An exceptional year! Your Investor Relations Team E-mail: investor.relations@ri.co.at Internet: www.ri.co.at Phone: +43-1-71707 2089
Equity (including minorities and profi t) 6,518 (1.6)% 6,622 4,590 3,277 2,177
Return on equity before tax 22.0% (3.7) PP 25.7% 27.3% 21.8% 22.2%
Return on assets before tax 1.77% (0.21) PP 1.98% 1.90% 1.68% 1.40%
Core capital ratio (Tier 1), total 8.1% (2.4) PP 10.5% 9.0% 8.0% 10.1%
Market capitalization on 31.12. in € million 2,985 (81.4)% 16,024 16,492 7,931
Group management report General economic environment 52 Banking sector development in Central and Eastern Europe 53 Performance and fi nancials 54 Detailed review of items in the income statement 59 Balance sheet 65 Equity 67 Funding 68 Risk management 70 Operations and IT 75 Human resources 77 Outlook 79
Consolidated fi nancial statements Income statement 114 Profi t development 115 Balance sheet 116 Statement of changes in equity 117 Cash fl ow statement 119 Segment reporting 121 Notes 125 Audit opinion 212 List of fully consolidated companies 214
The data has been derived from the Fischer World Almanac 2009.
Economy Gross national product in US$ billion 338.7 Gross national income per capita US$ 8,210
Import goods (Top 5) Machinery and transport equipment 38% Chemicals and related products 16% Metallurgic products 13% Minerals, fuels, and lubricants 11% Food and live animals 7%
Export goods (Top 5) Machinery and transport equipment 42% Metallurgic products 13% Chemicals and related products 12% Food and live animals 10% Minerals, fuels, and lubricants 4%
Top 5 countries of export Germany 26% Italy 7% France 6% United Kingdom 6% Czech Republic 6%
(World ranking: 112) Inhabitants 10.3 million (World ranking: 78) Capital Prague/Praha (1.2 million inhabitants) Other large Brno, Ostrava, Plzeň, cities Olomouc, Liberec Offi cial language Czech Currency Czech crown
Population Inhabitants per km2 130 Average growth 0.4% Czechs 90.3% Moravians 3.7% Slovaks 1.9% Other 4.1%
Top 5 countries of import Germany 28% PR China 8% Poland 6% Slovakia 5% Italy 5%
Population Inhabitants per km2 110 Average growth 0.1% Slovaks 85.8% Hungarians 9.7% Roma 1.7% Other 2.8%
Religion Roman Catholic 69% Protestant 8% Greek Catholic 4% Other 19%
Economy Gross domestic product in US$ billion 55.0 Gross national income per capita US$ 9,610
Top 5 countries of export Germany 22% Czech Republic 12% France 7% Austria 6% Hungary 6%
Raiff eisen International in Slovakia Balance sheet total in € million 10,973 Branches 162 Employees 3,885
Population Inhabitants per km² 99 Average growth 0.3% Slovenians 83.1% Serbs 2.0% Croats 1.8%
Economy Gross domestic product in US$ billion 37.3 Gross national income per capita US$ 18,660
Import goods (Top 5) Machinery and transport equipment 34% Chemical products 12% Semi-fi nished products 10% Petroleum and products 6% Iron and steel 6%
Top 5 countries of import Germany 19% Italy 18% Austria 13% France 5% Croatia 4%
Raiff eisen International in Slovenia Balance sheet total in € million 1,509 Branches 16 Employees 344
Offi cial name Republic of Croatia/ Republika Hrvatska Surface area 56,542 km2
Population Inhabitants per km2 79 Average growth 0.0% Croats 89.6% Serbs 4.5% Other 5.9%
Import goods (Top 5) Petroleum and petroleum derivatives 12% Chemical products 11% Road vehicles 9%
Top 5 countries of import Italy 16% Germany 14% Russia 10% PR China 6% Slovenia 6%
Offi cial name Bosnia and Herzegovina/Bosna i Hercegovina Surface area 51,129 km2
Economy Gross domestic product in US$ billion 12.3 Gross national income per capita US$ 3,230
Export goods (Top 5) Machinery and devices 13% Aluminium and products 11% Wood and wood products 9% Minerals, fuels, and lubricants 8% Chemical products 7%
Population Inhabitants per km2 110 Average growth 0.6% Albanians 95% Other 5%
Export goods (Top 5) Clothing, textiles, shoes 48% Building material and metals 16% Mineral fuel, petrol, electricity 15% Food, beverages, tobacco 7% Machinery and equipment 4%
Top 5 countries of export Italy 68% Greece 8% Germany 2% Macedonia 2% Turkey 2%
Raiff eisen International in Albania Balance sheet total in € million 2,048 Branches 102 Employees 1,427
(World ranking: 161) Inhabitants 2.1 million (World ranking: 139) Capital Pristina/Priština (166,000 inhabitants) Other large Prizren, Ferizaj, cities Mitrovica, Gjakova, Peja Offi cial Albanian, Serbian languages Currency Euro
Economy Gross domestic product in € billion 2.2 Gross national income per capita n/a
Top 4 countries of import EU and Switzerland 36% Macedonia 19% Serbia (incl. Montenegro) 14% Turkey 7%
Top 4 countries of export EU and Switzerland 37% Macedonia 20% Serbia (incl. Montenegro) 14% Albania 11%
Raiff eisen International in Kosovo Balance sheet total in € million 598 Branches 47 Employees 720
Offi cial name Republic of Serbia/ Republika Srbija Surface area 77,474 km2
(World ranking: 114) Inhabitants 7.4 million (World ranking: 95) Capital Belgrade/Beograd (1.3 million inhabitants) Other large Novi Sad, Niš, cities Kragujevac, Subotica Offi cial language Serbian Currency Serbian dinar
Religion Orthodox Christians (majority) n/a Catholics n/a Muslims n/a Other n/a
Import goods (Top 5) Machinery and transport equipment 29% Mineral oil and lubricants 17%
Raiff eisen International in Serbia Balance sheet total in € million 2,913 Branches 103 Employees 2,210
Offi cial name Republic of Bulgaria/ Republika Bălgarija Surface area 110,994 km2
(World ranking: 101) Inhabitants 7.7 million (World ranking: 93) Capital Sofi a/Sofi ja (1.1 million inhabitants) Other large Plovdiv, Varna, Burgas, cities Ruse, Stara Zagora Offi cial language Bulgarian Currency Lew
Population Inhabitants per km2 69 Average growth (0.6)% Bulgarians 83.5% Turks 9.5% Roma 4.6% Other 2.4%
Economy Gross domestic product in US$ billion 31.5 Gross national income per capita US$ 3,990
Import goods (Top 5) Machinery, means of transport 29% Industrial goods 21% Mineral fuel 20% Chemical products 9% Raw materials 8%
Top 5 countries of import Russia 12% Germany 12% Italy 9% Ukraine 7% Turkey 7%
Export goods (Top 5) Industrial goods 29% Diverse fi nished products 19% Machinery, equipment, means of transport 15% Mineral fuel 15% Chemical products 8%
Raiff eisen International in Bulgaria Balance sheet total in € million 4,766 Branches 197 Employees 3,708
Population Inhabitants per km2 91 Average growth (0.2)% Romanians 89.5% Hungarians 6.6% Roma 2.5%
Economy Gross domestic product in US$ billion 121.6 Gross national income per capita US$ 4,830
Import goods (Top 5) Supply products to industry 35% Capital goods without means of transport 22% Means of transport and parts 15% Durable consumer goods 12% Fuel and petrol, mineral oil 11%
Top 5 countries of import Germany 17% Italy 13% Hungary 7% Russia 6% France 6%
Raiff eisen International in Romania Balance sheet total in € million 6,561 Branches 557 Employees 6,899
Population Inhabitants per km2 78 Average growth (0.7)% Ukrainians 77.8% Russians 17.3% Belarusians 0.9% Other 4%
Religion Orthodox Christian (majority) n/a Catholics 10% Muslim 4.3% Other n/a
Economy Gross domestic product in US$ billion 106.5 Gross national income per capita US$ 1,940
Top 5 countries of export Russia 26% Turkey 7% Italy 5% Poland 3% Germany 3%
Population Inhabitants per km² 47 Average growth (0.4)% Belarusians 81% Russians 11% Poles 4%
Chemicals, plastics 11% Iron metal, iron metal products 9% Food products 8%
Export goods (Top 5) Mineral products, primary energy sources 36% Chemicals, plastics 14% Means of transport 12% Food products 7% Iron metal, iron metal products 7%
Population Inhabitants per km² 8.3 Average growth (0.5)% Russians 79.8% Tatars 3.8% Ukrainians 2.0% Other 14.4%
Raiff eisen International in Russia Balance sheet total in € million 14,952 Branches 236 Employees 10,276
Ladies and gentlemen, Although 2008 was a year shaped by the great challenges of the global fi nancial crisis, we managed to achieve another record result. That success was due to our business model, which is based on diversifi cation in our bank’s geographical reach, products, and customer groups. Moreover, we took decisive steps to safeguard our company for the long term in an increasingly diffi cult market environment.
Particularly in the current economic environment, it is important to point out that our home market again proved to be the growth engine of Europe last year. The convergence story of Central and Eastern Europe is not over – that region will continue to off er above-average potential in the future. The continuing growth of some of the region’s countries supports this view and stands in contrast to developments in Western Europe and many other parts of the world.
We are also positioned very well for this new and challenging market environment. Raiff eisen International’s leading branch network in the region, our presence in 17 markets, and our expertise and service orientation in corporate and personal banking business enabled us to again acquire approximately a million new customers in 2008. We thus had more than 14.7 million customers at the end of the reporting period – a good starting point for the current year.
Herbert Stepic Chairman of the Managing Board Raiff eisen International Bank-Holding AG
As in the past, there was open dialogue between the Managing Board and the Supervisory Board of Raiff eisen International in the reporting period. The Managing Board of Raiff eisen International regularly informed the members of the Supervisory Board and the Committees in a timely and comprehensive manner about all issues relevant to business development, including the company’s risk situation and risk management and that of material Group entities. The Managing Board consulted with the Supervisory Board about the Company’s strategic orientation and discussed the status of the strategy’s implementation at regular intervals. The information was in all cases provided to the Supervisory Board in a timely manner, which enabled it to make wellfounded decisions and fulfi ll its supervisory duties.
At the meeting on 10 June 2008, the distribution of Supervisory Board remuneration was decided in accordance with the resolution of the Annual General Meeting.
The Chairs of the Working, Audit, and Personnel Committees reported regularly to the Supervisory Board about the work of the respective committee.
The Annual General Meeting elected Johann Strobl to the Supervisory Board on 10 June 2008. His period in offi ce will end at the Annual General Meeting that will decide on the discharge of board members for 2012. The Supervisory Board plans to propose at least one more candidate with international banking experience for election to the Supervisory Board at the next regular Annual General Meeting.
Raiff eisen International’s leading role in Central and Eastern Europe is shown not least by the ranking of its network banks in their individual markets. At the end of the year, 7 network banks were among the top three banks in their respective countries.
Awards from respected institutions Raiff eisen International’s importance is further evidenced by the many awards given to the company in 2008 by internationally recognized institutions. Raiff eisen International has received some of those prizes already over several consecutive years. The most important awards in the reporting period came from Global Finance, Euromoney, and The Banker.
Data as of Balance sheet 31 December 2008 total in € million Change1 Business outlets Number of staff
Total, Raiff eisen International 85,397 17.4% 3,231 63,376 1 Change of balance sheet total versus 31 December 2007. Growth in local currencies differs due to fluctuating euro exchange rates.
My assessment of last year has two sides. On the one hand, we achieved another record result in 2008, and our profi t after tax and minority interests grew by signifi cantly more than 10 per cent compared with 2007. That is an impressive accomplishment that many competitors envy. On the other hand, the global fi nancial crisis has led to a signifi cantly worsened environment. Funding facilities are severely limited and more costly than before. And to top it off , the real economy is also suff ering considerably from these conditions, and the consequences of that will fi nd expression in rising insolvencies and increased unemployment fi gures. Our stock price has also suff ered substantially in the wake of this situation and the pessimistic expectations of market observers.
Development in Eastern Europe has been viewed much more negatively since last autumn. What do you think of that assessment?
Risk aversion has risen very sharply on the global markets since Lehman Brothers fi led for Chapter 11 protection in mid-September. That has put pressure on national economies worldwide, including the emerging countries of Central and Eastern Europe. The market also diff erentiates less according to individual regions or countries in such phases. The fact is that the domestic saving ratio in Central and Eastern European countries is not suffi cient to cope with the economic catch-up process within one to two decades, a time-frame that would be reasonable to expect of the population. It is therefore right and important to rely on foreign funds. That is done by way of foreign direct investments or through loans to businesses and households. Economically, that makes very clear sense, and in exceptional circumstances such as now exist, great challenges and also risks arise. Nevertheless, it is very important that these capital fl ows not be interrupted and, if necessary, that they be assumed temporarily by institutions like the International Monetary Fund and the European Union, as has occurred in Hungary and Ukraine. Of course, we will supply our subsidiary banks with suffi cient capital, so they can continue to make important contributions to the transformation process, but we cannot ensure the functioning and growth of entire national economies.
Is the growth phase in Central and Eastern Europe over, then?
We have adjusted our lending policy to the general conditions and give even more weight to the aspect of risk evaluation, which has traditionally played a great role for us. We are concentrating now on short maturities and have sharply reduced foreign currency loans to private individuals or – as in the case of the Swiss franc – stopped making them altogether. We are assigning even greater importance to collateral and collection of overdue receivables. On the cost side, we realized opportunities to increase effi ciency throughout the past year, and numerous projects – for example, in the area of procurement – already contributed substantially to improving our cost/income ratio before the crisis. Finally, stopping our branch expansion will also lead to cost relief.
On the personnel side, we put a freeze on hiring at the end of September, with exceptions only for strategically important positions in areas like risk management or IT. We began the process of reducing personnel in Ukraine. That had been planned for a long time, and now coincides with the crisis. We have also been forced to take such a step in Hungary, and we do not do so lightly.
Our funding rests on several strong pillars. We are in the fortunate position of being able to cover about 60 per cent of our needs by means of customer deposits. Raiff eisen Zentralbank (RZB) provides more than 20 per cent, and we obtain the rest through the syndication market or supranational organizations like the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC). We have maintained traditionally good relationships with those organizations and others for many years
And how is RZB doing, your majority shareholder, of whose managing board you are deputy chairman?
In addition to its strong foothold in Austrian corporate customer business and in Eastern Europe, RZB has expanded its business with other banks and investment banking in recent years. Of course, it is therefore aff ected by negative market valuations of its investment
For exactly the same reasons that we have been praised in the past, we are now being punished: our orientation to growth markets and our strong focus on the CIS and especially on Russia. Moreover, stocks in general and bank stocks in particular are being avoided because of the fi nancial crisis. So, our stock price has completely disconnected from our actual performance. That is very regrettable, but the market is obeying its own laws. I am personally suff ering from this development like all other shareholders, including many of our employees. One simply has to accept that the trend is not going to go in the desired direction for a while. In any case, the 22 research fi rms that evaluate Raiff eisen International view us far better than the market does at present. Our solid business model, with risk diversifi cation across 17 markets and all customer segments, large customers, small and medium-sized enterprises, and private individuals, should ensure our investors better times again in the medium term.
The H. Stepic CEE Charity focuses on assisting young people during their occupational education. In addition to some smaller actions, the organization is implementing its fi rst large projects in Bosnia and Herzegovina and in Ukraine and is developing others. I am grateful to all the members, donors, and staff volunteers without whose dedication these initial successes would not have been possible. Of course, hard times lie ahead here, too, as the crisis is regrettably lowering the propensity to donate. But especially in these times, it is important to stick together and not to forget those who have it much worse. Solidarity, another pillar of the Raiff eisen philosophy, is now regaining a very special signifi cance.
Although the government measures at fi rst served to calm the fi nancial markets, it became increasingly clear that the real economy would be aff ected on a massive scale. Within a few weeks, more and more businesses from nearly all parts of the manufacturing sector reported dramatic sales and earnings declines. As a result, economic activity across the globe suffered rapid and dramatic losses to momentum and is currently in a recession.
The extraordinary developments on the international fi nancial markets and the real economic decline that began in the third quarter of 2008 critically infl uenced the price trend of Raiff eisen International shares in the past year. The shares began the year at a price of € 103.60, which initially held steady, not least due to good business fi gures, and marked its high point for the year in May at € 110.20. It fell from that level to values around € 80 by the end of August and thus developed in line with the Austrian Traded Index (ATX) and the benchmark index for European banks, the Dow Jones Euro Stoxx Banks.
The price decline of Raiff eisen International shares accelerated with the signifi cant worsening of the market environment due to the fi nancial crisis from September onward. The great uncertainty of many market participants was refl ected in extreme volatility, which led on individual trading days to price fl uctuations in the double-digit percentage range. Particularly sharp declines were registered in stocks with business related to the markets of Central and Eastern Europe, including Raiff eisen International. The publication of business fi gures on the third quarter at the beginning of November, which were on average above analysts’
Price performance compared with the ATX and DJ Euro Stoxx Banks Issue price of € 32.50 = Index Basis expectations, did nothing to change these share price declines. At year’s end, shares were quoting at € 19.30 and had thus lost a total of 81 per cent compared with the beginning of the year. The ATX fell in the same period by 61 per cent, and the Dow Jones Euro Stoxx Banks by 64 per cent. Raiff eisen International’s market capitalization amounted to € 3 billion at the end of 2008. At this report’s editorial deadline on 27 February 2009, the share price stood at € 14.99.
