Overview of RBI Interview with the CEO 6 Management Board of RBI 8 Report of the Supervisory Board 10 Raiffeisen at a glance 12 RBI‘s strategy 14 RBI in the capital markets 15 Corporate Governance Report 19
Group management report Market development 38 Performance and financials 42 Statement of financial position 50 Research and development 53 Internal control and risk management system 54 Capital, share, voting and control rights 56 Risk management 59 Consolidated non-financial report 59 Outlook 59 Events after the reporting date 61
Consolidated financial statements Statement of comprehensive income 80 Statement of financial position 84 Statement of changes in equity 85 Statement of cash flows 86 Segment reporting 88 Notes 95 Risk report 146 Auditor‘s report 248
As of January 2017, RZB contributed business is fully included. Current RBI figures refer to the Combined Bank; unless specified otherwise, the historical pro forma data is based on the Combined Bank (consideration of the merger). 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. RZB AG refers to Raiffeisen Zentralbank Österreich AG.
Net provisioning for impairment losses (287) (758) (62.1)% (754) (1,264) (1,750) (1,149)
Loans and advances to banks 14,358 10,981 30.8% 9,900 10,837 15,573 22,243
Return on equity before tax 16.2% 10.4% 5.8 PP 10.3% 8.5% – 7.8%
Return on assets before tax 1.23% 0.69% 0.54 PP 0.79% 0.60% – 0.63%
Net interest margin (average interest-bearing assets) 2.48% 2.48% 0.00 PP 2.78% 3.00% 3.24% 3.11%
Provisioning ratio (average loans and advances to customers) 0.35% 0.93% (0.58) PP 1.05% 1.64% 2.17% 1.39%
Total capital ratio (transitional) 17.9% 17.4% 0.5 PP 19.2% 17.4% 16.0% 15.9%
Total capital ratio (fully loaded) 17.8% 17.1% 0.7 PP 18.9% 16.8% 15.1% –
Number of shares in million (31/12) 328.94 – – 292.98 292.98 292.98 195.51
Dividend per share in € 0.62 – – – – – 1.02
Interview with the CEO 6 Management Board of RBI 8 Report of the Supervisory Board 10 Raiffeisen at a glance 12 RBI‘s strategy 14 RBI in the capital markets 15 Corporate Governance Report 19
RBI now has a new management team, with you as the CEO. What excites you in your new function? I can now focus on strategic issues to a greater extent than during my time in risk management. Together, my colleagues and I on the Management Board form a strong team and the results of our work together are reflected in the bank’s performance. There have also been some recent changes to the team: Three new members joined due to the merger of RBI and RZB and following the departure of Klemens Breuer. Hannes Mösenbacher, the former Head of Risk Controlling at RBI, assumed my responsibilities in risk management in the course of the merger. Andrii Stepanenko, who was most recently Deputy Chairman on Raiffeisenbank’s Management Board in Russia, and in charge of Retail Banking, is now responsible for Retail Banking at RBI. Lukasz Januszewski will take over the area of Markets. As a member of the Management Board in Raiffeisen Bank Polska, he was responsible for the areas of Markets and Investment Banking. Furthermore, we are benefiting from RBI’s good position following completion of the most extensive transformation program in its history. We believe that we are equipped to deal with the challenges facing us, including the ongoing low interest rate environment and stringent regulatory requirements.
How do you assess the net profit for the year and what were the main factors behind it? With consolidated profit of 1,116 million euro – therefore more than double compared to the year before – 2017 was a very good year for RBI. On the one hand, we stabilized our net interest margin, even in Eastern Europe and despite benchmark rates in the region being cut several times. On the other hand, the decline in risk costs had a positive impact, especially in Eastern Europe. This was attributable to sales of non-performing loans and a marked decrease in new allocations to provisioning for impairment losses. There was also a positive trend in net fee and commission income, which increased year-on-year by around 120 million euro. As a result of these developments, we were profitable in all of our markets.
So RBI is doing well. Are further optimization steps however planned? We were able to make significant improvements in the course of the transformation program. Changes in consumer behavior and in new technologies, especially, offer plenty of further opportunities across almost all areas. I would like to mention our major project in Poland. Our cost/income ratio in the country was 78.7 per cent for 2016, which was significantly above our medium-term goal. For that reason, we began on a large project to improve our efficiency, which will also continue in 2018. We have already closed 62 business outlets and converted many others into more cost-efficient formats. We are further investing in digital transformation, mostly in self-service solutions and remote banking. We are also analyzing the behavior of Polish online users in order to target improvements to our product offering. Raiffeisen Polbank is therefore in the middle of an ambitious rightsizing program, which is already showing signs of success. By the end of 2017, the cost/income ratio was already down at 59.8 per cent, and we expect it to be considerably better in 2019, following the completion of all of our projects.
“We want to return to growth” Interview with CEO Johann Strobl
On the subject of individual markets – how well are you faring in Russia? Russia remains an important market for us and with profit after tax last year of 443 million euro is a significant contributor to RBI’s earnings. We want to return to growth in Russia, and that should be possible going forward in view of the good fundamentals. However, this growth should remain in line with the average growth in our other markets to preserve a certain balance. In the case of corporate customers, we are focusing on multinationals and large local companies. In the retail business, we target affluent private individuals as well as small and medium sized enterprises. It is clear, therefore, that high-quality customer service is paramount. However, we are also working on improving our operating efficiency in Russia.
Finally, a question that is likely to interest your shareholders: How do you explain RBI’s share price performance? That our stock gained 74 per cent year-on-year – a rise from 17.38 euro to 30.20 euro – is indeed very satisfying. It also reflects the improvement in RBI’s profitability. Our stock was the best performer in both the ATX and the Euro Stoxx Banks Index. Alongside the factors driving our performance that I mentioned at the start of the interview and favorable economic environment, I would also like to add that our staff played a vital role in achieving our good results. I would therefore like to express my gratitude to our employees for their tremendous commitment.
The result achieved in 2017 also confirmed that the strategic decisions taken over the past years have played a key role in helping RBI to successfully emerge from a challenging transformation period with increased strength. This is also demonstrated by a steadily strengthening capital base, balanced risk profile and considerably reduced NPL ratio – from 8.7 per cent (2016 pro forma) to 5.7 per cent. This improvement in asset quality was based not least on the determined reduction of non-performing loans in recent years.
The merger of Raiffeisen Zentralbank Österreich Aktiengesellschaft and RBI AG was put into effect on schedule upon entry in the commercial register on 18 March 2017. The changes in the Management Board under the chairmanship of Johann Strobl also took effect. The Annual General Meeting on 22 June 2017 subsequently appointed the new Supervisory Board, thereby also strengthening its diversity through an increase in the share of women on the Supervisory Board. At its inaugural meeting, the Supervisory Board elected a new Chairperson and both Deputy Chairpersons, decided on the composition of its Committees and established an Advisory Council with a purely consultative function pursuant to § 12 (2) of the Articles of Association. I would like to take this opportunity to extend very special thanks on behalf of the entire Supervisory Board to Walter Rothensteiner and to the other members who have stepped down from the Supervisory Board for their many years of successful service.
Corporate Governance Report and nonfinancial report The consistency check of the Corporate Governance Report according to § 243c of the Austrian Commercial Code (UGB) was carried out by KPMG. The independent consolidated non-financial report was prepared for RBI according to § 267a of the UGB, which is to include the disclosure for the parent company pursuant to § 243b of the UGB. This was reviewed by the Supervisory Board according to § 96 (1) of the AktG. Both the Corporate Governance Report and independent consolidated non-financial report were also reviewed by KPMG and revealed no reason for objections.
RBI will thus continue to pursue its strategy as a leading universal banking group in CEE and Austria with the primary objective of creating long-term value. Selective growth is planned for the coming years in specific markets which demonstrate stability and good economic prospects. Effective capital and risk management as well as the further reduction in non-performing loans will also remain crucial in future. In 2018, the Management Board and Supervisory Board will increase their focus on the challenges in the form of ongoing high regulatory requirements, political risks, progressing digitalization and related changes to the competitive environment. Given a continuation of the current positive environment, the Supervisory Board expects 2018 to be a successful financial year.
On behalf of the Supervisory Board, I would like to express my gratitude to all our employees for their accomplishments during the last financial year. At the same time, I would like to take this opportunity to ask for your unabated commitment in tackling the challenges going forward.
Raiffeisen at a glance The Raiffeisen Banking Group Austria (RBG) The RBG is the country‘s largest banking group and has the densest branch network in Austria. In financing, it primarily serves small and mid-sized retail, service, industrial and commercial enterprises as well as the tourism and agriculture sectors.
Raiffeisen Customer Guarantee Scheme Austria (RKÖ) Since 2000, the Raiffeisen Customer Guarantee Scheme Austria (Raiffeisen-Kundengarantiegemeinschaft Österreich – RKÖ) offers deposit protection supplementary to the statutory deposit protection of the RBG according to the economic reserves of the participating banks. The regional customer guarantee associations joined forces with RBI AG at a national level within the RKÖ. Currently, the Raiffeisen banks, six regional Raiffeisen banks and RBI AG are members of the RKÖ. If required, the economic reserves of the participating banks will be drawn upon in a legally binding manner. The customers are then offered recoverable claims against other RBG institutions.
Institutional protection schemes (IPS) Various institutional protection schemes have been established within the RBG since the end of 2013. Contractual or statutory liability arrangements were concluded as well, which protect the participating institutions and, in particular, ensure their liquidity and solvency when required. The institutional protection schemes are based on uniform, joint risk monitoring within an early warning system pursuant to Article 113 (7) CRR (EU’s Capital Requirements Regulation). The institutional protection schemes were designed with two levels (currently one federal IPS and six regional IPS) to reflect RBG’s organizational structure.
In total, nearly 50,000 RBI employees serve 16.5 million customers in more than 2,400 business outlets, primarily in CEE. RBI AG shares have been listed on the Vienna Stock Exchange since 2005.
At year-end 2017, RBI’s total assets stood at € 135 billion. The regional Raiffeisen banks hold approximately 58.8 per cent of RBI shares, with the remaining approximately 41.2 per cent in free float.
Following the merger in March 2017 with RZB AG, its former majority shareholder, RBI AG assumed all rights, obligations and functions of the transferring company RZB AG in their entirety, especially the role as central institute of the RBG.
1 Change in total assets compared to 31 December 2016 expressed in local currencies varies due to fluctuations in euro exchange rates.
These are used by RBI as a basis for the provision of services to more than 16 million retail and private banking customers and small enterprises, roughly 90,000 corporate clients (medium-sized businesses, large local companies, international corporations and local authorities) and approximately 9,000 institutional clients (banks, insurance companies, asset managers, sovereigns and public sector organizations). Customers’ needs are always a top priority, and RBI sees itself as their financial advisor. It aims to provide its customers with the right financial services to meet their needs as comprehensively as possible and in this way build long-term business partnerships. In the process, customers typically take advantage of entire product bundles. The provision of top quality advisory services and innovative solutions, is key to the successful implementation of this strategy.
Retail customers stand to benefit, for example, from video and telephone advisory services, as well as state-of-the-art internet and mobile banking solutions. By means of these sales and support channels – alongside around 2,400 business outlets, which remain the central component of customer service – RBI offers its customers a broad product range (e.g. current account packages, payment transfer services, consumer financing and mortgage loans) from which they can select the products that best fit their needs. Particular emphasis is placed on transparent and customer-friendly solutions, top-rate advisory services, as well as on the fast flow of information and decision-making processes.
RBI in the capital markets Performance of RBI stock In 2017, RBI’s stock opened at € 17.38 and rose steadily throughout the year, peaking at € 30.72 shortly before year end. On the one hand, the strong increase was fueled by the generally favorable market conditions in light of persistently low market interest rates, healthy corporate earnings, and a continuation of the economic upswing both globally and in the euro area. Furthermore, the election results in the Netherlands and France, in particular, also deescalated political tensions in Europe and led to renewed confidence on the part of international investors in the euro and European capital markets. On the other hand, the share price benefited from RBI’s solid results and much-improved capital ratios.
At year-end 2017, the market capitalization was € 9.9 billion. At the editorial deadline, it stood at € 10.5 billion. The number of shares issued increased – from 292,979,038 to 328,939,621 – after the merger of RZB AG and RBI AG was entered in the commercial register on 18 March 2017. The higher number of RBI shares in free float due to the merger, also increased their weighting in indices which include the stock.
Approximately 140 million RBI shares were traded in 2017, amounting to a total value of € 3.3 billion, with an average daily volume of 567,068 shares.
Price performance since1 January compared to ATX and Euro Stoxx Banks
RBI EURO STOXX Banks (relative to RBI) ATX (relative to RBI) Index base = € 17.38
RBI rating Last year, RBI was rated by Moody’s Investors Service and Standard & Poor’s. In order to ensure an accurate assessment, RBI maintains regular contact with rating agency analysts and informs them about trends in RBI’s business development.
The Management Board decided on 12 February 2018 to propose a dividend distribution of € 0.62 per share to the Annual General Meeting for the 2017 financial year. As the new shares issued in the course of the merger of RBI AG and RZB AG have full dividend entitlement, the basis of shares issued results in a maximum amount of around € 204 million. This amount will be distributed to shareholders on 2 July 2018, provided that the Annual General Meeting approves the resolution.
Capital market communication RBI offered investors and analysts numerous opportunities to obtain first-hand information at 54 capital market events in 2017. This represents another significant year-on-year increase in these activities. To mark the occasion of the publication of its financial results, RBI regularly invites Austrian investors to an investor lunch in Vienna.
On 14 November, RBI published the figures for the third quarter. Around 160 international analysts and institutional investors took part in the conference call. This followed an extensive two-week road show to Abu Dhabi, Melbourne and Sydney, Hong Kong and Singapore took place in order to hold one-on-one and group meetings with around 50 investors – approximately half of which were debt investors and the other half equity investors – including sovereign wealth funds and some of RBI’s 25 largest single shareholders. RBI’s extensive capital market communication activities in the second half of 2017 were rounded off by participation in investor conferences in Frankfurt, Milan, Paris, Prague, Stegersbach and Warsaw.
Additional tier 1 capital issued To further optimize its capital structure, RBI placed € 650 million of perpetual additional tier 1 capital (AT1) with a value date of 5 July 2017. It has a coupon of 6.125 per cent p.a. until December 2022, which will be reset thereafter. The transaction was preceded by numerous investor meetings at various destinations throughout Europe. In the course of a non-deal related roadshow from the end of May to mid-June with meetings in Amsterdam, Copenhagen, The Hague, London, Madrid, Milan, Rotterdam and Zurich, market participants were briefed on the latest developments at RBI. A deal-related roadshow followed in late June in the run-up to the planned AT1 transaction and further information needs on the part of the more than 100 interested investors after the deal was announced were met by three RBI teams. At the same time, the teams visited investors in Amsterdam, Frankfurt, London, Paris, Vienna and Zurich. Furthermore, conference calls were held with investors from Asia and the Middle East, as well as with several sovereign wealth funds. An online presentation given by the Management Board was also met with considerable interest among the more than 125 participants. Investor feedback from these discussions was highly positive, not only with regard to the volume to be placed but also the terms and conditions. This was also evidenced by the fact that the transaction was three times subscribed in just a few hours. Orders came in particular from investors in the UK, continental Europe and Asia.
Financial Calendar 2018 15 March 2018 RBI Investor Presentation, London 1 May 2018 Start of Quiet Period 15 May 2018 First Quarter Report, Conference Call 11 June 2018 Record Date Annual General Meeting 21 June 2018 Annual General Meeting 28 June 2018 Ex-Dividend Date 29 June 2018 Record Date Dividends 2 July 2018 Dividend Payment Date 26 July 2018 Start of Quiet Period 9 August 2018 Semi-Annual Report, Conference Call 31 October 2018 Start of Quiet Period 14 November 2018 Third Quarter Report, Conference Call
Corporate Governance Report This Corporate Governance Report combines the Corporate Governance Report of RBI AG and the consolidated Corporate Governance Report of RBI pursuant to § 267b of the Austrian Commercial Code (UGB) in conjunction with § 251 (3) of the UGB.
In accordance with C Rule 62 of the ACGC, RBI AG commissioned KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft (KPMG) to conduct an external evaluation of compliance with the C Rules of the Code. The report on this external evaluation is publicly available at www.rbinternational.com → Investor Relations → Corporate Governance → External Evaluation of the CG Code.
Composition of the Management Board As at 31 December 2017, the Management Board consisted of the following members: Management Board member Year of birth Original appointment End of term
Martin Grüll 1959 3 January 2005 28 February 2020 1 Effective as of 10 October 2010
In addition to the management and governance of RBI AG, the members of the Management Board performed supervisory and managerial duties at the following material subsidiaries as Managing Directors or on the Supervisory Board in the 2017 financial year: ManagementSupervisory Board mandate
Raiffeisen Bank d.d., Bosnia and Herzegovina, Chairman (until 19 June 2017) Raiffeisenbank Austria d.d., Croatia, Chairman (until 30 May 2017) Raiffeisen Bank Polska S.A., Poland, Chairman (until 10 March 2017) Raiffeisen Bank S.A., Romania, Chairman (until 24 April 2017) AO Raiffeisenbank, Russia, Chairman (until 21 May 2017) Raiffeisen banka a.d., Serbia, Chairman (until 31 March 2017) Tatra banka, a.s., Slovakia, Chairman (until 30 June 2017) Raiffeisenbank a.s., Czech Republic, Chairman (until 26 April 2017) Raiffeisen Bank Aval JSC, Ukraine, Chairman (until 24 April 2017) Raiffeisen Bank Zrt., Hungary, Deputy Chairman (until 30 April 2017) Priorbank JSC, Belarus, member (until 28 March 2017)
AO Raiffeisenbank, Russia, Chairman (from 22 May 2017, previously Deputy Chairman) Raiffeisen Bank Polska S.A., Poland, Chairman (from 10 March 2017, previously member) Raiffeisen Bank S.A., Romania, Chairman (from 25 April 2017, previously member) Tatra banka, a.s., Slovakia, member Raiffeisenbank a.s., Czech Republic, member
Raiffeisen Centrobank AG, Austria, Chairman (until 31 October 2017) Kathrein Privatbank Aktiengesellschaft, Austria, Deputy Chairman (until 31 October 2017) Raiffeisen Bank Polska S.A., Poland, member (until 31 October 2017) Raiffeisen Bank S.A., Romania, member (until 31 October 2017) AO Raiffeisenbank, Russia, member (until 30 October 2017) Tatra banka, a.s., Slovakia, Chairman (from 4 July until 31 October 2017, previously member) Raiffeisenbank a.s., Czech Republic, Chairman (from 25 March until 31 October 2017, previously member)
Priorbank JSC, Belarus, Chairman (from 10 April 2017, previously member) Raiffeisen Bank Aval JSC, Ukraine, Chairman Raiffeisenbank (Bulgaria) EAD, Bulgaria, Chairman Raiffeisen Bank Polska S.A., Poland, Deputy Chairman Raiffeisen Bank S.A., Romania, Deputy Chairman AO Raiffeisenbank, Russia, member Tatra banka, a.s., Slovakia, member Raiffeisenbank a.s., Czech Republic, member
Walter Rothensteiner (Chairman of the Supervisory Board) and Kurt Geiger (member of the Supervisory Board) resigned their Supervisory Board mandates with effect from the end of the Annual General Meeting on 22 June 2017. At the same time, Erwin Hameseder was appointed Chairman (previously 1st Deputy Chairman) and Martin Schaller was appointed 1st Deputy Chairman (previously 3rd Deputy Chairman).
