Return on equity before tax 25.7% (1.6) PP 27.3% 21.8% 22.2% 24.1%
Consolidated return on equity (after minorities) 20.1% (1.3) PP 21.4% 17.2% 17.0% 19.4%
Core capital ratio (Tier 1), including market risk 10.5% 1.5 PP 9.0% 8.0% 10.1% 9.4%
Number of shares on 31 December in mn 154.67 8.3% 142.77 142.77
WE SPEAK THE NATIONAL LANGUAGE. Our commitment to our home market Central and Eastern Europe is permanent and sustainable.
Raiffeisen is already today the best possible local partner for our customers and business partners. We speak their and the local language. In our home market they are looked after by some 60,000 employees in more than 3,000 branch offices. Nobody is as strongly established in Central and Eastern Europe as we are.
I.: Niech Pan wsiądzie w 175, on jedzie do samego centrum.
expensive – drogi cheap – tani costs – koszty signpost – drogowskaz easy – proste, łatwe stop – przystanek to travel – podróżować airport – lotnisko stay – pobyt
Vocabulary: Grammar: The comparative form: expensive – more expensive, cheap – cheaper, fast – faster, nice – nicer; but: good – better!
K.: Hello, what is the best way to the Sobieski Hotel?
K.: This depends on the costs. Is the taxi very expensive?
I.: In that case the bus is a lot cheaper. But the bus takes 20 minutes longer.
I.: To autobus jest naturalnie o wiele tańszy. Ale autobusem jedzie się 20 minut dłużej.
K.: W czasach ograniczonych budżetów na podróż wolę autobus. Gdzie jest przystanek?
on business – obchodně restaurant – restaurace waiter – číšník table – stůl to reserve – rezervovat menu – jídelní lístek wine – víno soup – polévka dessert – dezert beer – pivo
W.: Good evening, here is the menu. At the start you will find today’s special. Would you like an aperitif?
Číšník: Dobrý večer, tady je jídelní lístek. Na začátku najdete menu dne. Mohu vám již přinést aperitiv?
Vocabulary: Grammar: Direct and indirect speech: Ms Z. says, “I like the hotel very much.” Ms Z. says she likes the hotel very much. / Mr Z. said, “We will travel by car.“ Mr Z. said they would travel by car.
A.: You are lucky, there is just one room left. Here is your order confirmation. Will you be driving?
A.: Take a seat. Where would you like to travel to?
Mr Z.: We want to go skiing in Tatranska Lomnica for a weekend.
A.: I would recommend the Kolowart hotel. It offers low-price packages in the close season in particular.
Pán Z.: Cez víkend by sme chceli ísť lyžovať do Tatranskej Lomnice.
CK: Tak by som vám odporúčala hotel Kolowart. Obzvlášť mimo sezóny ponúka výhodné paušály.
jelen idő – múlt idő: szállítunk – szállítani fogunk, repülök – repülni fogok, küld – küldeni fog, megy – menni fog.
A businessman discusses with his Raiffeisen-Leasing account manager a lease structure for a real estate project.
B.: Yes. After all, we have already been operating successfully in the Hungarian market for eight years. So far we have supplied our customers from Vienna.
B.: We need a surface of at least 10,000 square metres to meet the need in the medium term. At least from today’s perspective, that is.
B.: Our construction department estimates a total of three million euros in investment costs for the development. I will be happy to send you the precise plan.
Ü.: Építési osztályunk összesen hárommillió euróra becsüli a beruházási költségeket. Szívesen elküldöm Önnek a pontos tervszámításokat.
Mr benigini thanks his business partner for an invitation to Maribor. He writes him a letter.
I am very impressed at what speed your economy is growing. We can all but dream of such growth rates in a saturated market. I am convinced that our partnership holds excellent future prospects. I already look forward to negotiating the details with you. When you have created your budget, we should look through the figures together. This will also give me the opportunity to return your hospitality.
Veselim se že podrobnejših pogovorov z vami. Ko boste imeli pripravljen proračun, bi morali na Dunaju skupaj pregledati številke. Tako bom imel priložnost, da se vam oddolžim za vaše gostoljubje. Ob lepšem vremenu, upam!
Sedanjik – preteklik: moči – on je lahko, misliti – jaz sem mislil, zbirati – on je zbiral, sanjati – ona je sanjala, imeti – mi smo imeli, biti – oni so bili, imeti – jaz sem imel, pisati – ti si pisal.
B.: All right, I can prepare for you two simulations of the loan calculation. The first simulation is based on your current salary and the second on the expected salary increase.
rise – povećanje plaće monthly salary – mjesečna plaća loan – kredit repayment – otplata week – tjedan to need – potreba to get – dobiti to expand – proširiti quiet – tiho, tišina
B.: Please take a seat, then we can discuss all details in-depth.
H.: I have been working with a major construction company for the last 3 months and am now also earning a higher salary and would like to build a holiday home on Krk.
H.: Već tri mjeseca radim u velikom građevinskom poduzeću, primam veću plaću i želim izgraditi kuću za odmor na Krku.
H.: 4.700 HRK, ali za sljedeću godinu mi je obećano povećanje plaće!
D.: A cold takes some time to pass. You will see, in two days time you will already feel a lot better. Unless the next flight is waiting!
Ms zekirović travels a lot for business. She has caught a cold on the plane and is now visiting a drugstore in Sarajevo.
Z.: Hello. I have caught a cold. Probably on a flight. Unfortunately, I don’t have the time to go to bed.
Z.: At first it started to scratch in my throat, then a cough was added to this and my nose has been running since this morning.
D.: I have a good substance with vitamin C to strengthen defensive forces.
Z.: Do you also have something for the tickle in my throat?
Z.: Počelo je sa nadraženošću grla, a kasnije sam počela kašljati i od jutros mi curi nos.
business trip – poslovno putovanje drugstore – apoteka cold – prehlada cough – kašalj cold – kijavica drops – kapi vitamines – vitamini nose – nos mouth – usta time – vrijeme to soothe – smiriti to aggrevate – razdražiti to help – pomoći
A.: Da bi prehlada popustila potrebno je određeno vrijeme. Vidjet ćete, za dva dana ćete se puno bolje osjećati. Naravno, ukoliko Vas već ne čeka sljedeći let.
business trip – poslovno putovanje drugstore – ljekarna cold – prehlada cough – kašalj cold – hunjavica drops – kapi vitamins – vitamini nose – nos mouth – usta time – vrijeme to soothe – smiriti to aggravate – razdražiti to help – pomoći
Pridjevi: snažno – slabo, veliko – malo, staro – mlado, lijepo – ružno, debelo – mršavo, dugo – kratko, glasno – tiho, puno – malo, nježno – grubo.
L.: Propisat ću Vam jedno dobro sredstvo sa vitaminom C za jačanje Vaše otpornosti.
S.: Actually, maybe you could give me more big notes after all? Otherwise my wallet will be too full!
Lesson 8 Ms Shala is on a business trip to Albania. In Tirana she goes to the bank to exchange money. A customer just leaves the desk and it is immediately Ms Shala’s turn.
K.: No problem. At today’s rate that makes* 37,236 lek. What size of notes would you like?
S.: Dua të këmbej Euro. Sa është kursi i sotëm i këmbimit?
S.: Gjysmën në kartëmonedha të mëdha dhe pjesën tjetër në kartëmonedha të vogla.
A.: Pesë mijë, dhjetë mijë, pesëmbëdhjetë mije, njëzet mijë, dhe 17,236 Lek që mbeten në kartëmonedha të vogla.
Znj. K: Ndaj kemi vendosur më parë për një rinovim sesa për të ndërtuar një shtëpi të re. Por nuk e di nëse sot do ta merrja të njëjtin vendim përsëri.
Mr K.: Good evening. Please come in. You can leave your coats here.
Znj. G: Shumë faleminderit. Ju keni me të vërtetë një shtëpi të bukur.
Znj. K: Faleminderit shumë për komplimentin. Sikur ta shihnit si ka qenë më parë. E kemi rinovuar për një vit të tërë.
Z. K: Për fat patëm një kredi rinovimi nga Raiffeisen Bank me kushte shumë të favorshme. Këstet e kthimit nuk e rëndojnë shumë buxhetin e familjes sonë.
Gospodin K.: Na svu sreću smo dobili kredit za renoviranje od Raiffeisen banke, sa veoma povoljnim uslovima. Otplaćivanje rata ne opterećuje baš mnogo naš kućni budžet.
Gospođa K.: Dokazali ste da imate mnogo ukusa. Stare kuće uvek imaju neki poseban šarm.
to invest – investirati, uložiti refurbishment – kredit za loan renoviranje repayment – otplaćivanje house – kuća taste – ukus compliment – kompliment, pohvala meal – večera
V.: To je odlična usluga. Idem da obavim još jednu nabavku i vraćam se oko 11:00 časova. Mnogo Vam hvala na informacijama.
vreme: jedan čas, dva časa, deset časova (pre podne), deset časove (naveče), pola osam, osam i petnaest, osam i dvadeset, petnaest do jedanaest, ponoć, podne.
V.: O, nisam primetila tako uočljiv natpis! Neverovatno! Ovde je Raiffeisen banka čak i subotom otvorena. Zar nema pauze za ručak?
P.: Look, there’s the notice with the opening hours: Monday to Friday 8:30am to 7:00pm* Saturday 10:00am to 6:00pm.
P.: Pogledajte, ovde je natpis sa radnim vremenom: Od ponedeljka do petka od 8:30 do 19:00* časova, subotom od 10:00 do 18:00.
Mr Svetlinov has moved with his family out of town. He now needs a second car. He wants to buy a low-cost small car from a secondhand car dealer.
D.: You are looking for a small car? Would you also consider older models?
D.: Well, I have an interesting offer for you. This car may be older than three years, but it only has 37,000 km on the clock.
S.: Red is not my favourite colour, but the car looks very well looked after. How much does it cost?
D.: Remember that the car is a garage car from first hand. You hardly come across this anymore.
Т.: .: Колата е от първи собственик. Разбира се, непушач! Ще ви дам две години гаранция за автомобила.
C.: Червеният цвят не ми е любим, но колата изглежда много добре поддържана. Колко струва?
kilometres – Километри guarantee – Гаранция colour – Цвят service log – Сервизна книжка car dealer – Търговец на автомобили second hand – Автомобил на cars старо
Предлози: към автомобила, в автомобила, до автомобила, на автомобила, пред автомобила, зад автомобила.
T.: Do you think so? Well, I just bought some cabbage. Only 1 leu a piece.
S.: In that case I will take some too and make sarmale out of it.
T.: Şi eu mă duc des la piaţă. Legumele, în special, sunt mereu proaspete şi mai ieftine acolo.
T.: Aşa credeţi? Ei bine, tocmai am cumpărat nişte varză. O căpăţână costă doar 1 leu.
offer – ofertă price – preţ reduced – redus quantity – reducere pentru discount cantităţi mari quantity – cantitate market – piaţă expensive – scump supermarket – supermarket washing powder – detergent butter – unt milk – lapte bread – pâine fruit – fructe vegetables – legume idea – idee
T.: Yes, really cheap. A 5-kg bag for only 25 lei.*
S.: I took two bags, they only cost 45 lei with a quantity discount.
S.: Am cumpărat două pachete şi costă doar 45 de lei, cu reducere pentru cantităţi mari.
Вирази: Бажаємо приємного перебування. Дуже дякую! Ось, будь ласка. Як забажаєте. Зробіть ласку ...
Mr Pazenko is visiting Kiev for the first time. He pays for the taxi, and a bellboy accompanies him to the reception.
T.: That’s ideal. I will expect you at our head office in Khoruzhey street 31-A.
Vocabulary: The days of the week: Monday, Tuesday, Wednesday, Thursday, Friday, Saturday, Sunday.
S.: Hello! My name is Sokolov, could you please connect me to an account manager, who can talk to a corporate client?
S.: I am interested in setting up a branch for my trade chain in Minsk and would like to discuss the financing.
П.: Тады Вам лепш за ўсё пагаварыць са спадаром Тарасавым. Адзiн момант, злучаю.
cash machine – Банкомат card – Банковская карточка code – Код amount – Сумма денег receipt – Квитанция
currency – Валюта parking lot – Стоянка meeting – Совещание chauffeur – Водитель car – Машина
Ch.: Let’s go to the car, the next cash machine is on the way to the parking lot. Over there, to the left of the news-stand.
(CIS) and Southeastern Europe. In all the markets where we operate, our attention is focused on continuously expanding our retail customer segment.
We made significant progress in both respects last year. In November 2007, we completed the legal merger of our two network banks in Russia. The complete operational merger is planned for 2008. On this basis, we intend to improve our good market position further as the largest Western­owned banking group in the important and promising Russian market. Our business operations in the CIS developed very well in 2007 and contributed 30 per cent to profit before tax. Business development was stronger than average in Southeastern Europe, which viewed geographically made the largest contribution to profit before tax in 2007.
Our main goal again in 2008 is to expand our position in the region further by means of strong growth. At the same time, we are focusing especially on the quality of our products and the educational quali­ fications of our employees. We are also working constantly to improve our economic efficiency.
Finally, on behalf of my fellow Managing Board members and myself, I would like to thank our customers and business associates for their confidence in us. I also wish to thank our shareholders, and particularly our core shareholder Raiff­ eisen Zentralbank Österreich AG, for their support in the past year. However,
I am especially grateful to our 58,365 employees, whose tireless efforts and great dedication made the successes of 2007 possible in the first place. I look forward confidently to 2008 and am convinced that the Raiffeisen success story will continue.
M an ag in g Bo ar d the managing board
The Managing Board of Raiffeisen International (f.l.t.r.): Rainer Franz, Peter Lennkh, Martin Grüll, Aris Bogdaneris, Herbert Stepic, Heinz Wiedner
The milestones of the past year included a successfully completed capital increase. That has not only created an adequate basis for further growth, but also de­ monstrates the confidence of our share­ holders and investors.
Raiffeisen International has a strong majority and core shareholder in Raiff­ eisen Zentralbank Österreich AG (RZB), which can provide stability and support particularly in difficult times. That is an important advantage for the owners of the remaining shares of Raiffeisen International traded in free float. The fact that RZB only exercised about 70 per cent of its subscription rights in the context of the capital increase enhances the attractiveness of Raiffeisen International stock for investors even more.
