Austrian companies is provided by AVÖ 2008-P-Rechnungsgrundlagen für die Pensionsversicherung (Computational Framework for Pension Insurance) – Pagler & Pagler, using the variant for salaried employees. In other countries, comparable actuarial parameters are used for calculation.
In RBI variable compensation is based on bonus pools on the bank or profit center level. Every variable pay system has fixed minimum and maximum levels and thus defines maximum payout values.
 40 per cent of the annual bonus will be deferred over a period of three (in Austria, five) years (deferral period). Payment will be made on a proportional basis, 50 per cent cash and 50 per cent based on the phantom share plan.
 additionally, in Group units at local level, achieving the legally required local minimum "core tier 1 ratio excluding buffers," and
 the performance of the business area and the affected person.
The RBI Group fulfills the obligation arising from Clause 11 of the Annex to Section 39b of the Austrian Banking Act (BWG) which stipulates that at least 50 per cent of the variable remuneration of risk personnel must be paid out in the form of shares or similar non-cash instruments by means of a phantom share plan as follows: 50 per cent of the "up front" and 50 per cent of the "deferred" portion of the bonus are divided by the average closing price of the RBI share on trading days of the Vienna Stock Exchange in the payment year serving as the basis for calculating the bonus. Thereby, a certain amount of phantom shares will be determined. This amount will be fixed for the entire duration of the deferral period. After the expiration of the respective retention period, the amount of specified phantom shares will be multiplied by RBI's share price for the previous fiscal year. The resulting cash amount will be paid when the next available monthly salary is paid.
Net fee and commission income mainly includes income and expenses arising from payment transfer business, foreign exchange business and credit business. Fee and commission income and expenses are accrued in the reporting period.
General administrative expenses include staff and other administrative expenses as well as amortization/depreciation and impairment losses of tangible and intangible fixed assets.
According to IAS 39, a financial guarantee is a contract under which the guarantor is obliged to make certain payments. These payments compensate the party to whom the guarantee is issued for a loss arising in the event that a particular debtor does not fulfill payment obligations on time as stipulated in the original terms of the debt instrument. At the date of recognition of a financial guarantee, the initial fair value corresponds under market conditions to the premium at the date of signature of the contract. For subsequent measurement the credit commitment has to be presented as provision according to IAS 37.
Liabilities arising from insurance contracts change depending on changes in interest rates, income from investments and expenses for pension agreements for which future mortality rates cannot be reliably predicted. IFRS 4 must be applied to the reporting of liabilities resulting from the existence of mortality rate risks and discretionary participation features. All assets associated with pension products are reported in accordance with IAS 39. Liabilities are recorded under other liabilities Please refer to note (32) Other liabilities for more information on insurance contracts.
Information on capital management, regulatory own funds and risk-weighted assets are disclosed under note (50) Capital management and regulatory own funds according to the Austrian Banking Act.
Impairment on financial assets not measured at fair value through profit and loss (1,163,343) (1,017,724)
Profit before tax from continuing operations 834,657 1,037,363 1 Adaption of previous year figures due to the retrospective application of IAS 19R.
Interest income includes interest income (unwinding) from impaired loans to customers and banks in the amount of € 201,511 thousand (2012: € 205,361 thousand). Interest income from impaired loans and advances to customers and banks is recognized with the rate of interest used to discount the future cash flows for the purpose of measuring impairment loss. The net interest income resulting from the insurance business recognized according to IFRS 4 amounted to € 5,237 thousand (2012: € 199 thousand).
(3) Net provisioning for impairment losses Net provisioning for impairment losses on items reported on and off the statement of financial position is as follows: Individual loan loss provisions (1,215,173) (1,181,821)
A change in the estimation of default probability for the counterparty risk led to a decrease of € 8,960 thousand in income from interest-based transactions (2012: decrease of € 30,423 thousand).
Currency-based transactions contained an effect due to the application of IAS 29 hyperinflation in Belarus in the amount of minus € 22,024 thousand (2012: minus € 20,648 thousand).
Net income from hedge accounting includes on the one hand, a valuation result from derivatives in fair value hedges of minus € 129,138 thousand (2012: plus € 246,813 thousand) and on the other hand, changes in the carrying amount of the fair value hedged items of plus € 125,946 thousand (2012: minus € 238,231 thousand).
Net income from liabilities designated at fair value comprises a loss from changes in own credit risk amounting to € 125,528 thousand (2012: loss of € 144,649 thousand) and a positive effect from changes in market interest rates of € 146,821 thousand (2012: negative effect of € 167,164 thousand).
(7) Net income from financial investments The position net income from financial investments comprises valuation results and net proceeds from securities of the financial investment portfolio (held-to-maturity), from securities at fair value through profit and loss, and equity participations which include shares in affiliated companies, associated companies, and other companies.
Net income from securities at fair value through profit and loss 25,908 155,168
In 2012, the sale of bonds of the securities portfolio available-for-sale of the Group head office led to net proceeds of € 163,045 thousand.
The depreciation of tangible and intangible fixed assets includes an impairment of € 69,894 thousand (2012: € 37,122 thousand) mainly resulting from a software project in the Czech Republic and branch buildings in Russia.
The other net operating income includes impairment of goodwill amounting to € 2,948 thousand which were made by Group units in the Czech Republic, Hungary and Belarus. In 2012, impairment of goodwill totaling € 38,463 thousand especially for Group units from Ukraine, Bosnia and Herzegovina, Croatia and Hungary were included.
