RBI at a glance Raiff eisen Bank International AG (RBI) regards Central and Eastern Europe (including Austria) as its home market.
It is in Central and Eastern Europe (CEE) that it operates as a universal bank through a closely knit network of subsidiary banks, leasing companies and numerous specialized fi nancial service providers in 17 markets.
In CEE, some 56,000 staff in around 2,900 business outlets serve around 13.8 million customers. In Austria, RBI is one of the top corporate and investment banks. It is also represented in the world’s fi nancial centers and operates branches and representative offi ces in Asia too.
Raiff eisen Bank International Group RBI pro Raiff eisen Raiff eisen forma International International Monetary values in € million 2011 Change 2010 2009 2008 2007 Income statement
Net provisioning for impairment losses (1,064) (10.9)% (1,194) (2,232) (780) (357) Net fee and commission income 1,490 (0.1)% 1,491 1,421 1,496 1,250
Statement of fi nancial position Loans and advances to banks 25,748 19.6% 21,532 38,582 9,038 11,053 Loans and advances to customers 81,576 7.8% 75,657 72,566 57,902 48,880
Core tier 1 ratio, total 9.0% 0.2 PP 8.9% 8.5% 7.4% 9.6% Tier 1 ratio, credit risk 12.2% 0.0 PP 12.2% 11.8% 9.7% 11.4%
Stock data Earnings per share in € 3.95 (13.5)% 4.56 1.29 6.39 5.80
Number of shares in million 195.51 0.0% 195.51 195.51 154.67 154.67
“Our result confi rms our sustainable business model, which will continue to keep us very competitive!”
Mr. Stepic, 2011 was a fairly eventful year. What challenges did RBI face? The developments in Europe, and particularly in the peripheral states of the eurozone, left their mark on us. We too were unable to escape the eff ects of the market environment following the sovereign debt crisis – which is what it really is, rather than a banking crisis. RBI has no sovereign exposure to Greece, Ireland, Portugal and Spain, and a low exposure to Italy. Nevertheless, we too had to struggle with the impact of a renewed general loss of confi dence in banks.
signifi cantly better than after the summer. Given the high level of interest in the market, our issues were actually signifi cantly oversubscribed, with comparatively attractive risk premiums. We are also trying to diversify our refi nancing sources as far as possible, mostly through instruments which are not as sensitive to fi nancial market turmoils. By this I mean, for example, issues in local markets, private placements or fi nancing through supranational organizations.
Overall, we’re in a downturn. How are RBI’s markets developing? You have to make a distinction here. In the eurozone we are facing a real systemic and political crisis. In Central and
Eastern Europe, however, the situation is diff erent and the economic uptrend is largely continuing. This region is and will continue to be the growth driver for Europe. Even if economic growth in the CEE region slows from 3.7 per cent in 2011 to 2.6 per cent in 2012, this is still higher than in the eurozone. This isn’t a bad outlook for us!
What’s the status quo of Polbank? We’re right on track. All internal and external processes have run as planned, regarding both timing and desired results. We have already prepared the organizational structure for the combined bank, which leaves us ideally equipped for the time after the so-called closing, i.e. the legal completion of the transaction.
Are you planning further acquisitions? No. Poland was the last important market where we were short of critical mass. The acquisition of Polbank puts us in a very good position in all the major CEE markets, so no further acquisitions are needed. I can, however, imagine in the medium term that we could buy smaller customer portfolios if one of our competitors withdraws from a market.
Can shareholders look forward to a more positive year in 2012? I’m very aware that 2010 and 2011 called for a lot of patience and endurance on the part of our owners. In 2010, this was the result of massive doubts concerning our merger, which we have fortunately been able to dispel with facts and fi gures. Despite our good performance, 2011 suff ered from the negative developments in the stock markets. I’m confi dent that this sentiment will turn around again. Whether this will happen already in 2012, is a question nobody can answer reliably. In any case, I would like to thank all our shareholders – our major shareholder RZB and the many institutional and private investors – for their loyalty, and to assure them that we will continue to concentrate all our eff orts on the success of the company. I would like to thank our customers for their trust, and our 59,000 employees for their hard work. I know that my colleagues will continue to be fully committed in their work for RBI, even though conditions will be no easier for them in this time of austerity. My special thanks for this!
At each meeting, the Management Board reported to the Supervisory Board on business developments in the various business divisions and explained current risk developments. In addition to its regular meetings, the Supervisory Board had many opportunities to hold discussions with the Management Board. The collaboration between Management Board and Supervisory Board was characterized by open and proactive communication.
During the period under review, there were fi ve Supervisory Board meetings. More than half of the meetings were attended by all members of the Supervisory Board. In all meetings, the Supervisory Board performed the tasks incumbent upon it by law and in accordance with the articles of association pursuant to the 2010 Austrian Corporate Governance Code. In accordance with the requirements of the Austrian Corporate Governance Code, the Supervisory Board arranged for an external assessment of its activities, the results of which were discussed in depth by the Supervisory Board.
The new and stricter regulatory requirements for banks published in the second half of the year necessitated an adjustment of business policy, which the Management Board discussed in detail with the Supervisory Board. The new regulations concerning remuneration policy under banking law were also reported on several times, and resolutions were approved.
The Audit Committee monitored the accounting process, the eff ectiveness of the internal control system and the internal audit system, as well as the bank’s risk management. It monitored the annual statutory audit and the consolidated fi nancial statement audit. It was also responsible for verifying and monitoring the independence of the statutory auditor. It reviewed the annual fi nancial statements and consolidated fi nancial statements and prepared for their adoption. It also dealt with the proposed appropriation of profi t, 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 offi cers’ insurance.
Following an extensive audit and discussion of the consolidated fi nancial statements and the annual fi nancial statements in the Audit Committee and in the Supervisory Board, the Supervisory Board agreed with the proposed appropriation of profi t and approved the annual fi nancial statements of RBI AG. The annual fi nancial statements have thus been adopted in accordance with Section 96 (4) of the Austrian Stock Corporation Act (AktG).
Raiff eisen Bank International AG (RBI) regards Central and Eastern Europe (including Austria) as its home market. For nearly 25 years RBI has been operating in Central and Eastern Europe (CEE), where today it maintains a closely knit network of subsidiary banks, leasing companies and numerous specialized fi nancial service providers in 17 markets. As a universal bank, RBI ranks among the top 5 banks in twelve CEE countries and occupies a strong position in Russia. The powerful role is supported by the Raiff eisen brand, which is one of the most widely recognized brands in the region. Following its strategic realignment in 2010, RBI has positioned itself as a fully integrated corporate and retail banking group in CEE. The bank not only has good access to retail and corporate customers, but also boasts a comprehensive product off ering. The CEE markets are characterized by higher economic growth compared to Western Europe. RBI benefi ts not only from this growth, but also from the potential resulting from the region’s need to catch up in terms of banking services. At the end of 2011 around 56,000 staff served approximately 13.8 million customers in around 2,900 business outlets in CEE.
In Austria RBI is one of the top corporate and investment banks. It primarily serves Austrian customers, but also international customers as well as major multinational clients operating in CEE. Moreover, RBI is represented in the world’s fi nancial centers and operates branches and representative offi ces in Asia. All in all, RBI employs about 59,000 staff and has total assets of approximately € 147 billion.
RBI’s development RBI was established in October 2010 through the merger of Raiff eisen International with the principal business areas of Raiff eisen Zentralbank Österreich AG (RZB) – the corporate banking business and related participations. RBI’s position as one of the leading banks in CEE and Austria was further reinforced by the merger. As a listed company, it had been possible for Raiff eisen International to raise equity capital through share issues even before the merger. But the merger enabled RBI to gain access to the debt market, where it is also able to issue debt via bank-specifi c instruments, e.g. those traded on the interbank market. A further key advantage of the new Group structure lies in the optimization of risk management. The integration of service areas allows RBI to off er bundled solutions from a single source to all markets that had previously been served separately by Raiff eisen International and RZB.
Long-term success story RZB, the majority shareholder of RBI and central institution of the Austrian Raiff eisen Banking Group (RBG), was formed in 1927 as “Genossenschaftliche Zentralbank” (GZB). Raiff eisen gained its fi rst foothold in Central and Eastern Europe back in 1987, when it established its fi rst subsidiary bank in Hungary. Other own subsidiaries have since been established; from 2000 onwards, Raiff eisen’s expansion in the CEE countries has mainly been achieved by acquiring existing banks, which are combined into a holding company that from 2003 operated under the name Raiff eisen Inter national. Raiff eisen International was listed on the stock exchange in April 2005 in order to fi nance its future growth as effi ciently as possible. RBI was subsequently established in 2010 through the merger of Raiff eisen International with the principal business areas of RZB.
125 years of Raiff eisen in Austria Raiff eisen’s strong roots in Austria date back more than 125 years. Raiff eisen’s fi rst Austrian credit cooperative was founded in Mühldorf near the village of Spitz in the Wachau valley in 1886. Local cooperatives soon started working together and, in turn, founded regional cooperatives marking the beginning of the multi-tiered nature of the Raiff eisen organization. This not only helped to strengthen their position in the market, but also enabled better management and risk control. Numerous product and service cooperatives were founded on the back of increasing specialization and market integration. In mid-2011 RBG, the country’s largest banking group, managed € 83.8 billion in Austrian customer deposits (excluding building society savings), of which around € 50.3 billion was held in savings deposits; with a market share of 32.2 per cent, RBG has continued to expand its role as market leader among Austria’s banks. RBG has achieved its strong market position through healthy organic growth.
Group Corporates Austrian and primarily Western European business customers as well as major multinational customers from CEE
Corporate Center Services performed by Group headquarters, such as liquidity and balance sheet structure management
The Group Corporates segment mainly comprises activities 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 are booked under the Corporate Center segment.
The markets of RBI Total assets 31/12/2011 in € million Change1 Business outlets Number of staff
Specifi cally, RBI’s actions are based on the following principles: ■ The focus of business activities is on providing fi nancial services to corporate customers and private customers. ■ Notwithstanding high standards of quality, fi nancial services are provided cost-effi ciently. ■ The balanced distribution of business activities in RBI’s home market contributes to the diversifi cation of risk in the business portfolio.
Strategic business focus In setting the direction for its business activities, RBI pursues two strategic approaches: 1. Home market is the Central and Eastern European region (including Austria): ■ RBI concentrates primarily on fi nancial services relating to CEE (including Austria) as the country of origin of the service or business relationship. Further available resources are allocated to coverage of selected markets in Asia, where RBI acts as a niche player.
■ RBI positions itself as a universal bank focusing on corporate customers and private individuals. The respective market environment or relative market position may require specialization in order to ensure a sustainable and profi table market presence.
2. Focus is on a diversifi ed customer mix consisting of corporate and retail customers: ■ RBI’s focus is on business with customers. Proprietary trading activities only serve to support RBI’s strategic focus. ■ RBI concentrates on corporate customers and private individuals. Business activities with other customer groups that are directly related to existing customers are considered to be equivalent (e.g. trade fi nancing, treasury services for corporate customers, asset management, etc.).
■ In Austria, RBI focuses on the corporate customers with the highest turnover and on private banking activities.
In each of the countries in the Central Europe segment (Czech Republic, Hungary, Poland, Slovakia and Slovenia), RBI is represented by a bank, leasing companies and other specialized fi nancial institutions. In addition to corporate customer business, with its comprehensive range of high-end products, RBI is continuously expanding its retail customer business in this segment. The aim is to position itself as the leading universal bank in the region. The range of premium and private banking services is being extended due to the increased demand among affl uent private individuals for higher-end fi nancial and advisory services.
In Hungary where RBI also operates as a universal bank, its business model has been adapted to the diffi cult market environment. Corporate customers are being segmented more strongly by industrial sector in order to better serve customers’ diff erent needs. The focus is on international corporate customers with good credit ratings, who, as in other countries, are being targeted with capital- and liquidity-light products, and on domestic small and medium-sized enterprises (SMEs). For the latter, the emphasis is increasingly on advisory and transaction-driven services such as cash management solutions. In the retail customer business, the sales network is being streamlined. In principle, lending is governed by strict rules with regard to credit ratings. Lending (particularly in foreign currencies) is defensively oriented, while the main focus for affl uent retail customers is on deposit business. The number of employees in Hungary has been reduced by a total of around 10 per cent by remodeling the organizational structure and processes, streamlining middle management and introducing more fl exible working hours.
In Albania, the focus is on corporate and retail banking, with lending generally carried out on a selective basis. Other business activities, such as lending to fi nancial institutions or governments, are only conducted under strict conditions. The branch network is also only being expanded on a selective basis. One major strategic initiative for 2012 is the implementation of a new central IT system.
In Bosnia and Herzegovina, the focus is on SMEs, as well as on special off erings (e.g., investment fund solutions) for affl uent retail customers. Centralized product processing forms the cornerstone of a profi table branch network. Other business activities, such as the government bond portfolio, are handled on a restrictive basis or scaled back.
In Bulgaria, RBI’s strategic objective is to strengthen existing relationships with corporate and retail customers. The partial withdrawal of Greek and Western European banks has created an opportunity here to become the main bank for customers with good credit ratings. The lending policy will continue to focus on good credit ratings and collateral. A cost-effi ciency program is also underway in Bulgaria.
The main focus in Kosovo, besides maintaining existing relationships with corporate customers, is on the sale of fi nancial service products (cross-selling). On the retail side, the aim is to increasingly target affl uent customers from the sole trader/ small entrepreneur segment. Moreover, factoring services are being tested in this market. No further expansion of the branch network is planned at present due to the strict cost management measures in place. An additional area of focus is optimizing processes and boosting productivity.
In Croatia, the focus is on large and medium-sized corporate customers and on retail customers. The strategic center of attention in corporate customer business is fi nancial services in connection with the EU structural and cohesion funds that are linked to Croatia’s accession to the EU in 2013. Regarding affl uent retail customers, the focus, in addition to the sale of pension funds, is on end-to-end product solutions (cross-selling). The branch network is also being optimized.
In Ukraine, RBI off ers the full range of fi nancial services products through a dense branch network. The cooperation with supranational fi nancial institutions (EBRD, IFC, etc.) is to be strengthened in order to further develop the Ukrainian market. The focus here is on medium-sized companies, the agricultural sector and heavy industry. Here too, RBI is meeting the demand for sophisticated treasury and investment banking services. In retail customer business, existing customer relationships are being strengthened and sales of credit cards and insurance products are being promoted.
The Group Corporates segment covers two key areas: fi rstly the Corporate Customers division, which services those Austrian companies and international – primarily Western European – corporate customers that generate the highest revenues, and secondly business with major Central and Eastern European customers, which is handled by the Network Corporate Customers & Support division. In line with the customer relationship approach, corporate customers are off ered comprehensive fi nancial services with a particular focus on advisory and service-intensive investment banking services and on off ering capital- and liquidity-light products. RBI’s comprehensive network in the CEE region enables it to provide crossborder customer service to both Austrian and Western European corporate customers who are also active in these markets.
The Corporate Customers division was restructured in 2011 through the creation of teams with a special industry focus to complement the initial primarily regional orientation. Sales management was also substantially strengthened through Group-wide strategic planning of customer activities. This permits more effi cient and comprehensive customer service, and is a substantial success factor in international corporate banking. In the Network Corporate Customers & Support division, the Global Account Management System was further optimized to enable RBI to off er its many customers with crossborder operations a customer service experience that is coordinated across the entire Group and – in conjunction with specialized product experts – an even more comprehensive product portfolio (Group products) across the whole network. The focus in the Asian branches and representative offi ces is on expanding existing customer relationships, particularly for selected project fi nancing mandates and trade fi nancing.
The Corporate Center segment encompasses various services provided by Group headquarters (e.g. Group strategy, strategic risk management, Group accounting, Group-wide HR management and development, Group audit) that assist in the implementation of the Group’s overall strategy and are assigned to this segment to ensure comparability. This segment also includes the following areas: liquidity management by means of the funds transfer pricing (FTP) concept (internal liquidity management at conditions comparable to those found on the external market) and balance sheet structure management as part of proprietary trading, participations (particularly in subsidiaries in the CEE region), income from banking operations carried out by Group headquarters and by the Maltese subsidiary for refi nancing Group units, Austrian transaction services business, which comprises processing and other services for fi nancial services providers, and income from holding and other companies that are not directly assigned to a segment.
In the context of the strategic redesign, particular attention was paid to Group-wide further development of sales planning and controlling tools (account planning), with a focus on capital- and liquidity-light products. These tools have already been implemented successfully in most countries as part of various sales initiatives (e.g., in Austria, the Czech Republic, Poland, Romania and Slovakia). In addition, Group-wide product competence centers were established to facilitate customers ’ access to complex fi nancing products, e.g., in the area of project-, real estate- and export fi nancing, and to improve internal effi ciency. A further key area is the establishment of a uniform sales and service model for large and medium-sized corporate customers (e.g., by introducing more strongly industry-focused marketing in Austria and Russia or implementing mid offi ces in various countries). Furthermore, the bank has a special focus on continuously improving its internal processes. Best practices have been formulated in close collaboration with Risk Management and Operations, which serve as a guideline for process optimization activities in the individual countries.
The objective is to position RBI as the leading universal bank in retail banking in CEE. The well-established Raiff eisen brand and the widespread distribution network will make signifi cant contributions towards achieving this. Eff ective advisory, top-quality service and products with added value will support the build-up of a long-term relationship with RBI’s approximately 13.5 million retail customers. There is an additional focus on business with affl uent private individuals (premium banking and private banking). The introduction of the “Friedrich Wilhelm Raiff eisen” brand has created a platform for the sale of superior services for the affl uent private banking segment. The rule for the retail segment as a whole is that existing customer relationships should be strengthened in order to achieve a higher value generation factor per customer. This will be achieved with an expanded range of fi nancial services that will be even more attuned to customers’ individual needs than before: starting with the simple current account and going on to consumer credits and individual insurance solutions, right through to standardized deposit products and comprehensive investment counseling concepts.
Small Business Banking This segment makes a signifi cant contribution to the earnings of the CEE region and represents a major opportunity for RBI. More than 90 per cent of all CEE companies are small businesses, which employ around 50 per cent of the total workforce. The strength of RBI’s sales network enables it to support not only private and business customers, but also their employees.
RBI has some 2,500 relationship managers supporting more than 800,000 small businesses in 15 markets. The bank distinguishes between two customer groups in small business banking: micro businesses (with annual sales of up to € 1 million) and small businesses (with annual sales of up to € 3 – 8 million depending on the country). Great competence in advising customers and in transaction-related services is a key success factor for RBI. The bank off ers its customers an extensive product line, from everyday services to fi nancing.