The Chairmen of the Working Committee, Audit Committee, and Personnel Committee reported regularly to the Supervisory Board about the work of the respective committee. The Working Committee dealt mainly with the appointment of persons to the managing boards and supervisory bodies of the Group’s lending institutions, with the founding of Group companies, and with capital measures involving Group companies. The Personnel Committee concerned itself with matters related to the remuneration of Managing Board members and the content of employment contracts with Managing Board members. The Audit Committee prepared the ratification of the annual financial statements, the management report, the consolidated financial statements, and the consolidated management report as well as a proposal concerning the distribution of profit. It furthermore prepared a proposal for the selection of the auditor of the financial statements.
International Bank­Holding AG. Their audit has revealed no reasons for objection, and the statutory requirements have been fully satisfied, thus allowing an unconditional auditor’s certificate to be issued. After thorough review and discussion in the Audit Committee and in the Supervisory Board, the latter declares its agreement with the Managing Board’s report on the audit results and the proposal regarding the use of profit and approves the consolidated financial statements and the annual financial statements of Raiffeisen International. Thus they have been ratified in accordance with Section 125 (2) of the Austrian Stock Corporation Act (AktG).
The reporting for last year demonstrates that Raiffeisen International is utilizing opportunities in its home markets of Central and Eastern Europe with great entrepreneurial skill. Raiffeisen Inter na­ tional offers international­class banking services in a dynamic market to a constantly growing clientele. In view of its continuing good business success, the Supervisory Board wishes to express special appreciation and high recognition to the Managing Board, executives, and staff of Raiffeisen International.
After several acquisitions, especially in the previous two years, Raiffeisen International focused in 2007 on integrating and transforming the acquired companies. It made especially significant progress with Bank Aval, acquired in 2005, and with Impexbank, acquired in the subsequent year. Raiffeisen International also success­
Raiffeisen International’s success is re­ flected in the numerous awards that it has received from respected international institutions, in some cases over several consecutive years. The most important in the year under review were: ■ “Best Bank in CEE” for Raiffeisen International together with Raiffeisen Zentralbank Österreich AG from Global Finance in April
■ “Best Bank” in Albania, Bosnia and Herzegovina, and Serbia from Global Finance in April
■ “Best Bank in Central and Eastern Europe” from Euromoney in July, for the third consecutive time
■ “Bank of the Year 2007” in Bosnia and Herzegovina, Kosovo, Serbia, Slovakia, and Ukraine from The Banker in December
The Gable Cross is the trademark used by every member of the Raiffeisen Banking Group. It consists of two stylized horse’s heads crossed and attached to the gable of a house. It is a symbol of protection rooted in old European traditions. A gable cross on the roof was believed to protect a house and its occupants from outside dangers and to ward off evil. The Raiffeisen logo stands for the protection and security that members of the Raiffeisen banks enjoy through their self­determined collaboration. The Gable Cross is one of Austria’s best­known trademarks, and it is in use around the world, particularly in branding Raiffeisen International in Central and Eastern Europe.
the 16 markets of raiffeisen international As of balance sheet business number of 31 December 2007 total in € mn change* outlets employees
The high point of the year was surely the capital increase. You approached the market with an offering of over one billion euros during the global crisis of confidence. Were you worried the issue might become a flop? No, I honestly never had that fear. I was absolutely convinced the market would be receptive to our offering, particularly in these uncertain times. I believe there will always be demand for a solid company with a promising growth strategy in an attractive market region. However, I was a little surprised the issue price was higher in the end at 104 euros than the price at the beginning of the subscription period. That shows our offering was well received and the global financial community is confident in our company. The offering was doubly subscribed in an environment where many other companies canceled or postponed transactions due to lack of demand.
crease of refinancing margins in 2008, however, especially in the CIS. We will be able to offset a good part of that by means of higher margins. Overall, the interview with herbert Stepic, chairman of the managing board of raiffeisen international bank-holding ag
In what areas do you see the greatest challenges for your company in the year ahead? One big challenge will consist in be­ coming even more attractive as a com­ pany, not only to our customers and shareholders, but also to our employees. We face the problem that many of our best people are being approached by the competition. Salary increases are not the only way to counteract that. We are giving our executives of tomorrow a clear orientation for their future career planning by developing a program called “Spot! – Grow! – Lead!”. It identifies employees early who have the potential to hold leadership positions in the Group. The program will be implemented syste­ matically in the entire network over the next few years. I am convinced this and other measures will offer enough incentive to ensure good employees stay with the company. Raiffeisen Bank Aval was chosen last year as the most popular employer in Ukraine. I would like to see that happen to every company in the Group.
You received two personal awards in 2007 as European Banker of the Year and as European Manager of the Year. What do those honors mean to you? These awards are confirmation and a little gratification for the daily work and the many sacrifices. However, I receive these awards as a representative of almost 60,000 colleagues. Such awards ultimately pay respect to their outstanding work.
In the second quarter, basic sentiment on the financial markets turned positive again in view of good economic and corporate data. That benefited not only the indices of most major international stock exchanges, but also the price of Raiffeisen International shares, which advanced significantly.
The rally continued until mid­July, and some European stock indices registered their highest levels since 2001. The Austrian stock index ATX actually hit a new all­time high at 5,010.93 points. However, more bad news from the financial sector led to significant price declines on a broad front, beginning in the second half of July. Financial stocks in the United States were particularly affected, with significant distress in some cases, but so were some European financial service providers. The background for this development was increasing defaults on subprime mortgage loans, which entailed large write­downs. With the crisis in the financial sector, worries about an economic slowdown started to surface again. The starting point of those fears was the United States, where real estate price declines and mortgage defaults were the most severe.
The US Federal Reserve took counter­ measures by lowering interest rates by half a percentage point, and the European Central Bank by suspending an already firmly expected interest rate hike. That led to a recovery on the international financial markets, and the Dow Jones Industrial Average in the US stock market even reached a new all­time high in October at 14,198.10 points. However, the release of poor quarterly figures from the financial sector caused the indices to fall significantly in November, in some cases even below the level at the beginning of the year. For the most part, the desired year­end rally on international financial markets did not materialize. Worries about possible negative effects of the financial crisis on
However, the earnings numbers released by Raiffeisen International, which were positively received by analysts and other market participants, were eclipsed by the financial market crisis. On the last trading day of 2007, the share price stood at € 103.60. The stock thus registered a net price decline of 10.3 per cent compared with the beginning of the year. The Raiffeisen International share was not spared the same fate as af­ fected other global stocks subject to share price decreases at the beginning of 2008. However, there were no particular fundamental reasons for this development, either at the company level or in the markets of Central and Eastern Europe. Market capitalization stood at € 16.0 billion as of 31 December.
Price performance compared with the atX and dJ euro Stoxx banks
Altogether, about 73 million shares of Raiffeisen International were traded in 2007. Total turnover amounted to about € 7.9 billion, and average daily trading volume came to 294,787 shares.
Investors in Austria, other European countries, and the United States showed lively interest in the issue. Against that background, only about half of the subscription requests on average could be filled. Personal customers of the Austrian Raiffeisen banks received a preferential allotment of 100 new shares and 60 per cent of subscription requests beyond that. Private investors of other banks and savings institutions in Austria likewise received an allotment of about 60 per cent. Existing shareholders ex clu­ ding majority shareholder RZB exer cised about 24.5 per cent of their subscription rights. RZB subscribed 50 per cent of the entire issue and thus exercised about 71.4 per cent of its allotted subscription rights.
After the capital increase, RZB remains Raiffeisen International’s largest single shareholder via its 100 per cent subsid­ iary Cembra Beteiligungs GmbH. In the transaction, however, it reduced its shareholding from 70 per cent to 68.5 per cent by partly not exercising its sub­ scription rights. It did so with the aim of broadening the shareholder base and further improving the stock’s tradability (liquidity). The free float thus increased to 31.5 per cent.
EU (excluding Austria and UK). Institutional Austrian investors own about 7 per cent of the shares, whereas 40 per cent of the institutional shareholders are in the USA.
Research coverage of Raiffeisen Inter­ national was strengthened further last year. Altogether, 23 major international investment banks and analyst firms monitored the stock of Raiffeisen Inter­ national and wrote 114 reports about it in 2007.
All shareholders of Raiffeisen International are again cordially invited to attend the next Annual General Meeting on 10 June 2008 at the Austria Center in Vienna. Details concerning past and upcoming Annual General Meetings and other important dates are also available online at www.ri.co.at ▸ Investor Relations.
The Managing Board proposes to the Annual General Meeting that a dividend of € 0.93 per share be paid for 2007. The new shares from the capital increase are fully entitled to dividend payments for the past year. Subject to the Annual General Meeting’s approval, the total dividend payout will thus amount to about € 144 million. The divi dend will be paid to entitled shareholders on 18 June 2008 via the banks that hold their securities accounts. The payment of the dividend will be determined by reference to the holdings of Raiffeisen International shares on 17 June 2008.
M an ag in g Bo ar d contact investor relations Email: investor.relations@ri.co.at Internet: www.ri.co.at ▸ Investor Relations
Following the recommendation in the pre amble to the ACGC, the company commissioned an external evaluation by Univ.­Prof. DDr. Waldemar Jud Unter­ nehmensforschungs GmbH, which con­ firmed full compliance with the Austrian Corporate Governance Code. The results of this evalu ation are available to the public on the Raiff eisen International website (www.ri.co.at).
& network coordination Peter Lennkh coo Heinz Wiedner board member Rainer Franz
ment Office 1) „Learning & Development“ reports functionally to Rainer Franz 2) Outsourced to RZB
M an ag in g Bo ar d interested public is especially impor tant to Raiffeisen International. In addition to personal informational talks and tele­ phone and video conferences, information is regularly provided in a timely and comprehensive manner by way of suitable communication media. The internet and particularly the company website play an important role in that. In this regard, the website presents, among other things, the following continuously updated information: ■ Annual and interim reports ■ Company presentations ■ Ad hoc announcements, press releases, and IR mailings ■ Share price information and data on the company’s stock ■ Financial calendar with long advance notice of important dates ■ Analysts’ estimates ■ Directors’ dealings ■ Articles of association of Raiffeisen Inter­
Managing Board members who perform management functions for other enterprises must work towards achieving a fair balance of the interests of the enterprises involved.
The Annual General Meeting held on 5 June 2007 appointed KPMG Austria GmbH, Wirtschaftsprüfungs­ und Steuer be­ ratungsgesellschaft, Vienna as the auditor for the 2007 financial year. The auditor appointed by the last Annual General Meeting received compensation of € 984,473 for other services ordered by the company. For the current financial year, no consulting services have so far been agreed beyond the previous year’s extent. The auditor confirms that it has been issued a certificate of a quality assurance system and no reasons for exclusion or partiality exist. Besides preparing the legally prescribed audit report and performing an auditor’s reporting duty, the auditor writes a management letter to the Managing Board pointing out weaknesses of the company. The letter will be brought to the attention of the Supervisory Board Chairman, who will ensure that it is dealt with in the Audit Committee and a report of that is made to the Supervisory Board.
Economic development in 2007 was some­ what less dynamic in the Southeastern European countries (Romania, Bulgaria, Croatia, Serbia, Bosnia and Herzegovina, and Albania). Real GDP growth in that region slowed from 6.7 per cent to 5.8 per cent on average, mainly due to crop failures in Romania. New membership in the EU, on the other hand, did not have noticeable effects for either Romania or Bulgaria in the first year.
Overall, average inflation rates for 2007 should nevertheless turn out moderate thanks to the low rise of prices in the first half of the year. While the average inflation rate for Central Europe rose somewhat in 2007 to about 3.5 per cent (2006: 2.2 per cent), the average inflation rates of 4.9 per cent in the countries of Southeastern Europe and 9.5 per cent in the Commonwealth of Independent States are below the preceding year’s values (Southeastern Europe 2006: 6.8 per cent; CIS 2006: 9.6 per cent). This is due not only to the continuing weakness of the US dollar, but also to higher currency rates in real terms and partly in nominal terms, which helped dampen import prices and hence general inflation. Among Raiff­ eisen International’s markets, Ukraine and Kazakhstan were the only countries with a double­digit inflation rate in 2007.
M an ag in g Bo ar d uS real estate crisis burdens financial markets
The US real estate crisis and its effects were the dominant influence on the international financial markets in the second half of 2007. Direct economic consequences for the CEE countries did not arise at first, but indirect effects appeared in the form of a differentiated valuation of the region’s currencies. While currencies in Central Europe managed to compensate quickly for the losses incurred, in Southeastern Europe the Romanian leu, for example, stabilized at about 15 per cent below its highs at mid­year. Overall, a widening of risk premiums was registered, but was relatively limited for the CEE countries considering the possible implications of the US real estate crisis for the international financial markets. That reflects the differentiating view of financial market participants, who continue to assess both stability and growth prospects in the CEE region very favorably.
Some countries of Central and Eastern Europe, and especially Southeastern Eu­
rope, have shown rising current account deficits for some years. The main reasons for that are real, and in some cases nominal, currency revaluations, a capital investment boom promoted by the EU integration process, and continuing strong private credit demand. International institutions and local central banks have repeatedly shown concern about economic stability and the sustainability of the economic catch­up process in the affected countries.
In view of the strong capital investment growth and relatively low savings ratio, high utilization of foreign savings – and hence a correspondingly high current account deficit – is the logical economic consequence, however. This phenomenon may generally be observed in emerging market economies. Moreover, a large part of the current account deficits can be financed by means of direct investment inflows from abroad. With the accession of Romania and Bulgaria to the EU, this situation will continue in the coming years, without threatening economic stability. On a longer horizon, the establishment of new production facilities, and modernization and expansion of existing ones, geared to export business should lead to a reduction of trade deficits. The trend of the past few years in Central European countries has clearly shown that.
Banks’ total assets continued to show strong increases in 2007 across all of Central and Eastern Europe. The continuing momentum of the banking sector has thus to a large extent endured restrictive regulatory measures in some Southeastern European countries and, in the wake of the US real estate crisis, the difficulty of refinancing banks in the CIS that depend on the financial market.
This positive trend continues to be driven by the consumer and mortgage lending business, which is benefiting from ex­ pectations of rising real estate prices and growing incomes. Business with corporate customers also grew strongly, as it had already in the preceding year. Especially small and medium­sized enterprises are becoming increasingly important in this segment. Finally, open­end mutual funds and pension funds registered very high rates of increase, but still at a low absolute level.