By way of its 100 per cent subsidiary Cembra Beteiligungs GmbH, RZB continues to be Raiff­ eisen International’s single largest shareholder, with a stake of about 70 per cent. Accord­ ingly, the free float, the usual reference point for weighting Raiffeisen International in share indices, is unchanged at the preceding year’s level of about 30 per cent.
Private investors own about 3 per cent of the shares, while institutional investors account for the remaining 28 per cent and thus represent a focal point of the shareholder structure. The proportion held by private individuals – mostly from Austria – thus remained constant com­ pared with the preceding year.
From a geographical standpoint, there were partly larger shifts in the shareholder structure concerning the shares held by institutional investors in 2008. Most of these shares re­ main in the hands of European institutional investors, who account for 61 per cent. Inves­ tors from Great Britain own a large part with 19 per cent, followed by Austria with 16 per cent. The remaining 26 per cent are allocable to shareholders from other EU countries. In­ vestors in the United States account for about 38 per cent of the shares in institutional portfo­ lios, and Asian investors for a smaller stake.
Organizing Raiffeisen International’s third an­ nual Capital Markets Day on 26 September 2008 was a highlight of investor relations’ activities. After Austria (Vienna) and Ukraine (Kiev) in the previous years, Russia (St. Peters­ burg) was chosen this time as the event’s ven­ ue. Over 130 participants from the world’s most important financial centers accepted the company’s invitation to the former seat of the Russian tsars.
The event began with a tour of a Raiffeisenbank branch in St. Petersburg, where represen­ tatives from the financial community obtained a first­hand picture, among other things, of how successfully Impexbank had been integrated into Raiffeisenbank in 2007. In addition, the Capital Markets Day offered analysts and inves­ tors an excellent opportunity to communicate with the Group’s management and the manag­ ing boards of network banks from Romania, Russia, and Hungary about business devel­ opment and the Group’s strategy. Questions about current development in the markets of Central and Eastern Europe due to the finan­ cial crisis and about the assessment of that by Raiffeisen International’s management was a focus of the talks.
ATX Prime 57 5% DJ Euro Stoxx 318 < 1% DJ Euro Stoxx Banks 40 < 1%
All information documents from the Capital Market Day, the presentations related to the conference calls, and the latest corporate presentation are available to interested parties at the Raiff eisen International website: www. ri.co.at → Investor Relations → Financial Reports & Figures → Presentations.
The number of reports by analysts on Raiff eisen International increased again in the past year. Altogether, 22 major international investment banks and analyst fi rms watched the Raiff eisen International stock and wrote 137 reports about it in 2008. Their investment recommendations may be viewed at www.ri.co.at → Investor Relations → RI Shares → Analyst Reports.
Raiff eisen International’s Annual General Meeting for the 2007 fi nancial year was held on 10 June 2008 at the Austria Center Vienna (ACV). About 700 investors, consisting primarily of private individuals, were informed directly by the Managing Board about the company’s development. It was thus one of the best-attended shareholder gatherings in Austria. Altogether, almost 73 per cent of the voting stock was represented at the Annual General Meeting.
The welcoming speech by the Supervisory Board chairman and presentations by Managing Board members were webcast live, as in previous years, and may still be downloaded at www.ri.co.at → Investor Relations → Events → Annual General Meeting. The Annual General Meeting accepted the Managing Board’s dividend proposal of € 0.93 per share and all its other motions with a large majority of votes. For the year 2007, € 143.8 million were distributed to the shareholders of Raiff eisen International.
Dividend proposal A profi t distribution for 2008 of € 0.93 per share, as in the previous year, will be proposed by the Managing Board to the Annual General Meeting. If the shareholders accept, the total dividend payout will amount to € 143.8 million. The payment will be made on 17 June 2009 to entitled shareholders through the banks that maintain their securities accounts. The dividend and its amount will be determined by reference to the holdings of Raiff eisen International shares on 16 June 2008.
Share details ISIN AT0000606306 Ticker symbols RIBH (Vienna Stock Exchange) RIBH AV (Bloomberg) RIBH.VI (Reuters) Market segment Prime Market Issue price per share at IPO (25 April 2005) € 32.50 Issue price per share at capital increase (5 October 2007) € 104.00 Number of shares issued as of 31 December 2008 154,667,500 Average number of shares in 2008 153,599,079
Investor relations E-mail: investor.relations@ri.co.at Internet: www.ri.co.at → Investor Relations Phone: +43-1-71707 2089 Fax: +43-1-71707 2138
Persons who are 68 years or older may not be appointed as member of the Managing Board or be reappointed for another term in offi ce.
Date End of term Managing Board Year born fi rst appointed in offi ce
Composition of the Supervisory Board The Supervisory Board currently has six members: Independence of the Supervisory Board
The Supervisory Board of Raiff eisen International stipulates the following criteria for the independence of supervisory board members of a company according to Rule 53 of the Austrian Corporate Governance Code: ■ The supervisory board member shall not have served as member of the management board or as management-level staff of the company or one of its subsidiaries in the past fi ve years.
■ The supervisory board member shall not have acted as auditor of the company or have owned a share in the auditing company or have worked there as an employee in the past three years.
The exercise of functions within the group or the mere exercise by a supervisory board member of duties as a member of the board of management or as a managing director shall not result in the relevant enterprise being considered an “enterprise in which the supervisory board member has a substantial economic interest” unless the circumstances give reason to believe that the supervisory board member draws a personal benefi t from such enterprise.
Date End of Supervisory Board Year of birth fi rst appointed term in offi ce
Walter Rothensteiner, 1953 11 May 2001 Regular Annual Chairman General Meeting
Patrick Butler 1957 28 September 2004 Regular Annual General Meeting 2009
Karl Sevelda 1950 11 May 2001 Regular Annual General Meeting 2011
Stewart D. Gager 1940 24 January 2005 Regular Annual General Meeting 2009
Johann Strobl 1959 10 June 2008 Regular Annual General Meeting 2013
The bylaws of the Supervisory Board regulate its organization and assign certain tasks to the Working, Audit, and Personnel Committees. The Committees are composed as follows: Meeting participation
Furthermore, no contracts subject to approval as defi ned by the Austrian Stock Corporation Act were made with Supervisory Board members in 2008.
A division of business operations governs the tasks belonging to the individual areas of responsibility in the Managing Board: Decision-making powers of the Committees
The Working Committee is responsible for all matters assigned to it by the full Supervisory Board. It is thus called upon to approve the transactions and measures not reserved to the Supervisory Board. Those include, in particular, the establishment and dissolution of subsidiaries as well as the acquisition of shareholdings up to a certain book value amount, the making or dissolution of syndication or voting trust agreements with co-shareholders, the assumption of duties in the corporate bodies of other enterprises by Managing Board members, or the appointment of persons to managing boards and supervisory bodies of Group lending institutions. The Working Committee furthermore approves the extension of loans and credits to Group enterprises from a certain amount upward.
The Personnel Committee concerns itself with the matters of remuneration of the Managing Board members and the employment contracts of the Managing Board members. It is specifi cally responsible for approving the bonus allotment and the allocation of shares from the share incentive program to the Managing Board members.
1 The Learning & Development unit reports to Rainer Franz. 2 Outsourced to RZB.
The share incentive program (SIP) is a stock-based remuneration program for the Managing Board, members of the managing boards of network banks, and executive personnel with a term of three years per tranche. At the beginning, a number of shares are conditionally allotted to benefi ciaries that correspond in value to a fi xed percentage of the basic annual remuneration. The number of shares actually allotted at the end of the term is geared to two equally weighted performance parameters – the average return on equity achieved during the term in comparison with a target value fi xed per tranche and the TSR (total shareholder return) ranking in comparison with the banks listed in the DJ Euro Stoxx banks subindex.
Number Value at a share Number of of shares price of € 81.17 on shares actually Group of persons due allotment date in € transferred
Executives of Raiff eisen International and other enterprises associated with it 24,818 2,014,477 15,362
The Managing Board contracts are entered into for the duration of the term in offi ce. In case duties or employment are ended, two members of the Managing Board have rights to severance benefi ts in accordance with the Austrian Salaried Employees Act (Angestelltengesetz, AngG), two members in accordance with contractual stipulations, and two members in accordance with the Austrian Company Pension Fund Act (Betriebliches Mitarbeitervorsorgegesetz, BMVG). The severance rights according to the AngG or to contractual stipulations generally lapse upon notice of termination by the employee except in the case of a Managing Board member.
The Annual General Meeting resolved on 10 June 2008 to pay the Supervisory Board members total remuneration of € 330.000 and assigned to the Supervisory Board itself the task of distributing that amount.
Directors and offi cers (D & O) property damage and liability insurance was taken out again last year for the Managing Board and Supervisory Board with UNIQA Sachversicherung AG.
Managing Board members of bank subsidiaries associated with Raiff eisen International 108,578 27,144 162,867
Report on external evaluation Transparency in matters of corporate governance is of special importance for Raiff eisen International. It therefore undertakes not “merely” to comply with the ACGC, but rather actually lives and breathes it. In the reporting period, all of the ACGC’s L and C rules were complied with. L rules (Legal Requirement) are based on compulsory legal regulations. C rules (Comply or Explain) are to be complied with, and any divergence must be explained and justifi ed to achieve behavior in conformity with the Code.
Members of Raiff eisen International’s Managing Board must disclose material personal interests in transactions of the Company and Group enterprises and other confl icts of interest to the Supervisory Board. They must also inform the other Managing Board members.
Managing Board members who perform management functions for other enterprises are obligated to work towards achieving a fair balance of the interests of the enterprises involved.
If Supervisory Board members get into confl icts of interest, they must inform the Chairman of the Supervisory Board of that without delay. If the Chairman gets into confl icts of interest, he must disclose them to the Deputy Chairman without delay.
Accounting and fi nancial statement auditing The Raiff eisen International Group’s accounting is performed according to the provisions of the International Financial Reporting Standards (IFRS). The annual fi nancial statements of Raiff eisen International are prepared according to the provisions of the Austrian Commercial Code (UGB). The consolidated fi nancial statements are published within the fi rst three months of the fi nancial year following the reporting period, and interim reports at the latest 45 days after the end of the respective reporting period.
The 2008 Annual General Meeting again appointed KPMG Austria GmbH, Wirtschaftsprüfungs - und Steuerberatungsgesellschaft, Vienna as auditor. The auditor appointed by the last Annual General Meeting received compensation of € 27,524 for other services ordered by the Company. For the current fi nancial year, no consulting services have so far been agreed beyond the previous year’s extent. The auditor confi rms that it has been issued a certifi cate of a quality assurance system and no reasons for exclusion or partiality exist. Besides preparing the legally prescribed audit report and performing an auditor’s reporting duty, the auditor writes a management letter to the Managing Board that also contains references to weaknesses in the Company. The letter is brought to the attention of the Supervisory Board Chairman, who ensures that it is dealt with in the Audit Committee and a report of that is made to the Supervisory Board.
Five core principles To defi ne today’s interpretation of corporate responsibility based on Raiff eisen’s ideas and clearly communicate it to the Group’s more than 63,000 employees in 17 markets, the concept has been broken down into the following fi ve principles: ■ A future always needs a past
Raiff eisen International has its roots in a group of companies with a long tradition and strong brand. This solid foundation of values with its focus on social welfare, created by Friedrich Wilhelm Raiff eisen in the 19th century, has been adapted to the present and expanded. So, corporate responsibility can now be equated with “doing business à la Raiff eisen.”
Raiff eisen International’s business activity on its 17 markets in Central and Eastern Europe has an appreciable eff ect on their national economies. Aware that that also entails great responsibility, Raiff eisen International aims at a long-term commitment with positive eff ects for the region, such as stimulating growth through capital investment and employment.
A comprehensive presentation of Raiff eisen International’s activities may be found in the RZB Group’s Corporate Responsibility Report published in March 2009. That report is also available on Raiff eisen International’s website at www.ri.co.at → Investor Relations → Financial Reports & Figures.
Infl ation rates in Central and Eastern Europe continued to climb in the fi rst half of 2008, in some cases signifi cantly. In addition to an increase of oil prices to record levels, a sharp rise of food prices was responsible for that. That was caused, on the one hand, by increased world market prices and, on the other, by weather-related crop failures in the region in 2007. Another factor is that the proportion of food in total consumer expenditures is signifi cantly higher in Central and Eastern Europe than in Western Europe. A development in the opposite direction began in the second half of the year. The emerging global economic slowdown ended speculation on further oil price increases, and a good harvest in the region simultaneously contributed to a visible easing of food prices.
This situation had an impact on economic activity in Central and Eastern Europe by way of signifi cantly weakening Western European demand for exports from the region and declining capital investments in the region. Moreover, credit growth declined signifi cantly in view of the diffi culty and high cost of obtaining external funding. Speculation and capital outfl ows forced Hungary and Ukraine to seek fi nancial support from the International Monetary Fund. Hungary additionally obtained assistance from the EU, which thus underscored its willingness and ability to stand by its more vulnerable new member states in fi nancial distress. At the same time, it represents an important signal to Romania and Bulgaria as well as the EU candidates of Southeastern Europe, whose stability is of great political importance for Europe.
The decline of credit growth was less pronounced in countries where the relationship between loans and deposits was balanced or came out in favor of deposits. The shortage and higher cost of funding after the collapse of US investment bank Lehman Brothers slowed bank growth in the region further in the second half of 2008. Increasing reluctance by banks to extend credit in foreign currencies also played a signifi cant role in this. Overall, deposit business gained increasingly in importance, after having been less of an emphasis in recent years.
Personal loans in per cent of GDP vs. GDP per capita (at purchasing power parities)
Note: Data as of end 2008, source: Thomson Financial Datastream, wiiw, Raiffeisen RESEARCH GDP per capita (PPP), in €
consolidation, please see the relevant section of the notes on page 214. Neither in the year under review nor in the preceding year were there any material additions or disposals in the scope of consolidation that would have impaired the comparability of the two periods.
Executive summary Profi t from operating activities grows by almost 40 per cent
Despite an unfavorable market environment worldwide, Raiff eisen International achieved its best result ever in 2008. Operating income for the full year increased by almost 40 per cent to € 2,247 million. Operating income for the fourth quarter of 2008 was 10 per cent above that of the third quarter and was therefore higher than all previous quarters.
absolute totals. As in the past, payment transfer business (plus 14 per cent) was the most important income component, with a 43 per cent share of net commission income.
General administrative expenses grew in the year under review by 21 per cent, or € 449 million, to € 2,633 million. In contrast to the preceding year, other administrative expenses rose by 27 per cent to € 1,113 million and therefore more than staff costs did. Staff costs grew by 18 per cent in 2008 to € 1,276 million. The average number of employees rose by 11 per cent, or 5,904, to 61,454 and therefore less signifi cantly than in the preceding years. At 21 per cent, Southeastern Europe showed the largest increase.
General administrative expenses increased by 21 per cent in the past year, signifi cantly less than operating income did at 29 per cent. That had a positive eff ect on the cost/income ratio, a key measure of bank effi ciency that sets operating expenses in relation to operating income. It improved by 3.6 percentage points from 57.6 to 54.0 per cent.
Raiff eisen International achieved record earnings in 2008. Profi t before tax rose by 16 per cent from € 1,238 million to € 1,429 million. However, because of signifi cantly higher provisioning for impairment losses (plus 119 per cent), this increase was lower than that of operating profi t. The main reason for that was the signifi cant slowing of economic activity in Central and Eastern Europe, which did not affect earnings until the fourth quarter of 2008. Earnings before tax were 60 per cent lower in the fourth quarter of 2008 than in the third quarter because of higher risk provisioning and the negative eff ect of a partly ineff ective capital hedge.1,297
Just under two-thirds of provisioning for impairment losses (€ 507 million) was allocated for retail customers, and the rest was mostly due to corporate customers (€ 269 million). The regional emphasis of new provisioning for impairment losses was in the CIS with a share of 46 per cent, or € 356 million, which yields a risk/earnings ratio of 28 per cent for the region. Central Europe also showed an increased need of provisioning, and new allocations there of € 265 million resulted in a risk/earnings ratio of 26 per cent. At € 159 million, new allocations in Southeastern Europe grew signifi cantly from the preceding year’s very low level, but the risk/earnings ratio was the Group’s lowest at 17 per cent.
Income taxes increased by 33 per cent to € 351 million in 2008 and hence disproportionally relative to profi t before tax. The eff ective tax rate rose from 21.3 to 24.6 per cent. That was due to the diff erent distribution of profi ts. The eff ective tax rate was the highest in the CIS at 29 per cent, while the lowest rate was registered in Southeastern Europe at 16 per cent.
Profi t after tax grew by 11 per cent from € 973 million to € 1,078 million. That was primarily due to a 40 per cent rise of operating income, which was partly off set, however, by higher income taxes and signifi cantly increased provisioning for impairment losses. Other profi t/loss fell to minus € 38 million (2007: minus € 13 million) and included, among other things, net income/loss from derivative fi nancial instruments (minus € 20 million), but also realized and unrealized gains and losses from fi nancial investments (minus € 26 million).
In contrast to profi t after tax, minority interests in profi t declined by 27 per cent to € 96 million. That was due to the diff erent distribution of earnings increases within the Group. After deduction of those minority interests, the consolidated profi t falling to Raiff eisen International worked out to € 982 million. That represents an increase on the preceding year of 17 per cent, or € 141 million.
in € million retention and the capital increase carried out in the fourth quarter of 2007, which brought in € 1,220 million. The consolidated ROE, based on the capital allocable to Raiff eisen Inter national shareholders, also fell by 2.7 percentage points to 17.4 per cent due to the higher capital base.
