Raiffeisen International Bank-Holding AG Am Stadtpark 9 1030 Vienna, Austria Tel. +43-1-71707-0 Fax +43-1-71707-1715 www.ri.co.at
Raiffeisen International Group Monetary values are in €mn 2005 Change 2004* 2003 2002 Income Statement
Return on equity (ROE) before tax 21.8% (0.4 PP) 22.2% 24.1% 19.9%
Return on assets (ROA) before tax 1.68% 0.28 PP 1.40% 1.61% 1.36%
Core capital ratio (Tier 1), banking book 9.0% (2.8 PP) 11.8% 10.0% 10.8%
Info Guide: Being on the Inside in Central and Eastern Europe 2
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Ul. Obozowa 4 Warsaw’s most famous landmark The Palace of Culture and Science is Poland’s highest building. The rooftop café charms the visitor not just with the view but also with its 1950s retro chic. www.pkin.pl 5 Cosy and unsophisticated The menu is a collection of all the traditional Polish dishes, and the wooden decor of the Folk Gospoda matches it. Customers have a choice of dumplings, cabbage and mushrooms.
83 outlets; Head Office: Ul. Piętkna 20, 00-549 Warszawa Phone: +48-22-585 2000 Fax: +48-22-585 2585 www.raiffeisen.pl
Kaptol 27/1 5 Fleeing the city Many Zagreb locals like to spend their Sundays taking a short hike on the slopes of Mount Medvednica – which is still part of the city – up to the Sljeme peak.
6 Peace and quiet Maksimir Park is centuries old – as the visitor can sense every step he or she takes. The Echo Pavilion provides an acoustic surprise at the heart of this, Zagreb’s quietest district.
8 Raiffeisen International Raiffeisen Bank S.A. 216 outlets; Head Office: Piaţa Charles de Gaulle 15 011857 Bucures,ti 3 Phone: +40-21-306 1000 Fax: +40-21-230 0700 www.raiffeisen.ro 1 Must-see The castle complex on the Hradčín is crowned by the Gothic St. Vitus Cathedral, mediaeval churches and impressive palaces. It is one of the jewels of European architecture.
Tuneli 1 2 House visit The Svrzo House is a perfect example of Ottoman style with a Bosnian touch. It dates from the 18th century. It has been lovingly restored to its original condition. Gĺodina 8 3 A ramble The visitor who wants to spend Sunday walking should head for high above the city in a north-westerly direction – following the route from Bentbaša via Vrelo Bosne to Barice and Čavljak.
www.rilanationalpark.org 5 Lunch The Hadjidraganovite Kashti is an outstanding restaurant where you can enjoy local dishes in a traditional atmosphere. www.kashtite.com 6 Nature and sport Mount Vitosha rises just six miles from Sofia. It has something to offer at every time of year as a popular winter sports and recreation area.
Rruga Dëshmorët e 4 Shkurtit 2 Sign of the times The Kulla e Sahatit clock tower is right next to the mosque. It is 115 feet high and the city’s most famous landmark. It is closed on Sundays. Sheshi Skenderbej 3 Delicacies To visit Tirana and not go to the central market is to miss an astonishing fill of colours, scents, fresh fruits and culinary delights.
2 Excursion The village of Pirogovo south of Kiev is an open-air museum containing exact copies of Ukrainian houses from past centuries. Horseback tours take the visitor through the traditional hamlets. Krasnoznamennaya Vul.
5 Cinema Lovers of English-language films will be additionally rewarded by the special ambience at Kinopanorama, where the Soviet era still lives on. 19, Shota Rustaveli Vul.
Naberezhno-Khreschatytska Vul., pier 1 7 Entertainment Kiev is home to one of the world’s bestknown circus schools and is regarded as the centre of all acrobatic skills. The State Circus on Peremohy Square is well worth a visit!