RBI’s sales and service model is supported by its closely knit branch network. The know-how at Group headquarters and the centralized management of all important processes, combined with the closeness to customers through the bank’s local presence, ensure the best possible customer care.
RBI stock Stock markets dominated by the European debt crisis With strong corporate data and a generally positive global economic environment, the international stock markets got off to a dynamic start in 2011, a trend that lasted until the Japanese tsunami and nuclear catastrophe struck in March. As soon as it became clear that the eff ects of these events on the global economy would be limited, the markets recovered briefl y. The continuous rise in oil prices through the remaining fi rst half of the year, partially the result of the protests in the Middle East and the war in Libya, did however lead to increasing uncertainty in fi nancial markets.
The second half of the year saw a signifi cant deterioration in the international and particularly European fi nancial markets. On the one hand, this was due to growing concerns regarding a slowdown in the global economy, and on the other hand to the downgrading of the US credit rating in August and a signifi cant worsening of the sovereign debt crisis in Europe leading to substantial drops in share prices. The focus here was on the peripheral European states of Greece, Portugal, Spain, Ireland and Italy. Despite generally good corporate fundamentals, the development of the stock markets was extremely volatile, and even good news had little power to boost stock prices in this situation. At the end of 2011, most analysts revised their forecasts for 2012 downwards for both companies and the market as a whole in view of the economic slowdown.
This environment also led to perceivable uncertainties in the banking sector in the second half of the year. The concern was focused on the commitments of many fi nancial institutions in the European peripheral states, capital adequacy and the more diffi cult conditions for refi nancing. The downgrading of several nations by the rating agencies and the associated drop in the prices of their bonds resulted in a need for write-downs ‒ in some cases substantial ‒ by fi nancial institutions which had invested in bonds from these issuers.
Price performance since 1 January 2011 compared with ATX and EURO STOXX Banks Index Basis = € 41.00
At the end of 2011, the market capitalization of the 195.5 million RBI shares issued was € 3.9 billion.
High/low in 2011 (closing prices) € 45.10 / € 14.16 Earnings per share for 2011 € 3.95 Market capitalization as of 31 December 2011 € 3.9 billion Average daily trading volume in 2011 (single counting) 273,679 shares Stock exchange turnover in 2011 (single counting) € 2.0 billion Free fl oat as of 31 December 2011 21.5% Number of shares issued as of 31 December 2011 195,505,124 Average number of shares in 2011 194,552,387 ISIN AT0000606306 Ticker symbols RBI (Vienna Stock Exchange) RBI AV (Bloomberg) RBIV.VI (Reuters) Market segment Prime Market
RBI bonds Yields on European sovereign bonds continue to diverge The bond markets were also dominated by the European sovereign debt crisis in 2011. The gap in yields between peripheral European states like Greece, Italy, Ireland, Portugal and Spain and strong core nations like Germany and Austria continued to widen. Low-rated countries duly faced rising costs of fi nancing, while yields on German bonds continued to reach new lows. The uncertainties in the bond markets could not be reduced despite eff orts to consolidate national budgets, further expand the EFSF (European Financial Stability Facility) safety net and massive intervention by the ECB.
Long-term Short-term Rating agency rating rating Outlook Rating under review Moody’s Investors Service A1 P-1 for downgrade
Annual General Meeting Annual General Meeting once again attracts keen interest RBI’s ordinary Annual General Meeting was held on 8 June 2011 at the Austria Center Vienna, and gave private investors in particular an appropriate platform to be informed about business developments directly by the Management Board. With some 700 participants, the 2011 Annual General Meeting was again one of the best-attended in recent Austrian capital market history.
A dividend of € 1.05 per share was authorized for the 2010 fi nancial year and was paid out to shareholders on 16 June 2011. This translated into a total dividend payment of € 204.3 million after taking account of own shares, on which no dividends are paid.
Capital market communications Since the merger of Raiff eisen International with the principal business areas of RZB, Group Investor Relations has been responsible not only for services to equity investors and analysts, but also for maintaining relationships with debt investors and analysts. A great deal of information was required, particularly by the latter, as a result of the two successfully placed benchmark issues and the placement of a lower tier 2 issue in 2011. To this end the Investor Relations Team participated in 18 roadshows in Amsterdam, Bologna, Cologne, Frankfurt, Helsinki, London, Milan, New York, Paris, Singapore, Stockholm and Zurich.
Corresponding to R Rule 62 of the ACGC, as in previous years, the company commissioned 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 www.rbinternational.com → Investor Relations → Corporate Governance → Examination of CG Codex.
Members of the Management Board held seats on the Supervisory Board or comparable functions, Board functions, management mandates and investments in the following domestic and foreign companies that are not included in the consolidated fi nancial statements: ■ Herbert Stepic: OMV AG (Supervisory Board member) Oesterreichische Kontrollbank AG (Supervisory Board member) “NONUSDECIMUS” FRANKE IMMOBILIEN HANDEL KG (shareholder) “SEPTIMUS” FRANKE IMMOBILIEN HANDEL KG (shareholder) H. Stepic F.C. GmbH (shareholder) ■ Karl Sevelda: Bene Private Foundation (Management Board member) BestLine Private Foundation (Management Board member) BENE AG (Supervisory Board member) Milletertius Kreihsler Immobilienhandel KG (shareholder) “SECUNDUS” FRANKE IMMOBILIEN HANDEL KG (shareholder) Michael Stranz Immobilienverwaltung Gamma KG (shareholder) ■ Johann Strobl: Raiff eisen Leasing Management GmbH (Supervisory Board member) Raiff eisen Zentralbank Österreich AG (Management Board member) Österreichische Raiff eisen-Einlagensicherung eGen (Management Board member) ■ Patrick Butler: Wiener Börse AG (Supervisory Board member) CEESEG AG (Supervisory Board member) ■ Aris Bogdaneris: Visa Global Advisory Board (Advisory Council) ■ Martin Grüll: Stefan Stolitzka Private Foundation (Management Board member)
Composition of the Supervisory Board During the fi nancial year 2011, the Supervisory Board comprised: Supervisory Board member Year of birth Original appointment End of term
Walter Rothensteiner, 1953 11 May 2001 Annual Chairman General Meeting 2016
Ludwig Scharinger, 1942 8 July 20101 Annual Second Deputy Chairman General Meeting 2015
Markus Mair, 1964 8 July 20101 Annual Third Deputy Chairman General Meeting 2015
Independence of the Supervisory Board In accordance with C Rule 53 of the ACGC, the Supervisory Board of RBI prescribed the following criteria for the independence of the members of the company’s Supervisory Board: ■ The Supervisory Board member shall not in the past fi ve years have been a member of the Management Board or a leading employee of the company or of a subsidiary.
■ The Supervisory Board member shall not have, or have had in the previous year, any signifi cant business relationships with the company or any of its subsidiaries. This also applies to business relationships with companies in which the Supervisory Board member has a considerable fi nancial interest, however, not with regard to carrying out executive functions within the company. The approval of individual transactions by the Supervisory Board according to L Rule 48 of the ACGC does not automatically lead to a qualifi cation of ’not independent.’
■ The Supervisory Board member shall not be part of the Supervisory Board for longer than 15 years. This does not apply to Supervisory Board members who are shareholders with business interests in the company or who represent the interests of such shareholders.
The Management Board manages the company’s business in accordance with the law, the Articles of Association and the Management Board’s rules of procedure. The weekly meetings of the Management Board are convened and led by the Chairman, and enable the mutual information gathering and decision-making in all matters that require the Board’s approval. The rules of procedure of the Supervisory Board and the Management Board contain information and reporting duties of the Management Board as well as a catalog of measures that require the approval of the Supervisory Board.
In the period under review, the Supervisory Board held fi ve meetings; in addition to this the Management Board 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, particularly at important junctures.
The Working Committee held eight meetings in the 2011 fi nancial year. The Audit and the Personnel Committee each held two meetings.
Disclosure of information on the remuneration of the Management Board and Supervisory Board
Of which amounts from affi liated companies (Supervisory Board remuneration) 144 732
The table contains fi xed and performance–based remuneration, including compensation for functions in the management bodies of associated companies, bonus payments and benefi ts in kind. In the fi nancial year the share of performancebased components amounted to 10 per cent (2010: 1.9 per cent).
Members of the Management Boards of bank subsidiaries affi liated with RBI 21,348 832,572 18,244
Executives of RBI and other affi liated companies 5,515 215,085 3,028
Executives of RBI and other affi liated companies 124,075 37,223 186,113
In the event of the termination of their function or service contract and departure from the company, two members of the Management Board are entitled to severance payments in accordance with the Salaried Employees Act and the Banking Sector Pay Scale Agreement, two members in accordance with contractual agreements and three members in accordance with the Employee Benefi t Act. In principle, the severance payment claims under the Salaried Employees Act or contractual agreements expire, with the exception of one member of the Management Board, when the employee terminates the employment relationship. In the case of one member of the Management Board, existing severance payment claims were converted in connection with the merger-related changes. Corresponding payments are being made in part in 2011 and 2012; in the 2011 fi nancial year, these payments came to € 2,022,022. Furthermore, protection is in place against occupational disability risk through one pension fund and/or on the basis of an individual pension benefi t, which is secured by a reinsurance policy. The contracts for members of the Management Board are concluded for the duration of their term in offi ce or are limited to a maximum of fi ve years. In case of a premature termination of offi ce by a member of the Management Board without cause, the severance payments will not exceed the remuneration of two years.
The Annual General Meeting on 8 June 2011 passed a resolution concerning the annual remuneration for the members of the Supervisory Board for the 2010 fi nancial year totaling € 422,500. Attendance fees were not paid.
The shareholders as owners of the company exercise their rights by voting at the General Meeting. The principle of “one share, one vote” applies. Accordingly, there are no restrictions on voting rights; all shareholders have equal rights. Every share confers one vote; registered shares have not been issued. The shareholders may exercise their voting rights themselves or by means of an authorized agent. Pursuant to the Articles of Association, the shareholder RZB is granted the right to nominate up to one third of the Supervisory Board members to be elected by the Annual General Meeting. In the event that RZB makes use of its right to nominate, the number of Supervisory Board members to be elected by the Annual General Meeting would be reduced accordingly. Aside from this restriction, the shares are subject to the abovementioned principle.
One of Raiff eisen’s fundamental values has always been to off er equal opportunities for equal performance regardless of gender or any other factors. For this reason, it is important to take suitable measures already during the recruiting process to ensure that the same standards are applied in the selection of staff . The relatively high proportion of 68 per cent of female employees at RBI underscores the effi cacy of these activities. A corresponding framework has been established within the company to continue promoting the advancement of women; in this connection, existing programs have been strengthened and extended. These programs particularly seek to increase the ability to reconcile family and career. Among other things, they include fl exible working hours, part-time models and teleworking. These models are implemented in nearly all the countries in which the Group is active, in accordance with the local statutory provisions. They are supplemented with further national initiatives, such as the company kindergarten with employee–friendly hours of operation at the Vienna site, or the “Mother Care” program at Raiff eisenbank Polska S.A., which supports women from the initial announcement of pregnancy until the child’s fi rst birthday.
Currently, 20 per cent of Board positions throughout the RBI Group are held by women. The fact that the proportion of female Board appointments stood at 43 per cent in 2011 demonstrates RBI’s successful promotion of women.
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, among other things, the website off ers regularly updated information about the following: ■ Annual and interim reports ■ Company presentations ■ Telephone conference via webcasts ■ Ad-hoc-communications, press releases, investor relations communications ■ Price information and stock data ■ Information for outside creditors ■ Financial calendar with advance notifi cation 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
Confl icts of interest Both the Management Board and the Supervisory Board of RBI are required to disclose any potential confl icts of interest.
Members of the Management Board must therefore disclose to the Supervisory Board any signifi cant personal interests in transactions involving the company and Group companies, as well as any other confl icts 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 a fair balance between the interests of the companies in question.
Members of the Supervisory Board must immediately report any potential confl icts of interest to the Chairman of the Supervisory Board. In the event that the Chairman himself should encounter a confl ict of interest, he must report this immediately to the Deputy Chairman. Company agreements with members of the Supervisory Board that require members to perform a service for the company or for a subsidiary outside their duty on the Supervisory Board (Section 228(3) UGB) in exchange for not-insignifi cant compensation require the approval of the Supervisory Board. This also applies to agreements with companies in which a member of the Supervisory Board has a signifi cant fi nancial interest. Furthermore, related party transactions as defi ned by Section 28 of the Austrian Banking Act (BWG) require the approval of the Supervisory Board.
Accounting and audit of fi nancial statements RBI’s accounting complies with the provisions of the International Financial Reporting Standards (IFRS). The annual fi nancial statements of RBI are prepared in accordance with the regulations of the Austrian Banking Act (BWG) in conjunction with the Austrian Commercial Code (UGB). The consolidated annual fi nancial statements are published within the fi rst four months of the fi nancial year following the year under review; interim reports are published no later than 56 days after the end of the respective period under review.
Responsible banker RBI’s core business and fi nancial services are consciously oriented towards its future sustainability. RBI’s investments, commitments and business dealings are structured in such a way that they positively contribute to sustainable development of all regions and economies in which RBI conducts its operations. This is, in RBI’s view, the most eff ective lever for sustainable growth.
RBI’s pledge to conduct its business management in a transparent and responsible manner is disclosed in the Code of Conduct (CoC), which is binding Group-wide. It defi nes RBI’s core values and builds the foundation for a legally compliant and ethically minded corporate culture. Moreover, it ensures that the highest ethical standards are maintained. By the same measure, the Compliance Department exercises a comprehensive control function in the banking group as a whole. Among other things, the CoC dictates that no business may be conducted which could have a negative eff ect on the environment. Business dealings in sensitive areas such as weapons or nuclear power are likewise off limits. RBI also strictly adheres to international specifi cations concerning embargoes and trade restrictions.
The regularly updated CoC is available on RBI’s website, as well as on the websites of its network banks in their respective languages. It was last revised in 2011.
The goal of this dialog is to gain a deeper, more meaningful mutual understanding. To this eff ect, a stakeholder council of the banking group was held in autumn 2011 for the second time, at which selected internal and external stakeholders from diff erent areas and organizations discussed their expectations regarding the company. At this event, a forward-looking development path for the company was jointly charted out.
“Helping people to help themselves” – one of Raiff eisen’s founding principles – involves not only material support, but also an educational mandate to improve the knowledge of customers and non-customers on fi nancial aspects. In order to meet this challenge, RBI has taken extensive measures in all of its markets, which are either implemented by the relevant local bank on its own or in cooperation with specialized partners. In Bosnia and Herzegovina, Raiff eisen Bank is making an important contribution through its so-called “Financial News” and the “Alphabet of Economics,” which receives regular coverage both on television and in the print media.
The Hungarian Raiff eisen Bank keeps its customers well informed on its products and services in easily understandable terms and, with its “I save” initiative, aims at providing comprehensive information on a range of topics, such as building up fi nancial reserves. Another initiative called “Everyday Financials” encompasses a wide spectrum of the fi nancial sector. As one of its partners, Raiff eisen Bank off ers practical knowledge about managing money and fi nancial services to the general public.
Making a contribution through the conservation of resources A major focus for the Group is the sparing use of resources and materials. This entails the use and acquisition of ’green’ materials on the one hand, and the effi cient use of resources combined with the best possible waste and emissions avoidance on the other. The most economical use of means of transport is just as much a priority as an effi cient energy supply which primarily makes use of renewable resources.
30 employees – some of them with their children – voluntarily took part in “Project Rocking Horse,” as the venture was called. The costs for the required materials were funded in part by RBI. The event was rounded off with a communal barbecue.
Several network banks also support Volunteer Days. The Czech Raiff eisen Bank, for example, played post offi ce for the children of the children’s home “Klokanek” and their letters to Santa. Approximately 80 of the wishes posted were fulfi lled.
H. Stepic CEE Charity The H. Stepic CEE Charity, a non-profi t association, was founded in 2006 to improve living conditions for children, youths and women in Central and Eastern Europe. The voluntary and honorary involvement of the Raiff eisen network ensures that help is delivered quickly, unbureaucratically and without administrative costs to where it is needed. Aid projects are realized together with partners such as Caritas, Hilfswerk, the Austrian Red Cross and the charity association “kleine herzen.” In November 2011, the H. Stepic CEE Charity broke new ground by jointly hosting a fundraising dinner with “kleine herzen,” at which € 106,000 was raised. In addition, the German-language cookbook “Herzensküche, ” featuring recipes from Central and Eastern Europe reinterpreted by twelve internationally renowned chefs who agreed to waive their fees, serves as a culinary vehicle for eff ectively channeling donations. Proceeds from the sale of the cookbook go to support construction of a family home for orphans in Ukraine.
Fair treatment of staff in the spirit of partnership RBI employs around 59,000 staff from over 50 countries. In view of such a high degree of diversity, equal opportunity and integration are as much a central component of corporate culture as is the fair treatment of all employees.
Detailed information relating to the area of Human Resources can be found from page 83 onwards.
Market development 50 Performance and fi nancials 54 Detailed review of items in the income statement 58 Comparison of results with the previous quarter 64 Statement of fi nancial position 67 Equity 68 Research and development 71 Internal control and risk management system 71 Capital, share, voting and control rights 73 Funding 76 Risk management 78 Human resources 83 Outlook 87 Events after the balance sheet date 89
The US economy had grown by 3.0 per cent in 2010, but in 2011 growth here also slowed down again. This was mainly due to the sharp rise in oil prices as a result of the Arab Spring, modest rises in wages and salaries and the exceptionally high unemployment relative to US standards, all of which dragged private consumption down, especially in the fi rst half of the year. Moreover, the steps taken to consolidate the budget slowed the momentum down. However, thanks to the lower rise in prices and higher capital expenditure by companies, the economy recovered in the second half of the year, with real US GDP growing by 1.7 per cent in 2011.
Diverging developments in CEE In the Central and Eastern European (CEE) countries, which in 2010 had already somewhat recovered from the fi nancial crisis, achieving economic growth of 3.5 per cent, the positive trend continued in 2011. Exports continued to be the main engine of growth while domestic demand slowed considerably almost everywhere. Public sector expenditure contributed modestly towards economic output in light of the budgetary consolidation measures being introduced in many places. The drag on the economy generated by events in the eurozone, however, slowed the generally positive growth in 2011.