Compared with the preceding years, the balance sheet total of the Raiff eisen International Group grew less strongly in the period under review. It increased from € 72.7 billion to € 85.4 billion on an annual basis, which means growth of 17 per cent, or € 12.7 billion. However, that fi gure includes losses of about € 5.6 billion resulting from the signifi cant devaluation of some CEE currencies in the fourth quarter. Adjusting for those currency eff ects shows organic growth of one-fourth, or € 18.3 billion.
Net interest income Net interest income grew in the year under review by more than one-third, or € 813 million, to € 3,232 million. The increase was greater than that of the average balance sheet total at 29 per cent. The basis for it was an improvement of the interest margin by 13 basis points to 3.99 per cent (calculated on the average balance sheet total). An expansion of the interest margin was achieved in all regional segments, but particularly in the CIS, where it increased by 64 basis points. That had a corresponding eff ect on net interest income in the CIS, which rose by 41 per cent to € 1,297 million. However, net interest income also grew signifi cantly in Central Europe (plus 25 per cent) and Southeastern Europe (plus 29 per cent).
Driven mainly by volume, net interest income in the retail customers division increased by 28 per cent to € 1,844 million and accounted for 57 per cent of total net interest income (minus 2 percentage points). The share of net interest income from the corporate customers division remained constant at about 34 per cent, but the relative increase of 39 per cent was signifi cantly greater than that of retail business and was primarily due to improved margins.
Provisioning for impairment losses Currency and interest rate developments in the fourth quarter had substantial eff ects on banks operating in Central and Eastern Europe. Raiff eisen International did not escape their infl uence. They aff ected the credit quality of customers, which ultimately led to a signifi cant increase of provisioning for impairment losses. Compared with the preceding year, new allocations to provisioning for impairment losses rose in 2008 by a net 119 per cent, or € 423 million, to € 780 million, of which the fourth quarter accounted for more than half. The net provisioning ratio – based on the risk-weighted assets of credit risk – therefore also rose by 48 basis points to 1.32 per cent. The allocations still had a precautionary character in 2008, since the loss rate, i.e., the ratio of loans written off to total lendings, fell by 1 basis point to 0.11 per cent.
Newly formed individual provisions rose by 78 per cent on the preceding year to € 502 million. The increase was mostly registered in Central Europe, where provisions climbed by 204 per cent to € 230 million. The focus of the increase was in Hungary (plus € 49 million) and Poland (plus € 39 million). In the CIS, provisioning rose by 37 per cent in 2008 to € 206 million, while provisions for individual loans grew the least in Southeastern Europe with a plus of 19 per cent to € 67 million.
Net new allocations to portfolio-based provisions increased by 266 per cent to € 278 million and therefore more strongly than individual provisions did. That refl ects, in particular, the expectation of rising defaults in 2009 because of the economic situation and currency levels which both started to deteriorate signifi cantly in 2008. Only € 42 million and hence 11 per cent less was allocated to portfolio-based provisions in Central Europe. Most of the portfolio-based provisions were incurred in Southeastern Europe at € 86 million and especially in the CIS at € 151 million. Of that, Russia accounted for € 81 million, and Ukraine for € 70 million.
Compared with non-performing loans, provisioning for impairment losses showed a smaller increase, which is why the ratio of provisioning for impairment losses to non-performing loans declined by 13.0 percentage points to 92.2 per cent.
Net fee and commission income Development of net fee and commission income from bank services was very strong in 2008, with a plus of 20 per cent, or € 247 million, to € 1,496 million.
In 2008, Raiff eisen International expanded the volume and number of transactions executed, particularly in the areas of payment transfers, loans, and third party services.
In loan and guarantee business, net fee and commission income rose by 27 per cent to € 201 million. On the other hand, commissions from securities business remained 10 per cent below the preceding year’s level.
Net trading income Net trading income achieved an increase of 31 per cent to € 168 million in 2008 thanks to positive valuation results from currency transactions. That plus was realized despite a special eff ect related to the ineff ectiveness of a capital hedge. Entered into in US$ for the investment in the Group’s Ukrainian units, the capital hedge had to be terminated at the end of October due to the severe devaluation of the Ukrainian hryvnia. Due to the ineff ectiveness, the loss for this part of the hedge of minus € 88 million had to be recognized in earnings. About 36 per cent of net trading income derived from Southeastern Europe, while the CIS share remained nearly the same at 31 per cent. In Central Europe, earnings were burdened by valuation losses on securities, so the region’s share shrank to 33 per cent.
Payment transfers Loan and guarantee business Securities business FX, notes/coins, precious metals business Other banking services
Net income from currency-related business was the mainstay of net trading income, since the other trading operations contributed negative totals. The € 258 million shown under this item refl ected an increase of € 168 million despite the above-mentioned loss of € 88 million from releasing the ineff ective part of the capital hedge. The majority of the increase was due to the Russian network bank, which achieved valuation gains of € 145 million by means of in € million in € million
Net trading income from stock transactions amounted to minus € 1 million and therefore did not continue the pattern of the preceding year’s positive result of € 9 million.
Net income from derivatives Net income from derivatives improved by € 10 million in the year under review, amounting to minus € 20 million in 2008 after minus € 30 million in the preceding year.
Net income from securities at fair value through profi t and loss, which consists of valuation results and net proceeds from disposals, amounted to minus € 47 million. Due to the situation on the fi nancial markets, write-downs were made in the amount of € 45 million on predominantly fi xed-income debt instruments of public-sector entities, which also made up the majority of total securities. Losses of € 2 million resulted from the sale of securities.
Net income from fi nancial investments held to maturity turned out slightly negative. On the other hand, net income from equity participations developed positively and amounted to € 21 million. It includes net proceeds from sales of plus € 24 million and net valuations of minus € 3 million. The sale of a 15 per cent stake in Raiff eisen stavebni sporitelna, a.s., a Prague-based building society previously valued at equity, generated € 11 million. The sale of Raiff eisen stambena stedionica d.d., a Zagreb-based building society, led to a loss on disposal of € 2 million. The divestment of other participations yielded the Group a positive result of € 15 million.
Depreciation/amortization/write-downs on tangible and intangible assets rose on annual comparison by 9 per cent, or € 21 million, to € 244 million. Tangible assets accounted for € 149 million of that, intangible assets for € 68 million, assets from operating leasing business for € 27 million.
Other net operating income Other net operating income worsened in 2008 from minus € 5 million in the preceding year to minus € 16 million. Various items are included in this. Revenues and expenses from various non-banking activities decreased by 93 per cent, or € 16 million, to € 1 million. On the other hand, the result from operating leasing grew by 74 per cent, or € 16 million, to € 38 million. Operating leasing business is mainly conducted in Croatia and to a lesser extent in Poland, Serbia, and the Czech Republic.
Due to the settlement of litigation, it was possible to release provisions in Slovakia and Poland. That resulted in net income from other provisions of € 4 million (2007: minus € 17 million). Other taxes not dependent on income increased by 35 per cent to € 58 million.
Income from disposal of Group assets Seven subsidiaries were deconsolidated in 2008, which generated income of € 8 million. The divestments of Hungarian project companies brought in € 7 million. Of that, the largest contribution to earnings amounting to € 5 million came from the sale of SCTD Kondorosi ut Kft., Budapest, in May 2008. The divestment of two Czech project companies furthermore yielded a positive result totaling € 1 million. In the preceding year, income from disposal of Group assets amounted to € 27 million. The sale of energy generating company SINESCO Energiaszolgáltató Kft., Budapest, and real estate project company Arena Corner Ingatlanfejlesztõ Kft., Budapest, made the main contributions to income amounting to € 11 million and € 15 million, respectively.
Balance sheet The balance sheet total of the Raiff eisen International Group amounted to € 85.4 billion as of 31 December 2008 and therefore increased by 17.4 per cent, or € 12.7 billion, on the preceding year’s comparable value of € 72.7 billion. That was mainly due to organic growth, additions and disposals in the scope of consolidation in the year under review did not signifi cantly impact the consolidated balance sheet total. On the other hand, currency eff ects, i.e., net eff ects arising from the changes in the exchange rates of CEE currencies, turned out to be signifi cant, especially in the last few months of the year. Hardest hit was the Ukrainian hryvnia, which devalued against the euro by 46 per cent in the course of the year. Devaluations of 15 per cent and 16 per cent were also registered against the Russian rouble and the Polish zloty, respectively. Adjusted for these currency eff ects, the Group’s organic balance sheet growth came to about 25 per cent, or € 18.3 billion.
Assets On the asset side, growth of the balance sheet total is determined by loans and advances to customers, the main growth driver in the Raiff eisen International Group. They rose by 19 per cent, or € 9 billion, to a total of € 57.9 billion in 2008. After deduction of provisioning for impairment losses, loans and advances to customers made up an unchanged nearly two-thirds share of balance sheet assets. The ratio of customer loans to customer deposits increased by 10 percentage points to 131 per cent.
Small and medium-sized enterprises in € billion credit assets in the CIS. A higher percentage plus of 51 per cent was registered in Southeastern Europe, but it was at a much lower absolute level.
Loans and advances to banks Loans and advances to customers (net) Securities Other assets
The total amount of securities came to € 8.9 billion at the end of the year, of which 80 per cent was invested in fi xed-income securities. Compared with the preceding year, those increased by 28 per cent, or € 1.9 billion. The securities accounted for a 10 per cent share of the balance sheet total.
In the second half of 2008, a new IFRS rule was adopted by the International Accounting Standards Board and the EU, which permits a reclassifi cation of securities held for trading into securities held-to-maturity. Only little use was made of that in the Group. In the year under review, securities totaling € 382 million were reclassifi ed from trading assets into the held-to-maturity category. That had a positive eff ect of € 13 million in the income statement.
The share of other assets rose by 3 percentage points on the preceding year to 13 per cent. That is primarily due to the increase of the cash reserve, including particularly positive balances at central banks.
Structure of balance sheet liabilities and equity liability side of the balance sheet with a share of 52 per cent, but their share of consolidated assets declined by 4 percentage points. On the other hand, deposits from banks increased by 4 percentage points to 31 per cent of the consolidated balance sheet total. The rest consisted of own funds at 9 per cent and other liabilities at 8 per cent (plus 2 percentage points).
The share of other liabilities rose by 2 percentage points to 8 per cent. The liabilities evidenced by paper included in this item, i.e., funding from the capital market in the framework of debt security issues, grew by 46 per cent to € 3.4 billion. The share of the consolidated balance sheet total attributable to own funds, which consist of equity and subordinated capital, decreased to 9 per cent (minus 2 percentage points). The subordinated capital included in own funds rose by 10 per cent to € 1.7 billion due to new issues at individual network banks. Of those additional own funds, mainly needed for local regulatory purposes of subsidiary banks, 85 per cent were fi nanced by the RZB Group, and 15 per cent by supranational institutions.
Earned capital, which consists of consolidated profi t and retained earnings, declined by € 211 million to € 2,559 million. Consolidated profi t rose by 17 per cent to € 982 million. However, the development of currency rates negatively infl uenced retained earnings, especially in the second half of the year. The changes in the exchange rates of some CEE currencies against the euro (minus € 857 million ) and related capital hedging measures (minus € 66 million) caused retained earnings to decrease by € 923 million. The currency differences arising from using diff erent currency rates for the income statement and the balance sheet reduced retained earnings by € 107 million. Cash fl ow hedge accounting was set up in Russia to hedge variable interest rate positions. Changes in the market value of hedging instruments had an impact on retained earnings in the amount of minus € 43 million. The dividend distribution for 2007 in the amount of € 0.93 per share, or a total payout of € 143 million, likewise reduced retained earnings.
Minority interests rose by 16 per cent, or € 128 million, to € 923 million. That increase resulted from a current annual result of € 96 million, from capital contributions in various Group units of € 87 million, and from changes of share in the scope of consolidation of € 7 million. Set against that as reducing fac-
Consolidated own funds pursuant to the BWG amounted to € 6,992 million at the end of 2008 (2007: € 6,684 million). Core capital rose by € 168 million to € 5,860 million. It was positively infl uenced primarily by the reporting year’s profi ts. Set against that were negative eff ects on core capital of about € 692 million from changes in the exchange rates of currencies in Central Europe and the CIS.
Funding Refi nancing markets under pressure Banks typically refi nance their operations with their own funds and customer deposits or by way of other external sources. The latter is known as wholesale funding and is performed partly by way of the interbank market. The eff ects of the fi nancial crisis became especially evident there in 2008, as the loss of banks’ confi dence in one another inhibited mutual lending.
The loss of confi dence caused the wholesale funding markets to dry up to an unprecedented extent in September 2008, which was refl ected in a sharp rise of refi nancing costs, especially in the fourth quarter. The spread on senior bank bonds increased from 42 basis points at the beginning of the year to 219 basis points at the end of 2008. In the same period, the price of senior bank credit default swaps rose from 45 basis points to 119 basis points.
First use was made in the reporting period by a network bank of the opportunity to set up a Eurobond program. ZAO Raiff eisenbank Moscow registered a Euro Medium-Term Note (EMTN) program in the amount of US$ 5 billion in February 2008. This program is to be used as soon as market conditions permit. Among the syndications completed in 2008 for funding the network banks, a syndication loan to Raiff eisenbank Moscow in the amount of US$ 1 billion deserves special mention. It is the largest refi nancing transaction of a Raiffeisen International network bank to date.
Solid funding sources Because of the diffi culties in the wholesale sector, refi nancing by way of traditional depositgathering business came to the fore in the reporting period. In all Raiff eisen International network banks, eff orts were increased to gather deposits from both corporate and retail customers, supported by the introduction of new products. The eff ects of these measures unfolded particularly in the second half of 2008 and contributed to currency-adjusted growth.
Supranational institutions such as the EBRD and the IFC, with which close relations exist due to Raiff eisen International’s involvement in Central and Eastern Europe, play a role in
Spread development 2008 iTRAXX Financial Senior ML Financial Senior Spread (ASW)
The further development of international fi nancing possibilities for the region of Central and Eastern Europe greatly depends on the successful resumption of issuing activity. The refi nancing structure of the Raiff eisen International Group will be shaped in 2009, in addition to deposits, by the possibilities of refi nancing through RZB, supranational institutions, and eventually its main bank partners.
Risk management Recognizing, quantifying, assessing, and actively controlling risks form an important core expertise of banks. Raiff eisen International has constantly developed its risk management in the past years, adapting it to the steadily changing environment.
Setting risk policy for the Raiff eisen International Group is one of the Managing Board’s key functions. Risk and return are balanced against each other and managed for both the corporate and retail customer divisions. That was done very intensively in the second half of 2008 in particular, given the worsening fi nancial crisis and likely eff ects on the real economy.
In addition to these points, attention was focused on standardizing the range of services for private individuals and small businesses in cooperation with those responsible for the products. Almost 30 products or product groups throughout the network were thoroughly reviewed last year from the standpoint of risk. In the process, price structures in the various portfolios were also optimized.
Moreover, lending guidelines were reviewed and adjusted at regular intervals to cushion or minimize negative eff ects of the fi nancial crisis. A package of measures recently developed for that purpose includes, among other things, higher rating requirements for customers, shorter loan terms, restrictions on lending in foreign currencies, especially Swiss francs, more cautious evaluation of customer income situations, and more selective lending to customers in certain business sectors.
The set of risk management tools introduced in 2006 was expanded in 2007 and 2008 into a set of standardized evaluation and planning instruments for the Group. All existing risk management standards, Basel II requirements, intra-Group principles and guidelines, and a number of best practice approaches now fl ow into the system that was developed further in 2008.
Raiff eisen International’s network directives, Basel II concept papers, polices and guidelines
In the area of private individuals and small businesses, most risk management activities were already conducted in accordance with the more developed instruments in 2008.
A method was developed in the fourth quarter for adjusting the value of loans to small businesses that are bundled together in portfolios. Furthermore, Raiff eisen International initiated a Group-wide project to improve the forecasting power of the IRB rating model relevant for small businesses.
Eff orts to combat credit fraud were intensifi ed within the entire Group in 2008. New standards for detecting and dealing with cases of fraud were defi ned and implemented for the entire Group. In support, a Group-wide workshop was held that off ered the opportunity to exchange ideas and experience. That not only heightened awareness of credit fraud among the responsible staff members, but also improved prevention, detection, and investigation of these cases.
Further development of retail risk management is also planned for 2009. The negative eff ects of the signifi cantly more diffi cult market environment are to be counteracted by means of tightened portfolio management and stricter lending criteria.
Corporate risk management Two large topics dominated activities in corporate risk management last year. The fi rst involved constant development of risk management and area-wide implementation of Basel II. The second arose from the eff ects of the fi nancial crisis, especially in the second half of the year, which made it necessary to adjust lending guidelines to the changed market environment.
Thanks to ongoing portfolio stress tests, Raiff eisen International’s risk management is also wellprepared in the corporate customer business for the eff ects of the expected economic slowdown in Eastern Europe. A comprehensive adjustment of lending policy resulted from the analyses and stress scenarios prepared in the framework of those tests. Lending guidelines were made stricter,
particularly for borrowers in cyclical sectors such as the construction and transportation industries. Attention was given in that connection to reducing unsecured lines, lowering lending limits, raising minimum requirements regarding loan repayment ability, and generally intensifying loan-related control and monitoring. In particular, lending standards were raised appreciably for foreign currency loans, and hence new lending in foreign currencies decreased signifi cantly. In the area of real estate fi nance, Raiff eisen International adjusted its lending standards in cooperation with international experts and trend researchers. The changes in lending practices were made in accordance with the risk profi les of the respective national economies in which Raiff eisen International is represented in the network units.