JSPP Bank Aval 1.342 outlets,www.aval.ua; Head Office: 9, Leskova Vul., 01011 Kiev
A Sunday stroll through Bratislava’s city centre is always rewarding and uplifting, but the magnificence of one route surpasses everything – the Coronation Path. It’s easy to find, because it is marked with miniature crowns in the pavement. It begins at the Gothic St. Martin’s Cathedral, where 19 kings and queens were crowned. The festive processions then moved towards the main square, to be greeted by the city’s dignitaries, and continued on to the Franciscan church for the consecration of the knights. Various artistic elements apart from the miniature crowns decorate the pavement in front of the Franciscan church. It is well worth studying this historical ground. The royal trail then leads into Snow White Lane (Biela ulica). Here, one should raise one’s gaze again so as not to miss the murals on the Black Raven House. The path ends at the 14th century Michael’s Gate, which is Bratislava’s only preserved city gate. It can be seen from afar thanks to its 170-foot tower. The end of the Coronation Path is also the city’s point of reference from which distances to other cities are measured.
www.presporacik.sk 4 Sport Bratislava’s big shopping centres are also an attraction for sports fans. For instance, you can ice skate or even swim in the Aupark mall. Unfortunately, power shopping has yet to become a recognized sport. Aquapark Aulandia, www.aulandia.sk 5 The river Ships wait moored on the banks of the Danube to take the visitor on a brief ride. A path leads along the river bank. It is particularly popular with young people looking for recreation on a sunny Sunday.
Vajanského nábrežie 6 Art Bratislava’s museums and galleries are also open on Sundays. The Arthur Fleischmann Museum with its mid-20th century sculptures is truly unique. Biela ulica 6 7 A meal Locals like to go to the Prazdroj in Mostová Street. The napkin dumplings that are so typical of Slovakian cuisine are particularly delicious here. Mostová ulica 8 8 Raiffeisen International Tatra banka, a.s.
www.tesla-museum.org 5 Horses If you don’t have any sporting ambitions yourself, you could go and watch the horses competing on a Sunday at the Hippodrome. Racing takes place from March to October.
Today, the legendary GUM stands for luxury and designer fashion. Moscow is not just undergoing intensive modernization; modernistic art also has a long tradition here.
Moscow, Russia 1 Church Eight smaller chapels arranged around a central towered chapel lend St. Basil’s Cathedral – built in the middle of the 16th century – its unmistakable shape. Red Square (Krasnaya ploshchad)
Novodevichy proezd, 1 3 Café At night, the trendy Courvoisier café with its rich choice of culinary treats is one of Moscow’s most fashionable chill-out clubs. Malaya Souharevskaya ploshchad, 88 4 Sport Olympiysky is the name of Moscow’s biggest and best indoor swimming pool. The complex dates from the Soviet era. Swimming is just one of the many sports one can do here.
Sofiyskaya Naberezhnaya, 34 8 Raiffeisen International ZAO Raiffeisenbank Austria 27 outlets; Head Office: Troitskaya Ul. 17/1, 129090 Moskva Phone: +7-495-721 9900 Fax: +7-495-721 9901 www.raiffeisen.ru
Budapest developed out of three separate towns when Buda, Óbuda and Pest grew together. Now, the Danube no longer separates them; it is their shared heart. If you don’t really want to go shopping on Sunday – and shopping on Sunday is not a problem here – and instead prefer to leave the city for a bit of an outing, follow the Danube northwards. It is most beautiful where it bends west. Visegrád, a small village on the bank of the river, is worth a closer look. One can walk up the hill to a ruined 13th century citadel. The view is marvellous, and exhibitions and the rebuilt rooms in the citadel tell one about local history. The next stop on our Sunday excursion has to be Szentendre. This small baroque town replete with Mediterranean charm is full of picturesque nooks and crannies. Narrow winding alleyways take one to orthodox churches, souvenir shops and numerous little cafés. The artists’ village is as sweet as its marzipan museum and as multi-faceted and scintillating as the Caprice jewellery factory.
www.parlament.hu 4 Water hoses Visit the Museum of the Fire Brigade to discover the history of fire-fighting over a period of 2,000 years and to marvel at finds from a Roman fire station. Martinovics Ignácz tér 12 5 Monumental The Museum of Fine Arts is exactly 100 years old. It is home to roughly 100,000 works, spanning ancient Egypt to the classical world to the modern age. It is a true temple! www.szepmuveszeti.hu 6 Lunch It is new, chic and tasty. The Menza is a nostalgic paraphrase of minimalist canteen design from the 1970s. www.menza.co.hu 7 Nightlife The Kameleon is said to be Budapest’s hottest club. The name promises a lot of colour, but that is deceptive. Everything here is red. Apart from a few cocktails, that is.