Poland and Slovakia reported the highest growth in Central Europe in 2011. While Poland benefi ted once more from robust domestic demand, achieving solid growth of 4.3 per cent, Slovakia generated a growth rate of 3.3 per cent thanks to its strong export sector. As a result of massive cost-cutting eff orts, economic growth in the Czech Republic lost momentum somewhat in 2011, falling to 1.7 per cent. Slovenia’s weak banking sector put a strain on its growth, which consequently amounted to minus 0.2 per cent. Hungary’s strong export sector made up for its weak domestic demand, resulting in GDP growth of 1.7 per cent.
At 1.9 per cent, GDP growth in Southeastern European countries was positive in 2011 after having suff ered noticeably from the crisis with fi gures of minus 0.7 per cent in 2010 and minus 5.4 per cent in 2009. Governments, however, could do little to boost the economy in view of the strenuous budgetary constraints. Even though domestic demand remained at a low level, it still contributed to the reduction of current account defi cits. The main driving force behind a return to growth was exports, although they also dropped.
In 2011, the economy continued to recover in the Commonwealth of Independent States (CIS). At 4.3 per cent, Russian economic growth remained at the previous year’s level, mainly as a result of the persistently high prices for fuels and other commodities. Strong domestic demand, robust exports and a solid harvest accounted for economic growth of 5.2 per cent in Ukraine. In contrast, economic growth in Belarus came to a virtual standstill in the second half of 2011 as a result of the country’s economic problems.
prices for commodities, especially oil, will probably remain stable, which will support the region’s economic model which is based on exports of commodities. By contrast, Southeastern Europe is expected to record a signifi cant drop in exports in view of its geographical proximity to the eurozone members in Southern Europe that are under serious pressure. Within Central Europe, Poland is forecasted to see positive economic growth in 2012, supported – as before – by largely stable domestic demand. The other economies in Central Europe are suff ering from a drop in foreign demand from the eurozone, which will probably push them back into recession in the fi rst half of 2012. Analysts do not expect a boost to the economy of the CEE region as a whole until the second half of the year when the situation in the eurozone is expected to improve.
Asia remains growth engine Asia remained by far the most dynamic region in the world in 2011, although it was slowed down noticeably in the second quarter by the events in Japan. Investments and a credit expansion fueled domestic demand in China, leading to a 9.2 per cent increase in 2011 after a 10.4 per cent rise 2010. Signs of overheating, however, led to a rapid rise in infl ation which was countered by restrictive monetary policy measures. The Chinese government was equally restrictive in tackling the looming real estate bubble. The slowdown in economic growth that has been evident since the second half of 2011 is likely to continue in 2012. India also suff ered from high infl ation which stood on average at more than 9 per cent in 2011. Combined with a decrease in demand from Europe, this led to a slowdown in economic growth to 6.1 per cent in the fourth quarter of 2011, after 6.9 per cent in the third quarter and 7.7 per cent in the second quarter 2011.
Global currencies The sovereign debt crisis in the eurozone continued to dominate movements in the euro and US dollar exchange rates in 2011, with the negative developments in the US (such as the downgrading of its credit rating and the blocking of the budget reforms) only playing a secondary role. At 1.31, the euro started the year at a relatively low level against the US dollar but gradually recovered in the fi rst few months – in view of hopes for progress on the sovereign debt crisis – reaching the peak of 1.49 EUR/USD at the beginning of May. As the debt crisis then escalated, and especially when it extended to countries like Italy and Spain in the summer, the euro weakened noticeably in the second half of the year, hitting its low of 1.29 EUR/USD at the end of December.
As a consequence of the euro debt crisis and the increased need for security by investors, the Swiss franc continued its upward trend against the euro that had started in the fall of 2007. The resulting strong franc increasingly became a problem for the Swiss export sector. In August the Swiss National Bank (SNB) initially tried to counter the franc’s appreciation with a signifi cant expansion in liquidity. When these attempts failed and the Swiss currency briefl y came close to parity with the euro, the SNB decided at the beginning of September to introduce an exchange rate fl oor of 1.20 EUR/CHF. So far the SNB has managed to defend this mark without any problems.
Development of the banking sector Continued banking sector growth in Central and Eastern Europe
The positive trend continued in the fi rst half of 2011 and lending increased slightly, above all for corporate customers. Faced with stricter lending standards, however, CEE credit growth weakened noticeably in the second half of 2011. This development is likely to continue in 2012 in light of the challenging regulatory environment and economic trends, above all in the fi rst half of the year. Current forecasts for 2012 expect lending to expand only by 5 to 10 per cent in Central Europe and the CIS, and by 1 to 3 per cent in Southeastern Europe.
After rising by only 0.6 per cent in 2009, the banking sector’s total assets (expressed in euros) grew by 13 per cent in 2010 and 14 per cent in 2011. As with the credit growth, these growth rates were signifi cantly lower than in the pre-crisis years of 2004 through 2008. Over the next few years, percentage increases in total assets throughout the CEE region are forecast to be in the low single digits but diff ering widely between the various countries. For instance, a low double-digit percentage increase in total assets should still be possible in Russia over the next few years, while it is likely to be in high single digits in Central European countries (except for Hungary). In view of the challenging environment (such as high ratios of loans to deposits and a high level of lending in relation to the strength of the economy), percentage growth in total assets in Southeastern European countries is likely to only be in low single digits.
Performance and fi nancials Introduction and scope of consolidation The consolidated fi nancial statements of RBI are prepared in accordance with the International Financial Reporting Standards (IFRS) as applied in the EU. RBI AG also prepares separate fi nancial statements in accordance with the Austrian Commercial Code (UGB) in conjunction with the Austrian Banking Act (BWG), which provide the formal basis of assessment for calculating dividend distributions and the tax assessment. For more information on the disclosures required by the UGB and BWG, please see the relevant sections of this Group management report, including the notes section.
The majority of RBI is indirectly held by Raiff eisen Zentralbank Österreich AG (RZB), which makes it part of the RZB Group. RZB held a stake of around 78.5 per cent at the end of 2011; the remaining shares were free fl oat. As of 31 December 2011, RBI’s scope of consolidation comprised 135 Group units, including 21 banks and a number of fi nancial institutions and bank-related service providers. For information about the change in the scope of consolidation, please refer to the relevant sections in the notes.
The changed macroeconomic outlook for Ukraine and the rise in the discount rate used for valuations resulted in a partial impairment of goodwill at Raiff eisen Bank Aval of € 183 million. This left the bank with goodwill on its balance sheet of € 29 million at the end of 2011. The low goodwill stated on the balance sheets of the banks in Hungary (€ 3 million) and Slovenia (less than € 1 million) were written down in full. Total goodwill at year-end stood at € 408 million.
Operating income excluding impairment of goodwill rose by 1 per cent or € 72 million to € 5,475 million. Net interest income increased by 3 per cent, thus making up two thirds of operating income. Slight volume-based declines stood in contrast to an increase of the net interest margin by 10 basis points to 2.61 per cent. At € 1,490 million, net fee and commission income remained virtually unchanged compared to the previous year, while net trading income rose year-on-year by 11 per cent. This is mainly attributable to valuation gains owing to a change in the valuation model to adapt to the alteration in legislation for capital guarantees. Negative eff ects arose from hyperinfl ation accounting (for Belarus), which had to be applied for the fi rst time in the fourth quarter of 2011. At minus € 45 million, other net operating income (excluding impairment of goodwill) was short of the prior-year fi gure by € 51 million. This is mainly due to the introduction of the Austrian bank levy, which resulted in additional expenses for RBI of € 83 million. This was reported as other non-income related taxes under other net operating income.
General administrative expenses rose year-on-year by just under 5 per cent or € 141 million to € 3,120 million. The cost/ income ratio (excluding impairment of goodwill) increased as a result by 1.8 percentage points to 57.0 per cent. Staff expenses rose year-on-year by 6 per cent or € 87 million. This was caused particularly by market-related salary adjustments and bonus payments in a number of markets and by changes in legislation for social security contributions in Russia and Slovakia. The average number of staff rose by 1 per cent or 833 to 60,021, primarily as a result of increases in staff numbers in Ukraine, Russia and Romania. The biggest increases were reported in the Czech Republic, Ukraine and Russia. Yearon -year, other administrative expenses increased by 2 per cent or € 23 million. Major factors here were the rise in deposit insurance fees (up 16 per cent) and IT expenses (up 10 per cent). The number of business outlets fell by 33 to 2,928 in the reporting year. Expansion in the Czech Republic (plus 17) was off set by declines in Ukraine (minus 22), Serbia (minus 10) and Hungary (minus 10).
Other comprehensive income was determined on the one side by the profi t after tax of € 974 million and, on the other side, by currency diff erences and capital hedges due to write-downs in Russia, Belarus and Poland totaling minus € 318 million. Net income from fi nancial assets available-for-sale represented a valuation gain after tax of € 113 million. Reversing through profi t or loss the valuation gain that arose from cash fl ow hedging as a result of the end of this hedging activity led to a minus of € 36 million (after taking deferred taxes into account). The hyperinfl ation accounting that it became necessary to apply in Belarus increased comprehensive income by € 95 million.
The net interest margin recorded the strongest gain, advancing 34 basis points to 1.97 per cent as a result of more profi table new lending volumes within the Group Corporates segment. In Russia, the net interest margin rose due to increased new business and improved refi nancing conditions, up 33 basis points to 4.47 per cent. In the Group Markets segment the net interest margin increased 14 basis points to 0.85 per cent, while it increased 17 basis points to close at 4.07 per cent in the segment Southeastern
Europe. This is largely due to improved refi nancing and lower rates on customer deposits linked to excess liquidity in most SEE countries. The net interest margin in the CIS Other segment declined, mainly due to lower net interest income in Belarus, down 9 basis points to 6.10 per cent. In the Central Europe segment the net interest margin lost 13 basis points, coming in at 3.16 per cent due to the diffi cult market conditions and the resultant decline in customer volumes.
Net income from the securities business declined € 16 million to € 119 million, partly due to developments in the Group Markets segment.
Net income from the management of investment and pension funds remained unchanged year-on-year at € 27 million; the majority of income was generated in Slovakia and Croatia.
RBI’s net trading income rose 11 per cent or € 35 million to € 363 million. The fi gure encompasses net income from interestbased transactions (down € 40 million), net income from currency-based transactions (down € 14 million), net income from equity and index-based transactions (down € 5 million), the credit derivatives business (up € 3 million) and from other transactions (up € 92 million).
Net income from currency-based transactions was down 11 per cent, dropping € 14 million to close at € 107 million. IAS 29 was used to report hyperinfl ation in Belarus, which had a negative impact of € 84 million. However, this eff ect was partially off set by a € 44 million valuation gain linked to the high devaluation of the Belarusian rouble in relation to an existing strategic currency position taken to hedge equity. Net income in Russia on the other hand deteriorated due to valuation losses on currency transactions. In Central Europe, net income from currency-based transactions was improved by valuation gains on currency swaps, currency forwards and spot transactions in Poland, Hungary and the Czech Republic. Net income rose in Austria, boosted mainly by valuation gains on currency futures and the notes and coins business, which increased from € 17 million to € 25 million.
Rental income from investment property including operating leasing (land and buildings not used by the Group) added € 8 million year-on-year, largely due to new leasing contracts in Croatia and the turnover of a new Group unit in Russia. Net expense from allocation and release of other provisions declined by € 16 million to minus € 12 million. This was because of the need for higher provisions in 2010 for pending legal issues in Russia and Slovakia.
General administrative expenses rose by 5 per cent, up € 141 million to € 3,120 million. The cost/income ratio came to 57.0 per cent (2010: 55.1 per cent).
The rise in IT expenses was mainly driven by new projects and software service agreements in Russia, Romania, Poland and Slovakia. In the Czech Republic, new calculation rules resulted in higher deposit insurance fee expenses. Advertising, PR and promotional expenses rose due to additional marketing activities in Slovakia and the Czech Republic. Security expenses were higher as a result of increased volumes of precious-metal transactions.
In the reporting year, investment in the Group totaled € 580 million. Of this, 49 per cent (€ 288 million) was on Group tangible assets. Investments in intangible assets, mainly in relation to software systems, accounted for 35 per cent of investment. Assets of the operating leasing business accounted for the remainder.
Signs of economic recovery in most of RBI’s markets in 2011 improved borrower ratings and thereby decreased the growth of non-performing loans. As a result, net provisioning for impairment losses (the balance of allocations and releases of provisions for the lending business and direct write-off s against income received on amounts for written-down claims) was lower in 2011. In addition, during the fi nancial and economic crisis RBI had already taken action to stabilize and improve the quality of the loan portfolio, as for example with the targeted loan restructuring. Overall, net provisioning for impairment losses declined 11 per cent or € 131 million to € 1,064 million in 2011. This item also included income from the sale of impaired loans totaling € 8 million. Although the improved economic climate resulted in signifi cant improvements in net provisioning for impairment losses in most markets, net provisioning rose 144 per cent to € 478 million in Hungary. Marked improvements were recorded in the Russia (down € 119 million), CIS Other (down € 86 million) and Southeastern Europe segments (down € 77 million), largely due to the improved environment for corporate customers. Net provisions in the Corporate Customers division decreased 17 per cent to € 470 million, while in the Retail Customers division it remained virtually unchanged year-on-year at € 600 million, mainly because of the situation in Hungary.
The marked decline in Hungary as compared to the previous year was triggered by the market environment and the new legal conditions for foreign currency mortgage loans to retail customers, which required elevated loan loss provisions. This resulted in an increase of € 282 million in net provisioning, bringing the total to € 478 million. This fi gure included € 109 million in provisions for the government’s “Home Protection Plan”: a new legislation passed by the Hungarian Parliament, specifying that foreign currency mortgage loans could be repaid early at favorable exchange rates (with the cost being borne by the banks). The associated loan loss provisions allow for an expected repayment ratio of 29 per cent for the relevant foreign currency loans.
Individual loan loss provisions were down 2 per cent or € 19 million year-on-year at € 1,177 million, against the release of portfolio-based loan loss provisions totaling € 105 million. The situation was improved by a decline in the volume of nonperforming loans in Russia and Slovakia as well as lower default rates among corporate and retail customers in Ukraine.
The net provisioning ratio – net provisioning for impairment losses to average credit risk-weighted assets – was 1.38 per cent, an improvement of 28 basis points. The loss rate – charged-off loans to total lending – was 0.38 per cent (2010: 0.41 per cent).
Net income from derivatives and designated liabilities Net income from derivatives and designated liabilities advanced € 497 million to € 413 million. This item comprises net income from hedge accounting (up € 4 million), credit derivatives (up € 29 million), other derivatives (up € 258 million) and liabilities designated at fair value (up € 206 million).
Liabilities designated at fair value (fair value option, applied since 2007) also served to increase net income from derivatives. This portfolio containing RBI issues generated valuation gains totaling € 249 million in the reporting year as a result
These valuation gains do not aff ect regulatory own funds, and as such are not relevant when calculating regulatory capital ratio (EBA).
Net income from securities at fair value through profi t or loss, comprising valuation gains and income from sales, decreased from € 120 million to minus € 135 million in 2011. Share valuation losses in Austria, falls in the value of municipal bonds in Hungary and fi xed-income securities in Ukraine all contributed to the decline.
Taxes in the reporting period came to € 399 million, against € 110 million in 2010.
The increase was driven above all by deferred tax expenses, which came to € 59 million in the fi nancial year 2011. Deferred tax income of € 247 million had been recorded in 2010. This change was largely the result of valuation gains on derivatives and liabilities designated at fair value in Austria. Moreover, it was not possible to off set losses in Hungary fully for tax purposes by recognizing tax loss carry-forwards. By contrast, 2010 had brought some tax relief, notably through deferred tax income arising from the recognition of tax loss carry-forwards in Austria (€ 120 million) as well as changes to tax legislation in Ukraine (€ 26 million).
Depreciation of intangible and tangible fi xed assets (110) (90) (20) 22.1%
Net interest income in the fourth quarter of 2011 remained virtually unchanged at € 943 million. However, the net interest margin (calculated on average total assets) fell 8 basis points to 2.56 per cent. Average total assets increased by 3 per cent.
Broken down by segment, Central Europe showed the biggest decline, with the net interest margin decreasing by 25 basis points to 2.89 per cent. The main reason for this was the diffi cult economic environment in Hungary. In Southeastern Europe, the net interest margin fell 12 basis points to 4.04 per cent. The net interest margin also declined in CIS Other, from 6.79 per cent to 5.91 per cent. The main cause was hyperinfl ation in Belarus, while in Russia, net interest income rose due to the signifi cant increase in the corporate customer portfolio.
In the Group Corporates segment the net interest margin improved by 8 basis points to 2.16 per cent as a result of the expansion in business activities. The Group Markets segment showed a decrease of 7 basis points to 0.86 per cent, due to the sale of parts of the portfolio of securities held-to-maturity.
Net trading income rose quarter-on-quarter by 91 per cent or € 34 million to € 70 million. Net income from other business rose by € 117 million, due to the change in the valuation model for capital guarantees and valuation gains mentioned earlier. At the same time, net income from equity-based transactions turned around from minus € 19 million to € 8 million. This was due to valuation gains from a positive trend in the EURO STOXX and ATX in the fourth quarter of 2011.
Net income from other transactions relates entirely to capital guarantees. Here, the valuation methodology was adapted to the change in the legislation. This adjustment resulted in net income of € 81 million.
Other net operating income (excluding impairment of goodwill) in the fourth quarter was minus € 3 million, after minus € 15 million in the third quarter. There was a positive eff ect in the fourth quarter from other taxes due to the reduction in the bank levy in Hungary. In connection with the “Home Protection Plan,” losses from the repayment of overdue loans could be off set against the bank levy. Expenses on allocations to provisions were higher in the fourth quarter at € 11 million than in previous quarters. Net income from non-banking activities made no contribution to other net operating income in the fourth quarter due to the lower billing of services, compared to the € 8 million achieved in the third quarter.
General administrative expenses in the fourth quarter totaled € 834 million, € 61 million more than in the previous quarter. Staff expenses rose € 14 million due to the expenses for future bonus payments recognized in the fourth quarter. As a result of the increase in the fourth quarter in legal, advisory and consulting expenses, security expenses, as well as advertising, PR and promotional expenses, other administrative expenses rose by € 27 million to € 325 million. Depreciation on tangible and intangible assets totaled € 110 million in the fourth quarter, up € 20 million compared to the previous quarter. The main reason for this was a depreciation of € 11 million on a building in Russia.
