Group management report Market development 38 Performance and financials 42 Detailed review of income statement items 45 Comparison of results with the previous quarter 50 Statement of financial position 52 Research and development 54 Internal control and risk management system 55 Capital, share, voting and control rights 57 Funding 59 Risk management 61 Human resources 64 Outlook 66 Events after the reporting date 67
Consolidated financial statements Statement of comprehensive income 102 Statement of financial position 105 Statement of changes in equity 106 Statement of cash flows 107 Segment reporting 109 Notes 116 Auditor’s report 211
Net provisioning for impairment losses (1,009) (5.1)% (1,064) (1,194) Net fee and commission income 1,516 1.8% 1,490 1,491
Total own funds requirement 6,626 (13.1)% 7,624 7,585 Excess cover ratio 94.5% 25.8 PP 68.6% 66.2% Core tier 1 ratio, total 10.7% 1.6 PP 9.0% 8.9% Tier 1 ratio, credit risk 13.6% 1.4 PP 12.2% 12.2%
Resources 31/12 31/12 31/12 Employees as of reporting date 60,084 1.4% 59,261 59,782 1 Calculated according to the Austrian Banking Act (Bankwesengesetz, BWG). Raiffeisen Bank International (RBI) as part of the RZB Group is not subject to the Austrian Banking Act. 2 Proposal to the Annual General Meeting. In this report, Raiffeisen Bank International (RBI) refers to the RBI Group, and RBI AG is used wherever statements refer solely to Raiffeisen Bank International AG. The same applies to RZB and RZB AG.
EUROPE: France: Paris; Germany: Frankfurt/Main; Malta: Sliema; Sweden: Stockholm; UK: London; ASIA And AMERICA: China: Beijing, Harbin, Hong Kong, Xiamen, Zhuhai; India: Mumbai; Kazakhstan: Almaty (leasing company); Korea: Seoul; Malaysia: Johor Bahru; Singapore: Singapore; USA: New York; Vietnam: Ho Chi Minh City.
Mr. Stepic, when you look back on 2012: What are you satisfied with? First of all, given the external circumstances, I am content with last year’s earnings. In a year dominated by renewed economic decline and a huge effort regarding the capital ratio, we can be rightly proud of posting a profit before tax of more than 1 billion euro. However, I need to mention various one-off effects recorded in the year under review: In the fourth quarter, we were confronted with a goodwill impairment of 37 million euro, but we had profited from several positive effects in the first quarter. Among other things, we sold high-quality securities to achieve the capital ratio required by the European Banking Authority (EBA). The sale cost us a chunk of our net interest income in subsequent quarters but also resulted in significant net proceeds. I am also pleased that we fulfilled the higher equity ratio requirement. In this regard our project team has done an outstanding job, enabling RBI to increase its core tier 1 ratio to well over 10 per cent during the course of the year. Finally, I am very pleased that four international finance magazines named us the best bank in Central and Eastern Europe (CEE), as well as the best bank in a number of individual countries.
Why is that the case? With few exceptions, the countries in the region have done their homework: They are less dependent on external financing due to relatively low balance of payment deficits, their productivity has improved thanks to moderate wage increases, and, with the exception of Hungary, they have considerably less debt than Western Europe. Moreover, the region continues to benefit from the catch-up process, which remains the driver for economic development and thus the development of the entire continent.
“We have a very strong position in all growth markets.” Interview with CEO Herbert Stepic
What plans do you have following the merger of Raiffeisen Bank Polska with Polbank? We will utilize the opportunities afforded by the Polish market and our strengthened position. Hence, as a universal bank with a broad presence, we have considerably better business and earning prospects than we did before, when we focused on corporate customers and the SME business. The approval by the Polish financial regulator at the beginning of December 2012 was the start for the legal merger completed at the end of the year, as well as for a restructuring program. The program’s objective is to fully utilize the synergies resulting from the merger, as well as a number of measures leading to the operational merger targeted for the middle of 2014. For instance, we have already successfully launched the “Raiffeisen Polbank” brand to the market, and we are working on several projects to improve profitability and to integrate IT systems and processes. Once the merger is completed, we will have a very strong position in all growth markets.
2012 was marked by regulatory requirements and bank levies. How do you feel when you hear these terms? Not that positive. You have to distinguish between these two issues, although the latter influences the former. The new capital requirements, regardless of whether they are mandated by the EBA or in accordance with Basel III, are generally sensible and welcome. After everything that has happened in financial markets in recent years, no sensible person could be opposed to the idea of requiring banks to maintain higher levels of capital. What we criticized was the abrupt introduction of new regulations with an extremely short implementation time frame. We had to raise about 3 billion euro in capital equivalent in a period of eight months in the RZB Group alone. That had to be done at a time when capital was practically unobtainable in the market, the possibility of generating it internally was very limited due to bank levies and at the same time, the real economy had to be furnished with loans! This is a classic example of putting a square peg in a round hole. As far as bank levies are concerned, I can argue the same point from the other perspective: How can one require banks to expand their capital cushion, while at the same time taxing it away?
How are you addressing this additional block of fixed costs? Mostly by reducing costs we can influence, i.e. by becoming even more cost efficient overall. Hence, 2012 was dominated by the Group-wide implementation of the so-called Lean Program. It aims at optimizing internal processes even further, simultaneously improving management quality, transparency, as well as constantly enhancing quality with a clear focus on customer satisfaction. We have implemented a whole series of initiatives at all network banks and are managing the program with a – naturally very lean – team based in Vienna. 2013 will be the year of implementation and consolidation. We expect improvements and cost savings particularly at our large subsidiaries. We were able to keep administrative costs relatively flat in 2012 with an increase of 4.6 per cent. That is a great achievement, especially considering that Polbank’s integration started in May. In fact, without Polbank, administrative costs would have remained approximately the same as last year.
did the economic environment have an impact on the refinancing of your business? No, we had no problems in this respect. Sentiment on the capital markets improved considerably throughout the course of the year. Despite a difficult market environment and high market volatility, we succeeded in raising most of our planned funding volume in the first half of the year. By the third quarter, we had already covered our entire funding requirements for 2012. We have proven to the market that we are capable of placing not only senior but also subordinated instruments. For example, we placed our first tier 2 subordinated issue in Swiss francs and successfully exchanged supplementary capital into tier 2 capital. Moreover, we have diversified our refinancing basis even further with the Swiss franc issue and a benchmark transaction in Chinese renminbi.
What are your plans for 2013? Besides implementing the Lean Program previously mentioned, we intend – as I already stated – to grow selectively in attractive markets. This includes acquiring first-class customers that become available when competitors leave the market. We will continue to promote capital market transactions and to intensify our cross-selling efforts. In Poland, one of our most important markets, we will take the necessary steps to become a powerful universal bank. This and much more makes me very optimistic that, despite the difficult environment, we will master 2013 as well. I’m thinking in particular of my 60,000 fellow colleagues who have already demonstrated in the past years that a bank can be successful in many aspects even amid strong headwinds. I would like to express my sincerest gratitude to them, also on behalf of my Management Board colleagues! One of the main criteria for this success is our high customer orientation. It forms the basis for the trust of our customers, and I would like to take this opportunity to thank them for the trust they place in us. And finally, I am grateful to our owners – both our core shareholder RZB with the strong Austrian Raiffeisen Banking Group at our back, as well as our many institutional and private investors – for their trust in this company.
Surely the greatest challenge faced by the Group in the first six months of 2012 was the high capital ratio requirement set by the Austrian and European banking supervisory authorities, which had to be implemented within a very short time frame. Apart from meeting the requirement, the Group was focusing on tightening internal processes and increasing efficiency in order to improve its cost structures. Various measures were implemented in several areas of the company, allowing first success in cost reduction.
Similar to previous years, the members of the Supervisory Board and its committees were fully informed, in a timely and comprehensive manner, by the Management Board during regular meetings about all pertinent business developments, including risk management of the bank and subsidiaries. Information was provided verbally as well as in writing.
Overall, the Supervisory Board conscientiously fulfilled its supervisory duties and took all its decisions in a careful and thorough manner.
As of 16 April 2012, the Supervisory Board appointed Klemens Breuer responsible for the Board Division Markets. In this function he succeeded Patrick Butler, who left the Group at his own will.
At the Annual General Meeting held on 20 June 2012, Heinrich Schaller and Günther Reibersdorfer were elected to the Supervisory Board. Supervisory Board members Ludwig Scharinger and Hannes Schmid resigned from their respective positions effective 20 June 2012. Furthermore, Heinrich Schaller was elected Second Deputy Chairman by the Supervisory Board. In addition to Alfred Leysek, the Austrian Finance Minister appointed Anton Matzinger as Deputy State Commissioner.
The consolidated financial statements (income statement, statement of financial position, statement of changes in equity, cash flow statement and notes) as well as the annual financial statements for RBI AG have been audited by KPMG Austria AG Wirtschaftsprüfungs- und Steuerberatungsgesellschaft. The audit revealed no grounds for objections. All legislative provisions were fully satisfied. Therefore, the unqualified Auditor’s Report was issued.
Following an extensive audit and discussion of the consolidated financial statements as well as the annual financial statements in the Audit Committee and in the Supervisory Board, the Supervisory Board agreed with the proposed appropriation of profit and approved the annual financial statements of RBI AG. The annual financial statements have thus been adopted in accordance with Section 96 (4) of the Austrian Stock Corporation Act.
In Austria, RBI is one of the top corporate and investment banks. It primarily serves Austrian customers, but also international customers as well as major multinational clients operating in CEE. Moreover, RBI is represented in the world‘s financial centers and operates branches and representative offices in Asia. All in all, RBI employs about 60,000 staff and has total assets of approximately € 136 billion.
1 Change of total assets versus figures from 31 December 2011 expressed in local currencies varies due to fluctuation in euro exchange rates. 2 Allocation of staff to Group Corporates, Group Markets and Corporate Center is not possible.
Long-term success story RZB was founded in 1927 as “Genossenschaftliche Zentralbank” (GZB). Raiffeisen gained its first foothold in Central and Eastern Europe back in 1987, when it established its first subsidiary bank in Hungary. Other own subsidiaries have since been established. From 2000 onward, Raiffeisen‘s expansion into CEE countries has mainly been achieved by acquiring existing banks and subsequently combining them into a holding company that from 2003 operated under the name Raiffeisen International. In April 2005, Raiffeisen International was listed on the stock exchange in order to finance its future growth as efficiently as possible. Today’s RBI was established in 2010 through the merger of Raiffeisen International with the principal business areas of Raiffeisen Zentralbank Österreich AG (RZB).
■ A leading market position in its home markets safeguards RBI‘s long-term profitability. ■ Group-wide uniform risk management, corresponding to the bank‘s risk-taking capacity and aimed at avoiding concentration risks (loans, liquidity, etc.), safeguards the company‘s independence.
■ RZB (and therefore indirectly the Raiffeisen Banking Group) is to remain as the reliable core shareholder. ■ The business model and balance sheet structure are designed in such a way as to ensure a rating comparable with the average of European peer banks.
(e.g., trade financing, treasury services for corporate customers, asset management). ■ RBI‘s focus is on business with customers. Proprietary trading activities only serve to support RBI‘s strategic focus. ■ As far as it is possible, RBI‘s business development is organic. Acquisitions are not a strategic objective per se and are only undertaken if the businesses are compatible and synergies can be achieved.
Strategy by segment RBI’s business is subdivided into seven segments. While the focus in the Central Europe, Southeastern Europe, Russia and CIS Other segments is on retail and corporate banking, business relationships with Austrian companies and major international customers are handled by Group Corporates. Group Markets deals with capital market customers and proprietary trading, and the Corporate Center segment encompasses various services that are provided by the Group head office and that assist in the implementation of the Group’s overall strategy; they are assigned to this segment to ensure comparability.
In each of the countries in the Central Europe segment (Czech Republic, Hungary, Poland, Slovakia and Slovenia) RBI is represented by a bank, leasing companies and other specialized financial institutions. Due to different economic conditions, the specific business focus in individual countries differs. In principle, RBI‘s aim is to position itself as the leading universal bank in the region. The range of premium and private banking services is continuously being extended due to the increased demand among affluent private individuals for higher-end financial and advisory services.
In the Czech Republic, the main focus is on business with affluent retail customers. In order to improve the way these customers are addressed via the existing branch network, various projects have been launched. Alternative sales alliances, such as joint credit card issuance with mobile provider Vodafone (”AQUA“), are being expanded. In the corporate customer business, RBI promotes capital and liquidity-light products. In the Czech Republic, as in other countries, RBI generally prefers to lend to existing customers with good credit ratings. Internal improvements are also being developed to supplement the market-related measures. For example, the deployment of a central IT system will contribute to a reduction in the adminstrative cost of technology and processing.
In Slovenia, the business model was adjusted to the difficult market environment and saturated banking landscape. The structures of the bank and the leasing subsidiary are being adapted in accordance with this strategy.
RBI operates as a universal bank in the countries of the Southeastern Europe segment (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Romania and Serbia). It has a bank and leasing companies in each country, and in certain markets is also represented through capital management and asset management companies as well as through pension funds. The target customer group, however, varies according to country.
In Albania, the focus is on corporate and retail banking, with lending generally carried out on a selective basis. Other business activities, such as lending to financial institutions or sovereigns, are only conducted under strict conditions. Further expansion of the branch network is currently not planned due to the strict cost management measures in place.
In Bulgaria, RBI’s strategic objective is to strengthen existing relationships with corporate and retail customers. The partial withdrawal of Greek and Western European banks has created an opportunity here to become the main bank for customers with good credit ratings. The lending policy will continue to focus on good credit ratings and collateral.
The market environment in Serbia continues to demand strict cost and risk management. The main focus here is on cost-cutting measures and process optimization. For both corporate and retail customers, the key aim from a market perspective is to further develop relationships with existing customers that have good credit ratings. High-end services and a broad product portfolio form the basis therefor.
As the largest foreign bank in Belarus, RBI is the first point of contact for investors and international corporate customers. The aim is to further consolidate its pioneering role in the field of affluent retail banking by expanding alternative sales and service channels (e.g., through internet and mobile banking). The economic environment (high inflation, potential further devaluation of the currency) calls for a prudent business policy and a selective lending policy. This means avoiding loans in foreign currencies to a large extent, and granting loans subject to strict conditions.
The Group Corporates segment covers two key areas: firstly, the Corporate Customers division, which services those Austrian companies and international – primarily Western European – corporate customers that generate the highest revenues, and secondly, business with major Central and Eastern European customers, which is handled by the Network Corporate Customers & Support division. In line with the customer relationship approach, corporate customers are offered comprehensive financial services with a particular focus on advisory and service-intensive investment banking services and on offering capital- and liquidity-light products. RBI’s comprehensive network in the CEE region enables it to provide cross-border customer service to both Austrian and Western European corporate customers that are also active in these markets. The Corporate Customers division is structured in a way that in addition to the primarily regional orientation, customers are also supported by teams with a special industry focus. Sales management was also substantially strengthened through Group-wide strategic planning of customer-oriented activities. This permits more efficient and comprehensive customer service and is a substantial success factor in international corporate banking. In the Network Corporate Customers & Support division, the Global Account Management System was further optimized to enable RBI to offer its many customers with cross-border operations a customer service that is coordinated across the entire Group and – in conjunction with specialized product experts – an even more comprehensive product portfolio (Group products) across the whole network. The focus in the Asian branches and representative offices is on expanding existing customer relationships.
The Institutional Clients customer segment comprises the business at the Group head office in Vienna with banks, insurance companies, fund management companies and governments. The focus of its business activity is the sale of capital- and liquiditylight products. Financing forms, such as capital markets debt and asset-based finance, have benefited to a significant extent from the current market environment. Key strategic objectives for this customer segment include the expansion of non-bank business throughout the entire target region and further promotion of business with capital market and investment banking products.
The Corporate Center segment encompasses various services provided by the Group head office (e.g., Group strategy, strategic risk management, Group accounting, Group-wide HR management and development, Group audit) that assist in the implementation of the Group’s overall strategy and are assigned to this segment in order to ensure comparability. This segment also includes the following areas: liquidity management by means of the funds transfer pricing concept (internal liquidity management at conditions comparable to those found on the external market) and balance sheet structure management as part of proprietary trading, participations (particularly in subsidiaries in the CEE region), income from banking operations carried out by the Group head office and by the Maltese subsidiary for refinancing Group units, Austrian transaction services business, which comprises processing and other services for financial services providers as well as income from holding and other companies that is not directly assigned to a segment.
RBI Stock Rising stock prices despite an economic downturn The year 2012 was once again dominated by the European sovereign debt crisis and efforts to save the euro. Actions taken by policymakers made it quite clear that they intend to defend the European Monetary Union to remain in its present form, whatever the price may be. This stance led to growing reassurance amongst capital markets participants as the year progressed.
The first quarter of 2012 was saturated worldwide with glowing economic data, an ongoing central bank’s monetary policy of vast liquidity injection, and the easing of the European sovereign debt crisis. The auspicious financial environment was a positive impetus for the equity markets, which resulted in a strong share price rally. However, sentiment changed for the worse during the first half of the year, causing stock prices to temporarily decline. At the end of June 2012, Spain and Cyprus reluctantly applied for international financial aid, following in the footsteps of Greece, Ireland and Portugal.
