Each morning brings with it the dawn of a new day. But while all of us have our own personal morning rituals to help us start the day right, it’s what we make out of each day that really matters.
RBI Raiffeisen Raiffeisen Raiffeisen Monetary values RBI pro forma International International International in € million 2010 Change 2009 2009 2008 2007
Return on assets before tax 0.90% 0.37 PP 0.53% 0.47% 1.77% 1.98%
Core tier 1 ratio, total 8.9% 0.4 PP 8.5% 9.2% 7.4% 9.6%
1 Calculated according to the Austrian Banking Act (Bankwesengesetz, BWG). RBI as part of the RZB Group is not subject to the regulations of the BWG. 2 Before the deduction of the compensation for participation capital earnings per share would be € 5.59 (31.12.2009: € 1.38). 3 Proposal to the Annual General Meeting.
Contents Preface by the Chairman of the Management Board 8 Management Board of RBI 10 Report of the Supervisory Board 12 Overview of RBI 14 Merger of Raiffeisen International with the principal business areas of RZB 17 Interview with the Chairman of the Management Board 21 RBI’s strategy 24 RBI in the capital markets 28 Corporate governance report 38 Corporate responsibility 52
Market development 58 Development of the banking sector 61 Performance and financials 62 Detailed review of items in the income statement 69 Statement of financial position 74 Equity 75 Research and development 76 Internal control and risk management system 77 Capital, share, voting and control rights 79 Funding 81 Risk management 83 Human resources 87 Outlook 91 Events after the balance sheet date 93
In this report, Raiffeisen Bank International (RBI) refers to the RBI Group, and RBI AG is used wherever statements refer solely to Raiffeisen Bank International AG. The same applies to Raiffeisen International and Raiffeisen International Bank-Holding AG as well as to RZB and RZB AG.
Preface by the Chairman of the Management Board 8 Management Board of RBI 10 Report of the Supervisory Board 12 Overview of RBI 14 Merger of Raiffeisen International with the principal business areas of RZB 17 Interview with the Chairman of the Management Board 21 RBI’s strategy 24 RBI in the capital markets 28 Corporate governance report 38 Corporate responsibility 52
Sehr geehrte damen und Herren, Although I remember 2009 as an incredibly intensive year, 2010 raised the bar again for intensity. This time, however, the bulk of our efforts were internal, as we were working on a major reorganization of our Group. Raiffeisen International was merged with the principal business areas of Raiffeisen Zentralbank (RZB) to form Raiffeisen Bank International (RBI), which was entered into the commercial register in the fourth quarter. You are now reading its first annual report. One of the goals of the merger was to combine the dense network of Raiffeisen International in Central and Eastern Europe (CEE) with RZB’s product development expertise in the fields of corporate and investment banking, thereby generating added value for our customers and shareholders. In addition, RBI now benefits from even better refinancing opportunities – whereas Raiffeisen International previously accessed the equity market and RZB the debt market, the new RBI can now access both.
I am, however, concerned about another development in 2010. Many countries are discussing the use of bank levies as a way of closing their budget deficits. Hungary introduced such a tax in 2010 and Austria will follow in 2011. New guidelines on capital adequacy were additionally discussed and adopted in the framework of Basel III. While measures to strengthen equity are an important means of cushioning the impact of similar crises – provided they are actually implemented globally and without exceptions – inappropriately high levies make this goal difficult to achieve. Such levies reduce our ability to build retained earnings and own funds. Our financing capability is also a key criterion for capital market participants deciding whether to invest in our company. Nevertheless, I feel it is important to emphasize that our new structure as RBI will make it somewhat easier for us to cope with these additional burdens.
Group Strategy Human Resources Internal Audit legal & Compliance Management Secretariat Organization & Internal Control System PR, Marketing & Event Management
The 2010 financial year was characterized by major strategic realignments. In order to be able to respond better to the future regulatory requirements and also in order to improve even further our products and services for our customers, a strategy project was initiated. The findings that emerged led to a fundamental restructuring and the merger of Raiffeisen International with the principal business areas of RZB.
Rainer Franz, whose post on the Management Board ended on 30 June 2010, and Heinz Wiedner, who completed his Management Board duties on 1 December 2010, resigned from the Management Board.
Also subject to the suspensive condition of entering the merger in the commercial register and with effect from the time this entry was made on 10 October 2010, Erwin Hameseder, Markus Mair, Ludwig Scharinger, Hannes Schmid, Johannes Schuster, Friedrich Sommer and Christian Teufl were elected to the Supervisory Board within the course of the Annual General Meeting on 8 July 2010. Effective at the same time, Erwin Hameseder was elected first Deputy Chairman of the Supervisory Board, Ludwig Scharinger was elected second Deputy Chairman of the Supervisory Board and Markus Mair was elected third Deputy Chairman of the Supervisory Board.
With effect from 1 January 2011 Alfred Lejsek was appointed as State Commissioner.
In 2010, the members of the Supervisory Board and its committees were also fully informed in a timely and comprehensive manner by the Management Board during the regular meetings about all pertinent business developments, including risk management of the company and allied companies. This information was provided in writing and verbally. As well as the exchange of information in the meetings there were many informal discussions between the Management Board and Supervisory Board.
In the meetings, as well as discussions held outside the meetings, the effects of the financial and economic crisis, in particular the risk situation, were discussed at length. Thus, there were regular reports on the current earnings situation and the Group’s liquidity and risk situation.
The Chairmen of the Operations Committee, Audit Committee and Personnel Committee regularly reported to the Supervisory Board about the relevant committee’s work.
The Audit Committee monitored the accounting process, the effectiveness of the internal control system, the internal audit system and also the risk management of the company. It monitored the annual statutory audit and the consolidated financial statement audit. It was also responsible for verifying and monitoring the independence of the statutory auditor. It audited the annual financial statements and consolidated financial statements and prepared its assessment. It also dealt with the proposed appropriation of profit, the Management Letter and corporate governance report. In addition, it made a proposal in regard to the appointment of the statutory auditor.
The Personnel Committee dealt in particular with questions concerning the remuneration of the Management Board including the bonus scheme and directors’ and officers’ insurance.
With its strong retail and corporate customer base and by bringing together its entire product range, RBI strategically repositioned itself in 2010 as a fully integrated corporate and retail banking group in CEE. Supported by up-to-date risk management and a strong platform for accessing the capital and money markets the bank is equipped for future growth in a wide variety of activities.
long-term success story RZB, the contemporary majority shareholder of RBI and central institution of RBG, was formed in 1927 as “Genossenschaftliche Zentralbank” (GZB). Raiffeisen gained its first foothold in CEE more than twenty years ago when it established its first subsidiary bank in Hungary in 1987. Other banks and financial service companies were soon established in CEE and combined into a holding company, which operated under the name Raiffeisen International from 2003 onwards. While the bank's early expansion was driven mainly by new business outlet openings, acquisitions of other banks became the predominant source of growth after 2000. Thanks to the long track record in CEE these banks were integrated successfully within the Group. Raiffeisen International listed on the stock exchange in April 2005 in order to finance its future growth as efficiently as possible. It issued further shares in October 2007 in a capital increase. The merger of Raiffeisen International with the principal business areas of RZB in 2010 marks a major leap forward in the company's history.
Part of a strong community The system of cooperative associations dates back to the vision and pioneering work of Friedrich Wilhelm Raiffeisen (1818 to 1888). Under the model developed by Raiffeisen, farmers formed local cooperatives, which were geared towards mutual support among their members rather than profit. Members' savings were pooled in loan fund associations and then distributed to members in the form of low-cost, long-term loans. In an age when loans at extortionate rates were often the only credit available, this gave many people the first opportunity they had ever had to borrow money for investments or to tide them over in years of meager harvests.
125 years of Raiffeisen in Austria RBG is the largest banking group in Austria. It has the densest business outlet network in the country and a share of about one-quarter of the domestic banking market. RBG manages some € 83 billion of Austrian customers' deposits (excluding building society savings), of which around € 50 billion is held in savings deposits. Its lending activities concentrate on SMEs, tourism and agriculture. RBG has achieved its strong market position through healthy organic growth.
deposit protection through the Raiffeisen deposit guarantee association RBI is a member of the Raiffeisen-Kundengarantiegemeinschaft Österreich (RKÖ – deposit guarantee association), established in 2000, which made RBG a pioneer in deposit protection in Austria. Supplementing the statutory Austrian deposit protection scheme, the deposit guarantee association guarantees up to 100 per cent of customer deposits, depending on the financial strength of the member institutions. Unlike the statutory deposit protection scheme it covers all deposits, regardless of whether they belong to private individuals or businesses. The guarantee also applies to all foreign currency deposits and to issues of senior unsecured bonds.
The markets of RBI in € million Total assets Change1 Business outlets number of staff
The stages of the merger In the first stage the business segments of RZB that were to be merged were spun off and transferred to Cembra in preparation for the merger. Immediately after this transfer Cembra was merged with Raiffeisen International, which was renamed RBI once the merger took effect.
Merger of Raiffeisen International with the principal busi ness areas of RZB
The court-appointed merger auditor TPA Horwath Wirtschaftsprüfung GmbH also produced a report under Section 220b of the Austrian Stock Corporation Act on the methods used to calculate the exchange ratio and the appropriateness of the proposed exchange ratio. To increase transparency further three international investment banks were requested to deliver reports on the fairness of the proposed exchange ratio, which they confirmed (so-called fairness opinions).
The Supervisory Board was expanded in the merger. Walter Rothensteiner, who was Chairman of the Raiffeisen International Supervisory Board will stay on as Chairman of the new Supervisory Board. While Patrick Butler, Karl Sevelda, Johann Strobl and Manfred Url stepped down from the Supervisory Board with the entry of the merger in the commercial register, new members were elected to replace them and the number of shareholder representatives on RBI’s Supervisory Board was increased from seven to ten.
The Central Europe segment encompasses the Central European countries that joined the EU in 2004, these being the Czech Republic, Hungary, Poland, Slovakia and Slovenia. These are among the most mature banking markets in Central and Eastern Europe. Southeastern Europe includes Albania, Bosnia and Herzegovina, Croatia, Kosovo, Moldova, Serbia and the two countries that joined the EU in 2007, namely Bulgaria and Romania. Moldova is included as part of Romania because of its close economic ties to that country and the way it is managed in the Group as a result. In addition to the Russia segment, which contains a bank, a leasing company and a capital management company, there is also the segment CIS other. This comprises RBI's activities in the Commonwealth of Independent States (CIS) excluding Russia – i.e. Belarus, Kazakhstan and Ukraine.
The Group corporates segment primarily comprises business with Austrian and international – mainly Western European – customers managed from Vienna. Business with major multinational customers from Central and Eastern Europe, excluding Austria, also falls under this segment. The Group markets segment involves customer business and proprietary trading on debt and equity capital markets. The services performed by Group headquarters for various divisions in order to implement the Group's strategy such as liquidity and balance sheet structure management as part of proprietary trading are booked under the Corporate center segment.
Group corporates Austrian and primarily Western European business customers and major multinational customers from CEE
Merger brings benefits for customers and investors Interview with CEO Herbert Stepic
How did your customers actually benefit from this measure? We wouldn't have embarked upon this project if there hadn't also been clear benefits for our customers. Thus far, Raiffeisen International had access to the stock market as a holding with no banking license or rating, but was locked out of the debt capital markets. RZB did have access to those markets, but was denied access to the stock market. The newly created RBI will be able to use both capital markets, making it an attractive partner for customers by virtue of its financial strength. Moreover, Raiffeisen International's CEE network, which covers 17 markets, was combined with RZB's excellent product expertise. As a result, the increased demand for complex, tailor-made products can also be met in a more targeted manner from a single source. Lastly, we are also eliminating certain redundancies and also aim to leverage potential synergies by generating additional income, which could run between € 60 and € 115 million per year. I am convinced that this new strategy makes us an even better, stronger bank for our customers.
What business strategy is RBI pursuing? RBI is a universal bank with a focus on corporate and retail customers. We see CEE including Austria as our home market. In CEE we serve leasing companies and specialist service providers as well as retail and corporate customers in our network banks. In future, we also intend to increasingly offer higher-value banking services in this region, primarily in investment banking. In Austria we serve, as RZB used to do, the country's top 1,000 corporate customers. Our aim is to expand our position in existing markets. Our strong brand, which boasts a very high level of awareness not just in Austria but also in CEE, constitutes a critical competitive advantage.
In early February 2011 you announced the acquisition of Polbank. What were the reasons for the acquisition? There are a whole number of good reasons. With just under 40 million inhabitants, Poland is one of the largest countries in CEE. It has proven to be very resilient during the financial crisis and was the only EU country that managed to avoid recession. Added to which, the penetration of banking products is still relatively low in Poland. With its extensive retail network,
What will the RBI's main focus be in 2011? What are the next steps? While the merger officially took effect in the fourth quarter with entry in the commercial register, the process itself is far from complete. Here in Vienna we are still working on many areas of the organization to get the best out of the company. As already mentioned, we intend to increasingly place investment banking products with customers through our sales and distribution. Overall, we aim to boost the proportion of low-risk business through increased cross-selling. However this does not mean though that we are getting out of credit business. Credit business will remain, as before, the foundation of our operations, but we intend to substantially improve it by focusing on a range of issues we failed to address adequately in the past. Clearly, we also intend to further improve our product portfolio for private individuals. In 2010 we substantially pushed forward our affluent banking by introducing the premium banking track and aim to achieve something similar in private banking in 2011. In addition, we are also planning to launch our direct banking subsidiary ZUNO BANK AG, which we got up and running in Slovakia in late 2010, in the Czech Republic. We therefore have plenty of plans, and 2011 also looks like being a very eventful year.
The tax burden will increase in 2011. You are highly critical of this development. Why? Basel III requires the banks to increase their equity cushion. In RBI we are fortunate to already have a comfortable equity base with a core tier 1 ratio of 8.9 per cent. However, banking levies will make it more difficult to build up more equity. In 2010 this affected us in Hungary by approximately € 40 million and in 2011 Austria will follow suit, with a predicted reduction in our profitability of € 90 million. I criticize these measures because they are not implemented on an EU or, ideally, on a global level, thus giving rise to individual measures that distort competition. And as somebody that ultimately partly shares responsibility for nearly 60,000 staff, I go out of my way to ensure that we all have a level playing field when it comes to competing for customers and investors. For this reason I am highly critical of these measures. And what's more – albeit quite a different issue – these levies flow directly into the budget, tempting the decision-makers to postpone the necessary reforms and cuts. Overall, as a bank that has spent two decades helping finance the construction of CEE we end up being presented with the bill for the failures of a host of other banks. That just isn't fair, but nevertheless we will also rise to this challenge, fully aware of our responsibilities.
The Group is planning to build on or achieve a leading market position in its existing markets primarily through organic growth. This will provide its owners with attractive long-term performance.
A prerequisite for delivering success is long-term profitability and a healthy capital and funding structure. RBI achieves this through a customer-focused business model that guarantees the highest service quality. The Group provides its customers with all-round support, including supporting them across borders if necessary. The efficiency of its comprehensive service range is ensured by rigorous cost and process management.
The financial crisis has demonstrated once more that capital and risk management are the key determinants of a bank's success. Solid management of these variables at RBI has a positive impact on its rating and funding options and ultimately on the Group's overall performance.
Motivated, business-minded staff form an integral part of RBI's success. Cultural diversity is not just a vision but an everyday reality for RBI with its home market of CEE including Austria. The cultural diversity of RBI’s staff and their development is actively promoted and makes a significant contribution to the bank's success.
The successful integration of the corporate banking and capital markets business of RZB in the merger has generated synergies, for example in infrastructure, and has also led to benefits on the revenue side, particularly in customer services and product development. The Group’s ability to access international financial markets has also been strengthened by the merger. RBI's main shareholder RZB supports its strategic direction and therefore the long-term continuity of its business.
■ Minimum return on Risk Adjusted Capital ■ Target for consolidated profit
■ Dividend continuity ■ Securing specific long term market positions in all countries and segments ■ Cost efficiency and effective service delivery ■ Ensuring adequate capital and liquidity resources on a sustainable basis
RBI stock A volatile year for European equity markets The international equity markets got off to a modest start in 2010, with consolidation prompted by underperforming economic indicators in the USA and Europe. It was not until the beginning of March that the combination of positive corporate figures, significant growth in global demand and continuing low interest rates brought a positive mood to the equity markets.
However, these gains faltered again in the second quarter, despite the strengthening economic recovery, as the mood soured in the face of concerns about the stability of the euro and worries about solvency, specifically for Greece but also for other peripheral European states. The € 750 billion rescue fund created at short notice by the EU and IMF for heavily indebted eurozone members and efforts to consolidate budgets in most eurozone nations gradually calmed markets, and halted the emerging massive slide of the euro.
The announcement of further details of the merger considerations and Raiffeisen International’s figures for 2009, which exceeded analysts’ expectations, induced an upturn in the second quarter, taking the Raiffeisen International stock to a quarterly high in April at € 39.80. Although it subsequently lost ground again in a generally weak market, it still outperformed the ATX.
Price performance since 1 January 2010 compared with ATX and EURO STOXX Banks Index Basis = € 39.50
RBI ATX (relative to RBI) EURO STOXX Banks (relative to RBI)
At year-end 2010 RBI’s market capitalization was € 8.0 billion with 195.5 million issued shares at a closing price of € 41.0. At the time of the editorial deadline (11 March 2011), the stock stood at € 40.02, a loss of 2.4 per cent on its level at year-end 2010.
In 2010, 91.5 million RBI shares were traded, with a total volume of € 3.3 billion and an average daily volume of 367,619 shares.
Shareholder structure Institutional investors held 15.4 per cent of RBI at the close of 2010. Around 57,000 private investors represented 6.1 per cent and were predominantly from Austria. The institutional investors were more widely distributed geographically, with about one-fifth from Austria. Around a quarter of institutional investors were from the US, around one-third in continental Europe and 16 per cent of the institutional investors were based in the UK and Ireland. Around 6 per cent of the remaining institutional investors were from other countries, such as Japan, Australia, China, Libya and Singapore.
Index information Index (selection) number Weight of companies of RBI in the index in the index
RBI bonds Increasing divergence in the European bond market Although the economic situation in almost all eurozone countries improved significantly after the recession year 2009, the pace of the recovery varied between countries. In light of this situation the European Central Bank maintained its expansionary monetary policy with historically low key interest rates.
The performance of the bond markets last year was dominated by the effects of the financial and economic crisis on European national budgets. Hardest hit were Greece, Ireland, Italy, Portugal and Spain, and the massive increase in their indebtedness seriously impacted the euro and the eurozone as a whole. Greece was saved from the threat of insolvency early in the year by the rescue fund launched by the EU and the IMF. Ireland was then forced to borrow from this rescue fund in the second half of the year.