Net provisioning for impairment losses declined quarter-on-quarter by 25 per cent to € 282 million. This decrease is due primarily to provisioning already eff ected in the third quarter for impairment losses in Hungary. In connection with the “Home Protection Plan,” under which the Hungarian Government allows private borrowers to repay foreign currency mortgage loans prematurely on favorable terms, a further € 56 million to provisioning for impairment losses was posted in the fourth quarter. With a repayment ratio of 29 per cent, this meant a full-year loss for RBI of € 108 million. In the Group Corporates segment, individual cases among large international corporate customers required an increase of € 64 million in provisioning for impairment losses.
Non-performing loans remained virtually unchanged in the fi rst three quarters of 2011, with a slight organic increase off set by currency eff ects. However, in the fourth quarter there was a currency-adjusted increase in non-performing loans of € 234 million. This was due almost entirely to Hungary with an increase of € 97 million, and Bulgaria with an increase of € 145 million. However, the loans in question are mostly well collateralized. There was a signifi cant decrease in nonperforming loans in Austria and Russia.
RBI reported taxes of € 127 million in the fourth quarter of 2011 (Q3/2011: € 71 million). Expenses on current taxes increased by € 19 million, mainly due to higher earnings before tax in Russia. In the fourth quarter, deferred tax expense due to net income from the revaluation of derivatives and own issues in Austria measured at fair value totaled € 32 million (Q3/2011: income of € 5 million). Moreover, it was not possible to off set losses in Hungary fully for tax purposes by recognizing tax loss carry-forwards.
Statement of fi nancial position As of 31 December 2011, total assets at RBI amounted to € 147.0 billion. This was 12 per cent or € 15.8 billion above the comparable fi gure for the end of 2010.
Assets Assets were dominated by loans and advances to customers (after provisioning), which accounted for a share of 52 per cent. The overall volume of fi nancial investments (including those held-for-trading) amounted to 18 per cent, loans and advances to banks to 17 per cent, and other assets to 12 per cent.
Loans and advances to customers (before provisioning) rose 8 per cent or € 5.9 billion to € 81.6 billion in 2011. Of the overall loans and advances to customers, the credit business represented € 53.9 billion or 66 per cent and mortgage loans accounted for € 17.9 billion or 22 per cent. Credit business with corporate customers amounted to € 58.9 billion, of which large corporate customers represented € 55.2 billion. The corporate customer business registered the highest credit growth of 11 per cent or € 5.9 billion, above all in the Group headquarters, Asia and Russia. Loans to retail customers totaled € 21.3 billion at year-end, of which private individuals accounted for € 19.0 billion. At the end of 2011 the loan/ deposit ratio (the ratio of customer loans to customer deposits) improved to 122 per cent (2010: 131 per cent).
Deposits from banks Deposits from customers Other liabilities Own funds (equity and subordinated capital)
Deposits from customers rose by 16 per cent or € 9.1 billion to € 66.7 billion year-on-year. Of the total customer deposits, € 35.6 billion was attributable to corporate customers, who were responsible for a rise in deposits of € 6.2 billion. Of this, some € 3.7 billion was from repos. For retail customers, deposits rose € 3.4 billion to € 29.1 billion. This growth was almost entirely due to the higher number of deposits in the Czech Republic, Russia and Poland. ZUNO Bank contributed € 0.7 billion.
Other liabilities rose by 7 per cent or € 1.7 billion to € 27.2 billion. The largest growth came from trading liabilities with an increase of 69 per cent or € 4.0 billion to € 9.7 billion, caused primarily by swap valuations in Austria. Debt securities issued dropped by 13 per cent or € 2.2 billion to € 14.4 billion. Unsecured issues were no longer an option due to the market environment, so RBI moved increasingly towards private placements. Overall, the maturity of one of a total of three state-guaranteed RBI bonds led to a decrease of € 1.5 billion.
hedge (after taking deferred taxes into account) amounted to € 36 million.
Short-term subordinated capital rose € 31 million to € 100 million as a result of maturing tier 2 issues. The deduction items relating to participations, securitizations and insurance companies amounted to € 44 million (2010: € 34 million).
Own funds stood in contrast to a slightly higher own-funds requirement of € 7,624 million, an increase of € 39 million. The own funds requirement for credit risk was € 6,172 million (an increase of € 124 million), of which € 3,056 million related to the standardized approach and € 3,116 million to the IRB approach. The requirement for position risk in bonds, equities and commodities increased by € 193 million to € 520 million, primarily due to the introduction of the CRD III
regulations. Despite increases due to CRD III, own funds required for open currency positions fell by € 245 million to € 140 mil lion, resulting from a change in the calculation method. The requirement for operational risk was € 792 million (2010: € 824 million).
To this end, RZB – with the involvement of RBI – is implementing some 20 work streams which are divided into three main areas and will contribute some € 3 billion to meet the target.
These include, among others: ■ Reducing the capital required through a “capital clean-up” and reducing especially non-core business with a focus on market risk positions ■ Generating regulatory capital through transformation of other own funds into core tier 1 capital according to EBA defi nition for 30 June 2012 ■ Release of hidden reserves, allowing for and allocating earnings (on a pro rata basis of regular dividend distributions) ■ A multiplicity of smaller measures, e.g. liability management
The consolidated fi nancial 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 fi nancial statements. The accounting standards used to prepare the consolidated fi nancial 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
■ process descriptions for the preparation, quality control, approval, publication, implementation and monitoring of directives and instructions
The consolidated fi nancial statements are prepared by the Group Financial Reporting department, which reports to the Chief Financial Offi cer. The relevant responsibilities are defi ned Group-wide within the framework of a dedicated function.
Signifi cant risks relating to the 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 diff erent valuation standards, particularly in relation to the Group’s principal fi nancial instruments. A diffi cult business environment can also increase the risk of signifi cant fi nancial reporting errors. For the purpose of preparing the consolidated fi nancial 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 fi nancial 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. Diff erences in reporting dates and local accounting standards can result in inconsistencies between the individual fi nancial statements and the fi gures 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 fi nancial statement data, which are examined by an independent auditor, are 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.
In addition to the Management Board, the general control system also encompasses 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 fi nancial reporting. Control measures range from managerial reviews of the interim results to the specifi c reconciliation of accounts through to analyzing ongoing accounting processes.
The main department Accounting & Reporting is responsible for compiling the consolidated results to produce the fi nal consolidated fi nancial statements. These consolidated fi nancial statements are examined by an independent auditor. In addition, the management summary (Group management report) provides verbal comments on the consolidated results in accordance with the statutory requirements.
Capital, share, voting and control rights The following disclosures cover the provisions of Section 243a (1) of the Austrian Commercial Code (UGB): (1) The Company’s capital stock amounts to € 596,290,628.20 and is divided into 195,505,124 voting common bearer shares. Of those, 943,771 are own shares as of 31 December 2011, which means that 194,561,353 shares were outstanding as of the balance sheet date. Please consult the notes on equity (34) for more information.
(4) Pursuant to the Company’s articles of association, RZB is granted the right to delegate up to one third of the Supervisory Board members to be elected by the Annual General Meeting, as long as it holds a participation in the capital stock. Moreover, there is no special right of control associated with holding shares.
Pursuant to Section 159 (2) 1 of the Austrian Stock Corporation Act, the capital stock has been increased contingently by up to € 47,173,587.50 through the issue of up to 15,466,750 common bearer shares (contingent capital). The contingent capital increase would only be carried out to the extent that holders of convertible bonds issued under the resolution of the Annual General Meeting of 10 June 2008 make use of their right to convert such bonds into shares of the Company. No convertible bonds have been issued to date, however.
The Annual General Meeting of 8 July 2010 authorized the Management Board to acquire own shares, under the provisions of Section 65 (1) 8 of the Austrian Stock Corporation Act, during a period of 30 months from the date of the resolution, up to a maximum of 10 per cent of the Company’s respective capital stock and, if deemed appropriate, to retire them. This authorization may be exercised in one or more installments, for one or more purposes, by the Company, by affi liated enterprises or, for their account, by third parties. The Management Board was further authorized to decide, with the approval of the Supervisory Board, on the sale of own shares by means other than the stock exchange or a public tender, to the exclusion of shareholders’ subscription rights. This authorization replaces the authorization to buy back and use own shares that was granted at the Annual General Meeting of 10 June 2008. No own shares have been bought since the authorization was issued in July 2010.
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 affi liated 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 fi ve years from the date of the resolution with the approval of the Supervisory Board in accordance with the terms for participation rights to be set by the Management Board and to the exclusion of shareholders’ subscription rights. It should be noted that, under the provisions of the relevant laws, participation rights confer no voting rights or other membership rights. Issuing participation rights therefore entails no change of ownership structure from the standpoint of stock corporation law and shareholders’ voting rights. The Company decided on 15 July 2009 to strengthen its capital by issuing participation rights in the amount of € 600 million based on the authorizing resolution of June 2009. In the course of the merger of RZB’s principal business areas with Raiff eisen International to form RBI with eff ect from 10 October 2010, the mutual loans and liabilities of the receiving and the transferring company were wiped out. The same is true of the participatory rights in the amount of € 600 million, which had been subscribed in full by RZB. No further participation rights have been issued to date. Please consult the notes on equity (34) for more information.
(8) The following material agreements to which the Company is a party and which take eff ect upon a change of control in the Company as a result of a takeover bid exist: ■ The following is provided in the context of the Company’s D&O insurance: “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 refi nance themselves using equity, customer deposits and various capital and interbank market tools. In 2011 the banking environment was heavily infl uenced by the sovereign debt crisis, which made refi nancing diffi cult for banks – particularly via the fi nancial markets.
Continuing uncertainty in the capital markets The refi nancing environment for banks deteriorated, particularly in the second half of 2011, as it was impossible to insulate it from the developments in the fi nancing of sovereigns. The public debate on equity requirements for European banks and their holdings of sovereign bonds also contributed to the general uncertainty.
There is still a demand for far-reaching solutions, and particularly for an intervention by the European Central Bank (ECB) in the form of even more extensive purchases of sovereign bonds issued by the peripheral European states. In the face of this situation, the ECB announced on 8 December 2011 that it will support banks by increasing liquidity, specifi cally through refi nancing transactions with a maturity of 36 months. At the same time, the ECB has eased requirements for securities it will accept for repo transactions, and prior to this had reduced the main refi nancing rate to 1 per cent.
Even so, the excessive dependance on central bank fi nancing is not a long-term solution. Given the current climate and relatively limited progress on the political level, banks – particularly from the peripheral European states – will continue to face higher risk premiums.
Stable basis for refi nancing RBI refi nancing is based on two key elements. First, there are customer deposits which at the end of 2011 accounted for € 66.7 billion or 54 per cent of refi nancing, and second there is wholesale funding, which totaled € 56.5 billion, or the remaining 46 per cent. The high share of customer deposits creates a stable refi nancing basis, making RBI less vulnerable to the upheaval in the fi nancial markets.
Diversifi ed funding sources In 2011 some 64 per cent of medium- and long-term wholesale funding of the RBI Group was generated by Group headquarters. The remaining 36 per cent came from the network banks.
by the Export Credit Agency (ECA), supranational institutions are another source of funding. At the end of 2011, some 11 per cent of the outstanding volume came from institutions like the European Investment Bank (EIB) or EBRD. These loans are generally long-term, and signifi cantly improve the structure of the fi nancing mix. Cooperation with these supranational institutions is an important element of funding in the regions where RBI operates, and will continue to play an important role. RBI cooperates with these institutions not only in fi nancing but also in other areas, e.g. in risk sharing programs which optimize risk-weighted assets.
In addition, the network banks benefi t in fi nancing from support by the Austrian Raiff eisen Banking Group (RBG). This longstanding partnership aids in both procurement of liquidity via the Raiff eisen sector and placement of the sector’s funding instruments with its customers.
A key goal of RBI’s funding activities is the broadest possible diversifi cation of fi nancing sources for the network banks. In combination with customer deposits, this is intended to lead to an even more sustainable and independent structure for network bank fi nancing in the future.
In view of the diffi cult market environment, RBI implemented its funding plan quickly in 2011, with two-thirds of the total funding requirement raised in the fi rst quarter via wholesale funding, through the placement of two senior benchmark bonds. In January, the fi rst benchmark bond was issued as a senior fi xed-rate bond with a total volume of € 1 billion and a three-year maturity. This issue makes RBI the fi rst Austrian bank to issue an unsecured bond for over € 500 million since the start of the fi nancial crisis. It was placed at 145 basis points over mid-swaps, with a coupon of 3.625 per cent. The issue was signifi cantly oversubscribed.
A few weeks later, RBI took advantage of the more positive market environment in March 2011 to issue a second benchmark bond with a volume of € 1 billion. This issue was also signifi cantly oversubscribed. The bond had a variable coupon with a premium of 90 basis points over 3 month EURIBOR and a maturity of two years.
Senior government guaranteed Senior public placements Senior private placements Other Subordinated Supplementary in € million
Stress tests In the fi rst six months of 2011 the European Banking Authority (EBA) performed a stress test in which 90 European banks took part. The test analyzed the impact of various economic development scenarios, using variables such as GDP growth rates, exchange rates and risk premiums, on future capital requirements, required loan loss provisioning as well as revenue and capital components. The direct and indirect infl uences of predetermined crisis scenarios were examined in detail.
In addition to the core tier 1 capital ratio of 9 per cent, EBA identifi ed further capital requirements as a buff er for the banks’ portfolios of sovereign risk, arising from unrealized losses from loans and advances to countries whose market value fell during the sovereign debt crisis. For RZB, there was no additional capital requirement.
Besides the regulatory stress tests carried out by the regulatory authorities, RBI also performed internal analyses for further scenarios and potential risk drivers in 2011. Through close cooperation of all areas of risk management and the involvement of other experts from the network banks and controlling, these internal stress tests took into account a large number of risk factors and their impact on solvency. Market risks, operational risks, increased funding costs and numerous other capital and income components were included in the integrated approach, in addition to the increased capital requirement and high write-downs on the loan portfolio in case of stress. The Management Board was regularly informed of the stress test results and their analyses, so that the rapid introduction of countermeasures in case of a threatening situation is ensured.
Hungary Both economic development as well as the political environment in Hungary posed special challenges to risk management in 2011. Compared to other Central and Eastern European countries, the Hungarian economy shows lower growth rates; for 2012 Raiff eisen Research even expects a decline in real GDP to about 0.5 per cent. In light of this, RBI expects a further increase in the NPL ratio for the Hungarian market, which stood at 22.7 per cent as of year-end 2011. In order to minimize potential losses, RBI credit risk management therefore employs an early warning system, which identifi es any potential deterioration in credit quality and actively pursues the reduction of the credit exposure as well as the increase of collateral for clients with a poor credit rating.
In 2011 provisions for impairment losses totaling € 478 million were booked for Hungary. While € 521 million was allocated to individual loan loss provisions, portfolio-based loan loss provisions generated a release of € 43 million. Thus, the coverage ratio increased to about 61.7 per cent.
In addition to the bank levy introduced in Hungary in 2010 and the existing legal restrictions on banks, e.g. in property sales, legislation passed by the Hungarian Parliament on 20 September 2011 facilitated the premature repayment of mortgage loans in Swiss francs, euros and Japanese yen at fi xed exchange rates. These were 180 HUF per CHF, 250 HUF per EUR and 200 HUF per 100 JPY. In comparison, the actual exchange rates on 31 December 2011 were 259.3 HUF per CHF, 314.8 HUF per EUR and 310.5 HUF per 100 JPY. The fi xed exchange rates on 31 December 2011 for the Swiss franc were some 31 per cent, for the euro some 21 per cent and for the Japanese yen roughly 36 per cent below the actual rates. The regulation applies to bank customers who took on their foreign currency loans at a time when the rates were not above these levels. These clients had until 30 December 2011 to state their intention of full repayment which would then have to be completed within 60 days.
The volume of actual or expected repayments as at 31 December 2011 totaled € 401 million, which corresponds to an acceptance rate of 28.9 per cent. Roughly half were already converted in 2011 and appropriate measures were taken for the remainder. The resulting loss amounted to € 109 million. Lower interest income in subsequent periods lies at around € 18 million.
Liquidity risk Liquidity risk management was one of the most aff ected risk control units in 2011. In addition to the increased frequency of internal reporting and the high number of additional analytical tasks, especially since the new issues markets dried up, measures were taken to ensure that RBI maintained its strong liquidity buff er. At the same time, the crisis scenario analyses used for internal risk measurement and management were further developed and more closely integrated into the liquidity and the balance sheet management of the principal Group units.
The cash fl ow modeling for the expected base case was also revised in 2011 to include fi ndings from past years, in order to adjust the resulting forecasts for capital commitment and refi nancing needs. On the one hand, this should increase transparency with respect to actual costs and risks, and on the other hand naturally set a course for the correct management decisions.
Market risk Since January 2010 market risk management has been based on fi gures from an internal model. This is calculated using a hybrid approach; in other words, a combination of historical and Monte Carlo simulation with 5,000 scenarios, the valueat -risk (VaR) for changes in the risk factors of foreign currencies, interest rate development, credit spreads from bonds, Credit Default Swaps and equity indices. To improve modeling of risk factors where the probability of extreme price changes exceeds the probability given by the normal distribution, numerous approaches were integrated into the model. These include the enhancement of the scenarios to include extreme events or the consideration of the current volatility levels in generating scenarios and diff erent time horizons in the volatility estimate. This choice of model access already today forms the basis for putting in place the strict Basel III requirements in internal models. The model was additionally expanded to include a stressed-VaR module that meets the regulatory requirements that have been in eff ect since 31 December 2011.
Having passed the review process of the FMA and the Oesterreichische Nationalbank (OeNB), the model has been used since 30 August 2010 for calculating own funds requirements of foreign currency and the general interest rate risk in the trading book for Group headquarters. The daily scope of management includes the RBI trading and banking books based on the VaR on a holding period of 1 day and a confi dence interval of 99 per cent as well as sensitivity limits. The market risk position, the limit process and the presentation of all capital market activities in the income statement are among the items on the fi xed agenda for the weekly market risk committee meeting.
Management of non-performing loans The fact that 2011 was a diffi cult year for the CEE region and thus for RBI’s home market, was refl ected in an increase in non-performing loans to non-banks (up 4 per cent or € 266 million compared to 2010). However, the allocation of corresponding loan loss provisions was partially off set by high returns from reorganization measures. Furthermore, adequate coverage was ensured through write-downs. This will also be one of the priorities in 2012.