Despite the economic slowdown in Europe, the second half of the year brought considerably higher share prices in Europe and the USA. European bank stocks, in particular, posted disproportionately large gains following a period of gross underperformance in the first six months of the year. The reasons being: initially, the equity and bond markets were boosted by the EU Summit agreement, which calls for a growth and employment pact with investments of € 120 billion, as well as by the consensus achieved at this summit that the Eurozone’s rescue fund may provide capital directly to distressed banks. Secondly, the announcement by the European Central Bank (ECB), stating that the ECB was willing to acquire government bonds of beleaguered euro countries without limit. Finally, the positive report from the troika of the ECB, IMF and European Commission on Greece’s budget consolidation efforts led to further easing.
RBI stock price reached its peak in 2012 at € 33.36 on 26 November, while its low of € 18.64 occurred on 9 January. The share price had opened the year at € 20.07, and the price at the end of 2012 was € 31.46. RBI stock posted a gain of 57 per cent against the ATX’s 27 per cent, while the EURO STOXX Banks index gained 12 per cent. At the editorial deadline of this report (11 March 2013), the stock price amounted to € 29,84. This represents a decline of 5 per cent versus 31 December 2012.
In 2012, a total of 47 million RBI shares were traded, representing a total value of € 1.2 billion and an average daily volume of 188,755 shares.
Stock data and details Price as of 31 December 2012 € 31.46
RBI took advantage of this positive market environment with a five-year benchmark bond issuance of € 750 million at the beginning of July 2012.
In the fourth quarter, RBI issued a ten-year subordinated bond valued at CHF 250 million. In addition, on 10 October RBI invited supplementary capital bond holders who had a first call date at the end of October 2012 to exchange their securities for a new, callable subordinated RBI bond. Nearly 50 per cent of the creditors accepted the exchange offer. The new bond was issued at a par value of approximately € 290 million. Although the new bond offered holders higher yield – compared to the bond with the October 2012 call date – the benefit for RBI is that the bond will be fully recognized as regulatory Tier 2 capital until the first potential call date in five years.
With the above bond issuances, RBI, amid highly volatile capital markets, succeeded in achieving its capital-market-sensitive refinancing early on at attractive conditions.
Annual General Meeting Active interest by private investors While investor conferences are usually reserved for institutional investors, the Annual General Meeting, which was held in 2012 on 20 June in Vienna, also gives private investors the opportunity to be briefed and the chance to ask Management Board questions directly about RBI and its businesses.
Proposed dividend The next ordinary Annual General Meeting will take place on 26 June 2013 at the Austria Center Vienna. The Management Board will propose to the Annual General Meeting a dividend distribution of € 1.17 per share for the 2012 financial year, representing a total dividend payout of € 228.7 million. Subject to approval by the Annual General Meeting, this amount will be paid to the shareholders on 3 July 2013 and the stock will be traded ex-dividend from this date.
Capital market communications In 2012, RBI participated in a total of 38 roadshows in Brussels, Copenhagen, Dusseldorf, Frankfurt, Helsinki, Hong Kong, London, Milan, Munich, New York, Paris, Prague, Singapore, Stockholm and Tallinn. These events, which were sometimes held more than once in one location, were opportunities for RBI to personally update a wide range of interested investors and analysts about RBI and its current performance as well as to answer their questions. An investors’ lunch and an analysts’ conference were held in Vienna. In addition, RBI was represented at investor conferences in the Austrian towns of Stegersbach and Zürs.
As part of the announcement of the results for the 2011 financial year, RBI presented itself in London to more than 100 analysts and institutional investors from the world’s most important financial centers. This event, which was held on the day after the annual results were published in Vienna, also offered the international financial community the opportunity to exchange information and opinions directly with RBI’s Management Board. The participants at this investor presentation included equity and debt investors, analysts covering RBI from both equity and debt perspectives, and representatives from rating agencies.
Financial calendar 2013 10 April 2013 2012 Annual Report, Conference Call 11 April 2013 RBI Investor Presentation, London 14 May 2013 Start of Quiet Period 28 May 2013 First Quarter Report, Conference Call 26 June 2013 Annual General Meeting 03 July 2013 Ex-dividend and Dividend Payment Date 08 August 2013 Start of Quiet Period 22 August 2013 Semi-Annual Report, Conference Call 13 November 2013 Start of Quiet Period 27 November 2013 Third Quarter Report, Conference Call
RBI attaches great importance to responsible and transparent business management in order to deepen and maintain understanding and trust with its various stakeholders, in particular capital market participants. Hence, RBI is committed to complying with the Austrian Corporate Governance Codex (ACGC, or “the Codex”) as amended in July 2012. The ACGC is public and available from the website of the Austrian Working Group for Corporate Governance (www.corporate-governance.at) and from the RBI website (www.rbinternational.com → Investor Relations → Corporate Governance).
RBI deviates from the below C Rule, but conducts itself in accordance with the Codex through the following explanation and justification: C Rule 45: a non-competition clause for members of the Supervisory Board RBI is a company of the Austrian Raiffeisen Banking Group (RBG), which is also a majority shareholder through its central institution, RZB. Some members of the Supervisory Board therefore also hold executive roles in RBG banks. A number of members of the Supervisory Board hold executive roles with other banks and financial services institutions. Consequently, know-how and experience specific to the industry are applied in exercising the control function of the Supervisory Board, to the benefit of the company.
In regards to R Rule 62 of the ACGC, the company commissioned – as it has done in previous years – an external evaluation by the research company, Univ.Prof.DDr. Waldemar Jud Corporate Governance Forschung CGF GmbH. The report on this external evaluation is public and available at www.rbinternational.com → Investor Relations → Corporate Governance → Examination of CG Codex.
Karl Sevelda, 1950 22 September 2010 31 December 2015 Deputy Chairman
Markus Mair, 1964 8 June 20101 Annual Third Deputy Chairman General Meeting 2015
■ Erwin Hameseder AGRANA Beteiligungs-AG, STRABAG SE, UNIQA Versicherungen AG, Südzucker AG, Flughafen Wien AG (chairman)
Peter Anzeletti-Reikl Member Member – Member 1 End of term on 20 June 2012 2 Appointed by the Supervisory Board on 20 September 2012
Functions of the management board and the supervisory board Allocation of duties and procedures/functions of the Management Board
The Management Board manages the company’s business in accordance with the law, the Articles of Association and the Management Board’s rules of procedure. The Management Board’s weekly meetings are convened and led by the chairman. The meetings ensure the mutual information gathering and decision-making in all matters that require the Board’s approval. The internal regulations of the Supervisory Board and the Management Board contain information and reporting duties of the Management Board as well as a catalog of measures that require the approval of the Supervisory Board.
The Working Committee was responsible for all matters that are brought before it by the Supervisory Board. Thus, it was called on to approve those matters not only reserved for the Supervisory Board. In particular, these included the creation and alteration of subsidiaries as well as the acquisition of shares up to a certain book value, the execution of functions in the management bodies of other companies by members of the Management Board, or the appointment of persons to the Management Boards and supervisory bodies of banks within the Group. Furthermore, the Working Committee approved the assumption of operational banking risk above a certain level.
The Audit Committee monitored the accounting process and the effectiveness of the company’s internal control, audit and risk management systems. Its tasks included the supervision of the financial statements and the consolidated financial statements annual audit, as well as checking and supervising the independence of the Group’s auditors, in particular with respect to additional work performed for the audited company. The Committee audited the annual financial statements, the management report, the consolidated financial statements and the Group management report, and is responsible for the preparation of its approval. It also audited the proposal for earning’s appropriation and the Corporate Governance Report. The Audit Committee presented to the Supervisory Board a report on the results of its audits. The Committee was also responsible for preparing the recommendation of the Supervisory Board for the selection of the external auditor and bank auditor. Furthermore, the Audit Committee discussed the content of the management letter as well as the report on the effectiveness of the risk management system and the internal control system.
The Remuneration Committee’s responsibilities included establishing guidelines for the company’s remuneration policies and practices in compliance with the Austrian Banking Act (BWG) as well as relevant sections of the Austrian Corporate Governance Codex which also includes establishing guidelines for ensuring executives’ participation in profits, revenues and pension benefits expressed within the meaning of the Austrian Stock Corporation Act, as well as approving a program for the transfer of company shares. Additional tasks included supervising and regularly reviewing the remuneration policies, practices and relevant incentive structures to ensure that all related risks were controlled, monitored and limited in accordance with the BWG, as well as the company’s capitalization and liquidity, whereby the long-term interests of shareholders, investors and employees of the company were taken into account. The Remuneration Committee directly reviewed the remuneration of executives responsible for risk management and compliance.
Number of meetings of the supervisory board and of the committees
The Working Committee held eight meetings in the 2012 financial year. The Audit and Personnel Committees each held two meetings, and the Remuneration Committee three.
Management Board members’ contracts specify a maximum bonus. SIP includes a cap at three times the allocation value; thus, a maximum limit is in place for all variable compensation components. Other remuneration consists of compensation for board level functions in associated companies, sign-on bonuses, payments to pension funds and business insurances, as well as other insurances and benefits.
The Management Board’s remuneration paid in 2012 is shown in detail as follows: in € thousands Fixed remuneration Bonuses for 2011 Other
Martin Grüll 658 240 239 1 In addition to the amounts listed above, € 511,000 consisting of fixed and other remuneration was paid from 16 April 2012 to 31 December 2012 due to contractual agreements, after the resignation of Patrick Butler.
In 2012, the fifth tranche of the SIP (SIP, 2009 tranche) matured. In accordance with the terms and conditions of the program (published by the service provider in “euro adhoc” on 20 June 2009), the number of shares actually transferred was as follows: Tranche 2009 Tranche 2008 Tranche 2007 Value at Value at Value at Tranche 2009 share price share price share price Tranche 2009 number of € 26.165 of € 39.00 of € 31.91 number of actually on the on the on the of due transferred allocation day allocation day allocation day shares shares (2/4/2012) (12/4/2011) (9/3/2010)
Total (of active members of the RBI Management Board) 146,573 73,288 3,835 373 125
Heinz Wiedner (former member of the Management Board) – – – 50 15
Total (of active and former members of the RBI Management Board) 158,890 85,605 4,157 462 156
Members of the Management Boards of bank subsidiaries affiliated to RBI 289,874 248,388 7,585 833 229
In the event of function or contract termination, two members of the Management Board are entitled to severance payments in accordance with the Salaried Employees Act and the Banking Sector Tariff Agreement, two members in accordance with contractual agreements and three members in accordance with the Employee Benefit Act. In principle, the severance payment claims under the Salaried Employees Act or contractual agreements expire, with the exception of one Management Board member, if the employee terminates the employment relationship. In the course of merger-related changes to contractual agreements with the CEO, existing severance payment claims were converted. Corresponding payments were made in part in 2011 and in 2012. In financial year 2012, these payments amounted to € 822,559. A pre-merger severance payment claim that had been taken over also led to a one-off payment of € 225,000 to Peter Lennkh.
Furthermore, protection against occupational disability risk is provided by a pension fund and/or on the basis of an individual pension benefit, which is secured by a reinsurance policy. Contracts for Management Board members are limited to the duration of their term in office or a maximum of five years. Regulations regarding severance payments in the case of early termination of Management Board mandates are based on the principles stipulated by the Austrian Corporate Governance Codex; likewise, RBI adheres to the stipulated maximum limits (a maximum of two years’ total annual remuneration for early termination without serious cause and in any case no longer than the remaining term. No remuneration is given for terminations for serious reasons caused by the Board member).
In the 2012 financial year, a D&O (directors and officers) pecuniary damage and liability policy was signed with UNIQA Sachversicherung AG for the Supervisory Board, the Management Board and key executives, the cost of which will be carried by the company.
Report on measures taken by the company to promote women to the management board, the supervisory board and into executive positions (Section 80 of the Austrian Stock Corporation Act [AktG]) as laid down in Section 243b (2) 2 of the Austrian Commercial Code (UGB) One of Raiffeisen’s fundamental values has always been to offer equal opportunities for equal performance regardless of gender or other factors. For this reason, it is important to take suitable measures already during recruitment to ensure that the same standards are always applied in staff selection. The relatively high proportion of 67 per cent of female employees at RBI underscores the activities’ efficacy. A corresponding framework has been established within the company and is being regularly refined to continue promoting the advancement of women. These programs seek to particularly improve the balance of family and work. Other benefits include flexible working hours, part-time models and home office. These models are implemented in nearly all countries the Group is active in, and in accordance with the local statutory provisions. The measures are supplemented with further national initiatives, such as the company’s kindergarten with employee-friendly operating hours at the Vienna site, and the “Mother Care” program at Raiffeisenbank Polska S.A.. The program supports women from the first announcement of pregnancy until the child’s first birthday.
The Management Board is committed to continuously promoting the existing initiatives as well as maintaining its openness to new initiatives in order to further increase the percentage of women in highly qualified positions as well as encouraging women to take advantage of these opportunities.
As of year-end 2012, approximately 43 per cent of functions with staff responsibility in the RBI Group were held by women. In the case of tier 2 and tier 3 management, this figure is around 41 and 52 per cent, respectively. Training and continuing education programs are specifically being offered to promote management skills, which meet with favorable response. 28 per cent of the participants in the Group-wide top-management program “Execute” were women. Female employees accounted for about 50 per cent of the restructured Advanced Leadership Training program for middle management. Currently, around 15 per cent of Board positions within RBI Group are held by women.
Accounting and audit of financial statements RBI’s consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as applied in the EU. They also comply with the regulations of the Austrian Banking Act in conjunction with the Austrian Commercial Code to the extent that these are applicable to the consolidated financial statements. The consolidated annual financial statements are published within the first four months of the financial year following the year under review. Interim reports are published no later than 56 days after the end of the respective period under review.
Martin Grüll Peter Lennkh Johann Strobl o v er v ie w o f rB i
Traditional Raiffeisen values are the foundation for the activities of all Raiffeisen organizations. They are also the key reference points for RBI, as a sustainability-oriented banking group, in the definition of its corporate responsibility. As one of the first responsible bankers, Friedrich Wilhelm Raiffeisen understood that a sustainably organized monetary cycle can create value and be meaningful for all of its participants. The basis therefor was socially aware and responsible thought and action. Social solidarity, helping people to help themselves and sustainability have thus always been the guidelines for how Raiffeisen conducts its business.
RBI’s sustainability management does not only focus on the implementation of operational sustainability measures for RZB, RBI and their network banks, but since 2012 has also acted with the goal of generating added value for all organizations, also as a Competence Center for the entire Raiffeisen Banking Group in Austria. Consequently, expertise is combined and issues of sustainability and corporate responsibility are more strongly integrated into a common business strategy.
The most effective lever for making a substantial contribution to sustainable development is in the core business. Hence, RBI sees its primary responsibility as a responsible banker in the granting of loans and the investment of funds. Across all of its business divisions and in all of its products, RBI therefore strives to establish lucrative long-term business relationships while avoiding social and environmental risks.
Economic success and corporate responsibility go hand in hand and have a mutual impact on each other. Stakeholder groups such as employees, customers, partners, suppliers and shareholders benefit from this success. As a fair partner, RBI conducts its business with its stakeholder groups in a transparent and respectful manner. A requirement for this is an open and constructive dialog. Such a dialog not only promotes mutual understanding, but also helps to recognize the needs of stakeholders early and to act accordingly. In line with this, RBI conducted a Stakeholder Council meeting – certified as a “Green Meeting” – for the third time in November 2012.
Raiffeisen is committed to a sustainable business model that creates a reasonable balance between a competitive market economy, social responsibility and consideration for natural resources. RBI’s commitment extends beyond its core business, pursuing the goals of encouraging desirable social developments, on the one hand, and revealing undesirable developments and counteracting them at various levels, on the other.
Social commitment Diversity, tolerance and humanism are pillars of RBI’s philosophy when it comes to its contributions to a forward-looking development of society. The primary goals of RBI’s social commitment are combating poverty, and promoting integration and solidarity. They are put in practice through corporate volunteering programs and partnerships with non-profit organizations and non-government organizations.
Against this backdrop, for example, RBI conducted the Christmas charity “Surprise in a Box” for the fifth time in December 2012. This event involved employees contributing and packing presents for children in need at the Caritas asylum center in Vienna. Employees of Raiffeisen Bank Kosovo participated for one day in the reporting period in the government campaign titled “Clean Up Kosovo,” helping to collect trash on public grounds. Furthermore, the bank in Kosovo supported the establishment of soup kitchens for people in need, while Raiffeisenbank Bosna i Hercegovina sponsored contributions for school equipment as part of the project “Book by Book”. The H. Stepic CEE Charity, a non-profit association dedicated to improving the living conditions of children, teenagers and women in Central and Eastern Europe, again implemented several projects in 2012. Thanks to the voluntary support by RBI employees, 16 projects in seven countries were realized, including the establishment of a mother-child home in Moldova, a youth center for street kids in Serbia, educational support for pupils in the resettlement areas in Bosnia and Herzegovina and the financing of a school bus for Roma children in Ukraine. You will find further details on these projects at www.stepicceecharity.org.
Market development Recession in Europe, economic weakness in the USA At the end of 2011, a recession began in the Eurozone, which continued throughout 2012. Regional performances, however, varied. Whereas Germany and Austria, for example, continued to realize GDP growth during 2012, other countries, particularly in Southern Europe, fell into a deep recession. In the second half of the year, the economic slowdown originating in Southern Europe increasingly extended to the North. And in the fourth quarter of 2012, even Germany and Austria suffered a decline in their economic output compared to the prior quarter. At the end of 2012, economic momentum in the overall Eurozone reached its interim low point. In light of the weak economy, the inflation rate, averaging 2.5 per cent, was also unusually high. This was attributable mainly to the sharp increases in energy and food prices. Since mid-2010, inflation was additionally increased by fiscal measures, especially in the southern countries.