Highlights of the financial year 2007 over 40 per cent increase in earnings
off effects. It amounted to € 841 million in the reporting year compared to € 594 million in 2006. The preceding year’s one­off effects were due to the sales of Raiffeisenbank Ukraine (€ 486 million) and the minority stake in Kazakhstan­ based Bank TuranAlem (€ 102 million).
personal loans in per cent of GDp vs. GDp per capita (at purchasing power parities), in €
Note: Data as of end 2007, source: Local central banks, wiiw, Raiffeisen RESEARCH GDP per capita (PPP), in €
The consolidated financial statements of Raiffeisen International are prepared on the basis of the International Financial Reporting Standards (IFRS). Raiffeisen International Bank­Holding AG also prepares individual financial statements conforming to the Austrian Commercial Code (UGB), which provide the formal basis of assessment for calculating dividend payments and taxes. For more on the disclosures required by the UGB, please see the relevant sections of the notes to this report.
The majority of Raiffeisen International is held by Raiffeisen Zentralbank Österreich AG (RZB), which makes it part of the RZB Group. The stake held by RZB amounted to 68.5 per cent at the end of the year, and the rest of the shares were in free float.
The wide diversification of earnings growth in 2007, both by regions and by customer segments, shows that Raiffeisen International continued to pursue a strate­ gy of broad market presence in Central and Eastern Europe very successfully.
Consolidated profit rose by 42 per cent, or € 248 million, to € 841 million. Changes in the scope of consolidation including capital consolidation effects are responsible for € 27 million of that in­ crease. Currency trends in the CEE region were relatively mixed in 2007, but over all had little impact on earnings.
The table on the next page gives an over­ view of the development of operating per­ formance: Due to high profit retention from the preceding year and the capital increase in 2007, equity rose strongly in the reporting period. Consequently, the return on equity before tax declined by 1.6 percentage points to 25.7 per cent, and the consolidated return on equity (after tax and minority interests) declined by 1.3 percentage points to 20.1 per cent, despite the significant increase in profit.
Earnings per share grew by € 1.63 from € 4.17 to € 5.80. Including one­off effects, the figure for 2006 came to € 8.29.
Raiffeisen International received issue proceeds of about € 1.2 billion (before the subtraction of the issuing costs) from its capital increase in October 2007. That makes the transaction one of the largest capital increases in Austrian stock market history. As a result of the capital increase, the number of issued shares rose to 154.67 million. The 11,897,500 new shares were issued at a price of € 104.0. The offering greatly appealed to both retail and institutional investors. The new shares, for which subscription rights were not exercised by existing shareholders, were two times subscribed. The strengthened capital base will be used primarily for further organic growth by Raiffeisen International, but also for possible acquisitions.
Raiffeisen International has explicitly sought to acquire personal banking and small business customers since 1999, having been geared primarily to business with corporate customers previously. That also finds positive expression in the performance of the retail customer segment, which documents the success of concentrating on this area. Segment earnings before tax rose by 85 per cent in 2007 to € 487 million. The segment’s share of total earnings improved by 9 percentage points to 39 per cent.
Operating income rose by 32 per cent, or € 924 million, to € 3,791 million. Changes in the scope of consolidation were res ponsible for 11 per cent, or € 103 million, of that increase. Net inter­ est in come showed the biggest increase in all earnings components in 2007 at 37 per cent.
Net commission income was one of the drivers of growth with an increase of 34 per cent, or € 317 million, to € 1,250 million. Its share of operating income was unchanged at 33 per cent. Changes in the scope of consolidation, including asset management companies consolidated for the first time, accounted for about € 65 million and further widened the range of products generating commission income.
Trading profit fell by 27 per cent, or € 47 million, to € 128 million due to the difficult market environment and a special effect from the preceding year. Its share of operating income was thus 3 per cent. Other operating profit/loss continued to play a minor role in the composition of operating earnings.
General administrative expenses grew by 29 per cent, or € 490 million, to € 2,184 profit from operating activities on an annual basis
Tax rate fell to 21 per cent The increase of income taxes by 29 per cent to € 264 million was less than pro­ portional relative to profit before tax, which climbed by 39 per cent to € 1,238 million. The effective tax rate declined from 23.0 per cent to 21.3 per cent. That was due, on the one hand, to refunds from group taxation with RZB, with which Raiff­
Minority interests in earnings grew in line with profit growth by 43 per cent from € 92 million to € 132 million. After deduc­ tion of minority interests, consolidated profit allocable to Raiffeisen International share holders came to € 841 million, which is 42 per cent, or € 248 million, higher than in the preceding year.
Provisioning for impairment losses (356,977) 15.6% (308,877) (167,260) Other valuation results (12,896) – 25,983 11,063
The results compared with the preceding year are largely influenced by the following changes in the scope of consolidation. At the beginning of the year, some asset management companies already founded in the preceding years and four insurance brokerage companies were included in the consolidated financial statements for the first time because of their materiality. In 2006, changes had resulted from the purchase of Impexbank in May and eBanka in November and from the sale of Raiffeisenbank Ukraine at the beginning of November.
gin (calculated on the average balance sheet total) improved by 10 basis points from 3.76 per cent in the preceding year to 3.86 per cent this year. While the interest margin in Southeastern Europe declined by 7 basis points, it rose slightly in Central Europe by 3 basis points and significantly in the CIS by 13 basis points. Changes in the scope of consolidation had hardly any influence on the interest result. The increase is therefore practically all organic.
Net interest income from the retail busi­ ness contributed a share of 59 per cent (plus 1 percentage point). The increase was mainly driven by volume. The share of net interest income from the corporate customer segment remained constant at 33 per cent.
Interest income increased by 42 per cent to € 4,606 million. More than 80 per cent of interest income resulted from the most important balance sheet item, loans and advances to customers. They rose on the preceding year by almost 40 per cent. Interest income from the securities port­ folio also showed a significant increase of 23 per cent. That was primarily due to improvement in the interest rate level by 73 basis points, while correspon ding volume rose on average by only 6 per cent.
With an increase of 47 per cent to € 2,186 million, interest expenses rose somewhat more strongly than interest income. Despite growth of the average portfolio of customer deposits by 26 per cent, interest expenses in that area increased by 41 per cent. That was attributable to an average increase in deposit interest rates by 34 basis points. Interest expenses for subordinated lia­
Provisioning for impairment losses The increase of new allocations to provisioning for impairment losses was significantly more moderate in 2007 than in the preceding year. They rose by 16 per cent net, or € 48 million, to € 357 million. Changes in the scope of consolidation were insignificant for this position. The moderate increase meant that the net provisioning ratio (based on the risk­weighted assets) fell by 13 basis points to 0.84 per cent. The loss rate (written­off loans to total lendings) im­ proved by 4 basis points to 0.12 per cent.
The positive development is also reflec ted in the risk/earnings ratio (provisioning for impair ment losses to net interest income), which fell considerably in the reporting period by 2.7 percentage points to 14.8 per cent.
Newly formed specific provisions rose by 49 per cent on the preceding year to € 281 million. More than half of that was driven by higher provisions in the CIS, especially in Russia. Part of the pro visions formed there was related to a case of fraud at a branch in Rostov­on­Don pre­ viously belonging to Impexbank. There were only a few specific provisions formed in the other countries, ranging in size from € 2 million to at most € 4 million.
In comparison with non­performing loans, provisioning for impairment losses had a smaller increase, which is why the coverage ratio of provisioning for impair­ ment losses to non­performing loans fell by 13.1 percentage points to a still solid 105.2 per cent.
Raiffeisen International continued to increase revenues and the number of executed transactions in 2007, whether in payment transfers, loans, or brokerage services. In some countries, the trend is toward more advisory­intensive products and types of investment. The Group meets this demand with a range of products geared to each country.
Net commission income generated by retail customers rose again significantly, by 35 per cent to € 799 million. That seg­ ment contri buted about 64 per cent to the total result. Southeastern Europe, es­ pecial ly Romania, was the regional growth driver with an increase of 44 per cent to € 386 million.
Trading profit Trading profit declined by 27 per cent from € 175 million before to € 128 million. Changes in the scope of consolidation did not affect the result. Part of the decline was due to a special effect from the preceding year. In 2006, trading profit was increased by a positive valuation result of € 33 million connected with the acquisition of Impexbank that was booked in the parent company. The corresponding position was closed in January 2007 without any further significant effect on the income statement.
Trading profit from interest rate and credit products plays a minor role for Raiffeisen International because limits approved by management are relatively small and the products are only employed selectively. At € 27 million, profit from this type of proprietary trading remained nearly constant, compared with € 26 million in the preceding year. However, there were slight shifts in regional terms. While trading profit from securities rose by € 10 million in Central Europe, it fell in each of the two other regions by just under € 5 million, particularly because of the aforementioned developments in Russia and Croatia. Trading profit from stock transactions increased by just over one­ fourth to € 9 million and mainly derived from Croatia, Hungary, and Bosnia and Herzegovina.
The main reason for this negative con­ tribution were interest rate swap positions in Russia for the purpose of reducing interest rate structure risk. They led to valuation losses of € 26 million due to market turbulence at the end of the year.
Net income from financial investments Net income from financial investments amounted to minus € 9 million in the past year compared to € 1 million in the year before. Including the one­off effect of € 102 million from selling the minority stake in Bank TuranAlem in Kazakhstan, the preceding year’s result came to € 103 million.
On the other hand, the average number of employees in the Group (full­time equivalents) grew by only 13 per cent, or 6,377, to 55,550. The difference in relation to the rise of staff expenses is largely attributable to significant pay increases in the CIS and in parts of Central Europe. The region with the highest growth was Southeastern Europe, where the average number of employees rose by 20 per cent. It increased by 16 per cent in Central Europe, and by only 8 per cent in the CIS. Operating income per employee, however, also went up significantly from € 58 thousand to € 68 thousand.
With an increase of 27 per cent, or € 189 million, to € 877 million, other administrative expenses increased some­ what less strongly than staff expenses. Changes in the scope of consolidation had an impact of € 20 million. Expansion of the branch network continues in high gear in many countries, the increases once again primarily involved premises and rents (plus 32 per cent), information technology (increase of 27 per cent), training (increase of 38 per cent), and advertising (increase of 32 per cent).
Depreciation/amortization/write-downs of tangible and intangible fixed assets increased on the preceding year by 23 per cent, or € 41 million, to € 223 mil­ lion. Intangible assets, in particular soft­ ware, accounted for € 70 million of that (preceding year: € 49 million). In addition to some current­value depreciation on software projects, that also includes amortization of the eBanka brand (€ 4 million). The name is no longer of value because of the plan to merge that bank into the Czech Raiffeisenbank in 2008.
Other operating profit/loss Other operating profit/loss remained re­ latively constant at minus € 5 million after minus € 4 million. Various items are includ­ ed in this: Revenues and expenses from various non­banking activities increased by 144 per cent, or € 10 million, to € 17 million. The result from operating leasing grew by 46 per cent, or € 7 million, to € 22 million. Operating leasing business is conducted mainly in Croatia and to a lesser extent in Poland and the Czech Republic. At € 17 million (previous year: minus € 12 million), the result in Ukraine was burdened by allocations to provisions. Other taxes not dependent on income amounted to € 43 million and increased by one­third.
Premises, rents 26% (+1 PP) IT 13% (+/-0 PP) Avertising 13% (+/-0 PP) Communications 9% (+/-0 PP) Legal and consultancy 9% (+/-0 PP) Deposit guarantees 6% (+/-0 PP) Office expenses 4% (+/-0 PP) Security expenses 3% (-1 PP) Other items 17% (+/-0 PP)
M an ag in g Bo ar d financial assets rose by 57 per cent due to increased investment in fixed­income securities and securities held for trading increased by 5 per cent, securities classi­ fied as financial investments declined by 9 per cent. Overall, the share of the bal­ ance sheet total attributable to securities fell from 12 per cent to 9 per cent.
The share of other assets fell by 2 per­ centage points to 10 per cent compared with the end of 2006. The reasons for that were the cash reserve (minus 10 per cent) and intangible assets (minus 7 per cent).
Deposits from banks accounted for about 27 per cent of the balance sheet total (an increase of 2 percentage points). The rest was attributable to own funds (11 per cent) and other assets (6 per cent).
Deposits from customers grew by 22 per cent, or € 7.3 billion, to € 40.5 billion. At € 3.0 billion, the largest increase was in Central Europe. Deposits from customers in Southeastern Europe and the CIS rose by 25 per cent and 24 per cent, respec­ tively. Sight deposits went up by 21 per cent to € 17.6 billion, and time and savings deposits by 23 per cent to € 22.9 billion.
Deposits from banks rose by 44 per cent, or € 6.1 billion, to € 19.9 billion. Long­ term funding arrangements from banks and supranational institutions likewise increased by 80 per cent to € 13.1 billion.
In line with the trend in recent years, there was a further shift among balance sheet assets in favor of loans and advances to customers, which were the main drivers of Raiffeisen International’s growth. They increased by 40 per cent, or € 13.8 billion, to a total of € 48.9 billion. Adjusted for impairment losses on loans and advances of € 1.1 billion, loans and advances to customers now account for two­thirds of balance sheet assets, which represents an increase of 5 percentage points. The ratio of customer loans to customer deposits amounted to 121 per cent.
Loans to corporate customers (excluding micro­enterprises) rose by 39 per cent, or € 8.6 billion, to € 30.2 billion at year’s end. The increase in loans to personal customers was the highest at 46 per cent; they reached a total of € 15.0 billion.
Securities, which belong to several valuation categories and balance sheet items but are combined in the chart on this page, increased by 7 per cent to € 7.0 billion, with slight reallocations among the valuation categories. While securities classified as other current
Corporate customers 52% (-1 PP) Small and medum-sized enterprises 15% (-1 PP) Private customers 31% (+2 PP) Public sector 2% (+/-0 PP)
Own funds Other liabilities Deposits from customers Deposits from banks in € bn
Raiffeisen International is not a separate banking group within the meaning of the Austrian Banking Act (BWG) and therefore is not itself subject as a group to the regulatory provisions for banks. The following consolidated figures have been calculated according to the provisions of the BWG and are accounted for with­ in the scope of the RZB banking Group. RZB opted to apply the transitional rule for calculating own funds requirements in 2007 according to Basel I. The figures provided here are for information pur­ poses only.
Core capital rose on the preceding year by 54 per cent, or € 1,987 million, and now stands at € 5,692 million. It was positively influenced in the first instance by the reporting year’s profits and by the capital increase conducted in October 2007. Set against these positive influences was the negative effect of changes in the exchange rates of CEE currencies on own funds of about € 104 million.
The core capital ratio, based on the banking book, rose by 1.7 percentage points to 11.4 per cent. The core capital ratio (including market risk), i.e., as measured by total risk assets of € 54.0 billion, results in a value of 10.5 per cent for 2007 (plus 1.5 percentage points). The own funds ratio increased by 1.4 percentage points to 12.4 per cent.