To advance development of risk management, the credit quality management team established a functional development planning process that subjects overall risk management to multiple-year planning. The functional development plan comprises all aspects of risk organization, such as risk functionalities, risk team strengths, risk processes, risk initiatives, and IT projects and constitutes in a structured form the medium-term plans of the chief risk offi cer worked out at the national level.
Raiff eisen International’s priorities in the area of operations and IT in 2008 were to introduce and develop modern software solutions that take account of business growth and rising customer expectations, on the one hand, and to strive consistently to utilize opportunities for cost synergy and enhance the effi ciency of all processes, on the other.
IT Considering the constantly increasing requirements and volumes of retail business, the search for a modern, scalable core banking system was a key emphasis in the area of IT. After a thorough evaluation, Raiff eisen Inter national selected the System Finacle from Infosys, which is now to be used in an initial phase in Russia and the Czech Republic.
At the same time, necessary improvements were made to the existing core banking system in order to cope with Slovakia’s adoption of the euro and customer growth in an effi cient manner.
RI Group IT GmbH, which had already been working for Raiff eisen International, was merged retroactively as of 15 July 2007 into Raiff eisen International Bank-Holding AG to ensure closer collaboration with the business units.
Shared service centers The CRISP unit (Centralized Raiff eisen International Services & Payments), founded in Romania in 2007 for processing payment transfers, in particular SWIFT transactions, and other back-offi ce activities for the Group, was further expanded in the reporting period according to plan. In addition to functioning as a SWIFT hub, CRISP is already checking transactions of many network banks for irregularities on a centralized basis. Implementation of centralized software for international transfer payments has begun. The fi rst countries migrating to this new Group-wide platform are Bulgaria, Romania, and Hungary. In addition, work is under way to centralize software for reconciliation of nostro accounts maintained for clearing entries in payment transfers involving other banks and for inquiries into interbank and corporate customer transactions.
The Group’s two card-processing centers, in Bratislava and Kiev, increased the number of cards processed to 13.4 million in 2008, and the number of transactions executed rose to over 500 million. The center in Kiev has also been working since last year on authorization of transactions by ATMs and at cashless payment terminals and in the area of e-commerce, also for network banks outside Ukraine.
Increasing productivity and cutting costs Raiff eisen International took additional cost control measures in view of the worsening fi nancial crisis in the second half of 2008. In particular, expansion of the branch network was sharply curtailed relative to original plans. New branches will thus only be opened selectively in the future.
Human resources Important employer in Central and Eastern Europe Raiff eisen International had a total of 63,376 employees as of 31 December 2008, (measured in full-time equivalents), which is 8.6 per cent more than at the end of 2007. The Group did not acquire any additional banks in the reporting period, so this increase is due solely to organic growth.
Raiff eisen International began developing a human resources controlling system in 2008. The goal of this interdisciplinary project is to collect and evaluate data relevant to human resources within the Group and thus establish a basis for business decisions. The project should be completed and implemented in all countries in 2009.
diverse activities in this area and will be published every two years in the future. Following the principles that “the best become better with us” and “diversity beats monotony,” the report also deals with employee-related corporate responsibility topics and activities. The report can be requested at any time at www.ri.co.at → Investor Relations → Financial Reports & Figures.
Setting transparent goals for individual employees in line with corporate goals ensures consistent commitment to performance and provides a fundamental basis for the success of Raiff eisen International. To achieve this, the already successfully established performance management system was continuously expanded and refi ned at all network banks in 2008. The performance management process is the foundation for the most important personnel processes and thus forms the basis for targeted staff development, career and succession planning, performance-based compensation, and for measures to ensure that top performers stay with the company.
High priority continued to be given to succession planning for the managing boards and top management of the network banks in order to identify any possible personnel gaps early and provide for prompt, suitable replacement. The “top talent pool” already initiated in the framework of the “Spot! – Grow! – Lead!” program, which identifi es possible candidates for managing board positions in the network, has already shown impressive results. Of 16 newly occupied board positions, 14 were fi lled internally in 2008 thanks to the “top talent pool”.
The executive development program for managing board members and other top managers of Raiff eisen International is a further essential component for developing management talent. In preparation for a Group-wide strategy development process from 2008 to 2011, strategy development and implementation were key emphases of executive development in 2008. Furthermore, leadership themes formed the focus of the program’s extensive scope.
Economic outlook After record growth in recent years, the economies of Central and Eastern Europe face a severe slowdown in 2009. The main reasons for this are the indirect eff ects of development on global fi nancial markets, which also became more evident in the CEE countries in the second half of 2008.
■ Third, the shortage and higher cost of external fi nancing are causing credit growth to slow. It is not unlikely that the total amount of lending in the CEE region will actually fall in 2009. Even a nominal decline is not out of the question in some countries.
■ Fourth, fi nancing current account defi cits and short-term foreign debt is likely to remain very diffi cult due to the continuing tension on global fi nancial markets. Some Central and Eastern European currencies might therefore remain under devaluation pressure. Moreover, it is not out of the question that other countries will apply for fi nancial assistance from the International Monetary Fund and the European Union. By extending such help to Hungary, the EU has already underscored its willingness and ability to support its member states in fi nancial distress. That probably also applies to the candidate countries of Southeastern Europe, whose economic and political stability is very important to the EU.
A slowing of real GDP growth in the CEE economies to an average of about 1.3 per cent may be expected for 2009, after 5.1 per cent on average in the preceding year. This forecast is based on the assumption of a recession in the euro area (minus 1.5 per cent) and in the United States (minus 2.2 per cent). The reduction of the growth gap between the euro area and the CEE region to about 1.5 percentage points also refl ects a correction of the very dynamic increase of lending volume, real estate prices, and current account defi cits in the past year. In any case, this growth diff erence averaged 4.5 percentage points in the fi ve-year period 2004-2008 and amounted to 5.5 percentage points in 2008. These large diff erences may be explained by the admission to the EU of the countries in question and the resulting improvement of economic and institutional conditions there. In the medium term, the growth gap is likely to settle in at 2.5 to 3 percentage points. That is also necessary in order to maintain long-term real convergence of per capita incomes.
After a strong growth in lending to customers over the last several years, the focus this year will be on enhancing our active credit portfolio and risk management. We expect lending to customers in 2009 to be at the same level as the year before. In view of the unfavorable overall conditions for other forms of refi nancing, the focus has shifted increasingly in the direction of customer deposits. Against this background, we will continue our eff orts to gain customer deposits during the 2009 business year.
Moreover, we took a number of measures for the year 2009 that will moderate the increase in costs that was the result of our growth in recent years. Administrative expenses should therefore be at the level of the previous year. The number of branch offi ces will ultimately remain at the same level as in the business year 2008. In this context improvements in profi tability will be given increasing attention.
Southeastern Europe includes Albania, Bosnia and Herzegovina, Croatia, Kosovo, Moldova, Serbia, as well as Bulgaria and Romania, which joined the EU on 1 January 2007. Moldova has been included in this segment due to its close economic ties to Romania and the respective management structures within the Group.
The fi gures stated are derived from the fi nancial statements prepared in accordance to the International Financial Reporting Standards (IFRS) that underlie the consolidated fi nancial statements. Divergence from locally published data is possible, as they may be based on diff erent valuation regulations or diff ering reporting deadlines.
Details on the calculation of segment results can be found in the segment report on page 121 in the notes.
In Central Europe, profi t before tax fell by 2 per cent, or € 11 million, to € 442 million, although it was positively infl uenced by increases in net interest income and net commission income. The segment’s contribution to earnings therefore fell by 6 percentage points to 27 per cent. This disproportionate reduction of the segment’s share was brought about by special eff ects in the preceding year due to changes in the scope of consolidation and by earnings growth in the CIS. The segment’s balance sheet assets rose on annual comparison by 25 per cent.
Central Europe remained dominant in respect to consolidated assets with a share of 43 per cent (plus 2 percentage points). As in the preceding year, the Southeastern Europe segment accounted for the second-largest share at 30 per cent (minus 2 percentage points), followed by the CIS at 27 per cent.
In the year under review, earnings in the region of Central Europe remained slightly below the preceding year’s. Profi t before tax fell on the comparable period by 2 per cent, or € 11 million, to € 442 million. The return on equity before tax for Central Europe fell by 5.7 percentage points to 16.9 per cent. The main factors responsible for this decline were a 30 per cent increase of average equity on the comparable period, signifi cantly higher provisioning for impairment losses in the region, and earnings-enhancing special eff ects in the preceding year.
Net interest income increased by 25 per cent in 2008 to € 1,025 million. The Group’s assets in Central Europe grew by 25 per cent. The net interest margin improved by 2 basis points on in € million 2008 2007 Change
New allocations to provisioning for impairment losses rose by 117 per cent to € 265 million. That was mainly due to new allocations to individual provisions in Hungary and Poland, while portfolio-related provisions in the region remained at the preceding year’s level. The risk/earnings ratio increased by 11.0 percentage points on the comparable period to 25.9 per cent. The share of the loan portfolio attributable to non-performing loans rose by 48 basis points on the comparable period to 3.12 per cent.
Net income from derivative fi nancial instruments amounted to minus € 11 million and was based on valuation losses from hedging transactions, which were used to minimize the currency and interest rate risk of the loan portfolio, mainly in Hungary and the Czech Republic.
Czech Republic While the Czech economy registered GDP growth of more than 6 per cent on average in the years from 2005 to 2007, that growth slowed in the reporting period to 3.7 per cent. Infl ation rose at the beginning of the year, infl uenced by a tax reform and external factors such as higher energy and food prices, but subsided again signifi cantly toward the end of the year. The Czech koruna revalued by almost 10 per cent against the euro in the period to July 2008, but lost that gain in the second half of the year amidst the global fi nancial market crisis. The country’s banking sector was not aff ected all that much by the rising cost and shortage of external funding thanks to the Czech central bank’s low-interest-rate policy. Total bank assets rose in 2008 by about 16 per cent. Expressed in euros, that represents an increase of about 14.5 per cent.
Raiff eisen improved its cost/income ratio in the Czech Republic to 60.7 per cent in 2008, compared with 68.7 per cent in the preceding year. On this basis, it achieved profi t before tax of € 68 million, which led to a return on equity before tax of 18.3 per cent. The return on equity after tax of 14.4 per cent is based on a taxed profi t of € 53 million.
Raiff eisen International owned 51 per cent of Czech fi rm Raiff eisenbank a.s. at the end of 2008. Furthermore, Raiff eisenlandesbank Niederösterreich-Wien AG and Raiff eisenlandesbank Oberösterreich AG held nearly equal interests in the bank of 24 and 25 per cent, respectively.
The cost/income ratio of Raiff eisen in Hungary improved from 55.9 per cent in the preceding year to 58.5 per cent at the end of 2008. Profi t before tax amounted to € 83 million, which meant a return on equity before tax of 14.5 per cent. The return on equity after tax of 11.7 per cent resulted from taxed profi t € 67 million.
Raiff eisen International held 70 per cent interest at the end of 2008, making it the largest shareholder in Raiff eisen Bank Zrt. The remaining shares are held indirectly by several Raiff eisen Landesbanken.
Poland The Polish economy achieved real GDP growth of 4.8 per cent in 2008, which was thus somewhat below the preceding year’s 6.5 per cent. After a strong revaluation up to mid-year, the zloty came under devaluation pressure in the second half due to the global fi nancial market crisis. The Polish banking sector was one of the few in Central and Eastern Europe to show a rise of asset growth in 2008. On an annual basis, total bank assets increased in the year under review by almost 27 per cent. Due to the devaluation of the zloty, that represents an increase of about 9 per cent, expressed in euros.
Raiff eisen International has been represented in Poland since the founding of Raiff eisen Bank Polska S.A. in 1991. In the year under review, it had about 290,000 customers, a balance sheet total of € 7.1 billion, and about 3,271 employees. As a universal bank, Raiff eisen Bank Polska serves corporate customers, small and medium-sized enterprises, and private individuals. The main focus in the past years has been on upscale private individuals.
Raiff eisen achieved profi t before tax in Poland of about € 129 million in the year under review, with a cost/income ratio of 51.6 per cent. The return on equity (ROE) before tax came to 25.7 per cent. Profi t after tax amounted to € 103 million. That put the return on equity after tax at 20.5 per cent.
Raiff eisen in Slovakia achieved profi t before tax of about € 157 million last year, with the costincome ratio improving from 56.2 per cent to 53.3 per cent. That yields a return on equity before tax of 28.9 per cent. Based on profi t after tax of € 124 million, the return on equity reached a level of 22.8 per cent.
In December 2008, the bank received a rating of A1 with a stable outlook from Moody’s, while the rating from Standard & Poor’s was A- with a negative outlook.
Raiff eisen’s cost/income ratio in Slovenia stabilized in 2008 at a level of 87.6 per cent. Profi t before tax of € 4 million was registered, while profi t after tax amounted to € 3 million. The return on equity was 6 per cent before tax, and 4.3 per cent after tax.
Net interest income in the region increased by 29 per cent, or € 215 million, to € 947 million, while balance sheet assets rose by 12 per cent to € 25.2 billion. That was achieved by means of an improved net interest margin, which went up 22 basis points to 3.96 per cent. Risk-weighted assets increased by 16 per cent from € 16.3 billion to € 18.9 billion. The Basel II eff ect was somewhat stronger because countries with lower ratings are included in this region.
General administrative expenses increased altogether by 20 per cent to € 773 million. Staff costs grew from € 290 million to € 344 million. The average number of employees rose on the comparable period by 21 per cent, or 3,218, to 18,261. Despite strong business expansion, other administrative expenses came to € 339 million and were therefore only 20 per cent higher than in the preceding year. Depreciation/amortization/write-downs, mostly for investments in branch offi ces, increased to € 90 million. Starting from 973 business outlets at the end of the comparable period, their number rose by 22 per cent to 1,184, which means Southeastern Europe showed the largest increase of all segments, especially in Romania. The cost/income ratio improved signifi cantly by 2.8 percentage points to 51.9 per cent.
Other net operating income increased on the comparable period by € 6 million and amounted to € 23 million. In addition to smaller expense items, the main contribution to this was made by income from operating leasing business at € 32 million in the year under review.
Albania Real growth of the Albanian economy, which continues to have the lowest GDP per capita of all Central and Eastern European countries, has averaged 5.7 per cent per year in the last fi ve years. It was 6 per cent in the reporting period. Because of the banking sector’s relatively early stage of development there, Albania is one of the few countries of Central and Eastern Europe where customer deposits still far exceed lendings. Consequently, the country’s banking sector is hardly aff ected by the rising cost and shortage of external funding due to the global fi nancial crisis. Total bank assets rose in 2008 by about 18 per cent. Converted to euros, that represents about 16 per cent.
Raiff eisen International changed the name of Banka e Kursimeve Sh.a., which was founded in 1992, to Raiff eisen Bank Sh.a. after acquiring it in 2004. The bank is currently the market leader in all business segments. In 2008, the Group’s balance sheet total in Albania exceeded € 2 billion for the fi rst time. The network was expanded by 4 more business outlets to 102, which gives Raiff eisen International full-area coverage in Albania. While the number of employees remained nearly unchanged on the preceding year at about 1,400, the number of customers increased to almost 532,000.
Raiff eisen Bank’s attention in 2008 mainly focused on expanding business relationships with small and medium-sized enterprises and servicing affl uent private individuals. Lendings to customers rose by 34 per cent in the year under review to € 692 million, while customer deposits remained that the level of the previous year with € 1.7 billion.
The bank received awards in 2008 both from Global Finance and from Euromoney as Best Bank in Albania.
The balance sheet total of Raiff eisen in Bosnia and Herzegovina amounted to over € 2.4 billion at the end of 2008. More than 1,700 employees were serving almost 740,000 customers as of 31 December 2008, including especially private individuals and small and medium-sized enterprises. Lendings to customers came to € 1.7 billion, set against customer deposits of € 1.5 billion. To continue meeting demands as a universal bank, the branch network was expanded again in 2008. It comprised 100 business outlets at the end of 2008, and hence 7 branches more than at the end of 2007.
While Raiff eisen International held a clear majority of 97 per cent in Raiff eisen Bank d.d. Bosna i Hercegovina at the end of the reporting period, 3 per cent of the bank was held in indirect ownership by Raiff eisen-Landesbank Steiermark AG.
Raiff eisen Bank d.d. Bosna i Hercegovina was recognized in 2008 by both Euromoney and Global Finance as Bosnia’s Best Bank.
The dynamic growth continued in 2008, particularly in business with private individuals and small and medium-sized enterprises. Total lending in that segment increased by 32.5 per cent to € 3.4 billion. At the same time, innovative products were marketed more intensively, which resulted in an increase of customer deposits by 20.7 per cent to € 2.2 billion.
Since commencing business operations in 2006, subsidiary Raiff eisen Asset Management (Bulgaria) EAD has defended its position among the country’s top three. In the reporting period, it managed fi ve local funds and distributed 14 investment funds from Austrian fi rm Raiff eisen Capital Management. It has a market share of about 15 per cent and managed funds with a volume of € 45.7 million.