In the Central Europe region (CE), the economic performance of Poland and Slovakia (as in the prior year) particularly stood out, although economic growth also slowed in these countries. While Poland’s economy grew by 4.3 per cent in 2011, it probably lay at 2.0 per cent in 2012. During the same period Slovakia posted a decline in growth, falling from 3.2 per cent to 2.0 per cent. The other three countries in CE were less resilient. Slumping from growth of 1.7 per cent to now minus 1.2 per cent, the Czech Republic slipped into recession in 2012, just like Hungary (2011: 1.6 per cent, 2012: minus 1.7 per cent). In Slovenia, which had achieved growth of 0.6 per cent in 2011, economic output contracted about 2.3 per cent in 2012.
Despite overall good growth figures for 2012, economic growth in the Commonwealth of Independent States (CIS) also weakened tangibly in the second half of the year. In Russia, growth rates fell to 2.5 per cent in the second half of the year, after 4.5 per cent in the first half. This is attributable to a decline in growth in industrial production and investment, whereas consumer demand supported growth rates. The situation in CIS is unlikely to change in the first half of 2013; therefore following an increase in GDP of 3.1 per cent in 2012, growth of 2.8 per cent is currently expected for 2013.
All in all, economic growth of 2.0 per cent is the forecast from today’s perspective for CEE in 2013.
Developments in the Eurozone will remain highly relevant in 2013. Thanks to solid momentum in Russia, where stable oil and commodity prices will likely continue to support the economy’s performance, the strongest growth is expected once again in CIS. Southeastern Europe on the other hand, should probably achieve the most substantial turnaround compared to 2012, improving from minus 0.3 per cent to a forecast of 0.9 per cent. Likewise, growth in CE will presumably increase slightly, still driven by Poland and Slovakia. For Slovenia, however, there still is a perceived risk of continued recession in 2013. The situation in Hungary will also remain difficult, where numerous uncertainties (e.g., changes in taxation and an unpredictable political environment) may constitute a further contraction in growth. The Czech Republic is expected to develop positively during the course of the year, but may still exhibit slightly negative economic development in 2013.
Economic slowdown in Asia The large Asian economies, China and India, posted a slowdown in their respective economic growth rates in 2012, but still achieved the largest increases compared at global levels. In China, subdued demand for exports from Europe was apparent. Moreover, the Peoples Bank of China maintained a restrictive monetary policy overall despite two interest rate reductions. Additionally, measures taken by the Chinese government in 2011 to contain the looming real estate bubble continued to have a
Global currencies After fluctuating in a limited range of 15 cents between €/USD 1.20 and €/USD 1.35 during 2012, the euro to US dollar exchange rate ended 2012 at €/USD 1.32 and therefore lay at the starting point of the year in January 2012. As in prior years, the driver of currency trends was the euro sovereign debt crisis and the central bank policies of both the ECB and the US Federal Reserve. The euro came under significant pressure between May and July 2012, when the debt crisis intensified further and yields on Italian and Spanish government bonds climbed to record levels. The plunge in the euro only ceased when ECB President Mario Draghi announced at the end of July that the ECB was willing if necessary to purchase the government bonds of struggling countries in unlimited quantities. The subsequent recovery of the euro was supported by the US Federal Reserve’s renewed plans to acquire significant amounts of government bonds on the market.
CEE currencies CEE currencies generally appreciated versus the euro in 2012 because the ECB combated the financial crisis with additional measures and low interest rates. Surprisingly, next to the Polish zloty, the Hungarian forint was the strongest currency against the euro. However, this was mostly attributable to its weakness at year-end 2011/2012, when the exchange rate rose to a value of more than €/HUF 320. Further support came – as it did for other CEE currencies – from renewed declines in risk aversion globally. Following a volatile development against the euro in the first six months of 2012, the Polish zloty has since been moving sideways . The Czech koruna, which enjoys “safe haven” status among CEE currencies, moved mainly sideways in 2012, although it was quite volatile. A reduction in the reference interest rate to 0.05 per cent offset a steady appreciation trend, as did verbal intervention by the central bank.
In Southeastern Europe, currencies were very volatile, particularly in the first half of 2012. Ongoing risk aversion, which was reflected primarily in lower foreign investment, a strong decline in transfers from abroad by emigrants, and also political uncertainties – particularly in Romania and Serbia – contributed to considerable downward pressure on rates in these countries. Higher volatility and perhaps even new phases of weakness are also expected for the first half of 2013.
Development of the banking sector Continued banking sector growth in CEE With a plus of between 13 and 15 per cent in total, there had been a clear credit growth recovery in CEE during 2010 and 2011, even though the increase during this period was considerably below the levels seen in the pre-crisis years 2004 to 2008. This positive trend continued in 2012, primarily in the first half of the year. Lending increased in particular to corporate customers, thus a widespread credit crunch in CEE did not occur. As economic growth slowed sharply, credit growth in the region also weakened somewhat in the second half of 2012, but overall, there was still nearly a 10 per cent increase in credit volumes in CEE during 2012. Due to the difficult real economic conditions, the first half of 2013 will probably be dominated by rather weak demand for credit. Current forecasts for 2013 expect credit growth of 5 to 10 per cent in both Central Europe and CIS as well as between 1 and 5 per cent in Southeastern Europe.
Better financing environment for governments and banks There was a considerable improvement in the financing environment for governments in CEE during 2011 and 2012. This ensured both refinancing and new issues of government bonds on the respective local and global bond markets. Many countries used the favorable environment in the second half of 2012 to prefinance themselves for 2013 and have thus already covered the majority of refinancing requirements for this year. Yields on local government bonds moved sideways for an extended period of time. Indeed, sometimes they even declined due to ongoing expansionary monetary policy in Western Europe and reduction in risk premiums for CEE. At the same time, however, assessments of individual CEE countries differed quite substantially on the bond markets, and risk indicators – such as government indebtedness, budget deficits, balance of payment position and political uncertainty – were reflected in bond prices. Reform-minded CEE countries should also benefit from this differentiation in the future. Indeed, risk premiums for several CEE countries are currently even lower than those for several Eurozone countries, such as Italy, Portugal, and Spain, and sometimes even France or Belgium. Nevertheless, the need for support measures involving the IMF for a few isolated, structurally weaker CEE countries with self-made problems cannot be completely ruled out for 2013.
Performance and financials Introduction and scope of consolidation The consolidated financial statements of RBI are prepared in accordance with the International Financial Reporting Standards (IFRS) as applied in the EU. RBI AG also prepares separate financial statements in accordance with the Austrian Commercial Code (UGB) in conjunction with the Austrian Banking Act (BWG), which provide the formal basis of assessment for calculating dividend distributions and the tax assessment. For more information on the disclosures required by the UGB and BWG, please see the relevant sections of this Group management report, including the notes section.
Operating income – excluding impairment of goodwill – declined 6 per cent or € 336 million to € 5,140 million, primarily due to net interest income and net trading income. The year-on-year decline in net interest income of € 195 million was caused by net interest margin (calculated on interest-bearing assets), which decreased by 24 basis points to 2.66 per cent year-on-year.
Sales of high-quality securities portfolio resulted in considerably lower interest income from securities. Additionally, high liquidity and higher retail deposits led to a noticeable decline in net interest income. In Russia, however, net interest income developed favorably: Growing customer business and higher income from derivatives business resulted in an increase of € 159 million. The consolidation of Polbank significantly improved net interest income as well.
Profit after tax totaled € 748 million for 2012, which represents a decline of 23 per cent or € 226 million. At 27.5 per cent, the tax rate was 1.6 percentage points below the previous year’s rate. Profit attributable to non-controlling interests increased € 16 million to € 22 million, primarily caused by smaller losses in Hungary. After deducting profit attributable to non-controlling interests, consolidated profit totaled € 725 million, a decline of € 242 million year-on-year. During the reporting year, an average of 194.9 million shares were outstanding. Earnings per share in 2012 therefore amounted to € 2.70.
The Management Board will propose to the Annual General Meeting that a dividend of € 1.17 per share be paid for the 2012 financial year. This would result in a maximum total payout of € 229 million.
As of 31 December 2012, regulatory own funds, which are calculated in accordance with IFRS since April 2012, totaled € 12,885 million. The comparable figures are based on the Austrian Commercial Code (UGB) in conjunction with the Austrian Banking Act (BWG). The change of calculation to international accounting standards positively impacted tier 1 capital while acquisitions of non-controlling interests, the repurchase of hybrid tier 1 capital and the Polbank consolidation reduced it. Short-term additional own funds (tier 3) increased because of maturing tier 2 issues.
Tier 1 ratio (total risk) increased 1.3 percentage points to 11.2 per cent. Core tier 1 ratio (without taking hybrid capital into account) improved 1.6 percentage points to 10.7 per cent.
Statement of financial position Total assets declined 7 per cent or € 10.9 billion to € 136.1 billion year-on-year, with currency effects having only a marginal impact. Although the consolidation of Polbank resulted in an increase of € 6.2 billion, adjustments of the structure in the statement of financial position in compliance with stricter EBA requirements reduced total assets. On the assets side, excess liquidity was reduced (cash reserve: minus € 4.8 billion, interbank business: minus € 3.4 billion), and high-quality securities with a nominal value of € 3.2 billion were sold from the available-for-sale securities portfolio. On the liabilities side, the decline was mostly attributable to a reduction in deposits from banks due to lower short-term investments and a reduction in debt securities issued as a result of repayments.
Net interest income declined 5 per cent or € 195 million to € 3,472 million in 2012, representing 67 per cent of operating income. Net interest margin (calculated on interest-bearing assets) declined 24 basis points to 2.66 per cent. Average interest-bearing assets increased 3 per cent as net interest income decreased simultaneously.
The decline in net interest income resulted primarily from lower interest income due to reduced lending volumes and higher refinancing costs. In the Central Europe segment, the overall difficult market environment caused net interest margin to drop 50 basis points to 2.85 per cent. In Hungary, net interest margin fell 44 basis points to 3.43 per cent. Southeastern European countries also posted a decline of 20 basis points to 4.21 per cent in net interest margin. Bulgaria was particularly affected due to revised expectations concerning cash flows from impaired loans. The Group Corporates segment, however, posted only a slight decline of 4 basis points in net interest margin, mainly because of asset-related adjustments.
Net fee and commission income increased € 26 million yearon -year, thus contributing 30 per cent of operating income. Net income from both the payment transfer business as well as from the foreign currency, notes/coins and precious metals business rose particularly. In contrast, net income from the loan and guarantee business, as well as net income from other banking services, was lower year-on-year.
With a decline of € 34 million to € 247 million, net income from the loan and guarantee business exhibited a reverse trend. This development is attributable mainly to lower lending fees (down € 43 million) in Romania as well as a methodology change that involved reclassification between net fee and commission income and net interest income. Net income in Hungary decreased € 7 million due to declines in volume. Russia, however, generated an increase of € 16 million because of new business.
Net income from currency-based transactions grew 95 per cent or € 102 million to € 209 million. Russia’s contribution to net income from derivative financial instruments increased, whereas Hungary posted valuation losses caused by a higher number of derivatives transactions used for hedging purposes. The application of IAS 29 in connection with hyperinflation accounting in Belarus had a significant impact, increasing net income by € 64 million year-on-year. Group head office posted a rise in currencybased transaction volumes, which were, however, negatively impacted by currency volatility.
Other net operating income excluding goodwill impairments fell from minus € 45 million to minus € 64 million in 2012. This was mainly due to higher bank levies in Austria and Hungary, as well as the first-time imposition of a bank levy in Slovakia. All in all, RBI’s bank levies totaled € 157 million in 2012 (2011: € 93 million).
Net income from allocation and release of other provisions increased € 31 million to plus € 19 million, due to releases of provisions for litigation in Austria and Russia. Net income from non-banking activities and from additional leasing services also increased € 29 million during the reporting year.
Staff expenses Staff expenses, the largest component in administrative expenses at 49 per cent, rose 4 per cent or € 67 million yearon -year, reaching € 1,606 million.
The average number of RBI Group staff (full-time equivalents) rose 1 per cent or 903 employees year-on-year to 60,924. The headcount increased in Poland (up 2,929) due to Polbank integration and in Slovakia (up 47). The largest reductions occurred in Ukraine (down 753), Russia (down 448), Romania (down 323) and Hungary (down 282).
depreciation expense Depreciation of tangible and intangible assets rose € 29 million to € 401 million year-on-year (2011: € 372 million). The largest increase occured in depreciation of intangible assets, which rose € 36 million to € 179 million, most of it attributable to the impairment of software in Ukraine and the Czech Republic. Other important factors were Polbank consolidation as well as increases in Romania, Croatia and Ukraine resulting from system expansions. Depreciation of tangible assets declined € 6 million to € 188 million, caused by impairment relating to property in Russia in the previous year.
While most of RBI’s markets experienced economic recovery in 2011, there was a renewed deterioration in economic conditions in the second half of the reporting year. This was clearly reflected in an increase in non-performing loans. However, at € 1,009 million, net provisioning for impairment losses was 5 per cent or € 55 million below the 2011 figures. Although individual loan loss provisions increased € 5 million to € 1,182 million, net releases of portfolio-based loan loss provisions also increased, rising € 59 million to € 164 million. Net provisioning for impairment losses includes income from the sale of impaired loans amounting to € 9 million.
Trends in net provisioning for impairment losses varied in the individual countries: Hungary, for example, recorded a significant year-on-year decline as RBI had had high impairment needs due to government-induced loan conversions. Net provisioning declined to € 241 million, from € 478 million. In Russia, loan loss provisions were released due to quality improvements in the loan portfolio. In contrast, net provisioning for impairment losses in Poland increased € 69 million to € 127 million, relating to both large corporate customers and retail customers. Significantly higher net provisions were also recorded for corporate customers at Group head office, in Slovakia and Romania, as well as in Slovenia for both corporate and retail customers.
The provisioning ratio – i.e. net provisioning for impairment losses versus average loans and advances to customers – decreased 0.13 percentage points to 1.21 per cent.
The portfolio of non-performing loans to customers increased € 1,127 million to € 8,183 million in 2012. The Polbank consolidation contributed € 508 million to the increase and currency effects added a further € 95 million. Without these two effects, non-performing loans would thus have risen € 524 million year-on-year. Group head office, Hungary and Poland posted the largest increases, while Ukraine and Russia posted considerable declines. The NPL ratio – i.e. the ratio of non-performing loans to total customer loans – deteriorated to 9.8 per cent, following 8.6 per cent in the previous year. Non-performing loans were covered by provisions totaling € 5,484 million. This resulted in a NPL coverage ratio of 67.0 per cent, 1.4 percentage points below year-end 2011.
net income from financial investments Net income from financial investments improved from minus € 141 million to plus € 318 million year-on-year. The sale of bonds from the available-for-sale securities portfolio at Group head office resulted in net sale proceeds of € 163 million.
Net income from equity participations improved € 97 million to minus € 1 million (2011: minus € 98 million) and contained valuation losses totaling € 22 million and gains from sales of approximately the same amount.
Impairment of goodwill Other results in the reporting year included goodwill impairments totaling € 38 million (2011: € 187 million). In the previous year, € 183 million goodwill impairment for the Ukrainian subsidiary was recorded due to revised forecasts and an increase in discount rate used for valuation. The remaining goodwill of € 29 million was also written down in 2012. A further € 9 million impairment was attributable to goodwill in Bosnia and Herzegovina, Croatia as well as various smaller Group units.
Income taxes in the reporting period totaled € 284 million, following € 399 million in the prior year. The effective tax rate was 28 per cent; adjusted for goodwill impairments, it would have been 27 per cent. In the previous year, the tax rate was 29 per cent.
net income from financial investments Net income from financial investments totaled € 19 million, € 27 million below the previous quarter. This was due to partial writedowns on other interests, particularly at Group head office, as well as lower valuation gains and sales income from securities at fair value.
Tax expenses in the fourth quarter of 2012 amounted to € 58 million, compared to € 32 million in the previous quarter. The increase was caused by Group head office – on account of lower deferred tax assets due to lower deductible tax loss carryforwards – and Hungary due to higher deferred tax liabilities.
Interbank business was reduced by 13 per cent or € 3.4 billion to € 22.3 billion, mainly at Group head office. Loan loss provisions, however, increased € 0.6 billion to € 5.6 billion compared to year-end 2011, of which € 5.5 billion pertained to loans and advances to customers.
Sales of available-for-sale securities and securities in the fair value portfolio – mostly at Group head office – resulted in a decline of € 3.5 billion to € 16.4 billion in the securities portfolio including participations. Other assets contracted € 5.1 billion to € 19.7 billion, primarily due to a reduction of cash reserve.
Equity and liabilities Deposits from customers remained relatively stable yearon -year at € 66.3 billion. Deposits from retail customers grew € 3.9 billion, predominantly in Poland (consolidation of Polbank) and Russia, whereas deposits from corporate customers fell € 4.1 billion, in particular because of repo business at Group head office. The refinancing volume via banks – chiefly commercial banks – fell € 7.8 billion to € 30.2 billion due to lower short-term deposits.
Equity and subordinated capital remained nearly unchanged at € 14.8 billion. Other liabilities fell € 2.3 billion to € 24.8 billion. Debt securities issued dropped € 1.1 billion on balance to € 13.3 billion. Trading liabilities were reduced by € 0.9 billion, predominantly at Group head office.
Equity Equity on the statement of financial position RBI’s equity decreased € 63 million to € 10,873 million compared to year-end 2011.