Basel II and III – regulatory environment Once more, RBI was intensively involved with current and pending regulatory developments in 2011. The majority of the expected changes result from the EU CRD III guidelines on capital requirements and the even more extensive CRD IV/ CRR legislation proposed by the EU Commission. The potential impact on RBI of new and amended legislation has been analyzed in detail. The corresponding internal guidelines were adopted where necessary, for example, in relation to the remuneration policy and the appropriateness of remuneration.
Raiff eisen Bank International AG, Vienna (Austria) IRB 1 n.a. Internal Model 2 STA
Raiff eisen Malta Bank plc., Sliema (Malta) IRB STA STA STA
The standard approach is currently used in all principal Group units for the capital backing of operational risk in accordance with Basel II.
Human resources Human Resources (HR) management is closely linked to RBI’s economic performance. As a result, 2011 was a year of contrasts. The fi rst half of the year was marked by optimism and forecasts of growth, which prompted investments in recruitment and training, plus alterations to compensation principles. The situation changed in the second half of the year, however, and cost-cutting programs were introduced in all countries.
The priorities of professional development are closely linked to the RBI Group business strategy. Consequently, the 2011 training programs focussed on capital market products and risks with a view to enhancing corporate customer advisors’ skills in this area, as well as on risk management and premium banking. All staff have access to a wide range of courses. In order to increase the impact of Group-wide training, so-called master trainers were appointed at each network bank. These serve as multipliers, facilitating the transfer of knowledge and expertise.
Alongside traditional training, the promotion of intra-Group mobility and the international exchange of knowledge and personnel were key aspects. For example, international trainee programs in Risk Management and Treasury encouraged a purposeful exchange of know-how and experience between the network banks.
As an employer, RBI creates an environment that challenges employees, thereby developing and supporting their personal skills. In order to highlight the career options open to the most talented specialists and to encourage them to stay with the company, RBI wants to ensure that attractive alternatives to a career in management are available to them. The requisite structures have been established and provide the basis for a broad range of talent management measures.
In recognition of its management development strategy and programs, RBI became the fi rst Austrian company to be recognized in the international study “Top Companies for Leaders 2011.” RBI came in sixth in the European ranking of the study, which was conducted by the American Fortune magazine in cooperation with human resources consultancies AonHewitt and the RBL Group. RBI was one of only a few banks to make it onto the list. Evaluation criteria included the strength of leadership practices and culture, examples of leader development on a global scale, alignment of leadership and business strategy, business performance, and company reputation.
RBI’s talent management features clear processes and eff ective tools. RBI has an impressive pool of top talent comprised of more than 120 individuals meaning that most high-level positions can be fi lled by internal candidates.
Long-standing successful management development programs for various target groups and management grades, as well as coaching and “360-degree feedback,” continued in 2011. RBI also worked with the training teams of the Austrian Raiff eisen Banking Group (RBG) on the Raiff eisen Campus project – a project designed to foster more transparent talent management within the Raiff eisen Group as a whole in the medium term.
Employee surveys Many Raiff eisen units conducted employee surveys in 2011; in addition to Austria also Albania, Croatia, Kosovo, Poland, Romania and Serbia. In Austria more than 70 per cent of employees completed the survey. Alongside questions regarding working conditions, cooperation, information, communication and job satisfaction, one focus of the survey was dedicated to the concept of leadership. After evaluating the results, over 60 projects were developed and initiated in 2011. Moreover, measures were taken to improve internal information and communication and various features of the performance management and compensation systems were modifi ed.
■ Compensation principles support the business strategy and the long-term company targets, interests and values through using the RBI KPI (Key Performance Indicators) set and key cultural competencies.
■ Compensation principles incorporate measures to avoid confl icts of interests. ■ Compensation principles and policies are consistent with eff ective risk-taking management practices and avoid incentives for inappropriate risk taking through KPIs and management processes (e.g. performance management process, risk committees, bonus pool approach).
■ Fixed compensation is defi ned in accordance with local market conditions. ■ The pay-mix (portion of variable compensation to fi xed compensation) is well balanced which allows every employee an adequate living based on fi xed income, thus allowing a full fl exible variable remuneration policy including the possibility of no variable remuneration.
■ The variable compensation may consist of: ■ Short-term Incentive (STI): for performance of up to one year measured at Group, bank, business unit and individual level using quantitative and qualitative criteria.
■ All variable compensation programs include regulations for thresholds and caps. ■ The total variable remuneration is not allowed to limit the ability of the institution to strengthen its capital base. ■ Variable remuneration is not to be paid through vehicles or methods that facilitate the avoidance of the requirements of this corporate directive.
■ Group/unit performance is the output of achieved results based on quantitative measures following the RBI Group KPI set.
Having benefi ted from stable growth in their export markets in 2011, Central Europe’s economic forecast for 2012 is signifi cantly gloomier. In this climate, Poland’s GDP growth is likely to drop from 4.3 per cent in 2011 to 2.8 per cent in 2012. The situation is similar in Slovakia, which was still reporting growth of 3.3 per cent in 2011, but is likely to suff er a drop in economic output to 0.8 per cent in 2012. With domestic demand remaining weak and exports falling as a result of the expected recession in the eurozone, total economic output in the Czech Republic is expected to fall by 0.2 per cent in 2012. Similar developments are expected in Slovenia where the heavy dependence on exports, a fragile banking sector and a delay in political reforms generate grim prospects. The latest political decisions in Hungary have had an impact on investor confi dence. Combined with low domestic demand, the forecast here in 2012 is for economic output to fall by 0.5 per cent.
Even though oil prices are expected to remain high, lower growth is forecasted for the Russian Federation in 2012. Russia is increasingly struggling to transform its export price level into signifi cant economic growth. Nevertheless, at 3.7 per cent it should still be well within positive territory and above the average eurozone level. Domestic factors boosting the economy – through both private demand and investments – are likely to be somewhat weaker year-on-year. Similar developments are expected in Ukraine. Like Russia, it is heavily dependent on the volatile prices of commodities and, as such, is particularly exposed to risk in the current global environment. Growth in the economy is likely to drop from 5.2 per cent to 3.5 per cent. Domestic consumption remains high, while exports are decreasing slightly. Belarus will still have to struggle with the consequences of the economic crisis in 2012. With pressure from infl ation and depreciation still high, GDP growth of 3.0 per cent is expected.
In 2012, we expect a stable business volume due to the economic environment and restrictive regulatory requirements. 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 business volume accounted for by our Retail Customers division.
Events after the balance sheet date Acquisition of Polbank RBI signed an agreement with the Greek EFG Eurobank Ergasias S.A. (Eurobank EFG) on 3 February 2011 for the acquisition of a majority share of 70 per cent in its business unit Polbank EFG (Polbank) as a fi rst step. With its strong focus on private customers, Polbank would complement Raiff eisen Bank Polska ideally, which mainly focuses on corporate customers.
Signifi cant steps towards acquiring Polbank – for example the approvals by the European Commission and the transition to an independently licensed bank – as well as the preparations for the future organizational structure of the merged bank were successfully carried out in the 2011 fi nancial year. Closing the transaction now depends on the regulatory approval in Poland.
Markets in Central and Eastern Europe are thereby grouped together into regional segments in which countries with comparable economic profi les and similar long-term economic growth expectations are bundled into the same segment. Business activities outside the CEE region that have been newly added as a result of the merger with the principal business areas of RZB are divided according to business area.
This segment encompasses the most advanced banking markets in Central and Eastern Europe, namely the EU countries Czech Republic, Hungary, Poland, Slovakia and Slovenia. These are also the markets in which RBI has been operating the longest. In all countries, RBI is represented by a bank, leasing companies and other specialized fi nancial institutions. In Poland, in addition to the main activity of the credit business with corporate customers and small and medium-sized entities (also via leasing and factoring), the focus is on retail banking and increasingly on affl uent customers too. In Slovakia, RBI is likewise active in its business divisions of corporate and retail customers, including leasing, while at the same time expanding banking services for affl uent customers. In Slovenia, the Group provides universal banking services as well as leasing, with Group units concentrating in particular on local corporate customers. In the Czech Republic, RBI off ers real estate leasing in addition to traditional banking services with corporate and retail customers. In Hungary, the Group provides services to private and corporate customers via a closely knit network and also through leasing companies. In addition, RBI is represented in Slovakia and the Czech Republic through its direct bank ZUNO.
The Southeastern Europe segment comprises Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Romania and Serbia. In these countries RBI is represented by banks and leasing companies, and in some markets by its own investment and asset management companies and pension funds. In Albania and Bulgaria fi nancial services are off ered in all divisions. RBI is also present in Kosovo with an extensive product range. In Bosnia-Herzegovina the focus is on small and medium-sized companies, though private clients are also catered for with a broad product range. In Croatia the focus is on large and medium-sized corporate customers and on retail customers (also in the pension fund business). In Romania a wide range of fi nancial services is provided through a dense branch network. Additionally, Romania manages the corporate customer business in Moldova. In Serbia RBI positions itself as a universal bank and operates a leasing company.
The Group Corporates segment covers Austrian and international – notably Western European – corporate customers managed by RBI AG in Vienna within the Corporate Customers profi t center. These customers include Austria’s largest companies, which for the most part enjoy an excellent credit rating. The segment also comprises the large corporate business with Central and Eastern European customers (excluding Austrian multinationals) in the Network Corporate Customers & Support profi t center. The Corporate Customers and Network Corporate Customers & Support profi t centers also include net income from structured trade fi nancing for commodity traders, documentary business, project fi nancing and a range of cofi nancing solutions. Corporate customer business at the China, Malaysia, Singapore and Malta branches is also allocated to this segment, as are fi nance companies in Hong Kong and the US with their focus on selected products for niche market customers.
The Group Markets segment covers customer and proprietary business related to the capital market. Net income from currency, interest and securities trading as well as from trading in structured products for fi nancial institutions is also allocated to this segment, as is proprietary business. The same applies to proprietary trading and market maker activities in Vienna, and to the branches in Singapore, China and London. This segment includes net income from sales of all banking products and business relationships with banks, institutional customers, governments and local authorities. Furthermore, income from Raiff eisen Centrobank (securities trading and capital market fi nancing) and from Kathrein Privatbank AG is also booked under this segment.
With profi t before tax of € 434 million, Russia made the largest regional contribution to earnings. The rise of around 63 per cent achieved here, resulted from an increase in operating income and lower net provisioning for impairment losses. Balance sheet assets in this segment rose by 17 per cent compared to the previous year.
Profi t before tax in the Group Markets segment rose year-on-year by 7 per cent to € 266 million. This was primarily due to an increase in operating income and a fall in net provisioning for impairment losses. Balance sheet assets were aff ected by the decline in business volume and went down 6 per cent on the previous year.
The net loss before tax in the Corporate Center segment came to € 65 million, partly due to write-downs of Group-internal investments, while a higher valuation of derivative fi nancial instruments had a positive infl uence on earnings. Balance sheet assets rose year-on-year by 64 per cent.
The structure of Group assets by segment changed as follows in the reporting year: The share of Central Europe fell by 2 percentage points to 19 per cent, while that of Southeastern Europe declined by 1 percentage point to 12 per cent. Russia ’s share remained unchanged at 8 per cent, while that of the CIS Other segment fell by 1 percentage point to 4 per cent. The share of Group Corporates fell by 2 percentage points to 13 per cent, and that of Group Markets by 3 percentage points to 14 per cent, while the Corporate Center segment share rose by 9 percentage points to 30 per cent.
Net provisioning for impairment losses (646) (408) 58.3% (162) (307) (47.3)%
Net fee and commission income grew in every country in the region except for Hungary, by a total of 4 per cent or € 17 million to € 491 million. Net income from payment transfer business increased year-on-year by 5 per cent to € 196 million, largely due to a rise in the number of transactions as well as to price adjustments for retail customers in the Czech Republic. Year-on-year, net income from the loan and guarantee business grew by 9 per cent to € 72 million. This increase was mainly generated in Poland by signifi cant growth in business activity and, in particular, through income from project fi nancing. Net income from foreign exchange, notes/coins, and precious-metals business remained unchanged at € 147 million in total, although in Hungary both the number and the volume of transactions in foreign currencies declined.
The segment’s general administrative expenses increased by 6 per cent or € 55 million to € 938 million compared to the previous year, largely due to the rise in staff expenses and other administrative expenses. The higher staff expenses were caused by an expansion in marketing channels in the Czech Republic as well as increased operating activities at the direct bank ZUNO in Slovakia. In Poland, insourcing measures produced a signifi cant increase in the number of employees and, consequently, in staff expenses. At the same time, other administrative expenses rose by 6 per cent to € 389 million. This rise was primarily connected with the additional business activities of the direct bank ZUNO in the Czech Republic and Slovakia, as well as with preparations for the acquisition of Polbank in Poland. Depreciation increased in several countries in the region, mainly as a result of the commissioning of several IT applications and the depreciation of various IT systems following implementation of a new core bank system. In Hungary, on the other hand, general administrative expenses fell due to the closure of several branches and the reduction in the number of employees. The number of business outlets in the segment fell by 3 to 552 year-on-year. The region’s cost/income ratio remained unchanged at 56.3 per cent.
Net allocations to individual loan loss provisions therefore increased year-on-year by 65 per cent to € 671 million. Alongside the circumstances described above, there was also a need to revalue collateral in Hungary. Market-related weak domestic demand had a negative eff ect on net provisioning for impairment losses particularly among retail customers. In Slovenia, one fairly large non-performing loan meant that a € 13 million higher net allocation to provisioning for impairment losses was required.
Portfolio-based loan loss provisions recorded a net release of € 21 million in the region. This was therefore an improvement of € 25 million in total on the previous year’s level. This volume-related development largely related to consumer lending in Hungary, although, as already mentioned, net allocations to individual loan loss provisions continued to rise here. The highest net allocations to portfolio-based loan loss provisions occurred in the Czech Republic, mainly in connection with the expanded retail customer portfolio. The proportion of non-performing loans in the loan portfolio of the Central Europe segment stood at 9.8 per cent at the end of the reporting year.
Other results in the Central Europe segment fell from minus € 8 million to minus € 50 million. Net income from fi nancial investments was down year-on-year from minus € 2 million to minus € 59 million due to valuation losses in several countries. In Hungary, in particular, there was a signifi cant revaluation loss on municipal bonds as a result of the general increase in risk aversion and the resultant rise in bond yields. On the other hand, net income from derivative fi nancial investments turned around year-on-year from minus € 10 million to € 8 million. This improvement resulted predominantly from revaluation gains on various hedging transactions in the Czech Republic which had been entered into to adjust the foreign currency and interest rate structure. Changes in the positions held as well as the falling interest rate level had a positive impact here. Income taxes for the segment rose slightly by 1 per cent to € 66 million, as the losses in Hungary could only be used to a limited extent for allocations to deferred tax assets. Loss after deduction of non-controlling interests was € 11 million.
Net fee and commission income 127 110 15.0% 31 33 (5.1)%
Profi t attributable to non-controlling interests (46) (36) 28.3% (8) (11) (22.1)%
Loans and advances to customers 6,538 6,483 0.8% 6,538 6,799 (3.8)%
Return on equity after tax 16.2% 13.5% 2.7 PP 15.4% 13.0% 2.4 PP
Net fee and commission income 90 99 (9.5)% 22 23 (6.5)%
Net provisioning for impairment losses (478) (196) 144.2% (104) (258) (59.6)%
Profi t attributable to non-controlling interests (6) (4) 25.9% (1) (1) (32.7)%
Loans and advances to customers 5,340 5,127 4.2% 5,340 5,347 (0.1)%
Return on equity before tax 15.8% 11.8% 4.0 PP 13.0% 15.5% (2.5) PP
Number of employees as of reporting date 3,169 3,071 3.2% 3,169 3,149 0.6%
Net provisioning for impairment losses (17) (49) (66.0)% (12) (7) 61.4%
hereof foreign currency % 0.9% 1.6% (0.6) PP 0.9% 1.0% 0.0 PP
Return on equity before tax 21.0% 15.6% 5.4 PP 21.0% 23.5% (2.5) PP
Return on equity after tax 16.9% 11.8% 5.1 PP 17.6% 18.5% (0.9) PP
Number of employees as of reporting date 3,805 3,693 3.0% 3,805 3,807 (0.1)%
Net provisioning for impairment losses (15) (9) 72.8% (2) (3) (39.2)%
Profi t/loss after non-controlling interests (5) 2 – 0 (2) (94.2)%
Loans and advances to customers 1,303 1,317 (1.0)% 1,303 1,342 (2.9)%
Return on equity before tax – 4.6% – – – –
Return on equity after tax – 3.2% – – – –
Southeastern Europe In Southeastern Europe, profi t before tax rose year-on-year by 15 per cent to € 351 million. Lower net provisioning for impairment losses stood in contrast to a decline in operating income and other results. Return on equity before tax increased by 1.8 percentage points to 17.5 per cent.
Return on equity before tax 17.5% 15.7% 1.8 PP 18.1% 14.0% 4.1 PP
Net interest income in the segment rose by 2 per cent to € 919 million. Growth was recorded in all the region’s countries except for Bulgaria, with the strongest rise in net interest income posted in Romania. Here, despite the high pressure on margins, there was a signifi cant increase in lending volumes for large corporate customers and retail customers. In Bulgaria, on the other hand, net interest income from the customer portfolio fell as margins on the asset side declined sharply. The net interest margin for the segment was up 17 basis points in total to 4.07 per cent, while year-on-year the balance sheet assets remained virtually unchanged at € 22.8 billion. Risk-weighted assets (credit risk) fell by 2 per cent compared to the previous year to € 16.3 billion. The main reason for this was Croatia, where receivables from the public sector and borrowers guaranteed by the public sector were able to carry a lower weighting due to the country’s imminent accession to the EU.
Net fee and commission income declined by 6 per cent year-on-year to € 365 million. The payment transfer business continued to be the biggest contributor with € 178 million (up 2 per cent), while income from credit and guarantee business fell by 32 per cent compared to the previous year to € 62 million. This was due to developments in Romania, where lower transaction volumes (particularly in the stagnant guarantee business) and a market-related fall in prices prompted a decline. In addition, the new provisions of the Consumer Protection Act, which had come into force in June 2010, also reduced earnings. Income from the securities business slipped 11 per cent to € 8 million, due especially to the sharp decline in public sector issues on the local fi nancial market in Croatia. Income from the foreign exchange, notes/coins, and precious-metals business rose by 4 per cent year-on-year to € 69 million.