Raiffeisen International was the largest shareholder in Raiffeisenbank Austria d.d. at the end of 2008 with a stake of 73 per cent, while several Raiffeisen Landesbanken held 24 per cent indirectly. The remaining shares were owned by employees.
Kosovo According to an estimate of the International Monetary Fund, real GDP in Kosovo rose in 2008 by 6.1 per cent. Domestic demand was bolstered by contributions from international lender countries and continuing credit growth. At the same time, the infl ation rate increased to 13 per cent in the fi rst half of the year due to higher energy and food prices. The trade and current account defi cits also grew.
Raiff eisen Bank Kosovo J.S.C. was the country’s second-largest bank at the end of 2008 with a balance sheet total of € 598 million. Founded in 2001 as American Bank of Kosovo, it was acquired by Raiff eisen International in 2002. The bank is especially well-positioned in business with small and medium-sized enterprises, where it has a market share of 35 per cent as measured by lending business. Among large customers, it has a market share of 60 per cent.
Raiff eisen International had 720 employees in Kosovo at the end of 2008. The branch network was expanded by 9 in the year under review to 47 business outlets. Mobile bankers additionally supported the bank’s position on this small, but dynamic market. The total number of customers increased by 32.6 per cent on an annual basis to about 229,000. Compared with 2007, total lendings rose by 25.1 per cent to € 424 million. The deposit portfolio increased by 26 per cent in 2008 to € 495 million.
Romania The Romanian economy achieved GDP growth of 7.2 per cent in 2008 not least thanks to a good harvest, after economic development in 2007 had suff ered from weather-related crop failures. The infl ation rate rose in this environment to 7.9 per cent on average mainly because of higher energy and food prices. Given the diffi cult fi nancial market environment worldwide, the Romanian leu, which had registered slightly positive development until mid-year, came under devaluation pressure in the second half of the year. Although the Romanian banking sector has grown strongly in the past years, it still shows relatively low market penetration compared with other Central and Eastern European countries. Total bank assets grew by about 24 per cent in 2008. Due to the devaluation of the leu, that represents an increase of about 12.5 per cent on a euro basis.
At the end of 2008, customer deposits in Romania stood with € 3.5 billion on preceding year’s level, while lending to customers rose by 30.1 per cent on an annual basis to about € 4.6 billion.
Raiff eisen International had a balance sheet total of € 2.9 billion in Serbia at the end of 2008. It founded Raiff eisen banka a.d. there in 2001. Now the country’s second-largest lending institution, this universal bank off ers fi nancial services in all customer segments. Its wide range of bank products and services is completed by the Raiff eisen Leasing d.o.o., Raiff eisen Voluntary Pension Fund, and an asset management company.
The improvement of the cost/income ratio from 58.9 per cent to 49.2 per cent in 2008 was refl ected in profi t before tax of € 87 million. Profi t after tax amounted to € 80 million. On that basis, the return on equity reached 19.8 per cent before tax, and 18.1 per cent after tax.
Both Euromoney and Global Finance awarded Raiff eisen banka a.d. the title of Best Bank in Serbia in 2008.
Profi t before tax of this segment grew in the period under review by 50 per cent, or € 223 million, to € 665 million. The increase of earnings in the region was signifi cantly greater than in the rest of the Group. It resulted mainly from very high growth of net interest income and trading profi t. The return on equity before tax rose accordingly by 4.0 percentage points to 33.9 per cent.
With a plus of 41 per cent, or € 375 million, to € 1,297 million, development of the region’s net interest income was signifi cantly more dynamic than that of balance sheet assets, which increased by 18 per cent, or € 3.4 billion, to € 22.9 billion. An important reason for that was a signifi cantly improved net interest margin, which rose by 64 basis points to 6.10 per cent.
Risk-weighted assets increased in line with balance sheet assets by 18 per cent to € 18.1 billion. That development was shaped by opposing infl uences. Growing retail business benefi ted from the more favorable Basel II calculation, since the preceding year’s comparable values had still been based on the Basel I calculation. On the other hand, expansion of business with corporates led to a comparatively stronger increase in risk-weighted assets.
The allocation to provisioning for impairment losses doubled from € 176 million in the comparable period to € 356 million in the year under review. This increase was mainly due to extensive portfolio-related provisions, formed in connection with loans to private individuals in Ukraine. The reason for that was the sharp currency decline, which has led to higher debt service payments for customers. On the other hand, the increase of individual provisions came to only 37 per cent and was mostly a consequence of retail customers. The risk/earnings ratio rose by 8.4 percentage points to 27.5 per cent. The share of the loan portfolio attributable to non-performing loans increased by 186 basis points and reached 3.61 per cent.
General administrative expenses rose by 23 per cent, or € 161 million, to € 853 million. Staff costs went up 19 per cent, or € 68 million, to € 425 million. The region showed the highest average number of employees at 29,665, with the increase on the comparable period amounting to 1,468. Other administrative expenses rose by 34 per cent, or € 93 million, to € 362 million, for which a signifi cant increase of rental expenses in the Group’s Russian units was mainly responsible. At € 66 million, depreciation/amortization/write-downs remained at the comparable period’s level. The region’s cost/income ratio improved signifi cantly by 6.5 percentage points to 45.1 per cent.
The segment’s other net operating income amounted to minus € 23 million and remained at the preceding year’s level. Expenses for taxes not dependent on income and allocations to other provisions for expenses and provisions for restructuring (the latter in Russia) were mainly responsible for that result.
In the preceding year, net income from disposal of Group assets of € 3 million had to be taken into account. In the period under review, there were no disposals from the scope of consolidation from the region.
Income taxes rose by 65 per cent on the comparable period and came to € 192 million. Because of the diff erent bases for tax assessment, they grew somewhat more strongly than earnings before tax did. Minority interests in profi t fell in the period under review through elimination of non-Group losses of a Russian Group unit. Earnings after tax and minority interests increased to € 477 million, which means a plus of 53 per cent.
Founded in 1989 as a commercial customer bank, Priorbank, OAO is now the country’s third-largest bank, measured by balance sheet totals. Operating in Belarus since 2002, Raiff eisen had a balance sheet total of about € 1.6 billion at the end of 2008. It had about 2,170 employees, serving almost 856,000 customers in 103 business outlets. Raiff eisen has built up a dynamic personal customer business in Belarus in recent years and expanded its branch network by 20 business outlets in 2008. In addition to a network of mobile bankers, it cooperates in distribution with post offi ce branches, which are very successful, particularly in selling simple savings products. Moreover, Raiff eisen off ers home fi nancing by way of its own mortgage centers. It thus acquired on average more than 10,000 new customers per month in 2008.
Priorbank was again awarded the title of Best Bank in Belarus by the fi nancial magazine Euromoney in the year under review.
Russia The Russian economy registered real GDP growth of 5.6 per cent in 2008. Strong performance in the first half of the year, supported largely by the rise of crude oil prices to historical highs, was followed by a slump in the second half, which was reflected in, among other things, a devaluation of the Russian rouble against the currency basket. However, high reserves have allowed the government and central bank to give the financial sector and important enterprises massive support. Total bank assets registered growth of about 25 per cent in 2008. Converted to euros, that amounted to about 8.5 per cent due to the devaluation of the ruble.
Raiffeisenbank likewise successfully defended its strong position in the retail customer segment and continued the positive trend of recent years. The number of retail customers grew by 16.9 per cent to 1.65 million at the end of 2008. The loan portfolio in this segment registered an increase of 19.3 per cent in 2008 to € 2.7 billion as of year’s end, while deposits from retail customers rose to € 2.9 billion. Jointly with subsidiaries OOO Raiffeisen Leasing, OOO Raiffeisen Capital Asset Management, and NPF Raiffeisen, Raiffeisenbank had 1.7 million customers and 10,276 employees in 236 business outlets in the year under review.
Taking up a syndicated loan of US$ 1 billion – the largest funding transaction of a Raiffeisen International network bank to date – was an important measure in the past year.
Standard & Poor’s last rated Raiff eisenbank at BBB with a stable outlook, which was better than the agency’s rating for the country overall. Fitch Ratings gave the bank an A- with a negative outlook, which was also better than Russia’s rating. The rating from Moody’s is Baa1 with a stable outlook and is thus slightly below the Russian government’s rating.
Ukraine Ukraine was among the fi rst Central and Eastern European countries that claimed fi nancial support from the IMF in the second half of 2008. The global fi nancial market crisis called into question both the stability of the country’s economy and confi dence in its currency. Against that background, the Ukrainian hryvnia dropped sharply in value. The Ukrainian banking sector, which has experienced a boom in recent years, suff ered greatly from the rising cost and shortage of external funding because of its high proportion of foreign currency loans. It registered growth again in 2008, but because of the crisis in the second half of the year, that came almost entirely from the fi rst half. Total bank assets increased by about 55 per cent in 2008. Expressed in euros, that represents an increase by about 8.3 per cent due to the sharp devaluation of the hryvnia.
Founded in 1992, VAT Bank Aval developed within a few years into one of Ukraine’s leading banks. It was taken over by Raiff eisen in 2005, and its name was changed to Raiff eisen Bank Aval the following year. Measured by its balance sheet total, it was the country’s second-largest bank as of 31 December 2008. As a universal bank, it serves both private individuals and small and medium-sized enterprises as well as corporate customers. Its range includes a wide variety of credit and investment products, completed by the services of LLC Raiff eisen Leasing Aval and Raiff eisen Asset Management companies.
With 1,134 business outlets, Raiff eisen in Ukraine has one of the country’s largest distribution networks, which was further optimized in 2008. The customer base in Ukraine included around 4.5 million private individuals and about 210,000 small and medium-sized enterprises in addition to about 6,800 corporate customers in the year under review.
The loan portfolio of Raiff eisen Bank Aval increased by 2.7 per cent in 2008 to € 5.3 billion, while deposits declined by 20.6 per cent to € 2.4 billion. The balance sheet total increased by 1.9 per cent to € 6.3 billion. As a consequence of the fi nancial crisis, however, the staff had to be reduced in the fourth quarter of 2008 by 412 to 17,368 employees.
Restructuring and increased cost control in Ukraine, which began immediately after the takeover, found expression last year in an improved cost/income ratio of 48.2 per cent and growing fi nancial strength. The return on equity rose to 23.3 per cent on profi t before tax of € 176 million. The return on equity after tax of 16.8 per cent resulted from profi t after tax of € 127 million.
In the context of a general downgrade of the Ukrainian government, the bank’s rating was changed in 2008 by Moody’s to B2 with a stable outlook.
The corporate customers division comprises business with large corporates and mid market companies from Central and Eastern Europe (CEE) as well as with companies from other countries that are operating in the CEE region, including especially multinationals. Sales volume is used as the relevant criteria between large corporates and mid market companies. Small and medium-sized companies are considered corporate customers if their annual sales are at least € 5 million or they are clearly project or trade fi nance companies. All other small and medium-sized enterprises are included in the small entities sub-division of the retail customers division.
The public sector and companies owned by state-owned entities and institutions are also part of the corporate customers division. The public sector comprises all public sector entities such as ministries, provinces, municipalities and similar public corporations. Embassies and trade representations also belong to this division.
Moreover, business with banks, providers of fi nancial services, or insurance companies is reported in this division (fi nancial institutions). This excludes transactions that are connected to proprietary trading with fi nancial instruments or invested for the asset and liability management as those are allocated to the treasury division. The banks subdivision encompasses national and international commercial, retail and private banks. Banks also include supranational institutions like the World Bank, the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the International Monetary Fund (IMF). Financial service providers include brokers and asset managers such as investment banks, investment fund companies, leasing companies. Insurance companies consist of all kind of insurers and reinsurers. They include property, health, life and pension insurers.
Whereas the entirety of the Group’s proprietary trading is shown in the treasury division, treasury activities carried out on customers’ account are recognized in other divisions like corporate customers and retail customers. That part of proceeds exceeding market prices is assigned to the customer divisions.
Besides non-banking activities, the participations and other division encompasses the management of participations. Moreover, other general activities are involved, including especially those carried out by the parent company Raiff eisen International Bank-Holding AG.
Corporate Retail Participations in € million Customers Customers Treasury and Other Total
Net ncome from disposal of group assets – – – 8 8
Corporate customers The corporate customers division registered strong earnings growth in the year under review. Profi t before tax increased by 32 per cent on the comparable period to € 884 million. Operating business developed positively in all respects. Net interest income rose by 39 per cent to € 1,113 million, and net fee and commission income registered a signifi cant plus of 26 per cent to € 531 million. Altogether, the division’s operating income rose by 34 per cent from € 1,250 million to € 1,678 million. Provisioning for impairment losses doubled to € 269 million.
For the corporate customer division, the past year was shaped by two opposing business developments. On the one hand, the division registered profi t before tax of € 884 million, its best result in Raiff eisen International’s history, and once again proved to be a foundational core business of the Group. On the other hand, the fi nal months of 2008 were already characterized by the eff ects of the fi nancial crisis.
The long-standing cooperation between the risk management teams of the network banks and the sales force was further intensifi ed and optimized in the past year. That made it possible to analyze the risks of certain products, customers, and sectors, e.g., from real estate projects, and to develop measures early to avoid or manage them.
A key measure to boost the company’s position in the mid-market is “Formula Uno”, a marketing project. Proceeding from a detailed market analysis, trend forecasts have been prepared for each country based on a market model. That is the foundation for setting individual acquisition and cross-selling targets for each customer adviser with the help of an international customer portfolio and product need analysis.
Raiff eisen International has always supplied leading Western European banks that have no branches of their own in Central and Eastern Europe with services for their mid-market customers in the framework of cooperative relationships. The customers of these cooperating banks are referred to international desks. That ensures an especially service-oriented reception for Western European customers by highly qualifi ed contact persons.
In 2009, Raiff eisen International will continue its proven business model in the corporate customer division with emphasis on full service for its main bank customers.
Retail customers Profit before tax in the retail customers division fell by 11 per cent on the comparable period to € 435 million. A 133 per cent increase of new allocations to provisioning for impairment losses (€ 507 million) and a rise of general administrative expenses by 22 per cent to € 1,876 million due to continuing investments in the branch network were mainly responsible for this decline.
In the retail customer segment, Raiffeisen International was serving almost 14.7 million private individuals and small enterprises at the end of the reporting period through business outlets, ATMs, and internet and phone banking. Customers had at their disposal the 3,231 branches of the largest banking network in Central and Eastern Europe, almost 6,600 ATMs, and more than 60 mortgage centers for their daily banking and financial transactions. More than 20,000 advisers helped customers with all questions related to checking and savings accounts, payment transfers, real estate financing, consumer loans, and credit cards. Moreover, Raiffeisen International offered its customers the possibility of financing with more than 1,500 automobile dealers and 2,150 retailers.
Raiffeisen International’s focus increasingly shifted last year to attracting customer deposits. Numerous marketing campaigns were initiated for this purpose and led in the fourth quarter to a strong inflow of customer deposits, which thus returned to the level before the financial crisis escalated. In December, the retail customer segment registered the highest monthly inflows of customer deposits to date. The intensive marketing activities and efforts in this direction are to continue in 2009.
Raiffeisen International opened 216 new business outlets in the past year and is thus present with its network now in most large cities of Central and Eastern Europe. Now that expansion of the branch network has been suspended temporarily because of the financial crisis, the focus is shifting to continuously improving service quality. Optimizing processes and strengthening complaint management are initially at the forefront in the effort to increase customer satisfaction and reduce account closings by customers.
All-fi nance business continues to develop as a key element of Raiff eisen International’s retail strategy. Total commissions generated by selling insurance thus increased by 44 per cent on an annual comparison. That development was positively infl uenced by the launch of new products, higher sales goals in the entire network, and a strategic partnership with insurance company UNIQA Versicherungen AG. A large part of the net commission income resulted from products connected with lending to retail customers. In view of the expected growth decline in lending business, however, other products such as life insurance, for example, are likely to play an important role for further growth in this area in the years ahead.
Because of the turmoil on the stock markets worldwide, assets under management declined by 28 per cent in 2008 to € 3.4 billion. On the other hand, about 60 per cent of the money from returned investment fund shares was kept in the Group as customer deposits. In the expectation of a more positive environment, Raiff eisen International is now developing in cooperation with Raiff eisen Capital Management both specifi c local products and international investment funds.
Treasury The treasury division achieved profi t before tax of € 166 million (minus 12 per cent). The positive earnings contribution was achieved despite a loss from fi nancial investments and current fi nancial assets thanks mainly to a 31 per cent increase of trading profi t. That rose despite a special eff ect that yielded a loss of € 88 million due to the release of a capital hedge primarily because of high valuation gains from foreign currency derivatives. The loss from fi nancial investments amounted to € 48 million and was explained by the devaluation of securities following the fi nancial crisis.
Participations and other Profi t before tax in the participations and other division improved by 47 per cent on the comparable period to minus € 56 million. The result is negative mainly because in addition to net income from participations and non-banking activities, the division includes the costs of central group management. Those remain in the division and are not distributed to the other business areas.
Proceeds from sale of: Financial investments and equity participations 1,099,311 1,883,523
Payments for purchase of: Financial investments and equity participations (1,544,858) (1,601,710)
Cash and cash equivalents at the end of period 7,129,860 3,664,187
The cash flow statement shows the structure and changes in cash and cash equivalents during the financial year and is broken down into three sections: operating activities, investing activities and financing activities.
Net cash from financing activities consists of inflows and outflows of equity and subordinated capital. This covers capital increases, dividend payments, and changes in subordinated capital.
Raiffeisen International adopted IFRS 8 early, and it has been applied for the year 2008. Only the segmental reporting regulations laid out in IFRS 8 have been applied to this report.