Consolidated equity, consisting of subscribed capital, participation capital, capital reserves and retained earnings, increased € 603 million to € 9,428 million, which was mainly the result of the transfer of earnings in the amount of € 563 million from the financial year 2011. Other comprehensive income made a further contribution of € 69 million on balance: Exchange-rate differences showed a positive effect of € 150 million, whereas net income from the valuation of assets available-for-sale amounted to minus € 147 million, mainly due to the sale and subsequent reclassification of the result in the income statement. The related deferred taxes totaled € 37 million. Additionally, the impact from applying hyperinflation accounting generated a plus of € 30 million.
Core capital fell 2 per cent or € 155 million to € 9,279 million. The impact of the change in calculation methodology to international accounting standards was positive at the end of the second quarter at € 497 million. In contrast, core capital declined by a total of € 405 million as a result of the acquisition of non-controlling interests by RBI. The repurchase of hybrid tier 1 capital from external investors reduced core capital by a further € 359 million. Likewise, the consolidation of Polbank at the
Own funds stood in contrast to a lower own funds requirement of € 6,626 million, a decrease of € 998 million. The own funds requirement for credit risk was € 5,451 million (a decrease of 12 per cent or € 721 million year-on-year), of which € 2,439 million related to the standardized approach and € 3,012 million to the IRB approach. The requirement for the position risk in bonds, equities and commodities fell € 247 million to € 273 million. This decline occurred in part due to EBA requirements to reduce the bank’s non-core business with a focus on market risk positions and partly owing to the update of the internal model. This also reduced the own funds requirement for open currency positions by 60 per cent or € 84 million down to € 56 million. The requirement for operational risk was € 845 million (2011: € 792 million).
This led to an improvement of the excess cover ratio by 25.8 percentage points to 94.5 per cent or € 6,260 million.
Research and development As a bank, RBI is generally not involved in research and development in the strictest sense of the term.
In the context of financial engineering, however, it does develop customized solutions for investment, financing or risk hedging. Financial engineering encompasses not only structured investment products, but also structured financing, i.e. financing concepts that go beyond the application of standard instruments and are used in acquisition or project financing, for example. RBI also develops individual solutions to hedge a broad spectrum of risks, from interest rate risk and currency risk through to commodity price risk.
The consolidated financial statements are prepared in accordance with the relevant Austrian laws, notably the Austrian Banking Act (BWG) and Austrian Commercial Code (UGB), which govern the preparation of consolidated annual financial statements. The accounting standards used to prepare the consolidated financial statements are the International Financial Reporting Standards (IFRS) as adopted by the EU.
An internal control system has been in place for many years at RBI and its parent, RZB Group, which includes directives and instructions on key strategic topics. The system comprises the following aspects: ■ the hierarchical decision-making process for approving Group and company directives and departmental as well as divisional instructions,
Consolidated financial statements are prepared by the Group Financial Reporting department, which reports to the Chief Financial Officer. The relevant responsibilities are defined Group-wide within the framework of a dedicated function.
Significant risks relating to the Group accounting process are evaluated and monitored by the Management Board. Complex accounting standards can increase the risk of errors, as can the use of different valuation standards, particularly in relation to the Group’s principal financial instruments. A difficult business environment can also increase the risk of significant financial reporting errors. For the purpose of preparing the consolidated financial statements, estimates have to be made for asset and liability items for which no market value can be reliably determined. This is particularly relevant for credit business, social capital and the intrinsic value of securities, participations and goodwill.
The financial statement data, which are examined by an independent auditor, are usually entered directly in the Cognos Controller consolidation system by the end of January of the subsequent year. The IT system is kept secure by limiting access rights.
The subsequent consolidation steps are then performed using the Cognos Controller consolidation system, including capital consolidation, expense and income consolidation, and debt consolidation. Finally, possible intra-Group gains are eliminated. At the end of the consolidation process, the notes to the financial statements are prepared in accordance with IFRS, the BWG and the UGB.
In addition to the Management Board, the general control system also encompasses middle management (department heads). All control measures constitute part of the day-to-day business processes and are used to prevent, detect and correct any potential errors or inconsistencies in the financial reporting. Control measures range from managerial reviews of the interim results to the specific reconciliation of accounts through to analyzing ongoing accounting processes.
The consolidated financial statements and management report are reviewed by the Audit Committee of the Supervisory Board and are also presented to the Supervisory Board for information. The consolidated financial statements are published on the company’s website, in the Wiener Zeitung’s official register, and are filed with the commercial register as part of the annual report.
Each year the annual report shows the consolidated results in the form of a complete set of consolidated financial statements. These consolidated financial statements are examined by an external auditor. In addition, the management summary (Group management report) provides verbal comments on the consolidated results in accordance with the statutory requirements.
The Management Board and the Controlling department are responsible for ongoing internal monitoring. In addition, the relevant department heads are responsible for monitoring their areas which includes performing regular controls and plausibility checks.
Group Audit regularly and independently verifies compliance with the internal rules within the RZB Group units. The head of Group Audit reports directly to the RZB and RBI Management Boards.
Capital, share, voting and control rights The following disclosures cover the provisions of Section 243a (1) of the Austrian Commercial Code (UGB): (1) The company’s capital stock amounts to € 596,290,628.20 and is divided into 195,505,124 voting common bearer shares. Of those, 557,295 are own shares as of 31 December 2012, which means that 194,947,829 shares were outstanding as of the reporting date. Please consult the notes on equity (34) for more information.
(3) As of 31 December 2012, RZB holds around 78.5 per cent of the capital stock in the company indirectly through its wholly owned subsidiary Raiffeisen International Beteiligungs GmbH, Vienna; the remaining shares are free float. The Management Board knows of no direct or indirect participations in the capital amounting to 10 per cent or more. The R-LandesbankenBeteiligung GmbH, Vienna, holds around 78.5 per cent of the shares of RZB directly, and Raiffeisen-Landesbanken-Beteiligung’s shares are, in turn, wholly owned by the Raiffeisen-Landesbanken-Holding GmbH.
(4) Pursuant to the company’s articles of association, RZB is granted the right to delegate up to one third of the Supervisory Board members to be elected by the Annual General Meeting, as long as it holds a participation in the capital stock. Beyond that, there is no special right of control associated with holding shares.
(5) There is no control of voting rights in the case of a participation in capital by employees.
In the course of the merger of the principal business areas of RZB with Raiffeisen International as of 10 October 2010, the RZB issue “Raiffeisen-Partizipationskapital 2008/2009” in the amount of € 2.5 billion was transferred to RBI on unchanged terms.
■ The brand agreement concluded with RZB AG on the unrestricted use of the name and logo of Raiffeisen Bank International for an indefinite period of time in all jurisdictions in which the brand is registered now or in the future includes a right of cancellation upon a change of control.
■ The company’s refinancing agreements and financing guarantees granted to subsidiaries provide for the right of early termination upon a change of control with negative material ramifications.
Funding Banks essentially refinance themselves using their own funds, customer deposits and various capital and interbank market tools. In the first half of 2012, the banking environment was again heavily influenced by the sovereign debt crisis, which made refinancing difficult for banks – particularly via capital markets. This situation improved gradually over the second half of the year.
Diversified funding sources The wholesale funding of network banks was further diversified in 2012. More than 40 per cent of the wholesale funding of RBI subsidiaries in Central and Eastern Europe came from external sources.
Additional sources of funding include structured transactions such as the securitization of PLN 500 million for the Polish leasing subsidiary, which was organized by RBI in the first quarter of 2012 and successfully placed with private investors. In June 2012, the first tranche of diversified payment rights securitization, originated by Raiffeisenbank Moscow, was placed for a total of USD 125 million.
Successful benchmark issues RBI’s resources for medium to long-term refinancing include two issuance programs, the “EUR 25,000,000,000 Debt Issuance Program” and the “EUR 20.000.000.000 Emissionsprogramm der Raiffeisen Bank International AG.” Under these programs, bonds can be issued in different currencies and with different structures. The total volume of outstanding bonds under these two programs may not exceed € 25 billion and € 20 billion, respectively. At the end of 2012, a total of € 12 billion had been drawn on from the two programs.
In spite of the volatile market environment, RBI promptly covered its funding needs for 2012 with the issuance of a senior benchmark bond and numerous private placements within the first six months. In March, the first benchmark bond was issued. It was a € 500 million senior fixed-rate bond with three-year maturity. The issue was significantly oversubscribed.
In the first quarter of 2012, RBI also issued its first Chinese currency bond (the first CNY senior bond issued by a Western bank) valued at CNY 750 million.
In an effort to diversify its funding sources, RBI is actively working on developing additional secured refinancing options, where existing assets can be used to secure long-term funding.
Risk management Taking and transforming risks are an integral component of the banking business. This makes active risk management as much a core competence to the overall bank governance as the management of the bank’s profitability. In order to effectively recognize, classify and contain risks, the Group utilizes comprehensive risk management and controlling.
This function reaches across the entire organizational structure, including all levels of management. It is also implemented in each of the subsidiaries by local risk management units. Risk management is structured to ensure the conscious handling and professional management of credit risk, country risk, market risk, liquidity risk, investment risk, and operational risk in order to ensure an appropriate risk-reward ratio.
Liquidity risk Liquidity management incorporates findings from past years into the cash flow modeling for the expected base case in order to adjust the resulting forecasts for capital commitment and refinancing needs. On the one hand, this should increase transparency with respect to actual costs and risks. On the other hand, it should also provide the right management impetus.
In 2012, the planned implementation of the liquidity requirements in accordance with Basel III was again a further issue regarding liquidity risk. Although there is no final draft of regulatory requirements yet, meaning interpretation of these requirements still varies, calculations have already been conducted for RBI and individual Group units. The implementation of the required data landscape and of the corresponding calculation applications constituted a key area of activity in 2012.
Interest rate risk RBI’s net interest income contributes significantly to earnings and thus is an important component for capital base stabilization and the success of the bank’s business model. To do justice to this significance, risk management of interest rate flows is treated as its own entity by a dedicated unit which is independent from liquidity risk. Here, particularly the impact of different interest rate scenarios on net interest income is simulated. In close cooperation with the front office, RBI prepares for various developments in the markets and can react quickly in the case of negative trends. In 2012, the emphasis in this area was on further developing the available analytical and reporting tools as well as on harmonizing these innovative systems within the Group.
In addition to the new Basel III regulation measures already adapted, risk management focused also on the ongoing implementation of the revised Basel II approach in 2012. The Basel II related activities included the implementation of the internal ratings-based (IRB) approach in the retail and non-retail segments of the CEE subsidiaries, further development of internal market risk models as well as additional Group-wide development of the standard approach for operational risk.
Internal2 Raiffeisen Bank International AG, Vienna (Austria) IRB1 n.a. model2 STA3
All other units STA STA STA STA 1 IRB = internal ratings-based approach 2 Only for risks of open foreign-exchange positions and general interest-rate risk on the trading book 3 STA = standard approach 4 Only at consolidated level
Human resources Human Resources (HR) at RBI is responsible for ensuring that personnel resources are deployed throughout the company in a sustainable manner. It operates in an environment of interplay between short- and long-term measures. The year 2012, for example, was characterized both by cost reduction programs, which had to have an immediate effect, and at the same time by development initiatives intended to safeguard the future of the company.
Promoting the international exchange of knowledge and experience continues to remain an important concern for RBI. Hence, the “International Young Potentials” program was launched in 2012 for the second time, promoting high potential employees from network banks by providing them with trainee assignments in other network banks. Exchange programs for experienced employees, e.g., from Risk Management or Treasury, were also further expanded.
A particular challenge for HR was the merger of Raiffeisen Bank Polska with Polbank. Besides combining the cultures of the two banks – with the help of joint workshops – a fair selection process for the future managers of the target organization was implemented. Common HR tools and processes will serve as the basis for good cooperation within the merged bank.
Regional HR meetings, at which the participating countries determine the respective agendas, also proved to be an effective platform, especially in discussing and developing joint regional HR topics. At the regional meetings for the CIS and Southeastern Europe in Moscow and Belgrade the main focus lay on cost optimization initiatives. Additional focal points included talent management, succession planning, management development, further development of regional assessment centers and a common Group approach toward the subjects of position classification and salary structure.
Developments in compensation Since banks are typical services companies, personnel costs represent a major portion of administrative expenses – at RBI Group it was 49 per cent in 2012 – and cost reduction programs impacted salaries, too. Cost reductions were therefore achieved not only by cutting headcount, but also through adjustments to other fringe benefits at several network units. Based on the first-time inclusion of Polbank personnel costs rose 4 per cent year-on-year.
A significant portion of the Human Resources capacity was channeled in 2012 toward implementing the special regulations for compensation systems in the banking sector. The general (for all employees) and special (only for executive management, risk buyers and special employees in control functions) remuneration principles that were developed in 2011 were implemented during the reporting period.
In 2013, we will once again pay increased attention to cost development. We expect a flat or slightly increasing cost base, particularly due to the first-time full year consolidation of Polbank.
Overview of RBI Interview with the chairman of the management board 8 Management board of RBI 11 Report of the supervisory board 12 RBI at a glance 14 RBI’s strategy 16 RBI in the capital markets 20 Corporate governance report 24 Sustainability at RBI 34
Group management report Market development 38 Performance and financials 42 Detailed review of items in the income statement 45 Comparison of results with the previous quarter 50 Statement of financial position 52 Research and development 54 Internal control and risk management system 55 Capital, share, voting and control rights 57 Funding 59 Risk management 61 Human resources 64 Outlook 66 Events after the balance sheet date 67
Segment overview RBI’s profit before tax declined 25 per cent year-on-year to € 1,032 million. More than half of the profit before tax came from the Russia regional segment, which posted a considerable increase in 2012. Results in the functional segments, however, declined yearon -year.
Profit before tax in Central Europe increased from € 33 million to € 53 million thanks to a reduction in net provisioning for impairment losses in Hungary and despite the initial consolidation of Polbank. Total assets increased 17 per cent to € 40.8 billion compared to the previous year.
The Southeastern Europe region generated profit before tax of € 303 million in 2012, a decline of 14 per cent. Lower operating income was partially offset by a reduction in general administrative expenses. Total assets in the segment shrank 7 per cent year-onyear to € 21.3 billion.
Russia made by far the largest regional contribution to earnings with profit before tax of € 599 million. The 38 per cent rise resulted primarily from increase in operating income. Total assets in the segment rose 10 per cent year-on-year to € 15.6 billion.
In the CIS Other segment, profit before tax rose 2 per cent to € 108 million, primarily due to an increase in operating income and lower net provisioning for impairment losses. Total assets in the segment declined 7 per cent year-on-year to € 6.3 billion.
Despite an increase in net interest income, the Corporate Center segment reported a higher net loss before tax of € 399 million because of valuation losses on derivatives and liabilities. Total assets declined 12 per cent to € 47.3 billion year-on-year.
Segment development Central Europe In Central Europe, profit before tax rose 61 per cent to € 53 million in 2012, helped by considerably lower net provisioning for impairment losses in the region even though there was a negative effect from the initial consolidation of Polbank and from expenses in connection with the operational merger of the two banks in Poland. Return on equity before tax rose 0.5 percentage points to 1.7 per cent.
Return on equity before tax 1.7% 1.2% 0.5 PP – 5.5% –
Net fee and commission income for the segment increased 1 per cent or € 5 million to € 496 million year-on-year. Net income from payment transfer business rose 3 per cent to € 201 million due to the development in Poland. Net income from loan and guarantee business, however, fell 10 per cent to € 65 million because of lower business volumes and a lower number of transactions, particularly in Hungary and the Czech Republic. Net income from foreign currency, notes/coins and precious metals business rose 2 per cent to € 150 million year-on-year, primarily due to developments in Poland.
Other results in the Central Europe segment improved from minus € 50 million to plus € 78 million year-on-year. Net income from financial investments, which was positively impacted by valuation gains totaling € 43 million from municipal bonds in Hungary, increased to € 52 million. Net income from derivatives in the region also increased due to higher valuation gains from various hedging transactions concluded to adjust the currency and interest-rate structure in the Czech Republic.
Below please find the detailed results of the individual countries in the segment: Czech Republic in € million 2012 2011 Change Q4/2012 Q3/2012 Change
Return on equity after tax 12.8% 16.2% (3.4) PP – 14.5% –
Number of employees as of reporting date 3,066 3,012 1.8% 3,066 3,044 0.7%
Net fee and commission income 77 90 (14.3)% 20 20 (0.6)%
Loans and advances to customers 5,231 5,564 (6.0)% 5,231 5,434 (3.7)%
hereof foreign currency % 63.3% 75.9% (12.6) PP 63.3% 62.2% 1.1 PP
hereof foreign currency % 54.0% 39.8% 14.3 PP 54.0% 54.0% 0.0 PP
Return on equity after tax 0.1% 12.4% (12.3) PP – – –
Number of employees as of reporting date 6,656 3,169 110.0% 6,656 6,471 2.9%
Net fee and commission income 132 129 2.6% 36 33 8.9%
Net provisioning for impairment losses (41) (17) 143.5% (16) (8) 93.2%
Loans and advances to customers 6,645 6,636 0.1% 6,645 6,652 (0.1)%
Number of employees as of reporting date 3,827 3,805 0.6% 3,827 3,823 0.1%
Net fee and commission income 8 8 5.3% 2 2 (0.2)%
Loans and advances to customers 1,225 1,303 (6.0)% 1,225 1,275 (3.9)%
Southeastern Europe In Southeastern Europe, where economy was weak in 2012, profit before tax declined 14 per cent to € 303 million year-on-year. Despite a reduction in general administrative expenses profit was negatively impacted by a decline in operating income and higher net provisioning for impairment losses. Return on equity before tax decreased 2.8 percentage points to 14.7 per cent.