Besides a loss of confidence in the stability of the euro, this led to a divergence in the yields on European sovereigns. The result was a significant increase in financing costs for countries unable to present credible strategies for reducing deficits in the medium term, despite the continuing low level of key interest rates, as investors demanded higher returns as compensation for the risk. Conversely, yields on sovereigns with very good ratings, e.g. Austria and Germany, set in part new record lows in the course of the year.
Due to the strong demand for alternative investments with higher interest rates, the low yields on high quality sovereigns led to a significant decline in yields on good-quality corporate bonds as well. This market situation was favorable to companies, and numerous issuers, including banks, issuing new debt as well as refinancing to meet their financing needs. Even so, the environment for new issues was subject to major fluctuations over the course of the year due to the upheaval described above, and poorly rated issuers were barely able to issue new bonds.
RBI utilizes good debt capital market access Due to the merger RBI achieved significantly better access to money and capital markets. Funding is undertaken partly at RBI level, and if required, through the CEE network banks. To optimize funding costs, capital market financing is centrally coordinated for the Group. The funding strategy incorporates diversification in terms of the investor base and financing opportunities on the capital market, with long balanced maturities. Besides the deposit business, the full range of standard money and capital market products are utilized including commercial papers/certificates of deposits, notes and bonds. Funding activities are supported by a uniform market presence and transparent and ongoing investor communications.
RBI currently has two issue programs, the “EUR 20.000.000.000 Emissionsprogramm der Raiffeisen Bank International AG” which is according to Austrian law as well as the international “EUR 25,000,000,000 Debt Issuance Program” according to German law, under which longer-maturity issues can be carried out. There is also a European and a USD denominated commercial paper/certificate of deposit program respectively for financing with short maturities, which were drafted before the editorial deadline of this report.
As RBI’s funding was already completed up to the end of the year when the merger became effective in October, no benchmark bonds were issued by RBI in 2010. However, the existing issue programs make it possible to take advantage of opportunities in the capital market quickly and flexibly at any time.
RBI rating Capital market activities are supported by RBI’s rating. Since the merger, RBI has been rated by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. The former RZB ratings were rolled over to RBI, with one – welcome – exception, as Moody’s Investors Service upgraded the Bank Financial Strength Rating outlook from negative to positive. The reason for this was RBI’s good performance despite the global crisis. Moody’s Investors Service also felt that RBI could easily absorb any loan write-downs.
Rating agency long term rating Short term rating Outlook Individual rating Moody’s Investors Service A1 P-1 stable D+ Standard & Poor’s A A-1 negative n/a Fitch Ratings A F1 stable C/D
The improved outlook for RBI’s Bank Financial Strength Rating also led to an upgrade in the long-term deposit ratings for some subsidiary banks, with the outlook upgraded from stable to positive for the Romanian Raiffeisen Bank S.A., from negative to stable for Raiffeisenbank (Bulgaria) EAD, and from negative to positive for the Russian ZAO Raiffeisenbank. There was no scope for upgrading the outlook for Raiffeisen Bank Aval JSC in Ukraine and Tatra banka, a.s. in Slovakia, as they had already reached the maximum in their rating class.
Besides the usual items on the agenda at an Annual General Meeting, there was a vote on the merger of Cembra Beteiligungs AG as the transferring company with Raiffeisen International Bank-Holding AG as the absorbing company. A clear majority of shareholders voted for the merger and approved the merger agreement. The assets of Cembra essentially consisted of the corporate banking business previously spun off by RZB and the associated participations. This did not affect the divisions and participations associated with RZB’s role as the central institution for Raiffeisen Banking Group Austria, which all remained with RZB. The merged company has operated as RBI since 10 October 2010.
Directly after announcing the 2009 figures, the company gave a presentation to some 250 participants at one of the world’s most important bank conferences in London. The evening before, Raiffeisen International had held a meeting for analysts, which many of the analysts monitoring the Group attended. At the subsequent roadshow in London, the Management Board presented the company in numerous individual and group discussions.
The announcement of further details of the planned merger on 19 April 2010 also entailed a telephone conference. However, a scheduled roadshow had to be cancelled at short notice due to the restrictions on air travel throughout Europe caused by the volcanic eruption in Iceland. Instead, numerous telephone and video conferences were held.
regular discussions and meetings during the rest of the year with investors, state institutions, analysts and rating agencies. The focus of all these discussions was on details of the merger and the presentation of the advantages of and motives for the transaction. Members of the Management Board and the Group Investor Relations team also regularly participated in investor conferences and roadshows to explain the merger in detail. Starting in the third quarter, these were supplemented by meetings and roadshows with debt investors and analysts, primarily in Europe.
E-mail: ir@rbinternational.com Internet: www.rbinternational.com → Investor Relations Phone: +43-1-71707 2089 Fax: +43-1-71707 2138
Raiffeisen Bank International AG Group Investor Relations Am Stadtpark 9 1030 Vienna Austria
C Rule 45: RBI deviates from C Rule 45 of the ACGC, which provides a non-competition clause for members of the Management Board. RBI is a flotation of the Raiffeisen Bankengruppe Österreich (RBG), which is also a majority shareholder in its central institution, the RZB. Some members of the Management Board therefore also exercise duties in corporate function in RBG banks. A number of members of the Management Board have duties in corporate function in other banks and financial service institutions. In this way know-how and experience specific to the industry are applied to the exercising of supervisory functions of the Management Board, to the benefit of the company.
Corresponding to R Rule 62 of the ACGC, the society commissioned – as it has done in previous years – an external evaluation by the research company, Univ.Prof.DDr. Waldemar Jud Corporate Governance Forschung CGF GmbH. The report on this external evaluation is publicly available on the RBI website (www.rbinternational.com → Investor Relations → Corporate Governance → Explanation of CG Codex).
In line with Austrian law, RBI, as the acquiring company, is the successor of all legal rights relating to the separated principal business areas of RZB. For customers, the business relations assumed by RBI continue unchanged in their current form. Through the merger, RBI, as the largest Group of RZB, strengthened its market position, and a future-oriented restructuring reached its conclusion.
■ In general, the merger allows a meaningful reallocation of resources in the CEE markets. As one of the leading banks there, and as the Austrian bank with the strongest presence in the Asian emerging markets, RBI is optimally positioned for future growth.
RBI remains a part of the RZB Group, which is controlled by RZB, the controlling institution of the RBG.
Karl Sevelda, 1950 22 September 20101 10 March 2012 Deputy Chairman
Martin Grüll 1959 3 January 2005 1 January 2015 1 Appointment with effect from the recording of the merger in the commercial register on 10 October 2010.
Rainer Franz left the Management Board of Raiffeisen International on 30 June 2010.
Members of the Management Board held seats on the Supervisory Board or comparable functions in the following domestic and foreign companies that are not included in the consolidated financial statements: ■ Herbert Stepic: OMV AG Oesterreichische Kontrollbank AG ■ Karl Sevelda: Bene AG Raiffeisen Factor Bank AG (until 24 December 2010) ■ Johann Strobl: Oesterreichische Clearingbank AG ■ Patrick Butler: Raiffeisen Wohnbaubank AG Wiener Börse AG CEESEG AG
Composition of the Supervisory Board The following members currently belong to the Supervisory Board: Board member Year of birth Original appointment End of term
Ludwig Scharinger, 1942 8 July 20101 Regular Annual Second Deputy Chairman General Meeting 2015
Markus Mair, 1964 8 July 20101 Regular Annual Third Deputy Chairman General Meeting 2015
Kurt Geiger 1946 9 June 2009 Regular Annual General Meeting 2013
Christian Teufl 1952 8 July 20101 Regular Annual General Meeting 2015
Helge Rechberger2 1967 10 October 2010 Until further notice 1 Appointment with effect from the recording of the merger in the commercial register on 10 October 2010. 2 Delegated by the Works Committee.
Manfred Url, 1956 11 May 2001 10 October 2010 Deputy Chairman
Stewart D. Gager 1940 24 January 2005 Regular Annual General Meeting 2013
■ The Supervisory Board member shall not in the previous three years have been an auditor of the company, or a shareholder or employee of the auditor.
■ The Supervisory Board member shall not be a member of the Management Board of another company in which a Supervisory Board member of the company is a member of the Management Board.
■ The Supervisory Board member shall not be a close family relation (direct descendant, spouse, partner, parent, uncle, aunt, sibling, nephew, niece) of a member of the Management Board or of persons who fill one of the positions described in the preceding points.
The rules of procedure of the Supervisory Board govern its organization and allocate particular tasks to the Working, Audit and Personnel Committees. These committees are composed as follows: Supervisory Board members Working Committee Audit Committee Personnel Committee
Ludwig Scharinger Second Deputy Chairman Second Deputy Chairman Second Deputy Chairman
Markus Mair Third Deputy Chairman Third Deputy Chairman Third Deputy Chairman
The fields of activity of the members of the Management Board have been defined by the Supervisory Board, without prejudice to the general responsibility of the Management Board, as follows: CEO Herbert Stepic
The Working Committee is responsible for all matters that are brought before it by the Supervisory Board. Thus it is called on to approve matters not reserved for the Supervisory Board. In particular, these include the creation and dissolution of subsidiaries and the acquisition of shares up to a certain book value, the conclusion and termination of syndicate and voting agreements with shareholders, the execution of functions in the management bodies of other companies by members of the
Management Board, and the appointment of persons to the Management Boards and supervisory bodies of banks within the Group. Furthermore, the Working Committee approves the acceptance of operational banking risk above a certain level.
The Personnel Committee concerns itself with matters relating to the remuneration of members of the Management Board and the contents of employment contracts of members of the Management Board. In particular, it is responsible for approving the bonus allocation and the allotment of stock to members of the Management Board through the Share Incentive Program.
The Audit Committee oversees the accounting process and the effectiveness of the company’s internal control system, internal audit system and risk management system. Its tasks include supervising the annual audit of the financial statements and of the consolidated financial statements, as well as checking and supervising the independence of the Group’s auditors, in particular with respect to the additional work performed for the audited company. The Committee audits the annual financial statements, the management report, the consolidated financial statements and the Group management report, as well as the preparation of their findings; it also audits the proposal for the appropriation of earnings and the Corporate governance report. It presents a report on the results of its audits to the Supervisory Board. The Committee is also responsible for preparing the recommendation of the Supervisory Board for the selection of the external auditors and bank auditors. The Audit Committee also discusses the contents of the management letter.
number of meetings of the Supervisory Board and of the committees
In the period under review, the Supervisory Board held four meetings; in addition to this the Chairman informed the Supervisory Board regularly, promptly and fully concerning all relevant matters of the company’s performance, including the risk position and risk management of the company and key Group companies, in particular at important junctures.
The Audit Committee met twice. The Working Committee met on 18 November 2010 and made its decisions in writing by means of a circular letter in 2010, as did the Personnel Committee.
disclosure of information on the remuneration of the Management Board and Supervisory Board
Members of the Management Boards of bank subsidiaries associated with the company 7,163 228,571 6,277
Managers of the company and other associated companies 2,189 69,851 1,354
Under the SIP, a new tranche was previously issued each year. However, because of the merger of Raiffeisen International with the main business areas of RZB, no SIP tranche was issued in 2010. This means that on the balance sheet date shares in only two qualified tranches were allocated. As of 31 December 2010 the number of these qualified shares was 473,018 (of which 79,909 were attributable to the 2008 allocation and 393,109 to the 2009 allocation). The originally announced number of qualified allotted shares changed due to various personnel changes within Group units and the maturing of the 2007 SIP tranche, and is aggregated in the following table: SIP 2008–2009 Group of persons number Minimum Maximum of qualified- allocation allocation allocated of shares of shares shares as at 31/12/2010
Members of the Management Boards of bank subsidiaries associated with the company 252,269 73,399 378,404
For six members of the Management Board essentially the same rules apply as for employees, which provide for a basic contribution to a pension fund on the part of the company and an additional contribution, if the employee makes his own contributions in the same amount. One member of the Management Board has a performance–based pension benefit. For four members of the Management Board, additional individual pension benefits apply, which are financed by a reinsurance policy.
In the event of termination of office or employment and retirement from the company, of the remaining members of the Management Board – two left the company during 2010 – two members of the Management Board are entitled to severance payments in accordance with the Salaried Employees Act (Angestelltengesetz), two members in accordance with contractual agreements and three in accordance with the Employee Benefit Act (Betriebliches Mitarbeitervorsorgegesetz). In principle, the severance payment claims under the Salaried Employees Act and contractual agreements expire, with the exception of one member of the Management Board, when the employee terminates the employment relationship. In addition, three members of the Management Board are entitled to a contractual severance payment at the end of their current term in office or if a time limit is imposed on their employment relationship. Due to the departure of two members of the Management Board, severance payments totaled € 967,468 in 2010.
The opening session and the Management Board‘s speeches are streamed live on the internet at www.rbinternational.com → Investor Relations → Events → Annual General Meeting, and can also be viewed there at a later time. This also creates maximum transparency for those shareholders who cannot attend the Annual General Meeting in person.
One of Raiffeisen’s fundamental values is to offer equal opportunities for equal performance within the company. This begins with the corresponding selection procedures, which ensure that equal standards are applied in hiring. The percentage of female employees at RBI, at 67 per cent, substantiates this practice and creates a foundation for further measures. It is necessary to create the corresponding conditions for the further advancement of women in the company.
Further measures include the company kindergarten with employee–friendly hours of operation at the Vienna site and the “Mother Care” program at Raiffeisenbank Polska S.A., which supports women from the initial announcement of pregnancy until the child’s first birthday. In addition, managers are instructed to afford employees with children special flexibility.
Transparency The internet and in particular the company website play an important role for RBI with regard to open communication with shareholders and their representatives, customers, analysts, employees and the interested public. Thus the website offers, among other things, regularly updated information about the following: ■ Annual and interim reports ■ Company presentations ■ Telephone conferences via webcasts ■ Ad-hoc-communications, press releases, investor relations communications ■ Price information and stock data ■ Information for outside creditors ■ Financial calendar with advance notification of important dates ■ Securities transactions of the Management Board and Supervisory Board subject to reporting requirements (directors’ dealings) ■ RBI’s articles of association ■ Corporate Governance Report ■ Analysts’ assessments ■ Ordering service for written information and option to register for automatic delivery of “Investor Relations News” by e-mail
Members of the Management Board must therefore disclose to the Supervisory Board any significant personal interests in transactions involving the company and Group companies, as well as any other conflicts of interest. They must also inform the other members of the Management Board. Members of the Management Board who occupy management positions within other companies must ensure that the interests of the companies in question are fairly balanced.
Accounting and audit of financial statements RBI’s accounting complies with the provisions of the International Financial Reporting Standards (IFRS). The annual financial statements of RBI are prepared in accordance with the regulations of the Austrian Banking Act (BWG) with regards to the Austrian Commercial Code (UGB). The consolidated annual financial statements are published within the first four months of the financial year following the year under review; interim reports are published no later than 56 days after the end of the respective period under review.
■ We are here to stay This principle expresses RBI’s responsibility to the regions of Central and Eastern Europe and their people. It also attests to a long-term strategy that is geared towards sustainability.
The foundation of sustainable business policy The Group’s Code of Conduct forms a framework for implementing statutory requirements and represents the key basis for corresponding measures and ethical attitudes in the course of banking business. In particular, this also defines the correct way to deal with customers, business partners and staff.
RBI’s social commitment As a company that is conscious of its responsibility, RBI is also actively involved in areas that are not directly related to its original business purpose.
Thanks to the dedicated work of many volunteers, it was possible to achieve these projects in a relatively short period. Examples include a home for orphans in Charkov (Ukraine), holiday accommodation for children in Jablunitsa (Ukraine), a home for war widows and their children in Illijas (Bosnia) as well as the procurement of a handicapped accessible minibus for a children’s hospice in Minsk (Belarus).
In 2010 another project was started in Albania with the help of Caritas. Here, the H. Stepic CEE Charity is involved in converting a former health center into a daycare center for disabled people aged between 8 and 25, who will then benefit from living space and professional care.
At the moment, a new project is just taking shape in the Ukraine: Together with “Kleine Herzen” and Caritas, the H. Stepic CEE Charity is setting up an orphanage for ten children in Pnikut. It is expected to open in 2011.
Information about all of H. Stepic CEE Charity’s projects can be found at www.stepicceecharity.org.
dealing with staff responsibly Even during the merger and the related reorientation, handling staff fairly is something that is very important to RBI. In addition to initiatives that address the issue of a healthy work-life balance, a focus is put on comprehensive diversity management. This pursues the aim of having positive intercultural cooperation across the entire Group.
Karl Sevelda likes to keep tabs on everything – even in the morning.
Economic recovery in the eurozone was similarly weak. With the exception of the second quarter of 2010, real GDP growth was consistently below its potential level (growth at normal capacity utilization) of just under 0.5 per cent quarteron -quarter. Full-year growth in the eurozone was 1.7 per cent. It should be noted that growth rates diverged sharply between member states. While Germany, Austria and Finland moved into recovery, Spain, Greece and Ireland were still deep in recession. Unemployment averaged 10.1 per cent for the eurozone as a whole. Inflation remained below its longterm trend in 2010 at 1.6 per cent, but rose again from the middle of the year, not least because of increases in taxes on consumption in several member states.
The Southeastern European transition countries had shown the highest growth before the crisis in 2008, although this was at the expense of domestic and foreign imbalances, such as very high inflation rates and substantial current deficits in some cases. Financing these imbalances had not been a problem, but the crisis led to a collapse in capital flows and investment in the region, meaning that current deficits also fell, for lack of finance. This resulted in a decrease in GDP in both 2009 and 2010, although the decline in 2010 is set to come in at 0.5 per cent, significantly smaller than in 2009 (decline of 5.5 per cent in real GDP).
In the fourth quarter of 2010, the Austrian economy grew 0.8 per cent, above its long-term average. Much of this growth was from the sharp rise in exports (1.2 per cent per quarter) and investment (2.8 per cent per quarter). Capacity utilization for the economy as a whole also returned to its long-term average, at 86 per cent. The high level of foreign demand gave Austrian industry solid order books, and also led to a level of capacity utilization in the Austrian industrial sector which was the highest in the entire eurozone. Together with the low interest rate environment, high corporate earnings, and intact growth prospects, this spells an upbeat investment climate. Investment in plant and equipment should accordingly make a substantial contribution to Austrian GDP growth in the next few quarters. The savings ratio of private households probably fell to 10.7 per cent in 2010, compared with 12 per cent in 2008. As the employment rate is also continuing to rise and inflation remains moderate, private consumption is likely to remain stable in the next few quarters, despite the cuts from the budget measures for 2011 to 2014, particularly since tax increases and expenditure cuts are very minor compared with the rest of Europe. After an initial recovery driven particularly by exports, the Austrian economy should move into a sustainable growth phase in 2011, supported by investment and private consumption.