(10) Net income from disposal of group assets In the reporting period, three subsidiaries were excluded from the consolidated group due to materiality reasons. Moreover, one subsidiary was excluded due to sale and respectively one due to end of operations and liquidiation. Net income from this disposal of group assets amounted to minus € 6,465 thousand (2012: plus € 12,137 thousand).
The following reconciliation shows the relation between profit before tax and the effective tax burden: Profit before tax1 834,657 1,037,363
Tax decrease because of tax-exempted income from equity participations and other income 45,391 52,106
Financial assets at fair value through profit or loss 6,357,600 8,348,221
Equity and liabilities according to measurement categories in € 000 2013 2012
Of the purchased loans amounting to € 192,588 thousand, € 192,588 thousand are assigned to the measurement category loans and advances (2012: € 156,949 thousand); there were no purchased loans assigned to the measurement category heldto -maturity (2012: € 255 thousand).
Loans and advances to customers classified regionally (counterparty’s seat) are as follows: (17) Impairment losses on loans and advances 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. Provisions for impairment losses are allocated to the following asset classes according to the Basel II definition: Corporate customers – large corporates 2,836,613 2,835,571
Loans and advances and loan loss provisions according to Basel II asset classes are shown in the following table: Carrying amount
Retail customers – small and medium-sized entities 421,110 259,699 161,411 184,326 7,831
Treasury bills and bills of public authorities eligible for refinancing 1,321,466 1,070,506
Pledged securities ready to be sold or repledged by transferee are allocated to the appropriate securities category in the table above. Further details are shown under note (39) Transferred assets, genuine sale and repurchase agreements.
Positive fair values of derivatives in fair value hedges (IAS 39) 543,598 697,885
Positive fair values of derivatives in cash flow hedges (IAS 39) 6,305 3,779
Other transactions 0 160 1Adaption of previous year figures due to different allocation.
Pledged securities ready to be sold or repledged by the transferee are allocated to the appropriate securities category in the table above. Further details are shown under note (39) transferred assets, genuine sale and repurchase agreements.
The carrying amount of the securities reclassified into the category held-to-maturity amounted at the date of reclassifications to € 452,188 thousand. Thereof, reclassifications in 2008 amounted to € 371,686 thousand and in 2011 € 80,502 thousand. As of 31 December 2013, the carrying amount totaled € 163,427 thousand and the fair value totaled € 166,148 thousand. In 2013, a result from the reclassified securities of € 7,470 thousand (2012: € 12,074 thousand) was shown in the income statement. If the reclassification had not been made, a loss of € 345 thousand (2012: gain of € 13,122 thousand) would have arisen.
Equity participations valued at amortized cost for which fair values could not be measured reliably amounted to € 61,850 thousand (2012: € 61,345 thousand).
For Raiffeisenbank a.s., Prague, a syndicate contract exists between RBI AG and the joint shareholder. The syndicate contract regulates especially purchase options between direct and indirect shareholders. The syndicate contracts expire automatically if control over the company changes – also in the case of a takeover bid. The following agreement has been made with the European Bank for Reconstruction and Development (EBRD) regarding Priorbank JSC, Minsk: If control over the company changes, EBRD has the option to sell all shares held in Priorbank to the company.
Raiffeisen Banca pentru Locuinte S.A., Bucharest (RO) 90,066 4,307 366 15,021
The above-mentioned information is based on preliminary figures of the current financial year. Further information regarding associated companies is stated under note (58) List of equity participations.
Other intangible fixed assets 159,220 197,770 hereof customer base 35,280 41,609
The following overview shows the development of the book value of goodwill, gross amounts and cumulative impairments of goodwill by cash generating units. Main goodwill positions are reported in the following cash generating units: Raiffeisen Bank Aval JSC, Kiev (AVAL), Raiffeisen Bank Polska S.A., Warsaw (RBPL), ZAO Raiffeisenbank, Moscow (RBRU), Raiffeisen Bank Sh.a., Tirana (RBAL) and Raiffeisenbank a.s., Prague (RBCZ). They developed as follows: Development of goodwill 2013 € 000 AVAL RBAL RBCZ RBPL RBRU Other Total 2012 € 000 AVAL RBAL RBCZ RBPL RBRU Other Total
In 2013, a goodwill adjustment in the amount of € 25,600 thousand was registered at Raiffeisen Bank Polska S.A. due to new information and facts that emerged during the reporting period. In 2012, impairment of goodwill at Group level amounted to € 38,463 thousand. The highest impairment (€ 29,138 thousand) was registered at Ukrainian Raiffeisen Bank Aval JSC due to cyclical forecast for Ukraine and an increase in discount rate (rating downgrade of Ukraine and higher estimated value of risk premium for shares). In 2013, impairment of goodwill amounting to € 2,948 thousand was made in the Group units in the Czech Republic, Hungary and Belarus.
At the end of each financial year, goodwill is examined with a view to its future economic utility on the basis of cash generating units. The carrying value of the cash generating unit (including any allocated goodwill and other intangible assets) is compared with its recoverable value. In line with IAS 36, impairment tests for goodwill are carried out during the year in case a reason for impairment occurs.
In the financial year 2013 RBI identified the recoverable value of cash generating units on the basis of the use value with a dividend discount model. The dividend discount model reflects the characteristics of the banking business and the regulatory framework. The model is used to calculate the present value of estimated future dividends that can be distributed to shareholders after the relevant regulatory capital requirements have been fulfilled.