Net trading income for the Southeastern Europe segment grew 28 per cent to € 53 million year-on-year. Net income from interestbased transactions rose considerably to € 33 million, primarily because of higher valuation gains on bonds in the Croatian trading portfolio, which climbed due to a narrowing in spreads. An increase in the trading portfolio balance also contributed to the rise. In contrast, income from currency-based transactions decreased to € 21 million, mostly because of a decline in the net valuation result from forward transactions in Romania.
The segment’s net provisioning for impairment losses climbed 12 per cent year-on-year, reaching € 287 million. Although net releases of portfolio-based loan loss provisions totaled € 16 million during the reporting year, which were posted primarily in Bulgaria, they were lower than in the previous year (2011: € 54 million). However, net allocations to individual loan loss provisions declined 3 per cent or € 10 million to € 305 million, caused primarily by Group units in Bulgaria and Serbia. The share of nonperforming loans to non-banks in the segment’s loan portfolio increased 1.2 percentage points to 12.5 per cent.
Compared to the same period last year, the segment’s other results improved from minus € 10 million to plus € 11 million. This development was primarily caused by higher gains from the valuation and sale of government bonds in Romania, where a decline in yields occurred, as well as by the sale of corporate bonds in Serbia and Croatia. Net income from derivatives remained unchanged year-on-year, with valuation losses in Croatia at previous year’s level.
Net fee and commission income 31 32 (0.9)% 8 8 (4.5)%
Return on equity before tax 9.6% 11.1% (1.6) PP 4.8% 12.1% (7.3) PP
Return on equity before tax 2.2% 7.5% (5.4) PP – – –
Number of employees as of reporting date 3,119 3,271 (4.6)% 3,119 3,136 (0.5)%
Net provisioning for impairment losses (52) (52) (1.0)% (18) (12) 54.4%
Loans and advances to customers 3,525 3,830 (8.0)% 3,525 3,694 (4.6)%
hereof foreign currency % 61.2% 67.4% (6.2) PP 61.2% 64.3% (3.1) PP
Return on equity before tax 7.7% 6.6% 1.1 PP 1.3% 7.7% (6.4) PP
Number of employees as of reporting date 2,066 2,083 (0.8)% 2,066 2,056 0.5%
Loans and advances to customers 428 428 0.0% 428 427 0.4%
Return on equity after tax 14.9% 14.1% 0.8 PP 11.9% 16.2% (4.3) PP
Number of employees as of reporting date 688 720 (4.4)% 688 697 (1.3)%
Net provisioning for impairment losses (99) (68) 45.0% (25) (25) 0.5%
hereof foreign currency % 51.8% 52.1% (0.2) PP 51.8% 56.9% (5.0) PP
Return on equity after tax 17.5% 19.3% (1.8) PP 11.0% 18.4% (7.4) PP
Number of employees as of reporting date 5,486 6,030 (9.0)% 5,486 5,660 (3.1)%
Net fee and commission income 35 35 0.3% 9 9 7.6%
Loans and advances to customers 1,204 1,331 (9.5)% 1,204 1,280 (5.9)%
Return on equity before tax 10.8% 11.0% (0.2) PP 8.9% 12.5% (3.5) PP
Return on equity after tax 10.0% 10.2% (0.2) PP 8.5% 11.3% (2.8) PP
Russia Profit before tax in Russia increased 38 per cent to € 599 million due to considerable improvement in operating income. Although general administrative expenses rose, productivity improved continuously, leading to a further reduction of the cost/income ratio of 10.6 percentage points to 46.5 per cent year-on-year. Return on equity before tax also increased 5.1 percentage points to 39.2 per cent.
Net interest income in Russia rose 27 per cent or € 159 million to € 749 million year-on-year. This growth stemmed from an expansion of loans to private individuals and to large corporate customers since the start of 2012, as well as from considerably higher interest income from derivatives, which increased to € 130 million due to larger transaction volumes. These derivatives were concluded to hedge exposures related to loans denominated in foreign currencies. The segment reported a year-on-year net interest margin increase of 11 basis points to 5.29 per cent. Total assets improved also 10 per cent to € 15.6 billion. Credit risk-weighted assets decreased 3 per cent to € 10.2 billion.
The segment’s other net operating income improved from minus € 13 million to minus € 5 million, primarily due to the release of provisions for legal disputes that were successfully concluded during the reporting period.
Income taxes in the segment increased to € 126 million, while the tax rate declined 5 percentage points to 21 per cent.
hereof foreign currency % 44.2% 48.5% (4.3) PP 44.2% 47.4% (3.2) PP
Return on equity before tax 31.9% 36.9% (4.9) PP 22.8% 31.1% (8.4) PP
Return on equity after tax 25.2% 27.3% (2.1) PP 18.2% 25.9% (7.8) PP
CIS Other In the CIS Other segment, profit before tax rose 2 per cent to € 108 million year-on-year. An increase in operating income and lower net provisioning for impairment losses had a positive effect. Additionally, financial reporting in Belarus has been adjusted since the fourth quarter of 2011 for at least three financial years due to the implementation of hyperinflation accounting. This led to a considerably lower negative impact (€ 16 million) on net income in the reporting period. The segment’s return on equity before tax decreased slightly, by 1.5 percentage points to 13.7 per cent.
Net provisioning for impairment losses (89) (128) (30.5)% (13) (26) (49.2)%
The segment’s net fee and commission income increased 19 per cent to € 209 million year-on-year with significantly higher income from payment transfer business (€ 153 million) still representing the largest contribution. Ukraine and Belarus’s income increase was attributable to a higher number of transactions, price adjustments had a further positive effect in Belarus. In addition, 2012 profit from the Ukrainian Processing Center increased 10 per cent to € 16 million. Net income from the foreign currency, notes/coins, and precious metals business was also higher year-on-year – rising 16 per cent to € 41 million – due to an adjustment in prices in Belarus and an increase in the total number of transactions as a result of currency market stabilization.
General administrative expenses rose 14 per cent to € 384 million year-on-year. Staff expenses increased – despite a reduction in the number of employees – primarily due to the appreciation of the Ukrainian hryvnia. Depreciation increased as well, largely the result of IT investment in a new core banking system and impairments of € 7 million for decommissioned systems in Ukraine. In addition, the write-up of tangible fixed assets in Belarus due to high inflation led to a rise in depreciation. As a result of the increase in general administrative expenses and only minor improvement in operating income, the cost/income ratio rose 6.2 percentage points to 63.8 per cent.
Net provisioning for impairment losses in the region fell 31 per cent to € 89 million year-on-year. The decline in net allocations to individual loan loss provisions of € 53 million was caused primarily by an improvement in the portfolio quality with private individuals in Ukraine. As in the previous year, portfolio-based loan loss provisions reported a net release, but at € 21 million, this release was 40 per cent lower than in 2011. The net releases of portfolio-based loan loss provisions in Belarus were the result of a revised macroeconomic assessment and the corresponding adjustment to the underlying calculation parameters. The share of nonperforming loans in the total loan portfolio was 28.2 per cent (down 1.4 percentage points year-on-year), still the highest amongst all segments.
Below please find the detailed results of the individual countries in the segment: Belarus in € million 2012 2011 Change Q4/2012 Q3/2012 Change
Loans and advances to customers 869 772 12.6% 869 789 10.2%
hereof foreign currency % 70.9% 66.1% 4.8 PP 70.9% 73.4% (2.5) PP
Number of employees as of reporting date 2,190 2,210 (0.9)% 2,190 2,168 1.0%
Net provisioning for impairment losses (107) (108) (1.2)% (33) (25) 36.0%
Net provisioning for impairment losses (113) (116) (2.1)% (61) (31) 95.6%
Net fee and commission income decreased 8 per cent or € 15 million to € 163 million in 2012. However, income generated at Group head office remained at the same level as in the comparable period. This result was attributable predominantly to leadarranger activities associated with bond issuance by Austrian and international customers, as well as to income from the loan and project financing business, which was particularly strong. At the business outlets in Asia and the USA, in contrast, net fee and commission income declined.
The segment’s net trading income decreased 23 per cent to € 16 million. On the one hand, the profit centers at Group head office posted higher valuation gains on currency and interest-based transactions with financial instruments. Likewise, at the branch in Malaysia, valuation gains on a stock call option had a considerably positive impact. On the other hand, value adjustments on derivatives at Group head office had an adverse effect on net trading income.
Net provisioning for impairment losses declined 2 per cent to € 113 million during the reporting period, primarily due to lower individual loan loss provisions at Group head office. The share of non-performing loans in the segment’s loan portfolio increased 1.8 percentage points to 4.8 per cent.
Compared to the same period last year, other results in the segment improved from minus € 4 million to plus € 14 million. Income from financial investments increased because of a one-off effect resulting from the sale of shares that had risen considerably in value; these shares had originally been obtained as collateral in connection with a loan agreement. Furthermore, mark-to-market valuation gains on corporate bonds held at Group head office as well as securities of the Maltese subsidiary had a positive effect.
Group Markets Profit before tax in the Group Markets segment fell 3 per cent to € 258 million compared to the previous year. This decline was caused by a reduction in operating income, although an improvement in net income from financial investments offset the reduction considerably. Return on equity before tax rose 5.1 percentage points to 24.6 per cent.
Net provisioning for impairment losses (18) (14) 31.2% 1 0 317.4%
Net interest margin (average interest-bearing assets) 0.85% 1.00% (0.15) PP 0.81% 1.06% (0.26) PP
Return on equity before tax 24.6% 19.5% 5.1 PP 7.4% 14.2% (6.7) PP
The segment’s net trading income halved to € 78 million in 2012. At € 50 million, Raiffeisen Centrobank made a significant contribution which was also 11 per cent higher than in the previous year. It was generated primarily from the interest-based transactions related to the valuation of zero-coupon bonds and other placements used to hedge open risk positions in connection with issued structured products. Further contributions to net trading income came from valuation gains on issued certificates and structured bonds in equity and index-related transactions. Group head office’s contribution from proprietary trading – mainly in fixed-income securities but also with structured products – was significantly lower than in the comparable period last year due to a reduction in risk positions. The valuation of capital guarantees issued resulted in a valuation loss of € 24 million, following a valuation gain of € 72 million in 2011.
Net provisioning for impairment losses increased 31 per cent to € 18 million year-on-year, mainly due to higher net allocations to individual loan loss provisions in connection with financial institutions at Group head office. Non-performing loans represented 1.2 per cent of the segment’s total credit exposure.
Compared to the same period last year, the segment’s other results improved from minus € 4 million to € 177 million. In particular, net income from financial investments increased significantly due to the previously mentioned sale of the high-quality securities portfolio at Group head office as well as the sale of other financial instruments. Furthermore, valuation gains on highly liquid securities primarily from Western European banks had a positive effect, resulting from narrowing margins caused by ECB initiatives. Net income from derivatives edged slightly lower year-on-year, mainly the result of close-out payments in connection with the sale of portions of the securities portfolio at Group head office. Internal hedging transactions between profit centers Capital Markets and Treasury of Group head office, which were initiated to hedge interest rate structure and manage interest rate risk of the securities portfolio, resulted in costs of € 57 million in this segment. The corresponding gain was recorded in the Corporate Center segment.
Net fee and commission income improved 36 per cent year-on-year to minus € 42 million. This improvement was attributable especially to lower commission payments by Group head office for country risk insurance policies in connection with financing abroad.
The segment’s net trading income dropped € 73 million to minus € 36 million as a result of valuation losses on various foreign currency and interest rate-based financial instruments held for management purposes. This also includes lower net income from valuation of cross-currency interest rate swaps that were concluded to hedge the currency exposure of RBI’s financing structure, primarily in connection with US dollar transactions.
General administrative expenses increased 3 per cent or € 11 million to € 328 million, primarily because of a reduction in the expenses charged to other functional segments as well as higher IT and office space expenses at Group head office resulting from operational changes. The only business outlet reported in this segment is Group head office.
In the reporting year, tax income of € 132 million was posted in this segment, higher year-on-year. This increase was primarily attributable to the segment’s valuation results particularly relating to liabilities measured at fair value.
Overview of RBI Interview with the Chairman of the Management Board 8 Management Board of RBI 11 Report of the Supervisory Board 12 RBI at a glance 14 RBI’s strategy 16 RBI in the capital markets 20 Corporate governance report 24 Sustainability at RBI 34
Net income from disposal of group assets [10] 12,137 (2,575) –
Total Group equity Non-controlling interests € 000 2012 2011 2012 2011 2012 2011 hereof unrealized net gains (losses) of the period 167,401 (349,606) 150,303 (302,230) 17,097 (47,376)
Net gains (losses) on derivatives hedging fluctuating cash flows (1,245) (45,951) (1,245) (45,951) 0 0 hereof unrealized net gains (losses) of the period (1,245) (46,904) (1,245) (46,904) 0 0 hereof net gains (losses) reclassified to income statement 0 953 0 953 0 0
The item fair value reserve (available-for-sale financial assets) contains net valuations of financial investments.
Due to changed intentions regarding a part of the held-to-maturity portfolio in 2011, a volume of € 3,165,000 thousand of heldto -maturity securities was reclassified as available-for-sale. This reclassification caused an increase in other comprehensive income of € 116,917 thousand (after taxes) in 2011. In 2012, this portfolio was sold and € 122,273 thousand (after taxes) was reclassified to income statement.
In 2012, € 33,995 thousand (2011: € 95,152 thousand) was recognized directly in other comprehensive income through the application of IAS 29 (hyperinflation accounting) in Belarus.
Net income from disposal of group assets (2,494) (91) 6 4
Impairment losses on loans and advances [17, 35] (5,641,897) (5,053,212) 11.6%
Provisions for liabilities and charges [29, 35, 36] 720,996 770,957 (6.5)%
Own shares/share incentive program 89 0 2,904 0 0 0 2,993
Other changes in equity are mainly due to purchases of non-controlling interests, namely of a share of 24 per cent in Raiffeisenbank a.s., Prague, a share of 13 per cent in Tatra banka, a.s., Bratislava, a share of 30 per cent in Raiffeisen Bank Zrt., Budapest, a share of 12 per cent in Raiffeisen Banka d.d., Maribor and a share of 3 per cent in Raiffeisen Bank d.d. Bosna i Hercegovina, Sarajevo.
Non-cash positions in profit and transition to net cash from operating activities: Write-downs/write-ups of tangible fixed assets and financial investments 453,334 671,303
Proceeds from sale of: Tangible and intangible fixed assets 88,240 87,840
Payments for purchase of: Tangible and intangible fixed assets (531,140) (580,305)
Cash and cash equivalents at the end of period 6,556,723 11,401,747
Financial year 2012 € 000 Group Markets Corporate Center Reconciliation Total
Profit/Loss after deduction of non-controlling interests (10,904) 288,773 321,742 50,811 297,727
Net interest margin (average interest-bearing assets) 3.36% 4.41% 5.18% 6.77% 1.97%
Provisioning ratio (average loans and advances to customers) 0.85% 0.0% – 1.34%
Raiffeisen Bank International (RBI) is a universal bank focusing on corporate and retail customers in Central and Eastern Europe (CEE) and exclusively on corporate customers in Austria. In CEE, RBI consists of a closely-knit network of banks, leasing companies and numerous specialized financial service providers with 3,106 business outlets. In Austria, RBI concentrates on the top 1,000 corporate customers and it is one of Austria’s most prominent corporate finance and export and trade finance banks. Cash and asset management, treasury operations and investment banking are further fields of activity. RBI’s focus as a highly specialized financial engineer is on serving Austrian and foreign key accounts, multinationals and providers of financial services. RBI has branches, subsidiaries and representative offices in the world’s major financial centers and in Asia, which have selective business with corporate customers and financial institutions.
The consolidated financial statements were signed by the Management Board on 11 March 2013 and subsequently submitted to the Supervisory Board for review and notice.
The consolidated financial statements are based on the reporting packages of all fully consolidated Group members, which are prepared according to IFRS rules and uniform Group standards. With the exception of five subsidiaries – with a year-end reporting date on 30 June and which are therefore accounted for with interim financial statements – all fully consolidated companies prepare their annual financial statements as of 31 December. The deviating reporting dates are due to dividend policy reasons and to the seasonality of the business transactions. Figures in these financial statements are stated in € thousand. The following tables may include rounding differences.
At each reporting date all financial assets not measured at fair value through profit or loss are assessed whether an impairment loss should be recorded in the income statement. In particular, it is required to determine whether there is objective evidence of impairment as a result of a loss event occurring after initial recognition and to estimate the amount and timing of future cash flows when determining an impairment loss. Details and development concerning risk provisions are provided in note (44) risks arising from financial instruments in the chapter credit risk.
Where the market for a financial instrument is not active, fair value is established using a valuation technique or pricing model. For valuation methods and models, estimates are generally used depending on the complexity of the instrument and the availability of market-based data. The inputs to these models are derived from observable market data where possible. Under certain circumstances valuation adjustments are necessary in order to account for model risk, liquidity risk or credit risk. The description of the valuation techniques is to be found in the chapter financial instruments: Recognition and measurement. In addition, the fair values of derivative financial instruments are shown in note (46) fair value of financial instruments not reported at fair value and the fair value hierarchy is shown in note (47) fair value of financial instruments reported at fair value.
The cost of the defined benefit pension plan is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Assumption and estimates used for the defined benefit obligation calculations can be found in chapter Provisions for pensions and similar obligations.” Quantitative data for long term employee provisions are disclosed in note (29) provisions for liabilities and charges.
IFRS 7 (Financial instruments: transfers of financial assets; entered into force on July 1st, 2011)
IFRS 1 (First-time adoption of IFRS; entered into force on July 1st, 2011)
The amendments relate to an exemption from severe hyperinflation and the elimination of fixed dates of transition. The amendments have no impact on the consolidated financial statements of 2012.