Composition of the Supervisory Board As at 31 December 2017, the Supervisory Board comprised: Supervisory Board member Year of birth Original appointment End of term
Heinrich Schaller 1959 20 June 2012 Annual General Meeting 2022 2nd Deputy Chairman
Members of the Supervisory Board had the following additional supervisory board mandates or comparable functions in domestic and foreign stock exchange listed companies during the following periods: 1 January to 18 March 2017: Walter Rothensteiner UNIQA Insurance Group AG, Chairman Erwin Hameseder AGRANA Beteiligungs-AG, Chairman; STRABAG SE, Deputy Chairman; UNIQA Insurance Group AG, 2nd Deputy Chairman; Südzucker AG, 2nd Deputy Chairman; Flughafen Wien AG, member
Heinrich Schaller voestalpine AG, Deputy Chairman; AMAG Austria Metall AG, member Klaus Buchleitner BayWa AG, Deputy Chairman; AGRANA Beteiligungs-AG, member Kurt Geiger Demir Bank OJSC, member Johannes Schuster UNIQA Insurance Group AG, member
In addition to their functions as members of RBI AG’s Supervisory Board, supervisory board mandates were also held during this period at the following material subsidiaries: Walter Rothensteiner Kathrein Privatbank Aktiengesellschaft, Austria, Chairman Kurt Geiger Raiffeisen Bank AVAL JSC, Ukraine, member Michael Höllerer Raiffeisen Centrobank AG, Austria, member Johannes Schuster RSC Raiffeisen Service Center GmbH, Austria, member
(until 31 May 2017), member Heinrich Schaller voestalpine AG, Deputy Chairman; AMAG Austria Metall AG, member Klaus Buchleitner BayWa AG, Deputy Chairman; AGRANA Beteiligungs-AG, member Kurt Geiger Demir Bank OJSC, member
Heinrich Schaller voestalpine AG, Deputy Chairman; AMAG Austria Metall AG, member Klaus Buchleitner BayWa AG, Deputy Chairman; AGRANA Beteiligungs-AG, member Rudolf Könighofer UNIQA Insurance Group AG, member
From 22 June to 31 December 2017: The Advisory Council At the meeting held on 22 June 2017, the Supervisory Board decided to establish an Advisory Council consisting of representatives of the Raiffeisen Banking Group (RBG) pursuant to § 12 (2) of the Articles of Association. The Advisory Council has a purely consultative function for the Management Board and Supervisory Board of RBI AG. The rights and obligations that the Management Board and Supervisory Board have under the law and the Articles of Association are not curtailed by the Advisory Council.
The Advisory Council provides advice on matters relating to material ownership interests of the regional Raiffeisen banks as core shareholders and on selected aspects of the relationship between RBI and the RBG. It also gives advice on RBI’s central institution function as defined in § 27a of the Austrian Banking Act (BWG) and the responsibilities associated with it, and on the affiliated companies in their capacity as RBG’s distribution partners.
The Advisory Council consists of the Chairpersons of the supervisory boards of the regional Raiffeisen banks and the Chairman of Raiffeisenverband Salzburg.
In the 2017 financial year, the following significant organizational changes, among others, took place at Tier 2 management level (B-1): Management Board area of the Chief Executive Officer (CEO): ■ The Chairman’s Office was established in response to increasing regulatory requirements. This new area extensively supports the Supervisory Board, its committees, the Chairman of the Supervisory Board and the RBI Advisory Council.
Functions of the Management Board and the Supervisory Board Division of responsibilities and functions of the Management Board
The RBI AG Management Board manages the company according to clearly defined goals, strategies and guidelines on its own authority, with a focus on future-oriented business management and in line with modern business principles. In doing so, the Management Board pursues the good of the company at all times and considers the interests of shareholders and employees. Management Board members’ areas of responsibility have been defined by the Supervisory Board, without prejudice to the general responsibility of the Management Board, as follows (at 31 December 2017): O VE
■ After Klemens Breuer’s resignation, Peter Lennkh temporarily assumed responsibility on 1 November 2017 for the Retail Banking area, comprising Group Asset Management, International Consumer & Small Business Banking, International Premium & Private Banking and International Retail Strategy & Products.
Management Board area of the Chief Risk Officer (CRO): ■ Following the dissolution of the Risk Excellence and Projects division, its functions were divided up between the Group Risk Controlling division (risk management in the network) and the Group Special Exposures Management division (which assumed responsibility for all NPL issues).
The Personnel Committee deals with the remuneration of Management Board members as well as their employment contracts. In particular, it is responsible for approving bonus allocations and share allotments through the Share Incentive Program to members of the Management Board. Furthermore, it is also responsible for approving any acceptance of secondary employment by members of the Management Board.
■ reviewing the Management Board’s policy with regard to the selection of executives and supporting the Supervisory Board in preparing recommendations for the Management Board.
Fixed remuneration, as shown in the table, includes salaries and benefits in kind. Performance-based components of the Management Board’s remuneration basically consist of bonus payments and the share-based remuneration under the Share Incentive Program (SIP). In 2017, deferred bonus amounts from 2015 and previous years as well as immediately payable bonus amounts for 2016 were paid out. In 2017 there was an allocation of share-based payments from the 2012 tranche of the SIP (see below for details).
The payment of a bonus is linked to the achievement of annually agreed goals from four or five areas based on a balanced scorecard approach. These are weighted financial goals (adjusted to the respective function, e.g. return on risk-adjusted capital, total costs, risk-weighted assets), customer and employee goals, as well as process/efficiency/infrastructure goals and, where necessary, additional goals. The amount of the bonus is determined based on consolidated profit and the cost/income ratio; the targets to be achieved are based on RBI’s medium-term return on equity target and thus consider a period spanning several years. Payment of bonuses is deferred as set forth in the BWG and implemented according to internal regulations.
Principles of remuneration policy and practices in accordance with § 39 (2) in conjunction with § 39b of the BWG In accordance with § 39 (2) in conjunction with § 39b of the BWG including annexes, RBI AG’s Supervisory Board approved the “General Principles of the Remuneration Policy and Practice” in 2011. Remuneration of all employees, including the Management Board and other “risk personnel”, must comply with these principles. These principles also apply to bonus payments for 2011 and subsequent years. The Remuneration Committee reviews these principles on a regular basis and is responsible for monitoring their implementation. To reflect changes in regulatory requirements and general conditions as of 1 January 2017, the Remuneration Committee of RBI AG’s Supervisory Board approved an update to the remuneration policies that apply within the RBI Group in the form of an “Internal Law Total Rewards Management” (including annexes). By updating its remuneration principles, the RBI Group implemented the European Banking Authority’s (EBA) guidelines on sound remuneration policies (EBA/GL/2015/22) and incorporated the new rules into its remuneration principles.
Within the overall remuneration, the relationship between fixed and variable components is made appropriate to enable employees to maintain an adequate standard of living based on their fixed income. This aims to provide maximum flexibility in the choice and implementation of the variable remuneration components, including forgoing the granting of variable remuneration entirely. In addition, the total amount of the variable remuneration does not restrict RBI’s ability to improve its capitalization. The basis for all variable remuneration programs is performance, which is measured at Group, company and also individual level.
Due to the immense increase in the complexity of the regulatory provisions for variable remuneration, the Management Board was prompted to review the benefits and meaningfulness of share-based remuneration in 2014. Originally intended as a variable longterm remuneration element geared towards the market and corporate success, the SIP has since lost this meaning because the annual bonus for the same target group of top executives is now deferred for three to five years, and half must be paid in instruments (e.g. shares). It was therefore decided that no further SIP tranches would be issued from the 2014 financial year onwards.
Members of the Management Board of RBI AG 52,718 1,104,706 36,168
In the event of a function or contract termination, one member of the Management Board is entitled to severance payments in accordance with a contractual agreement and four members in accordance with the Company Retirement Plan Act. In principle, the severance payment claims under contractual agreements expire if the Management Board member resigns.
For the 2016 financial year, the members of the Supervisory Board received total remuneration of € 550,000 in accordance with the resolution of the Annual General Meeting. This amount included € 70,000 for the Chairman of the Supervisory Board, € 60,000 each for the Deputy Chairmen of the Supervisory Board, and € 50,000 each for the other members of the Supervisory Board. Depending on the duration of the respective Supervisory Board member’s term, the remuneration for the 2016 financial year was paid on a pro rata basis or in its entirety.
Supervisory Board remuneration for the 2017 financial year was apportioned to individual Supervisory Board members as follows. The amounts stated are provisional amounts from the statement of financial position, subject to the approval of the Annual General Meeting 2018. Attendance fees were not paid. Depending on the duration of the respective Supervisory Board mandate, the provision for the 2017 financial year was booked on a pro rata basis or in its entirety.
Members of the Management Board of RBI AG 92,895 27,869 139,343
Members of the management boards of subsidiary banks and branches affiliated to RBI AG 153,235 45,971 229,853
D&O insurance A D&O (directors and officers) financial loss and liability insurance policy was maintained with UNIQA Sachversicherung AG for the 2017 financial year for the Supervisory Board, the Management Board and key executives, the cost of which is borne by the company. The policy covers both third party claims (external cover) and also claims of the company itself (internal cover) against the managers. The internal cover also protects the company.
Supervisory Board and Management Board positions are filled while giving consideration to diversity and to the Fit and Proper policy, thereby also ensuring compliance with statutory requirements. The main requirements for holding such a position include solid education and professional experience, preferably in roles related to banks or financial institutions. This ensures that the Supervisory Board and Management Board consist of individuals with management experience who possess everything needed to provide professional management and exercise their control and monitoring function.
To further improve the framework conditions for work and career, RBI continuously endeavors to reconcile family responsibilities and day-to-day work schedules as far as possible. Working arrangements such as flexible working hours, part-time and homeoffice working are offered in accordance with the statutory provisions, while some locations have company kindergartens with employee-friendly opening hours. Among other things, these aim to facilitate effective management of maternity leave, which should encourage women to return to work. RBI adopts a positive stance towards paternity leave and considers it an important means of strengthening equality. In order to build on management skills among employees, RBI offers targeted training and continuing education programs, which proved popular among all employees. In 2017, women made up 34 per cent of the participants in RBI AG’s basic leadership program, 38 per cent in the Talent Lab for managers and 23 per cent in the Group-wide advanced leadership program.
The Nomination Committee of RBI AG has set itself a target of filling 30 per cent of the positions on the Supervisory Board, Management Board and in upper management (Tier 2 and Tier 3 management) with women by 2024. Women held the following proportions of Tier 3 management positions and higher (positions with staff responsibility) at RBI AG, at 31 December 2017: Supervisory Board, 28 per cent; Management Board, 0 per cent; Tier 2 management, 17 per cent; and Tier 3 management, 19 per cent. Female employees make up 46 per cent of the total workforce. RBI AG therefore meets the legal requirement, which took effect in Austria on 1 January 2018, for the share of women on its Supervisory Board.
The Nomination Committee has set itself a target of filling 35 per cent of the positions on the Supervisory Board, Management Board and in Tier 2 management at RBI with women by no later than 2024. In RBI, the total proportion of women among employees is 67 per cent (2016 pro forma: 67 per cent). Women hold 12 per cent of Management Board positions (2016 pro forma: 14 per cent), 36 per cent of Tier 2 management positions (2016 pro forma: 36 per cent) and 45 per cent of Tier 3 management positions (2016 pro forma: 46 per cent). Women hold 15 per cent of Supervisory Board positions (2016 pro forma: 9 per cent). These figures include RBI AG and 14 network banks in CEE as well as Raiffeisen Bausparkasse Gesellschaft m.b.H., Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Raiffeisen-Leasing GmbH, Valida Vorsorge Management, Kathrein Privatbank Aktiengesellschaft and Raiffeisen Centrobank AG. The pro forma amounts contain the figures for the companies listed in the sentence prior.
The Management Board is aware of the need to continue to pursue the existing initiatives as well as to maintain its openness to new measures in order to further increase the percentage of women in highly qualified positions. To achieve this end, it encourages women to take advantage of these opportunities and to actively participate in further development.
These and other requirements and rules of conduct are covered by a corporate policy that contains the duties required by law and by the Austrian Corporate Governance Code. The policy also gives due consideration to the EBA’s guidelines on internal governance and the Basel Committee on Banking Supervision’s corporate governance principles for banks.
Independent condsolidated non-financial report (§ 267a of the UGB) as well as disclosure for the parent company according to § 243b of the UGB The company will prepare an independent consolidated non-financial report according to § 267a of the UGB for the 2017 financial year for RBI, which will also contain the disclosure for the parent company according to § 243b of the UGB. The report is reviewed by the Supervisory Board according to § 96 (1) of the AktG. The Management Board appointed KPMG Austria GmbH to review the consolidated non-financial report. The Supervisory Board will report on the results of the review at the Annual General Meeting.
Market development 38 Performance and financials 42 Significant events 42 Overview of the financial year 43 Detailed review of income statement items 44 Comparison of results with the previous quarter 48 Statement of financial position 50 Equity 51 Total capital 52 Research and development 53 Internal control and risk management system 54 Capital, share, voting and control rights 56 Risk management 59 Corporate Governance 59 Consolidated non-financial report 59 Outlook 59 Events after the reporting date 61
In terms of economic growth, China surprised to the upside in 2017: The real GDP growth data released for the full year 2017 was at 6.9 per cent. Overall, the Chinese government succeeded in keeping the country’s economic growth engine on track while curbing capital outflows and stabilizing the exchange rate; though signs of an imminent leveling off of economic growth momentum mounted towards the end of the year.
Strong growth in CE and SEE, moderate recovery in Russia At the turn of 2016/2017, Central and Southeastern Europe (CE and SEE) saw inflation rates – in some cases negative – rise significantly, mainly driven by the positive trend in oil prices. As this leveled off again in the course of the year, however, overall inflation remained moderate. In 2017, inflation rates averaged 2.1 per cent in CE and 1.6 per cent in SEE. Consequently, inflation in 2017 only slightly raised the pressure to tighten monetary policy in the region. Key rate hikes in 2017 only occurred in the Czech Republic. In Romania, however, money market rates have already increased significantly and the Romanian central bank has already raised its deposit rates as a result.
Banking sector in Austria Supported by very positive macroeconomic developments, the banking sector in Austria gained considerable ground on the euro area in 2017 (above all in the corporate customer business) after somewhat below-average performance in the previous years. The profitability of Austria’s banking sector increased markedly at a consolidated level. This was supported by CEE business, notably in the Czech Republic, Russia, Hungary and Slovakia. Similarly, adjustments carried out in recent years and efficiencyboosting programs are bearing fruit. Based on the positive overall market development, the Austrian banking sector markedly improved its capitalization relative to major Western European countries in 2017, and therefore its reported regulatory capital ratios are no longer below average by international standards. Capital requirements will gradually increase following the introduction of the systemic risk buffer and the buffer for Other Systemically Important Institutions (O-SIIs), which the Financial Market Stability Board (FMSB) has recommended. The reduction in the bank tax implemented in 2016 should also have a positive impact on the profitability of Austria’s (major) banks in the following years.
Changes in prudential requirements (CRD IV/CRR) and the recovery and resolution framework (BRRD, SRMR)
The new payment services directive (PSD 2), which took effect from 13 January 2018, is aimed at improving consumer protection through advancing the security of services provided and the application of new technologies within the scope of the open banking principle. The directive enables new market participants defined as Third Party Providers (TPPs) such as fintechs to offer payment transfer services and regulates their relationship to the traditional banks, which must facilitate access for the TPPs to customer accounts provided the customers have given their consent.
The General Data Protection Directive (GDPR) takes effect from 25 May 2018 and applies to data relating to natural persons (e.g. customers or employees); it strengthens the control rights of these individuals with respect to their data. All departments within RBI which deal with personal data are affected by this directive. Since February 2017 a comprehensive project has been under way in RBI, concerning the definition and implementation of processes for the protection of personal data and the identification of personal data protection breaches, along with the establishment of the necessary IT framework. In addition to the project at Group head office, there are further projects in the network units as well as in the affiliated companies and companies in which equity participations are held in Austria, for which the head office provides coordination and support.
The implementation of the Markets in Financial Instruments Directive (MiFID II) which already began in 2016, along with the regulation (MiFIR) and other technical obligations, was continued so that MiFID II could be implemented on 3 January 2018.
The focus of the ECB banking supervision was on three areas in 2017: Risks relating to the business model and profitability, credit risk with an emphasis on non-performing loans and risk management in general. The focus of the Joint Supervisory Team was also on operations outsourced by RBI and on evaluation of the internal credit risk models. The effects in relation to Brexit and developments in the Fintech sector were also analyzed. Additionally, there was an extensive process with the competent resolution authorities - with the Single Resolution Board on EU level, the Austrian Financial Market Authority and the respective national authorities in the EU member states in which RBI is present with network banks, to establish the capability to resolve the bank.
Earnings and financial performance RBI’s consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as applied in the EU. RBI AG also prepares individual financial statements in accordance with the Austrian Commercial Code (UGB) in conjunction with the Austrian Banking Act (BWG), which provide the formal basis of assessment for calculating dividend distributions and taxes. For more information on disclosures required by the UGB and BWG, please see note (46) other disclosures according to BWG in the consolidated financial statements.
Following the early completion of the transformation program, which was launched in 2015, the Non-Core segment was dissolved at the beginning of 2017, with the remaining business allocated to the regional segments.
Following the RBI AG Extraordinary General Meeting in January 2017, which approved the merger with RZB AG with a 99.4 per cent majority, the merger was entered in the commercial register on 18 March 2017 and thereby took effect. In the course of the RBI AG capital increase, which was also entered in the commercial register, the shareholders of RZB AG were given new shares by way of consideration for the assets transferred through the merger. The total number of RBI AG shares issued is therefore now 328,939,621 compared to 292,979,038 previously.
The merger of Raiffeisen Zentralbank Österreich AG (RZB AG) into RBI AG took place in March 2017. Consequently, the constituent items from the statement of financial position and income statement of RZB AG and its consolidated subsidiaries were integrated into the RBI Group. The figures for the previous year’s comparable period and reporting date are stated on a pro forma basis in this section as though the merged company had already existed in this form in the previous year. In particular, all effects in connection with the sale and valuation of the UNIQA Insurance Group AG stake were eliminated in the pro forma income statement for 2016. The pro forma figures were neither audited nor reviewed by an auditor. In contrast, the comparable figures in the consolidated financial statements section are based on the previous year’s published figures in accordance with IFRS.
RBI placed further perpetual AT1 capital with a volume of € 500 million and a value date of 24 January 2018. The discretionary coupon on this issue is 4.5 per cent p.a. until mid-June 2025, after which it will be reset. RBI has as a result completed its planned AT1 issuance program.
Overview of the financial year The good overall macroeconomic situation and favorable market conditions have helped to more than double consolidated profit compared to the same period in the previous year; it rose € 596 million to € 1,116 million. In 2017, business performance continued to be affected by two principal factors driven by the macroeconomic environment: the negative impact from persistently low interest rates in Central and Southeastern Europe and the positive effects of significantly lower net provisioning for impairment losses in nearly all markets. Moreover, the results from the early completion of the transformation program at the beginning of 2017, also had a positive impact on the performance of the business. All markets in which RBI operates reported profits, which were higher in most markets, and in some cases significantly so. Owing to these factors, it will again be proposed that the Annual General Meeting, after three years in which no dividend was paid, approve a dividend of € 0.62 per share. This would correspond to a maximum dividend payout of € 204 million and a payout ratio of 18 per cent.