An overview concerning the individual types of risks relevant for Raiffeisen Inter­ national, including market, credit, liquidity, and operational risks, and concerning the organization of risk management is presented in the notes to the consolidated financial statements on p. 224 onwards.
Raiffeisen International has a com pre­ hen sive system of risk principles and risk measure ment and monitoring processes. Its aim is to control and manage the risks of all network banks and specialist companies. In addition, risk management and control are supported by suitable or­ gan izational structures. The underlying risk policy, which is manifested in the prin ciples below, is set by the Group head office.
■ The principles of risk management applicable to corporates and SMEs are set forth in a credit manual that is binding for the entire Group. This manual is based on the RZB Group credit manual.
■ The activities of business and risk management are strictly segregated in personnel and functional respects.
Moreover, Raiffeisen International has an infrastructure that promotes smooth communication between these teams.
The main emphases of risk management in the area of private individuals and small and medium­sized businesses in 2007 were: ■ Supporting profitable growth ■ Portfolio management ■ Developing infrastructure
At the same time, Raiffeisen International continued to develop and validate score­ cards. Progress was particularly achieved in the micro area, with the result that at least one scorecard now exists in every network bank.
New report formats in portfolio management In the area of portfolio management, Raiffeisen International continued monthly portfolio reviews in the retail customer segment. In addition, regular reviews were introduced in the area of small and medium­ sized enterprises. New standardized re­ port formats were also developed for both areas. The measures in portfolio ma nage­ ment focused on the default risk pro file of the respective portfolio and on provi sioning in the balance sheet and risk costs.
A new consolidation platform was estab­ lished for the risk reporting as a means of ensuring a more effective evaluation of the entire Group. It forms the basis for consolidated risk management both for the entire retail customer segment and for individual products of that segment.
Retail risk management consists of three levels illustrated in the following pyramid: The process of retail risk management forms a regularly recurring cycle: Basel II In the area of implementing Basel II, rolling out the method improved the year before was Raiffeisen International’s key emphasis in 2007. On the basis of the rollout plans for the individual countries, the topics of data quality, development of rating models, and assessment of individual risk parameters in Central and Eastern Europe formed the most important aspects in that regard.
Raiffeisen International started developing a retail credit risk management application based on special software known as SAS in 2007. The first two phases of this (Basel II and portfolio reports) will be completed in 2008, and the program will be rolled out in the first countries. Since a considerable part of Raiffeisen International’s retail portfolio is based on mortgages, it is furthermore planned to create a framework for appraising and reappraising real estate that will supplement the RZB Group’s existing collateral appraisal policy.
In the framework of implementing Basel II, the first retail portfolios are also to be valuated according to the internal rating based (IRB) approach in 2008. Consequently, the rollout of all systems is also to be pushed intensively forward in that area according to current plans.
Day 2: Brief stopover! Today, I land on the desk of Pavel’s colleague Sergej, together with a large stack of additional documents. He adds further important information to my travel gear. Sergej is a corporate credit analyst and analyzes the balance sheets on which I am based. He uses an analysis program called “COALA” for that purpose.
“COALA” stands for corporate analysis application, and the program is used throughout the Raiffeisen International
Day 3: The rating! Sergej is finished with his analysis. He records his detailed results in a separate document. That means I’m now traveling in the company of a credit analysis! I also get a customer rating to take along. The rating makes it easier for me to reach my destination. For the rating, Sergej can rely on another Group­wide program: the rating database for corporate customers. This expert model determines a customer rating based on Sergej’s balance sheet analysis and other information. All enter­ prises that play a role in the planned financing structure, including borrowers and guarantors, for example, must have such a rating. Since Sergej has only been working at Raiffeisenbank Moscow for three years and is therefore still a junior analyst, he can’t determine the rating by himself. But he can suggest it in the rating database. An experienced colleague as­
Day 7: Detour! Today, Pavel introduces me to a big reception committee. It’s called the credit committee. With the chief risk officer presiding, its members unanimously de­ cide to support me in traveling onward. I was a little nervous because only one negative vote would have been enough to end my journey immediately. But even with the credit committee’s support, I first need approval from the supervisory board in Vienna because my loan amount exceeds the local approval authority. That is precisely set forth in the credit committee’s by­laws. So, bearing many signatures and good wishes, I now travel to Vienna.
Day 8: In Vienna! The excursion to Vienna is very uncompli­ cated. Modern technology makes that possible. In Vienna, I’m received by Nataliya who lived and worked in Russia for a long time. She is a credit risk ma­ na ger in the Raiffeisen International Group’s department of central credit risk management. Before I am introduced to the supervisory board, Nataliya takes a very close look at me. As a Russian, she can easily communicate with my previous travel companions, Pavel, Sergej, Julia, and Oleg. Of course, she’s also very familiar with my contents and the additional infor­ mation. She likewise knows the Russian market because she lived in Russia for a long time. She carefully checks everything my Russian friends have given me. I’m glad when Nataliya and her department head give me permission to continue on my way. I’m also surprised there are almost no Austrians in the Vienna department of central credit risk management. Its staff members come from 10 different countries and altogether speak 14 languages!
Day 9: Return trip! The supervisory board is satisfied to see that all my previous travel companions have agreed to my journey. The super vi­
To ensure a harmonized and correct calculation of risk­weighted assets (RWA) based on Austrian law and taking into account local options, Raiffeisen Inter­ national in Vienna supports and coordi­ nates the local project teams in this area with a special competence center.
Data quality management is also one of the main aspects of Basel II implementation. Centrally developed key performance indicators check the quality of the data monthly for that purpose, and any need of correction is immediately pursued and eliminated. Additional measures are taken by optimizing credit processes at the head office and for the local portfolios to avoid data quality deficiencies proactively.
At the same time, the tools of internal bank management are continuously adjusted from a risk perspective to the results of validating the rating models, and the identification of portfolio risks is refined.
actively guided approach to centralized purchasing already yielded cost advan­ tages of € 75 million in 2007.
In risk management, final intensive pre­ parations have been made for the launch of Basel II. The risk management of RZB and the Raiffeisen International Group is based on a centralized data warehouse and risk management software that is centrally developed and serviced.
At Raiffeisen Bank Aval, all new trans­ actions for retail customers are centrally processed in a newly launched core bank system. Collection activities have been cen tralized, using Raiffeisen Inter natio nal’s standard software. An operations center has been established in Kherson, Ukraine, where collection actions and credit appli­ cations are processed and a call center is to be set up. At the end of 2007, 118 persons were already employed in this area.
Card business Raiffeisen International’s two service cen­ ters for card settlement, one of which is at Tatra banka in Bratislava, Slovakia and the other in Kiev, Ukraine, furt her expanded their business volume and the number of companies served in 2007. At the two centers together, 9,840,000 cards and 32 million transactions were being processed per month at year’s end.
M an ag in g Bo ar d popular employer in Central and Eastern Europe
Raiffeisen International’s continuing growth is again reflected in corresponding staff increases in the reporting period. Organic growth in the network banks was at the forefront of that development in 2007. Compared with 52,732 at the end of 2006, the total number of full­ time equivalents rose by 10.7 per cent to 58,365 as of 31 December 2007.
Optimal coordination of company goals and employees’ individual planning tar­ gets forms an indispensable precondition for successful implementation of the Group strategy. Raiffeisen International’s Managing Board therefore started a Group­wide initiative in 2006 to implement uni form performance management for all network banks.
Human resources in all network banks and thus strengthen uniform Group awareness.
By means of structured performance ma n agement, the Group ensures a bal­ ance between company and employee goals and simultaneously measures their achieve ment in a cyclical business process. In addition, the individual performance of single employees is evaluated in the framework of performance management. Apart from corresponding effects on their personal development objectives and ca­ reer opportunities, this provides the ba sis for performance­oriented compen sation.
The following milestones had been achieved in the framework of performance management by the end of 2007: ■ Adaptation of local performance manage­
■ Further development and intensi fication of local educational acti vities for train­ ing of executives and staff members in dealing with the performance man­ agement system targeted training
First­rate employee qualifications are of the highest importance for a service­oriented company. Raiffeisen International therefore relies on active personnel development and offers its staff an extensive portfolio of education and training opportunities.
New training center in Ukraine The Group made an important initiative in this area during the reporting period at Raiffeisen Bank Aval. After that company’s training and development unit was restructured in the preceding year, a new state­of­the­art training center known as the Financial Academy Raiffeisen Bank Aval (FARBA) was opened in Kiev on 18 July 2007.
Raiffeisen International will also con­ tinuously pursue the goal of a com pre­ hensive corporate learning solution for a Group­wide talent management in the years ahead.
Finding the best people, especially at top management levels, and offering them appropriate development and career opportunities, thereby keeping them in the company, has become an essential success factor in view of the rapidly growing market in Central and Eastern Europe. An integrated talent management strategy and effective measures for succession planning are thus becoming key tools for ensuring Raiffeisen International’s future growth.
■ Identify possible personnel gaps early, especially in strategically important ma­ nagement positions
This initiative establishes a Group­wide top talent pool of highly qualified emplo­ yees who, with the support of suitable advancement and development measures, are rapidly available for the corresponding positions at the top management levels of the network banks. This cross­national pool is supplemented by local talent pools in the individual countries to cover the growing need for top specialists and executives at all levels at a high quality.
Building on our successful mid­market strategy, the corporate customer seg­ ment will make the largest contribution to profit before tax again in 2008. In the retail business, we continue to emphasize expansion of the branch network to sup­ port the broadening of our customer base. Moreover, we will further develop our product range in the areas of asset ma na­ gement and insurance in the current year.
The Group’s secondary classification of segments for reporting is made according to regional aspects. The criterion of segment assignment is the location of the respective business outlets: ■ Central Europe (CE) Czech Republic, Hungary, Poland,
solidated financial statements. Diver gence from locally published data is pos si ble. The numbers of employees listed below include persons from the head office as­ signed to the segments pro rata. While all business activities of Raiffeisen Interna­ tional are described in the table on page 52 and in the following regional presenta­ tions, the subsequent market presentations include only the banking activities.
The CIS region registered the highest net interest income of all three segments last year with a 47 per cent increase to € 880 million. However, profit before tax overall was burdened by a decline in trading profit of 51 per cent and a negative valuation result from derivatives. Excluding one­off effects from the sale of Raiffeisenbank Ukraine and a minority stake in Bank TuranAlem in the preceding year, profit before tax grew by 27 per cent, or € 78 million, to € 369 million. That was accompanied by strong growth of balance sheet assets by 43 per cent. The contribution to consolidated profit before tax amounted to 30 per cent.
M an ag in g Bo ar d at 36 per cent. With an increase of 55 per cent, or € 157 million, to € 442 million, the segment also registered by far the largest increase. This is attributable to further improvement in cost efficiency and low levels of new allocations to provisioning for impairment losses.
The share of balance sheet assets attributable to individual segments remained nearly unchanged compared with December 2006. Central Europe con tinued to dominate consolidated assets with a 41 per cent share. Southeastern Europe followed with 32 per cent, and the CIS with 27 per cent.
Segment shares of profit before tax (compared with 1/1 – 31/12/2006)*
Net interest income 820,619 603,430 36.0% Provisioning for impairment losses (122,314) (93,385) 31.0% Net interest income after provisioning 698,305 510,045 36.9%
Net income from derivative financial instruments 714 3,504 (79.6)% Net income (loss) from financial investments and current financial assets (6,466) (291) >500% General administrative expenses (813,252) (602,099) 35.1% Other operating profit (loss) 1,791 (466) – Income from disposal of group assets 23,805 20,075 18.6% Profit before tax 427,530 315,524 35.5%
Net commission income rose by € 127 million to € 471 million. That increase is based on constantly growing transaction volumes and amounted to € 152 million in payment transfers and account services. In absolute terms, the Hungarian and Slovakian group units achieved the highest results. Net commission income in foreign exchange and notes/coins business rose to € 183 million, to which Raiffeisenbank Polska made the largest contribution. The asset management companies newly consolidated in 2007 contributed € 14 million to this good result. Their assets under management amounted to € 2.3 billion at year’s end. The share of operating income attributable to business affecting commission income was the highest of all segments at 35 per cent.
Central Europe’s trading profit amounted to € 52 million. The item’s increase by € 11 million in the reporting period was largely due to an improved result on currencyrelated business, which contributed € 39 million to trading profit. Income in interestrelated business improved in the reporting year by about € 10 million to € 13 million in view of rising interest rates in some countries of Central Europe.
Income from disposal of group assets due to the sale of a 100 per cent stake in SINESCO Energiaszolgáltató Kft., Budapest, and the sale of Arena Corner Kft., Budapest, yielded a special effect of € 26 million.
The integration of eBanka is going according to plan. Its company-law merger into Raiffeisenbank is to be completed in the course of 2008.
Raiffeisenbank a.s., founded in 1993, and eBanka, a.s., taken over by Raiffeisen International in October 2006, can already look back at a successful first year together, in the cooperative spirit of their joint marketing campaign running since September 2007.
Raiffeisen Bank Zrt. was founded in 1986 as Unicbank and started operation in the beginning of 1987. With a balance sheet total of € 8.1 billion, it is now Hungary’s fifth-largest bank and one of the largest in the Raiffeisen International network.
Raiffeisen Bank successively expanded its branch network with attractive locations and had 137 outlets at the end of 2007. It won about 104,000 new customers last year, which raised the total to about 560,000 at year’s end.
Raiffeisen Lízing Zrt. increased new business by about 20 per cent last year to € 317 million. The field of renewable energy was defined as a strategic business area. As a first result the financing of a wind park project was done.
Raiffeisen Capital Management funds in all business outlets made it one of the largest providers of foreign mutual funds in Poland. Raiffeisen-Leasing Polska S.A. was Number 2 on the market at the end of 2007 with a portfolio of € 1.2 billion.
In the Friendliest Bank contest held by the local Newsweek magazine, Raiffeisen Bank took one of the top ranks in 2007 for the fourth time in a row.
The bank received a foreign currency bank deposit rating of A1 with a stable outlook from Moody’s in April 2007. That matches the rating of Slovakia as an issuer of foreign currency bonds. An A rating with a stable outlook from Standard & Poor’s likewise puts Tatra banka on a par with the government.
The Banker honored Tatra banka for the fourth time as Best Bank of Slovakia.