In contrast to the major western economies, the central banks of several Asian countries have already reversed their monetary policy, faced by rising food and energy prices, which seemed to be fueling inflation. Asian currencies appreciated massively in 2010, mainly as a result of the expansionary monetary policy in the USA, which led to large capital inflows to the region. The resulting currency gains – undesired by the governments involved – prompted a range of countermeasures on the capital front. As a result of its lead in growth, predictable risks, and higher returns, Asia as a region will likely remain attractive to foreign investors in 2011.
The refinancing problems of Greece and Ireland showed clearly in 2010 that the Swiss franc is an alternative to investing in the euro for many investors, primarily European ones. As a result, the Swiss franc gained more than 12 per cent against the euro over the course of 2010, as investors became increasingly skeptical.
In the recovery phase from the end of the first quarter of 2009, the Polish zloty in particular experienced a relatively sharp appreciation. Even during the crisis, Poland was able to grow its economy and impress with stable fundamentals. Nevertheless, the Polish zloty was under particularly heavy pressure in the crisis, due to the higher level of liquidity in the Polish market. The Czech koruna, Russian rouble, and Hungarian forint also gained significant ground against the euro after their lows in the course of 2009. The delayed recovery in Southeastern Europe was also reflected in the movements of local currencies. Serbia in particular saw its currency weaken further against the euro in 2009. The same happened to Romania and Albania, although to a lesser extent.
In the year under review, most CEE currencies drifted sideways after the recovery phase in 2009 and in the first half of 2010. In some cases, they experienced strong volatility against the euro, driven by the shifts in global risk movements. In the second half of 2010, for example, the attitude to risk was influenced primarily by worries about the debt situation in the eurozone.
Total assets of the banking sector in local currencies grew significantly more slowly in 2009 throughout the CEE region than before the crisis. While the Central Europe region (CE) had reported annual growth of around 15 per cent in the five years before the crisis, it barely grew at all in 2009. There was finally a return to growth in 2010, although increases were still lower than in the pre-crisis period. Growth in total assets of the banking sector is expected to remain moderate at around 5 to 8 per cent a year for the next few years.
Non-performing loans rose further in 2010 as a result of the economic crisis. The main reasons for this were the increase in unemployment and the weakness of many CEE currencies, which posed an additional burden on many borrowers due to the high share of foreign currency loans in the region. The situation in the banking sector stabilized in the closing months of 2010 and is likely to continue to improve. However, the situation remains difficult in several countries, particularly Ukraine and Romania, but also – specifically due to the bank levy – in Hungary.
Performance and financials Introduction and scope of consolidation The consolidated financial statements of RBI are prepared in accordance with the International Financial Reporting Standards (IFRS). RBI AG also prepares separate financial statements in accordance with the Austrian Commercial Code (UGB) in conjunction with the Austrian Banking Act (BGW), which provide the formal basis of assessment for calculating dividend distributions and taxes. For more information on the disclosures required by the UGB and BWG, please see the relevant sections of this Group management report, including the notes section.
Pro forma performance comparison For reasons of transparency and comparability, this section compares performance and financials with RBI’s unaudited pro forma figures for the year 2009. Raiffeisen International’s figures for the previous year are used as comparative figures in other sections of the Group management report.
There were positive developments in the area of credit risk. Due to a decline in defaults and workout measures, provisioning for impairment losses fell by 47 per cent or € 1,038 million to € 1,194 million, having been extremely high across all segments in the previous year as a result of the impact of the financial and economic crisis.
A one-off effect can be seen for income taxes. This item was lower in spite of a 58 per cent rise in net income due, in particular, to deferred tax income arising from the recognition of tax loss carry-forwards in Austria (€ 120 million) and changes to tax legislation in Ukraine (€ 26 million).
RBI Change RBI Raiffeisen 2010 pro forma International in € million 2009 2009
Depreciation of tangible and intangible fixed assets (340) 18.6% (287) (246)
Net interest income rose by 9 per cent or € 296 million, representing the biggest increase of any earnings component. Part of this growth was due to higher business volume as a result of a slight rise in credit growth in some markets in 2010 following the dip in 2009 brought about by the financial crisis. The level of business in securities remained relatively constant. The majority of the growth in income, however, was the result of a rise of 32 basis points in the net interest margin to 2.51 per cent. This improvement was primarily due to the more favorable refinancing situation, particularly with regard to customer deposits. In addition, higher prices were gained on the asset side in some markets. While interest margins rose in virtually all segments, they fell in Russia as a result of strong competitive pressures. In the CIS other segment, the decline was due to a change in how interest on impaired loans and advances is calculated in Ukraine. This trend can also be seen in the results for different business divisions; the rise in net interest income is evident, above all, in the Capital markets & treasury business division.
The increase of 5 per cent or € 70 million in net fee and commission income was a clear sign that the overall economic situation has improved in RBI’s home markets. This growth was primarily driven by the Central Europe and Group corporates segments; at the level of the business divisions, it was largely generated by the Corporate customers segment. This increase was due, in particular, to income from credit and guarantee business, payment transfers and securities business. By contrast, income from foreign exchange transactions was down due to lower demand, particularly as a result of a decline in foreign exchange lending business and a slight fall in the number of international payment transfers.
Net trading income was 22 per cent or € 91 million lower than the previous year. The main reason for this decline was the positive trend in 2009, a year that saw a strong recovery in the value of interest rate products, which contributed to above-average net income. This resulted in a drop of around € 150 million in net income from interestrelated trading, which fell to € 211 million. The fluctuations in the other components of net trading income were much lower. Net income from currency-related trading was up by around € 15 million, while net income from equity instruments fell by around € 20 million.
net interest income net fee and commission income net trading income Other net operating income
General administrative expenses up by almost 10 per cent Following a 14 per cent decline in 2009 due to cost-cutting measures and currency effects, general administrative expenses grew by 10 per cent or € 264 million to € 2,980 million in the year under review. In contrast to the previous year, currency appreciation in 2010 partly contributed to a rise in general administrative expenses.
Profit up sharply due to a decrease in provisioning for impairment losses
Consolidated profit of over € 1 billion Compared to profit before tax, profit after tax rose disproportionately by 122 per cent from € 531 million to € 1,177 million. With the operating result remaining relatively stable, this growth was due to a 47 per cent reduction in provisioning for impairment losses as well as the tax-related effects.
Compared to profit after tax, income from non-controlling interests rose only slightly by 11 per cent to € 90 million. The increase in profit was achieved primarily at RBI as well as in Group units with little or no non-controlling interests. After deducting this income from non-controlling interests, the consolidated profit accounted for by RBI amounted to € 1,087 million, which represents an increase of 142 per cent or € 637 million year-on-year.
Earnings per share of € 4.56 As a result of the merger between Raiffeisen International and RZB’s principal business areas and the associated capital increase, the average number of shares outstanding rose by 40.8 million to 194.5 million. Earnings per share would have been € 1.29 in the previous year. Not including the merger effects, Raiffeisen International reported earnings per share of € 0.99 in 2009. In 2010, not only was there a significant increase in net income; earnings per shares rose sharply as well from € 3.28 to € 4.56. The Management Board will propose to the Annual General Meeting in June 2011 that a dividend of € 1.05 per share be paid for 2010. That would result in a total payment of € 204 million.
ROE before tax rises to 13.7 per cent The return on equity (ROE) before tax rose year-on-year by 4.2 percentage points to 13.7 per cent, primarily due to a reduction in provisioning for impairment losses. Average equity, on which this calculation is based, was up 13 per cent year-on-year at € 9,400 million. The growth in capital was accounted for by retained earnings and the participation capital issued in the second quarter of 2009. Due to the aforementioned tax-related effects, consolidated ROE – based on the capital attributable to RBI shareholders – grew even more sharply by 5.9 percentage points to 13.0 per cent.
As a result of the merger with RZB's principal business areas, equity (primarily comprised of participation capital and retained earnings) rose by € 2,325 million. The merger also entailed a capital increase from own funds. As a result, subscribed capital rose by € 125 million to € 596 million (not including own shares of € 593 million).
Total comprehensive income increased equity by € 1,396 million. This includes profit after tax of € 1,177 million. Other profit/loss, which consists of earnings components recognized directly in equity, amounted to € 219 million. This was primarily accounted for by currency differences, including the corresponding hedging transactions (€ 178 million), as a result of the appreciation of several local currencies in the CEE region. The appreciation of currencies pegged to the US dollar, in particular the Ukrainian hryvnia (up 8 per cent) and the Russian rouble (up 5 per cent), had the greatest impact year-on-year. Most currencies in the Central European region also gained in value, in particular the Czech koruna (up 5 per cent).
With the merger of Raiffeisen International and RZB’s principal business areas shown retroactively, the total assets increased by € 69.4 billion at the start of the year 2010. It fell year-on-year by € 14.5 billion to € 131.2 billion at year-end. This fall was largely due to interbank business. As a result of the appreciation of the US dollar and most CEE currencies, the total assets increased by approximately € 2.4 billion. Adjusted for these effects, there was an organic reduction of the total assets of around 12 per cent or € 16.9 billion.
loans and advances to banks (net) loans and advances to customers (net) Securities Other assets in € billion
As with the presentation in the consolidated annual report, the audited figures for Raiffeisen International in 2009 are used for comparison with the previous year.
In Central Europe net interest income improved by 13 per cent or € 126 million to € 1,111 million. Poland showed the sharpest increase in net interest income, which rose by 45 per cent or € 55 million. The reasons for this were the increase in customer margins, improved refinancing costs and the appreciation of the Polish zloty. In the Czech Republic, net interest income grew 15 per cent or € 37 million because of the increased volume of mortgage lending and loans to private individuals, together with improved customer margins. Net interest income in Slovakia also benefited from lower refinancing costs, rising by 11 per cent or € 28 million. The net interest margin improved by 39 basis points to 3.29 per cent.
In Southeastern Europe net interest income totaled € 898 million, slightly above the previous year’s figure. This reflects, on the one hand, the improved net interest income in Croatia, which grew by 15 per cent or € 22 million due to lower refinancing costs with banks and lower interest expense on customer deposits. On the other hand, net interest income fell in Serbia by 15 per cent or € 18 million as a result of relatively weak new business, tighter margins with customers with good credit ratings, lower income from investments with central banks, and the sharp depreciation of the currency. The net interest margin in the segment was 3.90 per cent at year-end (up 20 basis points).
In the segment Central Europe, the decrease was less marked, with net allocation for provisioning for loan losses falling by 16 per cent or € 79 million to € 408 million. In Hungary, net allocations totaled € 196 million, € 76 million less than in the previous year, due to the positive influence of lower loss rates and restructuring measures on loan loss provisioning. In the Czech Republic, by contrast, net allocations rose by € 22 million to € 94 million as a result of additional individual loan loss provisions du to higher loss rates as well as greater portfolio-based loan loss provisioning. Net allocations in Slovakia fell by € 13 million to € 49 million because of the more favorable economic environment and improved payment record in retail business.
Net allocations in the segment Southeastern Europe fell by 19 per cent or € 79 million to € 335 million. The decrease was particularly marked in Romania, amounting to € 94 million, due primarily to improved ratings for customers in the real estate sector and restructuring and sale of non-performing loans. With the exception of Bulgaria as well as Bosnia and Herzegovina, where net allocations increased because of new non-performing loans in the corporate customer business, net allocations were slightly down on the previous year in all other markets in this segment.
In the Group corporates segment, net allocations to provisioning for impairment losses totaled € 129 million in the year under review, which compares with € 31 million in the Group markets segment.
The net provisioning ratio – i.e. the ratio of net allocations to average credit risk-weighted assets – was 1.66 per cent. The loss rate – i.e. the ratio of charged-off loans to total lending – was 0.41 per cent.
Income from payment transfers – which grew by € 56 million to € 599 million – was the biggest contributor to net fee and commission income, accounting for 40 per cent. The new segments made a significant contribution of around € 20 million to this increase, with further growth in Central Europe and CIS other segments. Net income from payment transfer business rose by € 14 million as a result of the improved economic situation and the resulting increase in transactions in Central Europe, mostly in Slovakia and the Czech Republic. Higher volume also led to an increase of € 12 million in Ukraine.
Net income from the securities business showed the greatest increase at € 92 million as a result of the new Group corporates (from lead arrangements and treasury products) and Group markets segments. In the Central Europe segment, net income rose by € 6 million, partly due to the improved result in Slovakia.
net trading income Net trading income rose by 76 per cent or € 142 million to € 328 million. The new segments Group corporates, Group markets and Corporate center contributed € 132 million.
There was a net loss of € 14 million on other transactions, due entirely to valuation losses on capital guarantees given in the Group markets segment.
Net income from securities at fair value through profit or loss, consisting of income from valuations and proceeds from sales, totaled € 120 million in full year 2010. Of this, € 58 million was from valuation gains due to reversals of impairments on fixed-interest securities. In the first quarter of 2010, a clear recovery emerged, with net valuation income of € 132 million. However, the second quarter was adversely impacted by debate over the euro, prompted by concerns about Greek solvency, ultimately leading to valuation losses of € 109 million. The third quarter was again positive, with valuation gains of € 65 million, but the deterioration in the sovereign debt crisis in Ireland led to valuation losses in the fourth quarter of € 30 million. Net proceeds from sales of securities at fair value through profit or loss totaled € 62 million, with the fourth quarter accounting for the highest income at € 22 million.
Net income from securities held-to-maturity includes profit of € 6 million on the sale of an insignificant part of the portfolio. In the previous year there was a loss of € 2 million, caused by an issuer classified as non-performing.
General administrative expenses General administrative expenses rose by 31 per cent or € 710 million to € 2,980 million in the year under review. The main reason for this sharp rise was the merger with the principal business areas of RZB. The cost/income ratio was 55.1 per cent (2009: 52.5 per cent).
The reason for the increase in premises and other operating expenses was primarily the integration of the principal business areas of RZB. The increase in legal, advisory and consulting expenses was in connection with the merger. IT expenses rose because of the new Group units and higher service costs of software systems. Advertising, PR and promotional expenses rose mainly as a result of integrating the new Group units, but also because of a new marketing campaign in Russia.
Other net operating income Other net operating income turned around from minus € 20 million to € 6 million. Various components were responsible for this. Net income from non-banking activities rose by € 31 million to € 35 million, due primarily to additional non-banking activities from the merger of the principal business areas of RZB. Other taxes increased by € 22 million to € 74 million. The decision of the Hungarian Parliament to impose a levy on banks and financial service providers led to additional expenses of € 41 million in Hungary.
The result in the year under review of allocation and release of other provisions was a loss of € 27 million (2009: minus € 4 million). This was primarily due to allocations to provisions for current litigation in Russia and Slovakia. Net proceeds from other operating income and expenses rose by € 41 million to € 35 million. This was predominantly due to the merger with the principal business areas of RZB.
net income from disposal of Group assets In the year under review net income from disposal of Group assets totaled € 5 million. In all, 47 subsidiaries were dropped from the consolidation, 41 of them due to a change in the materiality limits. The companies are primarily active in leasing, investment and financial services, or provide ancillary services. Seven subsidiaries were dropped from consolidation following closure.
As of 31 December 2010, RBI’s total assets was € 131.2 billion. Without the principal business areas transferred from RZB, the comparable figure was € 76.3 billion. The merger that took place led to a € 69.4 billion increase in the Group’s total assets.
Assets On the assets side of RBI’s statement of financial position, the figures at the end of 2010 were as follows: With a 54 per cent share, the majority was made up of loans and advances to customers (after the deduction of loan loss provisions). Loans and advances to banks accounted for 16 per cent of the Group’s total assets. The overall volume of financial investments (including those held for trading) amounted to 21 per cent, with other asset items representing a share of 9 per cent.
Compared with € 50.5 billion in the previous year, loans and advances to customers accounted for € 75.7 billion (before deduction of loan loss provisions) in the period under review. On the one hand, this rise came from contributions made by the principal business areas of RZB, and on the other hand, from slight growth in lending recorded in CEE in 2010. A significant increase arose as a result of enhanced market demand and an active acquisition policy, particularly in Russia and the Czech Republic. Of the overall loans and advances to customers, credit business represented € 48.8 billion or 64 per cent and mortgage loans represented € 16.9 billion or 22 per cent. Credit business with corporate customers amounted to € 53.0 billion, of which large corporate customers represented € 49.2 billion. Loans to retail customers totaled € 21.0 billion and of this, private individuals accounted for € 18.5 billion. At the end of 2010, the loan/deposit ratio (the ratio of customer loans to customer deposits) was 131 per cent.
At the end of the year, the impairment losses on loans and advances reached € 4.8 billion. Of this, € 4.5 billion represented provisions for loans and advances to customers and € 0.3 billion represented loans and advances to banks. € 2.8 billion of the customer provisions were related to corporate customers and € 1.7 billion affected retail customers. With € 1.3 billion, most of the loan loss provisions were attributed to Central Europe. The CIS other segment accounted for € 1.0 billion of loan loss provisions, Southeastern Europe and Russia accounted for € 0.9 billion and € 0.7 billion, respectively.
Other assets of € 11.0 billion were made up of cash reserves (€ 4.8 billion), tangible and intangible fixed assets of € 2.7 billion, derivatives (€ 1.5 billion) and the remaining item other assets.
At the end of the year, deposits from customers reached € 57.6 billion and as such, represent a solid source of funding for the Group (51 per cent of the refinancing was achieved by means of customer deposits). The deposits from corporate customers came mainly from large corporates – and accounted for 51 per cent or € 29.4 billion. The deposits from retail customers came mainly from private individuals – and accounted for 45 per cent or € 25.8 billion. The rise of € 15.0 billion mainly came from RZB’s principal business areas. In addition, slight growth was recorded in CEE – particularly in Russia, with a € 1 billion increase.
Refinancing volumes via banks – primarily commercial banks – amounted to € 33.7 billion, of which less than a third was of a long-term nature. The increase over the previous year was exclusively due to the contributions made by RZB’s principal business areas.
Paid-in capital is made up of the subscribed capital, participation capital and capital reserves. Through the issuing of 40,837,624 new bearer shares in order to carry out the merger, the subscribed capital rose by € 125 million to € 596 million. After deducting own shares, this amounted to € 593 million. The € 2,500 million participation capital issued by RZB AG was transferred to RBI AG. In the course of the merger, the receivables and liabilities of the transferring and receiving company have been calculated. This also affected the € 600 million outstanding participation rights which had been earmarked in full by RZB AG.
The capital gained from consolidated profit and retained earnings amounted to € 3,678 million. In the year under review, the Group reported consolidated profit of € 1,087 million. From the previous year’s result, € 182 million was added to the retained earnings. Dividend payments amounted to € 335 million, of this, dividends for shareholders represented € 135 million and dividends for the participation capital represented € 200 million. The other comprehensive income led to an increase in the retained earnings of € 210 million. In this respect, key components were the positive currency differences, which (including Capital Hedge) amounted to € 169 million. The cash flow hedge yielded € 39 million. Through assessment changes for financial assets available for sale, retained earnings rose by € 10 million. Deferred taxes on income and expenses directly recognized in equity reduced this by € 8 million.