Operating income was up 2 per cent year-on-year, or € 116 million, to € 5,228 million. The increase was mainly driven by net fee and commission income, which was up 7 per cent or € 120 million, supported by the effects of the Russian rouble appreciation and higher income from payment transfer and securities business. Net interest income remained almost unchanged, with little variation in either volumes or margins. The overall stability was due to improved margins in Russia and Poland on the one hand, and to interest margins coming under further pressure in Austria and in Central and Southeastern Europe on the other.
RBI reported total assets of € 135,146 million at year-end, corresponding to a modest increase of € 342 million, although currency depreciation had a negative impact of around € 1.9 billion. Loans and advances to customers rose 2 per cent, or € 1,463 million, to € 81,232 million. New lending in the Czech Republic, Slovakia and Russia was responsible for the increase. Loans to corporate customers (large and mid-market corporates) remained almost unchanged at € 46,875 million, while loans and advances to retail customers (private individuals as well as small and medium-sized entities) posted an increase of € 1,484 million. This was predominantly due to growth in Russia, Slovakia and the Czech Republic. This contrasted with decreases through currency depreciation and the derecognition of non-performing loans.
Net interest income remained largely stable, with a slight increase of € 11 million to € 3,208 million. A rise in net interest income in Russia (up € 84 million), primarily attributable to currency effects and margins, was offset by a decline in interest income in other markets as a result of the continuing low level of interest rates.
Net fee and commission income improved 7 per cent year-on-year, or € 120 million, to € 1,719 million, as a result of higher sales in Eastern Europe. Net income from the payment transfer business posted the largest increase, of 12 per cent, or € 79 million, to € 735 million, and was driven by volumes and margins in Russia (especially in the credit card business), Ukraine, Poland, and at RBI AG. Net income from the securities business also increased € 20 million to € 151 million, with RBI AG, Raiffeisen Centrobank AG and Poland making the largest contributions. Net income from the management of investment and pension funds increased € 12 million to € 174 million due to higher volumes, mainly at Raiffeisen Capital Management, the Valida Group and in Croatia. Net income from the sale of own and third party products also grew 13 per cent, or € 8 million, to € 68 million, mainly due to developments in the Czech Republic and Russia.
Staff expenses, which constituted the largest item within general administrative expenses (50 per cent), increased € 2 million to € 1,554 million. An increase in staff expenses was reported in Russia (up € 41 million) in particular, and was primarily caused by the appreciation of the Russian rouble but also by salary adjustments and increased staffing levels. This contrasted with declines due to exiting operations in Asia and the US (down € 20 million), and in Poland due to the sale of the leasing company and the ongoing rightsizing measures (down € 14 million).
Other administrative expenses increased 1 per cent, or € 8 million, to € 1,222 million. Advertising, PR and promotional expenses were up € 12 million, mainly as a result of various advertising campaigns supporting the launch of new retail products in Russia. Security expenses increased € 11 million, especially in Romania and Russia. In contrast, office space expenses were down € 15 million. Higher expenses in the previous year relating to the closure of branches in Asia, contrasted with a reduction in expenses in the financial year following branch and location optimization measures in Poland. The number of business outlets decreased 113 year-on-year to 2,409, mainly in Poland due to the ongoing rightsizing program and the sale of leasing activities (down 62 branches), as well as branch closures in Romania (down 26).
The average number of staff (full-time equivalents) fell 1,671 year-on-year to 50,139. The largest decline was posted in Ukraine (down 1,360). Further reductions resulted from the disposal of Group assets in the previous year.
Net provisioning for impairment losses declined 62 per cent overall year-on-year, or € 471 million, to € 287 million. This included a € 449 million reduction in individual loan loss provisions to € 322 million, while net releases of portfolio-based loan loss provisions increased € 20 million to € 24 million. Gains from loan termination or sale remained almost unchanged at € 11 million.
The largest declines in net provisioning for impairment losses were recorded at RBI AG, where the provisioning requirement fell € 128 million to € 134 million, and in Russia, where it fell € 99 million to € 47 million. Both declines were the result of higher allocations in the previous year, particularly for large individual cases in the corporate customer business. In Albania, a net release of € 3 million in the year under review, contrast with net provisioning of € 65 million in the previous year due to the default of several large corporate customers. The risk situation also improved significantly in Ukraine, primarily supported by sales of nonperforming loans, with a net release of € 58 million in the financial year compared to a net release of € 2 million in the previous year. Developments were also positive in Hungary, where a net release of € 52 million was recorded for the financial year (previous year: net release of € 7 million), and with reductions of € 20 million in Belarus and of € 15 million in the Czech Republic. In contrast, net provisioning in Poland increased € 37 million to € 77 million. This related both to corporate customers – especially project financing in connection with wind farms – and to retail customers, primarily in the mortgage lending business. In Croatia, the default of a large corporate customer was in particular responsible for the € 25 million increase in net provisioning to € 48 million.
The provisioning ratio – net provisioning for impairment losses in relation to the average volume of loans and advances to customers – fell 0.58 percentage points year-on-year to 0.35 per cent.
Net income from financial investments declined € 263 million year-on-year to minus € 83 million. This was primarily attributable to lower net proceeds from sales of equity participations (in the previous year proceeds of € 132 million were recorded from the sale of Visa Europe Ltd. shares to Visa Inc.) and to a negative valuation result of minus € 68 million from the fair value portfolio of securities, compared to plus € 70 million in the previous year, largely as a result of the valuation of government bonds hedged by interest rate swaps.
In Romania, after the Constitutional Court ruled that the Walkaway Law could not be applied retrospectively, the majority of the provision recognized for this purpose, totaling € 21 million, was released in the first quarter of 2017. In the previous year, a provision of € 27 million had been formed for the law, which was new at that time.
Compared to the third quarter of 2017, net interest income rose 2 per cent, or € 13 million, to € 816 million in the fourth quarter. This was mainly attributable to a € 9 million increase in interest income from loans and advances to customers, as well as a € 4 million increase in current income from associates. The net interest margin rose 4 basis points quarter-on-quarter to 2.50 per cent, with positive effects from the key rate hikes in the Czech Republic and Romania, as well as a higher volume of local loans in Russia.
Income taxes increased 18 per cent, or € 56 million, year-on-year to € 366 million, while the effective tax rate decreased 10 percentage points to 23 per cent. The sharp reduction was firstly the result of an improved contribution to earnings by RBI AG and secondly the use of loss carryforwards non-capitalized in some Group units (Albania, Hungary). In addition, the tax rate fell significantly in Poland, following higher tax expenses in the previous year due to the intragroup sale of the leasing company.
Net fee and commission income improved 4 per cent compared to the third quarter, or € 19 million, to € 448 million, largely attributable to seasonally related higher revenues from various services. The largest increase – 6 per cent, or € 12 million, to € 197 million – was in net income from the payment transfer business, particularly in the credit card business in Russia and Romania. Net income from the securities business rose € 9 million to € 43 million, mainly at RBI AG, as well as in Hungary and Slovakia.
Net trading income increased 24 per cent quarter-on-quarter, or € 12 million, to € 62 million, with net income from currencybased transactions improving € 8 million, mainly due to valuation gains from derivatives and foreign currency positions in Russia. Net income from equity- and index-based transactions recorded an increase of € 6 million, resulting from seasonally related higher revenues from the issuance and sale of certificates (particularly partial protection and guarantee certificates) at Raiffeisen Centrobank AG.
In the fourth quarter of 2017, recurring other net operating income increased € 4 million quarter-on-quarter to € 13 million, mainly driven by € 6 million higher net income arising from non-banking activities.
At € 813 million, general administrative expenses in the fourth quarter were up 13 per cent, or € 95 million, from € 718 million in the previous quarter.
The portfolio of non-performing loans was down € 832 million quarter-on-quarter to € 4,611 million, largely supported by sales and the derecognition of non-performing loans. On a currency-adjusted basis, the decline was € 878 million. Decreases were recorded in nearly all markets. The largest declines were reported in Ukraine (down € 271 million), Group Corporates & Markets (down € 250 million), Croatia (down € 133 million), Romania (down € 73 million), the Czech Republic (down € 41 million), and in Hungary (down € 33 million). Compared to the previous quarter, the NPL ratio decreased from 6.7 per cent to 5.7 per cent while the NPL coverage ratio fell 2.4 percentage points to 67.0 per cent.
Net income from financial investments fell to minus € 29 million in the fourth quarter, following a positive result of € 5 million in the third quarter, and was driven by a € 50 million increase in impairment charges in relation to equity participations. This mainly
Bank levies remained almost unchanged at € 17 million in the fourth quarter of 2017 (previous quarter: € 16 million).
Statement of financial position In the course of 2017, RBI’s total assets rose slightly, by € 342 million to € 135,146 million, while currency movements had a negative effect of € 1,881 million. This was predominantly attributable to the depreciation of the Ukrainian hryvnia (down 15 per cent), the Belarusian rouble (down 13 per cent), the US dollar (down 12 per cent) and the Russian rouble (down 7 per cent) against the euro.
Loans and advances to customers before deduction of impairment losses (€ 3,091 million) increased 2 per cent year-on-year, or € 1,463 million, to € 81,232 million. This was predominantly attributable to a € 1,894 million increase in mortgage loans to € 25,689 million, primarily in the Czech Republic, Slovakia and Russia. This contrasted with a € 825 million decline in the credit business to € 44,456 million, most notably in Ukraine and at RBI AG. Based on asset classes, loans and advances to retail customers, in particular, increased by a net amount of € 1,484 million to € 33,501 million, while loans and advances to corporate customers declined € 104 million to € 46,875 million. Derecognition and sales of non-performing loans amounted to € 2,874 million.
affected companies valued at equity. This was offset by a € 23 million improvement in net income from the portfolio of securities available for sale in Hungary and the Czech Republic.
The volume of Group financing from banks (mainly commercial banks) decreased 7 per cent, or € 1,768 million, to € 22,291 million, primarily as a result of declines in short-term positions (giro and money market business) at RBI AG.
Deposits from customers increased 6 per cent year-on-year, or € 4,506 million, to € 84,831 million. In particular, deposits from retail customers were up € 2,683 million to € 50,111 million, especially in the Czech Republic, Slovakia, Romania and Russia. The € 1,273 million rise in deposits from corporate customers to € 32,696 million was mainly recorded in Slovakia, the Czech Republic and Russia. Deposits from sovereigns increased € 551 million to € 2,024 million, primarily at RBI AG.
Other liabilities fell € 3,436 million to € 12,994 million. Debt securities issued decreased € 2,642 million, primarily due to (in some cases early) redemptions. Trading liabilities and the negative fair values of derivatives declined € 1,228 million.
Equity on the statement of financial position Equity on the statement of financial position – consisting of consolidated equity, consolidated profit/loss, non-controlling interests and additional tier 1 capital – increased 15 per cent compared to year-end 2016, or € 1,490 million, to € 11,241 million. This increase was mainly attributable to the placement of additional tier 1 capital (AT1) in an amount of € 650 million and to total comprehensive income of € 1,049 million. Dividend payments to non-controlling interests resulted in a € 90 million reduction in capital. No dividends were paid out to RBI’s shareholders for the financial year 2016.
At the start of the third quarter, RBI placed € 650 million of perpetual AT1 capital. Taking into account issuance costs and the discount, this increased capital by € 645 million. According to IAS 32, the AT1 is classified as equity due to the terms and conditions of the issue. It has a coupon of 6.125 per cent p.a. until December 2022, which will be reset thereafter. The coupon payments on the scheduled semi-annual coupon dates of 15 December and 15 June each year are discretionary. In the fourth quarter of 2017, the dividend on the AT1 capital amounted to € 18 million.
The total capital requirement amounted to € 5,752 million as at 31 December 2017, an increase of € 319 million compared to year-end 2016. The total capital requirement for credit risk amounted to € 4,812 million, corresponding to a rise of € 322 million. The increase was primarily based on an inorganic effect due to the higher risk weighting for loans collateralized by real estate in Poland, as well as new business in the Czech Republic and Slovakia, which increased risk-weighted assets by € 3,992 million in total. The inorganic effect in Poland impacted the common equity tier 1 ratio (fully loaded) by minus 54 basis points. The total capital requirement for position risk in bonds, equities, commodities and currencies showed an increase of € 60 million, largely attributable to exchange rate fluctuations in the internal model and to the increase in bond positions in Russia. The decline of € 63 million in the total capital requirement for operational risk to € 664 million was attributable to the full application of the advanced measurement approach.
Total comprehensive income attributable to the Group of € 918 million comprises consolidated profit of € 1,116 million and other comprehensive income of minus € 199 million. A valuation loss from the change in the credit spread on own liabilities designated at fair value represented the largest item in other comprehensive income and amounted to € 140 million. Due to the early application of IFRS 9.7.1.2 from the 2017 financial year onward, this is reported in other comprehensive income (instead of in the income statement as was previously the case). Currency translation within the Group resulted in a reduction of € 71 million. The strongest currency effects related to the devaluation of the Russian rouble (down € 140 million) and the appreciation of the Polish zloty (€ 81 million). Since part of the equity in these currencies was hedged, the movement in the exchange rate resulted in a loss of € 6 million from the capital hedge. A further negative contribution of € 7 million came from other changes in equity of companies valued at equity. A positive impact of € 12 million resulted from deferred taxes and the cash-flow hedge contributed € 10 million.
As at 31 December 2017, total capital amounted to € 12,892 million, representing an increase of € 1,088 million compared to the 2016 year-end figure. Common equity tier 1 (after deductions) increased € 662 million in the same period, mainly due to the inclusion of the results for 2017, while the proposed dividend of € 204 million accordingly reduced it. The impact on the common equity tier 1 ratio (fully loaded) was 28 basis points. The application of the CRR transitional provisions at the start of 2017 had a negative impact. Tier 1 capital (after deductions) increased by € 1,235 million to € 9,839 million, notably due to the issue of € 650 million of perpetual additional tier 1 capital (AT1) in July 2017. In contrast, tier 2 capital declined € 147 million to € 3,053 million due to maturing capital instruments.
In June 2017, RBI launched the "Elevator Lab" program, the first CEE-wide program supporting start-ups in the financial sector, or so-called "fintechs". The goal of the program is to build long-term working relationships with selected fintechs. RBI offers the participating companies potential access to its 14 CEE markets and consequently to 16.5 million customers in the region. RBI benefits from these relationships through the innovative concepts, ideas and developments from the fintechs and can directly evaluate and potentially implement new technologies - whether in the area of new products, process streamlining or efficiency improvements - on the basis of concrete examples of their application. In total, 336 fintechs from 56 countries applied to participate in the Elevator Lab program, of which almost 30 per cent came from RBI's CEE markets. In a selection process in which more than 50 managers from RBI ("mentors") took part, the projects submitted were assessed in terms of their intrinsic value. Six finalists from the areas of "payment transfers", "RegTech" (new technologies for regulatory requirements), "Branch of the Future" and "Big Data Analytics" ultimately qualified to participate in the four-month program, in which pilot projects were developed together with the mentors. Alongside RBI AG, this also involved the network banks in Belarus, Czech Republic, Hungary, Russia and Slovakia among others.
Also in 2017, with the "Innovations Strategy" a framework was created for the structured organization and management of all of RBI's innovation activities. This strategy forms, among other things, the basis for new and further digital developments in RBI and is closely connected to the Open Banking Strategy developed by the "Digital Roadmaps and Projects" department.
Based on the requirements of the EU Payment Services Directive (PSD 2), the Open Banking Strategy highlights commercial potential resulting from opening up the banking system to the market to a greater extent than required on a regulatory level. In combination with a Group-wide digital roadmap, this results in comprehensive specification of digital objectives as well as precise guidelines for the implementation of digital projects. Working closely together with the specialist departments and the 14 CEE network banks, a transparent overview of the digital project portfolio is facilitated. This enables any redundant aspects to be avoided and synergies to be identified, improving the overall efficiency of RBI in the digital environment.
The digital implementation projects deriving from the strategies developed are then bundled together in a specific program for the digital transformation of RBI. Initial projects already under way focus on digital new customer acquisition, payment transfers, online granting of credit and the area of analytics. They all have the goal of expanding and strengthening RBI's digital market position on a long-term basis, developing new business areas and positioning RBI sustainably in a competitive environment, which poses numerous challenges but also offers many new possibilities and opportunities.
The senior management of each Group unit is responsible for implementing the Group-wide instructions. Compliance with Group rules is monitored, inter alia, as part of the audits performed by internal and local auditors.
The preparation of individual financial information is decentralized and carried out by each Group unit in accordance with the RBI guidelines. The Group unit employees and managers responsible for accounting are required to provide a full presentation and accurate valuation of all transactions. Differences in local accounting standards can result in inconsistencies between local individual financial statements and the financial information submitted to RBI. The local management is responsible for ensuring implementation of mandatory internal control measures, such as the separation of functions and the principle of dual control. The reconciliation and validation controls are imbedded in the aggregation, calculation and accounting valuation activities for all financial reporting processes.
The financial statement data, which are examined by an external auditor or undergo an audit review, are mostly automatically transferred to the IBM Cognos Controller consolidation system by the end of January of the subsequent year. The IT system is kept secure by limiting access rights.
The consolidated financial statements are prepared using Group-wide standardized forms. The accounting and valuation standards are defined and explained in the RBI Group Accounts Manual and must be applied when preparing the financial statements. Detailed instructions for the Group units on measuring credit risk and similar issues are provided in the Group directives. The relevant units are kept abreast of any changes to the instructions and standards through regular training courses.
Internal audits are the third line of defense in the monitoring process. Responsibility for auditing lies with Group Internal Audit and also the respective internal audit departments of the Group units. All internal auditing activities are subject to the Group Audit Standards, which are based on the Austrian Financial Market Authority’s minimum internal auditing requirements and international best practices. Group Internal Audit’s internal rules also apply (notably the Audit Charter). Group Audit regularly and independently verifies compliance with the internal rules within the RBI Group units. The head of Group Internal Audit reports directly to the Management Boards, with additional reporting obligations to the chairpersons of the Supervisory Board and members of the Audit Committee of the Supervisory Board.
Capital, share, voting, and control rights The following disclosures satisfy the provisions of § 243a (1) of the Austrian Commercial Code (UGB): (1) As at 31 December 2017, the company’s share capital amounted to € 1,003,265,844.05 and was divided into 328,939,621 voting common bearer shares. As at 31 December 2017, 394,942 of those were own shares, and consequently 328,544,679 shares were outstanding at the reporting date. In comparison with 31 December 2016 (509,977 shares), this results in a reduction of 115,035 own shares and was based on the transferring of shares within the framework of the share-based remuneration program. Please see note (32) for further disclosures.
(2) The Articles of Association contain no restrictions concerning voting rights or the transfer of shares. The regional Raiffeisen banks and the direct and indirect subsidiaries of the regional Raiffeisen banks are parties to a syndicate contract (syndicate agreement) regarding RBI AG. The terms of this syndicate agreement include not only a block voting agreement and preemption rights, but also a prohibition on sales of the RBI shares held by the regional Raiffeisen banks (with few exceptions) for a period of three years (lock-up period) from the effective date of the merger between RZB AG and RBI AG, i.e. from 18 March 2017, if the sale would directly and/or indirectly reduce the regional Raiffeisen banks’ aggregate shareholding in RBI AG to less than 50 per cent of the share capital plus one share. After the lock-up period expires, the shareholding threshold falls to 40 per cent of the share capital of RBI AG.