Raiffeisen Banka ranked tenth on the local banking market with a balance sheet total of € 1.3 billion at the end of 2007, which represents an increase of 32 per cent on the year before. The bank focused on business with personal customers and small and medium-sized enterprises, serving them at 14 outlets.
As in the past, Raiffeisen Banka again demonstrated its innovative capacity in the area of investment products last year. Assets under management in Raiffeisen Capital Management funds rose by 23 per cent to € 220 million, which made the bank the country’s largest provider of foreign funds. In the area of structured products, Raiffeisen Banka became es tablished as one of the market leaders with Raiffeisen Centrobank investment certificates.
Positive development characterized provi sioning for impairment losses. Low levels of new allocations to provisions for impairment losses were necessary, an
Net income (loss) from derivative financial instruments (284) (142) 99.8% Net income from financial investments and current financial assets 104 874 (88.1)% General administrative expenses (649,111) (518,852) 25.1% Other operating profit (loss) 17,260 12,285 40.5% Profit before tax 441,543 284,947 55.0%
increase of only 26 per cent or € 22 million, despite a stark increase in business volume in comparison to the previous year. The total amount of provisions for impairment losses fell to € 66 million. It was possible to lower provisioning in some group units thanks to a solid customer base and good development of the risk structure. That resulted in a substantial reduction of the risk/earnings ratio, from 15.8 per cent to 9.2 per cent. The share of the credit portfolio attributable to nonperforming loans fell during the reporting period to 1.58 per cent. The coverage ratio (provisioning to non-performing loans) remained high at 102 per cent.
Expansion of the branch network continued to shape development of general administrative expenses, which rose by 25 per cent to € 649 million. Staff expenses increased only moderately, from € 222 million before to € 290 million, despite significant business growth. The average number of employees rose by 2,476 to 15,112. At € 286 million, other administrative expenses were 24 per cent higher than in the preceding year. Depreciation/amortization/write-downs, mostly for branch investments, increased by 24 per cent to € 74 million. With the number of business outlets up by 37 per cent from 708 to 973, this segment achieved the largest increase of all the segments, to which expansion of the branch network in Romania (plus 167 branches) contributed the most. The cost/ income ratio improved significantly, by 2.1 percentage points to 56.1 per cent.
Higher income from operating leasing business in the region positively influenced other operating profit, which rose from € 12 million to € 17 million. The integration of two new group units in Southeastern Europe, asset management company Raiffeisen Invest d.o.o. in Croatia and Raiffeisen Insurance Broker EOOD in Bulgaria, yielded income from initial consolidation totaling € 4 million.
Raiffeisen Bank Sh.a. began operations in 1992 as Banka e Kursimeve e Shqipërisë and was acquired by Raiffeisen International in 2004. It was by far the country’s largest bank at the end of 2007 with a balance sheet total of € 1.9 billion. Raiffeisen Bank also further strengthened its role as an innovation leader on the local banking market last year, thanks not least to the high educational qualifications of its employees.
Not least because of the successful market presence of Raiffeisen in Bosnia and Herzegovina, Raiffeisen Bank was honored in 2007 as the country’s best bank by three trade journals: Global Finance, The Banker, and Euromoney.
Raiffeisenbank continued its strong growth last year, particularly in retail banking. As a result, the loan portfolio grew by 85 per cent to € 1.6 billion. Mortgage lending business was increased by means of specialized outlets so called Mortgage Centers by 117 per cent to € 361 million.
In operation since March 2006, Raiffeisen Asset Management has become established as a major market player among the country’s top three. It has a market share of just under 14 per cent and manages fund assets of € 64.4 million.
Raiffeisenbank was honored by the Sofia stock exchange last year as Investment Intermediary with the Largest Volume on the Bulgarian Stock Exchange.
Raiffeisenbank Austria d.d. was founded in 1994 and developed quickly into one of the country’s leading banks. It is the fourthlargest bank on the Croatian market with a market share of 11 per cent and a balance sheet total of € 5.3 billion. At the end of 2007, its branch network comprised 57 outlets, located mainly in the fastgrowing regions of the country.
Through Raiffeisen Factoring d.o.o., a subsidiary founded last year, Raiffeisenbank offers short- and medium-term financ ing of accounts receivable including risk assumption and thus provides support es pe cially to young, up-and-coming enterprises.
M an ag in g Bo ar d its pension product. More than 440,000 employees had a total of € 885 million in pension claims managed by Raiffeisenbank as of 31 December 2007. Furthermore, Raiffeisen provided leasing, building society, and insurance services by way of subsidiaries.
Raiffeisen Bank S.A. began operation in 1998 and merged with Banca Agricola in 2002. It is now the third-largest bank in Romania with a balance sheet total of € 4.4 billion at the end of 2007, which represents a plus of 7 per cent on the year before. In pursuit of its ambitious growth targets, Raiffeisen Bank opened 167 new business outlets last year and thus has a network of 433 outlets. The bank serves about 2.2 million customers.
As in the year before, retail customer business was an emphasis in 2007, so total lending in that segment rose by € 538 million to € 1.8 billion. Mortgage loans increased by 74 per cent to € 660 million thanks to comprehensive and specialized customer service in the bank’s new Mortgage Centers.
Founded in mid-2006, Raiffeisen Asset Management now offers four funds. Assets under management rose to about € 45 million last year. That makes the firm already one of the three most important providers in Romania with a market share of more than 14 per cent.
Raiffeisen banka registered growth in deposit business last year of 34 per cent to € 1.4 billion, and total lending in - creased by 26 per cent to € 1.5 billion. The bal ance sheet total also rose in 2007 by 29 per cent to € 2.7 billion. The bank also expand ed its branch network by 23 outlets to 91 and had 513,000 customers at year’s end, 21 per cent more than at the end of 2006.
Founded in 2003, Raiffeisen Leasing d.o.o. complements the bank’s product range and was one of the country’s most successful leasing companies in 2007 with a leasing portfolio of € 231 million. The bank’s broad product range is rounded out by a pension fund and an investment fund.
Net commission income registered an increase of € 72 million to € 393 million. At € 220 million, payment transfers contributed the most, which was largely due to the group unit in Ukraine. Foreign exchange and notes/coins business contributed € 98 million.
Trading profit declined from € 83 million to € 41 million. The result on interest-related transactions fell by 23 per cent to € 16 million, and the result on currency-related business was down significantly. Another factor for the decline was a foreign exchange position taken in connection with the acquisition of Impexbank, which had led to a positive valuation result of € 33 million in 2006. Adjusted for that special effect in the comparable period, development of trading profit was stable in the reporting year.
General administrative expenses rose as expected by 26 per cent, or € 149 million, to € 722 million because of the consistent expansion of lending business. The rise of staff expenses from € 272 million before to € 357 million was due to the increased number of staff and generally upward cost trend in growth markets Russia and Ukraine. The region showed the highest average number of staff at 28,273 persons, and the plus on the preceding year amounted to 2,960. Other administrative expenses associated with the expansion and modernization of the branch network grew from € 212 million before to € 270 million. The number of business outlets fell by 115 to 1,510 as a result of branch closings mainly in Ukraine. Depreciation of capital investments made in the CIS likewise increased by 7 per cent. The region’s cost/income ratio fell by 1.9 percentage points to 56.0 per cent despite the continued transformation of Raiffeisen Bank Aval and the integration in €000 2007 2006* Change
Net interest income 879,912 600,368 46.6% Provisioning for impairment losses (168,802) (127,140) 32.8% Net interest income after provisioning 711,110 473,228 50.3%
Risk-weighted assets (incl. market risk) 15,874,919 11,178,796 42.0% Average number of staff 28,273 25,313 11.7%
*Excluding one-off effects from the sale of Raiffeisenbank Ukraine and a minority stake in Bank TuranAlem.
The segment’s other operating result remained negative. The decline from € 16 million to € 24 million in the reporting period was based mainly on allocations to provisions for expenses.
Income from disposal of group assets repre sents the gains of € 3 million achieved as an extraordinary effect on the deconsolidation of Raiffeisen Non-Government Pension Fund.
The loan portfolio in the corporate customer segment rose in 2007 by 16 per cent to € 441 million. Besides the corporate customer segment, the bank has also built up a strongly expanding business with private individuals as well as with small and medium-sized enterprises in the past years. It has achieved growth rates of more than 30 per cent in both lending and deposit business. Total lending stood at € 360 million at the end of 2007, and customer deposits reached € 276 million. The number of retail customers rose last year by 134,000 to 718,000.
ZAO Raiffeisenbank was founded in 1996 and after the merger with OAO Impexbank, which specializes in personal customer business, is Russia’s largest foreign bank. Its balance sheet total came to € 12.0 billion at the end of 2007 and thus increased by 44 per cent on the year before.
At the end of 2007, Raiffeisenbank had about 1,425,000 customers and a countrywide branch network of 237 outlets.
The bank also continued to grow last year in business with private individuals as well as with small and medium-sized enterprises. The loan portfolio in that area increased by 35 per cent to € 2.3 billion, while deposits rose by 23 per cent to € 3.1 billion. Raiffeisenbank intends to expand its role further as one of the leaders in this market segment.
Standard & Poor's gave Raiffeisenbank a long-term issuer rating of BBB+ with a stable outlook in September 2007. The rating was thus equal to Russia’s as an issuer of foreign currency bonds. Fitch gave Raiffeisenbank a long-term issuer rating of A– with a stable outlook, which is better than Russia overall, which was rated as a long-term issuer at BBB+ with a stable outlook. The rating from Moody’s was Baa2 with a stable outlook, which put Raiffeisenbank on a par with Russia as an issuer of foreign currency bonds.
Raiffeisen Bank Aval confirmed its position as the country’s second-largest bank with a balance sheet total of € 6.1 billion, which represents an increase of 42 per cent. It also has one of the largest local networks, comprising 1,180 business outlets. Its restructuring and updating were high priorities last year. At the end of 2007, Raiffeisen Bank Aval was serving 4.1 million personal customers, about 196,000 small and medium-sized enterprises, and 9,040 corporate customers. Particular success was once again achieved in personal customer business in 2007. That segment’s loan portfolio grew by 43 per cent to € 2.9 billion, and deposits rose by 20 per cent to € 2.6 billion.
Moody’s gave Raiffeisen Bank Aval a foreign currency bank deposit rating of B2 with a positive outlook in May 2007. That put the bank only negligibly below the country rating of B1 with a positive outlook.
Net interest income after provisioning 2,061,872 1,455,004 41.7% Commission income 1,474,635 1,108,855 33.0%
Profit before tax 1,237,604 1,479,612 (16.4)% Income taxes (11) (264,149) (205,240) 28.7%
Profit after tax 973,455 1,274,372 (23.6)% Minority interests in profit (132,197) (92,246) 43.3%
Profit before tax 292,462 314,115 346,809 284,218 Income taxes (61,696) (67,865) (87,219) (47,369)
Profit after tax 230,765 246,250 259,590 236,849 Minority interests in profit (38,207) (37,435) (35,266) (21,290)
Net interest income after provisioning 322,829 341,953 356,630 433,593 Net commission income 184,971 230,586 245,374 272,358 Trading profit 29,898 41,421 40,532 62,972 Valuation result from derivatives 4,118 1,973 (520) (881) Net income from financial investments (1,934) 231 100,818 4,071 General administrative expenses (347,531) (396,620) (412,244) (537,278)
Other changes in equity are due to currency differences between the income statement and the balance sheet and changes in shares in Group units.
Items booked directly in retained earnings developed as follows: Exchange differences
As of 1/1/2006 (28,635) (55,284) – Net changes in financial period (34,186) 108,119 –
As of 1/1/2007 (62,821) 52,833 – Net changes in financial period (160,026) 103,778 (7,941)
Profit after tax 973,455 1,274,372 Non-cash positions in profit and transition to net cash from operating activities: Write-downs/write-ups of tangible fixed assets and financial investments 218,452 171,253
Net provisioning for liabilities and charges and impairment losses 321,236 387,312
Net cash from operating activities (1,507,014) 382,669 Proceeds from sale of: Financial investments and equity participations 1,883,523 2,144,539
Net cash from investing activities (123,045) (96,440) Capital increases 1,305,329 66,956
Cash and cash equivalents at the end of period 3,664,187 4,063,633
Net cash from operating activities comprises inflows and outflows from loans and advances to banks and customers, from deposits from banks and customers as well as liabilities evidenced by paper. Further, inflows and outflows from trading assets and liabilities, from derivatives, as well as from other assets and other liabilities are shown in operating activities. The interest and dividend received from operating activities are also reflected in net cash from operating activities.
The basis for primary segment reporting according to IAS 14 is Raiffeisen International ’s internal management reporting system which is mainly customer-oriented. Business is divided into the following segments: Corporate customers Retail customers Treasury Participations and other
The public sector and companies owned by state-owned entities and institutions are also part of the corporate customers segment. The public sector comprises all public sector entities such as ministries, provinces, municipalities and similar public corporations. Embassies and trade representations also belong to this segment.
Besides non-banking activities, the participations and other segment encompasses the management of participations. Moreover, other general activities are involved, including especially those carried out by the parent company Raiffeisen International BankHolding AG.
Raiffeisen International applies two central steering benchmarks: The return on equity before taxes is the ratio that states the profit before tax to average equity employed and expresses the return on capital employed. The cost/income ratio represents the cost efficiency of business segments. The cost/income ratio is calculated as quotient of general administrative expenses and the sum of net interest income, net commission income, trading profit/loss and other operating income/loss.
Net interest income 575,465 1,032,505 136,052 19,859 1,763,881 Provisioning for impairment losses (115,108) (191,562) 24 (2,231) (308,877)
Net interest income after provisioning 460,357 840,943 136,076 17,628 1,455,004 Net commission income 332,994 591,698 2,870 5,727 933,289 Trading profit 923 3,347 168,891 1,662 174,823 Valuation result from derivatives 248 1,223 3,218 – 4,690 Net income from financial investments (60) – 770 102,478 103,187 General administrative expenses (338,056) (1,184,671) (70,185) (100,760) (1,693,671) Other operating profit 10,795 11,000 (171) (25,886) (4,263) Income from disposal of group assets – – – 506,553 506,553
Secondary segment reporting shows earnings components and portfolio figures by regional aspects. Allocation criteria are the headquarters of the respective company. The regional segments under review are described below: • Central Europe (CE) This segment contains the five countries that joined the EU on 1 May 2004, and in which Raiffeisen International operates. They are the Czech Republic, Hungary, Poland, Slovakia, and Slovenia.