Own funds faced an own funds requirement of € 7,585 million. The own funds requirement for credit risk was € 6,048 million, of which € 2,974 million related to the standardized approach and € 3,074 million related to the IRB approach. The requirement for the item position risk in bonds, equities and commodities was € 327 million. For open currency positions this was € 386 million and for operational risk this was € 824 million.
This resulted in an excess cover ratio of 66.2 per cent or € 5,023 million.
The tier 1 ratio – based on credit risk – was 12.2 per cent. Based on total risk, this resulted in a core tier 1 ratio of 8.9 per cent and a tier 1 ratio of 9.7 per cent. The own funds ratio reached 13.3 per cent.
Research and development As a universal bank, RBI is not involved in research and development in the strictest sense of the term.
The consolidated financial statements are prepared in accordance with the relevant Austrian laws, notably the Austrian Banking Act (BWG) and Austrian Commercial Code (UGB), which govern the preparation of consolidated annual financial statements. The accounting standards used to prepare the consolidated financial statements are the International Financial Reporting Standards (IFRS) as adopted by the EU, which RBI has been using since 2000 – initially on a voluntary basis.
An internal control system has been in place for many years at RBI and its parent, the RZB Group, which includes directives and instructions on key strategic topics. The system comprises ■ the hierarchical decision-making process for approving Group and company directives and departmental and divisional instructions ■ process description for the preparation, quality control, approving, publishing, implementing and monitoring directives and instructions ■ rules on revising and repealing directives and instructions.
The consolidated financial statements are prepared by the Group Financial Reporting department, which reports to the Chief Financial Officer. The relevant responsibilities are defined Group-wide in the framework of a dedicated function.
Significant risks relating to Group accounting process are evaluated and monitored by the Management Board. Complex accounting standards can increase the risk of errors, as can the use of different valuation standards, particularly in relation to the Group's principal financial instruments. A difficult business environment can also increase the risk of significant financial reporting errors. For the purpose of preparing the consolidated financial statements, estimates have to be made for asset and liability items for which no market value can be reliably determined. This is particularly relevant for credit business, social capital, and the intrinsic value of securities, participations and goodwill.
The preparation of individual financial statements is decentralized and carried out by each Group unit in accordance with the RZB Group 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 reporting dates and local accounting standards can result in inconsistencies between the individual financial statements and the figures submitted to RBI. The local management is responsible for ensuring compliance with mandatory internal control measures, such as the separation of functions and the principle of dual control.
The financial statement data, which are are examined by an independent auditor and are then usually entered directly in the Cognos Controller consolidation system by the end of January each year. The IT system is kept secure by limiting access rights.
The general control system encompasses both the Management Board and middle management (department heads). All control measures constitute part of the day-to-day business processes and are used to prevent, detect, and correct any potential errors or inconsistencies in the financial reporting. Control measures range from managerial reviews of the interim results to the specific reconciliation of accounts through to analyzing ongoing accounting processes.
Group Financial Reporting is responsible for compiling the consolidated results to produce the final consolidated financial statements. In addition, the management summary (Group management report) provides verbal comments of the consolidated results in accordance with the statutory requirements. Both the consolidated financial statements and the management report are examined by an independent auditor.
Group audit regularly and independently verifies compliance with the internal rules within the RZB Group units. The head of Group audit reports directly to the RZB and RBI Management Boards.
The Annual General Meeting of 8 July 2010 also authorized the Management Board to acquire own shares for the purpose of securities trading, under the provisions of Section 65 (1) 7 of the Austrian Stock Corporation Act, during a period of 30 months from the date of the resolution, up to a maximum of 5 per cent of the Company’s respective capital stock. The consideration for each share to be acquired must not be less than half the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition. This authorization may be exercised in one or several installments by the Company, by affiliated enterprises or, for their account, by third parties.
The Annual General Meeting of 9 June 2009 authorized the Management Board of the Company to issue, in one or more tranches, participation rights having equity characteristics pursuant to Section 174 of the Austrian Stock Corporation Act in a total nominal amount of up to € 2 billion within five years from the date of the resolution with the approval of the Supervisory Board in accordance with the terms for participation rights to be set by the Management Board and to the exclusion of shareholders’ subscription rights. It should be noted that, under the provisions of the relevant laws, participation rights confer no voting rights or other membership rights. Issuing participation rights therefore entails no change of ownership structure from the standpoint of stock corporation law and shareholders’ voting rights. The Company decided on 15 July 2009 to strengthen its capital by issuing participation rights in the amount of € 600 million based on the authorizing resolution of June 2009. In the course of the merger with effect from 10 October 2010, the mutual loans and liabilities of the receiving and transferring companies were wiped out. The same is true of the participatory rights in the amount of € 600 million, which had been subscribed in full by RZB. No further participation rights have been issued to date. Please consult the notes to this report on page 190 for more information.
In the course of the merger, the RZB issue “Raiffeisen-Partizipationskapital 2008/2009” in the amount of € 2.5 billion was transferred to RBI on unchanged terms.
(8) The following material agreements to which the company is a party and which take effect upon a change of control in the company as a result of a takeover bid exist in the context of the D&O insurance and the Share Incentive Program (SIP) of the company: ■ “If the insured, RBI, comes under new control due to a change in the management or control in respect to the management or control over a subsidiary or if it merges with another enterprise, the insurance will only cover events of loss due to wrongful acts occurring prior to the change in control and management and only for events of loss up to the end of the period of insurance.”
Funding Banks essentially refinance themselves using their own funds, their customer deposits and various capital and interbank market tools. Due to the financial and economic crisis, funding of banks, especially in the area of wholesale funding thus via financial markets, was once again difficult in 2010.
Improved funding opportunities on the capital markets The financing environment for CEE sovereigns improved significantly in the second half of 2009, enabling both funding and new issues of sovereign debt on the local and global bond markets (Eurobonds). This positive trend continued in 2010. With regard to the yield levels of local sovereign bonds, a slight downward trend was observed, partly due to the continued expansive monetary policy and partly to the decreasing risk premiums. At the same time markets, distinguished between individual countries and incorporated risk factors such as government debt, budget deficits and political uncertainty into the relevant terms and prices.
The ECB also continued to provide banks with sufficient liquidity. This resolved the liquidity crunch prevalent during the financial crisis, as did the simultaneous decline in the demand for loans.
Funding measures Upon entry of the merger of Raiffeisen International with RZB’s principal business areas on 10 October 2010 into the commercial register, RBI (entity resulting from the merger) replaced RZB as the bond issuing entity. As a result, two new issue programs, the "EUR 25,000,000,000 Debt Issuance Program" and the "EUR 20.000.000.000 Emissions programm der Raiffeisen Bank International AG", were launched. Under these programs, bonds can be issued in different currencies and with different structures.
36 per cent of the wholesale funding was raised by the network banks, while 64 per cent came from Group headquarters. As Group headquarters wants to make greater use of the wholesale funding markets in 2011 again, it is expected that this year the headquarters and the network banks will each provide half of the wholesale funding. The fact that the current maturity profile offers a great deal of scope with respect to the structuring of maturity dates for new issues is advantageous in the prevailing market environment. To achieve the long-term wholesale funding volume for 2011 of around € 6.5 billion that has to be placed in the capital markets, of which € 2.3 billion had already been successfully placed by the beginning of March, the Group headquarters will primarily source funding through unsecured public senior issues, private placements and structured products. Network units will cover the remaining funding requirement through local and international bonds, supranational loans, standard loans and other instruments, such as structured products. The direct bank ZUNO BANK AG, still in the process of being set up, will initially contribute only a small percentage to the funding of RBI.
The diversification of sources is important for RBI’s financing. A significant part of the network units' financing in 2010 was replaced with medium- and long-term transactions from various sources. International funding opportunities are also of considerable importance for RBI. The Group accordingly has a range of different funding sources.
The European Investment Bank (EIB), the EBRD and other supranational investors are also important partners for RBI in CEE with regard to long-term funding. The volume of owing debt, mainly long-term funding, raised by RBI as at the end of 2010 stood at € 1.7 billion. RBI intends to continue collaborating with the above mentioned supranational institutions in future.
In addition, RBI benefits from the Raiffeisen Banking Group Austria (RBG) as an important funding partner. This longstanding partnership aids in the procurement of liquidity via the RBG and with the placement of the RBG's funding instruments with its customers.
Risk management The start of 2010 was still dominated by uncertainty due to the continuing financial and economic crisis that began in 2008. Markets were suffering from the combination of low economic growth and a continuing high level of loan defaults as well as high volatility in risk premiums and exchange rates. However, the trend finally turned during the year under review, and the global economy picked up more and faster than originally anticipated. Even so, the general uncertainty and the gap between countries in terms of the sustainability of the economic recovery remained. Risk premiums in parts of the eurozone also rose further as a result of the sovereign debt crises in Greece and Ireland.
Management of non-performing loans Despite the continuing crisis, new allocations to provisioning for impairment losses in 2010 was however significantly lower than in 2009. The non-performing loan portfolio continued to rise during the period under review, comprehensive provisions were made for this. The decrease in new allocations to provisioning for impairment losses accordingly reflected the decrease since year-end 2009 in the number of defaulting borrowers in RBI’s key portfolios.
Successful management of non-performing loans was one of the core functions of risk management in 2010. Besides the reorganization of the division involved, further progress was made with the introduction of minimum standards for workout management that began in 2009. The standards were introduced at all network banks and leasing companies, and now ensure sustainable and comprehensive management with adequate resources throughout the entire Group. Early recognition of non-performing loans allows more time for them to be assigned to experienced workout managers with their extensive portfolio of measures.
The resulting structure with its new elements forms the basis for risk management – identifying, measuring, aggregating, limiting and reporting – for both the individual types of risk and the overall risk for RBI.
The departments in both companies for credit risk management for large corporates were consolidated, with a realignment on industry lines. The newly created Credit Management Corporates division was given four departments dealing with specific target industries (construction & real estate, cyclical industries & manufacturing, non-cyclical industries, energy & commodities). The goal of the alignment by industry is to establish the individual departments as competence centers for industry information. As a result, the departments in credit risk management for large corporates also analyze the potential and risks for the individual industries, in close cooperation with internal and external specialists, such as economists, industry consultants and trend analysts.
Retail customers non-performing loans of loans and advances to customers and banks
Stress tests The results of the stress tests by the Committee of European Banking Supervisors (CEBS) were published in July 2010, and reduced some of the uncertainty in the markets. The publication of detailed information in connection with the stress tests on bank sovereign lending in particular gave the financial markets key information for risk assessment. At the time of publication, RZB’s loans to European peripheral states were very low in international comparison, and have been further reduced since. In the process, risk management lowered the limits and the existing risk contributions, in order to counter negative effects from the Greek and Irish sovereign debt crises, even though RZB had not invested in government bonds issued by these countries.
The model passed the review process of both the FMA and OeNB, and has been used since 30 August 2010 to calculate own funds requirements for foreign currency and general interest rate risk in the trading book for Group headquarters. Daily management includes RBI’s trading and bank books based on VaR for a one-day holding period, a 99 per cent confidence interval, and sensitivity limits. The market risk position, limit process and presentation of all capital market activities in the income statement are some of the regular items on the agenda for the weekly Market Risk Committee meetings.
To ensure the quality of the model, it is subject to a daily backtesting. The results of these tests have always been within the range of model expectations, and have not shown any substantial flaws even in the last few months. Based on these good results, the internal model is placed in the best regulatory category (“green light”).
liquidity risk Within liquidity risk management, the crisis scenarios used in risk measurement and management were further refined. Besides results from recent years, the initial assumptions of Basel III have been integrated into the underlying scenarios. The emphasis here has been on attracting customer deposits, and the associated measures have focused primarily on reducing liquidity and transfer risks. Other initiatives in the year under review aimed at diversifying the refinancing basis.
RB International Finance (USA) LLC, New York (USA) IRB STA3 STA STA
The regulatory authorities approved the modification of the IRB approach for RZB in the year under review, which was necessary because of the merger-related transfer of assets from RZB to Raiffeisen International. As a newly created bank, RBI successfully completed the mandatory IRB approval process with a very low number of new conditions.
The concept for Group-wide introduction of Basel II was systematically implemented in 2010. In Slovakia and Hungary, the application to implement the IRB approach for the retail asset class (specifically private individual customers) was approved.
Currently the standard approach is being used to calculate capital conditions for operational risk under Basel II. After an implementation phase lasting several years, Raiffeisen Bank Aval JSC in Ukraine has used this approach since 1 January 2010, so that all key Group units are now aligned with at least the Standard Approach.
Human resources A year shaped by the merger In 2010, work in the Human resources department, especially in Vienna, was dominated by the managerial and accompanying measures related to the merger of Raiffeisen International with the principal business areas of RZB. At the same time, the department had to respond to the occasionally substantial changes that took place in the business environment in Central and Eastern Europe. While the improving economic situation in Russia meant that competition for employees almost reached the pre-crisis level, the situation in several Southeastern European countries remained difficult. For RBI this meant a variety of different measures, ranging from staff reductions to redeployment and selective recruitment.
Following the merger, the number of employees on 31 December 2010 was 59,782 employees (measured on a full-time equivalent basis). The number of employees accordingly remained stable year-on-year in most of the network banks. The average age of employees is still relatively low at 34.4 years, and thus corresponds to the image of RBI as a young and dynamic bank. Graduates accounted for 75 per cent of employees, indicating a highly skilled workforce. 67 per cent of employees were women.
At the beginning of the change process, a comprehensive diagnosis was carried out using an employee survey and a large number of focus groups. The findings from the survey were presented and discussed in various workshop constellations. Special attention was paid to differences in corporate culture. The initial cornerstones of the new culture were then developed in dialog with employees at various levels, based on the new leadership principles worked out by the Management Board. Organizational units especially affected by the changes were supported with tailor-made workshops. At the same time, targeted support measures such as team building, conflict mediation and coaching were also implemented. A strong emphasis was placed on communicating with employees, with numerous meetings, dialog sessions with the management and information events on specific themes being held, and an integration newsletter being published on a regular basis.
Although employees and managers – as in the case of every merger – had to cope with many changes and the resulting strains and stresses, a feeling of optimism regarding the merger set in relatively early, and confidence in the company was perceptible. At the start of October, for example, shortly before the official merger date, more than 80 per cent of participating employees responded positively to the following question in an employee survey: "How confident are you that RBI/the new RZB are heading towards a successful future?"
Immediately after the merger, “Building the New Bank workshops” were held for each executive division to discuss the new company's strategic direction as well as any specific issues and challenges for the respective division. Finally, a "Merger Celebration Event" was held under the motto "Together through Change to New Strength". All employees were invited to the event, with the entertainment being almost exclusively provided by them, representing a remarkable creative achievement.
Management potential for the future – talent management and management development
Talent management and loyalty management were major focal points for the RBI Human resources team in 2010. The process for promoting top talent, successfully launched in previous years, was continued and intensified. For the first time all key positions were included in succession planning, and a standardized potential analysis method for refilling these positions made mandatory. Also accelerated were the efforts to promote the mobility and flexibility of employees through horizontal career opportunities and job rotation. This has already been very successfully implemented in some countries, and helps prepare top talent for future management tasks and strengthens their loyalty to the Group.
Overall there is a strong tendency towards individual development measures. Managers are making increasing use of tools such as coaching, mentoring and mediation to ensure security and develop new options, especially in times of change and new challenges. The concentration on change issues in Learning & Development in 2010 was reflected in the implementation and monitoring of various team-building processes and workshops, the main aim of which was to ensure that newly formed units were well-prepared for their future tasks.
Under the motto "Change Mastery – Managing Efficiency AND New Growth", the training focus in executive development lay on costs and efficiency programs as well as on change management. The more than 200 top management level participants were especially interested in alternative training formats such as learning visits, coaching and self-assessment tools.
The new, consolidated, Group-wide training package incorporates "the best of both worlds", i.e. in each case the most attractive modules of Raiffeisen International and RZB. It encompasses a wide range of seminars and personal development training courses for staff at all locations. These courses are based on the company's strategy and the current challenges posed by the market. In 2010, this meant a considerable number of training initiatives on topics such as lean management and operations, risk management and affluent customers.
Special emphasis was placed in 2010 on professional training for risk management. The impact of the financial and economic crisis led to a rapid increase in the number of employees in related areas, including in the early warning system and in the management of non-performing loans. Many employees acquired the specialist knowledge and skills required for these areas in next to no time, with target-group oriented training programs being developed and introduced at both Group level and locally. Massive sums were invested in this area, especially in markets such as Ukraine and Romania.
eLearning too is becoming more and more important, and is already a fundamental component of ongoing training for RBI and its subsidiary banks. Along with simulation training, eLearning is increasingly used to convey information interactively, while online tests are also very popular for determining training outcomes.
In 2011 the focus will be on adapting "Total Rewards Management" to the occasionally very detailed remuneration provisions in the new Austrian Banking Act, and on implementing the latter within the Group.
Last year, RBI continued its ongoing personnel marketing activities in order to consolidate its strong position as an attractive employer and attract young talent to the company. For this reason, RBI and numerous subsidiary banks once again attended various job fairs. Sponsorship activities and forms of cooperation with universities and colleges were also continued. RBI has a solid and long-standing relationship with the Banking and Finance Department of the Vienna University of Economics and Business, and accordingly took part in the reaccreditation process for the Master's degree course in Banking and Finance.
CE Current forecasts are for the CEE economies to benefit in 2011 from stable growth in their export markets (particularly Germany ) and their generally high level of linkage with several core eurozone economies (Austria, France, Germany, Netherlands ). Poland in particular is expected to continue expanding strongly, with year-on-year GDP growth of 4.0 per cent in 2011 and 4.5 per cent in 2012. Similar growth is forecast for Slovakia, which is significantly more dependent on exports than Poland, and hence on development in Germany. While Hungary will probably show a slower recovery in 2011 with growth of 2.5 per cent (plus 1.3 percentage points year-on-year), GDP is predicted to increase by 3.5 per cent in 2012. Like Slovenia, the Czech Republic is lagging somewhat behind the region as a whole on economic growth, but here again a positive development is expected in both 2011 and 2012.
In Hungary, the new government introduced a bank levy in 2010, which is expected to generate revenue of�€ 700 million per year. This is intended to achieve the budget goal of net new borrowing of no more than 3 per cent of GDP in 2011. A uniform income tax rate is planned in parallel with the introduction of this levy. A structural reform package aimed at abiding by planned new borrowing in the medium term was announced. However, in the absence of an exact timetable for implementing the package, investors remain skeptical. There is reason to fear that these measures will be used to avoid reforms that would be urgently needed to attain fiscal sustainability in the medium to long term. There has already been talk of halving the bank levy in 2012, after initial proposals to abolish it entirely in 2012. However, it remains to be seen how far Hungary can do without this revenue.