(7) Pursuant to § 169 of the Austrian Stock Corporation Act (AktG), the Management Board has been authorized since the Annual General Meeting of 4 June 2014 to increase the share capital with the approval of the Supervisory Board – in one or more tranches – by up to € 446,793,032.95 through issuing up to 146,489,519 new voting common bearer shares in exchange for contributions in cash and/or in kind (including by way of the right of indirect subscription by a bank pursuant to § 153 (6) of the AktG) by 25 August 2019 at the latest and to fix the offering price and terms of the issue with the approval of the Supervisory Board. The Management Board is further authorized to exclude shareholders’ subscription rights with the approval of the Supervisory Board (i) if the capital increase is carried out in exchange for contributions in kind or (ii) if the capital increase is carried out in exchange for contributions in cash and the shares issued under the exclusion of subscription rights do not exceed 10 per cent of the company’s share capital (exclusion of subscription rights).
Pursuant to § 159 (2) 1 of the AktG, the share capital has been increased contingently by up to € 119,258,123.20 through the issue of up to 39,101,024 common bearer shares (contingent capital). The contingent capital increase will only be undertaken if and when use is made of an irrevocable exchange or subscription right to shares granted by the company to creditors holding convertible bonds issued on the basis of the resolution of the Annual General Meeting held on 26 June 2013 and the Management Board does not decide to allocate own shares. Pursuant to § 174 (2) of the AktG, the Annual General Meeting of 26 June 2013 authorized the Management Board to issue, in one or more tranches, convertible bonds in a total nominal amount of up to € 2,000,000,000, which grant holders conversion or subscription rights for up to 39,101,024 common bearer shares of the company with a proportional amount of the share capital of up to € 119,258,123.20, within five years from the date of resolution adopted by the Annual General Meeting, with the approval of the Supervisory Board. Shareholders’ subscription rights to the convertible bonds are excluded. No convertible bonds have been issued to date.
The Annual General Meeting held on 16 June 2016 authorized the Management Board pursuant to § 65 (1) 8, § 65 (1a) and § 65 (1b) of the AktG to purchase own shares and to retire them if appropriate without requiring any further prior resolutions to be passed by the Annual General Meeting. Own shares, whether already purchased or to be purchased, may not collectively exceed 10 per cent of the company’s share capital. The authorization to purchase own shares expires 30 months after the date of the Annual General Meeting resolution, i.e. as of 15 December 2018. The acquisition price for repurchasing the shares may be no lower than € 1 per share and no higher than 10 per cent above the average unweighted closing price over the ten trading days prior to exercising this authorization. The authorization may be exercised in full or in part or also in several partial amounts, for one or more purposes – with the exception of securities trading – by the company, by a subsidiary (§ 189a 7 of the UGB) or by third parties for the account of the company or a subsidiary.
 Furthermore, the syndicate agreement concluded by RBI AG in relation to a subsidiary bank with a joint shareholder will automatically be terminated upon a change of control.
 RBI AG is a member of the Professional Association of Raiffeisen Banks. Upon a change in control of RBI AG which results in the attainment of control by shareholders outside of the Raiffeisen Banking Group Austria, membership of the Professional Association of Raiffeisen Banks and of the Raiffeisen Customer Guarantee Scheme Austria may be terminated. RBI AG continues to serve as the central institution of the Raiffeisen Banking Group at a national level. Upon a change in control of RBI AG, related contracts (membership of the liquidity group pursuant to § 27a of the BWG; membership of the federal IPS pursuant to Art. 113 (7) of the CRR; membership of the Österreichischen Raiffeisen-Einlagensicherung EGen) may end or change.
Consolidated non-financial report Pursuant to the Sustainability and Diversity Improvement Act (NaDiVeG), the consolidated non-financial statement, which has to be prepared for the first time in accordance with § 267a of the Austrian Commercial Code (UGB), is issued as an independent nonfinancial report (Sustainability Report). The report containing detailed information on sustainability management developments, will be published online ---- at www.rbinternational.com  About us  Sustainability Management ---- and also contains the disclosure for the parent company in accordance with § 243b of the UGB.
The Southeastern Europe (SEE) region is also expected to continue its growth trend. Following very strong GDP growth of 5.1 per cent in 2017, SEE should increase its economic output in 2018 by 3.7 per cent. Economic growth in Romania is expected to slow to a rate of 4.2 per cent in 2018. Given that this is still above Romania’s potential growth rate, however, external imbalances could widen further. Moreover, Romania’s public deficit runs the risk of exceeding the 3 per cent Maastricht ceiling. In
Following very low risk costs in 2017 (€ 287 million), we expect impairment losses on financial assets in 2018 to be above the 2017 level.
We anticipate that the NPL ratio will further reduce in the medium term.
The economic upturn in Austria is set to continue in 2018, despite having already peaked. Real GDP growth is expected to be 2.8 per cent in 2018, around the same level as the year before. Economic growth should continue to be buoyed both by domestic demand and net exports, whereas the contribution to growth from investment is expected to fall back as a result of weakening momentum in equipment investment. In contrast, private consumption is anticipated to benefit from the ongoing increase in employment.
Outlook for RBI We will pursue loan growth with an average yearly percentage increase in the mid-single digit area.
Central Europe 65 Southeastern Europe 68 Eastern Europe 72 Group Corporates & Markets 75 Corporate Center 76
The segmentation has changed as a result of the merger of RBI AG and RZB AG. RBI’s previous segments – Central Europe, Southeastern Europe, Eastern Europe and Corporate Center – have been expanded to include the RZB areas. The Group Corporates & Markets segment has been introduced for operating business booked in Austria. This primarily comprises financing business with Austrian and international corporate customers serviced from Vienna, Markets, Financial Institutions & Sovereigns, and business with the institutions of the Raiffeisen Banking Group. Also included in the segment are specialized financial institution subsidiaries such as Raiffeisen Centrobank, Kathrein Privatbank, Raiffeisen Leasing, Raiffeisen Factorbank, Raiffeisen Bausparkasse and Raiffeisen Capital Management.
Separately to the above, the Non-Core segment was dissolved in the first quarter of 2017, due to the conclusion of the transformation program, with the remaining business allocated to the regional segments.
Central Europe in € million 1/1-31/12 pro forma Change Q4/2017 Q3/2017 Change
Net provisioning for impairment losses (46) (35) 29.1% (16) (37) (55.9)%
The figures for this financial year are not directly comparable to the previous year’s pro forma figures as the segment now includes Poland, which until year-end 2016 was reported in the Non-Core segment. Poland was reclassified at the beginning of 2017 as the intended sale of the Polish units could not be completed at the end of 2016 in the bank’s case. The Polish leasing business, however, was sold at the end of November 2016.
Profit after tax in the segment rose € 100 million to € 419 million, with € 49 million of the increase attributable to the inclusion of the Polish bank described above. Other key factors contributing to the increase were higher profits both in Hungary – primarily resulting from higher net releases of loan loss provisions owing to sales of non-performing loans – and in the Czech Republic due to an improved credit risk situation.
General administrative expenses rose 39 per cent year-on-year, or € 256 million, to € 915 million, including € 242 million attributable to the inclusion of Poland. Staff expenses were up 41 per cent, or € 133 million, to € 460 million, mainly driven by the inclusion of Poland (€ 122 million). The remaining increase resulted from salary increases and higher social security costs. The increase of 4,333 to 13,562 in the average number of staff in the segment was also due to the reclassification of Poland (4,334 full-time equivalents) to the segment. Other administrative expenses also rose, up 43 per cent, or € 108 million, to € 363 million, with Poland accounting for € 103 million of the increase. Depreciation of tangible and intangible fixed assets was up 18 per cent, or € 14 million, to € 92 million, attributable again to the inclusion of Poland. The number of business outlets in the segment amounted to 631. There was a reduction of 62 business outlets in Poland to 237 as a result of the ongoing rightsizing program. The cost/income ratio improved 3.2 percentage points to 59.2 per cent.
Net provisioning for impairment losses amounted to € 46 million in the financial year, € 10 million higher than the previous year’s level due to the inclusion of Poland (€ 77 million). In Hungary, a net release of € 52 million (previous year: € 7 million) resulted from an improved risk situation in the retail customer business. In the Czech Republic, net provisioning for impairment losses fell to € 14 million, compared to € 29 million in the previous year to cover defaults on the part of several large corporate customers. In Slovakia, net provisioning for impairment losses halved, particularly in relation to corporate customers, to € 7 million. In Poland, net provisioning for impairment losses increased € 37 million to € 77 million. This related both to corporate customers – especially project financing in connection with wind farms – and to retail customers, primarily mortgage loans.
The bank levies contained in other results increased € 26 million to € 64 million, largely due to the inclusion of Poland (€ 31 million). In Hungary, corresponding expenses declined € 6 million as a result of a change in the assessment base, while bank levies remained almost unchanged in Slovakia at € 20 million.
Net income from the disposal of Group assets amounted to € 1 million in the financial year, compared to net income of € 7 million generated in the previous year, mainly from the sale of a real estate leasing project in the Czech Republic.
In the reporting year, net income from derivatives and liabilities fell € 3 million to minus € 6 million and resulted from hedging to adjust the currency and interest rate structure.
Detailed results of individual countries in the segment: 1/1-31/12/2017 in € million Czech Republic Hungary Poland Slovakia
Provisioning ratio (average loans and advances to customers) 0.14% (1.71)% 0.93% 0.07%
Net fee and commission income 401 392 2.4% 104 106 (1.8)%
In contrast, net fee and commission income increased 2 per cent year-on-year, or € 10 million, to € 401 million. Net income from the payment transfer business was up € 5 million to € 214 million due to higher margins and volumes in nearly all countries, while Romania reported a reduction. Net income from the foreign currency, notes/coins and precious metals business also increased € 4 million to € 89 million, largely as a result of developments in Serbia, Romania and Croatia.
Net provisioning for impairment losses (113) (175) (35.4)% (21) (26) (16.7)%
€ 5 million, to € 83 million, mainly in Romania and Bulgaria. The number of outlets was down by 37 year-on-year to 978, largely as a result of branch closures in Romania. The cost/income ratio increased 2.3 percentage points to 58.6 per cent.
Net provisioning for impairment losses declined € 62 million to € 113 million. Most of the provisions in the reporting year related to one large case in the corporate customer business, for which provisions were necessary mainly in Croatia but also in Bosnia and Herzegovina.
Non-performing loans fell € 373 million compared to year-end 2016 to € 1,048 million. On a currency-adjusted basis, the reduction amounted to € 358 million. Significant decreases mainly relating to derecognition were reported in Croatia (down € 96 million), Romania (down € 87 million), Albania (down € 53 million), Bulgaria (down € 52 million), and Serbia (down € 51 million). The proportion of non-bank non-performing loans in the segment's loan portfolio fell 3.0 percentage points to 7.5 per cent, while the NPL coverage ratio was up 1.3 percentage points to 81.0 per cent.
The segment’s tax expense fell € 5 million year-on-year to € 57 million, while the effective tax rate declined 3 percentage points to 14 per cent. The decrease mainly reflected utilization of loss carryforwards in Albania.
Provisioning ratio (average loans and advances to customers) 0.75% 1.73% 1.56% (0.88)%
Net fee and commission income 460 391 17.6% 119 115 3.3%
Recurring other net operating income (19) (9) 108.2% (10) (3) 261.9%
Net interest income in Eastern Europe was up 9 per cent, or € 77 million, year-on-year to € 941 million. The highest growth was in Russia, which posted a currency- and margin-related rise of € 84 million. Ukraine also reported an increase of € 15 million in net interest income, mostly reflecting adjustments to interest rates on customer deposits in local currency. In contrast, net interest income in Belarus was down € 22 million year-on-year as a result of lower market interest rates. The segment’s net interest margin remained unchanged at 6.58 per cent.
General administrative expenses rose 16 per cent, or € 82 million, year-on-year to € 603 million. Russia accounted for most of the increase, which was primarily caused by the appreciation of the Russian rouble. Staff expenses in the segment were up € 45 million to € 308 million, with salary adjustments and a higher headcount in Russia contributing to the rise. Other administrative expenses were up € 39 million to € 220 million; legal, advisory and consulting expenses increased € 16 million, after considerable offsetting of RBI AG’s service charges in the previous year. As a result of several campaigns to introduce new retail products in Russia, advertising expenses rose € 8 million, while at the same time deposit insurance fees and security expenses increased. Depreciation was down € 2 million due to a one-time effect relating to intangible fixed assets in the previous year in Russia. The number of business outlets in the segment was up 4 to 775. The cost/income ratio increased 1.1 percentage points to 41.0 per cent.
The tax expense increased € 58 million to € 184 million largely for earnings-related reasons. The effective tax rate rose to 21 per cent from 20 per cent in the previous year. In Ukraine, the utilization of loss carryforwards in the previous year was responsible for the increase.
Detailed results of individual countries: 1/1-31/12/2017 in € million Belarus Russia Ukraine
Provisioning ratio (average loans and advances to customers) (0.05)% 0.57% (3.49)%
Group Corporates & Markets in € million 1/1-31/12 pro forma Change Q4/2017 Q3/2017 Change
Recurring other net operating income 107 131 (18.6)% 39 19 103.0%
In contrast, net fee and commission income improved 7 per cent, or € 21 million, to € 307 million. Higher fee and commission income was primarily reported in the payment transfer business, investment banking (share and bond issuance and fund brokerage ), credit and project financing, in the investment and pension funds management business and in the securities business.
Net trading income rose € 25 million year-on-year to € 155 million. The main increases occurred in banknote trading, market making in the capital markets business, and in the structured products business.
Recurring other net operating income fell € 24 million to € 107 million, due to the discontinuation of profit contributions as a result of the disposal of Group units.
Other results improved € 40 million to minus € 5 million. This was primarily driven by a € 24 million increase in the valuation results from derivatives. In contrast, net income from financial investments was down € 15 million after the gains generated in the previous year from the sale of shares in Visa Europe Ltd.
Expenses for bank levies declined € 36 million to € 10 million due to a changed allocation rule. The one-off Austrian bank levy payment, which is stipulated in the amended law and distributed over four years, is allocated entirely to the Corporate Center segment.
The tax expense increased € 6 million year-on-year to € 48 million.
Net fee and commission income (5) 26 – 2 0 –
Net interest income in the segment increased € 755 million year-on-year to € 1,142 million. This positive performance was primarily due to higher dividend income (which increased € 616 million). The dividends came mainly from Group units belonging to other segments, therefore do not impact consolidated profit.
In contrast, net fee and commission income declined from € 32 million to minus € 5 million. This was mainly due to lower intraGroup fees and commissions from guarantees given.
Net trading income also declined € 56 million year-on-year to minus € 75 million, largely driven by valuation losses on derivatives at RBI AG.
Tax income of € 34 million was posted in the segment in the financial year, compared to € 29 million in the previous year.
Earnings per share are obtained by dividing the consolidated profit/loss after deduction of the dividend claims on additional tier 1 capital by the average number of common shares outstanding.
Total Group equity Non-controlling interest in € thousand 2017 2016 2017 2016 2017 2016
Items which are not reclassified to profit and loss (135,962) 2,028 (135,962) 2,028 0 0
Deferred taxes on items which are not reclassified to profit and loss (211) (676) (211) (676) 0 0
Net gains (losses) on derivatives hedging fluctuating cash flows 11,164 5,788 9,515 6,449 1,648 (661)
Net gains (losses) on financial assets available-for-sale (717) (77,321) (87) (70,428) (630) (6,893)
RBI has elected to adopt the requirements of IFRS 9.7.1.2 regarding the presentation of gains and losses from liabilities designated at fair value through profit or loss on an early basis in financial year 2017. IFRS 9 requires changes in the fair value of these designated liabilities caused by a change in the default risk of RBI to be booked in other comprehensive income. Under IAS 39, they were booked in the income statement (2016: minus € 119,064 thousand). In the reporting period an amount of minus € 139,643 thousand was booked directly in other comprehensive income.
Currency developments led to a negative effect of € 70,048 thousand in the financial year. The 7 per cent depreciation of the Russian rouble with a negative effect of € 140,155 thousand, the 13 per cent depreciation of the Belarusian rouble with a negative effect of € 45,883 thousand and the 15 per cent depreciation of the Ukrainian hryvnia with a negative effect of € 40,882 thousand were partly offset by the 6 per cent appreciation of the Polish zloty with a positive effect of € 80,547 thousand and the 6 per cent appreciation Czech koruna with a positive effect of € 70,859 thousand. Due to disposals of Group assets, gains of € 8,498 thousand (2016: losses of € 10,860 thousand) were reclassified to the income statement in the reporting year.
The capital hedge comprises hedges for investments in economically independent sub-units. A negative result of € 6,042 thousand was posted in the financial year. The appreciation of the Polish zloty produced a negative result of € 13,869 thousand, the depreciation of the Russian rouble a positive result of € 7,827 thousand.
The changes in equity of companies valued at equity relate mainly to UNIQA Insurance Group AG, Vienna. The companies valued at equity were incorporated within the framework of the merger of RZB AG into RBI AG. This relates to valuation changes in the available-for-sale securities portfolio and the revaluations of defined benefit plans.
The item net gains (losses) on financial assets available-for-sale directly shown in equity contains net valuation results from financial investments. No gains/losses were reclassified to the income statement in the reporting year. In the previous year gains of € 133,623 thousand – predominantly from the sale of shares in Visa Europe Ltd., London, to Visa Inc., Foster City, – were reclassified to the income statement.
The individual components of retained earnings developed as follows: in € thousand Remeasurements reserve IAS19 Exchange differences Capital hedge Hyperinflation Cash flow hedge
Net income from disposal of group assets 1,786 (3,429) 3,980 16,578
Own shares/share incentive program 144 297 (441) 0 0 0 0
Allocation dividend additional tier 1 capital 0 0 (17,731) 0 0 17,731 0
Dividend payments on additional tier 1 capital 0 0 0 0 0 (17,731) (17,731)
Own shares/share incentive program 351 (2,372) 2,021 0 0 0 0
In the course of the merger, RBI AG issued new shares in order to provide consideration to RZB AG’s shareholders for their shares and thus increased subscribed capital by € 109,680 thousand. The remaining effects of the merger are recognized in retained earnings and non-controlling interests. The increase in non-controlling interests was mainly attributable to minority interests in the Valida group and the Raiffeisen Bausparkasse group. The total impact of the merger on equity amounted to € 519,454 thousand. Details of the merger are included in the notes in the section on principles underlying the preparation of financial statements.
The item own shares/share incentive program shows the allotment of shares for the 2012 SIP tranche to the eligible parties as well as the increase in the option reserve for the 2013 SIP tranche.
The other changes item contains various effects, mainly from disposals of Group assets.
Cash and cash equivalents at the end of period [12, 13] 13,329,782 12,242,415 1 The previous year figures of cash and cash equivalents differ from the item cash reserve on the statement of financial position due to IFRS 5 presentation of Raiffeisen
Proceeds from sale of: Tangible and intangible fixed assets [9, 21, 22, 23] 179,804 212,390
Net cash from investing activities shows inflows and outflows from financial investments, tangible and intangible assets, proceeds from disposal of Group assets, and payments for acquisition of subsidiaries.
The following table shows the cash and non-cash effects under IAS 7: in € thousand Subordinated capital
hereof effect of exchange rate changes 271 hereof changes of fair value (54,736)
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 (CGU) within the Group is either a country or a business activity. The presentation of the countries includes not only subsidiary banks, but all operating units of RBI in the respective countries (such as leasing companies). 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. Segment classification is therefore 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.
Provisioning ratio (average loans and advances to customers) – – 0.35%
Corporate Center principally comprises net income from Group head office governance functions and from other Group units. As a result, its net income is generally more volatile. In 2017 the segment’s operating income increased mainly due to higher intra-Group dividend income. The bulk of net income of € 653 comes from intra-Group transactions and is eliminated within the framework of the reconciliation to the consolidated profit/loss.