Growth rates in phase I and II 1.4% 17.8% n.a. 1.9%
The following table provides a summary of significant planning assumptions per cash generating unit and a description of the management approach to identify the values that are assigned to each significant assumption under consideration of a risk assessment.
Strong dependence on raw materials. Possible negative effects of changed local capital requirements. Pressure on interest margins through greater competition.
(payment transfer business, insurances, etc.). In addition, stronger focus on lending and the resulting increase in revenue from both interest income and commissions. Further increases in efficiency and cost management.
Possible negative effects of changed local capital requirements. Pressure on interest margins and fee income through other aggressive market participants.
RBCZ Czech Republic is a core market for the Group where selective growth strategy is pursued.
The assumptions are based on internal as well as external sources. Macroeconomic assumptions of the research department were compared with external data sources and the 5-year plans were presented to the Management Board. Moreover, the initial planning phase was approved by the local supervisory boards.
Possible negative effects of changed local capital requirements. Pressure on interest margins through greater competition.
The recoverable values of all other units have been either significantly higher than the respective book values or immaterial.
Brand rights are only recognized for Raiffeisen Bank Aval JSC, Kiev (AVAL) and for Raiffeisen Bank Polska S.A., Warsaw (RBPL). The carrying values of the brands as well as gross amounts and cumulative impairment losses have developed as shown below: The value of the Raiffeisen Bank Aval JSC, Kiev (AVAL), was determined using the comparable historical cost approach, because neither immediately comparable transctions nor a market with observable prices was available at the time of purchase price allocation. Documentation of brand-related marketing expenses in the previous years was taken as the data base for the historical cost approach. In 2013 and 2012, impairment tests showed no impairment of the brand.
2013 € 000 RBPL AVAL Total 2012 € 000 RBPL AVAL Total
The impairment test of customer relationships of Raiffeisenbank Aval JSC, Kiev (AVAL), identified no impairment loss in 2013. In 2012, the impairment loss in the amount of € 3,432 thousand related to the customer base for the corporate customers segment which was recognized at the date of initial consolidation
The impairment test of customer relationships of Raiffeisen Bank Polska S.A., Warsaw (RBPL), identified no impairment loss in 2013.
Land and buildings used by the Group for own purpose 711,804 721,830
Land and buildings used by the Group for own purpose 960,386 17,371 (40,758) 47,694 (23,688) 7,416 968,421 of which land value of developed land 13,542 0 (258) 161 0 0 13,445
Office furniture, equipment and other tangible fixed assets 1,269,830 1,373 (48,723) 136,048 (84,485) 84 1,274,127
Land and buildings used by the Group for own purpose 810,536 38,154 8,287 137,832 (31,821) (2,602) 960,386 of which land value of developed land 13,670 0 (128) 0 0 0 13,542
Office furniture, equipment and other tangible fixed assets 1,230,437 39,930 15,071 129,914 (144,313) (1,209) 1,269,830
Land and buildings used by the Group for own purpose (238,556) 0 (40,590) 721,830
Office furniture, equipment and other tangible fixed assets (840,969) 8,269 (142,890) 428,861
In 2012, additions to intangible and tangible assets include single investments exceeding € 10,000 thousand in Russia, the Czech Republic and Group head office.
Deferred taxes break down as follows: Deferred tax assets 488,959 453,492
Deposits from customers break down analog to Basel II definition as follows: Corporate customers – large corporates 31,439,453 29,071,946
RBI is involved in pending legal issues, which may occur in the banking business. RBI does not expect that these legal cases will have a material impact on the financial position of the Group. In the reporting period, Group-wide provisions for pending legal issues amounted to € 53,691 thousand (2012: € 54,244 thousand). Single cases exceeding € 10,000 thousand occurred in Slovakia and Ukraine.
RBI expects to pay € 452 thousand in contributions to its defined benefit plans in 2014.
The defined benefit obligations developed as follows: DBO as of 1/1 40,876 35,986
Plan assets developed as follows: Plan assets at fair value as of 1/1 13,314 12,673
The following table shows the actuarial assumptions used to calculate the net defined benefit obligation: Future Pension Basis Increase 3.0 3.0
Longevity at age 65 for current pensioners – males 20.7 20.5
Longevity at age 65 for current pensioners – females 24.2 24.3
Longevity at age 65 for current members aged 45 – females 26.4 26.5
Changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below: Discount rate (1 per cent change) (4,035) 5,095
The following table shows the actuarial assumptions used to calculate the other termination benefits: Per cent 2013 2012
Negative fair values of derivatives in fair value hedges (IAS 39) 104,123 117,030
Negative fair values of derivatives in cash flow hedges (IAS 39) 28,413 2,903
The table below presents an analysis of the change in insurance contract liabilities: Carrying amount as of 1/1 196,973 114,912
Insurance contract liabilities must be regularly reviewed and subjected to a liability adequacy test. The adequacy test determines, on the basis of a comparison with estimated future cash flows, whether the carrying amount of insurance liabilities needs to be increased. In 2013, there was no charge related to the liability adequacy test.
Market risk, liquidity risk and credit risk are not material in relation to insurance contracts.
The following table presents the effect on RBI Group’s profit before tax resulting from the change in mortality of the insuree: Change in profit before tax in € 000 2013 2012
A change of 50 per cent to the mortality assumption is equal to a change in expected outstanding life-time after retirement period of three to seven years, depending on the sex-age characteristics of each group.