New and revised standards not yet applicable (already endorsed by the EU)
The amendments to IAS 1 require presentation, by using subtotals, as to whether the items of other comprehensive income are reclassifiable to profit or loss or not. Moreover, if other comprehensive income items are presented before tax then the tax related to each of the two categories has to be presented separately. Application of these amendments will have an impact on presentation of the statement of comprehensive income.
IAS 19 (Employee benefits; entered into force on January 1st, 2013)
The amendments to IAS 19 change the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in fair value of plan assets when they occur, and hence eliminate the “corridor approach ” permitted under the previous version of IAS 19 and accelerate the recognition of past service costs. The amendments require all actuarial gains and losses to be recognized immediately through other comprehensive income in order for the net pension asset or liability recognized in the consolidated statement of financial position to reflect the full value of the plan deficit or surplus. The amendments to IAS 19 require retrospective application. From the perspective of RBI the initial application of the amendments for the financial year 2013 will not have a significant impact on the consolidated financial statements.
IAS 27 (Separate financial statements; entry into force on January 1st, 2014)
IAS 28 (Investments in associates and joint ventures; entry into force on January 1st, 2014)
Joint ventures are added to the scope of the revised IAS 28, due to the fact that under IFRS 11 the equity method is the only way of including joint ventures in the consolidated financial statements. It is expected that the revised version of IAS 28 will have no impact on the consolidated financial statements.
IFRS 1 (Government loans; entry into force on January 1st, 2013)
The amendment to IFRS 1 make it clear that goverment loans are now excluded from the retrospective application of IFRS on transition to IFRS. changes will have no impact on the consolidated financial statements of RBI.
IFRS 7 (Disclosures: offsetting financial assets and liabilities; entry into force on January 1st, 2014)
IFRS 10 (Consolidated financial statements; entry into force on January 1st, 2014)
IFRS 10 replaces the parts of IAS 27 “Consolidated and Separate Financial Statements” that deal with consolidated financial statements. SIC-12 “Consolidation – Special Purpose Entities” will be withdrawn upon the effective date of IFRS 10. Under IFRS 10, there is only one basis for consolidation, that is, control. In addition, IFRS 10 includes a new definition of control that contains three elements: (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of the investor’s return. Extensive guidance has been added in standard to deal with complex scenarios. From the perspective of RBI the future application of IFRS 10 will not have a significant impact on the consolidated group.
IFRS 12 (Disclosures of interests in other entities; entry into force on January 1st, 2014)
IFRS 12 is a disclosure standard regarding statements in the notes and is applicable to entities that have interests in subsidiaries, joint arrangements (joint ventures or joint operations), associates and/or unconsolidated structured entities. In general, the disclosure requirements in IFRS 12 are more extensive than those in the current standards. From our perspective the amendments which are effective on 1 January 2014 will influence our notes in the consolidated financial statements with regard to the additional disclosures in accordance with IFRS 12.
IFRS 13 (Fair value measurement; entered into force on January 1st, 2013)
Annual Improvements to IFRSs 2009-2011 Cycle (entered into force on January 1st, 2013)
IFRS 9 (Financial instruments; entry into force on January 1st, 2015)
Mandatory effective date of IFRS 9 and transition disclosures (Amendments to IFRS 9 and IFRS 7; entry into force on January 1st, 2015)
Amendments to IFRS 10, IFRS 11 and IAS 27 – Investment entities (entry into force on January 1st, 2014)
These amendments provide an exception to the consolidation requirements of subsidiaries in IFRS 10 “Consolidated Financial Statements.” This applies if the parent company meets the definition of an “Investment company” (for example, certain mutual funds). These entities measure their investments in particular subsidiaries at fair value through profit or loss in accordance with IFRS 9 “Financial Instruments” or IAS 39 “Financial Instruments: Recognition and Measurement”.
Amendments to IFRS 10, IFRS 11 and IFRS 12 – Transition guidance (entry into force on January 1st, 2014)
With these amendments the transition guidance in IFRS 10, IFRS 11 and IFRS 12 are clarified and provide additional relief in all three standards. Adapted comparative information is only required for the previous comparable period. In addition, in connection with the information in the notes to non-consolidated companies structured there is no obligation to provide comparative information for periods that precede the application of IFRS 12.
Special purpose entities (SPE) which are controlled by the Group from an economic point of view, are fully consolidated according to SIC 12. To determine whether a special purpose entity is controlled from an economic perspective, a number of factors are to be taken into consideration. These include an investigation into whether the activities carried out by the SPE in favor of the Group are in accordance with its specific business needs so that it can take advantage of the activities of the SPE, whether the Group has the decision-making powers to achieve the majority of the benefits from the SPE, whether in fact the Group receives the majority of the benefits of the activities of the SPE, or whether the Group retains the majority of the assets associated with the residual or ownership risks in order to benefit from its activities.
Non-controlling interests are shown in the consolidated statement of financial position as part of equity, but separately from RBI’s equity. The profit attributable to non-controlling interests is shown separately in the consolidated income statement.
In the scope of debt consolidation, intra-group loans and liabilities are eliminated in the consolidated accounts. Remaining temporary differences are recognized under “other assets/other liabilities.”
Cash generating units In € million AVAL RBAL RBCZ RBPL RBRU
During 2012 impairment charges of € 38 million were made against goodwill on RBI Group level. The largest impairment charge (€ 29 million) arose in the Ukrainian Raiffeisen Bank Aval JSC due to the outlook for Ukraine an increase in the discount rate (credit rating downgrade in Ukraine and an increase in the estimate of the equity risk premium). The discount rate used for the impairment test for goodwill of Raiffeisen Bank Aval JC was between 23.7 per cent and 16.0 per cent (2011: 21.7 per cent and 13.7 per cent).
Increase in discount rate – 5.3 PP 1.5 PP 0.8 PP 2.8 PP
The value of the Polbank EFG S.A., Warsaw brand was determined using the relief from royalty method, because neither immediately comparable transactions nor a market with observable prices were available at the time of purchase price allocation. The underlying premise of this method is that the subject trademark has a fair value equal to the present value of the royalty income attributable to it.
The impairment test of intangible assets of Raiffeisenbank AVAL JSC, Kiev identified impairment loss in the amount of € 3,432 thousand. This impairment loss relates to the customer base for the corporate customers segment which was recognized at the date of initial consolidation.
Of the 137 entities in the Group, 32 are domiciled in Austria (2011: 29) and 105 abroad (2011: 106). They comprise 21 banks, 61 financial institutions, 22 companies rendering bank-related ancillary services, 13 financial holding companies and 20 other companies. Because of their minor importance in giving a view of the Group’s assets, financial and earnings position 220 subsidiaries were not included in the consolidated financial statements (2011: 231). They are recognized at cost under financial investments. The total assets of the companies not included came to less than 1 per cent of the Group’s aggregated total assets. A list of fully consolidated companies, companies valued at equity and other equity participations may be found under note (56) list of fully consolidated companies and under note (57) list of equity particpations.
Bulevard Centar BBC Holding d.o.o., Belgrade (RS) 100.0 % 1/6 Start of operations
EFG Poldystrybucja Sp. z o.o., Warsaw (PL) 87.0 % 1/5 Purchase
Vindalo Properties Limited, Agios Athanasios, Limassol (CY) 100.0 % 1/6 Start of operations
Centrotrade Commodities Malaysia Sdn Bhd, Kuala Lumpur (MY) 100.0 % 1/8 Start of operations 1 Included in the consolidated financial statements based on the economic control according to SIC 12
The following table shows the total consideration paid for Polbank and the acquired assets and liabilities recognized at the acquisition date: Cash reserve 339,640
2 The goodwill is shown before consideration of deferred taxes as a result of business combinations according to IAS 12.19 in conjunction with IAS 12.26(c) and IAS 12.66, in the amount of € 7,979 thousand.
The loss after tax of Polbank in the income statement from 1 May to 31 December 2012 amounted to € 66,379 thousand. Operating income totaled € 89,781 thousand for the same period.
The liquidity effect of the sold Group unit is equal to the selling price as there were no liquid funds available.
The following exchange rates were used for currency translation: Rates in units per € – as of 2012 2011 As of Average As of Average 31/12 1/1-31/12 31/12 1/1-31/12
Since 1 January 2011, Belarus has been classified in accordance with IAS 29 (Financial reporting in hyperinflationary economies) as a highly inflationary economy. Thus, the local activities of RBI are no longer recognized on the basis of historical acquisition and production costs, but have been adjusted for the effects of inflation. For this purpose the local inflation index has been used.
Derivative financial instruments held-for-trading are shown under the item “trading assets” or “trading liabilities.” Positive fair values including accrued interest (dirty price) are shown under trading assets. Negative fair values are recorded under trading liabilities. Positive and negative fair values are not netted. Changes in dirty prices are recognized in net trading income. Derivatives that are used neither for trading purposes nor for hedging purposes are recorded under the item “derivatives.” Furthermore, any liabilities from the short-selling of securities are shown in trading liabilities.
These instruments are bonds, notes and other fixed-interest securities as well as shares and other variable-yield securities. These financial instruments are valued at fair value under IAS 39. In the statement of financial position, they are shown under the item “financial investments,” current income is shown under net interest income, valuation results and proceeds from disposals are shown in net income from financial investments.
On the other hand, financial liabilities are designated as financial instruments at fair value to avoid valuation discrepancies with related derivatives. The fair value of financial obligations under the fair value option contains all market risk factors, including those related to the credit risk of the issuers.
As opposed to 2011, the use of observable maket prices was used exclusively for the valuation of liabilities of subordinated emissions measured at fair value in the financial year. Thus, in contrast to the previous year in which the inactivity in the markets led to the application of valuations, a change in the method of valuation was carried out in the fourth quarter of 2012. The financial liabilities are mostly structured bonds. The fair value of these financial liabilities is calculated by discounting the contractual cash flows with a credit-risk-adjusted yield curve, which reflects the level at which the Group could issue similar financial instruments at the reporting date. The market risk parameters are evaluated according to similar financial instruments that are held as financial asssets. Valuation results for liabilities that are designated as a financial instrument at fair value are recognized in income from derivative financial instruments.
The category of financial assets available-for-sale contains equity participations and those financial instruments that did not qualify for any of the other three categories. They are stated at fair value, if a fair value is reliably measurable. Valuation differences are shown in other comprehensive income and only recognized in the income statement under net income from financial investments if there is an objective indication of impairment. For equity instruments impairment exists, among other things, if the fair value is either significantly or for a prolonged period of time below cost.
Unquoted equity instruments, for which reliable fair values cannot be assessed regularly, are valued at cost of acquisition less impairment losses and it is not possible to show an appreciation in value.
This kind of financial instrument is reported under the item “financial investments.”
Liabilities are predominantly recognized at amortized cost. Discounted debt securities and similar obligations are measured at their present value. Financial liabilities measured at fair value are shown in the category “liabilities at fair value through profit and loss.”
If market prices are available, the fair value is reflected best by the market price. This category contains equity instruments traded on the stock exchange, debt instruments traded on the interbank market, and derivatives traded on the stock exchange.
When current bid and asking prices for financial instruments are unavailable, the prices of similar financial instruments provide evidence of the current fair value or are determined by accepted measurement methods enclosing observable prices or parameters (in particular present value calculation or option price model). These methods concern the majority of the OTC-derivates and non-quoted debt instruments. To determine the fair value a credit value adjustment (CVA) is necessary to reflect the counterparty risk associated with OTC derivative transactions, especially of those contractual partners with whom hedging via the credit support annexes has not yet been conducted. This amount represents the estimated fair value of a security which could be used to hedge against the credit risk of the counterparties to RBI-OTC derivative portfolios. The CVA will depend on the expected future exposure, the probability of default of the contractual partner and recovery rates. In the CVA collateral, netting agreements, termination options and other contractual factors are taken into account. The net valuation due to the changed credit risk of the counterparty is shown in note (5) net trading income, interest-based transactions.
Credit derivatives, the value of which is dependent on future specified credit (non-)events are shown under “derivatives” (positive fair values on the asset side and negative fair values on the liability side). Changes in valuation are recognized under net income from derivatives.
Hedge Accounting according to IAS 39 applies for those derivatives that are used to hedge the fair values of financial assets and liabilities. The credit business is especially 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 individual loans or refinancing. Thus, hedges are formally documented, continuously assessed, and rated to be highly effective. In other words, throughout the term of a hedge, it can be assumed 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 items in the statement of financial position (except trading assets /liabilities) are recognized at their fair values (dirty prices) under “derivatives” (on the assets side: positive dirty prices; on the liabilities side: negative dirty prices). Changes in the carrying amounts of hedged items (assets or liabilities) are allocated directly to the corresponding items of the statement of financial position and reported separately in the notes.
Within the management of interest rate risks, in RBI the hedging of interest rate risk is also made on the portfolio level. Individual transactions or groups of transactions with similar risk structures, divided into maturities according to the expected repayment and interest rate adjustment date in a portfolio are hedged. Portfolios can be assets only, liabilities only or both. For hedge accounting, the change in the value of the hedged asset or liability is shown as a separate item in other assets/liabilities. The hedged amount of the hedged items is determined in the consolidated financial statements excluding sight or savings deposits (the rules of the EU carve-out are thereby not applied).
The Group derecognizes a financial liability if the obligations of the Group have been paid, expired or revoked. The net income or expense from the repurchase of liabilities is shown under note (6) net income from derivatives and liabilities.
In a genuine sale and repurchase transaction, the Group sells assets to a third party and agrees at the same time to repurchase these assets at an agreed price and time. The assets remain on the statement of financial position of the Group and are measured like the item in the statement of financial position where they are shown. Cash inflows arising from a sale and repurchase transaction are recognized in the statement of financial position as deposits from banks or deposits from customers depending on the counterparty.
Securities lending transactions are shown in the same way as genuine sale and repurchase agreements. This means loaned securities continue to remain in the securities portfolio and are valued according to IAS 39. Borrowed securities are not recognized and not valued. Cash collateral provided for securities lending transactions are shown as a claim and collateral received are shown as a liability.
When nearly all the risks and rewards of a leased asset are transferred to the lessee, the Group as lessor recognizes a loan to banks or customers. The loan amount is the amount of the net investment. The proceeds from the finance lease are distributed at a constant periodic rate of the outstanding net investment in the leases. Under a finance lease the lessee holds assets that are shown under the relevant tangible fixed asset item, which corresponds to a lease liability.
Actuarial gains or losses calculated for pension obligations are recognized immediately in the income statement. No use was made of the corridor method according to IAS 19.92.
 40 per cent of the annual bonus will be deferrred over a period of three (in Austria, five) years. Payment will be made on a proportional basis, 50 per cent cash and 50 per cent based on the phantom share plan.
 additionally, in Group units on the local level, achieving the legally required local minimum “core tier 1 ratio excluding buffers,” and
These rules are valid unless any applicable local laws prescribe a different procedure.
Further details of the employee compensation plans are described in the management report.
Except for the year 2010 the Management Board, with approval by the Supervisory Board, of RBI AG has approved the existence of a share incentive program (SIP) which offers performance based allotments of shares to eligible employees at home and abroad for a given period. Eligible employees are current board members and selected executives of RBI AG, as well as executives of its affiliated bank subsidiaries and other affiliated companies.
Financial assets and liabilities at fair value through profit or loss 232,167 378,787
Interest and interest-like income, total 6,478,884 6,614,417 from balances at central banks 75,645 61,796 from loans and advances to banks 296,742 441,781 from loans and advances to customers 4,875,061 4,743,939 from financial investments 608,961 770,497 from leasing claims 216,663 222,377 from derivative financial instruments (non-trading), net 361,967 288,841 from shares and other variable-yield securities 4,347 2,544 from shares in affiliated companies 10,269 44,853 from other interests 4,523 3,586
Interest income includes interest income (unwinding) from impaired loans to customers and banks in the amount of € 205,361 thousand (2011: € 204.960 thousand). Interest income from impaired loans and advances to customers and banks is recognized with the rate of interest used to discount the future cash flows for the purpose of measuring impairment loss.
Net income from hedge accounting includes on the one hand, a valuation gain from derivatives in fair value hedges of € 246.813 thousand (2011: € 87.529 thousand) and on the other hand, changes in the carrying amount of the fair value hedged items of minus € 238.231 thousand (2011: minus € 84.156 thousand).
Net income from other derivatives includes valuation results from those derivatives, which are held to hedge against market risks (except trading assets/liabilities). They are based on an inhomogeneous portfolio and do not satisfy the requirements for hedge accounting according to IAS 39.
Net income from liabilities designated at fair value comprises a loss from changes in own credit risk amounting to € 144.649 thousand (2011: profit of € 248.491 thousand) and a negative effect from changes in market interest rates.
(7) Net income from financial investments The position net income from financial investments comprises valuation results and net proceeds from securities of the financial investment portfolio (held-to-maturity), from securities at fair value through profit and loss, and equity participations which include shares in affiliated companies, companies valued at equity, and other companies.
Amortization of intangible fixed assets capitalized in the course of initial consolidation amounted to € 7.352 thousand (2011: € 5.854 thousand) which relates to scheduled amortization of the customer base.
Net proceeds from disposal of tangible and intangible fixed assets (8,979) (9,421)
RBI AG and eight of its domestic subsidiaries are members of a joint tax entity headed by Raiffeisen Zentralbank Österreich Aktiengesellschaft.
Other tax deductions and tax increases include mainly deferred tax assets built on tax loss carry-forwards.
Total assets 136,116,023 146,985,003 1 Due to separate presentation of cash reserve as of 2012 the previous year figures were adapted.