Generally, internal management reporting in Raiffeisen International is carried out based on its matrix organizational structure. Under this organizational structure, members of the Managing Board are responsible for both specific countries and certain business areas. The highest decision making bodies, Raiffeisen International’s Managing and Supervisory Boards, make important decisions, such as the allocation of resources, according to geographical standpoints. The same applies to the appraisal of financial strength and profitability, which is why this has been identified as the substantial reporting criterion.
Individual Central and Eastern European countries constitute the smallest Cash Generating Units – CGU. Countries that expect a similar long-term economic development and exhibit a similar economic profile are grouped together as regional segments. Four regional segments have been determined in consideration of the threshold values required by IFRS 8, whereby transparent and clearly represented reporting is achieved. The threshold values as defined by IFRS 8 are 10 per cent of certain parameters; these are operating income, profit after tax, and segment assets.
The return on equity before tax measures the rentability of every CGU. This figure shows the proportion between the profit before tax and the average capital employed. Additionally, the return on equity shows the return of the capital employed in each segment. For a broad rentability measurement, the Return on Risk Adjusted Capital Ratio (RORAC) is used within the internal management reporting system. The figure shows the return of the risk adjusted equity (economic equity). This figure is no indicator according to IFRS. The cost/income ratio represents the cost efficiency of the segment. The cost/income ratio shows the proportion of the administrative expenses and the sum of interest income, net fee and commission income, net trading income and the other net operating income. The growth of the risk-weighted assets reflects the increase of the business volume and is an important growth indicator. The risk-weighted assets according to Austrian Banking Act (based on Basel II) illustrates a sector specific addition to the segment assets of which the own funds requirement of 8 per cent is based.
Russia CIS other Reconciliation Total of which current income from associates 919 (316) – – – 603
of which other administrative expenses (389,498) (338,589) (211,976) (149,906) (23,510) (1,113,480)
Net income from disposal of group assets 7,860 – – – – 7,860
Net fee and commission income 470,780 384,819 195,368 197,482 1,385 1,249,835
Net income from financial investments (6,591) 104 (3,278) 524 (2) (9,243)
Net income from disposal of group assets 23,805 – 2,711 – – 26,517
Share of profit before tax 33.0% 34.7% 19.1% 13.2% – 100.0%
Return on equity before tax 22.6% 30.3% 28.9% 31.3% – 25.7%
Raiffeisen International Bank-Holding AG is a financial holding company domiciled at Am Stadtpark 3, A-1030 Vienna and registered in the Companies Register at the Vienna Commercial Court (Handelsgericht Wien) under Companies Register number FN 122.119m. The shares have been listed on the Prime Market of the Vienna Stock Exchange since 25 April 2005. Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna, holds the majority stake in the company, totalling 70.8 per cent of its issued share capital as of the balance sheet date.
Raiffeisen International specialises in providing banking and financial services in Central and Eastern Europe (CEE). The Group includes universal banks in 15 countries that operate a broad network of local business outlets. Raiffeisen International renders a comprehensive range of banking and financial services. These services range from account and cash management, deposit-taking, lending, trade finance, and credit card services to mortgages and leasing. The Group’s diversified client base comprises multinationals and large local groups, small and medium-sized enterprises, public sector institutions, and retail customers.
These consolidated financial statements were signed by the Managing Board on 26 February 2009 and subsequently submitted to the Supervisory Board for review and approval (ascertainment).
The consolidated financial statements for the financial year 2008 and the comparative figures for the financial year 2007 were prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) and the international accounting standards adopted by the EU on the basis of IAS Regulation (EC) 1606/2002 including the interpretations of the International Financial Reporting Interpretations Committee (IFRIC/SIC) that were already applicable. All standards published by the IASB to be applied to financial statements for 2008 and adopted by the EU, have been applied.
Due to the modified IAS 39.50, adopted by the EU in October 2008, non-derivative financial instruments are permitted to be reclassified in rare circumstances from the category held-for-trading to heldto -maturity (until 31 October 2008 also retroactively as of 1 July 2008). Because of the current financial turmoil and the fact that certain financial instruments are no longer traded, the possibility to transfer the affected financial instruments from held-for-trading to held-to-maturity category has been applied.
If estimates or assessments are necessary for the recognition and measurement according to IAS/IFRS, they are made in accordance with the respective standards. They are based on past experience and other factors such as planning and expectations or forecasts of future events that appear likely from the current perspective. Basically, this applies to impairment losses on loans and advances, fair value and impairment of financial instruments, deferred taxes, provisions for retirement and similar benefits, calculations for the recoverability of goodwill and intangible fixed assets which are recognized in the course of business combinations. The actual figures may deviate from the estimated values.
Material interests in associated companies – the Group exerts a significant influence on financial and operating polices of these companies – are valued at equity and reported under investments in associates. Profit or losses occurring in companies valued at equity are shown net in current income from associates. The same rules apply to companies valued at equity (offsetting acquisition costs against proportional fair net asset value) as apply to fully consolidated companies. On principle, IFRS financial statements of associated companies are used. Changes in equity of companies valued at equity are also treated in the consolidated accounts as changes in equity.
Business combinations In the course of capital consolidation, all identifiable assets, liabilities and contingent liabilities of the subsidiary are measured at their fair values on the acquisition date according to IFRS 3. The acquisition costs are offset with the proportional net assets. The resulting positive differences are capitalized as goodwill. The goodwill is tested annually for impairment. Negative differences in the course of first integration are recognized in the income statement.
The estimation of the future development of the Cash Generating Units starts with macro-economic facts (gross domestic product, inflation expectations) and considers specific market conditions and the business policy. In order to better reflect the mid-term development, a ten-year detail planning period was decided.
The data is used to capture the terminal value on a going concern concept. The profit after tax in compliance with the solvency regulations considering a security reserve serves as basis for the calculation. Discounting 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. The inflation-adjusted discount rates used in 2008 for the Cash Generating Units range from 10.14 per cent to 31.51 per cent.
The value of brands was determined using the comparable historical cost approach, because neither immediately comparable transactions nor a market with observable prices were available at the time of purchase price allocation. Documentation of brand-related marketing expenses in the previous years was taken as the data base for the historical cost approach.
A list of fully consolidated companies, companies valued at equity and other equity participations may be found on page 214 f.
Central Eastern European Finance Agency B.V., Amsterdam (NL) 100.0% 1.8. Foundation
ROOF Consumer Bulgaria 2007 – 1 B.V., Amsterdam (NL) 0.0% 1.3. Materiality
ROOF Consumer Romania 2008 – 1B.V., Amsterdam (NL) 0.0% 1.7. Foundation
The following table shows the assets and liabilities revalued as of the acquisition date: The effect of acquired subsidiaries on liquidity was immaterial.
In the financial year 2008, the following companies were excluded from the Group: The following table shows the income arising from disposal of group assets and the two largest transactions separately: 1 SCTD Kondorosi út Kft., Budapest 2 SCTO Bécsi Út Real Estate Development Kft., Budapest
RLRE & EUBE OC - TERRONIC II., s.r.o., Prague (CZ) 69.0% 1.12. Sale
SCTO Bécsi Út Real Estate Development Kft., Budapest (HU) 74.5% 29.4. Sale
Tellmer s.r.o., Prague (CZ) 69.0% 1.12. Immaterial €000 Total SCTD1 SCT0BU2
According to IAS 39, financial assets, financial liabilities and derivative financial instruments are to be recognized on the balance sheet. 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 1 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 the zero-coupon curve. As option price formulas Black-Scholes 1972, Black 1976 or Garman-Kohlhagen are applied depending on the kind of option.
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 under the balance sheet 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. Coupon payments are also recognized under net interest income. A sale of these financial instruments is only allowed in cases as stated in IAS 39.
3. Loans and advances Loans and advances are recognized at their nominal value without deduction of impairment losses. Accrued interest is recognized in the income statement if there is a high probability that it would be received. Moreover, debt instruments are also stated there if there is no active market. Derecognition of financial assets within the framework of securitizations is – after checking if the securitized special purpose vehicle has to be integrated into the consolidated accounts – done on a risk and rewards or control test according to IAS 39 in case of loss of control over the contractual rights arising from the financial asset.
4. Financial assets available-for-sale The category of financial assets available-for-sale contains those financial instruments (mainly equity participations for which there is no active market) that did not qualify for any of the other three categories. They are stated at fair value, if a fair value is reliably measurable. Measurement differences are shown directly in equity and only recognized in the income statement if there is an objective indication of impairment. Only in the case of debt instruments, a reversal of impairment is recognized in the income statement. In case of equity instruments, such reversals of impairment are booked versus equity. This kind of financial instruments is reported under financial investments.
The fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.
Quotation on an active market (level I) If official market prices are available, the fair value is reflected by the market price. This category contains equity instruments traded on a stock exchange, debt instruments traded on the interbank market and derivatives which are traded on the stock exchange.
Measurement techniques not based on observable market data (level III) If no observable stock exchange prices or prices are available, the fair value will be measured by adequate measurement models. The utilization of these models requires assumptions and estimates of the management. The scope of assumptions and estimates depend on the price transparency of the financial instrument, the market and the complexity of the instrument.
As the nature of the financial instruments is already shown by the classification of balance sheet items, the formation of categories is built in line with balance sheet items which include financial instruments. Categories of financial instruments on the asset side are 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 separately stated financial assets not traded on an active market and which are shown at cost). Categories of financial instruments on the liability side are liabilities from trading activities, derivative financial instruments, derivatives for hedge accounting, deposits from banks, deposits from customers, liabilities evidenced by paper and subordinated capital.
Derivatives used by the Group include swaps, standardized forward contracts, futures, credit derivatives, options and similar contracts. Within the operating activity, the Group carries out different transactions with derivative financial instruments for trading and hedging purposes. The Group applies derivatives, in order to meet the requirements of the clients concerning the risk management, to manage and secure the risks and to generate profit in proprietary trading.
a) Fair value hedge according to IAS 39 Hedge accounting according to IAS 39 applies for those derivatives which are used to hedge the fair values of financial assets and liabilities. Especially, the credit business is subject to such fair value risks if it deals with fixed-interest loans. Interest-rate swaps that satisfy the prerequisites for hedge accounting are contracted to hedge against the interest-rate risks arising from loans and refinancing. Hedges are formally documented, continuously assessed, and rated to be highly effective. In other words, throughout the term of a hedge, one can assume that changes in the fair value of a hedged item will be nearly completely offset by a change in the fair value of the hedging instrument and that the actual outcome will lie within a band of 80 to 125 per cent.
Derivative instruments held to hedge the fair values of individual balance sheet items (except trading assets/liabilities) are recognized at their fair values (dirty prices) under derivatives (on the assets side: positive dirty prices; on liabilities side: (negative dirty prices). Changes in the carrying amounts of hedged items (assets or liabilities) are allocated directly to the corresponding balance sheet items and reported separately in the notes.
b) Cash flow hedge according to IAS 39 Cash flow hedge accounting according to IAS 39 applies for those derivatives which are used to hedge against the risk of fluctuating future cash flows. Variable-interest liabilities are particularly 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, were recognized as follows: The hedging instrument was recognized at fair value; changes in its clean price are recorded as separate item in equity without affecting income.
Credit derivatives are derivative financial instruments whose price or value derives from the expected future occurrence or non-occurrence of a specific credit event. Changes in the fair value are recognized in the income statement under net income from derivatives.
M A N A G E M E N T R E P O R T S E G M E N T R E P O R T S C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
In the case of identity of borrower and creditor, 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.
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 criteria occur – to transfer the cash flows to one or more receivers. A transferred asset is derecognized if all risks and rewards of ownership of the assets are transferred.
Under reverse repurchase agreements, assets are acquired with the obligation to sell them in the future. Cash outflows arising from reverse repurchase agreements are recorded in the balance sheet under loans and advances to banks or loans and advances to customers. Interest expense from sale and repurchase agreements and interest income from reverse sale and repurchase agreements are accrued in a straight line over their term to maturity and are shown under net interest income.
Other shareholdings are recognized in the category financial assets available-for-sale. Changes in value are directly recognized in equity without effecting income statement. Impairments are shown in the income statement.
Under this item, internally developed and acquired software, brand rights, acquired customer bases and especially goodwill are stated. Goodwill and other intangible fixed assets (e.g. brand rights) without definite useful lives are tested for impairment at every balance sheet date. Whenever events or changes in circumstances indicate that the expected benefit no longer exists, impairment must be made pursuant to IFRS 3.
Acquired intangible fixed assets with determinable useful lives (software and customer base) are capitalized at acquisition cost and amortized over their estimated useful lives.
Internally developed intangible fixed assets comprise without exemption software. Software is capitalized if it is probable that the future economic benefits attributable to the asset will accrue to the enterprise and the cost of the asset can be measured reliably. The useful life of software is between four and six years and may be longer for major software projects. The useful life of the acquired customer base was set at seven years for corporate customers and for the acquired customer base in the retail division of VAT Raiffeisen Bank Aval at 20 years and for OAO Impexbank (meanwhile merged with ZAO Raiffeisenbank) and eBanka a.s. (meanwhile merged with Raiffeisenbank a.s.) at five years.
Own shares held by Raiffeisen International Bank-Holding AG as of the balance sheet date are deducted from equity. No gain or loss may be recognized in profit or loss on the purchase, sale, issue or cancellation of an entity’s own equity instruments.
The Managing Board of Raiffeisen International Bank-Holding AG obtained Supervisory Board approval to institute a share incentive program (SIP) offering performance-based allotments of company shares for eligible employees at home and abroad for a given period of time. All Managing Board members of Raiffeisen International Bank-Holding AG, managing board members of associated bank subsidiaries, and selected upper management personnel of Raiffeisen International Bank-Holding AG and its affiliated enterprises are eligible to participate.
Interest and similar income mainly includes interest income on loans and advances to banks and customers and from fixed-interest securities. In addition current income from shares and other variable -yield securities (especially dividends), income from equity participations and from investments accounted for at equity, and similar income calculated as interest are also reported under interest and similar income. Interest paid and similar charges mainly include interest paid on deposits from banks and customers and on liabilities evidenced by paper and subordinated capital. Interest income and interest expenses are accrued.
General administrative expenses include staff and other administrative expenses as well as amortization /depreciation and impairment losses for fixed and intangible fixed assets.
Transactions arising from the holding and placing of assets on behalf of third parties are not shown in the balance sheet. Fees arising from these transactions are shown under net fee and commission income.
Information about risks arising from financial instruments is disclosed in the particular notes. Especially, the risk report contains detailed information in the sections credit risk, participation risk, market risk and liquidity risk.
Financial assets and liabilities at fair value through profit or loss 51,960 78,381
Net realized gains (losses) on financial assets not measured at fair value through profit or loss 24,171 2,284
Impairment on financial assets not measured at fair value through profit and loss (3,171) (3,196)
Impairment on financial assets not measured at fair value through profit and loss (2,942,090) (2,182,878)
The interest margin on the respective averages of the stated base is as follows: Interest income includes interest income (unwinding) from impaired loans to customers and impaired loans to banks in the amount of € 178,525 thousand (2007: € 48,415 thousand).
Provisioning for impairment losses on balance sheet and off-balance sheet items is made as follows: Details on risk provisions are shown under note 17 impairment losses on loans and advances.
Net income from hedge accounting comprises on the one hand, a valuation result of derivatives in fair value hedges amounting to € 8,199 thousand (2007: € 1,627 thousand) and on the other hand, changes in the carrying amounts of the fair value hedged items totalling minus € 15,631 thousand (2007: minus € 1,223 thousand).
The position net income from financial investments comprises valuation results and net proceeds from disposal of financial investment portfolio, from securities at fair value through profit and loss and equity participations which include shares in affiliated companies, companies valued at equity, and other equity investments.
General administrative expenses contain staff expenses, other administrative expenses and depreciation on tangible and intangible assets. They break down as follows: Net income from financial investments held-to-maturity (38) 198
Net proceeds from sales of securities at fair value through profit and loss (1,602) 108
The position other net operating income captures, among other things, sales revenues and expenses from non-banking activities, income and expenses from disposal as well as income from the revaluation of tangible and intangible fixed assets.
Theoretical income tax expense in the financial year based on the domestic income tax rate of 25 per cent (357,284) (309,401)
Tax deductions because of tax-exempted income from equity participations and other income 37,521 64,209
The following table shows balance sheet according to IAS 39 measurement categories: Assets according to measurement categories €000
Financial assets at fair value through profit or loss 2,042,089 1,566,157
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: (16) Loans and advances to customers
Purchased loans amounting to € 41,340 thousand (2007: € 45,042 thousand) are assigned to the valuation category held-to-maturity. Purchased loans classified as loans and advances totalled € 682,293 thousand (2007: € 519,389 thousand).
Provisions for impairment losses are formed in accordance with uniform Group standards and cover all recognizable counterparty risks. A table with the development of the impairment losses for loans and advances can be found in the risk report on page 187. Provisions for impairment losses are allocated to the following asset classes according to Basel II definition: Corporate customers – large 29,564,406 25,693,068
The item also includes the positive fair values of derivative financial instruments that neither are held for trading nor constitute fair value hedging instruments under IAS 39.
Due to the modified IAS 39.50, adopted by the EU in October 2008, securities held-for-trading are reclassified to held-to-maturity. The carrying amount at the date of reclassification amounted to € 371,686 thousand. As of 31 December 2008, the carrying amount was € 382,454 thousand and the fair value was € 365,685 thousand. After reclassification, the result in income statement was € 12,630 thousand. In case that reclassification would not be applied, a loss of € 10,252 thousand was caused.