RBI AG XS0981632804 Subordinated capital EUR 500,000 6.000% 16/10/2023 1 Current interest rate, interest clauses are agreed.
In the reporting period, expenses on subordinated capital totaled € 194,914 thousand (2012: € 211,144 thousand).
The participation capital according to Section 23 (4) and (5) of the Austrian Banking Act (BWG) issued by Raiffeisen Zentralbank Österreich Aktiengesellschaft and transferred during the merger into Raiffeisen Bank International AG amounted to € 2,500,000 thousand. The participation capital is available for the life of the corporation and the participation issuer may not request redemption. The payment of the first tranche amounting to € 750,000 thousand was made as of 30 December 2008. The payment of the second tranche amounting to € 1,750,000 thousand was carried out as of 6 April 2009. The participation certificates were issued at 100 per cent of par value. They are linked to an 8 per cent profit entitlement from par value per year. For the business years 2014 and 2015, the profit entitlement will be raised by 50 basis points each year, for the business year 2016 by 75 basis points and for every following business year by 100 basis points. The upper limit is 12 month EURIBOR plus 1,000 basis points.
The Annual General Meeting held on 20 June 2012 also authorized the Management Board to acquire own shares for the purpose of securities trading in accordance with Section 65 (1), item 7 of the Austrian Joint Stock Companies Act (AktG) during a period of 30 months from the date of the resolution, of up to a maximum of 5 per cent of the respective subscribed capital of the
company. The consideration for each share to be acquired must not be less than half the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisiton. This authorization may be exercised in one or several installments by the company, by affiliated companies or, for their account, by third parties. This authorization replaces the authorization from the Annual General Meeting held on 8 July 2010 for the purpose of securities trading.
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 € 2,000,000 thousand within 5 years as of the date of the resolution with the approval of the Supervisory Board and 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 equity by issuing participation rights in the amount of € 600,000 thousand based on the authorizing resolution of June 2009. In the course of the merger of the principal business areas of RZB with Raiffeisen International 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 € 600,000 thousand, 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 331,706 99,512 497,559
Members of the management boards of bank subsidiaries affiliated with the company 422,217 126,665 633,325
Due at call or without maturity Up to 3 months 3 months up to 1 year 1 year up to 5 years
(36) Foreign currency volumes The consolidated financial statements consist of the following volumes of assets and liabilities denominated in foreign currencies:
In the financial year 2013, no new securitization programs with external investors were made. The existing securitization programs from previous years are described briefly as follows:  The securitization for car leasing contracts of the leasing subsidiary in Poland where loans and advances were transferred to an external special purpose vehicle which is not under Group control in the context of a Compass Asset Backed Commercial Paper (ABCP) program sponsored by WestLB remains active also in 2013. Therefore, additional refinancing sources can be mainly used through the securitization. The first loss piece remaining in the Group amounted to 15 per cent, the loans and advances shown in the financial statements amounted to € 88 million as of year-end 2013.
 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.
The true sale transactions (Warehousing) ROOF Bulgaria 2008-1 and ROOF Romania 2008-1 concluded in 2008 were entirely placed to Group internal investors in 2012 and closed in 2013.
Regarding the true sale transaction ROOF Poland 2008-1 consisting of car leasing contracts, the total volume of the loans amounts as of 31 December 2013 to € 3,373 thousand (2012: € 27,741 thousand). The change in carrying amounts is due to the maturing of the portfolio (end of 2014) and fluctuating currency exchange rates.
The synthetic securitization ROOF CEE 2006-1 was closed before maturity in August 2013. The non-derecognized loans within the scope of this securitization program amounted to € 63,098 thousand at year-end 2012.
Within the scope of further synthetic securitizations, RBI participated in the so-called JEREMIE programs in Bulgaria and Romania (ROOF Romania and Bulgaria SME 2011-1), as well as in Slovakia since 2013 (ROOF Slovakia SME 2013-1). By contract of the respective network banks with the European Investment Fund (EIF) the granting of loans to small and medium-sized enterprises is to be supported as they can receive guarantees from EIF under the JEREMIE initiative. The current volume of the portfolio under JEREMIE first loss portfolio guarantees amounts to € 115,368 thousand (2012: € 83,049 thousand) for the utilized volume of Raiffeisenbank S.A., Bucharest, € 63,801 thousand (2012: € 19,571 thousand) for Raiffeisenbank (Bulgaria) EAD, Sofia, and € 845 thousand for Tatra banka a.s., Bratislava.
True sale transaction ROOF Poland 2008-1 Raiffeisen-Leasing Polska S.A., Warsaw (PL)
Synthetic transaction ROOF WESTERN EUROPE CLO 2012-1 Raiffeisen Bank International AG, Vienna July 2012 July 2025 996,076
Securities sold in genuine sale and repurchase agreement 2,063,472 1,078,908 hereof sold or repledged 713,457 698,843 hereof bonds, notes and other fixed-interest securities 686,094 698,843 hereof loans and advances 27,363 0
Securities purchased in a genuine sale and repurchase agreement 6,299,130 7,491,583 hereof sold or repledged 1,244,517 1,437,763 hereof bonds, notes and other fixed-interest securities 1,238,393 1,394,362 hereof shares and other variable-yield securities 6,123 43,401
Within the framework of securities lending, borrowed securities amounted to € 5,571,582 thousand (2012: € 2,729,932 thousand) and loaned securities amounted to € 2,956,307 thousand (2012: € 1,855,151 thousand).