Reconciliation comprises consolidation adjustments to reconcile segments with Group results. The financials of the reportable segments are shown after elimination of intra-segment items. However, the inter-segment items are eliminated in the reconciliation. The main eliminations are dividend payments to Group head office and inter-segment revenues charged and expenses carried by the Group head office.
Provisioning ratio (average loans and advances to customers) – 2.3% – 1.1%
The cost/income ratio represents the cost efficiency of the segment. The cost/income ratio shows general administrative expenses in relation to operating income, which is the sum of net interest income, net fee and commission income, net trading income and recurring other net operating income (other net operating income less bank levies, impairment of goodwill, profit/loss from the release of negative goodwill and profit/loss from banking business due to governmental measures).
RBI is a corporate and investment bank for Austria’s top 1,000 companies and for large corporate customers in Western Europe. In Central and Eastern Europe (CEE) RBI is a leading universal bank with one of the largest networks of western banking groups. In CEE, RBI operates through a closely-knit network of subsidiary banks, leasing companies and numerous specialized financial service providers with around 2,400 business outlets. In Austria, RBI is represented by companies specializing in real estate finance, leasing, asset management, shares and certificates, pension funds, factoring services, and private banking. RBI’s approximately 16.5 million customers come from the customer segments corporate clients, small and medium-sized businesses, private individuals, financial institutions and regional governments.
The disclosures required under Article 434 of EU Regulation No 575/2013 on prudential requirements for credit institutions (Capital Requirements Regulation, CRR) are published on the Internet on the Bank’s website on investor.rbinternational.com.
On 23 and 24 January 2017, RZB AG and RBI AG held extraordinary General Meetings to pass resolutions on the merger (downstream) of RZB AG into RBI AG. The required majorities were achieved by a wide margin at both meetings. The merger was entered in the Companies Register on 18 March 2017. In order to provide consideration to RZB AG’s shareholders for the transferred corporate assets, RBI AG issued new shares. Its total number of shares thereby increased from 292,979,038 to 328,939,621.
The merger of RZB AG into RBI AG increased the number of consolidated companies by 175 specialized financial institution subsidiaries. This involved the following company categories: Number of units Fully consolidated Equity method Banks 7 6
The consolidated financial statements for the 2017 financial year and the comparative figures for the 2016 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 interpreta-
The effect of the merger on equity amounted to € 519,454 thousand; further details on this are given in the statement of changes in equity.
A financial asset is recognized when it is probable that the future economic benefits will flow to the company and the acquisition or production costs or another value can be reliably measured. A financial liability is recognized when it is probable that an outflow of resources embodying economic benefits will result from the settlement of the obligation and the amount at which the settlement will take place can be measured reliably. An exception is certain financial instruments which are recognized at fair value at the reporting date. Revenue is recognized if the conditions of IAS 18 are met and if it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably.
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. All of the main fully consolidated companies prepare their annual financial statements as at and for the year ended 31 December. Some IFRS details which are included outside the notes form an integral part of the interim consolidated financial statements. These are mainly explanations on net income from segments, which are included in the notes on segment reporting. In addition to the disclosures pursuant to IFRS 7 which are included in the notes, the risk report section in particular contains detailed information on credit risk, concentration risk, market risk and liquidity risk. This information is presented in accordance with IFRS 8 Operating Segments and IFRS 7 Financial Instruments Disclosures.
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 the notes under (40) Fair value of financial instruments.
The cost of the defined benefit pension plan is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension
increases. The interest rate used to discount the Group’s defined benefit obligations is determined on the basis of the yields obtained in the market at the balance sheet date for top-rated fixed-income corporate bonds. Considerable discretion has to be exercised in this connection in setting the criteria for the selection of the corporate bonds representing the universe from which the yield curve is derived. The main criteria for the selection of such corporate bonds are the issuance volumes of the bonds, the quality of the bonds and the identification of outliers, which are not taken into account. Mercer’s recommendation is used to determine the interest rate. Assumptions and estimates used for the defined benefit obligation calculations are described in the section on pension obligations and other termination benefits. Quantitative data for long term employee provisions are disclosed in the notes under (28) Provisions for liabilities and charges.
Certain non-financial assets, including goodwill and other intangible assets, are subject to an annual impairment review. Goodwill and other intangible assets are tested more frequently if events or changes in circumstances, such as an adverse change in business climate, indicate that these assets may be impaired. The determination of the recoverable amount requires judgments and assumptions to be made by management. Because these estimates and assumptions could result in significant differences to the amounts reported if underlying circumstances were to change, the Group considers these estimates to be critical. Details concerning the impairment review of non-financial assets are disclosed in the section on business combinations. Additionally, the carrying amounts of goodwill are presented in the notes under (21) Intangible fixed assets.
Deferred tax assets are recognized only to the extent that it is probable that in the future sufficient taxable profit will be available against which those loss carryforwards, unused tax credits or deductible temporary differences can be utilized. A planning period of five years is used to this end. This assessment requires significant management judgments and assumptions. In determining the amount of deferred tax assets, the management uses historical tax capacity and profitability information and, if relevant, forecasted operating results based upon approved business plans, including a review of the eligible carry-forward period.
Deferred taxes are not reported separately in the income statement and statement of financial position. Details are provided in the statement of comprehensive income, and in (11) Income taxes, (24) Other assets, and (28) Provisions for liabilities and charges.
(1) Income statement according to measurement categories in € thousand 2017 2016 Net gains (losses) on financial assets and liabilities held-for-trading 48,488 214,447
Net realized gains (losses) on financial assets not measured at fair value through profit and loss 11,342 10,008
Net gains (losses) on financial assets and liabilities at fair value through profit or loss (12,311) (91,226)
Impairment on financial assets not measured at fair value through profit and loss (295,188) (763,478)
Current income from associates included net income attributable to associates included in the course of the merger of RZB AG with RBI AG. These associates are primarily LEIPNIK-LUNDENBURGER INVEST Beteiligungs AG, Vienna, UNIQA Insurance Group AG, Vienna, and Raiffeisen Informatik GmbH, Vienna. There were no associates in the previous year. Note (20) Investments in associates contains a full list of associates.
(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 (322,404) (768,835)
The refinancing expenses for trading assets that are included in net trading income amounted to € 41,443 thousand (2016: € 23,156 thousand)
RBI has elected to adopt on an early basis the requirements of IFRS 9.7.1.2 regarding the presentation of gains and losses on financial liabilities designated at fair value through profit or loss. IFRS 9 requires changes in the fair value of these designated liabilities caused by a change in the default risk of RBI to be booked in other comprehensive income whereas previously, under IAS 39, they were booked in the income statement. Therefore, minus € 139,643 thousand is recognized in other comprehensive income for changes in liabilities designated at fair value through profit or loss arising from changes in the default risk of RBI. The net income of € 62,831 consists solely of changes in market interest rates. The previous period contains a loss from changes in own default risk of € 119,064 thousand as well as net income from changes in market interest rates of € 13,986 thousand.
Net income from securities at fair value through profit and loss (72,089) 14,768
Net proceeds from sales of equity participations dropped year-on-year, primarily because the previous year included the sale of shares in Visa Europe Ltd., London, to Visa Inc., Foster City. Net valuations of securities at fair value through profit and loss resulted largely from valuation losses on government bonds in the reporting year.
Depreciation includes impairments of € 28,962 thousand, primarily for buildings. In the previous year, this item amounted to € 34,300 thousand, mainly due to an impairment of € 26,133 thousand relating to the brand Polbank.
The same regulations for employees are in principle valid for the members of the Management Board. These regulations provide for a basic contribution to a pension fund from the company and an additional contribution if the employee pays own contributions of the same amount. Two members of the Management Board additionally have individual retirement benefits, which are funded by a reinsurance policy.
Rental income from investment property incl. operating lease (real estate) 43,190 40,427
Net proceeds from disposal of tangible and intangible fixed assets (4,364) (1,650)
Net income from disposal of group assets 987 0 (4,779) 5,347 2,244 (4,772) (668) (1,640)
The bank levies primarily consist of the levies required under the Austrian Stability Act (StabG) amounting to € 56,601 thousand (2016: € 85,440 thousand) as well as bank levies in Poland amounting to € 31,137 thousand (2016: € 34,077 thousand), in Slovakia amounting to € 20,286 thousand (2016: € 19,365 thousand) and in Hungary amounting to € 12,626 thousand (2016: € 18,964 thousand). The year-on-year decline is primarily attributable to a change in the calculation base.
(10) Net income from disposal of group assets In the reporting period, 43 subsidiaries who mainly did leasing business were excluded from the consolidated group due to immateriality; two other subsidiaries were sold, three entities discontinued their operations and one was excluded due to change in control.
Net income from the disposal of group assets consisted of the following: in € thousand RAIA RFJ4 RLKZ RBIIA RBUS ZUNO Others Total
RAIA: Raiffeisen Real Estate Fund, Budapest (HU) RFJ4: RZB Finance (Jersey) IV Limited, St. Helier (JE) RLKZ: TOO Raiffeisen Leasing Kazakhstan, Almaty (KZ) RBIIA: RB International Investment Asia Limited, Labuan (MY) RBUS: RB International Finance (USA) LLC, New York (US) ZUNO: ZUNO BANK AG, Vienna (AT)
RBI AG, 37 of its domestic subsidiaries and 16 of its other affiliated companies are members of a joint tax entity that has been headed by RBI AG since the merger.
The following reconciliation shows the relationship between profit/loss before tax and the effective tax burden: Profit/loss before tax 1,612,063 885,598
Theoretical income tax expense in the financial year based on the domestic income tax rate of 25 per cent (403,016) (221,399)
Tax decrease because of tax-exempted income from equity participations and other income 191,996 65,449
Financial assets at fair value through profit or loss 5,625,639 3,962,757
Equity and liabilities according to measurement categories in € thousand 2017 2016
Negative fair values of derivatives not designated as hedging instruments according to IAS 39 hedge accounting are reported in the measurement category trading liabilities.
The purchased loans amounting to € 255,404 thousand (2016: € 257,469 thousand) are fully assigned to the measurement category loans and advances.
The increase in mortgage loans was primarily the result of the inclusion of the Raiffeisen Bausparkassen Group in the course of the merger of RZB AG with RBI AG.
Purchased loans amounting to € 2,372,015 thousand (2016: € 2,222,508 thousand) are exclusively assigned to the measurement category loans and advances. Details on leasing claims are shown under (44) Finance leases.
(16) Impairment losses on loans and advances Provisions for impairment losses were formed in accordance with uniform Group standards and cover all recognizable credit risks. A table showing the development of the impairment losses on loans and advances can be found in the risk report. Provisions for impairment losses were allocated to the following asset classes: Corporate customers – large corporates 1,619,752 2,929,930
Loans and advances and loan loss provisions according to asset classes are shown in the following table: 2017 in € thousand Fair value
Retail customers – small and medium-sized entities 2,422,648 2,536,476 288,298 186,007 28,172 2,322,297 2016 in € thousand Fair value
Impairments and collateral according to asset classes are shown in the following table: Individually impaired assets
Retail customers – small and medium-sized entities 288,298 186,007 102,291 96,770 10,014
Treasury bills and bills of public authorities eligible for refinancing 575,533 632,054
As long as the conditions for hedge accounting according to IAS 39 are fulfilled, derivative financial instruments are reported at their fair values (dirty prices) in their function as hedging instruments. The items hedged by fair value hedges are loans and advances to banks, loans and advances to customers, financial investments, deposits from banks, deposits from customers and debt securities issued, which are hedged against interest rate risks. The changes in carrying amount of the hedged underlying transactions in IAS 39 fair value hedges are included in the respective items of the statement of financial position.
Positive fair values of derivatives in fair value hedges (IAS 39) 496,215 641,851
Positive fair values of derivatives in cash flow hedges (IAS 39) 25,745 2,842
The table below shows the expected hedged cash flows from assets and the effect on the statement of comprehensive income by period: More than 1 year, up to 5 years 2,128,797 708,454
Treasury bills and bills of public authorities eligible for refinancing 11,434,360 7,804,483
The increases in most of the reported individual items were the result of the merger of RZB AG with RBI AG.
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 2017, the carrying amount totaled € 3,158 thousand and the fair value totaled € 3,361 thousand. In 2017, a result from the reclassified securities of € 141 thousand (2016: € 213 thousand) was shown in the income statement. If the reclassification had not been made, a loss of € 214 thousand (2016: loss of € 78 thousand) would have arisen.
Other interests include € 103,443 thousand in equity participations measured at fair value (2016: € 30,209 thousand).
Financial information on associates is as follows: 2017 in € thousand CCSB LLI1 NTB OEHT OeKB
Participation in entities of all kind and industrial, trading and other entities 33.1% 204,531
Group's interest in net assets of investee as at 31/12 14,503 76,494 33,869 341,534 1 Consolidated financial statements: Profit and equity is after deduction of non-controlling interests. 2 Figures as at 30 September 2017 because UNIQA is a listed company and has not yet published 2017 consolidated financial statements. Fair value of the shares held and based on stock exchange price as at 31 December 2017 amounted to € 296,318 thousand (2016: € 241,892 thousand). POSO: Posojilnica Bank eGen, Klagenfurt (AT) PSS: Prva stavebna sporitelna a.s., Bratislava (SK) RIZ: Raiffeisen Informatik GmbH, Vienna (AT) UNIQA: UNIQA Insurance Group AG, Vienna (AT)
Other intangible fixed assets 31,023 27,688 hereof customer relationships 12,906 17,199
The item software comprises acquired software amounting to € 454,928 thousand (2016: € 416,656 thousand) and internally developed software amounting to € 139,106 thousand (2016: € 114,471 thousand).
Cumulative impairment1 0 (527,366) (527,366) 1 Calculated with average exchange rates RBCZ: Raiffeisenbank a.s., Prague (CZ)
Planning period 5 years 5 years RBCZ: Raiffeisenbank a.s., Prague (CZ) RKAG: Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Vienna (AT)
RKAG RKAG is one of the leading Austrian fund enterprises with a managed consolidated volume of € 32.9 billion as at year-end 2017 and a market share of 17.5 per cent. RKAG has been active internationally for years and is a well-known player in numerous European countries.
The assumptions of planning are based on internal and external sources. Macroeconomic assumptions were compared with external data sources and 5-year plans were presented to the managers of the company. Moreover, planning was approved by the Supervisory Board.
A sensitivity analysis was carried out based on the above-mentioned assumptions in order to evaluate the stability of the impairment test for goodwill. From a number of options for this analysis, two parameters were selected, namely the cost of equity and the reduction of the growth rate. The following overview demonstrates to what extent an increase in the cost of equity or a reduc
Reduction of the growth rates in phase III 0.0 PP 1 The respective maximum sensitivity refers to the change of the perpetuity. RBCZ: Raiffeisenbank a.s., Prague (CZ)
Cumulative impairment2 (16,485) (45,348) (61,833) 1 Calculated with average exchange rates 2 Calculated with period-end exchange rates AVAL: Raiffeisen Bank Aval JSC, Kiev (UA) RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL)
According to IAS 36.9 at the end of each reporting period, an entity is required to assess whether there is any indication that an asset may be impaired based on a list of external and internal indicators of impairment.
The brand value of the Raiffeisen Bank Aval JSC, Kiev, was determined using the comparable historical cost approach, because neither immediately comparable transactions 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 basis for the historical cost approach. In 2017, the impairment test led to no impairment.
The Group capitalized customer relationship intangibles in relation to Raiffeisen Bank Aval JSC, Kiev, Raiffeisen Bank Polska S.A., Warsaw and Raiffeisenbank a.s., Prague. In the reporting year the carrying amounts of the customer relationships as well as the gross amounts and cumulative impairments developed as follows: 2017 in € thousand AVAL RBPL RBCZ Total
Cumulative impairment2 (10,559) (14,229) (3,883) (28,670) 1 Calculated with average exchange rates 2 Calculated with period-end exchange rates AVAL: Raiffeisen Bank Aval JSC, Kiev (UA) RBCZ: Raiffeisenbank a.s., Prague (CZ) RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL)
The impairment test of customer relationships of Raiffeisen Bank Polska S.A., Warsaw, Raiffeisenbank a.s., Prague, and Raiffeisenbank Aval JSC, Kiev, identified no impairment need in 2017.
The fair value of investment property totaled € 429,646 thousand (2016: € 454,745 thousand).
Write-ups, amortization, depreciation, impairment Carrying amount hereof hereof As at in € thousand Cumulative Write-ups Depreciation 31/12/2017
Land and buildings used by the Group for own purpose 755,076 265,805 (19,608) 27,772 (28,979) (160) 999,906 of which land value of developed land 8,491 108 (374) 2,638 (14) 0 10,849
Land and buildings used by the Group for own purpose (274,363) 0 (33,808) 480,713 of which land value of developed land (518) 0 (33) 7,973
As at the reporting date, the item assets held for sale (IFRS 5) primarily contained Raiffeisen Pension Insurance d.d., Zagreb, amounting to € 61,622 thousand, and a property held by Raiffeisen Immobilienfonds, Vienna, amounting to € 49,745 thousand.
The increase in giro and clearing business was mainly attributable to the merger of RZB AG with RBI AG. Most of the deposits are from the institutions of the Raiffeisen Banking Group, whose central institution is now RBI AG following the merger with RZB AG.
In the consolidated financial statements, deferred tax assets are recognized for unused tax loss carry-forwards which amounted to € 7,150 thousand (2016: € 24,047 thousand). The tax loss carry-forwards are mainly without any time limit. The Group did not recognize deferred tax assets of € 574,185 thousand (2016: € 347,016 thousand) because from a current point of view there is no prospect of realizing them within a reasonable period of time.
The increase in savings deposits was the result of customer deposits from the Raiffeisen Bausparkassen Group being included in the course of the merger of RZB AG with RBI AG.
(28) Provisions for liabilities and charges in € thousand As at 1/1/2017
The Group is involved in litigation arising from the undertaking of banking business. The Group does not expect that these legal cases will have a material impact on the financial position of the Group. As of 31 December 2017, Group-wide provisions for pending legal issues amounted to € 129,096 thousand (2016: € 84,914 thousand). Single cases involving provisions in excess of € 10,000 thousand occurred solely in Austria and Slovakia in 2017 and 2016.
 In Slovakia, a customer has taken legal action in relation to a disputed amount of approximately € 71,150 thousand against Tatra banka a.s., Bratislava. The case revolves around agreed credit facilities and a contract breach allegedly committed by Tatra banka a.s. through failing to execute payment transfer orders and renew credit facilities, which ultimately allegedly led to the termination of the customer's business activities. In December 2017, the customer brought an additional, related lawsuit for damages and lost profit in relation to a disputed amount of € 50,459 thousand. The total disputed amount now amounts to € 121,609 thousand.
The return on plan assets for 2017 was € 1,847 thousand (2016: € 548 thousand). The fair value of rights to reimbursement recognized as an asset was € 14,350 thousand (2016: € 15,200 thousand) as at year-end 2017.
Plan assets broke down as follows: hereof own financial instruments 0 0
Longevity at age 65 for current members aged 45 - females 26.9 26.8
Longevity at age 65 for current pensioners – females 23.7 23.6
The weighted average duration of the net defined benefit obligation was 12.6 years (2016: 15.1 years).
The other termination benefits developed as follows: DBO as at 1/1 58,544 63,458
The following table shows the actuarial assumptions used to calculate the other termination benefits: Additional future salary increase for employees 2.7 2.7
Future salary growth (0.5 per cent change) 4,401 (4,089) 3,119 (2,903)
The decline in interest-based transactions is attributable to a reduction in the negative fair values of derivative financial instruments.