In December 2010, the Austrian parliament adopted a bank levy under the Stability Levy Act. The levy was introduced on 1 January 2011, and is intended to bring in € 500 million a year to improve the budget. Graduated taxation of total assets is expected to generate € 340 million and with € 160 million from the tax on derivatives transactions.
Outlook for RBI Now that the crisis is tailing off and amidst mounting signs of an overall economic recovery, we are aiming in the medium term, with the inclusion of the acquisition of Polbank, for a return on equity before tax of 15 to 20 per cent. This is excluding future acquisitions, any capital increases, as well as unexpected regulatory requirements from today’s perspective.
In 2011, we plan to notably increase growth in customer lending volumes relative to the previous year (2010: 4.3 per cent). In terms of regions, we are seeking the highest absolute growth in lending to customers in CEE.
From the customer standpoint, we plan to retain our Corporate customers division as the backbone of our business and in the medium term to expand the proportion of Group lending to customers accounted for by our Retail customers division. Following the successful conclusion of the acquisition of Polbank, the Central European segment will continue to gain importance in terms of customer lending volumes.
The number of Group outlets is to remain fairly stable in 2011, although there may continue to be some optimization of our network in some countries.
It has been agreed that RBI shall, in a first stage, acquire a 70 per cent stake in Polbank and, in a second transaction stage immediately afterwards, Eurobank EFG and RBI shall invest their respective shares (Eurobank EFG: 30 per cent, RBI: 70 per cent) in Raiffeisen Bank Polska S.A in exchange for new shares of Raiffeisen Bank Polska. As a result, Eurobank EFG will retain a 13 per cent stake in the Polish Raiffeisen Bank. The purchase price is based on guaranteed equity of at least € 400 million for Polbank and € 750 million for Raiffeisen Bank Polska. The implicit price-book value ratio stands at 1.7 but may change when the agreement is closed because of the equity requirements which are yet to be definitively determined. In addition both parties agreed, on the one hand, on a put option for Eurobank EFG permitting it to sell its stake in the merged Polish unit to RBI at a price that is dependent on business developments, but for a figure of at least € 175 million plus interest, at any time. On the other hand, RBI shall receive a call option which will be exercisable from 31 March 2016 to ambient terms.
RBI has been active on the Polish market with the present Raiffeisen Bank Polska since 1991. Total assets from the Polish Group activities amounted to € 6.9 billion at the end of 2010. In Poland, RBI employs around 3,100 people in 123 business outlets serving over 240,000 customers.
The segments therefore correspond to the Group’s organizational structure and are reflected in the internal management reports and in the management approach required under IFRS 8.
In order to achieve maximum transparency and in consideration of the IFRS 8 thresholds, seven segments were defined, which ensures clear reporting. IFRS 8 establishes a threshold of 10 per cent of key figures, namely operating income, result after tax and segment assets.
Segments in detail The segmentation is based on the Group structure as at 31 December 2010. The Group comprises the following segments: Central Europe
ZAO Raiffeisenbank is one of the leading foreign banks in Russia; the bank specializes in corporate and retail customers. Products tailored for affluent customers are also offered through the national branch network. The product range in Russia is rounded out by OOO Raiffeisen-Leasing. As in the other segments, business development in Russia is predominantly intended to be organic, and is primarily based on enhancing the existing presence in regional and national centers. Corporate customer activities are increasingly focused on providing support for Russian companies expanding into other RBI markets. In view of the size of the banking market and its potential, the segment Russia is highly important for RBI.
This segment comprises Belarus, Kazakhstan and Ukraine. RBI is represented by Priorbank JSC and JLLC RaiffeisenLeasing in Belarus and by Raiffeisen Leasing Kazakhstan LLP in Kazakhstan. In Ukraine, Raiffeisen Bank Aval JSC, LLC Raiffeisen Leasing Aval and a capital management company provide a full range of financial services and products via an extensive network. The Ukrainian Processing Center PJSC, which is part of the Ukrainian Group, processes the bulk of card business. In Belarus and Ukraine, RBI continues to pursue the strategy of providing a full range of universal banking services via a nationwide network. This is being done with due attention to risk and capital management and with a careful eye on economic developments. The medium to long-term prospects for benefiting from economic recovery in the region remain unchanged and RBI intends to exploit that potential.
The Group corporates segment covers Austrian and international (mainly Western European) customers managed by RBI AG in Vienna within the Corporate customers profit center. These customers include Austria's top 1,000 companies, most of whom have excellent credit quality. RBI uses the relationship banking model, which is based on a holistic, long-term customer relationship that offers access to the full RBI product range (including money and capital market products). The segment also shows the results generated by corporate business with Central and Eastern European multinationals (excluding Austrian customers) in the Network corporate customers & support profit center. The main focus here is on corporate customers with business links to CEE countries and Austria, either directly in the form of equity participations and business outlets or indirectly through core business activities. RBI offers the full range of commercial bank products to these customers as well. Cross-border relationship management in the CEE region is a real priority and entails close cooperation with local RBI units. Corporate customers benefit from access to local expertise combined with all the opportunities on offer from an international banking group. The overarching strategic priority is developing existing customer relations through cross-selling.
The Corporate customers and Network corporate customers & support profit centers also include net income from structured trade financing for commodity traders as well as for documentary business, project financing and cofinancing solutions with supranational banks. Corporate customer business at the Singapore, China and Malaysia business outlets is also allocated to this segment, as are operations involving international customers of the Maltese subsidiary, RB International Finance (USA) LLC and RB International Finance (Hong Kong) Ltd., all of which provide a selection of products for niche markets.
Raiffeisen Centrobank, where securities trading and capital market financing constitute the core business, is also part of this segment. The Mergers & acquisitions division, which operates via locations in a number of different countries, is also represented in this segment by the subsidiaries of Raiffeisen Investment AG. The segment also includes private banking, reporting results from Kathrein & Co. Privatgeschäftsbank, which advises on investing private and foundation assets as well as on inheritance issues.
Aside from working to develop long-term individual customer relationships, the segment aims to expand its customer base by drawing on the extensive RBI network. The bulk of the segment's income comes from capital protection and risk management activities. Our customers' need to manage their own risks is of growing importance. However, the loan and risk portfolios are subject to strict limits.
The Corporate center segment encompasses all the services as well as the supervisionary function provided by Group headquarters for various divisions to realize the Group’s overall strategy. For the purpose of producing comparable figures, net income from these activities is included under the Corporate center segment. Liquidity management and balance sheet structure management linked to proprietary trading are included under this segment and reported under the Treasury profit center.
Net income from the equity investment portfolio is also indicated in this segment. In addition, the Corporate center segment report covers net income from intra-Group financing carried out by Group headquarters and the Maltese subsidiary. Net income from the Special customers profit center – customers for whom members of the Management Board are directly responsible – is also posted under this segment, as is income from the Austrian transaction services business operated by Raiffeisen Data Service Center GmbH, which offers a wide selection of order processing products and services for financial service providers.
2010 was a good year for RBI, not least with the 63 per cent increase in profit before tax of € 1,287 million. Almost all segments grew their net income, despite the varying trends in the economic recovery and pace of growth in the regions and business segments. Year-on-year, the growth in profit before tax was primarily due to significantly lower net provisioning for impairment losses. In addition, there was the stabilization in operating income, already growing by 5 per cent. General administrative expense rose 10 per cent, but this was due mainly to non-recurring effects – merger costs, and extensive internal investment in realignment, leading to an increase in the cost/income ratio. Significantly lower reversals of impairment on financial investments confirmed the economic stabilization, but had the effect of reducing income in year-on-year comparison.
In Central Europe, profit before tax rose by 17 per cent to € 269 million. Higher operating income was a key contributor to this growth, and the lower net allocation to provisioning for impairment losses also influenced profit. Total assets remained almost unchanged compared to the previous period.
Despite the slow economic recovery in the reformist countries, the Southeastern European region showed the highest profit before tax of all segments, rising by 17 per cent to € 305 million, almost entirely as a result of significantly lower net allocation to provisioning for impairment losses coupled with stable operating expenses year-on-year. Total assets in this segment were 4 per cent down on the previous year.
Central Europe Southeastern Europe Russia CIS other Group corporates Group markets Corporate center
Total assets by segment in € million pro forma 2009 2010 32,87933,757
Net interest income of the Central Europe segment rose by 13 per cent to € 1,111 million. With economic growth continuing to be strong, the rise in Poland was particularly steep due to adjustment in terms of loans to customers, which resulted in higher margins on assets and significantly lower interest expenses on customer deposits. Similarly, the Czech Republic registered a substantial increase in net interest income, primarily as a result of lower financing costs, as well as higher results on loans to retail customers driven by volume and margins. Net interest income in Slovakia primarily reflected lower financing costs. In Hungary, net interest income stabilized at the previous year’s level. Overall, there was steady improvement in margins in Central Europe during the year under review, so that the net interest margin increased by a total of 39 basis points year-on-year to 3.29 per cent.
Segment assets were virtually unchanged at € 33.9 billion. Risk-weighted assets (credit risk) rose by 8 per cent year-onyear from € 21.1 billion to € 22.9 billion. Most of the increase was generated by the network units in the Czech Republic and Slovakia. The main drivers in the Czech Republic were a increased credit exposure for project finance, corporates and SMEs combined with cuts in Basel II collateral for corporate customers and SMEs. In Slovakia, the rise in risk-weighted assets (credit risk) for corporate customers was linked to rating downgrades and reductions in Basel II collateral. Risk-weighted assets (credit risk) also rose considerably in the retail segment. 2010 was the first year in which the internal rating-based approach was applied to the major parts of loans and advances to private individuals in Slovakia and Hungary, which also pushed the figure up.
Net trading income in Central Europe stood at € 42 million, down by 53 per cent against the previous year. Although the decline affected nearly all countries in the region, Slovakia was hit hardest. Net income from currency-based transactions fell by 39 per cent from € 58 million to € 36 million, primarily linked to valuation losses on various foreign currency instruments in Hungary. Poland also posted lower net income from money market transactions during the reporting period, largely linked to reduced currency volatility. Net income from interest-based transactions slipped from € 33 million to € 1 million as a result of valuation losses on interest rate swap transactions in Slovakia. Net income from equity and index-based transactions was generated almost entirely in Hungary, turning around year-on-year from minus € 2 million to € 3 million.
Other net operating income in the region came in at minus € 58 million, a marked drop year-on-year. The decline was triggered by other taxes, which doubled to € 60 million, with the new levy on banks and financial services providers in Hungary contributing € 41 million charge. Income was also dented by allocations to provisions in almost all countries in the region. Operating leases contributed € 7 million to net income in 2010.
General administrative expenses in the region advanced by 10 per cent year-on-year or € 78 million to € 883 million. The rise was mostly driven by higher staff expenses as bonus payments were increased and reintroduced in Poland and Hungary. Other administrative expenses and depreciation also climbed year-on-year, the latter due to adjustments to the amortized costs of various IT systems following rollouts mainly in the Czech Republic. The number of business outlets increased by 1 per cent year-on-year (6 outlets) to 555. The regional cost/income ratio rose by 2.2 percentage points to reach 56.3 per cent.
Net interest income in the segment remained virtually unchanged at € 898 million, with falls in some countries offset by gains within the region. Croatia recorded the highest growth, driven by lower costs for customer and bank deposits, which made up for the year-on-year drop in net interest income. By contrast, lower margins on customer loans and a fall in revenues from repo business linked to currency exchange rate movements saw net interest income decline the most in Serbia.
Net fee and commission income declined by 3 per cent year-on-year to € 388 million, including € 175 million from payment transfer business, which was up slightly year-on-year. Romania contributed half of this at € 86 million. Income from loan administration and guarantee business dropped by 9 per cent year-on-year to € 92 million. Income from foreign currency, notes/coins and precious-metals business slipped by 16 per cent or € 13 million to € 66 million, largely driven by developments in Croatia, where foreign exchange margins were lower as the local currency remained stable. The securities business grew due to a resurgence in customer activity in Croatia, contributing € 9 million to net fee and commission income.
Net trading income in Southeastern Europe fell by 36 per cent from € 88 million to € 56 million. Income from currencybased transactions sank from € 68 million to € 31 million, mainly due to reduced income from forward and currency swap transactions in Romania linked to exchange rate movements. Interest-based transactions recorded a net income of € 26 million, most of which was generated in Albania by valuation gains on fixed-income securities.
Net interest income in Russia was down by 22 per cent to € 143 million to € 507 million in 2010. This decline was linked to lower margins on the asset side. Although interest costs for customer deposits, particularly bank deposits, fell sharply, new business volumes were down due to fierce competition in lending business. Net interest income from leasing business was halved in the year under review. The net interest margin narrowed by 82 basis points to 4.14 per cent.
Total assets were up by 4 per cent year-on-year (€ 0.5 billion) at € 12.2 billion, with the 19 per cent increase in the loan portfolio offset by a fall in interbank business. Risk-weighted assets (credit risk) advanced by 29 per cent as a result of changes to the asset structure, closing at € 8.7 billion. This shift was the consequence of higher lending volumes for corporate customers with good credit ratings and the expansion of the securities and money market business with the public sector.
Net fee and commission income grew by 4 per cent (€ 7 million) to reach € 214 million, with payment transfer business contributing an impressive € 86 million, an improvement of 2 per cent year-on-year. Net income from loan administration and guarantee business was up due to higher volumes of guarantees and letters of credit, climbing € 5 million – 15 per cent year-on-year – to € 34 million. In contrast, income from securities business slipped € 1 million to € 12 million, while income from foreign currency, notes/coins and precious-metals business fell to € 50 million, an 18 per cent decline yearon -year. Meanwhile income from other banking services doubled to stand at € 33 million, driven by increased income from debt collection activities for corporate customers.
Net trading income moved back into positive territory from minus € 13 million to € 74 million. Following a € 73 million loss in 2009, net income from currency-based transactions came in at € 14 million in 2010. Valuation gains from an open currency position exceeded the valuation losses from the associated currency forward transactions and currency swaps. Net income from interest-based transactions remained virtually unchanged at € 60 million, which included valuation gains from the trading portfolio and from fixed-interest bonds and notes.
Other net operating income was down € 10 million at minus € 28 million, primarily due to increased allocations to other provisions, which were formed in view of litigation relating to the closure of an outlet.
The segment's general administrative expenses climbed by 13 per cent to € 415 million, driven by higher staff expenses linked to pay rises. Other administrative expenses fell, mainly as a result of lower legal and consultancy costs and reduced office costs. Higher levels of investment in tangible and intangible fixed assets led to a hike in depreciation. The number of business outlets was down by 8 per cent (17 outlets) at 198. The cost/income ratio was driven up 9.7 percentage points to 54.1 per cent by considerably higher general administrative expenses and falling operating income.
There was a marked drop in net allocations to provisioning for impairment losses, down from € 322 million to € 77 million. Largely as a result of the 75 per cent fall in net allocations of individual loan loss provisions to € 87 million linked to an improved customer rating structure, good accounts receivable collections and sizeable releases of existing provisions. Portfolio-based loan loss provisions recorded income of € 10 million as a result of improved customer ratings combined with additional collateral and the associated release of portfolio impairment provisioning. Non-performing loans made up 8.8 per cent of the loan portfolio.
Other results and taxes came in at minus € 8 million. In the year under review, net income from derivatives recorded a loss of € 13 million, primarily linked to valuation losses on interest rate swaps concluded in order to mitigate interest rate structure risk. Net income from financial investments slipped from € 3 million to € 1 million. Following the disposal of an asset management company for materiality reasons, segment net income from disposal of group assets was positive at € 3 million.
CIS other Profit before tax in the CIS other segment rose by € 215 million to € 89 million, with the turnaround almost entirely driven by lower net allocations to provisioning for impairment losses. Consequently the return on equity before tax was positive at 13.4 per cent.
Net trading income rose year-on-year by 36 per cent or € 6 million to € 23 million. This increase, which was generated entirely in Ukraine, was due to higher net income from interest-based and currency-based transactions. Write-ups on fixed-interest bonds and securities were largely based on interest rate movements in Ukraine, while income from currencybased transactions was down year-on-year at € 11 million. In Belarus, the depreciation of the local currency against the US dollar, which was moderate compared to the previous year, had the effect of reducing the valuation gain on a strategic currency position taken to hedge equity from € 26 million to € 1 million year-on-year. However, a rise in valuation gains in Ukraine and Kazakhstan offset this decline.
Other net operating income in the segment was minus € 8 million. This line item is composed of a number of smaller items of income and expenses.
Net allocations to provisioning for impairment losses for the region fell by 59 per cent from € 514 million to € 214 million as a result of lower loss rates and improvements in the portfolio quality in the retail area. This includes provisioning for individual loan loss provisions amounting to € 236 million. The decline was chiefly driven by lower net allocations to provisioning for impairment losses to private and corporate customers, thanks to successful restructuring measures in Ukraine. In addition, taking into account the change in the method described above for calculating interest on impaired loans in Ukraine led to a reduction of € 70 million in individual loan loss provisions. In Belarus, net allocations to provisioning for impairment losses also fell to € 13 million, remaining at a relatively low level. Portfolio-based loan loss provisions stood at plus € 22 million in the year under review. This decline was related to shifts from portfolio provisions to individual provisions in Ukraine. The ratio of non-performing loans in the credit portfolio stood at 26.9 per cent, and continues to be the highest level of all segments (Belarus: 3.2 per cent, Ukraine: 33.5 per cent).
Net income from financial investments of € 31 million was the main driver behind other net income of € 27 million. A factor pushing net income higher was mark-to-market valuation gains on Ukrainian government bonds from the fixed interest securities as a result of a falling local yield curve.
Group corporates Profit before tax in this segment increased in 2010 by € 139 million to € 295 million. The main reasons for this growth were substantially higher operating income and lower net allocations to provisioning for impairment losses. The segment’s return on equity before tax rose by 7.0 percentage points to 18.5 per cent.
Net interest income grew by 19 per cent or € 59 million to € 371 million. This increase was largely attributable to an increase in business volumes with international clients at RBI AG, as well as higher margins on the asset side in business with Austrian customers, despite slightly lower volume in the latter. Net interest margin for the Group corporates segment was up 23 basis points to 1.63 per cent.
Total assets rose by 6 per cent or € 1.3 billion to € 23.5 billion year-on-year. Risk-weighted assets (credit risk) rose rather faster, increasing by 10 per cent to € 15.6 billion. At RBI AG, increased exposure to loans and guarantees resulted in a rise in business with larger international corporate customers. Growth of risk-weighted assets (credit risk) was also the result of a downward shift in the ratings of loans and advances to customers. The sharpest increases here were in Germany and Switzerland. Moreover, the branches in China and Singapore and the Group units in the US and Hong Kong reported growth in risk-weighted assets (credit risk) as part of an overall rise in business volume.