• Southeastern Europe (SEE) Southeastern Europe includes Albania, Bosnia and Herzegovina, Bulgaria, Kosovo, Croatia, Serbia, Moldova and Romania.
Raiffeisen International Bank-Holding AG is a financial holding company domiciled at Am Stadtpark 9, A-1030 Vienna and registered in the Companies Register at the Vienna Commercial Court (Handelsgericht Wien) under Companies Register number FN 122.119m. The shares have been listed on the Prime Market of the Vienna Stock Exchange since 25 April 2005. Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna, holds the majority stake in the company, totalling 69 per cent of its issued share capital as of the balance sheet date. The company also belongs to the Group of Raiffeisen-Landesbanken-Holding GmbH, Vienna, which is the ultimate parent company. This financial holding owns the majority stake in Raiffeisen Zentralbank Österreich Aktiengesellschaft. Moreover Raiffeisen International is also included in the consolidated financial statements of Raiffeisen Zentralbank Österreich Aktiengesellschaft.
The consolidated financial statements for the financial year 2007 and the comparative figures for the financial year 2006 were prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) and the international accounting standards adopted by the EU on the basis of IAS Regulation (EC) 1606/2002 including the interpretations of the International Financial Reporting Interpretations Committee (IFRIC/SIC) that were
Deferred taxes were not accounted for separately in the Income Statement and on the Balance Sheet. Details are provided under the appropriate headings in the Notes.
IFRS 7 is effective for annual periods beginning on or after 1 January 2007 and leads to changes in external reporting requirements. The changes mainly concern the disclosure requirements related to significance of financial instruments for an entity's financial position and performance and new disclosure requirements related to quantitative and qualitative information about exposure to risks arising from financial instruments. The new quantitative and qualitative disclosure requirements include credit risk, liquidity risk and market risk which are mainly reported in the risk report.
Raiffeisen International consolidates all material subsidiaries, in which Raiffeisen International Bank-Holding AG directly or indirectly, holds either more than 50 per cent of the voting rights or otherwise has control over the financial and operating policies.
Material interests in associated companies – the Group exerts a significant influence on financial and operating polices of these companies – are valued at equity and reported under investments in associates. Profit or losses occurring in companies valued at equity are shown net in current income from associates. The same rules apply to companies valued at equity (offsetting acquisition costs against proportional fair net asset value) as apply to fully consolidated companies. On principle, IFRS financial
In the course of capital consolidation, all identifiable assets, liabilities and contingent liabilities of the subsidiary are measured at their fair values on the acquisition date according to IFRS 3. The acquisition costs are offset with the proportional net assets. The resulting positive differences are capitalised as goodwill. The goodwill is tested annually for impairment, or more frequently, if events or changes in circumstances indicate impairment. Impairment tests were carried out on the basis of the updated respective calculation models of the individual subsidiaries. In view of the results, the conclusion was that the goodwill is definitely higher at the balance sheet date than in the past years and there is no need for impairment. Negative differences arising within initial consolidation will be recognised immediately in profit.
Included for the first time in the financial period 29 45 – –
A list of fully consolidated companies, associated companies and other equity participations may be found on page 284f.
Raiffeisen Insurance and Reinsurance Broker S.R.L, Bucharest (RO) 75.0% 1/4 Acquisition
SCT Milfav Ingatlanfejlesztö és Ingatlanhasznosito Kft., Budapest (HU) 73.6% 1/5 Materiality
Goodwill 184 222 406 * Raiffeisen Insurance and Reinsurance Broker S.R.L., Bucharest (RO) ** Cristal Palace Real Estate s.r.o., Prague (CZ)
ROOF Russia S.A., Luxembourg, was founded in connection with a securitisation of car loans and therefore consolidated for the first time as of 1 May 2007 due to control principle. The remaining shares are held by external investors.
In the fourth quarter 2007, a real estate company, Cristal Palace Real Estate s.r.o., Prague, was acquired and firstly integrated as of 1 October 2007. As of 1 November 2007, Raiffeisen Factoring Ltd., Zagreb, started with factoring business in Croatia and the company was included in the consolidated financial statements for the first time due to materiality.
As of 1 June 2007, a Hungarian leasing company – Második Ingatlan Vagyonkezelö Kft., Budapest – was merged into Raiffeisen Financial Services Company Zrt., Budapest. A further merger took place in the third quarter 2007: RLRE Omega Property, s.r.o., Prague, was merged into Sirius Property, s.r.o., Prague, as of 1 August 2007.
As of 23 November 2007, OAO Impexbank, Moscow, was merged into ZAO Raiffeisenbank, Moscow. Since this date, the company trades under the name ZAO Raiffeisenbank.
In the first quarter 2007, Raiffeisen Lízing Zrt., Budapest, sold its 100 per cent share in SINESCO Energiaszolgáltató Kft., Budapest. The company was excluded as of 1 March 2007; the result of deconsolidation amounted to € 11,038 thousand.
Due to the fact that Raiffeisen Non-Government Pension Fund, Moscow, became immaterial, the company was excluded from the consolidated group as of 1 January 2007, resulting in a profit of € 2,672 thousand.
The following table shows the income arising from disposal of group assets of the two largest transactions: €000 SINESCO* ARENAC** Total
Net assets after minority interests (225) (945) (1,170) Goodwill – 4,594 4,594
The items of the income statement were translated at the average exchange rates during the year calculated on the basis of month-end rates. Differences arising between the exchange rate as of the balance sheet date and the average exchange rate applied in the income statement were offset against equity and not recognised in the income statement.
The following exchanges rates were used for currency translation: 2007 2006 Rates in units per € As of 31/12 Average As of 31/12 Average
This category comprises mainly all those financial assets which are irrevocably designated as financial instrument at fair value (so called fair value option) upon initial recognition in the balance sheet independent of the intention to trade. An entity may use this designation only when doing so results in more relevant information, because a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis. These instruments are debt securities and other fixed-interest securities or equities and other variable-yield securities.
Non-derivative financial assets (securities with fixed or determinable payments and fixed maturities) purchased with the intention and ability to hold them to maturity are reported under the balance sheet item financial investments. They are recognised at amortised cost and differences are amortised over the term to maturity and recognised in the income statement under net interest income. Coupon payments are also recognised under net interest income. A sale of these financial instruments is only allowed in cases as stated in IAS 39.
Derivative instruments held to hedge against market risks (except trading assets /liabilities) that are based on an inhomogeneous portfolio do not satisfy the requirements for hedge accounting according to IAS 39. They are captured as follows: Dirty prices are recognised under derivatives (on the assets side: positive market values; on the liabilities side: negative market values. The effect of re-measuring those derivative instruments on a clean price basis is recognised under valuation result from derivatives (net income from other derivative instruments); interest is recorded under net interest income.
For credit risks related to loans and advances to customers and banks, provisions are made in the amount of expected loss according to homogeneous Group-wide standards. Risk of loss is deemed to exist if the discounted projected repayment amounts and interest payments are below the carrying value of the loans, taking collateral into account. Portfolio-based impairments are calculated according to valuation models that estimate expected future cash flows for the loans in the respective loan portfolio based on loss experience history. For retail portfolios without a documented loss history of their own, peer group benchmark figures serve as a comparative base.
In a genuine sale and repurchase transaction, the transferor 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 in the balance sheet of the transferor and are measured like the balance sheet item where they are shown. Cash inflows arising from a sale and repurchase transaction are recognised in the balance sheet depending on the counterparty as deposits from banks or deposits from customers.
A finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset to the lessee. Pursuant to IAS 17, the present value of all future lease payments and any residual values are shown as loans and advances to banks or customers in the balance sheet of the lessor. The lessee recognises the assets as tangible fixed assets to which refers a corresponding leasing liability.
Shareholdings in subsidiaries not included in the consolidated financial statements because of their minor significance and shareholdings in companies that are not valued at equity are shown under financial investments and are measured at amortised cost if no shares prices are available.
Other shareholdings are categorised as designated financial instruments at the balance sheet date if reliably measurable market prices are available and are measured at fair value. Changes in value are therefore recognised in profit. If there is no active market for other interests or if a fair value is not reliably measurable, they are categorised as available-for- sale. The changes in value are directly shown in equity without effecting income statement.
Acquired intangible fixed assets (software, and customer base) with determinable useful lives are capitalised at acquisition cost and amortised over their estimated useful lives.
The useful life of the acquired customer base was set at seven years for corporate customers and for the acquired customer base in the retail segment of Raiffeisen Bank Aval at 20 years and for Impexbank (meanwhile merged with ZAO Raiffeisenbank) and eBanka at five years.
Investment property is reported at amortised cost using the cost model permitted by IAS 40 and is shown under fixed assets because of minor importance. Income resulting from investment property is shown in other operating profit/loss.
The Managing Board of Raiffeisen International Bank-Holding AG obtained Supervisory Board approval to institute a share incentive program (SIP) offering performancebased allotments of company shares for eligible employees at home and abroad for a given period of time. All Managing Board members of Raiffeisen International BankHolding AG, managing board members of associated bank subsidiaries, and selected upper management personnel of Raiffeisen International Bank-Holding AG and its affiliated enterprises are eligible to participate.
All share-based remunerations are recognised according to IFRS 2 (Share-based Payment) as staff expenses and booked directly against equity.
Net commission income mainly includes income and expenses arising from payment transfers, credit business and foreign exchange business. Commission income and expenses are accrued in the reporting period.
Deferred taxes are recognised and calculated in accordance with IAS 12 applying the liability method. Deferred taxes are based on all temporary differences that result from comparing the carrying amounts of assets and liabilities in the IFRS accounts with the tax bases of assets and liabilities and will reverse in the future. Deferred taxes are calculated by using tax rates applicable in the countries concerned. A deferred tax asset should also be recognised on tax loss carry- forwards if it is probable that sufficient taxable profit will be available against which the tax loss carry-forwards can be utilised within the same entity. Deferred tax assets and deferred tax liabilities within the same entity are netted.
Income tax credits and income tax obligations were recorded separately under other assets and tax provisions respectively.
Net gains (losses) on financial assets and liabilities held-for-trading (24,612) 59,000 –
Financial assets available-for-sale (41) 105,886 – Net interest income 871 3,307 (73.7)%
Loans and receivables 3,953,498 2,703,594 46.2% Net interest income 4,310,474 3,012,471 43.1%
Net realised gains (losses) on financial assets not measured at fair value through profit or loss 549 13 >500%
Impairment on financial assets not measured at fair value through profit and loss (357,525) (308,890) 15.7%
Financial liabilities measured at amortised cost (2,182,878) (1,483,169) 47.2% Interest expenses (2,182,878) (1,483,169) 47.2%
Derivatives (hedging) 462 (1,893) – Net interest income 58 (2,243) –
The net interest income position includes income and expense from items of banking business, dividend income and commissions with interest-like characteristics.
Interest income 4,600,156 3,240,435 from balances at central banks 120,250 113,392 from loans and advances to banks 418,011 288,377 from loans and advances to customers 3,529,643 2,438,188 from current financial assets 86,631 42,869 from financial investments 148,598 148,210 from leasing claims 241,458 168,633 from derivative financial instruments (non-trading), net 55,565 40,766
Current income 1,150 3,643 from shares and other variable-yield securities 279 335 from shares in affiliated companies 545 1,831 from other interests 326 1,477
The interest margin on the respective averages of the stated base is as follows: Interest margin (balance sheet total) 3.86 3.76
Portfolio-based loan loss provisions (76,096) (119,490) Allocation to provisions for impairment losses (162,214) (174,810)
Details on risk provisions are shown under note 17 impairment losses on loans and advances.
Net result from hedge accounting comprises on the one hand, a positive valuation result of derivatives in fair value hedges amounting to 1,627 thousand (2006: € 3,231 thousand) and on the other hand, changes in the carrying amounts of the fair value hedged items totalling minus € 1,222 thousand (2006: minus € 2,881 thousand ).
Net income from financial investments held-tomaturity and equity participations (714) 102,589 Net valuations of financial investments held-to-maturity – 11
Net income from securities at fair value through profit and loss (8,529) 598 Net valuations of securities at fair value through profit and loss (8,637) (3,193)
This is due to scheduled amortisation of the acquired customer base and an impairment loss on the eBanka brand of € 4,268 thousand because of the decision taken in 2007 to merge the bank with Raiffeisen a.s., Prague.
The position other operating profit/loss captures, among other things, sales revenues and expenses from non-banking activities, income and expenses from disposal as well as income from the revaluation of tangible and intangible fixed assets.
Net proceeds from disposal of tangible and intangible fixed assets (2,846) 815
Net expense from allocation and release of other provisions (17,158) (12,043)
Income from disposal of group assets amounting to € 26,517 thousand (2006: € 506,553 thousand) is mainly due to income arising from disposal of SINESCO Energiaszolgáltató Kft., Budapest (€ 11,038 thousand), and Arena Corner Ingatlanfejleszt Kft., Budapest (€ 14,559 thousand).
Last year, earnings per share were influenced by income from sale of equity participations. Regardless of this income from sale of participations, earnings per share would have been € 4.17.
Financial assets available-for-sale 40,189 8,423 377.1% Other interests 40,189 8,423 377.1%
Loans and advances 63,348,262 47,023,670 34.7% Loans and advances to banks 14,717,389 12,266,078 20.0%
Other assets 2,358,345 2,336,393 0.9% Investments in associates and other affiliated companies 67,940 59,912 13.4%
Trading liabilities 695,276 506,616 37.2% Negative fair values of derivative financial instruments 655,827 384,160 70.7%
Loans and advances to banks classified regionally (counterparty’s seat) are as follows: Central Europe (CE) 2,199,575 1,593,810
Loans and advances to customers break down into business segments according to Basel II definition as follows: Corporate customers – large 25,693,068 18,019,128
Total 1,103,166 872,056 * The previous year figures were adapted according to the new asset classes.
Positive fair values of derivative financial instruments 528,369 313,470 Interest-based transactions 140,032 75,855
Positive fair values of derivatives in fair value hedges (IAS 39) 5,997 5,545
This item comprises securities available-for-sale, financial assets at fair value through profit or loss and securities held-to-maturity as well as strategic equity participations held on a long-term basis.
Equity participations valued at amortised cost for which fair values could not be reliably measured amounted to € 40,189 thousand (2006: € 8,424 thousand).
Raiffeisen International concluded syndicate contracts with the respective shareholders of the following subsidiaries:
Raiffeisen Banca pentru Locuinte S.A., Bucharest (RO) 76,460 4,201 (4,277) 14,667
The item software comprises acquired software amounting to € 188,486 thousand (2006: € 163,517 thousand) and developed software amounting to € 2,641 thou-
The fair value of investment property totalled € 18,457 thousand (2006: € 12,769 thousand).