6 Sunday excursion Prizren is just 25 miles away. This small old town owes its special appeal to the Sinan Pascha mosque, Turkish baths, old monasteries and narrow alleyways.
Ul. Surganova 2a 3 Peace In the summer, the Botanical Garden is an oasis of Sunday calm. You might very occasionally hear the beating of a swan’s wings. The air is filled with the scent of exotic flowers.
www.madison.by 8 Raiffeisen International Priorbank, JSC 43 outlets; Head Office: 31-A,V. Khoruzhey Street, 220002 Minsk Phone: +375-17-289 9087, 289 9001 Fax: +375-17-289 9191 www.priorbank.by
Ul. Obozowa 4 Warsaw’s most famous landmark The Palace of Culture and Science is Poland’s highest building. The rooftop café charms the visitor not just with the view but also with its 1950s retro chic. www.pkin.pl
www.folkgospoda.pl 6 Musical theatre The theatre and the opera are in the same building but with different entrances. The opera is a frequent source of controversy with its avantgarde productions.
1 Must-see The castle complex on the Hradčín is crowned by the Gothic St. Vitus Cathedral, mediaeval churches and impressive palaces. It is one of the jewels of European architecture.
3 Ride round the city On a rainy Sunday or when your feet are already hurting, you can also take a tour of the city centre on the historical Prešporáčik tram.
Budapest, Hungary 1 City walk Romantic passages in the city quarter on the castle hill take one past mediaeval and Gothic houses to baroque palaces, the Fisherman’s Bastion and the Matthias Church. One place to start is the Viennese Gate. Bécsi kapu tér 2 Taking a bath There are good reasons why Budapest’s old baths are world-famous. It’s a difficult choice to make. Király? Rudas? Lukács? Széchenyi? Our favourite is the fashionable Gellért.
www.parlament.hu 4 Water hoses Visit the Museum of the Fire Brigade to discover the history of fire-fighting over a period of 2,000 years and to marvel at finds from a Roman fire station. Martinovics Ignácz tér 12
5 Monumental The Museum of Fine Arts is exactly 100 years old. It is home to roughly 100,000 works, spanning ancient Egypt to the classical world to the modern age. It is a true temple! www.szepmuveszeti.hu 6 Lunch It is new, chic and tasty. The Menza is a nostalgic paraphrase of minimalist canteen design from the 1970s. www.menza.co.hu 7 Nightlife The Kameleon is said to be Budapest’s hottest club. The name promises a lot of colour, but that is deceptive. Everything here is red. Apart from a few cocktails, that is.
Trg francoske revolucije 4 3 A walk Tivoli Park is immediately adjacent to the city centre. One of the marked routes will take you to Tivoli Mansion, built in the 19th century. From there, you will have a magnificent view over the city.
4 Galleries Slovenia and, above all, Ljubljana are known for their lively young art scene. One gallery adjoins another along Židovska street. This could be a good opportunity to buy some art.
5 Fleeing the city Many Zagreb locals like to spend their Sundays taking a short hike on the slopes of Mount Medvednica – which is still part of the city – up to the Sljeme peak.
8 Raiffeisen International Raiffeisenbank Austria d.d. 39 outlets; Head Office: Petrinjska 59, 10000 Zagreb Phone: +385-1-456 6466 Fax: +385-1-481 1624 www.rba.hr
Bosna i Hercegovina 68 outlets; Head Office: Danijela Ozme 3, 71000 Sarajevo
Belgrade, Serbia and Montenegro 1 A church The Temple of Saint Sava stands on the plateau of the Vračar quarter. Construction began in 1894 and was frequently interrupted until 1984. Today, the temple is one of the city’s main landmarks.
Krušedolska 2 2 City walk The pedestrian zone on Knez Mihajlova is lined with luxury shops and art galleries. It gives one an insight into this city’s social life.
5 Horses If you don’t have any sporting ambitions yourself, you could go and watch the horses competing on a Sunday at the Hippodrome. Racing takes place from March to October.