Total net fee and commission income rose by 40 per cent or € 44 million to € 155 million. There was substantial growth in net fee and commission income at Group headquarters due to a higher number of transactions and a rise in business volume. Income from lead arranger activities for bond issues and insurance products in Austria and net fee and commission income from the international large corporates business further contributed substantially to net fee and commission income. The Group unit in the US accounted for € 13 million and the branches in Singapore for a further € 15 million from loan and guarantee business.
Net trading income rose sharply year-on-year from € 6 million to € 19 million. This was largely attributable to the profit centers at Group headquarters, based on valuation gains from currency and interest-based transactions related to a range of financial instruments, primarily with Austrian customers.
Other net operating income in the segment totaled € 2 million, largely as a result of income from Group internal charges at the Singapore branch.
Income taxes increased year-on-year by € 18 million to € 65 million. The tax rate fell by 8 percentage points to 22 per cent. After deducting non-controlling interests, profit doubled to € 230 million.
Group markets The Group markets segment registered a decline in profit before tax of 11 per cent or € 30 million to € 249 million in the year under review. Higher operating income and lower net allocations to provisioning for impairment losses had a positive impact on the profit before tax, while a sharp drop in other net income had the opposite effect. The return on equity before tax decreased to 15.4 per cent.
Net fee and commission income was down by 13 per cent year-on-year to € 107 million. The decline in business volumes meant that the costs for credit default swaps at Group headquarters tended to be lower than in the previous year. However, the reduced business activity of the Financial institutions & sovereigns profit center led to a drop in net fee and commission income. Raiffeisen Centrobank, which specializes in equity products, contributed € 10 million, registering income from capital increases and new transaction structures within the context of capital market financing for the first time since the financial crisis. The private banking and asset management company Kathrein & Co. Privatgeschäftsbank AG also made a positive contribution of € 13 million to net fee and commission income from its securities business.
Net trading income in the Group markets segment rose by 3 per cent in the year under review to € 93 million. Raiffeisen Centrobank accounted for almost half of this with € 43 million. This significant contribution comprised the net income from the valuation and disposal of fixed-interest securities as well as the positive valuation gains of the certificates issued within the context of equity and index-linked transactions and structured bonds. The Capital markets head office profit center contributed valuation gains of € 34 million, while the Financial institutions & sovereigns head office profit center accounted for a further € 16 million.
Other net operating income was virtually unchanged from the previous year at € 30 million. This consisted primarily of income from the operations of Raiffeisen Centrobank Group, at € 18 million, which was generated predominantly by the commodity trading carried out by Group units in the USA, Germany, Switzerland and Singapore. The commodity trading of F.J. Elsner Group contributed a further € 5 million to this figure.
Net allocations to provisioning for impairment losses fell significantly from € 332 million to € 31 million. In 2009, individual loan loss provisions in connection with loans and advances to banks (mainly Icelandic and Middle Eastern banks) were high, whereas at Group headquarters in the year under review there were little net allocations to provisioning for impairment losses for loans and advances to financial institutions. Non-performing loans made up 5.7 per cent of the segment’s total credit exposure.
Corporate center In the Corporate center segment, profit before tax was up € 89 million year-on-year to € 109 million, primarily due to the significant improvement in other net income. Return on equity before tax rose by 4.4 percentage points to 5.3 per cent.
Net trading income in the Corporate center segment was € 20 million, down by 84 per cent compared with the previous year. It came almost exclusively from the Treasury division of Group headquarters and resulted from liquidity management and the proprietary trading activities for balance sheet structure management. This decline was caused primarily by valuation losses on various foreign-currency financial instruments.
Other results improved from minus € 320 million to minus € 11 million due to the income from financial investments. Net income from financial investments thus improved year-on-year from minus € 322 million to € 16 million. Provisioning for group internal investments (in Ukraine and Hungary) resulted in a loss in 2009. By contrast, in 2010 the Treasury division posted valuation gains on securities. Net income from derivatives came to minus € 34 million. Due to the disposal of project companies set up to manage liquidity during the financial crisis, the Corporate center segment registered a net gain of € 8 million from the disposal of Group assets.
In contrast to 2009, income taxes were in positive territory. Taxes were higher in the previous year, partly as a result of the write-down of tax losses carried forward, whereas in 2010 the recognition of deferred taxes in the amount of € 120 million resulted in a positive figure of € 183 million. This was predominantly due to the greater eligibility of tax loss carry-forwards and to valuation differences for various financial instruments and investments between the financial statements under IFRS and the financial statements for tax purposes. Profit after the deduction of non-controlling interests was € 292 million.
Net provisioning for impairment losses (564) (601) (23) 1 (7) (1,194)
Net fee and commission income 463 802 169 8 (21) 1,421
Return on equity before tax 9.9% – 22.6% 41.1% – 9.5%
The activities of the Corporate customers division were much affected by the merger of Raiffeisen International with RZB's principal business areas in 2010. This merger allowed the establishment of a new strategy in corporate banking, developed jointly by Group headquarters and network banks, with a particular focus on the optimization of customer services across the entire network.
During the year under review, the Corporate customers business division posted a sharp increase in earnings. Profit before tax grew by 70 per cent to € 680 million. This was almost exclusively attributable to the decline in provisioning for impairment losses.
Return on equity before tax in the Corporate customers business division rose due to the growth in profit before tax by 5.0 percentage points to 14.9 per cent.
Private customers The Private customers business division was confronted with two important challenges in 2010. The first involved replenishing the loan portfolio, which contracted significantly in 2009, thus impacting on earnings. The second challenge involved managing liabilities and thus ensuring that RBI maintains sufficient liquidity for its operating activities. The broadly based distribution network is critical to the success of this business division.
Thanks to marketing campaigns and its strong brand, RBI increased deposits in 2010 by 5 per cent from € 21.4 billion to € 22.5 billion. The focus was on account and product packages in order to increase credit margins and cultivate long-term customer relationships. A new “primary relationship banking initiative” was also launched. The emphasis here is primarily on primary customers for whom the respective Group unit is the main bank. The aim of this initiative is to increase the number of these customers by introducing products with an appropriate offer.
The premium service line for affluent banking will be introduced in the 15 Raiffeisen retail markets with the launch of Raiffeisen Bank Aval Premium Banking in the first quarter of 2011. The average level of assets under management for premium customers is still low by Western European standards, so this business area makes a very attractive prospect for further development.
Allfinanz 2010 was a milestone for the development of RBI’s Allfinanz business in collaboration with its strategic partner UNIQA Versicherungen AG in CEE. RBI for instance acquired a 25 per cent share of Raiffeisen Life, the Russian subsidiary of UNIQA. It thus secured access to Russian life insurance business through Raiffeisenbank’s business outlet network in Russia. Since completion of the transaction, ZAO Raiffeisenbank has become an important factor in the CEE network with regard to Allfinanz business and has made a substantial contribution toward increasing Allfinanz commissions.
Asset management RBI views the asset management business in CEE as an important growth market. For this reason, the bank is focusing on developing attractive and secure investment instruments for distribution to its customers through the bank network in CEE. Total assets under management were thus increased by 37 per cent in 2010 to nearly € 6 billion (of which around € 3 billion was in fully consolidated companies). In addition, RBI gained market share in Russia, Romania, Croatia and Hungary and maintained its market share of 33 per cent in Slovakia.
ZUNO BANK AG, RBI’s direct bank subsidiary, opened business outlets in Slovakia in 2010. Operating activities started at the beginning of December 2010. In 2011, ZUNO BANK will also start operating activities in the Czech Republic. Its products and services are aimed primarily at private individuals and include deposit products such as time deposits, savings and current accounts and a broad spectrum of payment transaction products including currency exchange.
Profit before tax in the Retail customers business division amounted to € 131 million in the year under review, following a net loss of € 147 million in 2009. This positive development was attributable to the 41 per cent reduction in provisioning for impairment losses.
Risk-weighed assets (credit risk) in the Retail customers business division increased by 14 per cent to € 17.3 billion, partly as a result of the use of a new approach based on internal ratings for the majority of loans and advances to private individuals in Slovakia and Hungary.
Business with financial institutions and the public sector was characterized by the cautious recovery of international financial markets in 2010, which began to take shape as the year progressed. The discussions concerning the solvency of some European countries resulted in the collapse of the market for European government bond issues. The situation did not improve until later in the year when the EU agreed a rescue package worth billions.
Against this backdrop, in the autumn of 2010 RBI became the joint lead manager and bookrunner for the issue of a benchmark bond of the Republic of Slovakia with a volume of € 2 billion. It was placed primarily in the German-speaking countries as well as France, the Benelux countries, Great Britain, Italy and Eastern Europe.
In line with its strategy, RBI significantly reduced its securities portfolio (Financial institutions & sovereigns rundown portfolio ), which is not part of its core business, from a total of € 15.2 billion to € 12.9 billion in the course of 2010. The reduction was primarily achieved through action taken in the Financial institutions & public sector business division.
The business division also benefited from the sustained high demand for imports from high-growth Asian economies and from short-term documentary business with Chinese and Indian financial institutions.
The traditional loan business has undergone a considerable transition over the last two to three years. Against this backdrop, RBI continues to place great emphasis on strengthening customer relationships with high cross-selling potential and gives absolute priority to the judicious selection of transactions. There is also a focus on distributing equity-sparing products, which allows the available potential in CEE to be fully exploited. RBI’s strong position as an arranger of syndicated loans in the region was confirmed in 2010.
Other results fell from € 235 million to € 3 million. This contraction was mainly due to lower market valuations of securities after values had recovered in the previous year in an initial response to the financial and economic crisis.
In spite of the reduction in liabilities, risk-weighted assets (credit risk) increased by 13 per cent year-on-year to € 8.8 billion, primarily as a result of rating migrations and higher default probabilities.
Capital markets In a year that was characterized by volatile markets and debt crises in certain peripheral European states, Capital markets achieved a solid result.
In terms of money market transactions, the year was characterized by a trend towards secured transactions. Customers used favorable financing costs in repo transactions. ECB-eligible securities or blue-chip shares were primarily used as collateral.
In foreign exchange business, innovative currency options were increasingly offered through the course of the year on the basis of increased customer demand. Customers in CEE in particular sought currency swaps. The possibility of generating income in the wake of rapid and strong volatilities in options books was also successfully exploited.
In proprietary trading, focus was on the reduction of credit investment portfolios. In spite of broad spread widening in the second quarter, RBI's investment portfolios performed well as a result of hedges used. Over the course of the year, earnings recorded by the run-down portfolios were increased through active management.
Over recent years, RBI has established itself as a central hub for services to national and international finance investors through its subsidiary Raiffeisen Centrobank. Customers of the Financial Institutions division include institutional investors that buy shares and share derivatives from the CEE region as well as Austria and surrounding EU countries. RBI's direct stock exchange membership on numerous international stock exchanges as well as optimal access to local markets in CEE through its network banks allow RBI's customers to participate in rapid and low-cost stock trading in this region.
Operating income in this division increased by 33 per cent year-on-year to € 468 million. Net interest income increased from minus € 42 million in 2009 to € 231 million. This was primarily due to increases at Group headquarters. In the previous year, the net interest loss was compensated by other income – in particular by income from derivatives. In the year under review, the situation was reversed as a result of interest-rate developments and the repositioning of activities in the Capital markets & treasury division.
Other results fell from € 293 million in 2009 to minus € 1 million. After the high valuation gains in financial instruments in 2009, income from financial investments in 2010 was considerably lower. In addition, earnings from derivative financial instruments at RBI AG and certain other Group banks were negative in the year under review.
The total own funds requirement fell by 10 per cent to € 1,435 million as a result of the reduction of the securities trading book, the open currency position and credit risk.
The return on equity before tax in this business division fell on the back of the contraction in the pre-tax result by 15.7 percentage points to 25.4 per cent.
Net fee and commission income included the somewhat lower commissions payments of RBI AG for country risk insurance. Other net operating income was positively influenced over the period under review by results from the non-banking activities of Raiffeisen Centrobank Group and the F.J. Elsner Group.
Net income from disposal of group assets (10) 4,734 76 >500.0%
Deferred taxes on income and expenses directly recognized in equity (7,680) (5,001) 0 0
Earnings per share are obtained by dividing adjusted consolidated profit (less dividend for participation capital in the reporting period and participation rights in the previous year) by the average number of common shares outstanding.
There were no conversion rights or options outstanding, so undiluted earnings per share are equal to diluted earnings per share. As of 31 December 2010, the number of common shares outstanding was 194,530 thousand compared with 153,674 thousand as of 31 December 2009.
The quarterly results 2010 represent the pro forma results of RBI: Net provisioning for impairment losses (324,942) (282,697) (305,746) (280,700)
Net income from disposal of group assets 4,659 211 (155) 19
Net income from disposal of group assets 73 1 2 1
Own shares/share incentive program 35 0 693 0 0 0 729
Non-cash positions in profit and transition to net cash from operating activities: Write-downs/write-ups of tangible fixed assets and financial investments 341,948 251,825
Net provisioning for liabilities and charges and impairment losses 1,503,170 1,664,212
Changes in assets and liabilities arising from operating activities after corrections for non-cash positions: Loans and advances to banks and customers 13,332,712 6,329,441
Proceeds from sale of: Tangible and intangible fixed assets 70,471 89,156
In order to achieve maximum transparency and to comply with the IFRS 8 thresholds, seven segments have been defined. This ensures clear reporting. In each case, the quantitative threshold, as specified by IFRS 8, is 10 per cent of reported revenues, profit after tax and segment assets.
Russia ZAO Raiffeisen is one of the leading foreign banks in Russia; the bank specializes in corporate and retail customers. The national branch network also offers products tailored for affluent retail customers. The product range in Russia is rounded off by OOO Raiffeisen Leasing.
Group corporates The Group Corporates segment covers Austrian and international (mainly Western European) customers managed by RBI AG in Vienna within the Corporate Customers profit center. These customers include Austria's top 1,000 companies, most of whom have an excellent credit rating. RBI uses the relationship banking model. The segment also comprises the income generated by large corporate business with Central and Eastern European multinationals which is concentrated in the Network Corporate Customers & Support profit center. The Corporate Customers and Network Corporate Customers & Support profit centers also include net income from structured trade financing for commodities dealers, documentary business, project financing and a range of cofinancing solutions with supranational banks. Corporate customer business at the China, Malaysia and Singapore branches is also allocated to this segment, as are operations involving international customers of the Maltese subsidiary, RB International Finance (USA) and RB International Finance (Hong Kong), all of which provide a selection of products for niche market customers.
• Growth Growth is a very important indicator. Within the risk management certain limits are set for each segment. For this measurement growth rates for the profit after non-controlling interests and total revenues are considered. The diversification of the result is very crucial for the quality and the accordance with the strategic targets.
• Business Mix The following key performance indicators are relevant for a reasonable and effective business structure, whereas the composition of the results and the indicators are significant. The structure of the prime funding basis for loans and advances to customers are measured using the loan/deposit ratio (proportion of loans and advances to customer to deposits from customers). The share of the result derived from the core business is relevant as well. The proportion of the net fee and commission income to the operating income is also a key performance indicator, which is included in the target setting for the business mix.
assets and the risk-weighted assets. The item liabilities includes all positions of the liabilities side expect the equity. The reconciliation implies mainly the amounts resulting from the elimination of intra-group results and consolidation between the segments. Finally, financial ratios – usual in the line of business – are added to evaluate the results. The values shown in the segment reporting are also used for the compilation of the consolidated financial statements and are retrieved from the IFRS individual financial statements. In some units profit centre results are taken from the interim management income statement. Differences between local published figures are possible.
Net provisioning ratio (average risk-weighted assets, credit risk) 0.44% 0.00% – 1.66%
Net fee and commission income 435,236 398,043 206,533 175,332 7,913 1,223,057
Net provisioning for impairment losses (487,341) (413,957) (322,149) (514,435) – (1,737,882)
New application of amended standards and interpretations, which have been mandatory since 2010, i.e. IFRS 3 and IAS 27 (Business Combinations; effective as of 1 July 2009), IAS 39 (Eligible Hedged Items; effective 1 January 2009), IFRS 2 (Sharebased Payment within the Group which are Settled in Cash, effective 1 January 2010), IFRIC 17 (Distribution of Non-Cash Assets to Owners; effective 1 July 2009), IFRIC 18 (Transfer of Assets from Customers, effective 1 July 2009) and changes in the so-called “Improvements Project” – 2008 and “Improvements Project – 2009” had no material effect on the recognition and measurement methods of the bank.
In March 2010, the EU adopted IFRIC 16 (Hedges of a Net Investment in a Foreign Operation). IFRIC 16 is to be applied at the latest for business years beginning on or after 30 June 2009. RBI applied IFRIC 16 for the business year 2010 for the first time. This interpretation provides guidance on identifying the risk of a net investment in a foreign operation and on where, within a Group, hedging instruments can be held to minimize the risk.
The consolidated financial statements are based on the reporting packages of all fully consolidated Group members, which are prepared according to IFRS rules and uniform Group standards. With the exception of five subsidiaries accounted for with interim financial statements – the reporting date was on 30 June – all fully consolidated companies prepared their annual financial statements as of 31 December. The deviating reporting dates are due to dividend policy reasons and because of seasonal business transactions. Figures in these financial statements are stated in thousands of euros. The following tables may include rounding differences. The previous year’s figures are the audited consolidated figures of Raiffeisen International Bank-Holding AG.
A financial asset is recognized when it is probable that the future economic benefits will flow to the enterprise and the acquisition or conversion costs or another value can be reliably measured. A financial liability is recognized when it is probable that an outflow of resources embodying economic benefits will result from the settlement of the obligation and the amount at which the settlement will take place can be measured reliably.
Deferred taxes were not separately shown in the income statement and on the statement of financial position. Details are provided in the notes (11) income taxes, (25) other assets and (29) provisions for liabilities and charges.
All material subsidiaries, in which RBI AG directly or indirectly, holds either more than 50 per cent of the voting rights or otherwise has control over the financial and operating policies are consolidated. In principle, these subsidiaries are firstly integrated on the date when the Group obtains control of the company and are excluded when the Group no longer has control of the company. The Group reviews the adequacy of the decision on which companies to consolidate at least every quarter. Accordingly, changes in ownership but also changes due to existing or newly signed contractual obligations by a unit of the Group are taken into account. Subsidiaries with deviating reporting dates are accounted for with their interim financial statements. The results from subsidiaries that were acquired or disposed of during the year are recorded, in the consolidated income statement, either from the actual date of acquisition or up to the actual date of disposal.
Special purpose entities (SPE) founded for securitization transactions, which are controlled by the group from an economic point of view, are integrated according to SIC 12. To determine whether a special purpose entity is controlled from an economic perspective, a number of factors are to be taken into consideration. These include an investigation into whether the activities carried out by the SPE in favor of the Group are in accordance with its specific business needs so that it can take advantage of the activities of the SPE, whether the Group has the decision-making powers to achieve the majority of the benefits from the SPE, whether in fact the Group receives the majority of the benefits of the activities of the SPE, or the Group retains the majority of the assets associated with the residual or ownership risks in order to benefit from its activities.