Tangible fixed assets 1,635,596 (62,697) (63,736) 466,852 (138,495) 47 1,837,567 Land and buildings used by the Group for own purposes 600,069 – (46,978) 90,373 (17,240) 1,742 627,967 of which land value of developed land 7,510 – (738) 657 – – 7,429
Intangible and tangible fixed assets developed in the financial year 2006 as follows: Cost of acquisition or conversion
Tangible fixed assets 1,161,061 219,418 7,374 376,650 (138,224) 9,317 1,635,596 Land and buildings used by the Group for own purposes 375,388 168,841 (5,071) 64,775 (17,539) 13,675 600,069 of which land value of developed land 853 6,696 (48) 8 – – 7,510
Assets held for sale according to IFRS 5 amounting to € 1,930 thousand (2006: € 560 thousand) were recognised in other assets.
The deposits break down into the following bank segments: Multinational development banks (MDB) 391,615 494,083
Severance payments include also provisions for anniversary payments amounting to € 2,169 thousand (2006: € 370 thousand). Due to minor importance, details to provisions for retirement benefits and severance payments are not reported.
Negative fair values of derivatives in fair value hedges (IAS 39) 20 827
Negative fair values of derivatives in cash flow hedges (IAS 39) 8,302 –
Negative fair values of bankbook derivatives without hedge accounting 145,943 19,571
Insofar as the conditions for hedge accounting according to IAS 39 are fulfilled, derivative financial instruments are measured at their fair values (dirty prices) in their function as hedging instruments. The hedged items in connection with fair value hedges are loans and advances to customers. The hedged risks are interest rate risks. As of 31 December 2007, variable-interest refinancing of VAT Raiffeisen Bank AVAL, Kiev, was hedged against the risk of changes in future cash flows by applying interest rate swaps which are reported as cash flow hedge. The effective part of this hedge amounts to € 7,941 thousand and was recognised directly in equity.
(34) Equity and minorities * As of 1 January 2006, retained earnings amounting to € 36,780 thousand were transferred to capital reserves due to an inaccurate reporting in the past periods
The subscribed capital of Raiffeisen International Bank-Holding AG as defined by the articles of incorporation amounted to € 471,736 thousand as of 31 December 2007. It comprises 154,667,500 no-par bearer shares. Excluding own shares of 826,223, the stated subscribed capital totalled € 469,216 thousand.
According to the resolution in the Annual General Meeting held on 5 June 2007, the subscribed capital was increased from € 434,517 thousand by € 931 thousand to € 435,449 thousand by converting the corresponding partial amount of tied capital reserves without issuing new shares for the purpose of smoothing out the share in nominal capital due on each share.
The number of authorised shares but not yet issued totalled 59,487,500 no-par shares after the capital increase.
The Managing Board intends to propose at the Annual General Meeting that a dividend of € 0.93 per ordinary share be distributed from Raiffeisen International BankHolding AG´s profit for the financial year 2007, which represents a maximum distribution of € 143,841 thousand, and that the remaining amount be carried forward.
Members of the Managing Board of Raiffeisen International Bank-Holding AG 67,953 16,989 101,930
Executives of Raiffeisen International Bank-Holding AG and other affiliated companies 38,452 9,539 57,230
Disclosures on Raiffeisen International’s relations to key management are reported under note (52) relations to key management: As of 31 December 2007, the transactions with related parties are as follows: Parent companies
As of 31 December 2006, the transactions with related parties are as follows: (37) Foreign currency volumes
Due to the three securitisation programs placed up to now, the intended relief of the risk weighted assets was achieved.
The following transactions are executed in 2007 and 2006: In all transactions, own funds requirements for the junior tranche (first loss piece) were taken by group companies.
Within the scope of synthetic securitisations, the non-derecognised loans came up to € 402,204 thousand at year end (2006: € 463,906 thousand). The fluctuation of amounts in comparison to the volumes at the beginning of the transactions is due to the fact that volumes matured in the meantime as well as to currency fluctuations. Furthermore, originators like Raiffeisenbank Polska S.A., Warsaw (PL), and Raiffeisenbank a.s., Prague (CZ), differently exercised the option to refill the volumes in a marginal extent respectively to exceed the original values slightly.
The following repurchase and redelivery commitments are shown as of the balance sheet date: Genuine repurchase agreements as borrower Deposits from banks 177,756 308,024
The following liabilities are secured by assets shown in the balance sheet: Deposits from banks 389,116 167,582
The following balance sheet assets are provided as collateral for the above mentioned obligations: Loans and advances to banks 38,676 58,191
Write-offs on unrecoverable minimum lease payments outstanding totalled € 3,108 thousand (2006: € 13,502 thousand).
Operating leases from view of Raiffeisen International as lessee: Future minimum lease payments under non-cancellable operating leases are as follows: More than 1 year, up to 5 years 208,786 201,355
As a subsidiary and major sub-group of RZB Group, Raiffeisen international is integrated into RZB’s risk management system. Via the different risk management units within different organizational levels of the Group, it ensures that all material risks are measured and limited, and that business in general is evaluated under a risk/return perspective. For this purpose and in addition to legal and regulatory requirements, risk management takes into account the particular nature, scale, and complexity of the business activities and the resulting risks.
In particular, the Managing Board of Raiffeisen International defines and implements the Group’s risk policies. A specific risk policy defines the plans for the development of the Bank’s business in a certain business segment for a given period. For example, the credit risk policies for corporates and SMBs regulate which industries will be targeted, restricted, or excluded from lending or what the minimum rating, amount of collaterals, or required profit on a transaction is for each Group member. Specific risk policies are an integral part of all business operations and in this context also establish a systematic link between earnings and risks in all business segments.
Basically, the implementation of risk management is structured in several levels. Raiffeisen International develops and implements risk management in close cooperation and coordination with RZB AG as the parent credit institution of RZB Group and its individual subsidiaries.
Committees bring together decision makers from different units (and therefore also representatives of Raiffeisen International) involved in risk management activities. The Group Risk Committee (GRC) secures coherent regulations within RZB Group with respect to the definition and measurement of risks. As a cross-divisional and Groupwide body, the Group Risk Committee is responsible for establishing methods and parameters for risk quantification models and risk management processes. It also analyses the risk situation of the Group with respect to the internal capital adequacy of
the Group and the corresponding risk limits. Furthermore, it approves risk management /controlling activities like the allocation of risk capital and advises the Managing Board in these matters.
Maintaining a sufficient level of capital is a core objective of risk management at Raiffeisen International. Capital adequacy according to internal standards is monitored based on the Group’s actual risk level on a quarterly basis. It takes into account capital requirements both from a regulatory point of view (going concern perspective) and from an economic point of view (liquidation perspective). In both views the Group measures risks for all material risk types on a consolidated basis and for all relevant network units in a value-at-risk framework.
Unexpected losses on an annual basis (economic capital) must not exceed the present value of the bank’s equity and subordinated liabilities 99.95% as derived from the targeted rating
Stress tests show the impact of significant negative shocks in risk factors which might not be adequately captured in a value-at-risk model. They can be based on historical events (e.g. Russian crisis in 1998) or hypothetical scenarios. Thus they allow the analysis of risk concentrations (i.e. in size, industry, and region) and deliver a deep insight into the profitability, solvability, and survival probability of the bank in extreme situations. Decisions on the required capital ratios take into account those scenarios, keeping in mind the likelihood of the scenario and the possible countermeasures that would be taken by the bank in such a scenario.
This capital adequacy framework also satisfies the requirement for an internal capital adequacy assessment process (ICAAP) as required by Basel II (Pillar 2) regulations.
Risk in the liquidation perspective is measured as economic capital presenting a comparable risk measure across all types of risks. It is calculated as the sum of unexpected losses stemming from different Group members and different risk categories (credit incl. country risk, market, and operational risk). In addition, a separate risk buffer for other (mostly immaterial) risks not explicitly quantified is held on an overall Group level.
The economic capital measure shows – as in the last year – that credit risk due to corporate customers remains the dominant risk category. Its share in total risk (36 per cent), however, is decreasing steadily. This comes at no surprise as the share of the retail credit portfolio also increased by a similar amount in the last year. Credit risk in total makes up 71 per cent of economic capital. Market and operational risks are less than 2 and 12 per cent respectively of economic capital, and in addition, a general risk buffer is allocated for other risks as well.
The overall risk amount is compared to internal capital, which basically consists of equity and subordinated capital of the Group. Total utilisation of available risk coverage capital (the ratio of economic capital to internal capital) is less than 67 per cent (as of 31st December 2007) indicating very comfortable capitalisation.
Economic capital is used as a parameter in overall bank management and for the purpose of capital allocation. Economic capital budgets are allocated to business units during the annual budgeting process and transformed into operative volume, sensitivity, or value-at-risk limits. In Raiffeisen International this sort of planning is done on a revolving basis for the upcoming three years and incorporates the future evolution of economic capital as well as the available internal capital.
No lending transaction is performed without running through the limit application process beforehand in the non-retail segments. This process is also consistently applied – besides new lending – to overdrafts, increases in existing limits, extensions, and if changes in the risk profile of a borrower occur (e.g. with respect to the financial situation, the terms and conditions, or collateral) compared to the time an original lending decision was made. In addition it is used when setting limits for particular borrowers in treasury and investment banking operations, and for equity participations.
The current values of collateral and other risk mitigation effects are calculated with each credit assessment as well. For the calculation of risk mitigation effects, the value accounted for is the value Raiffeisen International expects to receive when selling the collateral within a reasonable liquidation period. Eligible collaterals are defined in the Group’s collateral catalogue and evaluation guidelines for collateral. The respective value of the collateral is calculated via specified methods, which include standardised calculations based on market values, predefined discounts, or expert assessments.
The rating process is the process of determining the creditworthiness of a counterparty. Raiffeisen International uses internal ratings for assessing credit risk where different risk-classification procedures (rating and scoring models) for different asset classes are employed. All rating and scoring models are used in the whole Group and again are based on specific software tools (e.g. for business valuation and calculating rating grades, rating database).
The rating models in the main non-retail asset classes – corporate customers, financial institutions, and sovereigns – rank creditworthiness in ten classes.
5.0 Default (acc. to Basel II definition) 474,967 1.1% 353,491 1.1%
* 2006 figures still include exposures from asset class project finance
All in all, the overall credit quality of corporate customers improved significantly in 2007. Compared to the previous year, the portfolio share of the best rating categories (up to rating class 2.0) increased by 1.8 per cent to 22.9 per cent. Also the proportion of exposures having a moderate credit standing (up to rating class 3) rose by 3.6 per cent to 38.1 per cent. Consequently, the portfolio weight of lower rating categories decreased by 4.4 per cent to 35.9 per cent; defaulted exposures (customers with credit rating 5.0), finally, account for 1.1 per cent of total exposure, similar to the previous year. The internal rating shown in this table only reflects the borrowers’ credit standing and does not take into account the amount of collateral provided in individual transactions.
The retail customers segment is divided into private individuals and small and mediumsized enterprises (SMEs). For retail customers, a two-fold scoring system is used – consisting of the initial and ad-hoc scoring based on customer data and behavioural scoring based on account data. The table below provides a breakdown of the credit exposure (including off-balance sheet exposure) for this segment by region in thousands of euros: From year end 2006 to year end 2007, the retail portfolio in total increased substantially by 43 percent to € 19.3bn. The growth was mainly driven by private individuals (47 percent increase) whereas the growth rate of SMEs was 23 per cent. From a geographical point of view, the largest increase of retail exposures took place in the Central European region (CE).
The customer segment financial institutions mainly contains exposures to banks and securities firms. The internal rating model for financial institutions is based on a peergroup approach that takes both qualitative and quantitative information into account. A ceiling is set on the final rating for financial institutions by the respective country rating.
The average internal rating of credit exposures to sovereigns slightly improved this year, which can be mainly attributed to the rating upgrade of Albania from B5 to B4. The internal rating of Bulgaria, however, was downgraded from B2 to B3.
Raiffeisen International has defined twelve default indicators which are used to identify a default event including the insolvency or similar proceedings of a customer, if an impairment provision has been allocated or a direct write-off has been carried out, if credit risk management has judged a customer account receivable to be not wholly recoverable, or the workout unit is considering stepping in to help a company restore its financial soundness.
In case of default, customers are recorded in the Group-wide default database which has been created within the scope of the Basel II project. The database tracks recoveries and work-out costs as well, which makes it suitable for calculating and validating PDs and LGDs (the probability of default, PD, and loss given default, LGD, both are parameters in the regulatory Internal Ratings Based approach and the bank’s internal risk quantification models).
Troubled loans (where debtors are expected to run into material financial difficulties or delayed payment) need special handling. In the non-retail segments, Problem Loan Committees (PLCs) of each Group member review problematic exposures and decide on provisioning. In case of the need for intensified handling and workout, the troubled loans are assigned either to a designated specialist or to a restructuring unit (workout department), both part of the credit risk management divisions. Employees of workout units are specially trained and experienced. They typically handle medium-sized to large cases and are assisted by in-house legal departments and/or by external specialists as well. Work out units play a decisive role in accounting and analysing as well as booking provisions for impairment losses (write-offs, value adjustments, provisioning ) and become involved early on in order to reduce losses caused by troubled loans. Cases in which restructuring or liquidation take place are analysed to find out their causes. Lending processes are then adapted as necessary on the basis of these results.
With respect to retail customers, 3.0 per cent of the total exposure is classified as nonperforming (an increase by 0.4 per cent from the previous year). By regional breakdown, the CIS region shows the highest NPL ratio (3.7 per cent) and also the highest coverage ratio. All in all, the total amount of credit risk provisions for retail exposures has been increased by 29 per cent to € 508 mn.
The following table summarizes the development of impairment losses on loans and advances in the fiscal year and that of the underlying balance sheet items: * Allocation including direct write-downs and income on written down claims.
Loans and advances to customers 574,049 (9) 507,043 (230,452) (86,589) (9,462) 754,580
Loans and advances to customers 297,846 – 148,424 (85,442) – (12,389) 348,440
Individual loan loss provisions 618,160 (9) 541,585 (260,156) (86,589) (9,394) 803,597 CE 248,918 – 174,659 (98,988) (30,901) 8,615 302,303
The definition of default and the assessment of the expected recovery value are heavily influenced by the number of days payments are late. The following table shows the amount of overdue financial assets for different time bands.