Other net operating income rose year-on-year by 8 per cent to € 40 million. The slight rise in net income from the operating leasing business to € 41 million had a positive eff ect, predominantly in Croatia.
Below please fi nd the detailed results of the individual countries in the segment: Albania 1/1–31/12 1/1–31/12 In € million 2011 2010 Change Q4/2011 Q3/2011 Change
Net fee and commission income 8 8 (2.6)% 2 2 (20.4)%
Net provisioning for impairment losses (14) (31) (53.9)% 3 (4) –
Profi t after non-controlling interests 49 39 27.3% 16 13 27.5%
hereof foreign currency % 57.6% 63.5% (5.9) PP 57.6% 65.5% (7.9) PP
Return on equity after tax 26.4% 22.1% 4.3 PP 39.6% 29.9% 9.7 PP
Number of employees as of reporting date 1,427 1,343 6.3% 1,427 1,378 3.6%
Profi t attributable to non-controlling interests 0 0 (12.6)% 0 0 –
Profi t/loss after non-controlling interests 23 7 229.9% (1) 8 –
Net fee and commission income 37 35 7.3% 10 10 (5.0)%
Net provisioning for impairment losses (79) (98) (19.6)% (29) (24) 21.1%
Loans and advances to customers 2,974 2,816 5.6% 2,974 2,927 1.6%
hereof foreign currency % 78.3% 78.6% (0.3) PP 78.3% 79.5% (1.2) PP
Number of employees as of reporting date 3,271 3,241 0.9% 3,271 3,346 (2.2)%
Net provisioning for impairment losses (52) (68) (22.8)% (8) (13) (36.6)%
Profi t after non-controlling interests 31 36 (15.7)% 9 0 >500.0%
hereof foreign currency % 67.4% 72.2% (4.8) PP 67.4% 67.8% (0.4) PP
Number of employees as of reporting date 2,083 2,216 (6.0)% 2,083 2,102 (0.9)%
Profi t attributable to non-controlling interests 0 0 – 0 0 –
Profi t after non-controlling interests 13 10 22.0% 2 4 (61.0)%
Loans and advances to customers 428 386 10.9% 428 421 1.7%
Return on equity before tax 15.7% 14.5% 1.2 PP 8.3% 20.5% (12.3) PP
Net fee and commission income 179 202 (11.1)% 45 43 4.2%
Profi t after non-controlling interests 93 100 (6.9)% 34 20 66.9%
Number of employees as of reporting date 6,030 6,219 (3.0)% 6,030 6,065 (0.6)%
Profi t after non-controlling interests 51 28 83.9% 12 15 (17.9)%
hereof foreign currency % 66.2% 65.3% 1.0 PP 66.2% 65.4% 0.9 PP
Return on equity after tax 10.2% 5.4% 4.8 PP 9.5% 11.5% (2.0) PP
Net provisioning for impairment losses 42 (77) – 63 (17) –
Net interest margin 4.47% 4.14% 0.33 PP 4.50% 4.49% 0.01 PP
Net interest income in Russia rose by 16 per cent or € 83 million year-on-year, to € 590 million. This growth, despite increased pressure on margins, was mainly due to a total increase of 19 per cent in the portfolio of loans and advances to large corporate customers and private individuals, due to strong demand for loans. The signifi cant rise in interest income from derivative fi nancial instruments, mainly resulting from a larger number of transactions, also made a positive contribution to profi ts. In this segment, the net interest margin increased by 33 basis points year-on-year, to 4.47 per cent. Total assets gained 17 per cent year-on-year, reaching € 14.2 billion. The strong growth in the loan portfolio enabled a reduction in holdings of public sector securities. Credit risk-weighted assets rose by 21 per cent to € 10.5 billion, a result of a signifi cant rise in project fi nancing mandates and approved credit lines.
The segment’s net fee and commission income rose by 11 per cent or € 24 million year-on-year, to reach € 238 million. Here, although the payment transfer business declined due to the release of accruals for expected income, it still made the largest contribution, amounting to € 82 million. Income from the securities business remained almost unchanged year-onyear at € 13 million. In proportion to the increase in transaction volumes, income from the foreign currency, notes/coins, and precious-metals business rose by 6 per cent to a total of € 53 million. Due to a change in the method of calculating fee and commission income, the net income from the loan and guarantee business rose by 75 per cent to € 60 million. The income from other banking services also increased by 17 per cent to € 38 million, primarily as a result of improved income from the collections business and import-export fi nancing.
The segment’s general administrative expenses increased by a total of 18 per cent to reach € 488 million. This was primarily caused by an increase in staff expenses due to salary increases and a rise in ancillary salary costs. Other administrative expenses rose primarily because of increased IT, legal, advisory and consulting expenses. Depreciation advanced yearon -year by 24 per cent, mainly due to impairment of tangible and intangible fi xed assets. The number of business outlets fell by 7 to 191. The cost/income ratio increased year-on-year to 57.2 per cent.
Net provisioning for impairment losses resulted in a positive fi gure of € 42 million, which is a year-on-year improvement of € 119 million. This was mainly due to lower allocations to individual loan loss provisions for the portfolio of loans and advances to large corporate customers and private individuals. The development was a result of the signifi cant decline in non-performing loans, of improved repayment ratios regarding overdue loans, and of the sale of loans. The ratio of nonperforming loans in the loan portfolio decreased by 3.0 percentage points year-on-year, to 5.8 per cent. In the net allocations to portfolio-based loan loss provisions, a net release was again observed, which was also € 21 million higher than in the previous year, amounting to € 31 million. The reason for this was an improvement in the historical default rates used for the calculation of portfolio-based loan loss provisions.
The other results from the Russia segment amounted to € 26 million in total. The key element of this was net income from derivatives of € 27 million, due primarily to net income from revaluation from the interest swap transactions concluded in order to mitigate interest rate structure risk. Due to the deconsolidation of a leasing company for materiality reasons, the segment showed a net loss from disposal of Group assets of € 1 million.
Income taxes doubled year-on-year, to reach € 112 million. The eff ective tax rate rose 6 percentage points to 26 per cent, as a result of the higher share of expenses not deductible for tax purposes.
Profi t after deduction of non-controlling interests increased by 51 per cent, to € 322 million.
Net fee and commission income 238 214 11.0% 64 64 (0.6)%
Loans and advances to customers 9,073 7,601 19.4% 9,073 9,219 (1.6)%
hereof foreign currency % 48.5% 44.7% 3.9 PP 48.5% 47.7% 0.8 PP
Return on equity before tax 36.9% 26.8% 10.0 PP 55.4% 18.5% 36.9 PP
Number of employees as of reporting date 8,475 8,618 (1.7)% 8,475 8,697 (2.6)%
Return on equity before tax 15.1% 13.4% 1.7 PP – 25.3% –
Net interest income for the segment fell by 2 per cent, or € 8 million, to € 415 million. At the same time, net interest income in Ukraine rose by 3 per cent, mainly due to a reduction in interest expenses for customer deposits, as well as higher income from the increased portfolio of Ukrainian government bonds. By contrast, net interest income in Belarus decreased year-on-year, infl uenced by currency translation coupled with the increased share of net interest income in local currency.
The segment’s other net operating income, which is comprised of a number of smaller income and expense items, improved year-on-year from minus € 8 million to minus € 7 million, mainly due to the release of other provisions established in 2010 for a meanwhile concluded litigation in connection with real estate in Ukraine.
In 2011 net provisioning for impairment losses fell by 40 per cent to € 128 million. The improvement, which is mainly attributable to Ukraine, was based not least on a decrease of € 63 million in individual loan loss provisions, made possible due to increased success in debt collection, as well as higher loan repayments. Also noticeable was the general improvement in portfolio quality for retail and corporate customers. As in the previous year, portfolio-based loan loss provisions reported a net release, which amounted to € 34 million in 2011. The improvement was due exclusively to lower allocations to portfolio provisioning in Ukraine, refl ecting a decrease in the underlying credit portfolio and at the same time an improvement in its portfolio quality. By contrast, the diffi cult economic situation in Belarus required net allocations of € 21 million to corporate customer portfolio-based loan loss provisions. The share of non-performing loans in the total credit portfolio stood at 29.7 per cent, still the highest among all segments, albeit with strong regional diff erences (Belarus: 2.0 per cent, Ukraine: 34.8 per cent).
Below please fi nd the detailed results of the individual countries in the segment, whereby Kazakhstan is not listed as it is of minor signifi cance: Belarus 1/1–31/12 1/1–31/12 In € million 2011 2010 Change Q4/2011 Q3/2011 Change
Net provisioning for impairment losses (18) (13) 47.0% 2 (12) –
hereof foreign currency % 66.1% 51.1% 15.0 PP 66.1% 58.4% 7.8 PP
Return on equity before tax 16.6% 38.1% (21.5) PP – 49.3% –
Net fee and commission income 131 127 3.1% 36 35 3.7%
Net provisioning for impairment losses (108) (200) (46.0)% (30) (16) 92.7%
Profi t attributable to non-controlling interests 13 0 – 9 1 >500.0%
Number of employees as of reporting date 15,267 15,432 (1.1)% 15,267 15,528 (1.7)%
Net interest income for the segment grew by 16 per cent or € 58 million to € 429 million. The stable growth throughout the year under review was due to higher margins on the asset side in business with Austrian and Western European corporate customers of RBI AG, as low-margin lending was continuously being replaced by more profi table credit business. However, overall business volumes declined due to subdued credit demand and strong competitive pressure in the Austrian and Western European corporate customer segment. By expanding their business activities, the Asian branches likewise increased their contribution to net interest income, by 35 per cent to € 147 million. Net interest income also at the Maltese subsidiary was up by 47 per cent to € 28 million thanks to an increase in business volumes and improved margins. The net interest margin for the Group Corporates segment rose by 34 basis points to 1.97 per cent, while balance sheet assets fell by 3 per cent year-on-year, or € 0.6 billion, to € 22.8 billion. Credit risk-weighted assets increased by 1 per cent to € 15.7 billion due to an increase in the volume of guarantees issued at RBI AG.
The segment’s general administrative expenses fell by 1 per cent year-on-year to € 141 million. In particular, they were somewhat lower at Group headquarters in 2011 after the previous year’s result had been impacted by merger-related expenses. This segment comprised eight business outlets at the end of the year under review. The cost/income ratio improved by 3.7 percentage points to 22.2 per cent.
Profi t after deduction of non-controlling interests rose by 29 per cent to € 297 million.
Net provisioning for impairment losses (14) (31) (56.3)% (6) 1 –
Net interest margin 0.85% 0.70% 0.14 PP 0.86% 0.94% (0.07) PP
Return on equity before tax 19.5% 15.4% 4.1 PP 46.3% – –
Net interest income for the segment fell by 19 per cent year-on-year to € 229 million due in part to the maturity and sale of parts of the high-quality securities portfolio, which consists exclusively of top-rated securities. Net income thereof amounted to € 81 million in the year under review, down from € 97 million in the previous year. Moreover, the RBI AG investment portfolio was structured even more conservatively in the light of the European sovereign debt crisis in 2011. Net interest income decreased as a result of the decline in total business volume of highly liquid bonds from fi nancial institutions, the further reduction in various risk positions and a selective transaction selection. In addition, the restriction on trading limits in market risks, fl attening of the yield curve, and an ECB liquidity injection that reduced credit spreads on high-quality securities also contributed to the decline in net interest income.
Net trading income for the segment rose by 89 per cent year-on-year to € 176 million, to which Raiff eisen Centrobank contributed a substantial € 45 million (up 2 per cent). This contribution consisted primarily of net income from positive valuation gains on certifi cates issued within the scope of equity and index-based transactions and structured bonds. Group headquarters’ contribution from proprietary trading mainly in fi xed income securities, as well as from structured products, was signifi cantly lower than in the previous year owing to a reduction in risk positions. By contrast, market maker profi t from customer and proprietary trading in foreign currency products made a higher contribution and income from bank note and coin trading also improved to € 20 million. The valuation of capital guarantees issued resulted in net income of € 72 million, up from minus € 14 million in the previous year, mainly due to a change in the method of valuation against the background of legislative changes.
Other net operating income fell by 6 per cent year-on-year to € 28 million. This includes a reduction in income from Raiff eisen Centrobank Group to € 12 million related to turbulences in the commodities markets. Raiff eisen Centrobank Group’s net operating income came mainly from commodity trading of special purpose companies in the US and Germany, to which commodity trading of F.J. Elsner Trading contributed an additional € 10 million.
The general administrative expenses of the Group Markets segment increased by 10 per cent year-on-year to € 264 million, mainly due to the full commissioning of an IT system for derivatives as well as to the introduction of IT applications in RBI AG’s custody division. At the same time, transportation costs increased owing to the expansion of RBI AG’s bank note and coin trading business. An intensifi cation of business activities also led to a year-on-year increase in the reimbursed unit costs of the processing company Raiff eisen Service Center GmbH (RSC). The segment comprised four business outlets at the end of the year under review. Due to the rise in general administrative expenses, the cost/income ratio increased by 1.3 percentage points to 48.1 per cent.
Income taxes climbed to € 72 million. The segment’s tax rate was 27 per cent, up 2 percentage points from its 2010 level.
Net interest margin 0.80% 0.79% 0.00 PP 0.10% 0.25% (0.15) PP
Return on equity before tax – 5.3% – – 26.1% –
The segment’s net interest income climbed by 25 per cent year-on-year, to reach € 363 million. The dividend income from Group subsidiaries in other segments rose by 48 per cent, while a management-related net interest loss by the Treasury profi t center at Group headquarters lowered income. Here, the capital-raising costs for own issues rose because such issues with lower premiums from the years before the fi nancial crisis matured and were replaced with new issues. In addition, RBI’s liquidity reserves were increased signifi cantly, which also curbed the net interest income. Income from internal fi nancing within the RBI network remained almost unchanged year-on-year. The € 33 million in interest expenses for RBI AG’s subordinated capital are also reported under this segment. The segment’s assets grew by 64 per cent year-on-year, reaching € 53.8 billion, particularly as a result of the increase in surplus liquidity. Credit risk-weighted assets rose by 22 per cent to reach € 19.6 billion, mainly because of the increase in liquidity reserves. In comparison, this rise was lower, mainly due to the lower risk weighting of additional assets.
The net fee and commission income decreased year-on-year, from minus € 17 million to minus € 65 million. This was largely due to commission payments by Group headquarters for country risk insurance in connection with fi nancing abroad, as well as fee and commission expense associated with placed issues.
Net provisioning for impairment losses generally plays a minor role, due to the intra-Group nature of the segment’s business activities. However, largely because of the conversion of a loan into an equity participation, there was a release of provisions for impairment losses in the amount of € 60 million. Nevertheless, due to the simultaneous write-down of the relevant equity participation, this had no eff ect on the segment’s results.
The loss after deduction of non-controlling interests decreased by € 332 million, to € 40 million.
Business divisions In addition to being subdivided into segments in accordance with IFRS 8, RBI is also organized into business divisions that refl ect the internal organization and reporting structure. The Group’s business is broken down into the following divisions: ■ Corporate Customers ■ Retail Customers ■ Financial Institutions & Public Sector ■ Capital Markets & Treasury ■ Participations & Other
Corporate Customers includes business with local and international large and medium-sized companies. Retail Customers handles business with private individuals and small and medium-sized entities (SMEs) with annual sales of generally up to € 5 million. The Financial Institutions & Public Sector business division focuses on business with customers from the fi nancial and public sectors. Capital Markets & Treasury covers Treasury’s proprietary trading and investment banking, which is undertaken only in certain Group units. Participations & Other is concerned with non-bank-specifi c activities, as well as the administration of participations. It also deals with other cross-division functions, particularly at the Group headquarters.
Overview of business divisions 1/1–31/12/2011 Financial Institutions Capital ParticiCorporate Retail & Public Markets & pations & In € million Customers Customers Sector Treasury Other Total
Return on equity before tax 16.1% 2.6% 20.6% 36.8% – 13.7%
1/1–31/12/2010 Financial Institutions Capital ParticiCorporate Retail & Public Markets & pations & In € million Customers Customers Sector Treasury Other Total
At the same time, various organizational measures were taken in order to promote capital- and liquidity-light products. These included, for instance, the installation of regional treasury experts in Poland and the Czech Republic, as well as the establishment of a distinct treasury sales unit in Russia.
In Austria, the increased focus on Treasury & Investment Banking (this fi eld was one of the main topics of training for all customer advisors in 2011) has already yielded very pleasing initial results: with an issuing volume of around € 2,850 million in nine transactions, RBI held a leading position in Austria regarding issues of Austrian companies in 2011. In several network banks, product innovations were introduced in the fi elds of cash management, cash pooling and factoring.
At the start of the year 2011, the so-called “Group product concept” was introduced. This envisages increased cooperation within the Group in several product areas (project fi nance, real estate fi nance, export credit agency, guaranteed loans and cash management) regarding large transactions and complex transactions. Already in the fi rst year, this project proved a resounding success, with more than 200 transactions registered and over 30 completed, and in 10 of these cases, RBI was the mandated lead arranger.
The Corporate Customers business division posted a sharp rise in net income in the year under review, with profi t before tax increasing by 20 per cent to € 819 million. This was primarily due to the reduction in net provisioning for impairment losses and the increased net interest income.
The operating income rose from € 1,800 million to € 1,925 million due to higher net interest income and a slightly increased net fee and commission income, and was thus 7 per cent higher than the previous year’s level. The 9 per cent rise in net interest income was primarily attributable to business with large customers in Russia, Slovakia and Asia. However, in RBI AG, the net interest income from large customers remained below the level of the previous year.
Net fee and commission income increased by 7 per cent to € 553 million. The largest contribution to this growth came from business in Russia. On the other hand, other net operating income decreased from € 12 million to minus € 3 million. Here, net income decreased by € 29 million, primarily due to the bank levies in Austria and Hungary.
The other results decreased from € 18 million to minus € 2 million. Here, net income from fi nancial investments in particular was signifi cantly down on the previous year.
Credit risk-weighted assets increased year-on-year by 7 per cent to € 42.2 billion. The main reason for this was the rise in total loans.