Transferred financial assets not entirely derecognized 31/12/2013 Transferred assets Associated Liabilities amount hereof securitizations hereof repurchase agreements
Bonds, notes and other fixed-interest securities 251,235 0 251,235 205,674 0 205,674
Shares and other variable-yield securities 0 0 0 0 0 0
Bonds, notes and other fixed-interest securities 34,324 34,324 0 2,606 2,606 0
(40) Assets pledged as collateral The following liabilities are secured by assets shown in the statement of financial position: Deposits from banks 3,236,873 4,955,878
The following assets are provided as collateral for the obligations: (41) Offsetting of financial assets and liabilities 2013 Gross amount Net amount Related amounts not set off in the statement of financial position Net amount of recognised assets set off in the statement of financial position of recognised liabilities set off in the statement of financial position of recognised assets set off in the statement of financial position
Reverse repurchase, securities lending & similar agreements 8,132,812 0 8,132,812 8,123,543 1,793 7,476 2013 Gross amount Net amount Related amounts not set off in the statement of financial position Net amount of recognised liabilities set off in the statement of financial position of recognised assets set off in the statement of financial position of recognised liabilities set off in the statement of financial position
(42) Risks arising from financial instruments Active risk management is a core competency of RBI. In order to effectively identify, measure, and manage risks the Group continues to develop its comprehensive risk management system. Risk management is an integral part of overall bank management. In particular, in addition to legal and regulatory requirements, it takes into account the nature, scale, and complexity of the business activities and the resulting risks. The risk report describes the principles and organization of risk management and explains the current risk exposures in all material risk categories.
RBI has a system of risk principles and procedures in place for measuring and monitoring risk, which is aimed at controlling and managing material risks at all banks and specialist companies in the Group. The risk policies and risk management principles are laid out by the Management Board. The principles include the following risk policies:  Integrated risk management: Credit, country, market, liquidity, and operational risks are managed as main risks on a Groupwide basis. For this purpose, these risks are measured, limited, aggregated, and compared to available risk coverage capital.
All these aspects are coordinated by the central division Organization & Internal Control System which continuously analyzes the internal control system and – if actions are necessary for closing any deficiencies – is also responsible for tracking their implementation.
Moreover, an independent and objective audit, free of potential conflicts, is carried out during the audit of the annual financial statements by the auditing companies. Finally, RBI is continuously supervised by the Austrian Financial Markets Authority and by local supervisors in those countries, where RBI is represented by branches or subsidiaries.
Maintaining an adequate level of capital is a core objective of risk management at RBI. Capital requirements are monitored regularly based on the actual risk level as measured by internal models, and in choosing appropriate models the materiality of risks is taken into account. This concept of overall bank risk management provides for capital requirements from a regulatory point of view (sustainability and going concern perspective) and from an economic point of view (target rating perspective). Thus it covers the quantitative aspects of the internal capital adequacy assessment process (ICAAP) as required by Basel II (Pillar 2) regulations. The full ICAAP process of RBI is audited during the supervisory review process for RZB credit institution group (RZBKreditinstitutsgruppe ) by the Austrian Financial Markets Authority on an annual basis.
Parallel to the target rating perspective, internal capital adequacy also is assessed with focus on the uninterrupted operation of the Group on a going concern basis. In this perspective, risks again are compared to risk taking capacity – now with a focus on regulatory capital and minimum capital requirements. Already during the year 2012, the calculation was updated with regard to the regulations of Basel III.
This perspective thus also complements traditional risk measurement based on the value-at-risk concept (which is in general based on historic data). Therefore it can incorporate exceptional market situations that have not been observed in the past and it is possible to estimate the potential impact of such developments. The stress test also allows for analyzing risk concentrations (e.g., individual positions, industries, or geographical regions) and gives insight into the profitability, liquidity situation, and solvability under extreme situations. Based on these analyses risk management in RBI enhances portfolio diversification, for example via limits for the total exposure of individual industry segments and countries and through ongoing updates to its lending standards.
1 Items on the statement of financial position containing only credit risk parts.
A more detailed credit portfolio analysis is based on individual customer ratings. Ratings are performed separately for different asset classes using internal risk classification models (rating and scoring models), which are validated by a central organization unit. Default probabilities assigned to individual rating grades are estimated for each asset class separately. As a consequence the default probability of the same ordinal rating grade (e.g., corporates 1.5, financial institutions A3, and sovereigns A3) is different between these asset classes.
The maximum credit exposure to corporates amounted to € 78,517,943 thousand (2012: € 80,895,816 thousand) at year-end 2013. At € 31,041,882 thousand (2012: € 31,657,885 thousand) Group Corporates is the largest segment. Compared to year-end 2012, the segment Group Corporates reported a decline of € 616,003 thousand due to decrease in leasing and framework financing. In the segment Central Europe, the credit exposure decreased € 327,737 thousand to € 17,658,513 thousand due to lower credit demand.
The credit exposure in Russia amounted to € 9,990,053 thousand (2012: € 10,237,258 thousand), thus representing a decline of € 247,205 thousand. The decline in credit business was partly offset by corporate bonds. The remaining exposure is allocated to Southeastern Europe at € 9,893,211 thousand (2012: € 10,370,446 thousand), Group Markets at € 4,890,260 thousand (2012: € 5,968,080 thousand), CIS Other at € 3,748,491 thousand (2012: € 3,681.640 thousand) and Corporate Center at € 1,295,533 thousand (2012: € 994,257 thousand). Group Markets showed the highest decrease of € 1,077,820 thousand due to lower repo transactions.