The following table shows the gross carrying amount of impaired assets, the amount of specifically allocated provisions, and the corresponding net value of available collateral: 31/12/2007 Impairments and collaterals
The regional breakdown of credit exposure reflects the broad diversification in European markets. The following table shows the regional distribution of credit exposure from banks and customers (incl. credit exposure from off-balance sheet contracts) by domicile of borrower: * EU-27 excluding member states listed in this table.
Market risk at Raiffeisen International is monitored and managed by RZB within the scope of a service level agreement (SLA). The rules and procedures for the management of market risks are defined by RZB on a Group-wide basis and endorsed by the Managing Board of Raiffeisen International Bank-Holding AG.
Raiffeisen International approves, measures, monitors and manages all market risks by setting a variety of limits. The overall limit is set by the Managing Board on the basis of the bank’s risk-bearing capacity and income budgeting. This limit is apportioned on the basis of a coordinated proposal made by the treasury department, market risk management, and the responsible member of the Managing Board.
The individual limits set at book level vary according to the different risk factors. Besides value-at-risk (VaR) limits, those limits may include volume and position limits as well as sensitivity limits (basis-point value, delta, gamma, vega) and stop-loss limits, depending on the type of transaction. All treasury products in which open positions can be held by the bank are listed in the product catalogue. New products are added to this list only after running through the Product Approval Process (PAP). Options may only be entered into by appropriately trained dealers.
Market risk in Raiffeisen International’s trading books depends primarily on currency risk, which results from hedging positions entered by the Asset/Liability Management Committee offsetting the risk of changes in the value of foreign-currency denominated equity investments made in foreign Group units.
Interest rate risk and price risks (e.g. stocks and funds) are also important, whereas commodity risk is not material at all. The table below provides value-at-risk figures (99%, 10-day) by risk type for market risk in the trading book of the Raiffeisen International: VaR as of 31/12/2007
of which currency risk without capital hedge 430 976 279 2,489
of which currency risk without capital hedge 1,314 1,430 398 3,376
The own funds requirement for the trading book is calculated using the standardised approach as defined in Austria’s solvability directive.
Liquidity risk is defined as the risk that the bank could be unable to meet its current and future financial obligations in full or in good time. Liquidity risk therefore results from the risk that, for example, refinancing can only be carried out at disadvantageous conditions or not at all (funding liquidity risk). Other examples are situations in which assets have to be sold at short notice at a large discount or in which customer repayments in the lending business are not made on schedule. Also many committed lines might be unexpectedly drawn at once or deposits could be unexpectedly withdrawn on a large scale (short-term liquidity risk).
The tasks of managing liquidity and liquidity risk and, in turn, of ensuring the bank’s solvency at all times are performed both centrally by Raiffeisen International and on a decentralized basis by the local banks. An internal monitoring system records and analyses cash flows by currency both for each location and globally on a weekly basis. Based on this data, the bank creates liquidity balances, and analyses whether the Group’s short- and medium-term liquidity situation always conforms to legal regulations on liquidity levels and defined internal liquidity limits. Liquidity analyses also include simulations on the sensitivity of liabilities and the liquidity of assets as well as defined liquidity crises in scenario-based cash flow forecasts. All these analyses are discussed in the Group’s Asset/Liability Management Committee.
The following table shows a breakdown of contractual cash flows according to matur ity of financial liabilities: Carrying amount
Non-derivative liabilities 65,149,834 67,688,715 40,464,395 11,610,824 13,188,145 2,425,351 Liabilities to banks 19,926,970 21,255,314 5,253,126 5,957,294 9,271,504 773,389
Derivative liabilities 655,827 36,103,731 11,988,956 15,816,516 7,932,366 365,894 Derivatives in the trading book 501,561 26,904,600 6,608,262 13,335,521 6,660,002 300,814
Derivative liabilities 384,160 8,181,541 5,085,336 2,725,216 324,541 46,448 Derivatives in the trading book 363,762 6,569,728 3,711,903 2,538,506 274,889 44,431
In line with Basel II, operational risk is defined as the risk of unexpected losses resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. In this risk category Raiffeisen International manages internal risk drivers like unauthorized activities, fraud or theft, execution and process errors, or business disruption and system failures. External factors are managed as well like damage to physical assets or consciously conducted human fraud.
Self assessment is executed on the corporate level for each Group member, where all operational risk categories and business functions are assessed in a two-dimensional matrix. All Group members assign ratings for each combination of operational risk category and business function according to their estimation of the total annual loss for high probability/low impact events and low probability/high impact incidents.
Loss data is collected in a central database called ROCO (Raiffeisen Operational Risk Controlling) in a structured and homogeneous Group-wide form according to the event type for each business segment. Collecting losses stemming from operational risks is a prerequisite for implementing a statistical loss distribution model and a minimum requirement for implementing the statutory Standardized Approach. Furthermore, loss data (and near misses) is used to create and validate operational risk scenarios and for exchange with international data pools to develop advanced operational risk management tools.
A general risk report which is presented to the Group Risk Committee semi-annually provides a comprehensive overview on operational risks.
The Standardized Approach within the meaning of Basel II is employed to calculate the statutory own funds requirement for operational risk. This approach is based on gross earnings in each business segment.
To further reduce operational risk, business managers decide whether preventive actions like risk mitigation or risk transfer should be initiated. They also define contingency plans if these scenarios would become real and nominate responsible persons /departments for initiating the defined actions. Raiffeisen International is also executing an extensive staff training programme and has different emergency plans and back-up systems in place. Finally, the SixSigma method for business process improvement is also being applied.
All other financial instruments are valued using internally accepted calculation models, especially discounted cash flow analysis and option pricing models. Fair values 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 effect of discounting by using a computational interest rate that reflects the market rates is only material in those cases.
Assets Loans and advances to banks 11,073,784 11,053,202 20,582 8,196,980 8,202,445 (5,465)
Commitments include exclusively irrevocable credit lines and stand-by facilities. Due to a more precise disclosure, other contingent liabilities similar to guarantees, are shown under other guarantees. The previous year figures were appropriately adapted.
Moreover, Raiffeisen International managed funds of € 3,976,854 thousand (2006: € 800,883 thousand) as of the balance sheet date. It solely deals with investment funds for retail customers.
Revocable credit lines 5,493,246 3,592,186 Up to 1 year 1,418,254 1,593,331
Eligible own funds 6,626,832 4,488,527 Tier 3 capital (short-term subordinated own funds) 57,430 24,406
The total own funds requirement is as follows: Risk-weighted assets according to Sec. 22 BWG 49,802,310 38,001,726 of which 8 per cent minimum own funds requirement 3,984,185 3,040,138
Own funds requirement for the trading book according to Sec. 22b (1) BWG 146,236 136,542
Own funds requirement for open currency positions according to Sec. 26 BWG 186,698 107,465
The average number of staff employed during the financial year (full-time equivalents) breaks down as follows: Full-time equivalents 2007 2006
The same regulations are in principle valid for members of the Managing Board and employees. These regulations provide from the part of the company a basic contribution to a pension fund and an additional contribution if the employee pays own contributions of the same amount. Three Managing Board members additionally have individual retirement benefits which are funded by business insurances.
Beyond that, there are no further relations of Raiffeisen International to key management. Moreover, there is no compensation agreed between the company and their members of the Managing Board and Supervisory Board in the case of a takeover bid.
The members of the Managing Board of Raiffeisen International Bank-Holding AG are remunerated as follows: The table contains fixed remunerations and performance-based remunerations as well as remunerations for membership of boards of subsidiaries, bonuses, and payments in kind. In the financial year 2007, the share of performance-based remuneration components was 45.1 per cent. Last year, it was 58.5 per cent due to a special bonus.
Performance-based remuneration components of the Managing Board are linked to achieve the objectives regarding profit after tax, return on standard capital and cost/income ratio as well as to achieve the personal objectives that are agreed annually. There were no material changes in the principle for profit-sharing against the previous year.
In the financial year 2007, € 330 thousand were paid to the members of the Supervisory Board. In the previous year, the members of the Supervisory Board received a remuneration of € 195 thousand.
The members of the Managing Board have mandates in the Supervisory Board of quoted companies at home and abroad: Herbert Stepic: OMV AG, VAT Raiffeisen Bank Aval, Tatra banka a.s. Rainer Franz: Tatra banka a.s. Heinz Wiedner: VAT Raiffeisen Bank Aval Aris Bogdaneris: VAT Raiffeisen Bank Aval Martin Grüll: VAT Raiffeisen Bank Aval Peter Lennkh: VAT Raiffeisen Bank Aval
All members of the Supervisory Board declare themselves to be independent in the meaning of criteria of independence agreed by the Supervisory Board and in conformity with the Austrian Corporate Governance Codex. None of the members holds a more than 10 per cent share in the company. Peter Woicke and Stewart Gager do not represent the interests of shareholders with a share of more than 10 per cent.
We have audited the accompanying consolidated financial statements of Raiffeisen International Bank-Holding AG, Vienna, for the financial year from 1 January to 31 December 2007. These financial statements comprise the balance sheet as at 31 December 2007, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with laws and regulations applicable in Austria and International Standards on Auditing, issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
Laws and regulations applicable in Austria require us to perform audit procedures whether the consolidated management report is consistent with the consolidated financial statements and whether the other disclosures made in the consolidated management report do not give rise to misconception of the position of the group.
The following table shows a selection of operating companies of Raiffeisen International ’s consolidated group. The complete list of Raiffeisen International’s equity participations is deposited with the Group parent’s headquarters.
Legend 1 Company type BA Bank BR Company rendering banking-related ancillary services FI Financial institution OT Other company
Core capital ratio – This ratio's numerator is core capital (tier 1) and its denominator is the basis of assessment (incl. market risk).
Deferred tax assets – The amounts of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses, and the carry forward of unused tax credits.
GlOSSARy net investment or small initial net investment and that is settled at a future date.
Earnings per share (EPS) – Profit attributable to ordinary equity holders (profit adjusted by dividends to preference shareholders) divided by the weighted average number of ordinary shares outstanding during the period.
Goodwill – Any excess of the cost of the acquisition over the acquirer’s interest in the fair value of the identifiable assets and liabilities acquired as at the date of the exchange transaction.
Held-to-maturity – Financial assets with fixed or determinable payments and fixed maturity that an entity has the positive intention and ability to hold to maturity.
loss rate – Usage of previously allocated loan loss provisions plus direct write-downs and income received on written-down claims divided by total credit exposure.
Market risk – The risk that the value of a financial instrument will fluctuate because of changes in market prices whether those changes are caused by factors specific to the individual security or its issuer or factors affecting all securities traded in the market.
Segment reporting – Disclosure of earnings and asset data for business segments (primary) and geographical areas (secondary).
SEPA – Single European Payments Area. This is a project to create a European-wide standardized payment area. In this payment area there is no distinction between crossborder and national payments for customers anymore.
Subprime loans – Mortgage loans given to borrowers who do not qualify for the prime market interest rate due to their low creditworthiness. Subprime loans are characterized by a relatively high risk of loss.
Total shareholder return – Is a ratio illustrating the development of a share investment over a period considering the dividends and increases in share price.
Albania Raiffeisen Bank Sh.a. European Trade Center Bulevardi “Bajram Curri” Tiranë Phone: +355-4-222 669 Fax: +355-4-275 599 SWIFT/BIC: SGSBALTX www.raiffeisen.al
Belarus Priorbank, OAO 31-A, V. Khoruzhey Str. Minsk, 220002 Phone: +375-17-289 9090 Fax: +375-17-289 9191 SWIFT/BIC: PJCBBY2X www.priorbank.by
Bosnia and Herzegovina Raiffeisen Bank d.d. Bosna i Hercegovina Danijela Ozme 3 71000 Sarajevo Phone: +387-33-287 100 Fax: +387-33-213 851 SWIFT/BIC: RZBABA2S www.raiffeisenbank.ba
Czech Republic Raiffeisenbank a.s. Olbrachtova 2006/9 14021 Praha 4 Phone: +420-221-141 111 Fax: +420-221-142 111 SWIFT/BIC: RZBCCZPP www.rb.cz
Kosovo Raiffeisen Bank Kosovo J.S.C. Rruga UÇK 51 Priština 10000 Phone: +381 38 222 222 Fax: +381 38 20 30 1130 SWIFT/BIC: RBKOCS22 www.raiffeisen-kosovo.com
Poland Raiffeisen Bank Polska S.A. Ul. Piękna 20 00-549 Warszawa Phone: +48-22-585 2000 Fax: +48-22-585 2585 SWIFT/BIC: RCBWPLPW www.raiffeisen.pl
Bulgaria Raiffeisen Leasing Bulgaria OOD Business Park Sofia Building 11, 2nd floor 1715 Sofia Phone: +359-2-970 7979 Fax: +359-2-974 2057 www.rlbg.bg
Croatia Raiffeisen Leasing d.o.o. Radnicka cesta 43 10000 Zagreb Phone: +385-1-6595 000 Fax: +385-1-6595 050 www.rl-hr.hr
Hungary Raiffeisen Lízing Zrt. Váci utca 81-85 1139 Budapest Phone: +36-1-298 8200 Fax: +36-1-298 8010 www.raiffeisenlizing.hu
Kazakhstan Raiffeisen Leasing Kazakhstan LLP 146, Shevchenko str. Office 12, 1st floor 050008 Almaty Phone: +7-727-2709 836 Fax: +7-727-2709 831 leasing companies
Russia OOO Raiffeisen Leasing Nikoloyamskaya 13/2 109240 Moskwa Phone: +7-495-721 9980 Fax: +7-495-721 9901 www.rlru.ru
Slovenia Raiffeisen Leasing d.o.o. Tivolska 30 (Center Tivoli) 1000 Ljubljana Phone: +386-1-241 6250 Fax: +386-1-241 6268 www.rl-sl.si
Ukraine LLC Raiffeisen Leasing Aval Moskovsiy Prospect 9 Corp. 5 office 101 04073 Kyiv Phone: +38-044-490 8700 Fax: +38-044-200 0407
Publisher: Raiffeisen International Bank- Holding AG Editor: Investor relations Editorial deadline: 4 March 2008
Investor relations contact Phone: +43 (1) 717 07 2089 Email: investor.relations@ri.co.at Internet: www.ri.co.at ▸ Investor Relations
We have exercised utmost diligence in the preparation of this annual report and checked the data contained therein. However, rounding, transmission, printing, and typographical errors cannot be ruled out. The present English version is a translation of the report that the company originally prepared in German. The company only recognizes the German version as the authentic version.
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