Equity and liabilities according to measurement categories € 000 2012 20111
Loans and advances to banks classified regionally (counterparty’s seat) are as follows: (16) Loans and advances to customers
Loans and advances and loan loss provisions according to Basel II asset classes are shown in the following table: 31/12/2012 € 000 Fair value
Treasury bills and bills of public authorities eligible for refinancing 1,070,506 889,762
Positive fair values of derivatives in fair value hedges (IAS 39) 697,885 426,350
As long as the conditions for hedge accounting according to IAS 39 are fulfilled, derivative financial instruments are measured at their fair values (dirty prices) in their function as hedging instruments. The hedged items in connection with fair value hedges are loans and advances to customers and debt securities issued which are to be hedged against interest rate risks. The changes in carrying amount of the hedged underlying transactions in IAS 39 fair value hedges are included in the respective items of the statement of financial position.
The time periods in which the hedged cash flows from assets are expected to occur and affect the statement of comprehensive income are as below: More than 1 year, up to 5 years 3,335 0
Treasury bills and bills of public authorities eligible for refinancing 6,456,392 7,675,075
Pledged securities ready to be sold or repledged by the transferee are allocated to the appropriate securities category in the table above. Further details are shown under note (40) transferred assets, genuine sale and repurchase agreements.
The carrying amount of the securities reclassified into the category loans and advances amounted to € 1.559.682 thousand at the date of reclassification in 2008.
For the following subsidiaries syndicate contracts between RBI AG and the respective shareholders exist: Raiffeisenbank a.s., Prague and Raiffeisenbank Austria d.d., Zagreb. These syndicate contracts regulate especially purchase options between direct and indirect shareholders.
The syndicate contracts expire automatically if control over the company changes – also in the case of a takeover bid. The following agreement has been made with the European Bank for Reconstruction and Development (EBRD) regarding Priorbank, JSC (Belarus): If control over the company changes, EBRD has the option to sell all shares held in Priorbank to the company.
Raiffeisen Banca pentru Locuinte S.A., Bucharest (RO) 75,195 4,944 130 14,810
The item “software” comprises acquired software amounting to € 485.979 thousand (2011: € 471.627 thousand) and developed software amounting to € 79.654 thousand (2011: € 59.232 thousand).
Land and buildings used by the Group for own purpose 721,830 610,056
The fair value of investment property totaled € 151.657 thousand (2011: € 122.804 thousand).
Cost of acquisition or conversion 1/1/2012 Change in consolidated group Exchange differences Additions Disposals Transfers As of 31/12/2011
Office furniture, equipment and other tangible fixed assets 1,234,854 97 (15,861) 141,490 (111,856) (18,287) 1,230,437
The net deferred taxes result from the following items: Loans and advances to customers 141,848 71,701
In the consolidated financial statements, deferred tax assets are recognized for unused tax loss carry-forwards which amounted to € 206.749 thousand (2011: € 240.419 thousand). The tax loss carry-forwards are mainly without any time limit. The Group did not recognize deferred tax assets of € 111.132 thousand (2011: € 78.414 thousand) because from a current point of view there is no prospect of realizing them within a reasonable period of time.
Deposits from banks classified regionally (counterparty’s seat) break down as follows: (27) Deposits from customers
Deposits from customers break down analog to Basel II definition as follows: Corporate customers – large corporates 29,071,946 33,187,082
Provisions for severance payments and similar obligations developed as follows: Defined benefit obligation (DBO) as of 1/1 59,968 60,770
The reconciliation of DBO to provision was as follows: Defined benefit obligation (DBO) 40,888 35,986
RBI AG XS0289338609 Subordinated capital EUR 500,000 4.500% 5/3/2019 1 Current interest rate, interest clauses are agreed.
The development of equity is shown under the chapter statement of changes in equity.
issued at 100 per cent of par value. They are linked to an 8 per cent profit entitlement from par value per year. For the business years 2014 and 2015, the profit entitlement will be raised by 50 basis points each year, for the business year 2016 by 75 basis points and for every following business year by 100 basis points. The upper limit is 12 month EURIBOR plus 1,000 basis points.
The Annual General Meeting held on 20 June 2012 also authorized the Management Board to acquire own shares for the purpose of securities trading in accordance with Section 65 (1), item 7 of the Austrian Joint Stock Companies Act (AktG) during a period of 30 months from the date of the resolution, of up to a maximum of 5 per cent of the respective subscribed capital of the company. The consideration for each share to be acquired must not be less than half the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisiton. This authorization may be exercised in one or several installments by the company, by affiliated companies or, for their account, by third parties. This authorization replaces the authorization from the Annual General Meeting held on 8 July 2010 for the purpose of securities trading.
Pursuant to Section 159 (2) item 1 of the Austrian Joint Stock Companies Act (AktG), the subscribed capital has been increased contingently by a maximum of € 47,174 thousand by issuing a maximum of 15,466,750 common bearer shares (contingent capital). The contingent capital increase would only be carried out to the extent that holders of convertible bonds issued under the resolution of the Annual General Meeting of 10 June 2008 make use of their right to convert such bonds into shares of the company. No convertible bonds have been issued to date, however.
exclusion of shareholders’ subscription rights. It should be noted that, under the provisions of the relevant laws, participation rights confer no voting rights or other membership rights. Issuing participation rights therefore entails no change of ownership structure from the standpoint of stock corporation law and shareholders’ voting rights. The company decided on 15 July 2009 to strengthen its equity by issuing participation rights in the amount of € 600,000 thousand based on the authorizing resolution of June 2009. In the course of the merger of the principal business areas of RZB with Raiffeisen International with effect from 10 October 2010, the mutual loans and liabilities of the receiving and the transferring company were wiped out. The same is true of the participatory rights in the amount of € 600,000 thousand, which had been subscribed in full by RZB. No further participation rights have been issued to date.
Members of the management board of the company 158,890 4,157,357 85,605
Members of the management boards of bank subsidiaries affiliated with the company 289,874 7,584,553 248,388
In order to avoid legal uncertainties and in accordance with the program’s terms and conditions, eligible employees in two countries were given a cash settlement instead of an allotment of shares. In Austria, the eligible parties were granted the option of accepting a cash settlement instead of half of the matured shares in order to offset the wage tax payable at the time of transfer. Therefore, the number of actually transferred shares is lower than the number of due shares. The portfolio of own shares was subsequently reduced by the lower number of actually transferred shares.
Members of the management boards of bank subsidiaries affiliated with the company 282,218 84,665 423,327
In the financial year 2012, no shares were bought back for the share incentive program.
(36) Related parties Companies can carry out business with related parties that may affect the entity’s asset, financial and earnings position. Information about related parties refers to the top of the consolidated group of Raiffeisen-Landesbanken-Holding GmbH.
Provisions for liabilities and charges 113 2,515 0 0 31/12/2011 € 000 Parent companies Affiliated companies Companies valued at equity Other interests
Guarantees received 0 414,494 145,720 2,605 1 Adaption of previous year figures due to different mapping
(37) Foreign currency volumes The consolidated financial statements consist of the following volumes of assets and liabilities denominated in foreign currencies: C o n so li d a te d
The true sale transaction ROOF Russia 2007-1 finally phased out in 2012 as the carring amount at year-end 2011 was only € 18,764 thousand and the possibility to replenish already redeemed volumes was no longer perceived.
Besides the above-mentioned refinancing and packaging of designated portfolios of loans or leasing claims, RBI also acts as an investor in ABS-structures. Essentially, this is about investments in Structured Credit Products. During the financial year 2012 market value changes led to a negative valuation result of about € 4 million (2011: minus € 2 million) and to a realized result from sale of € 658 thousand.
As of 31 December 2011, RBI reported the following total exposure of structured products (excluding CDS): € 000 Outstanding notional amount Carrying amount
Securities purchased in a genuine sale and repurchase agreement 7,491,583 4,851,646 hereof sold or repledged 1,437,763 1,485,715 hereof bonds, notes and other fixed-interest securities 1,394,362 1,453,894 hereof shares and other variable-yield securities 43,401 31,326 hereof loans and advances 0 495
Transferred financial assets not entirely derecognized 31/12/2012 Transferred assets Associated Liabilities amount hereof securitizations hereof repurchase agreements Carrying amount hereof securitizations hereof repurchase agreements
Bonds, notes and other fixed-interest securities 206,772 0 206,772 174,967 0 174,967
Financial assets at fair value through profit or loss 551,695 0 551,695 525,827 0 525,827
In the financial year 2012, there were no transferred financial assets which were derecognized to the extent of the institution's continuing involvement.
As of 31 December 2012, write-offs on unrecoverable minimum lease payments totaled € 67.103 thousand (31/12/2011: € 61.205 thousand).
Future minimum lease payments under non-cancelable operating leases are as follows: Up to 1 year 94,989 81,047
 Independent control: A clear personnel and organizational separation is maintained between business operations and any risk management or risk controlling activities.
The Risk Management Committee is responsible for ongoing development and implementation of methods and parameters for risk quantification models and for refining steering instruments. The committee also analyzes the current risk situation with respect to internal capital adequacy and the corresponding risk limits. It approves risk management and controlling activities (like the allocation of risk capital) and advises the Management Board in these matters.
The Compliance Office is responsible for all issues concerning compliance with legal requirements in addition to and as integral part of the internal control system. Therewith, the compliance of existing regulations in daily operations is monitored.
Risk of not meeting the capital requirement as defined in the Basel III regulations in preparation
Risk-taking capacity (projected earnings plus capital exceeding regulatory requirements) must not fall below the annualized value-at-risk of the Group 95 per cent reflecting the owners´ willingness to inject additional own funds
Capital and loss projection for a three-year planning period based on a severe macroeconomic downturn scenario 70-90 per cent based on the management decision that the Group might be required to temporarily reduce risks or raise additional core capital
Risks in the target rating perspective are measured based on economic capital which represents a comparable measure across all types of risks. It is calculated as the sum of unexpected losses stemming from different Group units and different risk categories (credit, participation, market, liquidity, macroeconomic and operational risk as well as risk resulting from other tangible assets). In addition, a general buffer for other risks not explicitly quantified is held.
In the regional break down of economic capital as of 31 December 2012 the largest share, at around 37 per cent (2011: 30 per cent), is allocated to Group units located in Central Europe. The increase reported here is due to the integration of Polbank.
Risk buffer and diversification effects of risk types2 0 0.0% 858,817 9.1%
1 Extension of previous year figures with consideration of risk buffer 2 Risk buffer and diversification effects are now assigned to regions
No lending transaction is performed in the non-retail segments without running through the limit application process beforehand. This process is also consistently applied – besides new lending – to increases in existing limits, roll-overs, overdrafts, and if changes in the risk profile of a borrower occur (e.g. with respect to the financial situation of the borrower, the terms and conditions, or collateral) compared to the time the original lending decision was made. In addition it is used when setting counterparty limits in treasury and investment banking operations, other credit limits, and for equity participations.
The limit application process in the retail division is stronger automated due to the high number of applications and lower exposure amounts. Limit applications often are assessed and approved in central processing centers based on credit score cards. This process is facilitated by the respective IT systems.
Credit portfolio management in RBI is, amongst others, based on the credit portfolio strategy. This strategy limits the exposure amount in different countries, industries or product types and thus prevents undesired risk concentrations. On top of that, analyzing the long-term potential of different markets is a routine activity. This allows for an early strategic repositioning of future lending activities.
The following table translates items of the statement of financial position (bank and trading book positions) into the maximum credit exposure, which is used in portfolio management. It includes exposures on and off the statement of financial position before the application of credit-conversion factors and thus represents the total credit exposure. It is not reduced by the effects of credit risk mitigation like for example guarantees and physical collateral, effects that are, however, considered in the total assessment of credit risks. The total credit exposure is used – if not explicitly stated otherwise – for showing exposures in all subsequent charts in the risk report. The reasons for different values used for internal portfolio management and external financial accounting are the different scope of consolidation (regulatory vs. accounting rules according to IFRS, i.e. corporate legal basis), different classification and presentation of exposure volumes.
The internal rating model for corporates takes into account qualitative factors as well as several business and performance figures (e.g. interest cover, EBT margin, EBTDA margin, equity ratio, return on assets, debt amortization period), which are tailored to the various industries and financial reporting standards.
Defaulted exposures according to Basel II (rating 5.0) amounted to 6.1 per cent of total credit exposure, which is € 4,925,690 thousand (2011: € 4,609,661 thousand). The segment Central Europe was mostly affected with € 1,603,422 thousand (2011: € 1,234,996 thousand). Slightly less than half of the unrated credit exposure was due to small loans.
6.2 Good project risk profile – low risk 2,522,975 30.0% 3,265,276 38.6%
6.3 Acceptable project risk profile – average risk 1,241,107 14.7% 1,241,476 14.7%
Retail customers are subdivided into private individuals and small and medium-sized enterprises (SME). For retail customers a twofold scoring system is used – consisting of the initial and ad-hoc scoring based on customer data and of the behavioral scoring based on account data. The table below provides a breakdown of the maximum retail credit exposure of RBI: Retail customers – private individuals 25,856,000 88.7% 20,778,317 89.0%
Retail customers – small and medium-sized entities 1,527,542 845,700 48,052 146,376 92 hereof individual loan loss provision 457,106 371,881 184,542 480,336 126 hereof portfolio-based loan loss provision 173,915 65,334 7,433 28,156 0
Compared to year-end 2011, the retail credit portfolio increased by € 5,788,249 thousand to € 29,134,328 thousand.
The highest amount of € 16,214,036 thousand (2011: € 11,186,960 thousand) was booked in segment Central Europe. This was an increase of € 5,027,076 thousand compared to the previous year, mainly caused by the acquisition of Polbank.
In the table below the retail exposure selected by products is shown: 2012 € 000 Central Europe Southeastern Europe Russia CIS Other Group Markets
The following table shows the maximum credit exposure of this asset class by segment: 2012 € 000 Central Europe Southeastern Europe Russia CIS Other Group Markets 2011 € 000 Central Europe Southeastern Europe Russia CIS Other Group Markets
Taking all rating classes together, segment Group Markets accounts for the largest portfolio share at € 27,638,205 thousand (2011: € 32,490,734 thousand) or 84.5 per cent, followed by the segment Group Corporates at € 1,508,711 thousand (2011: € 2,444,968 thousand) or 4.6 per cent.
Time deposits, repurchase agreements, potential future exposures from derivatives, sight deposits, and bonds are the main product categories in this asset class. These exposures therefore have high collateralization grades (e.g. in repo transactions or through netting-agreements) depending on the type of product.
Financial Institutions: maximum credit exposure by internal rating and segment In € million
The table below shows the maximum credit exposure to financial institutions (excluding central banks) selected by products: Credit exposure – Sovereigns
The rating class excellent credit standing (A1) showed a decline of € 8,006,309 thousand which resulted from reduction of deposits at the Austrian National Bank (minus € 5,895,945 thousand) and decrease of the portfolio of Austrian government bonds (minus € 1,943,406 thousand).
The volume in lower credit rating grades (rating C and D) increased slightly due to local government financing in Hungary.
The table below shows the credit exposure to sovereigns (including central banks) selected by products: The table below shows the credit exposure to the public sector in non-investment grade (rating B3 and below): Here, the credit exposure decreased to € 8,704,260 thousand compared to the previous year. It resulted primarily from deposits of Group units with the local central banks in Central and Southeastern Europe. They are used for meeting the respective minimum reserve requirements and for managing the short-term investment of excess liquidity, and are therefore inextricably linked to the business activities in these countries.
Collateralization is one of the main strategies and an actively pursued measure for reducing potential credit risks. The value of collateral and the effect of other risk mitigation techniques are determined within each limit application. The risk mitigation effect taken into account is the value that RBI expects to receive when selling the collateral within a reasonable liquidation period. Eligible collaterals are defined in the Group’s collateral catalog and evaluation guidelines for collateral. The collateral value is calculated according to specified methods which include standardized calculation formulas based on market values, predefined minimum discounts, and expert assessments.
31/12/2012 Maximum credit exposure Fair value of collateral € 000 Net exposure Commitments/guarantees issued
Retail customers – small and medium-sized entities 2,577,148 435,922 1,878,010 31/12/2011 Maximum credit exposure Fair value of collateral € 000 Net exposure Commitments/guarantees issued
Collateral ready to be sold or repledged in the absence of default of the debtor amounted to € 25,457,682 thousand (2011: € 24,047,224 thousand).
The assessment of the expected recovery value is heavily influenced by the number of days payments are late. The following table shows the amount of overdue – not impaired – loans and advances to banks and customers for different time bands.
More than 181 days, up to 1 year More than received for assets which are past due
Within the RBI a Group-wide default database has been created for collecting and documenting customer defaults. The database tracks defaults and the reasons for defaults, which enables the calculation and validation of own default probabilities.
The following table shows the share of non-performing loans in the defined asset classes loans and advances to customers and loans and advances to banks as reported in the statement of financial position (excluding items off the statement of financial position) according to segments: NPL NPL ratio NPL coverage ratio € 000 2012 2011 2012 2011 2012 2011
of non-performing loans in the division financial institutions decreased by € 39,610 thousand to € 201,666 thousand (2011: € 241,276 thousand) at year-end, the NPL coverage ratio sank by 16.1 percentage points to 78.2 per cent.