Financial information on associated companies is shown in the following table: Further information regarding associated companies is stated on page 215.
The goodwill is mostly composed of goodwill resulting from business combinations in network units in Russia, Ukraine, Albania, and the Czech Republic. The changes in volume are mainly due to currency differences.
Raiffeisen Banca pentru Locuinte S.A., Bucharest (RO) 68,516 4,020 (653) 8,277
Land and buildings used by the Group for own purposes 495,908 505,255
Office furniture and equipment as well as other tangible fixed assets 532,274 450,195
Land and buildings used by the Group for own purposes 627,967 (7) (96,149) 115,443 (48,617) 21,641 620,278 of which land value of developed land 7,429 – (2,366) 1,249 (8) – 6,304
Write-ups, amortization, depreciation, impairment Book value €000 Cumulative Write-ups Depreciation As of
Other land and buildings (4,805) – (2,384) 10,628 of which land value of developed land – – – 6,304
Intangible and tangible fixed assets developed in the financial year 2007 as follows: Additions to intangible and tangible assets did not include major individual investments.
Raiffeisen International refinances itself periodically with international commercial banks and multinational development banks. These credit contracts contain ownership clauses normally used in business. These clauses give permission to an exceptional termination if Raiffeisen Zentralbank Österreich Aktiengesellschaft looses the majority shareholding in Raiffeisen International. This would lead to increased refinancing cost for Raiffeisen International in the future.
Severance payments also include provisions for anniversary payments amounting to € 2,306 thousand (2007: € 2,169 thousand). Bonus payments (2007: € 49,187 thousand) which were shown in other provisions last year are stated in a separate line. Due to a separate disclosure under the item provisions, bonus payments from previous years amounting to € 52,236 thousand were shown under the column transfers.
Insofar as the conditions for hedge accounting according to IAS 39 are fulfilled, derivative financial instruments are measured at their fair values (dirty prices) in their function as hedging instruments. The hedged items in connection with fair value hedges are loans and advances to customers and deposits from banks. The hedged risks are interest rate risks.
As of 31 December 2008, variable-interest refinancing of ZAO Raiffeisenbank, Moscow, was hedged against the risk of changes in future cash flows by applying interest rate swaps which are reported as cash flow hedge. The effective part of this hedge amounts to € 40,346 thousand and was recognized directly in equity. Last year VAT Raiffeisen Bank AVAL, Kiev, started with cash flow hedges which were closed in the business year. The amount shown in equity is recognized in the income statement over the maturity of the former hedging instrument.
Negative fair values of derivatives in fair value hedges (IAS 39) 1,358 20
The Annual General Meeting held on 10 June 2008 authorized the Managing Board to acquire own shares, pursuant to Section 65 (1), items 4 and 8 of the Austrian Joint Stock Companies Act (AktG), during a period of 30 months as of the date of the resolution, up to 10 per cent of the subscribed capital of the company and to withdraw if applicable. The Managing Board was given the authorization to decide, with the approval of the Supervisory Board, on the sale of own shares by different means than the stock exchange or a public tender, to the exclusion of the shareholders´ subscription right. The present authorization replaced the authorization, adopted by the Annual General Meeting held on 5 June 2007, to buy back own shares.
The purchase of own shares mainly serves as a coverage for the liabilities of the company in connection with the share incentive program granted to the Managing Board and other executives of the Group. These bonus payments are carried out by receiving shares of the company.
Contingent capital Also in the Annual General Meeting held on 10 June 2008, the resolution on the conditional increase of the nominal capital by a maximum of € 47,174 thousand by issuing a maximum of 15,466,750 new ordinary bearer shares in order to grant the creditors of the convertible bonds issued their conversion or subscription right, as well as to correspondingly amend the Articles of Association in Section 4 (Capital and Shares) by adding the following paragraph (6): In keeping with Section 159 (2) item 1 of the Austrian Joint Stock Companies Act, the subscribed capital has been increased conditionally by a maximum of € 47,174 thousand by issuing a maximum of 15,466,750 ordinary bearer shares (conditional increase of capital). The conditional increase of capital will only be implemented to the extent that the owners of convertible bonds, issued on the basis of the resolution taken by the Annual General Meeting on 10 June 2008, actually exercise their right to convert these bonds into shares of the company. The amount of issue and the conversion ratio shall be determined on the basis of recognized methods of investment mathematics, as well as the price of Raiffeisen International Bank-Holding AG shares in a recognized pricing procedure (basis for calculating the amount of issue). The amount of issue must not be less than the pro-rata amount of the nominal capital. The new shares which are issued under the conditional increase of capital are entitled to receive the dividend that corresponds to that of the shares that are traded on the stock exchange at that time. The Managing Board is authorized, with the approval of the Supervisory Board, to determine the further details for implementing the conditional increase of capital. The Supervisory Board is authorized to adopt any amendments in the Articles of Association as they result from the issue of shares on the basis of the conditional increase in capital.
The statement of changes in equity is shown on page 117.
The number of shares outstanding developed as follows: Share-based remuneration In 2008, the first allotment of the share incentive plan (SIP – SIP allotment 2005) matured. According to the program conditions (published in the Wiener Zeitung per 9 August 2005) the program criteria ’s (average ROE above the waiting period and TSR-ranking) were exceeded and therefore the maximum of the distributed shares which are due was reached. Due to a value limit earmarked for allotment, the following lower amount of shares was transferred.
Within the framework of the SIP, a new allotment has been issued on a yearly basis up to now. This implies that on the balance sheet date contingent shares for three allotments are assigned. As of 31 December 2008, the contingent allotment under the share incentive program came to 202,377 shares (65,803 shares are due to the allotment of 2006, 51,983 shares are due to the allotment of 2007, 84,591 shares are due to the allotment of 2008).
Members of the managing boards of bank subsidiaries affiliated with Raiffeisen International Bank-Holding AG 81,057 6,579,394 64,616
Members of the managing boards of bank subsidiaries affiliated with Raiffeisen International Bank-Holding AG 108,578 27,144 162,867
Disclosures on Raiffeisen International’s relations to key management are reported under note (53) relations to key management.
In financial year 2008, both true sale transactions (Warehousing) ROOF Bulgaria 2008-1 and ROOF Romania 2008-1 were closed.
The total volume of ROOF Bulgaria 2008-1 amounts to € 200 million. In this transaction, unsecured consumer loans of Raiffeisenbank (Bulgaria) EAD, Sofia (BG), were sold to the special purpose entity ROOF Consumer Bulgaria 2007-1 B.V., Amsterdam (NL).
Currently, both transactions are arranged in the Warehousing-period, and this phase and the corresponding issue of Warehousing Notes demonstrate a preliminary stage to the final securitization. The difference compared to traditional transaction-processing consists therein that the risk of the underlying loans remains within the Group, as in this Warehousing-period no different rated tranches exist, but only one category of so called Warehousing Notes. The remaining of the loan default risk of the transferred loans within the Group is due to the fact that the loan default risk was taken over by a Group unit. The material advantages of such a transaction for the originators Raiffeisen (Bulgaria) EAD, Sofia (BG), Raiffeisen Bank S.A., Bucharest (RO), and for the Group consist in a liquidity facility due to the issue of Warehousing Notes representing an additional refinancing source. Moreover, the possibility of a further optimization of the underlying portfolio occurs. After expiry of the12 to 18 months lasting preliminary lead time a full securitization and placement of the portfolio is common, whereas the decision of a possible takeover through a Group unit will be decided until this date in the objective transactions.
As in both Warehousing-transactions, significant chances and risks of the portfolio remain within the Group, the special purpose entities are integrated into the consolidated group. Therefore the securitised loans and the liabilities securitised by the Warehousing notes towards external investors are disclosed in the consolidated financial statements.
Up to now, the following transactions have been executed (the indicated amounts represent the transaction volumes at the closing date): Seller of claims or secured party
The following repurchase and redelivery commitments are shown as of the balance sheet date: Assets sold in a genuine sale and repurchase agreement amounted to € 655,448 thousand (2007: € 317,037 thousand) as of 31 December 2008. Assets, where the borrower has the right to sell or repledge totalled € 638,875 thousand (2007: € 284,815 thousand) and were mainly bonds, notes and other fixed-interest securties.
The following liabilities are secured by assets shown in the balance sheet: The following balance sheet assets are provided as collateral for the above mentioned obligations: Genuine repurchase agreements as borrower
Write-offs on unrecoverable minimum lease payments outstanding totalled € 9,130 thousand (2007: € 3,108 thousand).
Operating leases from view of Raiffeisen International as lessor: Future minimum lease payments under non-cancellable operating leases are as follows: Operating leases from view of Raiffeisen International as lessee: Future minimum lease payments under non-cancellable operating leases are as follows: More than 1 year, up to 5 years 106,730 57,246
Being an active player in the world’s financial markets inherently means taking risks. For this reason, the ability of Raiffeisen International to identify and measure risks, to monitor and to mange them is a decisive competitive factor. To ensure the long-term success of Raiffeisen International and to permit selective growth in the targeted markets, the Group's risk management activities are designed to ensure the professional management of credit, country, market, liquidity, and operational risks.
Special attention is paid to concentration risks, and thus they also define limits on large exposures, product/sector/industry weights, and regional concentrations. The Managing Board is responsible for implementing these targets and for adequate monitoring and controlling of the risks incurred.
Furthermore, the members of the Managing Board of Raiffeisen International ensure the proper organization and ongoing development of effective internal risk management. They decide which procedures are to be employed in identifying, measuring, and monitoring risks, and make steering decisions according to risk reports and analyzes. In all this the Managing Board is supported by independent risk management units and specially appointed committees.
The central risk management and controlling functions are accountable for the adequate and appropriate implementation of all aspects of the Group’s risk management process. In particular, they establish common risk management principles and set business-specific standards, tools, and practices which are followed in all Group entities. This serves the purpose of creating a common risk culture and fostering the use of state-of-the-art risk management tools in the Group.
Risk taking capacity (projected earnings plus capital exceeding regulatory requirements) must not fall below the annualised value-at-risk 99 per cent reflecting the owners’ willingness to inject fresh capital
Liquidation perspective Risk of not being able to satisfy claims of senior debt holders
Unexpected losses on an annual basis (economic capital) must not exceed the present value of the bank’s equity and subordinated liabilities 99.95 per cent as derived from the probability of default implied by the target rating (1 excess in 2000 years)
For example, Basel II calculations for credit risks in non-retail portfolios are performed centrally: this ensures that definitions, parameters, and processes are the same for all units and that knowledge gained from implementing advanced risk measurement approaches (i.e. the IRB approach) is shared among different Group members.
Local risk management units are established in the different legal entities of Raiffeisen International Bank-Holding AG. They implement the risk policies for specific risk types and take active risk steering decisions within the approved risk budgets in order to achieve the targets set in these policies. For this purpose, they monitor risks using standardized measurement tools and communicate them to central risk management units via defined reporting interfaces.
The overall risk amount is compared to internal capital, which primarily consists of equity and subordinated capital of the Group. Total utilization of available risk coverage capital (the ratio of economic capital to internal capital) amounts to 92 per cent (as of 31 December 2008). The increased utilization mainly results from a significant rise of foreign exchange rate risk in the market risk area and the asset volume increase in the credit business.
Economic capital is used as a parameter in overall bank management and for the purpose of capital allocation. Economic capital budgets are allocated to business units during the annual budgeting process and transformed into operative volume, sensitivity, or value-at-risk limits. In Raiffeisen International this sort of planning is done on a revolving basis for the upcoming three years and incorporates the future development of economic capital as well as the available internal capital.
Based on these calculations, Raiffeisen International also carries out risk-adjusted performance measurement. The profitability of business units is set in relation to the amount of economic capital attributed to these units (risk-adjusted return on risk-adjusted capital, RORAC), this yields a comparable performance measure for all business units of the bank. The RORAC measure in turn is a key figure for overall bank management and influences future capital allocations to business units.
Credit risk within Raiffeisen International consists mainly of default risk that arises from business with retail and corporate customers, other banks and sovereign borrowers. Default risk is defined as the risk that a customer will not be able to fulfil contractually agreed financial obligations. Credit risks, however, also arise from migration risks (caused by deteriorations in customers’ creditworthiness), concentrations of creditors or in credit risk mitigation techniques, and country risk.
The internal credit risk controlling system includes different types of monitoring measures which are tightly integrated into the work processes that lead from the customer’s initial credit application, to the bank’s credit approval, and to the repayment of the loan. With respect to the new capital adequacy framework for banks (Basel II), the seamless management, monitoring and control of credit risk is thus assured.
The whole limit application process is supported by efficient computer-based systems. Account management, for example, where multinational customers do business simultaneously with more than one network unit of Raiffeisen International, is supported by the Global Account Management System (GAMS). Limit management applications enforce the dual control principle and allow sharing lending applications between different entities according to the defined competence schemes. All these applications benefit from unique customer account numbers for corporate customers in the Group.
Rating models and credit exposures The rating process serves to determine the creditworthiness of a counterparty. Raiffeisen International uses internal ratings for assessing credit risk where different risk-classification procedures (rating and scoring models) for different asset classes are employed. All rating and scoring models are used in the whole Group and again are available as software tools (e.g. for business valuation and calculating rating grades, rating database).
The rating models in the main non-retail divisions – corporate customers, financial institutions, and sovereigns – rank creditworthiness in ten classes.
The volume of assets rated through project rating has significantly increased to € 3.6bn in the year 2008 where the lion’s share originates in Central Europe. The good rating profile of the portfolio reflects the high collateralisation in these special financing transactions.
Internal project rating 2008 Proportion 2007 Proportion 6.1 Excellent project risk profile – very low risk 1,451,184 40.2% 409,248 26.1%
Retail customers The retail customers business field is divided into private individuals and small and medium-sized enterprises (SME). For retail customers, a two-fold scoring system is used – consisting of the (initial and ad-hoc) scoring based on customer data and behavioural scoring based on account data. The table below provides a breakdown of the credit exposure (including off-balance sheet exposure) for the retail customers by region in thousands of euros: From year end 2007 to year end 2008, the retail portfolio in total increased by 22 per cent to € 23.7 billion. The growth was mainly driven by private individuals (27 percent increase) whereas the size of the SME portfolio stayed constant. From a geographical point of view, the largest increase of retail exposures took place in the Central European region (32 per cent increase), whereas growth in the CIS region, influenced by exchange rate effects, reached just 3 per cent.
M A N A G I N G B OA R D S U P E R V I S O R Y B OA R D OV E R V I E W I N T E R V I E W S T O C K
The following table shows the credit exposure per rating class for financial institutions (including offbalance sheet exposure but excluding central banks) in thousands of euros: The rating distribution of financial institutions shows a further increase in the rating class A3 (increasing from 64 to 68 per cent). This is caused by the fact that most banking institutions in developed markets (including RZB AG) have this rating assigned. The number and exposure of unrated financial institutions is below 2 per cent. This exposure is mainly due to short-term loans to small banks, where the rating process has not been completed yet.
Financial institutions The customer division financial institutions mainly contains exposures to banks and securities firms. The internal rating model for financial institutions is based on a peer-group approach that takes both qualitative and quantitative information into account. A ceiling is set on the final rating for financial institutions by the respective country rating.
Impairments and provisioning Sovereigns Another rating model in this division is used for central governments, central banks, and regional municipalities as well as other public sector entities. The table below provides a breakdown of the credit exposure to sovereigns (including central banks and off-balance sheet exposure) based on the internal rating in thousands of euros: The average internal rating of credit exposures to Sovereigns slightly decreased this year. The internal rating of Hungary has been reduced from B1 to B2, and Romania were downgraded from B2 to B3.
Default and handling procedures Default is defined in Raiffeisen International as the event where a specific debtor is unlikely to pay its credit obligations to the Group from primary sources, or the debtor is overdue more than 90 days on any material credit obligation. Raiffeisen International has defined twelve default indicators which are used to identify a default event including the insolvency or similar proceedings of a customer, if an impairment provision has been allocated or a direct write-off has been carried out, if credit risk management has judged a customer account receivable to be not wholly recoverable, or the workout unit is considering stepping in to help a company restore its financial soundness.
Impairments and provisioning Troubled loans (where debtors are expected to run into material financial difficulties or delayed payment) need special handling. In the non-retail business fields, Problem Loan Committees (PLCs) of each Group unit review problematic exposures and decide on provisioning. In case of the need for intensified handling and workout, the troubled loans are assigned either to a designated specialist or to a restructuring unit (workout department), both part of the credit risk management divisions. Employees of workout units are specially trained and experienced. They typically handle medium-sized to large cases and are assisted by in-house legal departments and/or by external specialists as well. Work-out units play a decisive role in accounting and analyzing as well as booking provisions for impairment losses (write-offs, value adjustments, provisioning) and become involved early on in order to reduce losses caused by troubled loans. Cases in which restructuring or liquidation take place are analyzed to find out their causes. Lending processes are then adapted as necessary on the basis of these results.
Impairment losses on loans – 645 – 645 of which collateralized 57 – – 57
The effects of the financial turmoil in the fourth quarter 2008 resulted in a huge increase in impairment losses. The following table summarizes the development of impairment losses on loans and advances and on off-balance sheet obligations in the fiscal year and that of the underlying balance sheet items: 1 Allocation including direct write-downs and income on written down claims. 2 Usage including direct write-downs and income on written down claims.