The changes include € 38,659 thousand in market price changes. The decline in the item hybrid tier 1 capital was the result of the repayment of the hybrid tier 1 capital of RZB Finance (Jersey) IV Limited, St. Helier.
The shareholders of RZB AG received compensation for their RZB shares in the course of the merger of RZB AG with RBI AG. To provide this compensation, RBI issued 35,960,583 new shares with a nominal value of € 109,680 thousand. As a result, the total number of shares increased from 292,979,038 to 328,939,621.
The Annual General Meeting held on 16 June 2016 also authorized the Management Board, in accordance with Section 65 (1), item 7 of the Austrian Stock Corporation Act (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 (i.e. until 15 December 2018), 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. This authorization may be exercised in full or in part or also in several installments by the company, by a subsidiary (Section 189a, item 7 of the Austrian Commercial Code (UGB)) or, for their account, by third parties.
As at 31 December 2017, the subscribed capital of RBI AG as defined by the articles of incorporation amounted to € 1,003,266 thousand and the subscribed capital consisted of 328,939,621 non-par bearer shares. After deduction of own shares of 394,942, the stated subscribed capital totaled € 1,002,061 thousand.
In addition, if convertible bonds are issued in accordance with the Annual General Meeting resolution of 26 June 2013, shareholders ’ subscription rights may also be excluded in order to issue (own) shares to the holders of these convertible bonds who exercise the conversion or subscription rights granted them under the terms of the convertible bonds to shares of the company. This authorization applies for a period of five years from the date of the resolution (i.e. until 15 June 2021). No own shares have been bought since the authorization was issued in June 2016.
in the subscribed capital of up to € 119,258 thousand. Shareholders` subscription rights to the convertible bonds are excluded. However, no convertible bonds have been issued to date.
Pursuant to Section 159 (2) item 1 of the Austrian Stock Corporation Act (AktG), the subscribed capital has been increased contingently by a maximum of € 119,258 thousand by issuing a maximum of 39,101,024 common bearer shares (contingent capital). The contingent capital increase will only be performed if and when use is made of an irrevocable right of exchange or subscription granted on shares by the company to creditors holding convertible bonds issued on the basis of the resolution of the Annual General Meeting on 26 June 2013 and the Management Board does not decide to issue own shares.
The Management Board of RBI AG will propose to the Annual General Meeting to pay a dividend of € 0.62 per share from the net profit shown in the 2017 annual financial statements. Since the new shares issued in the course of the merger with RZB AG are entitled to full dividend rights for the 2017 financial year, the total dividend paid based on shares issued would be no more than € 203,943 thousand.
Dividends paid to non-controlling interests during the year1 0 12,711 23,970 3,346 1 Included in net cash from financing activites
Value as at stock price € 20.955 on allocation day Number of shares actually transferred
Executives of the company and other affiliated companies 36,129 757,083 24,430
On the reporting date, contingent shares for the last 2013 tranche still outstanding were allocated. As at 31 December 2017, the number of these contingent shares was 321,268. The originally published number of contingently allotted shares changed due to various personnel changes within Group units. It is shown on an aggregated level in the following table: Share incentive program (SIP) 2013 Group of persons
Members of the management board of the company 92,895 27,869 139,343
Members of the management boards of bank subsidiaries affiliated with the company
Executives of the company and other affiliated companies 75,138 22,541 112,707
(34) Breakdown of remaining terms to maturity 2017 Short-term assets/liabilities Long-term assets/liabilities in € thousand Due at call or without maturity Up to 3 months More than 3 months, up to 1 year More than 1 year, up to 5 years More than
The table below shows the liabilities corresponding to the assets pledged as collateral and contains liabilities from repo business, securities lending business, securitizations and debentures: Deposits from banks 3,676,725 2,579,979
The table below shows securities and other financial assets accepted as collateral: Securities and other financial assets accepted as collateral which can be sold or repledged 9,931,063 5,139,516 hereof which have been sold or repledged 1,463,047 418,169
The Group received collaterals which can be sold or repledged even if no default occurs in the course of reverse repo business, securities lending business, derivative and other transactions.
Other financial instruments (legally enforceable) 35,061 0 35,061 0 0 35,061
In 2017, assets which were not subject to legally enforceable netting agreements amounted to € 124,216,707 thousand (2016: € 104,226,968 thousand), of which an immaterial part was accounted for by derivative financial instruments and cash balances from reverse repo business. Liabilities which were not subject to legally enforceable netting agreements totaled € 122,371,132 thousand in 2017 (2016: € 99,535,179 thousand), of which only an immaterial part was accounted for by derivative financial instruments and cash deposits from repo business.
Other financial instruments (legally enforceable) 188,172 0 188,172 0 0 188,172 2016 Gross amount Net amount
Other financial instruments (legally enforceable) 10,206 0 10,206 0 0 10,206
The gross amounts of financial assets and financial liabilities and their net amounts disclosed in the above tables have been measured at either fair value (derivatives, other financial instruments) or amortized cost (loans and advances, deposits and other financial instruments). All amounts have been reconciled to the line items in the statement of financial position.
Equity/index futures - forward pricing 442,351 0 0 442,351 10,126 (13,157)
The negative market values for equity/index contracts are offset by shares purchased for hedging purposes. These shares are recorded under trading assets and are not shown in the above table.
Precious metals contracts 18,024 0 0 18,024 0 (1,120) 1 Adaptation of the previous year‘s figures for stocks with a maturity of more than five years
In the case of a market valuation where the market cannot be considered as an active market because of its restricted liquidity, the underlying financial instrument is assigned to Level II of the fair value hierarchy. If no market prices are available, these financial instruments are measured using valuation models based on observable market data. These observable market data are mainly reproducible yield curves, credit spreads and volatilities. The Group generally uses valuation models which are subject to an internal audit by the Market Risk Committee in order to ensure appropriate measurement parameters.
If fair value cannot be measured using either sufficiently regularly quoted market prices (Level I) or using valuation models which are entirely based on observable market prices (Level II), then individual input parameters which are not observable on the market are estimated using appropriate assumptions. If parameters which are not observable on the market have a significant impact on the measurement of the underlying financial instrument, it is assigned to Level III of the fair value hierarchy. These measurement parameters which are not regularly observable are mainly credit spreads derived from internal estimates.
2016 Nominal amount by maturity Fair values in € thousand Up to 1 year More than 1 year, up to 5 years More than 5 years Total Positive Negative
Equity/index futures - forward pricing 405,278 291 497 406,066 31,302 (32,414)
In the Group, well-known conventional market valuation techniques are used to measure OTC derivatives. For example, interest rate swaps, cross currency swaps or forward rate agreements are measured using the customary discounted cash flow model for these products. OTC options, such as foreign exchange options or caps and floors, are based on valuation models which are in line with market standards. For the products mentioned as examples, these would include the Garman-Kohlhagen model, BlackScholes 1972 and Black 1976. Complex options are measured using binomial tree models and Monte-Carlo simulations.
For OTC derivatives, credit value adjustments (CVA) and debit value adjustments (DVA) are used to cover expected losses from credit business. The CVA will depend on the expected future exposure (expected positive exposure) and the probability of default of the contractual partner. The DVA is determined based on the expected negative exposure and on RBI's credit quality. The expected positive exposure is calculated by simulating a large number of scenarios for future points in time, taking into account all available risk factors (e.g. currency and yield curves). OTC derivatives are measured at market values taking into account these scenarios at the respective future points in time and are aggregated at counterparty level in order to then ascertain the expected positive exposure for all points in time. Counterparties with CSA contracts (credit support annex contracts) are taken into account in the calculation. Here, the expected exposures are not calculated directly from simulated market values, but from a future expected change in market values based on a margin period of risk of 10 days.
In the tables below, the financial instruments reported at fair value in the statement of financial position are grouped according to items in the statement of financial position and classified according to measurement category. A distinction is made as to whether the measurement is based on quoted market prices (Level I), or whether the valuation models are based on observable market data (Level II) or on parameters which are not observable on the market (Level III). Items are assigned to levels at the end of the reporting period.
2017 2016 in € thousand Level I Level II Level III Level I Level II Level III
Positive fair values of derivatives1 127,873 2,009,213 1,009 93,900 3,342,774 852
Shares and other variable-yield securities 243,211 232 59 164,159 350 65
Bonds, notes and other fixed-interest securities 1,675,639 275,480 23,792 1,772,637 324,368 71,303
Shares and other variable-yield securities 102,188 96 1,150 2,502 23 1,168
Bonds, notes and other fixed-interest securities 4,846,111 1,266,043 176,216 3,748,871 15,465 70,865
Positive fair values of derivatives (hedging) 0 521,959 0 0 644,693 0 1 Including other derivatives
Negative fair values of derivative financial instruments1 114,913 1,610,886 517 135,334 2,826,443 91
Negative fair values of derivatives (hedging) 0 204,508 0 0 425,415 0 1 Including other derivatives
If instruments are reclassified from Level I to Level II, this means that market quotations were previously available for these instruments but are no longer so. These securities are now measured using the discounted cash flow model, using the respective applicable yield curve and the appropriate credit spread.
Financial assets at fair value through profit or loss 1,456 0 0 (41,981) 11,120
Closing period Currency risk LT volatility Index category Net interest rate
Negative fair value of banking book derivatives without hedge accounting OTC options 517
Loans and advances to banks 0 8,262,067 1,647,033 9,909,101 9,849,646 59,455
The following table contains revocable credit lines: Revocable credit lines 19,799,534 16,890,479
The respective regional and locally active Raiffeisen banks are members of the regional IPS.
The federal IPS relies on uniform, joint risk monitoring as part of the early warning system of the Österreichische RaiffeisenEinlagensicherung (ÖRE). The IPS hence supplements the RBG system of mutual assistance that comes into effect if a member experiences economic difficulties. One case arose in 2016 and 2017 (Posojilnica Bank eGen, Klagenfurt), in which total capital was made available to the institution concerned from the special fund already created in the form of subscribed shares and a subordinated loan.
Individual risk management units of the Group develop detailed risk strategies, which set more concrete risk targets and specific standards in compliance with these general principles. The overall Group risk strategy is derived from the Group’s business strategy and the risk appetite and adds risk relevant aspects to the planned business structure and strategic development. These aspects include for example structural limits and capital ratio targets which have to be met in the budgeting process and in the scope of business decisions. More specific targets for individual risk categories are set in detailed risk strategies. The credit risk strategy of RBI, for instance, sets credit portfolio limits for individual countries and segments and defines the credit approval authority for limit applications.
The Group Risk Management Committee is the most senior decision-making body for all of the Group’s risk-related topic areas. It decides on the risk management methods and on the control concepts used for the overall Group and for key subdivisions, and is responsible for ongoing development and implementation of methods and parameters for risk quantification and for refining steering instruments. This also includes the risk appetite, different risk budgets and limits at overall bank level and monitoring of the current risk situation with respect to internal capital adequacy and the corresponding risk limits. It approves risk management and controlling activities (such as the allocation of risk capital) and advises the Management Board in these matters.
All these aspects are coordinated by the division Group Compliance which analyzes the internal control system on an ongoing basis and – if actions are necessary for addressing any deficiencies – is also responsible for tracking their implementation.
The Group Operational Risk Management & Control Committee comprises representatives of the business areas (retail, market and corporate customers) and representatives from Compliance (including financial crime), Internal Control System, Operations, Security and Risk Controlling, under chairmanship of the CRO. This committee is responsible for controlling the operational risk (including conduct risk) of the Group. It derives and sets the operational risk strategy based on the risk profile and the business strategy and also makes decisions regarding measures, controls and risk acceptance.
Unexpected losses on an annual basis (“economic capital”) must not exceed the present value of equity and subordinated liabilities 99.92 per cent as derived from the default probability implied by the target rating
Risk-taking capacity (projected earnings plus capital exceeding regulatory requirements) must not fall below the annualized value-at-risk of the Group 95 per cent presuming the owners´ willingness to inject additional capital
The objective of calculating economic capital is to determine the amount of capital that would be required for servicing all of the claims of customers and creditors even in the case of such an extremely rare loss event. The Group uses a confidence level of 99.92 per cent for calculating economic capital. This confidence level is derived from the probability of default implied by the target rating. Based on the empirical analysis of rating agencies, the selected confidence level corresponds to a rating of Single A.
The economic capital is compared to internal capital, which mainly comprises equity and subordinated capital of the Group. This capital form serves as a primary means of risk coverage for servicing claims of senior lenders if the bank should incur losses. As at year-end 2017, total utilization of available risk capital (the ratio of economic capital to internal capital) amounted to around 45 per cent (2016: 46 per cent).
Economic capital is an important instrument in overall bank risk management. Economic capital limits are allocated to individual business areas during the annual budgeting process and are supplemented for day-to-day management by volume, sensitivity, or value-at-risk limits. In the Group this planning is undertaken on a revolving basis for the upcoming three years and incorporates the future development of economic capital as well as available internal capital. Economic capital thus substantially influences the plans for future lending activities and the overall limit for taking market risks.
Risk distribution of individual risk types to economic capital: in € thousand 2017 Share 2016 Share
The increase relative to the comparable period is predominantly due to the merger of RZB AG into RBI AG. Without this effect the development of economic capital would have been slightly negative.
In the non-retail division, each lending transaction runs through the limit application process beforehand. This process covers – besides new lending – increases in existing limits, rollovers, overdrafts, and changes in the risk profile of a borrower (e.g. with respect to the financial situation of the borrower, the terms and conditions, or collateral) compared to the time of the original lending decision. It is also used when setting counterparty limits in trading and new issuance operations, other credit limits, and for equity participations.
Revocable credit lines 19,799,534 16,890,479 1 Items on the statement of financial position contain only credit risk amounts
The following table translates items of the statement of financial position (bank and trading book positions) into the maximum credit exposure, which is used in portfolio management. It includes exposures on and off the statement of financial position before the application of credit-conversion factors and thus represents the maximum credit exposure. It is not reduced by the effects of credit risk mitigation such as guarantees and physical collateral, effects that are, however, considered in the total assessment of credit risks. The maximum credit exposure is used – if not explicitly stated otherwise –- in all subsequent tables in the risk report. The reasons for different values used for internal portfolio management and external financial accounting are the different scopes of consolidation (regulatory versus IFRS, i.e. corporate legal basis), different classifications and presentation of exposure volumes.
in € thousand 2017 Share 2016 Share 8 Weak credit standing / sub-standard 1,300,346 1.8% 1,498,401 2.3%
Compared to year-end 2016, the total credit exposure to corporates increased € 6,266,009 thousand (of which € 3,554,636 thousand caused by the merger of RZB AG into RBI AG, most noticeably in the rating grades 3, 5 and 6) to € 72,025,251 thousand.
The following changes occurred in the financial year 2017: Rating grade 2 recorded an increase of € 1,889,224 thousand to € 8,969,703 thousand, due to facility and credit financing and to documentary credits. The € 1,716,643 thousand increase in rating grade 4 to € 12,204,805 thousand resulted from credit financing. The € 2,055,650 thousand change in rating grade 5 to € 15,205,176 thousand was attributable to an increase in facility financing, guarantees issued and – in connection with the merger – credit financing. The € 1,444,863 thousand decline in rating grade 10 to € 2,580,903 thousand mainly resulted from the derecognition of uncollectible loans and sales of non-performing loans in Ukraine, at RBI AG, in Romania and in Croatia.
6.2 Good project risk profile – low risk 1,948,193 23.4% 1,850,736 22.9%
6.3 Acceptable project risk profile – average risk 516,829 6.2% 843,661 10.4%
6.4 Poor project risk profile – high risk 219,446 2.6% 246,584 3.0%
The credit exposure in project finance amounted to € 8,326,708 thousand at year-end 2017, representing an increase of € 239,374 thousand (of which € 178,436 thousand caused by the merger of RZB AG into RBI AG, most noticeably in rating grades 6.1, 6.3 and 6.4).
At 82.5 per cent, projects rated in the two best rating grades, excellent project risk profile – very low risk or good project risk profile – low risk, accounted for the highest share of the portfolio. This reflects mainly the high level of collateralization in specialized lending transactions. In addition to the merger of RZB AG into RBI AG, the increase in rating grade 6.1 excellent project risk profile – very low risk was also attributable to new customers in Austria, the Czech Republic and Germany. The merger-related increase in rating grade 6.3 acceptable project risk profile – average risk was offset by the depreciation of the Russian rouble and by the rating upgrade of individual Polish customers. The increase in rating grade 6.4 poor project risk profile – high risk, which was also caused by the merger, was offset by a reduction in project financing.
At € 80,351,959 thousand, the credit exposure showed a € 6,505,383 thousand increase (of which € 3,733,071 thousand caused by the merger of RZB AG into RBI AG) compared to year-end 2016.
Retail customers are subdivided into private individuals and small and medium-sized entities. 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 retail credit exposure of the Group: in € thousand 2017 Share 2016 Share
The total credit exposure to retail customers breaks down by Group segments as follows: 2017 Southeastern in € thousand Central Europe Europe Eastern Europe Group Corporates & Markets
Retail customers – small and medium-sized entities 1,560,421 690,715 357,733 432,534 hereof individual loan loss provision 553,648 346,469 246,242 5,828 hereof portfolio-based loan loss provision 100,538 80,178 40,116 3,243 2016 Southeastern in € thousand Central Europe Europe Eastern Europe Non-Core Group Markets Retail customers – private individuals 9,954,054 7,335,063 4,003,633 5,191,768 13,011
The following table shows the credit exposure in foreign currencies to this asset class by segments: 2017 in € thousand Central Europe Southeastern Europe Eastern Europe Group Corporates & Markets 2016 in € thousand Central Europe Southeastern Europe Eastern Europe Non-Core Group Markets
The following table shows the total credit exposure by internal rating for banks (excluding central banks). Due to the small number of customers (or observable defaults), the default probabilities of individual rating grades in this asset class are calculated based on a combination of internal and external data.
The share of foreign currency loans in the retail portfolio provides an indication of the potential change in default rates if the exchange rate of the domestic currency changes. The internal risk assessment thus takes into account the share of foreign currency loans but also the usually stricter lending criteria when granting the loan and – in several countries – the borrowers’ matching foreign currency income.
in € thousand 2017 Share 2016 Share 8 Weak credit standing / sub-standard 244,895 1.3% 245,432 1.3%
The credit exposure amounted to € 18,644,602 thousand at year-end 2017. The merger of RZB AG into RBI AG resulted in a € 1,400,437 thousand increase in the credit exposure, primarily in rating grade 1. This increase was offset by a decline in facility and credit financing, and in repo, swap and money market transactions.
Rating grade 2 recorded a € 316,631 thousand decline to € 2,602,058 thousand, attributable to repo and swap transactions, and to money market transactions. The € 40,729 thousand increase in rating grade 3 to € 9,975,360 thousand resulted from an increase in the bond portfolio and in repo and money market transactions. This was, however, partially offset by a decline in facility and credit financing, and in swap transactions. The € 170,791 thousand reduction in rating grade 4 to € 1,220,605 thousand mainly resulted from rating shifts. In rating grade 5, rating shifts and repo transactions resulted in a € 365,106 thousand decline to € 676,466 thousand. Rating grade 9 recorded a € 73,273 thousand reduction to € 4,183 thousand, due to derecognitions in Cyprus. The € 73,079 thousand decline in rating grade 10 to € 10,688 thousand resulted from derecognitions of non-performing loans to banks.