With the exception of Hungary, net provisioning for impairment losses was signifi cantly lower than in 2010 due to higher credit quality and improved collection processes. With regard to private individuals, it decreased year-on-year by 4 per cent, Group-wide. This value already includes the eff ects of the diffi cult situation in Hungary, where the net provisioning for impairment losses was considerably higher than in the year 2010.
In 2012, RBI will continue its “primary relationship banking initiative,” which targets customers whose main bank is the respective Raiff eisen unit. For this purpose, the packageability of products is to be developed further, transparency is to be increased and the quality of service is to undergo additional improvement.
In 2011, expansion of the range of products and services for affl uent customers (under the Premium Banking brand) was continued, which led to 80,000 additional customers being acquired for the Premium Banking services. At the end of 2011, over 1,000 relationship managers were servicing more than 500,000 customers in this segment.
Small and medium-sized entities Despite the diffi cult environment for small companies in CEE, the profi tability of this customer segment was maintained in 2011. Thus, declining income from loans was compensated for by increased income from the transaction business and from products linked with commissions, as well as by optimization of the sales and service model. Relationship managers concentrated on customers with higher value creation, which thus decreased the cost of customer services; in addition, the focus on early collection and loan settlements caused a slight year-on-year reduction of risk costs.
Allfi nanz The year 2011 also proved to be another successful year in the development of the Allfi nanz business in CEE, together with the strategic partner UNIQA Versicherungen AG. In particular, the range of services for current accounts was expanded and off ered to customers from all segments in the key markets. Thanks to the joint initiative with UNIQA, the sale of independent life insurance products was expanded across eleven countries in the RBI network.
In addition to the branch already in place in Slovakia, ZUNO Bank AG, RBI’s direct bank subsidiary, opened a business outlet in the Czech Republic in July 2011. Here too, the products and services off ered are primarily aimed at private individuals. They include deposit products such as time deposits, savings accounts and current accounts, plus a broad spectrum of payment transfer products, including currency exchange. In 2011, the development of this still young network bank’s business was far in excess of the expected fi gures in both countries and customer deposits already reached € 0.8 billion. At the end of 2011, ZUNO Bank AG also completed the preparations for credit business: as of spring 2012, customers in Slovakia and the Czech Republic are to be off ered current account advances and personal loans, and from summer 2012 onwards they will also be off ered credit card products.
This business division’s operating income advanced by € 5 million to reach € 2,480 million. Net interest income in particular, at € 1,656 million, increased year-on-year by € 17 million; here, the largest growth was achieved in Russia and the Czech Republic. On the other hand, net fee and commission income decreased by € 21 million and contributed € 824 million to the operating income. Russia and Romania again made the largest contributions in this regard with € 139 million and € 136 million respectively, primarily from the payment transfer business and from the loan and guarantee business. The Czech Republic saw the largest increase, of € 17 million, which was also primarily achieved in the payment transfer business. Other net operating income improved year-on-year from minus € 9 million to minus € 2 million, largely due to the decrease in the bank levy.
The credit risk-weighted assets in the Retail Customers business division decreased by 8 per cent to € 16.0 billion, mainly as a result of the decline in Hungary.
The return on equity before tax decreased by 3.1 percentage points to 2.6 per cent.
The development of the Financial Institutions & Sovereigns division was principally characterized in the second half of 2011 by increasing uncertainty on the international and, in particular, European fi nancial markets. The reasons for this were the debt reorganization negotiations with Greece and increasing pressure on other Southern European countries due to their strained fi nancial situation. Delays in increasing the European Financial Stability Facility (EFSF) also contributed to uncertainty and reluctance on the part of the fi nancial industry.
The still quite positive market environment in the fi rst half of the year favored the issuing business among institutional issuers. RBI also benefi tted from this and was able to win a series of lead management mandates. In the second half of the year, however, due to the markedly more diffi cult conditions, there was a clear cooling off in capital market activity from institutional clients.
However, in the second half of the fi nancial year the trend towards capital- and liquidity-light products was strengthened. The background to this development was formed by the more stringent EU regulations on core capital ratios for banks which were emerging. Here RBI was able to highlight its leading role as a partner for payment transfers between East and West and win over new clients. The division also benefi tted from the strong demand for custody and fund services and was able to acquire new clients in the banknote trade.
The noticeable change in the traditional credit business over the past approximately three years continued to increase in pace. The central approach to this change is a considerable strengthening of client relations with a high cross-selling potential and a selective transaction choice with smaller volumes. In general the restrictive conditions were carried by a clear slowing of business and by focusing on the distribution of capital light products.
Operating income increased due to the higher net interest income from € 481 million to € 526 million, thereby exceeding the previous year’s level by 9 per cent. The increase in net interest income of 20 per cent resulted predominantly from the increased volume of business at the Group headquarters, in Asia and Romania. In the reporting period, net fee and commissions income, on the other hand, was at € 134 million, down by 8 per cent compared to the 2010 level, due to reduced loan and guarantee business in Malta. Net trading income, however, increased considerably by € 9 million to € 63 million, while other operating income declined from minus € 2 million to minus € 10 million year-on-year. The bank levy in Austria reduced other net operating income by € 13 million.
Other income fell from € 3 million to minus € 44 million, mainly as a result of lower market valuations of municipal bonds in Hungary.
Capital Markets The European debt crisis, the expansion of the debt upper limit in the US and political unrest made for highly volatile markets in 2011 and great uncertainty on the fi nancial markets. Despite this trying market environment, the Capital Markets division posted outstanding results due to innovative solution strategies.
The “FX Raiff eisen” internet platform was introduced to clients, enabling a new level of service to be achieved. Thanks to active advisory services in questions relating to foreign currency management, the division succeeded in raising client satisfaction and product sales alike. The expansion of the bank note business likewise clearly contributed to increased income. Numerous corporate customers were also won over by the hedging of their interest rate risks in concluding interest rate swaps and caps.
In the division of fi xed income products were off ered to hedge refi nancing, as were special solutions for the restructuring of existing business. Infl ation and foreign currency bonds in particular were increasingly in demand in this sector. In Asia several USD multi-callable notes were able to be placed, thereby strengthening RBI’s presence in this region.
In proprietary trading, stable success was achieved by active management of reduced volumes.
Operating income in this division fell by 33 per cent year-on-year to € 315 million. Due to the existing liquidity surplus, net interest income at € 80 million was € 151 million down on the previous year’s fi gure. The main reason for this was the negative interest income at Group headquarters and in Hungary. Predominantly due to the bank levy in Austria, other net operating income also fell year-on-year by € 55 million to minus € 57 million.
Other results posted a plus of € 291 million on the back of the income from derivative fi nancial instruments of RBI AG. High value appreciations on fi nancial instruments clearly outweighed the negative performance of fi nancial investments.
Due to the change in method in calculating the own funds requirement for open currency positions, the overall own funds requirement also fell. The requirement for market risk, however, increased due to regulatory changes (CRD III) by 12 per cent to € 1,262 million.
The return on equity before tax in this division rose by 11.4 percentage points to 36.8 per cent as the result of a marked improvement in profi t before tax.
Net income from disposal of group assets [10] (2,575) 4,734 –
Changes in equity of companies valued at equity 39 0 39 0 0 0
Due to changed intentions regarding a part of the held-to-maturity portfolio, a volume of € 3,165,000 thousand of held-tomaturity securities was reclassified as available-for-sale. This reclassification caused an increase in other comprehensive income in the amount of income recognized of € 116,917 thousand (after tax).
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. In the fiscal year 2011, the number of common shares outstanding was 194,552 thousand compared with 194,530 thousand in the previous year.
The quarterly results are as follows: Net provisioning for impairment losses (208,197) (196,820) (376,587) (281,947)
Loans and advances to banks [15, 35, 36] 25,748,044 21,532,406 19.6%
Other changes in equity are due to currency differences between the income statement and the statement of financial position and changes in shares in Group units.
Non-cash positions in profit and transition to net cash from operating activities: Write-downs/write-ups of tangible fixed assets and financial investments 671,303 341,948
Net provisioning for liabilities and charges and impairment losses 1,316,152 1,503,170
Gains (losses) from disposals of tangible fixed assets and financial investments (98,695) (11,505)
Payments for purchase of: Tangible and intangible fixed assets (580,305) (618,706)
The statement of cash flows shows the structure and changes in cash and cash equivalents during the financial year and is broken down into three sections: net cash from operating activities, from investing activities and from financing activities.
As a rule, internal management reporting at RBI is based on the current organizational structure. This matrix structure means that each member of the Management Board is responsible both for individual countries and for specific business activities (country and functional responsibility model). A cash generating unit within the Group is either a country or a business activity. Accordingly, the RBI management bodies – Management Board and Supervisory Board – make key decisions that determine the resources allocated to any given segment based on its financial strength and profitability, which is why these reporting criteria are an essential component in the decision-making process. Thus, the division into segments was also undertaken in accordance with IFRS 8.
Markets in Central and Eastern Europe are thereby grouped together into regional segments in which countries with comparable economic profiles and similar long-term economic growth expectations are bundled into the same segment. Business activities outside the CEE region that have been newly added as a result of the merger with the principal business areas of RZB are divided according to business area.
The following segments resulted thereof: Central Europe This segment encompasses the most advanced banking markets in the EU-countries in Central and Eastern Europe, namely Poland, Slovakia, Slovenia, the Czech Republic and Hungary. They are also the markets in which RBI has been operating the longest. In each of the countries, RBI is represented by a bank, leasing companies and other specialized financial institutions. In Poland, in addition to the main activity of the credit business with corporate customers and small and medium-sized enterprises (also via leasing and factoring), the focus is on retail banking and increasingly on affluent customers too. In Slovakia, RBI is likewise active in its business divisions of Corporate and Retail Customers, including leasing, while at the same time expanding banking services for affluent customers. In Slovenia, the Group provides universal banking services and also leasing, with Group units concentrating in particular on local corporate customers. In the Czech Republic, RBI offers real estate leasing in addition to traditional banking services with corporate and retail customers. In Hungary, the Group provides services to private and corporate customers via the Bank's tightly knit network and also through leasing companies. In addition, RBI is represented in Slovakia and the Czech Republic through branches of its direct bank ZUNO.
CIS Other This segment comprises Belarus, Kazakhstan and Ukraine. In Belarus, RBI is represented by a bank and a leasing company, whilst in Kazakhstan it is represented in the leasing business .In Ukraine RBI is represented by a bank, a leasing and a cardprocessing company and provides a full range of financial services and products via a tightly knit branch network.
Group Corporates The Group Corporates segment covers business with Austrian and international – notably Western European – corporate customers of the RBI AG managed from Vienna, and grouped within the Corporate Customers profit center. These customers include Austria's largest companies and multinational customers.. The segment also comprises the large corporate business with Central and Eastern European customers as well multinationals with CEE-business, included 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 commodity traders, documentary business, project financing and a range of cofinancing solutions. Corporate customer business in further countries is operated via the Singapore, China, Malaysia and Malta branches, which are also included in this segment. Financing companies in USA and Hong Kong, which focus on niche market customers with selected products, are also allocated to this segment.
The control of the separate segments is based on key indicators, which are assembled of several parameters like profitability, growth, efficency, constraints and the business mix. The target values of the separate key indicators are determined according to the specific market environment and adapted on demand.
The profitability is measured by the return on equity (ROE) and return on risk-adjusted capital (RORAC) based on the internal management systems. The return on equity shows the profitability of a CGU and is calculated as the proportion between profit/loss after deduction of non-controlling interests and the average consolidated capital employed. The return on equity reflects the yield of the capital of each segment. The calculation of the RORAC indicates the risk adjusted capital, which reflects the demand of own funds and which has to be brought forward in case of unexpected losses by the bank. In RBI this capital requirement is calculated within the economic capital model for credit, market and operational risk. That ratio shows the interest of the risk-adjusted equity (economic capital), which is no indicator according to IFRS. Within the different countries and business lines the real earned RORAC will be compared with the predetermined minimal value for the RORAC (Hurdle), which reflects the market adequate yield expectations.
The cost/income ratio represents the cost efficiency of the segment. The cost/income ratio shows the proportion of the administrative expenses and the operating income, meaning the sum of net interest income, net fee and commission income, net trading income and the other net operating income.
In accordance with Basel II framework, specific determining factors have to be considered. The proportion of core tier 1 capital to risk-weighted assets (core tier 1 ratio) is an important indicator if the capital underlying for the business volume is adequate. The industry sector specifics are tending to different risk weights within the calculation of risk-weighted assets according to the Austrian Banking Act (based on Basel II). These factors are crucial for the calculation of the regulatory minimum own funds requirements. Moreover the efficient use of the available capital is calculated internally, whereby the actual usage is brought in proportion to the theoretical available risk coverage capital. The long-term liquidity ratios are additionally restrictive and they are defined in accordance with the regulatory guidelines. The performance is also measured with the risk/earning ratio.
Business Mix The following key performance indicators are relevant for a reasonable and effective business structure, whereby 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.
Net provisioning ratio (average risk-weighted assets, credit risk) 0.19% (0.47)% – 1.38%
Profit/Loss after deduction of non-controlling interests 149,445 248,324 213,505 73,545 229,848
Raiffeisen Bank International AG (RBI AG) is registered at the Vienna Commercial Court (Handelsgericht Wien) under Companies Register number FN 122.119m. The company is domiciled at Am Stadtpark 9, 1030 Vienna. The consolidated financial statements are lodged in the Companies Register in accordance with Austrian disclosure regulations and published in the official register of the Wiener Zeitung. Raiffeisen-Landesbanken-Holding GmbH indirectly holds the majority stake in Raiffeisen Bank International AG and therefore RBI is entered into the consolitdated financial statements of Raiffeisen-LandesbankenHolding GmbH. Raiffeisen Zentralbank Österreich Aktiengesellschaft is the superordinated credit institution and RBI forms part of this credit institution group.
The consolidated financial statements were signed by the Management Board on 12 March 2012 and subsequently submitted to the Supervisory Board for review and notice.
Application of new and revised standards Since the beginning of 2011 the application of the revised IAS 24 became mandatory (Related party transactions; entered into force on January 1st, 2011). On the one hand it provides a partial exemption from disclosure requirements for businesses under the control, joint control or where there is significant influence by the public sector and on the other hand contains a clarification of the definition of a related party. RBI AG and its subsidiaries are not companies that are under the control, joint control or are significantly influenced by the public sector. Therefore, these changes have no material impact on the consolidated financial statements for 2011
Changes in IFRS 1 have been added (indicating relief concerning the statements for first time adoption of IFRS) which bring relief for the initial implementation of those additional disclosure requirements which were adopted in IFRS 7 in March 2009 for the first time. Since RBI is not a first time adopter of IFRS, IFRS 1 has had no effect on the consolidated financial statements for 2011.
Furthermore, in the framework of the "Improvements Project - 2010" the following standards and interpretations were amended.
The changes to IFRS 1 (Content of an interim report, exemption rules as deemed cost or cost of production, price controls; entered into force January 1st, 2011) bring relief from the initial application of IFRS. Since RBI is not a first timeadopter of IFRS, the IFRS 1 changes have no effect on the consolidated financial statements for 2011.
The amendment to IAS 1 (Presentation of financial statements; entered into force on January1st, 2011) clarifies that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. These changes have no material impact on the consolidated financial statements for 2011.
No early adoption of other new and amended standards and interpretations that have been adopted, but whose use is not mandatory, was made. This applies to IFRS 9 (Financial instruments; entry into force January 1st, 2015), IFRS 10 (Consolidated financial statements; entry into force on January 1st, 2013), IFRS 11 (Joint arrangements; entry into force January 1st, 2013), IFRS 12 (Details of shareholdings in other companies; entry into force on January 1st, 2013), IAS 27 Separate financial statements; entry into force on January 1st, 2013), IAS 28 (Investments in associates and joint ventures; entry into force January 1st, 2013), IFRS 13 (Assessment of fair value; entry into force on January 1st, 2013), IFRS 1 (First-time adoption of International Financial Reporting Standards; entry into force on July 1st, 2011), IAS 1 (Presentation of financial statements; entry into force July 1st, 2011), IAS 12 (Income tax, entry into force on January 1st, 2012) and IFRS 7 (Financial instruments: transfer of financial asset values; entry into force July 1st, 2011).
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 – with a year end reporting date on 30 June and which are therefore accounted for with interim financial statements – all fully consolidated companies prepare 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 consolidated financial statements are based on the principle of going concern. 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 statement of comprehensive income and the notes (11) income taxes, (25) other assets and (29) provisions for liabilities and charges.
Non-controlling interests are shown in the consolidated statement of financial position as part of equity, but separately from Raiffeisen Bank International shareholders' equity. The profit attributable to non-controlling interests is shown separately in the consolidated income statement.
Intra-group income and expenses are eliminated and temporary differences resulting from bank business transactions are shown partly in net interest income and partly in net trading income. Other differences were shown in the item “other net operating income.”
Impairment test for goodwill 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 estimation of the future development of the cash generating units starts with macroeconomic facts (gross domestic product, inflation expectations) and considers specific market conditions and the business policy. The data is then used to capture the terminal value on a going concern concept. Discounting of the earnings relevant for the measurement (expected dividends) is made on different country-specific equity capital cost rates, which are based on the capital asset pricing model. The individual components (risk-free interest rate, inflation difference, market risk premium, country-specific risks and beta factors) are defined by using external information sources. It was used to calculate the recoverable amount of a planning horizon of 10 years assumed to represent the medium-term developments in the CEE region better. The planning period is divided into two phases, whereby phase I covers the first ten years, phase II covers the period over ten years.
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).
Planning period 10 years 10 years 10 years 10 years 10 years
Increase in discount rate – 7.3 PP 9.6 PP 15.4 PP 13.4 PP
Included for the first time in the financial period 8 6 0 0
In the financial year 2011, the following companies were included into the consolidated financial statements for the first time: Name Share Included as of Reason
S.C. PLUSFINANCE ESTATE 1 S.R.L., Bucharest (RO) 100.0 % 1/9 Materiality
Julius Baer Multiflex SICAV-SIF Verto Recovery Fund, Vienna (AT) 100.0 % 1/12 Start of operations
The application of the relevant provisions in IAS 29 in connection with IFRIC 7 (Applying the restatement approach under IAS 29 Financial reporting in hyperinflationary economies) impacts the financial statements of RBI on 31 December 2011, as well as the financial statements of subsequent periods. Previously published consolidated financial statements of previous periods are not restated.