6.2 Good project risk profile – low risk 2,970,514 34.0% 2,522,975 30.0%
The table below provides a breakdown of the maximum credit exposure for corporates and project finance selected by industries: Wholesale and retail trade 20,688,851 23.7% 21,050,778 23.6%
Retail customers are subdivided into private individuals and small and medium-sized entities (SME). For retail customers a two-fold scoring system is used – consisting of the initial and ad-hoc scoring based on customer data and of the behavioral scoring based on account data. The table below provides a breakdown of the maximum retail credit exposure of RBI: Retail customers – private individuals 26,194,329 89.1% 25,856,000 88.7%
Retail customers – small and medium-sized entities 3,207,994 10.9% 3,278,328 11.3%
hereof portfolio-based loan loss provision 185,998 0.6% 571,891 2.0% 1 Adaption of previous year figures due to different disclosure.
Retail customers – small and medium-sized entities 2,084,916 739,617 93,216 290,245 0 hereof individual loan loss provision 988,679 358,156 118,534 419,234 93 hereof portfolio-based loan loss provision 91,213 42,135 28,971 20,413 0 2012 € 000 Central Europe Southeastern Europe Russia CIS Other Group Markets Retail customers – private individuals 13,948,709 6,580,075 3,680,967 1,630,254 15,994
In Russia, the volumes in asset class private individuals increased € 990,332 thousand resulting mainly from personal loans. Within the segment CIS Other, on the other hand, Ukraine reported a decline in the retail credit portfolio.
In the table below the retail exposure selected by products is shown: 1 Adaption of previous year figures.
Compared to year-end 2012, all loans denominated in foreign currency decreased. The following table shows the maximum credit exposure of this asset class by segment: 2013 € 000 Central Europe Southeastern Europe Russia CIS Other Group Markets 2012 € 000 Central Europe Southeastern Europe Russia CIS Other Group Markets
The maximum credit exposure of these customers was € 27,369,523 thousand (2012: € 32,724,896 thousand) at year-end 2013. At € 13,368,091 thousand or 48.8 per cent, the bulk of this customer group was in the rating class A3, which decreased € 6,606,031 thousand compared to year-end 2012. This resulted mainly from a decline in swap, money market and repo businesses in the segment Group Markets (minus € 6,828,341 thousand).
Taking all rating classes together, segment Group Markets accounts for the largest portfolio share at € 21,924,434 thousand (2012: € 27,638,205 thousand) or 80.1 per cent, followed by the segment Group Corporates at € 2,117,293 thousand (2012: € 1,508,711 thousand) or 7.7 per cent.
Financial Institutions: maximum credit exposure by internal rating and segment in € million
RBI continues to reduce the unsecured exposure in this asset class according to its strategy. New business in this asset class thus mainly stems from repurchase agreements, counterparty credit exposure from derivatives and short-term money market deposits. Credit business with other financial institutions in the Austrian Raiffeisen Banking Group which are participating in a joint risk monitoring system of course is not restricted.
The maximum credit exposure to sovereigns amounted to € 19,284,264 thousand (2012: € 18,920,968 thousand) at year-end 2013 and represented 11.8 per cent (2012: 11.1 per cent) of the bank’s total credit exposure.
The rating grade excellent credit standing (A1) showed a slight increase of € 98,611 thousand. This resulted from the rise in the portfolio of Austrian government bonds (up € 683,956 thousand) and newly granted limits which were partly offset by a decrease in deposits at the Austrian National Bank (down € 668,310 thousand).
The medium rating grades Good credit standing (rating A3) to Mediocre credit standing (rating B3) represented the highest share with 57.8 per cent (2012: 59.5 per cent). The high exposure in these rating categories mainly results from deposits of network banks at local central banks as well as from government bonds in Central and Southeastern Europe. The deposits at local central banks are mandatory for meeting the respective minimum reserve requirements or used in order to manage excess liquidity on a short-term basis and therefore are intrinsically linked to the banking business in these countries. The volume in lower credit rating grades (rating C and D) decreased due to rating improvements of the Belarusian National Bank to € 41,987 thousand (2012: € 315,807 thousand).
Loans and advances to banks and customers net of allocated loan loss provisions (net exposure), the additional exposure off the statement of financial position (contingent liabilities, commitments, and revocable credit lines), and the market prices (fair value) of collateral pledged in favor of RBI are shown in the following table: Collateral types
2013 Maximum credit exposure Fair value of collateral € 000 Net exposure Commitments/guarantees issued
2013 Current Overdue Collaterals 30 days 31 days, up to 90 days 91 days, up to 180 days 181 days, up to 1 year
The crucial aspect deciding whether a loan is modified or restructured is the financial situation of a customer at the time the terms and conditions are altered. Loans are defined as restructured loans if at the time of altering the terms and conditions of a loan the customer, due to its creditworthiness (considering the internal rating and other information available at this point of date), is assessed to be in financial difficulties and the granted change in favor of the customer exceeds an exactly defined minor threshold value. Consequently, the loan is subject to a mandatory impairment test and is classified as non-performing loan if there is feasible evidence.