The following table provides a breakdown of the total credit exposure by country of risk grouped into regions: in € thousand 2017 Share 2016 Share
New business in this asset class thus mainly stems from counterparty credit exposure from derivatives and short-term money market deposits. Credit business with other banks in the Austrian Raiffeisen Banking Group which are participating in a joint risk monitoring system is not restricted.
The table below shows the total credit exposure to banks (excluding central banks) by products: in € thousand 2017 Share 2016 Share
Russia, the Great Britain and Germany reported an increase in repo transactions; this was, however, partly offset by a decline in France and Italy. The increase in bonds and loans was attributable to the merger of RZB AG into RBI AG. The product group derivatives reported a decrease, which was due to the development in Austria and the Great Britain.
Another asset class is formed by central governments, central banks, as well as regional governments and other public sector entities. The table below shows a breakdown of the total credit exposure to sovereigns (including central banks) by internal rating.
The increase in rating grade A2 very good credit standing was based on the merger-related increase in deposits at the Austrian National Bank and in increase in the portfolio of bonds of the Republic of Austria. The medium rating grades good credit standing (rating A3) to mediocre credit standing (rating B3) represented the highest share at 62.5 per cent. The high exposure in the medium rating grades resulted among other factors from bonds of central banks and central governments in Central Europe, Eastern Europe and Southeastern Europe. The medium rating grades also reflected money market and repo transactions. The increase in rating grade A3 good credit standing was merger-related and based on repo transactions, and on transactions with the Czech national bank. This was offset by a decline in money market transactions. The growth in rating grade B2 average credit standing mainly resulted from bonds in Romania and Germany. This contrasted with a decline in the minimum reserve at the Romanian national bank. Rating grade B3 mediocre credit standing reported an increase, mainly due to the portfolio of government bonds from Russia and Hungary, and to deposits at the Croatian and the Bulgarian national banks.
The table below shows the total credit exposure to sovereigns (including central banks) by products: in € thousand 2017 Share 20161 Share 1 Adaptation of previous year figures due to higher detailing
The following transactions for all or at least individual tranches were executed with external contractual partners, were still active in the reporting year and resulted in a credit risk mitigation. In each case, the figures shown represent the securitized portfolio and the underlying assets as well as the amount of the externally placed tranche on the reporting date.
1 Junior tranche held in the Group 2 Due to full amortization of the senior tranche, the amount of the externally placed junior tranche corresponds to the amount of the securitized portfolio. 3 Outstanding portfolio (securitized and retained) SME: Small and Medium-sized Enterprises
The Group participates in the synthetic ROOF RBCZ 2015 transaction, which was split into a senior, a mezzanine and a junior tranche. The mezzanine tranche in the amount of € 68,281 thousand was sold to institutional investors, while Raiffeisenbank a.s., Prague, holds the credit risk of the junior and senior tranches.
As part of the Western Balkans Enterprise Development and Innovation Facility, the participating subsidiaries (Raiffeisenbank Sh.a., Tirana, and Raiffeisenbank Austria d.d., Zagreb) each signed a portfolio guarantee agreement, funded by the EU and similar to the JEREMIE initiatives, aimed at providing access to finance for small and medium-sized enterprises.
Problem loan management standards in the retail area comprise the whole restructuring and collection process for private individuals and small and medium-sized entities. A restructuring guideline defines the Group’s restructuring framework including uniform strategy, organization, methods, monitoring and controlling. In the workout process customers are classified into three categories early, late, and recovery, for which a standardized customer handling process is defined.
The critical aspect in deciding whether a loan is forborne in the non-retail business is the financial situation of a customer at the time the terms or loan conditions are altered. If based on the customer's creditworthiness (taking the internal early warning system into account) it can be assumed, at the point when the loan terms or conditions are altered, that the customer is in financial difficulties and if the modification is assessed as a concession, such loans are designated as forborne. If such a modification for a loan previously considered as non-performing is carried out, then the loan is assessed as non-performing exposure (NPE) irrespective of whether a reason for default pursuant to Article 178 CRR exists. The decision on whether a loan is classified as forborne/NPE does not trigger an individual loan loss provision in respect of the customer; this may where applicable be applied based on the default definition of CRD IV/CRR.
2016 Current Overdue Collateral in € thousand Up to 30 days 31 days, up to 90 days 91 days, up to 180 days 181 days, up to 1 year
The following table shows the non-performing exposure pursuant to the applicable definition contained in the EBA document Implementing Technical Standards (ITS) on Supervisory Reporting (Forbearance and non-performing exposures) and considers non defaulted and defaulted exposure.
The following tables show the non-performing exposure according to segments: in € thousand 2017 Share
in € thousand 20161 Share hereof non-banks 341,378 100% 1 Adaptation of previous year figures
The following table shows the non-performing exposure according to asset classes: Refinancing Instruments with modified time and modified conditions NPE total in € thousand 2017 2016 2017 2016 2017 2016
Change in consolidated group Exchange rate Additions Disposals As at 31/12/2016
In 2017, in the asset class corporate customers, non-performing loans decreased € 1,365,996 thousand to € 2,991,424 thousand, mainly due to sales and derecognitions. The ratio of non-performing loans to credit exposure fell 3.0 percentage points to 6.3 per cent. The NPL coverage ratio fell 13.0 percentage points to 58.5 per cent. In the retail portfolio, non-performing loans sank 23.8 per cent, or € 506,789 thousand, to € 1,619,729 thousand, also due to sales and derecognitions. The ratio of non-performing loans to credit exposure fell 3.5 percentage points to 4.8 per cent. The NPL coverage ratio increased 0.6 percentage points to 82.8 per cent. At € 10,030 thousand at year-end 2017, the portfolio of non-performing loans to banks was € 67,247 thousand less than at yearend 2016.
The following tables show the development of non-performing loans in the defined asset classes loans and advances to customers and loans and advances to banks (excluding items off the statement of financial position): in € thousand As at 1/1/2017
The following table shows the share of non-performing loans in the defined asset classes loans and advances to customers and loans and advances to banks as reported in the statement of financial position (excluding items off the statement of financial position) according to segments: 2017 in € thousand NPL NPL ratio NPL coverage ratio 2016 in € thousand NPL NPL ratio NPL coverage ratio
In Southeastern Europe, non-performing loans decreased € 373,503 thousand to € 1,047,819 thousand in 2017. All countries recorded declines. Romania and Croatia reported the highest reductions in a total amount of € 190,999 thousand, primarily caused by sales and derecognitions. The NPL ratio fell 2.8 percentage points to 7.1 per cent; the NPL coverage ratio increased 1.3 percentage points to 81.0 per cent.
In the period under review, the changes in consolidated group primarily show the effect of the merger of RZB AG into RBI AG.
Portfolio-based loan loss provisions 381,982 (5,667) 179,338 (183,778) (55) 9,134 380,954 1 Allocation including direct write-downs and income on written down claims. 2 Usage including direct write-downs and income on written down claims.
Usage was mainly based on the sale and derecognition of uncollectible loans.
The following table shows the breakdown of loan loss provisions according to segments: Individual loan loss provisions 2,865,350
Country risk includes transfer and convertibility risks as well as political risk. It arises from cross-border transactions and direct investments in foreign countries. The Group is exposed to this risk due to its 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 largest increase of € 13,802,691 thousand to € 33,739,084 thousand in Austria was attributable to the merger-related integration of Raiffeisen Bausparkasse Gesellschaft m.b.H., Vienna, an increase in deposits at the Austrian National Bank, a higher portfolio of bonds of the Republic of Austria and to credit financing. The Czech Republic reported a € 4,755,105 thousand growth to € 19,802,566 thousand, which was the result of the merger-related integration of Raiffeisen stavebni sporitelna a.s., Prague, and of repo transactions and an increased bond portfolio. This increase was, however, partially offset by a decline in money-market business. Germany reported a € 2,100,988 thousand increase to € 8,455,087 thousand, which resulted from an increase in the bond portfolio, in credit and facility financing, and in repo transactions.
Public administration and defence and social insurance institutions 16,593,524 9.8% 11,844,457 8.1%
Wholesale trade and commission trade (except car trading) 12,638,639 7.4% 11,976,256 8.2%
The merger of RZB AG into RBI AG resulted in a € 21,498,095 thousand increase, primarily in private households, banking and insurance and public administration, defence and social insurance institutions.
An important strategy for reducing counterparty credit risk is utilization of credit risk mitigation techniques such as netting agreements and collateralization. In general, the Group strives to establish standardized ISDA master agreements with all major counterparties for derivative transactions in order to be able to perform close-out netting and credit support annexes (CSA) for full risk coverage for positive fair values on a daily basis.
Market risks from the customer divisions are transferred to the Treasury division by using the transfer price method. Treasury is responsible for managing structural market risks and for complying with the Group’s overall limit. The Capital Markets division is responsible for proprietary trading, market making, and customer business with money market and capital market products.
Trading book VaR 99% 1d VaR as at VaR as at in € thousand 31/12/2017 Average VaR Minimum VaR Maximum VaR 31/12/2016
 Stop loss This limit strengthens the discipline of traders such that they do not allow losses to accumulate on their own proprietary positions but strictly limit them instead.
The presentation of currencies changed year-on-year depending on the absolute amount of interest rate sensitivity: Raiffeisen Bank International | Annual Report 2017
Interest rate risk in the banking book is not only measured within a value-at-risk framework but also managed by the traditional tools of nominal and interest rate gap analyses. Interest rate risk is subject to quarterly reporting in the context of the interest rate risk statistic submitted to the banking supervisor. This report also shows the change in the present value of the banking book as a percentage of total capital in line with the CRR requirements. Maturity assumptions needed in this analysis are defined as specified by regulatory authorities and based on internal statistics and empirical values.
The Group’s funding structure is highly focused on retail business in Central and Eastern Europe. In addition, as a result of the Austrian Raiffeisen Banking Group’s strong local market presence, the Group also benefits from funding through the Raiffeisen Landesbanken. Different funding sources are utilized in accordance with the principle of diversification. These include the issue of international bonds by RBI AG, the issue of local bonds by the Group units and the use of third party financing loans (including supranationals). Partly due to tight country limits and partly due to beneficial pricing, the Group units also use interbank loans with third-party banks.
Liquidity adequacy is ensured from both an economic and a regulatory perspective. In order to approach the economic perspective RBI Group established a governance framework comprising internal limits and steering measures which complies with the Principles for Sound Liquidity Risk Management and Supervision set out by the Basel Committee on Banking Supervision and the Kreditinstitute-Risikomanagement-Verordnung (KI-RMV) by the Austrian regulatory authority.
The liquidity risk framework is continuously developed at both Group level and at the level of the individual Group units. The technical infrastructure is enhanced in numerous Group-wide projects and data availability is improved in order to meet the new reporting and management requirements for this area of risk.
The bank uses a range of customized measurement tools and early warning indicators that provide board members and senior management with timely and forward looking information. The limit framework ensures that the bank can continue to operate in a period of severe stress.
As shown by the daily liquidity risk reports, each Group unit actively maintains and manages liquidity buffers, including high quality liquid assets (HQLA) which are always sufficient to cover the net outflows expected in crisis scenarios. The Group has sizeable, unencumbered and liquid securities portfolios and favors securities eligible for Central Bank tender transactions in order to ensure sufficient liquidity in various currencies. Each Group unit ensures the availability of liquidity buffers, tests its ability to utilize central bank funds, constantly evaluates its collateral positions as regards their market value and encumbrance and examines the remaining counterbalancing capacity, including the funding potential and the saleability of the assets.
The results of the going concern scenario are shown in the following table. It illustrates excess liquidity and the ratio of expected cash inflows plus counterbalancing capacity to cash outflows (liquidity ratio) for selected maturities on a cumulative basis. Based on assumptions employing expert opinions, statistical analyses and country specifics, this calculation also incorporates estimates of the stability of the customer deposit base, outflows from items off the statement of financial position and downward market movements in relation to positions which influence the liquidity counterbalancing capacity.
Compared to year-end 2016, in 2017 the LCR of RBI Group decreased as planned. Main drivers were the inclusion of RZB AG’s business into RBI AG in March 2017 and the intended liquidity surplus reduction at RBI AG.
The NSFR is defined as the ratio of available stable funding to required stable funding. The regulatory limit is expected to be set at 100 per cent and to be used for the first time in 2020. Available stable funding is defined as the portion of equity and debt which is expected to be a reliable source of funds over the time horizon of one year covered by the NSFR. A bank’s required stable funding depends on the liquidity characteristics and residual maturities of the various assets and off-balance sheet positions.
As a consequence, long-term funding depends on restoring confidence in banks and increased efforts in collecting customer deposits. RBI AG’s banking activities are financed by combining wholesale funding and the retail franchise of deposit-taking subsidiary banks. It is the central liquidity balancing agent for the local Group units in Central and Eastern Europe.
Letters of credit (documentary business) 1,329,472 1,827,723 1,266,484 379,484 180,829 926
Derivatives in the trading book 2,600,333 6,292,952 3,157,018 1,533,305 1,139,389 463,241
(43) Fiduciary business Fiduciary business not recognized in the statement of financial position was concluded with the following volumes on the reporting date: Loans and advances to customers 222,727 245,771
The increase in managed funds was mainly attributable to the transfer of Raiffeisen Capital Management in connection with the merger of RZB AG and RBI AG.
Net investment value 2,907,583 1,880,492 1 Adjustment of the previous year’s figures
The increase in the net investment value in finance leases was mainly attributable to the transfer of the Raiffeisen Leasing Group in connection with the merger of RZB AG and RBI AG. Write-offs on unrecoverable minimum lease payments fell to € 4,849 thousand (2016: € 9,633 thousand).
Assets under finance leases break down as follows: Real estate leasing 1,178,682 403,352 1 Adjustment of the previous year’s figures
Operating leases decreased from the view of the lessee, mainly as a result of the developments in Slovakia, Poland and Russia.
(46) Other disclosures according to BWG Geographical markets 2017 Monetary values in € thousand
Securities admitted for trading on a stock exchange 2017 2016 in € thousand Listed Unlisted Listed Unlisted
Regulatory values for RBI are defined on a consolidated and individual basis by the BWG and the applicable regulation of the European Parliament. There are also – often deviating with regard to content – guidelines in individual countries in which the Group operates. Such rules must be adhered to separately by the local units.
For internal management purposes, targets which take account of a management buffer in addition to the regulatory requirements are defined for the Group. The regulatory requirements form the main component of the targets and take account of the buffer requirements set out in the Capital Requirement Directive (CRR) and the specific buffer for the RBI Group determined under the Supervisory Review and Evaluation Process (SREP). The amount of the management buffer is set internally and takes account, among other things, of the results of stress tests that are performed under the Internal Capital Adequacy Assessment Process (ICCAP), a quantitative method used to assess the adequacy of internal capital. Moreover, the optimal mixture of total capital (e.g. the ratio of additional tier 1 capital to tier 2 capital) plays an important role and is an integral part of capital management. Risk taking capacity is calculated within the framework of regulatory limits. It is defined as the maximum loss which the bank or the banking group may incur during the next twelve months without falling short of the regulatory minimum capital ratios.
This so-called Pillar 2 requirement is calculated based on the business model, risk management and capital situation, for example. In addition, the RBI Group is subject to the minimum requirements of the CRR and the combined buffer requirement. The combined buffer requirement for the RBI Group currently contains a capital conservation buffer, a systemic risk buffer and a countercyclical buffer. As at 31 December 2017, the CET1 ratio requirement (including the combined buffer requirement) is 8.6 per cent for the RBI Group. A breach of the combined buffer requirement would induce constraints, for example in relation to dividend distributions and coupon payments on certain capital instruments. The capital requirements in force during the year, including a sufficient buffer, were met on a consolidated basis.
Further expected regulatory changes and developments are monitored, and included and analyzed in scenario calculations undertaken by Group Regulatory Affairs on an ongoing basis. Potential effects are taken into account in planning and governance, insofar as the extent and implementation are foreseeable.
The total capital broke down as follows: Paid-in capital 5,993,858 5,886,199
The transitional ratios are the currently applicable ratios according to CRR requirements under consideration of the applicable transitional provisions for the current calendar year set out in Part 10 of the CRR in conjunction with the CRR Supplementary Regulation (CRR-BV), published by the FMA.
The basis for the assessment of credit risk by asset class was as follows: Risk-weighted assets according to standardized approach 27,950,121 20,025,409
The following table provides an overview of the calculation methods that are applied to determine total capital requirements in the subsidiaries: Credit risk Market Operational Unit Non-Retail Retail risk risk
(49) Related parties Transactions with related parties are limited to banking business transactions that are carried out at fair market conditions. Moreover, members of the Management Board hold shares of Raiffeisen Bank International AG.
The main companies exercising a significant influence are Raiffeisenlandesbank Niederösterreich-Wien AG, Vienna, as the largest single shareholder, and its parent company, Raiffeisen-Holding Niederösterreich-Wien registrierte Genossenschaft mit beschränkter Haftung, Vienna. Under affiliated companies, affiliated companies that are not consolidated due to immateriality are shown. Disclosures on RBI’s transactions with key management are reported under note (50) Relations to key management.
Companies valued at equity Other interests 2016 in € thousand Parent companies Affiliated companies
Key management refers to the members of the Management Board and the Supervisory Board of RBI AG. Transactions between key management and RBI are as follows (respective fair values): The following table shows transactions with related parties of key management of RBI: There is no compensation agreed between the company and members of the Management Board and Supervisory Board or employees in the case of a takeover bid.
The following table shows total remuneration of the members of the Management Board according to IAS 24.17. The expenses according to IAS 24 were recognized on an accrual basis and according to the rules of the underlying standards (IAS 19 and IFRS 2): Short-term employee benefits 8,324 8,234
The Annual General Meeting held on 22 June 2017 approved annual remuneration for the members of the Supervisory Board of € 550 thousand and assigned the distribution to the Supervisory Board. The members of the Supervisory Board determined the distribution by resolution on 15 May 2017 subject to approval of the Annual General Meeting held on 22 June 2017 as follows: Chairman € 70 thousand, Deputy Chairman € 60 thousand, members of the Supervisory Board € 50 thousand. Meeting attendance fees are not paid.