The following table shows the development of impairment losses on loans and provisions for liabilities off the statement of financial position and the corresponding items from the statement of financial position: 1/1/2012
Loans and advances to banks 19,052 0 221 (7,350) 0 (9) 11,914
The following table shows the breakdown of loan loss provisions according to segments: Individual loan loss provisions 4,843,476 4,441,419
Risk policies and credit portfolio management in RBI take into account the industry class of customers as well. Banking and insurance represents the largest industry class, which, however, is mostly attributed to exposures to members of the Austrian Raiffeisen Sector (central liquidity balancing function). The second largest industry class is private households, primarily consisting of loans to retail customers in Central and Eastern European countries. The following table shows the maximum credit exposure of the Group by the customers’ industry classification: Wholesale trade and commission trade (except car trading) 16,411,674 9.6% 17,893,915 9.6%
Public administration and defence and social insurance institutions 10,852,465 6.4% 13,267,030 7.1%
For derivative contracts the standard limit approval process applies, where the same risk classification, limitation, and monitoring process is used as for traditional lending. In doing so, the weighted nominal exposure of derivative contracts is added to the customers’ total exposure in the limit application and monitoring process as well as in the calculation and allocation of internal capital.
RBI defines market risk as the risk of possible losses arising from changes in market prices of trading and banking book positions. Market risk estimates are based on changes in exchange rates, interest rates, credit spreads, equity and commodity prices, and other market parameters (e.g. implied volatilities).
RBI uses a comprehensive risk management approach for both the trading and banking book (total-return approach). Market risks are managed consistently in all trading and banking books. The following values are measured and limited on a daily basis in the market risk management system:  Value-At-Risk (confidence level 99 per cent, risk horizon one day)
 Sensitivities (to changes in exchange rates, interest rates, gamma, vega, equity and commodity prices)
This limit strengthens the discipline of traders such that they do not allow losses to accumulate on their own proprietary positions but strictly limit them instead.
The following tables show the VaR (99 per cent, one day) for individual markets risk categories of the trading and banking book. RBI’s VaR mainly results from long-termed equity positions, structural interest rate risks, and credit spread risks of bonds, which are held as liquidity buffer.
Total 23,532 35,622 20,906 58,806 29,756 1 July to December 2012; With the full integration of the credit spread risk, a direct comparison with the previous year is not possible. 2 October to December 2012
Total VaR 99% 1d VaR as of Average VaR Minimum VaR Maximum VaR VaR as of
Total 70,725 78,181 49,107 105,628 51,278 1 Exchange rate risk on total bank level also includes equity positions of subsidiaries denominated in foreign currency. 2 October to December 2012
Market risk in RBI results primarily from exchange rate risk, which stems from foreign-currency denominated equity investments made in foreign Group units and the corresponding hedging positions entered into by the Group Asset/Liability Committee. The following table shows all material open foreign exchange rate positions as of 31 December 2012 and the corresponding values for the previous year. Those numbers include both trading positions as well as equity stakes in subsidiaries with foreign currency denominated statements of financial position.
RBI holds several large participations located outside of the European Monetary Union with their equity denoted in the corresponding local currency. Also, a significant share of risk-weighted assets in RBI is denominated in foreign currencies. Changes in foreign exchange rates thus lead to a change of consolidated capital in RBI and they influence the own funds requirement for credit risks as well.
Value-at-Risk and theoretical market price changes of RBI's trading book In € million
The following tables show the largest present value changes for the trading book of RBI given a one-basis-point interest rate increase for the whole yield curve in € thousand for the reporting dates 31 December 2012 and 31 December 2011. Currencies where the total interest rate sensitivity exceeds € 10 thousand are shown separately. There are only minor changes in the risk factors within the reporting period.
Different maturities and repricing schedules of assets and the corresponding liabilities (i.e. deposits and refinancing on debt and capital markets) cause interest rate risk in RBI. This risk arises in particular from different interest rate sensitivities, rate adjustments, and other optionality of expected cash flows. Interest rate risk in the banking book is material for Euro and US-Dollar as major currencies as well as for local currencies of Group units located in Central and Eastern Europe.
Interest rate risk in the banking book is not only measured in a value-at-risk framework but also managed by the traditional tools of nominal and interest rate gap analyses. Since 2002, interest rate risk is subject to quarterly reporting in the context of the interest rate risk statistic submitted to the banking supervisor. This report shows the change in the present value of the banking book as a percentage of own funds in line with the requirements of Basel II. Maturity assumptions needed in this analysis are defined as specified by regulatory authorities or based on internal statistics and empirical values. In 2012, the changes in present value of
The market risk management framework uses time-dependent bond and CDS-spread curves as risk factors in order to measure credit spread risks. This market risk category thus captures the specific interest rate risk of all securities in the trading and banking book. The value-at-risk report covers RBI AG in this risk category, where a major part of securities positions of the Group are booked. The integration of all positions was completed in the first half-year 2012.
RBI possesses all instruments for liquidity risk management required by the liquidity risk management directive (amongst others a sufficiently large liquidity buffer, stress tests based on different scenarios, and liquidity contingency plans). As far as it is possible to estimate the new liquidity ratios based on the still preliminary rules of Basel III, RBI appears to be already very well prepared for the new regulations.
Funding liquidity risk is mainly driven by changes in the risk strategy of lenders or by a rating downgrade of a bank that needs external funding. Funding rates and supply rise and fall with credit spreads, which change due to the market- or bank-specific situation.
In RBI’s funding plans, special attention is paid to a diversified structure of funding to mitigate funding liquidity risk. In the Group, funds are not only raised by RBI as the Group’s parent institution, but also individually by different banking subsidiaries. Those efforts are coordinated and optimized through a joint funding plan. Moreover, RBI arranges medium-term and long-term funding for its subsidiaries through syndicated loans, bilateral funding agreements with banks, and financing facilities of supranational institutions. These funding sources are based on long-term business relationships.
Derivatives in the trading book 8,405,930 15,818,157 6,605,117 2,610,327 5,449,666 1,153,048
ios. Individual Group units furthermore run additional scenarios depending on their individual risk profile and local specifics. In 2012, RBI carried out internal analysis as a result of external events in other institutions.
31/12/2011 Nominal amount by maturity Fair values € 000 Up to 1 year 1 year to 5 years More than 5 years Total Positive Negative
Equity/index futures – forward pricing 596,579 458 1,299 598,336 26,881 (31,793)
(46) Fair value of financial instruments not reported at fair value Fair values which are different from the carrying amount are calculated for fixed-interest loans and advances to and deposits from banks or customers, if the remaining maturity is more than one year. Variable-interest loans and advances and deposits are taken into account if they have an interest rollover period of more than one year. The fair value of loans and advances is calculated by discounting future cash flows and using interest rates at which similar loans and advances with the same maturities could have been granted to customers with similar creditworthiness. Moreover, the specific credit risk and collaterals are considered for the calculation of fair values for loans and advances.
2012 2011 € 000 Fair value Carrying amount Difference Fair value Carrying amount Difference
Loans and advances to banks 22,225,565 22,165,582 59,983 25,499,535 25,520,401 (20,866)
Other liabilities 1,515,338 1,515,338 0 1,515,024 1,515,024 0 1 Adjustments of previous year figures due to different mapping
Bonds, notes and other fixed-interest securities 1,754,302 965,485 56 2,497,009 609,924 175
Call/time deposits from trading purposes 0 2 0 0 6,872 0
Shares and other variable-yield securities 47,830 105,301 5,072 130,371 118,978 4,745
Level I Quoted market prices Level II Valuation techniques based on market data Level III Valuation techniques not based on market data
2012 2011 € 000 Level I Level II Level III Level I Level II Level III
Call/time deposits from trading purposes 0 10,045 0 0 0 0
Liabilities at fair value through profit and loss 0 3,357,758 0 0 3,345,911 0
€ 000 As of 1/1/2012 Changes in consolidated group Exchange differences Purchases Sales, repayment
The following table contains revocable credit lines which are unweighted according to Basel II: Revocable credit lines 16,223,936 14,847,947
(49) Fiduciary business Fiduciary business not recognized in the statement of financial position was concluded with the following volumes on the reporting date: Loans and advances to banks 8,239 9,509
Control on a Group level is exerted in cooperation between the departments Treasury, Planning & Finance and Group Strategy. The individual Group units are responsible for the observation of the capital targets in coordination with central departments responsible for the participation management of the respective unit.
Besides that, the risk taking capacity is calculated in the framework of regulatory limits. It is defined as the maximum loss, which the bank or the banking group may encounter during the current calendar year without falling short of the regulatory minimum capital values.
Supplementary capital according to Section 23 (1) 5 BWG 33,844 598,742
Own funds ratio 15.6% 13.5% 1 Comparable figures are based on BWG / UGB
Risk-weighted assets decreased in particular due to the stricter own funds requirement and the resulting core tier 1 ratio of 9 per cent (core tier 1 as defined by EBA) which was decided in the fall of 2011 by the EBA and was to be met by 30 June 2012.
Risk-weighted assets for the credit risk according to asset classes break down as follows: Risk-weighted assets according to section 22 BWG on standardized approach 30,487,575 38,201,238
ing contracts. Corresponding payments were made in the years 2011 and 2012, in the financial year 2012 these amounted to € 1,048 thousand (2011: € 2,022 thousand).
Payments to pension funds and business insurances 210 1,703 hereof remunerations of affiliated companies 568 144
For three members of the Management Board who changed from RZB to RBI the bonus calculation for 2010 was performed according to RZB return on equity (ROE). According to the contractual provisions applicable to these persons until the end of
The Annual General Meeting held on 20 June 2012 decided an annual remuneration for the members of the Supervisory Board of € 550 thousand and transferred the distribution to the Board itself. The members of the Supervisory Board settled the distribution in their meeting on 20 June 2012 as follows: Chairman € 70 thousand, Deputy Chairman € 60 thousand, members of the Supervisory Board € 50 thousand. Session fees are not paid.
Thus, in the financial year, € 550 thousand was paid to the members of the Supervisory Board. In the previous year, the members of the Supervisory Board received remunerations of € 423 thousand.
Ludwig Scharinger, 2nd Deputy Chairman 8 July 20101 20 June 2012
Erwin Hameseder 1st Deputy Chairman 1st Deputy Chairman 1st Deputy Chairman 1st Deputy Chairman
Heinrich Schaller2 2nd Deputy Chairman 2nd Deputy Chairman 2nd Deputy Chairman 2nd Deputy Chairman
Markus Mair 3rd Deputy Chairman 3rd Deputy Chairman 3rd Deputy Chairman 3rd Deputy Chairman
F.J. Elsner & Co. Gesellschaft mbH, Vienna (AT) 436,037 EUR 100.0% OT
Raiffeisen Bank d.d. Bosna i Hercegovina, Sarajevo (BA) 237,388,000 BAM 100.0% BA
Regional Card Processing Center s.r.o., Bratislava (SK) 539,465 EUR 100.0% BR 1 Company type: BA…Bank, BR…Company rendering banking-related ancillary services, FI…Financial institution, OT…Other companies, VV…Insurance, WP…Securities firms 2 Less own shares
ZUNO BANK AG, Vienna (AT) 5,000,000 EUR 100.0% BA 1 Company type: BA…Bank, BR…Company rendering banking-related ancillary services, FI…Financial institution, OT…Other companies, VV…Insurance, WP…Securities firms 2 Less own shares
Fondul de Garantare a Creditului Rural S.A., Bucharest (RO) 10,930,530 RON 33.3% FI
The Zagreb Stock Exchange joint stock company, Zagreb (HR) 40,408,000 HRK 3.3% SC 1 Company type: BA…Bank, BR…Company rendering banking-related ancillary services, FI…Financial institution, OT…Other companies, VV…Insurance, WP…Securities firms
Chief Executive Officer responsible for Group Strategy, Human Resources, Internal Audit,
Member of the Management Board responsible for Business Management & Development, Capital Markets,
Group management report Market development 38 Performance and financials 42 Detailed review of income statement items 45 Comparison of results with the previous quarter 50 Statement of financial position 52 Research and development 54 Internal control and risk management system 55 Capital, share, voting and control rights 57 Funding 59 Risk management 61 Human resources 64 Outlook 66 Events after the balance sheet date 67
Glossary Back testing – The backward comparison of VaR figures with actual results to test the quality of a model.
Consolidated ROE – Return on Consolidated Equity, i.e. the equity attributable to the shareholders of RBI. It is calculated by consolidated profit in relation to average equity on the statement of financial position (excluding non-controlling interests). Average equity is based on month-end figures excluding noncontrolling interest and does not include current year profit.
Country risk – This comprises transfer and convertibility risk as well as political risk.
Core tier 1 ratio, total – The ratio’s numerator is core capital without taking hybrid capital into account and its denominator are the total risk-weighted assets.
Cost/income ratio – Indicator of an entity’s cost efficiency based on the ratio of expenses to earnings. It is calculated by comparing general administrative expenses with operating income.
Credit spread (or simply “spread”) – Difference in yield between top-rated bonds (usually government bonds) and bonds with the same residual maturity but lower issuer quality.
Excess cover ratio (own funds) – Relation of excess own funds to total own funds requirement.
IFRS, IAS – The International Financial Reporting Standards or International Accounting Standards are reporting standards published by the IASB (International Accounting Standards Board) with the goal of achieving transparent and comparable accounting on an international basis.
Interest-bearing assets – Total assets less trading assets, derivatives, intangible fixed assets, fixed assets and other assets.
Loan to local stable funding ratio – The sum of total loans and advances to customers, minus impairment losses on loans, divided by the sum of deposits from nonbanks, funding from supranational institutions, capital from third parties and the total outstanding securities (with an original maturity of at least one year issued by a subsidiary bank to investors outside the bank’s consolidated group).
Loan/deposit ratio – Loan and advances to customers in relation to deposits from customers.
net interest margin (average assets) – Net interest income in relation to average total assets.
Operating income – Comprises net interest income, net fee and commission income, net trading income and other net operating income.
Own funds according to BWG – Consist of core capital (tier 1), additional and subordinated capital (tier 2) and short-term subordinated capital and rededicated tier 2 capital (tier 3).
Albania Raiffeisen Bank Sh.a. “European Trade Center” Bulevardi “Bajram Curri” Tirana Phone: +355-4-238 1000 Fax: +355-4-227 5599 SWIFT/BIC: SGSBALTX www.raiffeisen.al
Bosnia and Herzegovina Raiffeisen BANK d.d. Bosna i Hercegovina Zmaja od Bosne bb 71000 Sarajevo Phone: +387-33-287 101 Fax: +387-33-213 851 SWIFT/BIC: RZBABA2S www.raiffeisenbank.ba
00-549 Warsaw Phone: +48-22-585 2000 Fax: +48-22-585 2585 SWIFT/BIC: RCBWPLPW www.raiffeisen.pl
Austria Raiffeisen-Leasing International GmbH Am Stadtpark 3 1030 Vienna Phone: +43-1-71707 2966 Fax: +43-1-71707 762966 www.rli.co.at
Bulgaria Raiffeisen Leasing Bulgaria OOd Mladost 4, Business Park Sofia Building 7B, 4th floor 1504 Sofia Phone: +359-2-491 9191 Fax: +359-2-974 2057 www.rlbg.bg
Hungary Raiffeisen Lízing Zrt. Vaci Str. 81-85 1139 Budapest Phone: +36-1-477 8709 Fax: +36-1-477 8702 www.raiffeisenlizing.hu
Kazakhstan Raiffeisen Leasing Kazakhstan LLP Shevchenko Str. 146, No. 12 050008 Almaty Phone: +7-727-378 5430 Fax: +7-727-378 5447 www.rlkz.kz
Kosovo Raiffeisen Leasing Kosovo Gazmend Zajmi n.n., Sunny Hill 10000 Pristina Phone: +381-38-222 222 Fax: +381-38-203 03011 www.raiffeisen-leasing-ks.com
Poland Raiffeisen-Leasing Polska S.A. Ul. Prosta 51 00-838 Warsaw Phone: +48-22-326 3666 Fax: +48-22-326 3601 www.rl.com.pl
UK RBI London Branch 10, King William Street London EC4N 7TW Phone: +44-20-792 92288 Fax: +44-20-793 38099
RBI Representative Office Harbin Room 1104, Pufa Piaza No. 209 Chang Jiang Road Nang Gang District 150090 Harbin
RBI Hong Kong Branch Unit 2106-08, 21st Floor, Tower One, Lippo Centre 89 Queensway, Hong Kong Phone: +85-2-273 02112 Fax: +85-2-273 06028
RBI Representative Office Xiamen Unit 01-02, 32/F Zhongmin Building No 72 Hubin North Road Fujian Province 301012 Xiamen Phone: +86-592-262 3988 Fax: +86-592-262 3998
RBI Representative Office Zhuhai Room 2404, Yue Cai Building No. 188, Jingshan Road Jida, Zhuhai Guangdong Province Phone: +86-756-323 3500 Fax: +86-756-323 3321
Malaysia RBI Labuan Branch Level 6 (1E) Main Office Tower Financial Park Labuan 80000 Johor Bahru Phone: +607-291 3800 Fax: +607-291 3801
Singapore RBI Singapore Branch One Raffles Quay #38-01 North Tower Singapore 048583 Phone: +65-630 56000 Fax: +65-630 56001
USA RB International Finance (USA) LLC 1133 Avenue of the Americas, 16th Floor 10036 New York Phone: +01-212-845 4100 Fax: +01-212-944 2093
RBI Representative Office new York 1133 Avenue of the Americas, 16th Floor 10036 New York
ZUnO BAnK AG Am Stadtpark 3 1030 Vienna Phone: +43-1-907 288809 www.zuno.eu
The forecasts, plans and forward-looking statements contained in this annual report are based on the state of knowledge and assessments of Raiffeisen Bank International AG at the time of its preparation. Like all statements about the future, they are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. No guarantee can be provided for the accuracy of forecasts, plan values or forwardlooking statements.