Provisions for impairment losses are formed on the basis of Group-wide standards according to IFRS accounting principles and cover all identifiable credit risks. In the non-retail segments, problem loan committees from each Group unit decide on allocating individual loan loss provisions. In the retail area, provisioning is performed by retail risk departments in individual Group units. They compute loan loss provisions according to defined calculation schemes on a monthly basis. The provisioning amount is then approved by local accounting departments.
The following table shows the share of non-performing loans (NPL) 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): NPL NPL ratio NPL coverage ratio € 000 31/12/2013 31/12/2012 31/12/2013 31/12/2012 31/12/2013 31/12/2012
In 2013, in the asset class corporate customers, non-performing loans increased 12.5 per cent or € 633,445 thousand to € 5,706,711 thousand (2012: € 5,073,267 thousand), the ratio of non-performing loans to credit exposure rose 1.8 percentage points to 10.9 per cent; the NPL coverage ratio went down by 4.5 percentage points to 59.0 per cent. In the retail portfolio on the other hand, non-performing loans sank 4.3 per cent or € 130,880 thousand to € 2,921,588 thousand (2012: € 3,052,468 thousand). The ratio of non-performing loans to credit exposure also decreased 0.5 percentage points to 11.0 per cent and the NPL coverage ratio went down by 1.4 percentage points to 72.3 per cent. The portfolio of non-performing loans in the division financial institutions decreased € 48,197 thousand to € 153,469 thousand (2012: € 201,666 thousand) at year-end, the NPL coverage ratio sank 5.6 percentage points to 72.6 per cent.
Non-performing loans increased significantly in the segment Group Corporates by 48.8 per cent or € 450,470 thousand to € 1,373,426 thousand (2012: € 922,956 thousand). Here, the ratio of non-performing loans to credit exposure rose 1.8 percentage points to 6.5 per cent while the NPL coverage ratio decreased 13.4 percentage points to 47.2 per cent. Nonperforming loans in the segment Southeastern Europe went up 7.5 per cent or € 135,770 thousand to € 1,943,836 thousand (2012: € 1,808,066 thousand), at the same time NPL ratio increased 1.2 percentage points to 12.1 per cent and NPL coverage ratio sank 3.6 percentage points to 58.4 per cent. In Central Europe, non-performing loans increased 1.8 per cent or € 61,764 thousand to € 3,508,780 thousand (2012: € 3,447,016 thousand). Simultaneously, the NPL ratio rose 0.6 percentage points to 11.4 per cent and the NPL coverage ratio improved 0.3 percentage points to 64.3 per cent. In the segment Group Markets, nonperforming loans sank 14.4 per cent or € 59,198 thousand to € 351,271 thousand (2012: € 410,469 thousand), the NPL ratio increased 0.1 percentage points to 2.1 per cent and the NPL coverage ratio improved 4.9 percentage points to 84.7 per cent. In CIS Other, non-performing loans declined 15.2 per cent or € 198,935 thousand to € 1,107,805 thousand (2012: € 1,306,740 thousand). Also the NPL ratio declined 1.4 percentage points to 23.3 per cent while the NPL coverage ratio improved 2.0 percentage points to 72.2 per cent.
The following table shows the development of impairment losses on loans and provisions for liabilities off the statement of financial position and the corresponding items from the statement of financial position: 1/1/2013
Portfolio-based loan loss provisions 949,763 (5,867) 319,217 (371,047) (139) (362,548) 529,379
Country risk includes transfer and convertibility risks as well as political risk. It arises from cross-border transactions and direct investments in foreign countries. RBI is exposed to this risk due to its strong business activities in the Central and Eastern European markets. In these markets political and economic risks to some extent are still seen as comparatively significant.
The credit portfolio of RBI is well diversified in terms of geographical region and industry. Single name concentrations are also actively managed (based on the concept of groups of connected customers) by limits and regular reporting. As a consequence portfolio granularity is high.
RBI does not own any banking subsidiaries that are incorporated in the so-called European periphery countries. Nonetheless, some of the bank’s loans and advances are to customers domiciled in these countries and result from credit financing and capital market activities. All in all, the bank has almost no exposure to government bonds in these countries (except for the Republic of Italy).
Public administration and defence and social insurance institutions 10,991,094 6.7% 10,852,465 6.4%
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 (38) securitization. Around 73.3 per cent of this portfolio is rated A or better by external rating agencies. The pools mainly contain exposures to European customers.
RBI measures, monitors, and manages all market risks on Group level.
RBI uses a comprehensive risk management approach for both the trading and banking book (total-return approach). Market risks are managed therefore consistently in all trading and banking books. The following values are measured and limited on a daily basis in the market risk management system:  Value-at-Risk (confidence level 99 per cent, risk horizon one day)
Total 45,892 59,291 41,565 88,554 59,096 1 Exchange rate risk on total bank level also includes equity positions of subsidiaries denominated in foreign currency.
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 own funds in line with the requirements of Basel II. Maturity assumptions needed in this analysis are defined as specified by regulatory authorities or based on internal statistics and empirical values.
In 2013, the changes in present value of banking book positions after an interest rate shock of 200 basis points were always lower than the regulatory reporting threshold of 20 per cent of eligible own funds.
The following table shows the change in the present value of RBI’s banking book given a one-basis-point interest rate increase for the whole yield curve in € thousand for reporting dates 31 December 2013 and 31 December 2012. Currencies where the total interest rate sensitivity exceeds € 1 thousand are shown separately.