The Supervisory Board as at 31 December 2017 was as follows: Members of the Supervisory Board First assignment End of period
Helge Rechberger2 10 October 2010 Until further notice 1 Effective as of 10 October 2010. 2 Delegated by the Staff Council
Health Resort Gars RBI Immobilien-Leasing GmbH, Vienna (AT) 75.0% 31/10 Materiality
"Raiffeisen-Rent" Vermögensberatung und Treuhand Gesellschaft m.b.H., Vienna (AT) 100.0% 1/1 Merger
Abutilon Immobilienleasing GmbH & Co. Projekt Autohof Ibbenbüren KG, Eschborn (DE) 6.0% 1/1 Merger
Achat Immobilienleasing GmbH & Co. Projekt Hochtaunus-Stift KG, Eschborn (DE) 1.0% 1/1 Merger
Acridin Immobilienleasing GmbH & Co. Projekt Marienfeld KG, Eschborn (DE) 100.0% 1/1 Merger
Abade Immobilienleasing GmbH & Co Projekt Lauterbach KG, Eschborn (DE) 6.0% 1/1 Merger
Abakus Immobilienleasing GmbH & Co Projekt Leese KG, Eschborn (DE) 6.0% 1/1 Merger
Agamemnon Immobilienleasing GmbH & Co. Projekt Pflegeheim Freiberg KG, Eschborn (DE) 100.0% 1/1 Merger
AL Taunussteiner Grundstücks-GmbH & Co KG, Eschborn (DE) 88.0% 1/1 Merger
"Am Hafen" Sutterlüty GmbH & Co KG, Vienna (AT) 50.0% 1/1 Merger
Austria Leasing GmbH & Co. Immobilienverwaltung Projekt Hannover KG, Eschborn (DE) 100.0% 1/1 Merger
Austria Leasing GmbH & Co. KG Immobilienverwaltung CURA, Eschborn (DE) 100.0% 1/1 Merger
Lentia Immobilienleasing GmbH & Co. Albert-Osswald-Haus KG, Eschborn (DE) 6.0% 1/1 Merger
Niederösterreichische Landes-Landwirtschaftskammer Errichtungs- und Betriebsgesellschaft m.b.H., Vienna (AT) 100.0% 1/1 Merger
Ostarrichi Immobilienleasing GmbH & Co. Projekt Langenbach KG, Eschborn (DE) 100.0% 1/1 Merger
RL Thermal GmbH & Co Liegenschaftsverwaltung KG, Vienna (AT) 100.0% 1/1 Merger
RL Flussschifffahrts GmbH & Co KG, Vienna (AT) <0.1% 1/1 Merger
RL Hotel Palace Wien Besitz GmbH, Vienna (AT) 99.0% 1/1 Merger
Styria Immobilienleasing GmbH & Co. Projekt Ahlen KG, Eschborn (DE) 6.0% 1/1 Merger
Vindobona Immobilienleasing GmbH & Co. Projekt Autohaus KG, Eschborn (DE) 6.0% 1/1 Merger
RALT Raiffeisen-Leasing Gesellschaft m.b.H. & Co. KG, Vienna (AT) 100.0% 1/1 Merger
Abrawiza Immobilienleasing GmbH & Co. Projekt Fernwald KG, Eschborn (DE) 6.0% 1/1 Merger
Adorant Immobilienleasing GmbH & Co. Projekt Heilsbronn und Neuendettelsau KG, Eschborn (DE) 6.0% 1/1 Merger
Objekt Linser Areal Immoblilienerrichtungs GmbH & Co. KG, Vienna (AT) 100.0% 1/1 Merger
Adular Immobilienleasing GmbH & Co. Projekt Rödermark KG, Eschborn (DE) 100.0% 1/1 Immaterial
Austria Leasing GmbH & Co. KG Immobilienverwaltung CURA, Eschborn (DE) 100.0% 1/1 Immaterial
RL Flussschifffahrts GmbH & Co KG, Vienna (AT) 100.0% 30/9 Immaterial
Abutilon Immobilienleasing GmbH & Co. Projekt Autohof Ibbenbüren KG, Eschborn (DE) 6.0% 1/1 Immaterial
Körlog Logistika Építö és Kivitelezö Korlátolt Feleösségü Társaság, Budapest (HU) 100.0% 1/1 Immaterial
RB International Finance (USA) LLC, New York (US) 100.0% 31/12 End of operations
The above special purpose vehicle (SPV) is consolidated, as the Group is exposed to variability in returns from this structured entity. The returns are primarily from activities such as holding debt securities or issued financial guarantees. Beyond the ongoing management of the receivables (which is carried out by the Group under a service agreement), significant decisions only become necessary when there is a default on the part of the structured entity.
"Raiffeisen-Rent" Vermögensberatung und Treuhand Gesellschaft m.b.H., Vienna (AT) 364,000 EUR 100.0% FI
Abade Immobilienleasing GmbH & Co Projekt Lauterbach KG, Eschborn (DE) 5,000 EUR 6.0% FI
FMK Fachmarktcenter Kohlbruck Betriebs GmbH, Eschborn (DE) 30,678 EUR 94.4% OT 1 Less own shares 2 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
Health Resort RBI Immobilien-Leasing GmbH, Vienna (AT) 17,500 EUR 75.0% FI
LYRA Raiffeisen Immobilien Leasing GmbH, Vienna (AT) 36,400 EUR 100.0% FI
Objekt Linser Areal Immoblilienerrichtungs GmbH & Co. KG, Vienna (AT) 1,000 EUR 100.0% OT
Ostarrichi Immobilienleasing GmbH & Co. Projekt Langenbach KG, Eschborn (DE) 5,000 EUR 100.0% FI
Raiffeisen-Leasing Liegenschaftsverwaltung Kraußstraße Gesellschaft m.b.H., Vienna (AT) 35,000 EUR 70.0% FI
The Group has not provided financial support during the financial year to non-consolidated structured entities (2016: € 3,420 thousand).
The Group establishes structured entities to accommodate client requirements to hold investments in specific assets. The Group also invests in funds that are sponsored by third parties. A Group entity may act as fund manager, custodian or in some other capacity and provide funding and liquidity facilities to both Group sponsored and third party funds. The funding provided is collateralized by the underlying assets held by the fund.
Company, domicile (country) Subscribed capital in local currency Share Type1 card complete Service Bank AG, Vienna (AT) 6,000,000 EUR 25.0% BA
DAV Depo Projekt Korlátolt Felelősségű Társaság, Budapest (HU) 3,010,000 HUF 99.7% OT
Eastern European Invest GmbH in Liqu., Vienna (AT) 35,000 EUR 100.0% FI
Euro Green Energy Fejlesztő és Szolgáltató Kft., Budapest (HU) 11,850,000 HUF 100.0% OT
HERA Raiffeisen Immobilien Leasing GmbH, Vienna (AT) 36,400 EUR 49.0% FI
Kathrein & Co. Private Equity I AG, Vienna (AT) 190,000 EUR 100.0% OT
KIWANDA Handels- und Beteiligungs GmbH in Liqu., Vienna (AT) 35,000 EUR 100.0% OT
Nemesis Property, s.r.o., Prague (CZ) 50,000 CZK 100.0% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
PHOXIUS Handels- und Beteiligungsgesellschaft m.b.H., Vienna (AT) 40,000 EUR 100.0% OT
Raiffeisen (Beijing) Investment Management Co., Ltd., Beijing (CN) 35,000 EUR 100.0% FI 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
Raiffeisen Invest Drustvo za upravljanje fondovima d.o.o Sarajevo, Sarajevo (BA) 945,424 BAM 100.0% FI
Raiffeisen Towarzystwo Funduszy Inwestycyjnych S.A., Warsaw (PL) 4,000,000 PLN 100.0% FI
RLRE Jota Property, s.r.o., Prague (CZ) 200,000 CZK 100.0% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
VUWG Verwaltung und Verwertung von Gewerbeimmobilien GmbH, Vienna (AT) 35,000 EUR 100.0% OT
Agricultural OJSC Illintsi Livestock Breeding Enterprise, Illinci (UA) 703,100 UAH 4.7% OT
Am Hafen" Garagenerrichtungs- und Betriebs GmbH & Co KG, Bregenz (AT) 3,660,000 EUR 0.1% FI
Export and Industry Bank Inc., Makati City (PH) 4,734,452,540 PHP 9.5% BA 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
Cards & Systems EDV-Dienstleistungs GmbH, Vienna (AT) 75,000 EUR 42.0% OT
Einlagensicherung der Banken und Bankiers Gesellschaft m.b.H., Vienna (AT) 70,000 EUR 0.1% BR
G + R Leasing Gesellschaft m.b.H., Graz (AT) 36,400 EUR 1.8% OT
Oberpinzg. Fremdenverkehrförderungs- und Bergbahnen AG, Vienna (AT) 3,297,530 EUR <0.1% OT
OJSC Kyiv Special Project and Design Bureau Menas, Kyiv (UA) 3,383,218 UAH 4.7% OT
Private Joint Stock Company Ukrainian Interbank Currency Exchange, Kyiv (UA) 36,000,000 UAH 3.1% OT
PJSC National Depositary of Ukraine, Kyiv (UA) 103,200,000 UAH 0.1% BR
PJSC Stock Exchange PFTS, Kyiv (UA) 32,010,000 UAH 0.2% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
Steirische Leasing für Gebietskörperschaften Ges.m.b.H., Graz (AT) 36,336 EUR 3.6% FI
Therme Amade Errichtungs- und Betriebsgesellschaft m.b.H., Altenmarkt (AT) 36,000 EUR 1.0% OT
Raiffeisenlandesbank Kärnten - Rechenzentrum und Revisionsverband, registrierte Genossenschaft mit beschränkter Haftung, Klagenfurt (AT) 6,930,900 EUR 5.9% BA
Studiengesellschaft für Zusammenarbeit im Zahlungsverkehr (STUZZA) GmbH, Vienna (AT) 100,000 EUR 10.7% OT
OJSC NBFI Single Settlement and Information Space, Minsk (BY) 20,341,979 BYN 4.2% FI 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
Capital-guaranteed products (guarantee funds and pension plans) are shown as sold put options on the respective funds to be guaranteed, in accordance with statutory requirements. The valuation is based on a Monte Carlo simulation. The Group has provided capital guarantee obligations as part of the government-funded state-sponsored pension plans according to Section 108h (1) item 3 EStG (Austrian Income Tax Act). 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.
The measurement categories for financial instruments pursuant to IAS 39 do not equate to the principal line items in the statement of financial position. Relationships between the principal line items in the statement of financial position and the measurement standard applied are described in the table Categories of financial instruments according to IFRS7 and in the notes under (1) Income statement according to measurement categories and (12) Statement of financial position according to measurement categories.
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.
In 2017, as in 2016, observable market prices were used for the valuation of liabilities of subordinated issues measured at fair value. The financial liabilities are mostly structured bonds. The fair value of these financial liabilities is calculated by discounting the contractual cash flows with a credit-risk-adjusted yield curve, which reflects the level at which the Group could issue similar financial instruments at the reporting date. The market risk parameters are evaluated according to similar financial instruments that are held as financial assets. Valuation results for liabilities that are designated as a financial instrument at fair value are recognized in income from derivatives and liabilities.
Liabilities are predominantly recognized at amortized cost. Discounted debt securities issued and similar obligations are measured at their present value. Financial liabilities are reported in the statement of financial position under the items deposits from banks, deposits from customers, debt securities issued or subordinated capital. Interest expenses are stated under net interest income.
Financial liabilities measured at fair value are shown in the category liabilities at fair value through profit and loss. For financial liabilities designated at fair value through profit or loss, changes in fair value attributable to a change in own credit risk is not reported in the income statement but in other comprehensive income.
Unquoted equity instruments which, due to a lack of materiality, are not fully consolidated are measured at cost of acquisition because the fair values do not represent a better approximation of the fully consolidated values. Other unquoted equity instruments for which reliable fair values cannot be assessed regularly are valued at cost of acquisition less impairment losses. It is not permitted to show an appreciation in the value. Reliable fair values cannot be regularly assessed in emerging countries due to the absence of comparative yardsticks for the market approach and due to the inherent difficulties when using the income approach. This kind of financial instrument is reported under the item financial investments.
The Group securitizes various financial assets from transactions with retail and commercial customers by selling them to a special purpose vehicle (SPV) that issues securities to investors. The assets transferred may be derecognized fully or partly. Rights to securitized financial assets can be retained in the form of senior or subordinated tranches, interest claims or other residual claims (retained rights).
Derivatives which are used for hedging against market risk (excluding trading assets/liabilities) for a non-homogeneous portfolio do not meet the conditions for IAS 39 hedge accounting. These are recognized as follows: the dirty price is booked under the item derivatives in the statement of financial position (positive fair values under assets and negative fair values under liabilities). The change in value of these derivatives, on the basis of the clean price, is shown in net income from derivatives and liabilities (net income from other derivatives) and interest is shown in net interest income.
Derivative instruments held to hedge the fair values of individual items in the statement of financial position (except trading assets /liabilities) are recognized at their fair values (dirty prices) under the item derivatives (for assets: positive dirty prices; for liabilities: negative dirty prices). Changes in the carrying amounts of hedged items (assets or liabilities) are allocated directly to the corresponding items of the statement of financial position and reported separately in the notes.
Both the effect of changes in the carrying values of positions requiring hedging and the effects of changes in the clean prices of the derivative instruments are recorded under net income from derivatives and liabilities (net income from hedge accounting).
Within the management of interest rate risks, the hedging of interest rate risk is also undertaken 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 contain assets only, liabilities only, or both. For hedge ac
Further information on measurement methods and quantitative information for determination of fair value is shown in the notes under (40) Fair value of financial instruments.
Measurement Category according Assets/liabilities Fair Value Amortized Cost Others to IAS 391 Asset classes
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 financial asset up 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  the amount can be reliably estimated.
In a genuine sale and repurchase transaction, the Group sells assets to a third party and agrees at the same time to repurchase these assets at an agreed price and time. The assets remain on the statement of financial position of the Group and are measured according to the standards applied to the item in the statement of financial position under which they are shown. The securities are not derecognized since all the risks and rewards associated with the ownership of the repurchased securities are retained. Cash inflows arising from a sale and repurchase transaction are recognized in the statement of financial position as deposits from banks or deposits from customers depending on the counterparty.
The Group concludes securities lending transactions with banks or customers in order to meet delivery obligations or to conduct security sale and repurchase agreements. Securities lending transactions are shown in the same way as genuine sale and repurchase agreements. This means loaned securities continue to remain in the securities portfolio and are valued according to IAS 39. Borrowed securities are not recognized and not valued. Cash collateral provided by the Group for securities lending transactions is shown as a claim under the item loans and advances to banks or loans and advances to customers while collateral received is shown as deposits from banks or deposits from customers in the statement of financial position.
Similar to subsidiaries, consolidation of structured entities is necessary, if the Group has control over the entity. In the Group, the need to consolidate structured entities is reviewed as part of the securitization transaction process, where the structured entity is either formed by the Group with or without participation of third parties, or, in which the Group with or without participation of third parties enters into contractual relationships with already existing structured entities. Whether an entity should be consolidated or not is reviewed at least quarterly. All fully consolidated structured entities and interests in non-consolidated structured entities are to be found in the notes under (52) Group composition.
An associated company is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of an entity in which shares are held. No control or joint management of decision making processes exists. As a rule, significant influence is assumed if the Group holds 20 to 50 per cent of the voting rights. When judging whether the Group has the ability to exert a significant influence on another entity, the existence and the effect of potential voting rights which are actually usable or convertible are taken into account. Further parameters for judging significant influence are, for example, the representation in executive committees and supervisory boards (Supervisory Board in Austrian Joint Stock companies) of the entity and material business transactions with the entity. Shares in associated companies are valued at equity and shown in the statement of financial position under the item investments in associates.
Shares in subsidiaries not included in the consolidated financial statements because of their minor significance and shares in associated companies that have not been valued at equity are included under the item financial investments and assigned to the measurement category financial assets available-for-sale. They are measured at acquisition cost.
These are categorized as "financial assets available-for-sale" upon initial recognition and – if no share prices are available – are measured at cost. Changes in value are recognized in other comprehensive income. Impairment is shown in net income from financial investments.
fied as assets or liabilities is measured on the following reporting dates according to IAS 39 or IAS 37 Provisions for liabilities and charges, contingent liabilities or contingent receivables if applicable and a resulting profit or loss is recognized in the income statement.
Group companies use brands to differentiate their services from the competition. According to IFRS 3, brands of acquired companies are recognized separately under the item intangible fixed assets. Brands have an indeterminable useful life and are therefore not subject to scheduled amortization. Brands have to be tested annually for impairment and additionally whenever indications of impairment arise. Details on impairment testing can be found in the notes under (21) Intangible fixed assets.
The land and buildings as well as office furniture and equipment reported under tangible fixed assets are measured at cost of acquisition or conversion less depreciation. Depreciation is recorded under the item general administrative expenses. The straightline method is used for depreciation and is based on the following useful life figures: Useful life Years
Impairment of non-financial assets (tangible fixed assets, investment property and intangible fixed assets)
Impairment tests for goodwill based on cash-generating units use 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 based on a going concern concept. Discounting of the earnings relevant for the measurement, i.e. potential dividends, is undertaken 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 lasts 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 in the notes under (21) Intangible fixed assets.
These types of provision are reported in the statement of financial position under the item provisions for liabilities and charges. Allocation to the various types of provision is booked through different line items in the income statement depending on the nature of the provision. Allocation of loan loss provisions for contingent liabilities are recorded under net provisioning for impairment losses, restructuring provisioning, provisioning for legal risks and other employee benefits are recorded in general administrative expenses. Provision allocations that are not assigned to a corresponding general administrative expense are as a matter of principle booked against other net operating income.
All defined benefit plans relating to so-called social capital (provisions for pensions, provisions for severance payments and provisions for service 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 service anniversary bonuses for Austrian companies is provided by AVÖ 2008-P-Rechnungsgrundlagen für die Pensionsversicherung (Computational Framework for Pension Insurance) – Pagler & Pagler, using the relevant parameters for salaried employees. In other countries, comparable actuarial parameters are used for calculation.
Please refer to Provisions for pensions and similar obligations in the notes under (28) Provisions for liabilities and charges for further details.
As of the financial year 2011, the following general and specific principles for the allocation, the claim and the payment of variable remuneration (including the payment of the deferred portion of the bonus) for board members of RBI AG and certain Group units and identified staff (risk personnel) are applied:  60 per cent and for especially high amounts 40 per cent of the annual bonus respectively will be paid out on a proportional basis as 50 per cent cash immediately (up-front), and 50 per cent through a phantom share plan (see details below), which will pay out after a holding period (retention period) of one year.
Variable remuneration including a deferred portion is only allocated, paid or transferred if the following criteria are met:  This is not prohibited at the level of RBI and/or RBI AG on the basis of a decision by the competent supervisory authority (e.g. by the European Central Bank for RZB/ RBI).
The merger of RZB AG and RBI AG has resulted in overall harmonization of employee compensation plans. This applies in particular to the specialized subsidiaries of RZB AG in Austria.
RBI AG and eight of its consolidated domestic subsidiaries are members of a tax group for which Raiffeisen Zentralbank Österreich Aktiengesellschaft acts as group parent. Current taxes are calculated on the basis of taxable income for the current year taking into account the tax group (in terms of a tax group allocation). In the reporting year, a supplementary agreement was added to the current tax group allocation agreement. If RBI AG generates a negative taxable net income and these taxable losses are not usable in the group, then the group parent does not immediately pay a negative tax group allocation. Only and after withdrawal from the tax group at the latest, a final settlement is carried out. The group parent still pays a negative tax group allocation to RBI AG if the tax losses of RBI AG are usable. The taxable income deviates from the profit of the consolidated statement of comprehensive income due to expenses and income which are taxable or tax-deductible in the following years or which are never taxable or tax-deductible. The liability of the Group for current taxes is recognized on the basis of the actual tax rate or the expected applicable tax rate.
Deferred taxes are calculated and recognized in accordance with IAS 12 applying the liability method. Deferred taxes are based on all temporary differences that result from comparing the carrying amounts of assets and liabilities in the IFRS accounts with the tax bases of assets and liabilities, and which will reverse in the future. Deferred taxes are calculated by using tax rates applicable in the countries concerned. A deferred tax asset should also be recognized on tax loss carry-forwards if it is probable that sufficient taxable profit will be generated against which the tax loss carry-forwards can be utilized within the same entity. On each reporting date, the carrying amount of the deferred tax assets is reviewed and impaired if it is no longer probable that sufficient taxable income will become available in order to partly or fully realize the tax assets. Deferred tax assets and deferred tax liabilities within the same entity are netted. Income tax credits and income tax obligations are recorded separately under the items other assets and tax provisions respectively.
Current taxes and movements of deferred taxes are recognized in the income statement unless they are linked to items which are recognized in other comprehensive income, in which case the current and deferred taxes are also directly recognized in other comprehensive income.
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 losses arising in the event that a particular debtor does not fulfill payment obligations on time as stipulated in the original terms of a debt instrument. At the date of recognition of a financial