In the scope of debt consolidation, intra-group balances between parent company and subsidiaries and intra-group balances between subsidiaries are eliminated in the consolidated accounts. Remaining temporary differences are recognized under other assets/other liabilities.
On each reporting date, goodwill is examined with a view to their future economic utility on the basis of cash generating units. A cash generating unit is defined by the management and represents the smallest identifiable group of assets of a company that generates cash inflows from operations. Within RBI, all segments according to segment reporting are determined as cash generating units and within the segments, the legal entities form the cash generating unit for impairment testing of goodwill. The carrying value of the cash generating unit (including any allocated goodwill) is compared with its recoverable value. The recoverable value represents the higher of an item’s value in use and the fair value less cost to sell. It is based on the expected profits of the units. They are discounted at an interest rate reflecting the risk involved. The estimation of future earnings requires judgment of the past and actual performance and the expected development in the respective markets and overall macro-economic environment.
The material goodwill resulted from the following cash generating units: Raiffeisen Bank Aval JSC, Kiev (AVAL), Ukrainian Processing Center PJSC, Kiev (UPC), ZAO Raiffeisenbank, Moscow (RBRU), Raiffeisen Bank Sh.a., Tirane (RBAL) and Raiffeisenbank a.s, Prague (RBCZ). For calculating the recoverable value the planning period was assumed to be ten years in order to better reflect the mid-term development in the CEE countries.
A sensitivity analysis was used to test the robustness of the impairment test for goodwill which was based on the above assumptions. From a number of options for this analysis, three parameters were selected, namely, the cost of equity, the growth assumption in phase II and the reduction of the earnings. The table below shows to what extent an increase in the cost of equity, a reduction in the sustainable growth or a reduction in earnings needs to be made for the fair value of the cash-generating units to equal the carrying value (equity plus goodwill): Maximum sensitivity1 AVAL RBRU RBCZ RBAL UPC
The number of fully consolidated companies and companies valued at equity changed as follows: Fully consolidated Equity method
Of the 132 entities in the Group, 27 were domiciled in Austria (2009: 11) and 105 abroad (2009: 124). They comprised of 21 banks, 64 financial institutions, 16 companies rendering bank-related ancillary services, 8 financial holding companies and 23 other companies. Because of their minor importance in giving a view of the Group’s assets, financial and earnings position 173 subsidiaries were not included in the consolidated financial statements (2009: 92). They were recognized at cost under financial investments. The total assets of the companies not included in the Group came to less than 1 per cent of the Group’s aggregated total assets.
RZB Finance (Jersey) III Ltd., St. Helier (JE) 0.0% 1/1 Merger
RZB Finance (Jersey) IV Ltd., St. Helier (JE) 0.0% 1/1 Merger
P & C Beteiligungs Gesellschaft m.b.H., Vienna (AT) 100.0% 1/1 Merger
The merger of the principal business areas of RZB with Raiffeisen International shows the following impact on the consolidated financial statement of position as of 1 January 2010: Assets
The table below shows 2009 pro forma figures which give an indication of the volumes. The business remaining in RZB AG including equity participations has been subtracted from the income statement of RZB in 2009. This was calculated on an aggregated level. Therefore estimations and assumptions were made to the spin-off and merger process respectively. Due to lack of details in systems the comparable figures for the previous year of Raiffeisen International were used.
In the financial year 2010, the following companies were included into the consolidated financial statements for the first time: Name Share Included as of Reason
In the financial year 2010, the following companies were excluded from the consolidated group: Name Share Excluded as of Reason
Financial institutions 3 subsidiaries of Raiffeisen Leasing d.o.o., Sarajevo (BiH) 1/1 Immaterial 5 subsidiaries of Raiffeisen Rent DOO, Belgrade (RS) 1/1 Immaterial 12 subsidiaries of Raiffeisen-Leasing Real Estate s.ro.o, Prague (CZ) 1/1 Immaterial
OOO “Raiffeisen Capital” Asset Management Company, Moscow (RU) 100.0% 1/1 Immaterial
ROOF Global Bond CBO 2008-1, Dublin (IR) 0.0% 31/3 End of operations
ROOF Global Bond CBO 2008-2, Dublin (IR) 0.0% 31/3 End of operations
ROOF Global Loan CLO 2009-2, Dublin (IRL) 0.0% 31/3 End of operations
Companies rendering banking-related ancillary services 2 subsidiaries of Tatra banka a.s., Bratislava (SK) 1/1 Immaterial
Raiffeisen Insurance and Reinsurance Broker S.R.L., Bucharest (RO) 75.0% 1/1 Immaterial
Golden Rainbow International Limited, Tortola, converted the functional currency from the euro to the Singapore dollar due to changed refinancing.
The following exchange rates were used for currency translation: Rates in units per € 2010 2009
b. Designated financial instruments at fair value This category comprises mainly all those financial assets that are irrevocably designated as financial instrument at fair value (so called fair value option) upon initial recognition in the statement of financial position independent of the intention to trade. An entity may use this designation only when doing so results in more relevant information, because a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis.
These instruments are debt securities and other fixed-interest securities or equities 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.
2. Financial assets held-to-maturity Non-derivative financial assets (securities with fixed or determinable payments and fixed maturities) purchased with the intention and ability to hold them to maturity are reported in the position financial investments. They are recognized at amortized cost and differences are amortized over the term to maturity and recognized in the income statement under net interest income. If impairment occurs it is taken account of when determining the amortized cost and impairment is shown in net income from financial investments. Coupon payments are also recognized under net interest income. A sale of these financial instruments is only allowed in cases as stated in IAS 39.
3. Loans and advances Non-derivative financial assets with fixed or determinable payment for which there is no active market are allocated to this category. They are measured at amortized cost. If impairment occurs it is taken account of when determining the amortized cost. If there is a difference between the amount paid and face value – and this has interest character – the effective interest method is used and the amount is accrued as profit or loss. Profits from the sale of loans are recognized in the income statement item net provisioning for impairment losses. Moreover, debt instruments are also stated there if there is no active market. Derecognition of financial assets within the framework of securitizations is – after checking if the securitized special purpose entity has to be integrated into the consolidated accounts – done on a risk and rewards or control test according to IAS 39 after identifying loss of control over the contractual rights arising from the financial asset.
5. Financial liabilities Liabilities are recognized at amortized cost. Discounted debt securities and similar obligations are measured at their present value. Financial liabilities measured at fair value are shown in the category liabilities at fair value through profit and loss.
If no observable stock exchange prices or prices are available, the fair value will be measured by adequate measurement models. The utilization of these models requires assumptions and estimates of the management. The scope of assumptions and estimates depend on the price transparency of the financial instrument, the market and the complexity of the instrument.
Debt securities issued X At fair value through profit and loss
Negative fair values of derivatives for hedge accounting (IAS 39) X
Credit derivatives, the value of which is dependent on future specified credit (non-) events are shown under derivatives (positive fair values on the asset side and negative fair values on the liability side). Changes in valuation are recognized under net income from derivatives.
Cash flow hedge accounting according to IAS 39 applies for those derivatives that are used to hedge against the risk of fluctuating future cash flows. Variable-interest liabilities are especially subject to such cash flow risks. Interest rate swaps used to hedge against the risk of fluctuating cash flows arising from specific variable interest-rate items, are recognized as follows: The hedging instrument is recognized at fair value, therefore changes in its clean price are recorded as separate item in other comprehensive income.
At each reporting date an assessment is made as to whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred, when: • there is objective evidence of impairment as a result of a loss event that occurred after the initial recognition of the asset until the reporting date (a ‘loss event’),
• that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets and
The entirety of the provision for impairment losses arising from loans reported in the statement of financial position (individual loan loss provisions and portfolio-based loan loss provisions) is shown as a separate item on the assets side, below loans and advances to banks and customers. The provision for impairment losses arising from transactions outside the statement of financial position is recorded under provisions for liabilities and charges.
The Group derecognizes a financial liability if the obligations of the Group have been paid, expired or revoked.
Internally developed intangible fixed assets comprise exclusively of software. Software is capitalized if it is probable that the future economic benefits attributable to the asset will accrue to the enterprise and the cost of the asset can be measured reliably. Expenses for research are recognized as an expense when they are incurred. The useful life of software is between four and six years and may be longer for major software projects. The useful life of the acquired customer base was set at seven years for corporate customers and for the acquired customer base in the retail segment of Raiffeisen Bank Aval JSC at 20 years and for Impexbank (meanwhile merged with ZAO Raiffeisenbank) and eBanka (meanwhile merged with Raiffeisenbank a.s.) at five years.
Non-current assets and discontinued operations are classified as held for sale when the related carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is only considered met if the sale is highly probable and the asset (or discontinued operation) is immediately available for sale and furthermore that the management has committed itself to a sale. Moreover, the sale transaction must be completed within 12 months.
Provisions are recognized when the Group has a present obligation from a past event, where it is likely that it will be obliged to settle, and a reliable estimate of the amount is possible. The level of provisions is the best possible estimate of expected outflow of economic benefits at the reporting date while taking into account the risks and uncertainties underlying the commitment to fulfill the obligation.
The actuarial computation of severance payments and anniversary bonuses is based on the following assumptions: Average increase in salary 2.5 3.0
The Managing Board of RBI AG obtained Supervisory Board approval to institute a share incentive program (SIP) offering performance-based allotments of company shares for eligible employees at home and abroad for a given period of time. All former Managing Board members and selected upper management personnel of RBI AG and managing board members of affiliated bank subsidiaries and other affiliated companies are eligible to participate.
Income tax credits and income tax obligations are recorded separately under other assets and tax provisions respectively.
According to IAS 39, a financial guarantee is a contract under which the guarantor is obliged to make payments that compensate the party to whom the guarantee is issued for a loss arising in the event that a particular debtor does not meet payment obligations on time as stipulated in the original terms of the debt instrument. At the date of recognition of a financial guarantee, the initial fair value corresponds under market conditions to the premium at the date of signature of the contract. For subsequent valuations the credit commitment has to be presented as provision according to IAS 37.
Notes on segment reporting are to be found in the chapter segment reports.
Information about risks arising from financial instruments is disclosed in the explanatory notes. The risk report contains detailed information in the sections credit risk, country risk, concentration risk, market risk and liquidity risk.
Information on capital management, regulatory own funds and risk-weighted assets are disclosed under note (53) capital management and regulatory own funds.
Net realized gains (losses) on financial assets not measured at fair value through profit and loss 2,879 12,652
Impairment on financial assets not measured at fair value through profit and loss 1,144 (1,607)
Interest and interest-like income, total 6,364,799 5,588,567 from balances at central banks 84,969 108,972 from loans and advances to banks 447,943 120,786 from loans and advances to customers 4,571,885 4,498,805 from financial investments 696,577 399,036 from leasing claims 221,448 283,266 from derivative financial instruments (non-trading), net 311,460 168,118 from shares and other variable-yield securities 1,703 30 from shares in affiliated companies 5,474 1,473 from other interests 4,192 1,535
Net income from hedge accounting includes on the one hand, a valuation loss from derivatives of € 15,312 thousand (2009: positive result of € 1,564 thousand) and on the other hand, changes in the carrying amount of the fair value hedged items of plus € 14,707 thousand (2009: plus € 877 thousand).
The position net income from financial investments comprises valuation results and net proceeds from disposal of financial investment portfolio (held-to-maturity), from securities at fair value through profit and loss, and equity participations which include shares in affiliated companies, companies valued at equity, and other companies.
Net proceeds from sales of securities at fair value through profit and loss 62,177 16,903
Rental income from investment property incl. operating lease (real estate) 12,616 9,167
Net proceeds from disposal of tangible and intangible fixed assets (9,233) (3,080)
Net expense from allocation and release of other provisions (27,208) (3,951)
Raiffeisen Bank International AG and nine of its domestic subsidiaries are members of a joint tax entity headed by Raiffeisen Zentralbank Österreich Aktiengesellschaft. A tax benefit of € 12 thousand (2009: € 13,198 thousand) was granted to RBI AG by RZB AG to balance the tax effects.
Other tax deductions and tax increases include mainly deferred tax assets built on tax loss carry-forwards and belated tax payments. In the reporting period, the parent company built deferred tax assets on tax loss carry-forwards of € 119,905 thousand based on a new mid-term planning allowing that deferred tax assets can be realized within a reasonable period of time.
There were no conversion or option rights outstanding, so undiluted earnings per share are equal to diluted earnings per share. The capital increase by issuing 40,837,624 non-par shares in the course of the merger were considered in the calculation of the average number of ordinary shares outstanding.
Intangible and tangible fixed assets 2,673,446 2,216,114 1 Adaption of previous year figures due to different mapping.
Purchased loans amounting to € 1,099,190 thousand (2009: € 467,796 thousand) are assigned to the measurement category loans and advances. Purchased loans classified as held-to-maturity totaled € 39,460 thousand (2009: € 31,629 thousand ).
Loans and advances to customers break down into asset classes according to Basel II definition as follows: Corporate customers – large 49,201,202 25,371,785
Loans and advances and loan loss provisions according to Basel II asset classes are shown in the following table: 31/12/2010
Treasury bills and bills of public authorities eligible for refinancing 1,083,173 1,300,762
Positive fair values of derivatives in cash flow hedges (IAS 39) 564,583 0
As long as the conditions for hedge accounting according to IAS 39 are fulfilled, derivative financial instruments are measured at their fair values (dirty prices) in their function as hedging instruments. The hedged items in connection with fair value hedges are loans and advances to customers and debt securities issued. The hedged risks are 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.
This position consists of securities available-for-sale, financial assets at fair value through profit or loss, and securities held-tomaturity as well as strategic equity participations held on a long-term basis.
Treasury bills and bills of public authorities eligible for refinancing 9,886,294 3,345,967
For the following subsidiaries syndicate contracts between RBI AG and the respective shareholders exist: Raiffeisenbank a.s. (Czech Republic), Tatra banka a.s. (Slovakia), Raiffeisen Bank, Zrt. (Hungary), and Raiffeisen-RBHU Holding GmbH (Austria), and Raiffeisen Banka d.d. (Slovenia), respectively, as well as Raiffeisenbank Austria d.d. (Croatia). These syndicate contracts regulate especially purchase options between direct and indirect shareholders.
Financial information on associated companies is as follows: €000 Total assets Total revenues Profit/loss after taxes Shareholders’
Raiffeisen Banca pentru Locuinte S.A., Bucharest (RO) 75,002 4,519 99 14,886
The item software comprises acquired software amounting to € 424,611 thousand (2009: € 274,244 thousand) and developed software amounting to € 55,215 thousand (2009: € 669 thousand).
The carrying amount of goodwill as basis for the impairment test was allocated to the following cash generating units, whereby changes in the carrying amounts are entirely attributable to currency differences: Raiffeisen Bank Aval JSC, Kiev 220,606 204,622
Information about the impairment tests can be found in the chapter business combinations on page 142.
Land and buildings used by the Group for own purpose 553,590 526,408
Tangible and intangible fixed assets developed in the financial year 2010 as follows: Cost of acquisition or conversion
Intangible and tangible fixed assets developed in the financial year 2009 as follows: Cost of acquisition or conversion
The net deferred taxes result from the following items: Loans and advances to customers 97,391 69,914
Deposits from customers classified regionally (counterparty’s seat) are as follows: Page 184 Consolidated financial statement
RBI … Raiffeisen Bank International AG, Vienna RBRU … ZAO Raiffeisenbank, Moscow
In the reporting period, provisions for pending legal issues amounted to € 107,755 thousand. In a Russian network unit, a provisons of € 15,109 thousand was built in connection with the cancellation of a rent agreement by Raiffeisenbank Moscow. In RBI AG, a provision of € 12,000 thousand was built for a legal issue regarding the law suit of customers of a funds management company in connection with the payment transfer done by the former RZB. Moreover, there were no single cases exceeding € 10,000 thousand.
Provisions for severance payments and similar obligations developed as follows: Defined benefit obligation (DBO) as of 1/1 9,404 8,047
The reconciliation of DBO to provision is as follows: Defined benefit obligation (DBO) 24,873 4,960
The structure of plan assets breaks down as follows: Actual return on plan assets was as follows: Actual return on plan assets 566 0
Negative fair values of derivatives in fair value hedges (IAS 39) 23,487 5,113
In the course of the merger with the principal business areas of RZB, the main part of subordinated capital signed by RZB and its subsidiaries as shown in the previous year was offset.
The following table contains borrowings that exceed 10 per cent of the subordinated capital: Issuer ISIN Type Currency Nominal value in €000 Coupon1 Due
Subscribed capital As of 31 December 2010, the subscribed capital of RBI AG as defined by the articles of incorporation amounted to € 596,291 thousand. The subscribed capital consists of 195,505,124 non-par bearer shares. The subscribed capital was increased by the issuance of 40,837,624 new bearer shares amounting to € 124,555 thousand in order to perform the merger. After deduction of own shares of 972,909, the stated subscribed capital totaled € 593,323 thousand.
Participation capital The participation capital according to Section 23 (4) and (5) of the Austrian Banking Act (BWG) issued by Raiffeisen Zentralbank Österreich Aktiengesellschaft and transferred during the merger into Raiffeisen Bank International AG amounted to € 2,500,000 thousand. The participation capital is available for the life of the corporation and the participation issuer may not request redemption. The payment of the first tranche amounting to € 750,000 thousand was made as of 30 December 2008. The payment of the second tranche amounting to € 1,750,000 thousand was carried out as of 6 April 2009. The participation certificates were issued at 100 per cent of par value. The participation certificates are linked to an 8 per cent profit entitlement from par value per year. For the business years 2014 and 2015, the profit entitlement will be raised by 50 basis points each year, for the business year 2016 by 75 basis points and for every following business year by 100 basis points. The upper limit is 12 month EURIBOR plus 1,000 basis points.
In the course of the merger, receivables and liabilities of the absorbing and the dispensing company were offset. This was also the case for the participation rights of € 600,000 thousand which were fully held by RZB AG.
The acquisition of own shares mainly serves to cover the obligation of RBI within the framework of the share incentive program (SIP) towards the members of the Managing Board and executive employees. These bonus payments are carried out in the form of company shares.
Exchange on the last day of trading preceding the acquisiton. This authorization may be exercised in one or several installments by the company, by affiliated companies or, for their account, by third parties.
Dividend proposal The Managing Board intends to propose at the Annual General Meeting that a dividend of € 1.05 per share be distributed from Raiffeisen Bank International AG’s profit for the financial year 2010, which represents a maximum distribution of € 205,280 thousand, and the remaining amount be carried forward.
The statement of changes in equity is shown on page 130.
Number of shares outstanding as of 31/12 194,532,215 153,682,989 1 Return of unused shares from SIP 2005.