Liquidity management, i.e. ensuring that the Group maintain its ability to pay at all times, is performed both centrally by the Treasury division in Vienna and on a decentralized basis by local banking subsidiaries. Cash flows are calculated and analyzed by currency on a periodical basis in an internal monitoring system. Based on this data, the Group creates liquidity balances, and analyzes whether the Group conforms to legal regulations on liquidity positions and defined internal liquidity limits. Liquidity analyses also include simulations on defined market or name specific liquidity crises in scenario-based cash flow forecasts. All these analyses are discussed in the Group Asset/Liability Committee. RBI possesses all instruments for liquidity risk management required by the liquidity risk management directive (amongst others a sufficiently large liquidity buffer, stress tests based on different scenarios, and liquidity contingency plans).
For managing and limiting liquidity risks, the targets for loan/deposit ratios (the ratio of customer loans to customer deposits) in the individual network banks take into account the 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 4,026,804 10,678,912 4,501,009 2,278,143 3,032,400 867,361
Derivatives in the trading book 7,447,054 13,903,438 4,060,041 2,587,390 5,843,762 1,412,245
This risk category is analyzed and managed on the basis of own historical loss data and the results of self-assessments. Another management tool is the incentive system implemented in internal capital allocation. This system rewards high data quality and active risk management. Generally speaking, RBI implements a centralized and also decentralized system for operational risk management. In this process, a central operational risk management function defines all basic principles and minimum requirements, which then are implemented risk type specific in the individual local units.
Operational risk self-assessment is executed in a structured and Group-wide uniform manner according to risk categories such as business processes and event types. Moreover, risk assessment applies to new products as well. All Group units grade the impact of high probability/low impact events and low probability/high impact incidents according to their estimation of the loss potential for the next year and in the next ten years in relation to profits. Low probability/high impact events are quantified by a Groupwide analytical tool with specific scenarios. Individual Group units furthermore run additional scenarios depending on their individual risk profile and local specifics.
Foreign exchange rate and gold contracts 49,699,592 11,606,251 2,259,079 63,564,923 848,181 (773,868)
Equity/index futures – forward pricing 821,241 760 0 822,001 73,744 (89,428)
(44) Fair value of financial instruments not reported at fair value Fair values which are different from the carrying amount are calculated for fixed-interest loans and advances to and deposits from banks or customers, if the remaining maturity is more than one year. Variable-interest loans and advances and deposits are taken into account if they have an interest rollover period of more than one year. The fair value of loans and advances is calculated by discounting future cash flows and using interest rates at which similar loans and advances with the same maturities could have been granted to customers with similar creditworthiness. Moreover, the specific credit risk and collaterals are considered for the calculation of fair values for loans and advances.
Loans and advances to customers 0 20,268,017 53,756,660 74,024,678 75,147,307 (1,122,629)
As of year-end 2012, the fair value of loans and advances to banks amounted to € 22,225,565 thousand (carrying amount € 22,165,582 thousand), the fair value of loans and advances to customers amounted to € 77,989,722 thousand (carrying amount € 77,859,090 thousand) and the fair value of financial investments amounted to € 5,104,482 thousand (carrying amount € 4,955,812 thousand). On the liabilities side a fair value of € 30,175,450 thousand (carrying amount € 30,186,449 thousand) was calculated for deposits from banks, for deposits from customers the fair value was € 66,538,857 thousand (carrying amount € 66,297,151 thousand), for debt securities issued the fair value was € 10,765,307 thousand (carrying amount € 10,812,467 thousand) and for subordinated capital the fair value was € 2,805,324 thousand (carrying amount € 3,056,925 thousand).
Positive fair values of derivatives1 59,118 3,481,137 88,009 99,561 7,327,349 92,712
Financial assets at fair value through profit or loss 4,788,178 1,557,292 12,131 5,099,215 3,232,801 16,205
Shares and other variable-yield securities 42,584 102,595 4,889 47,830 105,301 5,072
Bonds, notes and other fixed-interest securities 341,409 2,081,903 11,627 0 0
Positive fair values of derivatives from hedge accounting 0 549,903 23,101 0 701,663 0 1 Including other derivatives. 2 Includes only securities traded on the stock exchange.
Level I Quoted market prices Level II Valuation techniques based on market data Level III Valuation techniques not based on market data 2013 2012 € 000 Level I Level II Level III Level I Level II Level III
Negative fair values of derivatives financial instruments1 128,849 4,133,186 16,640 165,420 7,613,185 20,320
Call/time deposits from trading purposes 0 0 0 0 10,045 0
Negative fair values of derivatives from hedge accounting 0 132,536 0 0 119,933 0 1 Including other derivatives.
Financial assets available-for-sale 11,627 1/1/2013 Changes in consolidated group Exchange differences Purchases Sales, repayment € 000 Gains/loss in
Gains and losses resulting from financial instruments of the level III fair value hierarchy amounted in 2013 to minus € 8,971 thousand (2012: minus € 7,434 thousand).
Shares and other variable-yield securities Closed end real estate fund 0 Net asset
Bonds, notes and other fixed-interest securities Asset backed securities 0 Broker estimate
Negative fair value of banking book derivatives without hedge accounting OTC options 17
Assets under finance leases break down as follows: Vehicles leasing 1,733,857 1,733,921
Future minimum lease payments under non-cancelable operating leases are as follows: Up to 1 year 40,897 43,021