Paštrovićeva 2 6 Evening meal The Madera in Tašmajdan Park is a very pleasant restaurant that has an open-air terrace in the summer. It serves both national and international food. Bulevar kralja Aleksandra 43 7 Nightlife Jazz fans will want to while away the whole evening in the Plato. The food is delicious, the drinks are well-mixed, and there are live concerts at weekends. Ulica Vase Čarapića 19 8 Raiffeisen International Raiffeisenbank a.d.
Pristina, Kosovo 1 Must-see The National Library, built in 1957, is a modern interpretation of the Byzantine domed building. It was seriously damaged in the war but can now be admired in its entirety again.
5 Rest Sunday may be a day of rest – but not for the many good restaurants im Germia Park where one can fortify oneself after a run or a walk.
Sheshi Avni Rustemi 4 Delicate The elegantly curved Ottoman Ura e Tabakeve stone bridge was built in the 18th century. It leads across the Lana creek to the Merchants’ Quarter. Bulevardi Zhan D’Arc
4 Sport Physical regeneration on a Sunday can mean many things. Lying-in, say. Or just the opposite, namely visiting the World Class Health Academy Fitness Club in the Marriott Grand Hotel. Calea 13 Septembrie 90
Sofia, Bulgaria 1 Must-see The architecture of the monumental Alexander Nevski Memorial Church in the old town is striking. It commemorates the end of 500 years of Ottoman occupation in 1878. Ploshtad Aleksandur Nevski 2 Highlight The St. George Rotunda is the city’s oldest preserved building. Its eventful history began in the 4th century. The mediaeval frescos inside are particularly impressive.
5 Lunch The Hadjidraganovite Kashti is an outstanding restaurant where you can enjoy local dishes in a traditional atmosphere. www.kashtite.com 6 Nature and sport Mount Vitosha rises just six miles from Sofia. It has something to offer at every time of year as a popular winter sports and recreation area.
7 Nightlife A pleasant little bar called Toba&Co just behind the National Gallery of Art lures the visitor with cool drinks and hot DJs in the former butterfly pavilion of Tsar Ferdinand.
2 Must-see The Smolensky Cathedral in the Novodevichy Convent impresses the visitor with its magnificent 16th century frescos and wonderful icons. Novodevichy proezd, 1 3 Café At night, the trendy Courvoisier café with its rich choice of culinary treats is one of Moscow’s most fashionable chill-out clubs. Malaya Souharevskaya ploshchad, 88 4 Sport Olympiysky is the name of Moscow’s biggest and best indoor swimming pool. The complex dates from the Soviet era. Swimming is just one of the many sports one can do here.
5 Restaurant Rakovsky Brovar does its own brewing. Food is cooked according to old traditions. Order some Kvas, the national beverage, to wash down your potato pancake and sour cream.
36 www.ri.co.at Preface Managing Board Supervisory Board’s Report Overview Interview Stock
The year 2005 was certainly the most eventful in the young history of Raiffeisen International, with several important courses being set for our company’s future. It was also by far the most successful year that we have had.
Our debut as a publicly traded company on the Vienna Stock Exchange was the highlight of the first half-year. With a total value of € 1.1 billion, our IPO was the largest in the Austrian capital market’s history. The extraordinary interest of Austrian private investors and institutional investors at home and abroad was evidenced by the fact that the issue was 22 times oversubscribed. Our stock’s very gratifying price performance since its trading began underscores the capital market’s high approval of our company and strategy.
It is especially gratifying that this growth has occurred on a broad basis across all business areas. The continuously positive development in retail banking deserves special mention. We defined retail customers as a new high-growth target group in 1999. Successful cultivation of that segment required a broad and cost-intensive expansion of the distribution network. The success of this strategy is shown by this increasingly growing business area having contributed positively to earnings for the first time in 2004 and then accounting for 20.7 per cent of our pre-tax profit in 2005.
We also expanded our leading regional presence in the past year. After founding our own leasing company in Kazakhstan at the beginning of 2005, we are now present with subsidiaries in 16 markets. We have thus taken another good step toward our goal of being the leading banking group in Central and Eastern Europe. The acquisition of Ukraine based Bank Aval – the standout event of the second half of the year – particularly contributed to that and has set an important course for the future. Together with our existing Raiffeisenbank there, the acquisition has catapulted our Group to the lead position in that market. Ukraine is not only Eastern Europe’s second largest market with a population of almost 50 million, but also exhibits significant demand for banking products. With 1,342 business outlets, Raiffeisen International is optimally positioned to meet the high demand for banking services in the entire country and profit more than proportionately in the process. Parallel to that, by adding about 160 new business outlets, we have considerably expanded our branch network to provide customers in the Ukraine with an enhanced access to our products.