Executives of the company and other affiliated companies 2,189 69,851 1,354
Under the SIP, a new tranche was previously issued each year. However, because of the merger of Raiffeisen International with the main business areas of RZB, no SIP tranche was issued in 2010. This means that on the reporting date contingent shares for two allotments were assigned. As of 31 December 2010, the contingent allotment of shares came to 473,018 shares (of which 79,909 shares were attributable to the 2008 allotment and 393,109 shares to the 2009 allotment). The originally announced number of contingently allotted shares changed due to various personnel changes within Group units and due to the maturation of the SIP allotment 2007. This is shown on an aggregated level in the following table: Share incentive program (SIP) 2008 – 2009
Executives of the company and other affiliated companies 73,168 21,449 109,707
In the financial year 2010, no own shares were bought back for the share incentive program.
Impairment losses on loans and advances (3,084,023) 0 0 0 0
Companies can carry out business with related parties that may affect the entity’s asset, financial and earnings position. The following related companies have been identified mainly as related parties: Parent companies are Raiffeisen-LandesbankenHolding GmbH, Vienna, and Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna.
Disclosures on Raiffeisen Bank International’s relations to key management are reported under note (53) relations to key management. As of 31 December 2010, the transactions with related parties were as follows: 31/12/2010
In financial year 2010, no new securitizations were made. Both true sale transactions (Warehousing) ROOF Bulgaria 2008-1 and ROOF Romania 2008-1 already closed in 2008 were not yet transferred to final securitization. The reason for this is the recent developments on the international capital markets, and the resulting liquidity crunch. Nevertheless, the warehousing has been prolonged and the current warehousing structures kept alive by the placement of notes to Group internal investors until further notice. Hence, the portfolio’s significant chances and risks remain within the Group as well. At year-end 2010 the nonderecognized loans of ROOF Bulgaria 2008-1 amount to € 104,031 thousand (2009: € 149,588 thousand), those of ROOF Romania 2008-1 came up to € 140,747 thousand (2009: € 167,622 thousand).
Regarding true sale transaction ROOF Poland 2008-1 consisting of car leasing contracts, the total volume of the loans amounts to € 195,020 thousand as of 31 December 2010 (2009: € 131,829 thousand). The replenishment of the already matured portfolio as well as additional investments led to the changed carrying amount.
From a Group view, the non-derecognized loans arising from the true sale transaction ROOF Russia 2007-1 amount to € 53,178 thousand at year-end 2010 (2009: € 117,077 thousand). In this case, the decrease of the carrying value is mainly explained by the maturity of the consumer loan volume in original currency (whereupon the matured portfolio wasn’t refilled anymore) as well as the currency translation effect resulting from USD against the euro. Within the space of a year, the consumer loan volume in original currency matured by € 63.899 thousand.
Within the scope of synthetic securitizations ROOF CEE 2006-1, the non-derecognized loans amounted to € 392,616 thousand at year-end (2009: € 364,285 thousand). The differences compared to the volumes at the beginning of the transactions are due to maturing volumes and to changes in currency exchange rates. Furthermore, originators like Raiffeisenbank Polska, S.A., Warsaw (PL), and Raiffeisenbank a.s., Prague (CZ) exercised the option to refill the volumes and hence to exceed slightly the original values.
In previous year no corresponding exposure of Structured Credit Products was given.
The following repurchase and redelivery commitments are shown as of the reporting date: Genuine repurchase agreements as borrower
Securities purchased in a genuine sale and repurchase agreement 1,483,131 8,703,593 hereof sold or repledged 57,059 1,728,444 hereof bonds, notes and other fixed-interest securities 56,433 1,716,637 hereof shares and other variable-yield securities 0 11,248 hereof loans and advances 626 559
The following liabilities are secured by assets shown in the statement of financial position: Deposits from banks 8,145,418 777,578
Assets under finance leases break down as follows: Real estate leasing 587,099 530,245
Active risk management is one of the core competencies of Raiffeisen Bank International. In order to effectively identify, measure, and manage risks the Group has implemented a comprehensive risk management system in the past and continues to develop it. Risk management constitutes an integrated part of overall bank management. In particular, in addition to legal and regulatory requirements, it takes into account the nature, scale, and complexity of the business activities and the resulting risks. Risk management in RBI controls the exposure to and ensures professional management of all material risks.
RBI has a system of risk principles and procedures in place for measuring and monitoring risk, with the aim of controlling and managing risks at all banks and specialist companies in the Group. The risk policies and risk management principles are laid out by the Managing Board of RBI. The following risk policies highlight some of the principles: • Integrated risk management: Credit, country, market, liquidity, participation and operational risks are managed as main risks throughout the Group. For this purpose, risks are measured, limited, aggregated, and compared to available risk coverage capital.
• Standardized methodologies: Risk measurement and risk limitation methods are standardized in order to ensure a consistent and coherent approach to risk management. This is efficient for the implementation of risk management methods. And it is the basis for consistent overall bank management across all countries and business segments in RBI.
• Independent control: Clear personal and functional firewalls are in place between business operations and any risk management or risk controlling activities.
Individual risk management units of the Group create detailed risk strategies, which set more concrete risk targets and specific standards in compliance with these general principles. The overall risk strategy is derived from the Group’s business strategy and adds risk relevant aspects to the planned business structure and strategic development. These aspects include e.g. structural limits and capital ratio targets which have to be met in the budgeting process and which frame upcoming risk related 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 central Risk Controlling division assumes the independent risk controlling function required by banking law. Amongst others, this division is responsible for developing the Group-wide framework for overall bank risk management (integrating all risk types) and preparing independent reports on the risk profile for the Managing Board and the heads of individual business units. It also measures required risk coverage capital for different business units and calculates the utilization of the allocated risk capital budgets in the internal capital adequacy framework.
The Market Risk Committee controls market risks of trading and banking book transactions of RBI and establishes corresponding limits and processes. In particular, it uses treasury results, the amount of risks taken and the limit utilization, as well as the results from scenario analyses and stress tests for market risk controlling.
All these aspects are coordinated by the central division Organization & Internal Control System, which continuously analyzes the internal control system and keeps it up to date. If actions are necessary for closing any deficiencies this division is also responsible for tracking the closure of any open issues.
Two very important functions in assuring independent oversight are performed by the divisions Internal Audit and Compliance. Independent internal auditing is a legal requirement and a central pillar of the internal control system. Internal audit periodically assesses business processes and contributes considerably to securing and improving them. It sends its reports directly to the Managing Board of RBI, which discusses them on a regular basis in their board meetings.
Moreover, an independent and objective audit, free of potential conflicts, is carried out during the audit of the annual financial statements by the auditing companies.
Maintaining an adequate level of capital is a core objective of risk management at RBI. Capital adequacy is monitored on a quarterly basis based on the actual risk level, which is measured by internal models, taking into account the materiality of risks for choosing appropriate models. This capital adequacy framework incorporates both capital requirements from a regulatory point of view (sustainability and going concern perspective) and from an economic point of view (target rating perspective).
Risks in the target rating perspective are measured as economic capital presenting a comparable measure across all types of risks. It is calculated as the sum of unexpected losses stemming from different Group units and different risk categories (credit incl. country risk, market, participation, and operational risk). In addition, a general buffer for other risks not explicitly quantified is held on a Group level.
The overall risk amount is compared to internal capital, which mainly denotes equity and sub-ordinated capital. It serves as a cushion for servicing claims of senior debtors if losses are incurred. Total utilization of available risk capital (the ratio of economic capital to internal capital) was 74.2 per cent at year end.
Economic capital is an important instrument in overall bank risk management and is used for allocating risk budgets. Economic capital budgets are allocated to business segments during the annual budgeting process and are complemented for day-to-day management by volume, sensitivity, or value-at-risk limits. In RBI this sort of planning is done 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 influences the plans for future lending activities and the overall limit for taking market risks.
According to this target, risk taking capacity is calculated as the amount of planned profits, expected risks costs, and the excess of own funds (taking into account various limits on eligible capital). This capital amount is compared to the overall value-at-risk (including expected losses). Quantitative models used in the calculation are mostly comparable to the target rating perspective, (albeit on a lower 99 per cent confidence level). Using this perspective the Group ensures adequate regulatory capitalization (going concern) with the given probability.
In this process, regulatory capital requirements are calculated on Group level according to Austrian regulations. Local regulatory capital requirements for individual Group units can be met by adequate structural balance sheet measures. Internal targets for regulatory capital ratios are intentionally set higher than the legal minimum, in order to be able to fulfill regulatory capital requirements at all times and to account for other risks, which are not considered in the regulatory requirements.
The main goal of the sustainability perspective is to ensure that RBI can maintain a sufficiently high core capital ratio for the three year planning period also in a severe macroeconomic downturn scenario. This analysis of the sustainability perspective is based on a multi-year macroeconomic stress test where hypothetical market developments in a severe but realistic economic downturn scenario are simulated. The risk parameters considered are amongst others: interest rates, foreign exchange rates and securities prices, changes in default probabilities and rating migrations in the credit portfolio.
The portfolio of RBI has been analyzed as part of RZB Group in a similar exercise for 91 European financial institutions coordinated by the Committee of European Banking Supervisors. The European Banking Authority has taken over its tasks and responsibilities with effect from 1 January 2011. These results were published at the end of July 2010. RBI already initiated several measures in reaction to the financial crisis in 2008 and 2009, e.g. it selectively reduced its portfolio, optimized the composition of its loan portfolio and improved the Group’s lending processes. These measures contributed significantly to the high stability of the credit portfolio also under stress scenarios. Risk management in RBI manages portfolio diversification, for example via limits for the total exposure of individual industry segments and countries and through ongoing updates to its lending standards.
Credit risk is by far the most important risk category in RBI, as also indicated by internal and regulatory capital requirements. In the Group it is analyzed and monitored both on an individual loan and customer-by-customer basis as well as on a portfolio basis. Credit risk management and lending decisions are based on the respective credit risk policies, credit risk manuals, and the corresponding tools and processes which have been developed for this purpose.
Credit decisions are made within the context of a hierarchical competence authority scheme depending on the type and size of a loan. It always requires the approval of the business and the credit risk management divisions for individual limit decisions or when performing regular rating renewals. If the individual decision-making parties disagree, the potential transaction will have to be decided upon by the next decision-making level.
The whole limit application process is based on defined uniform principles and rules. Account management of multinational customers, who do business simultaneously with more than one member of RBI, is supported by the Global Account Management System. This is made possible by unique customer identification in non-retail asset classes.
The limit application process in the retail segment is more highly automated due to the high number of applications and lower exposure amount. Limit applications often are assessed and approved in central processing centers based on credit score cards. This process is facilitated by the respective IT system for retail customers in the Group.
The following table translates balance sheet items (bank and trading book positions) into the maximum credit exposure, which is used in portfolio management. It includes on-balance exposures and off-balance sheet exposures before the application of credit-conversion factors. It is not reduced by the effects of credit risk mitigation like for example guarantees and physical collateral, effects that are, however, considered in the internal assessment of credit risks. The maximum credit exposure is used – if not explicitly stated otherwise – for showing exposures in alls subsequent charts in the risk report. The main deviation between IFRS-accounting (group-reporting) and Basel II (regular reporting) figures is due to different loan volumes and valuation methods.
The following table provides a breakdown of the maximum credit exposure according to the internal rating of corporates (large corporates and small business) in € thousand. In the overall assessment of credit risk collateral and recovery rates are also taken into account: Page 206 Consolidated financial statement
The maximum credit exposure to corporates amounted to € 80,910,794 thousand at year end 2010. Group Corporates (€ 32,709,551 thousand) is the largest segment, followed by Central Europe (€ 18,410,556 thousand) and Southeastern Europe (€ 11,330,339 thousand). Russia (€ 9,614,875 thousand), CIS Other (€ 4,398,099 thousand), Group markets (€ 3,196,036 thousand) and Corporate center at € 776,118 thousand complete the picture.
If one takes into account the portfolio that was acquired from RZB during the merger as well, one can clearly see the effects of active credit portfolio management. The credit exposure in all targeted industries (e.g. consumer non-cyclical, energy) increased strongly whereas credit growth to restricted industries such as real estate and materials was weaker, or in some cases declined.
Foreign currency effects also had a significant impact on segment level as well. On overall Group level, however, these effects were mostly compensated for by the diversification in different markets and currencies. The largest impacts were observed in sub-portfolios where the local currency is linked to US-dollar (for example Singapore and China, but also Russia and Ukraine). In these portfolios the credit exposure increased by up to 10 per cent due to the US-dollar appreciating against the euro.
Defaulted exposures (rating 5.0) amounted to 5.3 per cent of the total credit exposure (€ 4,287,339 thousand), with the segment Central Europe affected most with € 1,252,363 thousand. Slightly less than half of the unrated credit exposure is due to small loans, which are loaded into the Group’s data warehouse without their rating. The share of unrated exposure against corporates has been further reduced during the reporting period 2010.
6.2 Good project risk profile – low risk 2,035,163 32.8% 1,316,273 39.8%
Corporate center hereof nonhereof individual loan loss provision 332,314 346,625 177,951 445,441 196 5,716 hereof portfolio-based loan loss provision 198,742 100,996 8,846 44,646 0 0
hereof portfolio-based loan loss provision 217,456 115,489 42,771 70,863 – –
Changes in the retail portfolio composition also took place due to exchange rate effects and due to the low demand for new loans of small and medium business customers in the Russia and CIS other segments. Another large change was the reduction of foreign currency loans in the retail asset classes.
The share of foreign currency loans in retail portfolios provides an indication for the potential change in default rates if the exchange rate of the domestic currency changes. The internal risk assessment thus not only takes into account the share of foreign currency loans but also the usually stricter lending criteria at loan distribution and – in several countries – the customers’ matching foreign currency income.
Central Europe Southeastern Europe Russia CIS - Other Group Corporates Group Markets Corporate Center 212 Consolidated financial statements
The following table shows the maximum credit exposure by internal rating for financial institutions. Due to the small number of customers (or number of defaults respectively), default probabilities of individual rating grades in this asset class are estimated based on internal and external data.
Money market deposits, repurchase agreements, potential future exposures from derivatives, sight deposits, and bonds are the main product categories in this asset class. These exposures therefore have high collateralization levels (e.g. in repo transactions or through netting-agreements) depending on the type of product.
The maximum credit exposure to sovereigns amounts to € 25,855,164 thousand and represents 15.4 per cent of the bank’s total credit exposure. The highest portfolio share with 32.4 per cent is held in rating class ‘Minimal Risk’ (rating A1), which results mainly from new securities investments in government bonds.
Central Europe Southeastern Europe Russia CIS - Other Group Corporates Group Markets Corporate Center
Default and workout standards in the retail area comprise the whole restructuring and collection process for private individuals and small enterprises. A restructuring guideline defines the Group’s restructuring framework including uniform strategy, organi-
zation, methods, monitoring and controlling. In the collection process customers are classified into three categories ‘early’, ‘late’ and ‘recovery’, for which a standardized customer handling process is defined.
The definition of default and the assessment of the expected recovery value are heavily influenced by the number of days payments are late. The following table shows the amount of overdue – not impaired – financial assets for different time bands: 31/12/2010 Current Overdue Collaterals
As of 31 December 2010 the carrying amount of loans for which terms were renegotiated in connection with a substantial and immediate loss that would otherwise be past due or impaired amounted to € 588,276 thousand (2009: € 484,089). Split by asset classes € 261,604 thousand is attributable to corporate customers and € 326,672 thousand to retail customers.
Default is internally defined as the event where a specific debtor is unlikely to pay its credit obligations to the bank from primary sources, or the debtor is overdue more than 90 days on any material credit obligation. RBI has defined twelve default indicators which are used to identify a default event including the insolvency or similar proceedings of a customer, if an impairment provision has been allocated or a direct write-off has been carried out, if credit risk management has judged a customer account receivable to be not wholly recoverable, or the restructuring unit is considering stepping in to help a company restore its financial soundness.
The following table shows the exposure outstanding in the defined asset classes from statement of financial position item positions loans and advances to banks and loans and advances to customers (excludes off-balance sheet positions) and the corresponding non-performing loans, collateral provided, and loan loss provisions by segment: Breakdown of non-performing loans by segment
The following table shows the exposure of Non Performing Loans in the defined asset classes from statement of financial position item positions loans and advances to banks and loans and advances to customers (excludes off-balance sheet positions): As of 1/1/2010
In the division corporate customers, non-performing loans recorded the highest growth, increasing by 70 per cent to € 4,381,436 thousand. The Southeastern Europe segment at 43 per cent, and CIS other at 39 per cent, were especially affected. For these NPL’s, € 2,839,106 thousand of loan loss provisions were allocated, an increase of 67 per cent and resulted in a coverage ratio of 65 per cent.
In the retail portfolio, non-performing loans grew to € 2,396,212 thousand. This represents an increase of 30 per cent, the main players were located in the segment Central Europe with 41 per cent followed by CIS other with 28 per cent and Southeastern Europe with 24 per cent. The ratio of non-performing loans to loans and advances to customers increased by 25 percentage points to 11.5 per cent. At the same time, loan loss provisions for retail customers rose by 20 per cent to € 1,660,750 thousand, resulting in a coverage decrease of 7.0 percentage points to 69.3 per cent.
The segment financial institutions was also had non-performing loans of € 267,834 thousand at year-end, for which loan loss provisions of € 255,019 thousand were allocated.
Loans and advances to banks 3,430 403,133 7,932 (4,733) (177,363) 4,180 236,579
Loans and advances to banks 8 0 18,438 (76) 0 71 18,440
Loans and advances to banks 4,050 0 194 (3) (8) (803) 3,430
Loans and advances to customers 1,070,121 (2) 1,816,514 (245,139) (267,054) (19,861) 2,354,579
Portfolio-based loan loss provisions 598,725 0 474,261 (288,431) 0 (14,043) 770,512
Loans and advances to banks 301 0 121 (283) 0 (131) 8
Loans and advances to customers 566,790 0 442,356 (269,340) 0 (13,800) 726,006 1 Allocation including direct write-downs and income on written down claims. 2 Usage including direct write-downs and income on written down claims.
The following table shows the breakdown of loan loss provisions according to business segments: As of 1/1/2010
As country risk is closely associated with the risk of sovereign institutions, it is measured based on the same ten-class rating model. This rating model includes a quantitative analysis of the macro-economic risk of a particular country and a qualitative analysis of the political risk in a particular country. Country risk management in RBI is based on the country risk policy which is approved semi-annually by the Managing Board. This policy sets a strict limitation on risk exposure to foreign countries.
In day-to-day work, business units have to submit limit applications for the respective countries for all cross-border transactions in addition to the limit applications for a customer. Country risk also is reflected in product pricing as well as in risk-adjusted performance management. Business units therefore can benefit from country risk mitigation by seeking insurance (e.g. from export credit insurance organizations) or guarantors in third countries.