The following table shows the geographic breakdown of provisioning by the customers’ home country: 1 Allocation including direct write-downs and income on written down claims. 2 Usage including direct write-downs and income on written down claims.
Impaired assets The following table shows the gross carrying amount of impaired assets, the amount of specifically allocated provisions, and the corresponding net value of available collateral: The maximum credit risk exposure (including revocable and irrevocable credit lines) and the fair value of collaterals where reselling and/or repledging are allowed without default of debtor are shown in the following table: 31.12.2008 Impairments and collaterals
Interest on individually impaired assets 31.12.2008 Maximum credit exposure Fair value of collaterals
The regional breakdown of credit exposure reflects the broad diversification in European markets. The following table shows the regional distribution of credit exposure from banks and customers (incl. credit exposure from off-balance sheet contracts) by domicile of borrower: 1 EU-27 excluding member states listed in this table 31.12.2007 Maximum credit exposure Fair value of collaterals
Raiffeisen International’s lending portfolio is broad and well diversified by region and by industry. The ten largest corporate exposures (with a weighted average rating of 2.8) account for 3.6% of the corporate portfolio.
Counterparty credit risk Non-bank credit exposure (including off-balance sheet items) by industry
Market risk at Raiffeisen International is monitored and managed by RZB within the scope of a service level agreement (SLA). The rules and procedures for the management of market risks are defined by RZB on a Group-wide basis and endorsed by the Managing Board of Raiffeisen International Bank-Holding AG. All network banks of Raiffeisen International have market risk management departments. Those departments are responsible for day-to-day limit monitoring and weekly reporting to RZB.
Interest rate risk and price risks (e.g. stocks and funds) are also important, whereas commodity risk is not material at all. The table below provides value-at-risk figures (99%, 10-day) by risk type for market risk in the trading book of the Raiffeisen International: The following table shows the same statistics on market risks in the trading book for the year 2007.
Market risk in the banking book Interest rate risk in the banking book arises from different maturities and repricing schedules of Raiffeisen International’s assets and the corresponding liabilities (i.e. deposits and refinancing on debt and capital markets). This risk in particular is due to different interest rate sensitivities, rate adjustments, and other optionality of expected cash flows. It is mainly hedged by a combination of on- and offbalance sheet transactions where the Group uses in particular interest rate swaps and – to a smaller extent – also interest rate forwards and interest rate options. Balance sheet management is a core task of the central Global Treasury department and individual network banks, which receive assistance from asset/liability management committees. They base their decisions on various interest income analyzes and simulations that ensure proper interest rate sensitivity in line with expected changes in market rates and the bank’s overall risk appetite.
Interest rate risk in the banking book is measured in a value-at-risk framework in Raiffeisen International. In addition it uses other established tools for nominal and interest rate gap analyzes as well.
The following table shows the change in the present value of Raiffeisen International’s banking book in € thousand given a one-basis-point interest rate increase: VaR as of 31.12.2008
Banks perform maturity transformation as an important role for international financial markets. The need for maturity transformation arises from the needs of depositors to access their funds within short notice and the desire of borrowers for long term credits. This function constantly results in positive or negative liquidity gaps for different maturities that are managed through transactions with other market participants under normal market conditions. Liquidity risk is defined as the risk that the bank could be unable to meet its current and future financial obligations in full or in good time. Liquidity risk therefore results from the risk that, for example, refinancing can only be carried out at disadvantageous conditions or not at all (funding liquidity risk). Other examples are situations in which assets have to be sold at short notice at a large discount or in which customer repayments in the lending business are not made on schedule. Also many committed lines might be unexpectedly drawn at once or deposits could be unexpectedly withdrawn on a large scale (short-term liquidity risk).
Short-term liquidity risk The following report shows cumulative excess liquidity and the ratio of due assets to liabilities (liquidity ratio) for select maturities, taking into account balance sheet items and off-balance-sheet transactions. Based on expert opinions, statistical analyzes and country specifics, this process also incorporates cautious estimates on the liquidation of defined assets or on the so-called sediment of customer deposits. These parameters have been updated 2008 according to the exceptional market circumstances in this year.
Refinancing costs would rise when a rating downgrade of these banks occurs and Raiffeisen International would have to pay higher risk premiums to refinance its assets. Funding and long-term refinancing is also driven by money supply. Sometimes funds are available more cheaply as risk premiums are low. At other times they are more expensive as credit spreads have widened.
Derivatives in the trading book 1,449,562 74,926,511 24,624,827 28,063,898 21,115,547 1,122,239
Derivatives in the trading book 501,561 26,904,600 6,608,262 13,335,521 6,660,002 300,814
Operational risk is analyzed and managed on the basis of the Group’s own historical loss data and the results of risk self assessments. Raiffeisen International implements a centralised - decentralised system for operational risk management. In this process, a central operational risk management function defines all basic principles and minimum requirements, which then are implemented locally in the native language of individual members of Raiffeisen International.
Monitoring Key Risk Indicators (KRI) are measurable quantities which are used to monitor and predict operational risk events. Key risk indicators are specifically tailored to all network units as well. A common catalogue of key risk indicators which is defined by the head office for internal benchmarking purposes is mandatory for all Group members. All network units then add additional relevant KRIs and define thresholds (two levels of thresholds have to be defined for implementing an early warning system) as most appropriate for their business.
Quantification and mitigation Raiffeisen International currently calculates regulatory capital requirements for operational risks according to the Basel II framework by combining for a limited period the standardized approach (STA) with the basic indicator approach (BIA). Most units use the standardized approach which thus also accounts for the lion’s share of regulatory capital requirements for operational risk. Mainly the basic indicator approach is used just by two group members, namely the network bank in Croatia and Ukraine. The Ukrainian network bank, Raiffeisen Bank Aval, runs through the same implementation plan as other members of Raiffeisen International already did which will take several years due to the size of the bank. Raiffeisenbank Austria d.d., Zagreb, applies the standardized approach as from 1 January 2009 on.
Loans and advances to banks 10,308,502 9,038,096 1,270,406 11,073,784 11,053,202 20,582
Loans and advances to customers 56,909,867 57,902,304 (992,437) 48,394,102 48,879,806 (485,704)
1 Including other derivatives. 2 Includes only securities traded on the stock exchange.
Positive fair values of derivatives1 1,078,688 1,052,023 212,823 235,816 371,775 7,106
Bonds, notes and other fixed-interest securities 1,508,990 722,047 – 1,990,615 198,518 –
Financial assets at fair value through profit or loss 1,567,802 471,445 2,842 1,341,525 222,063 2,568
Positive fair values of derivatives from hedge accounting 16,366 211 – – 5,997 –
The following table contains revocable credit lines which currently bear no credit risk: Quoted market prices
Negative fair values of derivatives for hedge accounting 49,531 1,358 – – 8,323 –
Tier 2 capital available to be redesignated as tier 3 capital (tier 3 capital) 112,455 57,430
The total own funds requirement is as follows (The figures as of 31 December 2007 are based on Basel I and are adapted to the new reporting scheme): Risk-weighted assets for the credit risk according to asset classes break down as follows: (51) Average number of staff
The average number of staff employed during the financial year (full-time equivalents) breaks down as follows: Risk-weighted assets according to Section 22 BWG 60,387,566 49,802,310 of which 8 per cent minimum own funds for the credit risk according to Sections §§ 22a to 22h BWG 4,831,005 3,984,185
Own funds requirement for position risk in bonds, equities and commodities 152,143 146,228
Risk-weighted assets according to Section 22 BWG on standardized approach 50,664,675
Risk-weighted assets according to Section 22 BWG on internal rating approach 9,722,888
Remuneration of members of the Managing Board The members of the Managing Board of Raiffeisen International Bank-Holding AG are remunerated as follows: The table contains fixed remunerations, performance-based remunerations, remunerations for membership of boards of subsidiaries, bonuses, and payments in kind. In the financial year 2008, the share of performance-based remuneration components was 60.7 per cent (2007: 58.5 per cent). Performance-based remuneration components of the Managing Board consist of bonus payments which are linked to achieve the objectives regarding profit after tax, return on risk adjusted capital, cost/income ratio and to achieve the personal objectives that are agreed annually and for the first time of the amount of the allotment regarding SIP program. The value of the distributed shares amounts to 65.7 per cent of the performance based remuneration. There were no material changes in the principle for profit-sharing against the previous year.
Remuneration of members of the Supervisory Board The Annual General Meeting held on 10 June 2008 decided an annual remuneration for the members of the Supervisory Board in the amount of € 330 thousand and transferred the distribution to the Board itself. The members of the Supervisory Board settled the distribution in their meeting of 10 June, 2008 as follows: Chairman € 70 thousand, Deputy-Chairman € 60 thousand, members of the Supervisory Board € 50 thousand. Session fees were not paid.
The members of the Supervisory Board have further mandates in the Supervisory Board of quoted companies at home and abroad: Walter Rothensteiner: UNIQA Versicherungen AG Karl Sevelda: Bene AG, Unternehmens Invest AG
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluation of the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
Opinion Our audit did not give rise to any objections. Based on the results of our audit in our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the group as of 31 December 2008 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU.
Asset Management Company "Raiffeisen Aval", Kiev (UA) 8,000,000 UAH 100.0% FI
RAIFFEISEN TRAINING CENTER LTD., Zagreb (HR) 20,000 HRK 80.0% 20.0% BR
Fondul de Garantare a Creditului Rural S.A., Bucharest (RO) 2,914,750 RON 33.3% FI
Raiffeisen Economic and Tax Consulting Zrt., Budapest (HU) 20,000,000 HUF 20.0% FI
Glossary Affi liated companies – Entity over which the investor has control (i.e. power to govern the fi nancial and operating policies).
Badwill – Any remaining excess of the acquirer’s interest in the fair values of the identifi able assets and liabilities acquired over the cost of the acquisition as at the date of the exchange transaction.
CE – Central Europe. For Raiff eisen International it is defi ned as Hungary, Poland, Slovakia, Slovenia, and Czech Republic.
Credit risk – is the risk of loss due to a debtor’s non-payment of a loan or other line of credit.
Cross selling – Marketing strategy in which additional products and services are actively off ered to existing customers.
DBO – Defi ned benefi t obligation, i.e. the present value, without deducting any plan assets, of expected future payments required to settle the obligation resulting from employee service in the current and prior periods.
Deferred tax assets – The amounts of income taxes recoverable in future periods in respect of deductible temporary diff erences, the carry forward of unused tax losses, and the carry forward of unused tax credits.
Deferred tax liabilities – The amounts of income taxes payable in future periods in respect of taxable temporary diff erences.
Derivatives – Financial instruments whose value changes in response to the change in a specifi ed interest rate, fi nancial instrument price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index, or other variable, that requires no initial net investment or small initial net investment and that is settled at a future date.
Earnings per share (EPS) – Profi t attributable to ordinary equity holder (profi t adjusted by dividends to preference shareholders ) divided by the weighted average number of ordinary shares outstanding during the period.
Fair Value Level III – evaluation method through non-observable parameters). If observable parameters are not available; the fair value will be measured through valuation methods appropriate for the fi nancial instrument.
Fiduciary business – Transactions which are carried out by a trustee, often banks, on own name but on account of the benefi ciary.
Held-for-trading – Securities held for trading purposes to take advantage of short-term market fl uctuations.
Held-to-maturity – Financial assets with fi xed or determinable payments and fi xed maturity that an entity has the positive intention and ability to hold to maturity.
IFRIC, SIC – International Financial Reporting Interpretations Committee – Interpreter of the International Financial Reporting Standards, formerly also SIC (Standing Interpretations Committee).
Interest margin – Net interest income in relation to average balance sheet total.
IRB (Internal Ratings-Based approach) – Method of evaluating the capital backing of credit risks in accordance with Basel II. By using the IRB approach, the capital backing is determined according to internal credit ratings. In the process, features specifi c to the borrower and the loan are taken into account. The ratings must be made by an independent source.
Operating profi t/loss – In IFRS-compliant fi nancial statements, it consists of operating income net of general administrative expenses. Operating income comprises net interest income, net commission income, trading profi t/loss and other operating profi t/loss. General administrative expenses comprise staff expenses and other administrative expenses and depreciation/ amortization of tangible and intangible fi xed assets.
Own funds requirement according to BWG – is defi ned in § 22 BWG and involves the requirement for the credit risk, for position risk in bonds, equities and commodities and foreign currency and for the operational risk.
Plan assets – Assets held by a long-term employment benefi t fund.
Portfolio-based loan loss provisions – Impairment provisions for portfolios of loans with identical risk profi les that may be compiled under certain conditions.
Raiff eisen International – The Group of Raiff eisen International Bank-Holding AG.
Risk/earnings ratio – Risk valuation ratio. Is calculated by provisioning for impairment losses divided by net interest income.
ROE (return on equity) – Return on the total equity including minority interests, i.e. profi t before tax respectively after tax in relation to weighted average balance sheet equity. Average equity is calculated on month-end fi gures and does not include current year profi t.
RZB-Kreditinstitutsgruppe – Pursuant to section 30 of the Austrian Banking Act (BWG), RZB-Kreditinstitutsgruppe is made up of all banks, fi nancial institutions, securities companies and companies rendering banking-related services in which Raiff eisen Zentralbank holds direct or indirect interests or has control as a superordinate institution.
Scorecard – A statistical tool in risk management for estimating risk parameters, typically used to determine probability of default or the loss-given-default ratio.
Segment reporting – Disclosure of earnings and asset data for geographical segments.
Splitting – A procedure that is particularly common in U.S. investment banking where equities that have become very highly priced are split into two or more shares or share certifi cates.
Tax rate – Relation of income taxes to profi t before tax.
Wholesale funding – Refi nancing of banks by way of external sources, i.e., not through their own funds or customer deposits.
Austria Am Stadtpark 3 1030 Wien Phone: +43-1-71707 0 Fax: +43-1-71707 1715 www.ri.co.at investor.relations@ri.co.at ri-communications@ri.co.at
Albania Raiff eisen Bank Sh.a. European Trade Center Bulevardi „Bajram Curri“ Tiranë Phone: +355-4-2222 669 Fax: +355-4-2275 599 SWIFT/BIC: SGSBALTX www.raiff eisen.al
Belarus Priorbank, OAO Ul. V. Khoruzhey, 31-A 220002 Minsk Phone: +375-17-289 9090 Fax: +375-17-289 9191 SWIFT/BIC: PJCBBY2X www.priorbank.by
Bosnia and Herzegovina Raiff eisen Bank d.d. Bosna i Hercegovina Danijela Ozme 3 71000 Sarajevo Phone: +387-33-287 100 Fax: +387-33-213 851 SWIFT/BIC: RZBABA2S www.raiff eisenbank.ba
Bulgaria Raiff eisenbank (Bulgaria) EAD 18/20 Ulica N. Gogol 1504 Sofi a Phone: +359-2-9198 5101 Fax: +359-2-943 4528 SWIFT/BIC: RZBBBGSF www.rbb.bg
Croatia Raiff eisenbank Austria d.d. Petrinjska 59 10000 Zagreb Phone: +385-1-456 6466 Fax: +385-1-481 1624 SWIFT/BIC: RZBHHR2X www.rba.hr
Serbia Raiff eisen banka a.d. Bulevar Zorana Djindjića 64a 11070 Novi Beograd Phone: +381-11-320 2100 Fax: +381-11-220 7080 SWIFT/BIC: RZBSRSBG www.raiff eisenbank.rs
Ukraine VAT Raiff eisen Bank Aval Vul Leskova, 9 01011 Kyiv Phone: +38-044-490 8888 Fax: +38-044-285 3231 SWIFT/BIC: AVAL UA UK www.aval.ua
Austria Raiff eisen-Leasing International GmbH Am Stadtpark 3 1030 Wien Phone: +43-1-71707 2966 Fax: +43-1-71707 2059 www.rli.co.at
Belarus SOOO Raiff eisen Leasing Ul. V. Khoruzhey, 31-A 220002 Minsk Phone: +375-17-289 9396 Fax: +375-17-289 9394 www.priorbank.by
Bulgaria Raiff eisen Leasing Bulgaria OOD Business Park Sofi a Building 11, 2nd fl oor 1715 Sofi a Phone: +359-2-970 7979 Fax: +359-2-974 2057 www.rlbg.bg
Kazakhstan Raiff eisen Leasing Kazakhstan LLP 146, Shevchenko str. Offi ce 12, 1st fl oor 050008 Almaty Phone: +7-727-3785 446 Fax: +7-727-3785 447 www.rlkz.kz
Poland Raiff eisen-Leasing Polska S.A. Ul. Prosta 51 00838 Warszawa www.rl.com.pl
Romania Raiff eisen Leasing IFN SA Calea 13 Septembrie 90 Grand Offi ces Marriott Grand Hotel Sector 5 050726 Bucureşti Phone: +40-21-403 3334 Fax: +40-21-403 3298 www.raiff eisen-leasing.ro
Russia OOO Raiff eisen Leasing Stanislavskogo ul., 21/1 109004 Moskwa Phone: +7-495-721 9980 Fax: +7-495-721 9901 www.rlru.ru
Austria Am Stadtpark 9 1030 Wien Phone: +43-1-71707 0 Fax: +43-1-71707 1715 SWIFT/BIC RZBAATWW www.rzb.at
Publisher: Raiff eisen International Bank-Holding AG Editor: Investor relations Editorial deadline: 27 February 2009
Public relations contact Phone: +43-1-71707 2828 E-mail: ri-communications@ri.co.at Internet: www.ri.co.at → Public Relations
You will fi nd the online version of the annual report at The original German version of the report is available at