Herbert Stepic Chairman of the Managing Board Raiffeisen International Bank-Holding AG
Peter Lennkh, Martin Grüll, Rainer Franz, Herbert Stepic, Aris Bogdaneris, Heinz Wiedner
Retail Risk Management * Training and Executive Development report to Rainer Franz. ** Outsourced to RZB.
Raiffeisen International’s successful IPO in spring 2005 enabled it to enter a new phase of its dynamic expansion. Its limited circle of owners has been opened up, and many have taken the opportunity to become new shareholders and participate in Raiffeisen International’s success.
The Managing Board of Raiffeisen International continuously informed the members of the Supervisory Board or the members of the Committees about important management measures. The company was managed in the framework of open discussion between the Managing Board and the Supervisory Board both at and outside their meetings. At all meetings, the Supervisory Board performed the tasks assigned to it by law and the articles of association in observance of the Austrian Corporate Governance Code.
The auspices for continuing success are good. The Supervisory Board will do its part to ensure that it materialises. In that spirit, we look forward to the shared path ahead in 2006 and beyond.
At the end of December 2005, Raiffeisen International had network banks and leasing companies in 16 markets of Central and Eastern Europe (CEE). We also have representative offices to serve the markets of Moldavia and Lithuania. Raiffeisen International network banks are among the three largest banks in seven markets and are Number One in four of those: in Albania, Bosnia&Herzegovina, Serbia & Montenegro and Ukraine.
44 www.ri.co.at Preface Managing Board Supervisory Board’s Report Overview Interview Stock
What are the primary goals for 2006? Our top priority is to complete the transformation process in Ukraine quickly. We are absolutely in line with our ambitious schedule and are striving for the legal merger of the two banks – Bank Aval and Raiffeisenbank – this year. As a first step, the areas of risk management and treasury have been combined into Group functions. We would like to prepare the operational merger, that is, the combination of all processing systems and back-office functions, in essential respects this year and complete it in 2007. We know that we have to utilise our early-mover advantage in Ukraine, as our expansion has already drawn our competitors’ attention to the market’s huge potential.
We also plan in some areas – either regionally or Group-wide – to bundle processing activities in order to gain further synergies. In addition, we are seeking to reduce costs considerably by centralising purchasing and procurement.
Aren’t you gradually reaching the limits of your management capacity and capital base? Thanks to our good positioning – especially in the CIS region – we are able to prepare and execute relatively large acquisition projects. We have the necessary human resources and, by means of intensive Group-wide training and programmes to promote junior staff, are deliberately creating the capacities to fill management positions. As far as our capital is concerned, we continue to have sufficient resources at our disposal. In addition, we have enough room to raise hybrid Tier 1 capital. That involves forms of capital that represent core capital of high value from a regulatory standpoint without dilution of existing shareholdings. So, the financing of our growth is assured. We will, therefore, again be a very major player in Central and Eastern Europe’s banking business in 2006.
The stock of Raiffeisen International Bank-Holding AG has been quoted on the Vienna Stock Exchange since 25 April 2005. The issuance price was € 32.50. The opening price on the first day of trading was set at € 39.00. The capital market has thus clearly demonstrated its approval of the stock issue and the related strategic orientation of Raiffeisen International.
Raiffeisen International ATX (relative to RI) DJ EURO STOXX Banks (relative to RI)
Since the IPO, the number of shares outstanding amounts to 142.8 million. The free float is 30 per cent. Raiffeisen International’s main shareholder is Raiffeisen Zentralbank Österreich AG (RZB), which owns 70 per cent. At the time of the IPO allotment, institutional investors received about 14 per cent in Raiffeisen International, private investors about 10 per cent, the International Finance Corporation (IFC), a member of the World Bank Group, and the European Bank for Reconstruction and Development (EBRD) about 3 per cent each.