The application of IAS 29 (financial reporting in hyperinflationary countries) has the following effects on RBI: On 31 December 2011 all non-monetary assets were subjected to a one-off inflation adjustment starting from the date of purchase, or starting from the end of the last application of IAS 29 in 2006. This led to a revaluation of non-monetary balance sheet items, and, as a result thereof, to higher depreciation charges. In subsequent periods, these non-monetary items will be continued to be adjusted by the inflation factor for the reporting period.
The application of IAS 29 is made in Belarusian roubles, that is, before foreign currency translation.
According to IAS 39, all financial assets, financial liabilities and derivative financial instruments are to be recognized on the statement of financial position. A financial instrument is defined as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Measurement of financial instruments is effected according to the measurement categories to which they belong. They are defined as follows: 1. Financial assets or liabilities at fair value through profit and loss a. Trading assets/liabilities b. Designated financial instruments at fair value 2. Financial assets held-to-maturity 3. Loans and advances 4. Financial assets available-for-sale 5. Financial liabilities 1. Financial assets or liabilities at fair value through profit and loss a. Trading assets/liabilities Trading assets/liabilities are acquired or incurred principally for the purpose of generating profit from short-term fluctuations in market prices. Securities (including short selling of securities) and derivative financial instruments held-for-trading are recognized at their fair values. If securities are listed, the fair value is based on stock exchange prices. Where such prices are not available, internal prices based on present value calculations for originated financial instruments and futures or option pricing models for options are applied. Present value calculations are based on an interest curve which consists of money market rates, future rates and swap rates and does not include risk premium. As option price formulas Black-Scholes 1972, Black 1976 or GarmanKohlhagen are applied depending on the kind of option.
Derivative financial instruments held-for-trading are also shown under the item “trading assets” or “trading liabilities.” Positive fair values including accrued interest (dirty price) are shown under trading assets. Negative fair values are recorded under trading liabilities. Positive and negative fair values are not netted. Changes in dirty prices are recognized in net trading income. Derivatives that are used neither for trading purposes nor for hedging purposes are recorded under the item “derivatives.” Furthermore, any liabilities from the short selling of securities are shown in trading liabilities.
On the other hand, financial liabilities are designated as financial instruments at fair value to avoid valuation discrepancies with related derivatives. The fair value of financial obligations under the fair value option contains all market risk factors, including those related to the credit risk of the Group of the issuers.
In the fourth quarter of 2011 the worsening financial crisis led to inactivity in the markets to the extent that for the valuation of the credit risk the observable market prices were no longer available. Therefore, the valuation method was changed. A weighted credit spread was determined to assess own creditworthiness composed of the credit spreads from private placement volumes of the last 12 months and market indications for own benchmark issues. The weighting was made in proportion to the volumes placed. The calculation of the credit spread of subordinated emissions is based on the average observable subordinated spreads for the last 12 months in the iTraxx Senior Financials. The financial liabilities are mostly structured bonds. The fair value of these financial liabilities is calculated by discounting the contractual cash flows with a credit-risk-adjusted yield curve, which reflects the level at which the Group could issue similar financial instruments at the balance sheet date. The market risk parameters are evaluated according to similar financial instruments that are held as financial asssets. Valuation results for liabilities that are designated as a financial instrument at fair value are recognized in income from derivative financial instruments.
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 item “financial investments.” They are recognized at amortized cost and differences are amortized over the term to maturity and recognized in the income statement under net interest income. If impairment occurs it is taken account of when determining the amortized cost and 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 explicitly stated in IAS 39.
4. Financial assets available-for-sale The category of financial assets available-for-sale contains equity participations and those financial instruments that did not qualify for any of the other three categories. They are stated at fair value, if a fair value is reliably measurable. Valuation differences are shown in other comprehensive income and only recognized in the income statement under net income from financial investments if there is an objective indication of impairment. For equity instruments impairment exists, among other things, if the fair value is either significantly or for a prolonged period of time below cost.
In the Group, equity instruments classified as available-for-sale are written-off when the fair value over the last six months before the reporting date was consistently more than 20 per cent below carrying value, or in the last twelve months, on average, more than 10 per cent below carrying value. In addition to these quantitative indications (trigger events), qualitative indications from IAS 39.59 are considered. It is not permitted to include the appreciation in value in the income statement for equity instruments classified as available for sale, but rather this should be recognized in other comprehensive income under the item fair value reserve (available-for-sale financial assets). This means that only impairments or disposals are to be shown in the income statement.
Unquoted equity instruments, for which reliable fair values cannot be assessed regularly, are valued at cost less impairment losses and it is not possible to show an appreciation in value.
This kind of financial instruments is reported under the item “financial investments.”
In accordance with IAS 39.50, non-derivative financial instruments classified as trading assets and available-for-sale financial instruments can be reclassified as financial assets held-to-maturity and loans and advances in exceptional circumstancesThe effects resulting from such reclassifications are shown in the notes under (20) financial investments.
Quotation on an active market (level I) If market prices are available, the fair value is reflected best by the market price. This category contains equity instruments traded on the stock exchange, debt instruments traded on the interbank market, and derivatives traded on the stock exchange.
As the nature of the financial instruments is already shown by the classification of the items of the statement of financial position, the formation of categories is built in line with these items, which include financial instruments. Categories of financial instruments on the asset side are primarily cash reserve, loans and advances to banks, loans and advances to customers, trading assets, derivative financial instruments, derivatives for hedge accounting, and financial investments (among this category are separately financial assets not traded on an active market and which are shown at cost). Categories of financial instruments on the liability side are most notably liabilities from trading activities, derivative financial instruments, derivatives for hedge accounting, deposits from banks, deposits from customers, debt securities issued and subordinated capital.
Derivatives, which are used for hedging against market risk (excluding trading assets/liabilities) for a non-homogeneous portfolio, do not meet the conditions for IAS 39 hedge accounting. These are recognized as follows: the dirty price is booked under “derivatives” in the statement of financial position (positive fair values on the asset side and negative fair values on the liability side). The change in value of these derivatives, on the basis of the clean price, is shown in net income from derivatives and interest is shown in net interest income.
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.
b. Cash flow hedge 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, changes in its clean price are recorded as separate item in other comprehensive income. The ineffective portion is recognized in profit or loss on the other hand, in the position derivative financial instruments and designated liabilities.
In the case of identity of borrower and lender, offsetting of loans and liabilities with matching maturities and currencies occurs only if a legal right, by contract or otherwise, exists and offsetting is in line with the actually expected course of the business.
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 amount can be reliably estimated.
Credit risk is accounted for by making individual impairment provisions and portfolio-based impairment provisions. The latter comprise impairment provisions for portfolios of loans with identical risk profiles that are compiled under certain conditions. In the retail segment, provisions are built according to product portfolio and past due days. Individual and portfoliobased impairment provisions are not netted against corresponding receivables but are stated separately in the statement of financial position.
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.
Derecognition of financial assets A financial asset is derecognized when the contractual rights to the cash flows arising from a financial asset expire or when the Group has transferred the rights or if the Group has the obligation in case that certain criterion occurs to transfer the cash flows to one or more receivers. A transferred asset is also derecognized if all material risks and rewards of ownership of the assets are transferred.
Other shareholdings are categorized as “financial assets available-for-sale” upon initial recognition. Changes in value are therefore recognized in other comprehensive income. Impairment is shown in net income from financial investments.
Expected useful lives, residual values and depreciation methods are reviewed annually and any necessary future change of estimates are taken into account. If a permanent impairment is to be expected, extraordinary write-downs are carried out. In the event that the reason for the write-down no longer applies, a write-up will take place up to the amount of the amortized cost of the asset.
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. Risks and uncertainties are taken into account in the estimate. Long-term provisions are recognized at their present value.
The actuarial calculation of pension obligations for active employees is based on the following assumptions: Effective salary increase for active employees 3.0 2.5
Actuarial gains or losses calculated for pension obligations are recognized immediately in profit. No use was made of the corridor method according to IAS 19.92.
The biometrical basis for the calculation of provisions for pensions, severance payments and anniversary bonuses of Austrian companies is provided by AVÖ 2008-P-Rechnungsgrundlagen für die Pensionsversicherung (Computational Framework for Pension Insurance) – Pagler & Pagler, using the variant for salaried employees. In other countries, comparable actuarial parameters are used for calculation.
As of the fiscal year 2011, the general and specific principles, as represented on page (general HR part) for the allocation, for the claim and for the payment of variable remuneration (including the payment of the deferred portion of the bonus) for board members of RBI AG and certain Group units and identified staff ("personnel with an impact on the risk profile") are applied: 60 per cent of the annual bonus will be paid out on a proportional basis as 50 per cent cash immediately (up-front), and 50 per cent through a phantom share plan, which will pay out after a holding period (retention period) of one year. An exception to this are the banks in Bulgaria, 40 percent up-front portion and a retention period of two years, and the Czech Republic with a holding period of 1.5 years.
This item comprises subordinated capital and supplementary capital. Liabilities documented or undocumented are subordinated if, in the event of liquidation or bankruptcy, they can only be met after the claims of the other – not subordinated – creditors have been satisfied. Supplementary capital contains all paid-in own funds which are available for the company for at least eight years, for which interest is paid only from the profit and which can be repaid in the case of solvency only after all other debtors are satisfied.
Income tax credits and income tax obligations are recorded separately under the item “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 fulfill payment obligations on time as stipulated in the original terms of the debt instrument. At the date of recognition of a financial guarantee, the initial fair value corresponds under market conditions to the premium at the date of signature of the contract. For subsequent valuations the credit commitment has to be presented as provision according to IAS 37.
The Group has contingent liabilities from guarantees, credit guarantees, letters of credit and loan commitments recognized at face value. Guarantees are used in situations in which the Group guarantees payment to the creditor to fulfill the obligation of a third party. Irrevocable credit lines must be reported when a credit risk may occur. These include commitments to provide loans, to purchase securities or to provide guarantees and acceptances. Loan loss provisions for contingent liabilities and irrevocable loan commitments are reported under provisions for liabilities and charges.
The cash flow statement reports the change in the cash and cash equivalents of the company through the net cash from operating activities, investing and financing activities. Cash flows for investing activities mainly include proceeds from the sale, or payments for the acquisition of financial investments and tangible fixed assets. The net cash from financing activities shows all cash flows from equity capital, subordinated capital, and participation capital. All other cash flows are – according to international practices for financial institutions – assigned to operating activities.
Information on capital management, regulatory own funds and risk-weighted assets are disclosed under note (53) capital management and regulatory own funds according to the Austrian Banking Act.
The following table shows income statement according to IAS 39 measurement categories: Net gains (losses) on financial assets and liabilities held-for-trading 778,573 304,784
Financial assets and liabilities at fair value through profit or loss 378,787 364,155
Net gains (losses) on financial assets and liabilities at fair value through profit or loss 48,540 111,770
Net realized gains (losses) on financial assets not measured at fair value through profit and loss 8,147 2,879
Impairment on financial assets not measured at fair value through profit and loss (2,169) 1,144
The interest margin on the respective averages of the stated base has developed as follows: Per cent 2011 2010
Net provisioning for impairment losses on items reported on and off the statement of financial position is as follows: Individual loan loss provisions (1,176,630) (1,196,101)
Currency-based transactions contained an effect due to the application of IAS 29 hyperinflation in Belarus in the amount of € 84,345 thousand.
Net income from securities at fair value through profit and loss (135,430) 120,046
Net proceeds from sales of securities at fair value through profit and loss (10,800) 62,177
As a result of the material increase in regulatory own capital required by the European Banking Authority (EBA) use was made of IAS 39 AG22e in 2011 which allowed for the sale of parts of the held-to-maturity portfolio in the amount of € 2,551,102 thousand without triggering the sanctions concerning the premature sale of securities from the held-to-maturity-portfolio. As a result a gain of € 94,364 thousand was realized. Due to the requirements set by the EBA, the RZB credit institute group is required to have a 9 per cent core tier 1 capital ratio as at 30 June 2012.
General administrative expenses of the Group contain staff expenses, other administrative expenses and depreciation on tangible and intangible fixed assets. They break down as follows: Staff expenses (1,539,615) (1,452,948)
Expenses on severance payments, retirement benefits and anniversary payments (15,822) (26,761)
Legal, advisory and consulting expenses include audit fees of the Group companies which comprise expenses for the audit of financial statements amounting to € 8,018 thousand (2010: € 7,345 thousand) and tax advisory as well as other additional consulting services provided by the auditors amounting to € 5,035 thousand (2010: € 2,977 thousand). Thereof, € 2,312 thousand (2010: € 1,651 thousand) are accounted for the group auditor for the audit of the consolidated financial statement and the individual financial statement and € 346 thousand (2010: € 670 thousand) is accounted for the other consulting services.
Amortization of intangible fixed assets capitalized in the course of initial consolidation amounted to € 5,854 thousand (2010: € 5,994 thousand). This relates to scheduled amortization of the acquired customer base.
The depreciation of tangible and intangible fixed assets includes an impairment of € 20,040 thousand (2010: € 5,332 thousand).
Net proceeds from disposal of tangible and intangible fixed assets (9,421) (9,233)
Net expense from allocation and release of other provisions (11,558) (27,208)
The other net operating income includes impairment of goodwill amounting to € 187,318 thousand from the Ukraine, Hungary and Slovenia.
Income taxes break down as follows: Current income taxes (340,730) (357,066)
The following table shows the statement of financial position according to IAS 39 measurement categories: Assets according to measurement categories € 000
Financial assets at fair value through profit or loss 7,359,794 8,070,267
Loans and advances to banks classified regionally (counterparty’s seat) are as follows: Loans and advances to banks break down into the following bank segments: Multilateral development banks 5,591 9,983
Loans and advances to customers break down into asset classes according to Basel II definition as follows: Corporate customers – large corporates 55,222,286 49,201,202
Loans and advances to customers classified regionally (counterparty’s seat) are as follows: (17) Impairment losses on loans and advances
Loans and advances and loan loss provisions according to Basel II asset classes are shown in the following table: 31/12/2011
Pledged securities ready to be sold or repledged by transferee are allocated to the appropriate securities category in the table above. Further details are shown under note (40) genuine sale and repurchase agreements.
This item also includes the positive fair values of derivative financial instruments that are neither held for trading nor constitute fair value hedging instruments under IAS 39.
The carrying amount of the securities reclassified into the category loans and advances amounted to € 1,559,682 thousand at the date of reclassification in 2008. The carrying amount as of 31 December 2011 totaled € 806,491 thousand and the fair value was € 795,978 thousand. In 2011, a result from the reclassified securities of € 27,306 thousand (2010: € 41,306) was shown in the income statement. If the reclassification had not been made, a loss of € 36,298 thousand (2010: € 69,648) would have arisen.
Equity participations valued at amortized cost for which fair values could not be measured reliably amounted to € 87,946 thousand (2010: € 80,549 thousand).
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.
The shares in companies valued at equity are as follows: Investments in associates 5,017 4,961
Financial information on associated companies is as follows: € 000 Total assets Total revenues Profit/loss after taxes Shareholders´
Land and buildings used by the Group for own purpose 610,056 553,590
The fair value of investment property totaled € 122,804 thousand (2010: € 110,630 thousand).
Office furniture, equipment and other tangible fixed assets (781,561) 226 (149,200) 448,876
Write-ups, amortization, depreciation, impairment Carrying amount hereof hereof € 000 Cumulative Write-ups Depreciation 31/12/2010
Deferred taxes break down as follows: Deferred tax assets 358,021 462,688
Deposits from banks classified regionally (counterparty’s seat) break down as follows: Deposits from banks break down into the following bank segments: Multilateral development banks 1,917,587 1,311,415
Deposits from customers break down analog to Basel II definition as follows: Corporate customers – large corporates 33,187,082 26,924,075
RBI AG AT000B012000 senior private placements EUR 200,000 5.0% 16/10 /2012
In the reporting period, provisions for pending legal issues amounted to € 90,446 thousand (2010: € 107,755 thousand). In a Russian network unit, a provison of € 15,834 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. Beyond that, there were no single cases exceeding € 10,000 thousand.
Plan assets developed as follows: Plan assets at fair value as of 1/1 10,994 0
The reconciliation of DBO to provision is as follows: Defined benefit obligation (DBO) 35,986 24,873
The structure of plan assets breaks down as follows: Actual return on plan assets was as follows: Actual return on plan assets (656) 566
The partition of DBO into wholly/partly funded or wholly unfunded is as follows: Defined benefit obligation (DBO) 35,986 24,873
Negative fair values of derivatives in fair value hedges (IAS 39) 37,315 23,487
Negative fair values of derivatives in cash flow hedges (IAS 39) 5,387 453,276
Due to a change in the hedging strategy, cash-flow hedging was ended in the second quarter 2011 and replaced by portfolio hedges.
The following table contains borrowings that exceed 10 per cent of the subordinated capital: Issuer ISIN Type Currency Nominal value in € 000 Coupon1 Due
RBI AG XS0326967832 Supplementary capital EUR 600,000 5.770% 29/10/2015 1 Current interest rate, interest clauses are agreed. RFJ4 … RZB Finance (Jersey) IV Limited, St. Helier
In the reporting period, expenses on subordinated capital totaled € 215,149 thousand (2010: € 193,147 thousand).
The statement of changes in equity is shown on page 139.
The Annual General Meeting held on 8 July 2010 also authorized the Management Board to acquire own shares for the purpose of securities trading in accordance with Section 65 (1), item 7 of the Austrian Joint Stock Companies Act (AktG) during a period of 30 months from the date of the resolution, of up to a maximum of 5 per cent of the respective subscribed capital of the company. The consideration for each share to be acquired must not be less than half the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisiton. This authorization may be exercised in one or several installments by the company, by affiliated companies or, for their account, by third parties.
Convertible bonds In the Annual General Meeting held on 10 June 2008, the Management Board was given the authorization pursuant to Section 174 (2) of the Austrian Joint Stock Companies Act (AktG) to issue – with the approval of the Supervisory Board – convertible bonds, also in several tranches, within 5 years as of the date of the resolution, for a maximum total nominal amount of € 2,000,000 thousand, to which attaches a conversion or subscription right to obtain a maximum of 15,466,750 ordinary bearer shares of the company with a corresponding pro-rata share in the subscribed capital of a maximum of € 47,174 thousand – and to do so also indirectly by means of a guarantee for an issue of convertible bonds by a subsidiary company, of which the company holds 100 per cent directly, or indirectly, that entails conversion rights to obtain shares of that company – as well as to determine all further conditions (including the currency of the issue), the issue and the conversion procedure for the convertible bonds. The subscription right of shareholders is excluded.