Raiffeisen International measured up to its claim to be a growth stock exclusively invested in Central and Eastern Europe and registered impressive performance. At € 39.00, the initial price setting was 20 per cent above the issuing price of € 32.50. Shareholders, who have participated in Raiffeisen International since the issue, saw their investment grow by more than 70 per cent in the period to the end of December. That surpassed not only the ATX (plus 39 per cent), but also the Dow Jones EURO STOXX Banks, the European benchmark index for banks, which only gained 24 per cent.
Number of stocks Weight of RI in the Index (selection) in the index index (rounded)
Raiffeisen International offers an e-mail service to ensure that the capital market and private shareholders receive uniform information simultaneously. Interested parties may register for this information service at www.ri.co.at p Investor Relations p Ordering and E-mail Service.
As at the end of December, Raiffeisen International was comprehensively covered by 14 investment banks and analyst firms. Up to that time, 40 research reports had been written about Raiffeisen International. Some of those are available on the internet as PDFs at www.ri.co.at p Investor Relations p RI Shares p Analyst Reports. To date, reports on Raiffeisen International have been written by analysts at the following firms: Bank Austria Creditanstalt KBW – Keefe, Bruyette & Woods Banque SYZ Merchant Securities Cheuvreux Merrill Lynch Deutsche Bank Morgan Stanley Erste Bank Raiffeisen Centrobank Fox-Pitt, Kelton SRC GSC Research UBS
The annual meeting for all shareholders will be held on 7 June 2006 at the Austria Centre in Vienna. A dividend of € 0.45 per share will be proposed at the annual meeting. The payout will therefore amount to about € 64.2 million. That yields a payout ratio of 16.8 per cent.
The new shareholders who subscribed shares in the IPO or purchased them after the listing on the Vienna Stock Exchange are fully entitled to dividends for the year 2005. The dividend will be paid out on 13 June 2006 to the shareholders via the banks that maintain their securities accounts based on holdings as at 12 June 2006.
50 www.ri.co.at Preface Managing Board Supervisory Board’s Report Overview Interview Stock
Trading volume from issue date to 31 December 2005 (single counting) € 2,129 m
Ticker symbols RIBH (Vienna Stock Exchange), RIBH AV (Bloomberg), RIBH.VI (Reuters)
Raiffeisen International Bank-Holding AG, Investor Relations Am Stadtpark 9, 1030 Vienna, Austria
Open and transparent communication with shareholders and the interested public is a special concern. Raiffeisen International therefore offers extensive information on its website: - Articles of Association of Raiffeisen International as PDF to download - Directors’ dealings - News: Ad hoc announcements and press releases - Financial reports: Interim and annual reports - Financial calendar: Report publication dates and annual meeting and dividend payment dates - Share price chart and information - Analyst reports, including PDFs of some reports to download - Facts and figures: Strategy, shareholder structure and data overview - Ordering and e-mail service: Requesting printed materials and joining the investor relations mailing list
After several months of negotiations and a due diligence examination of Bank Aval, the contract of sale was signed in Kiev on 20 August. Approvals then had to be obtained from the National Bank of Ukraine and other relevant authorities in Ukraine and Austria to formally close the deal. The approvals were issued and the closing occurred on 20 October. The purchase price for a 93.5 per cent stake in Bank Aval amounted to USD 1,028 million, one of the largest transactions in Austrian economic history. Raiffeisen International has undertaken the obligation to buy the shares of the remaining minority shareholders – Bank Aval is listed on the Kiev Stock Exchange – at the same price per share.
After the deal was closed in October 2005, the emphasis was set for the integration process. The back-office functions and IT systems will gradually be combined during a two-year transformation phase. The complete operational merger of the two banks, including harmonisation of the corresponding IT systems and combination of back-office functions, will be completed by 2008 at the latest. The possibility of an earlier legal merger of the two banks, i.e., registration of a legal business entity under a single name and management, is planned for the current year.
After record growth in 2004, economic expectations for 2005 were more cautious, which proved correct in the first half of the year. However, a significant upturn of the growth trend is discernible in figures for the third quarter of 2005. For Poland, Slovakia, Slovenia, the Czech Republic, and Hungary (CE), average economic growth in 2005 is estimated at 4.0 per cent (2004: 5.0 per cent). The Southeastern European markets (Albania, Bosnia and Herzegovina, Bulgaria, Kosovo, Croatia, Romania, and Serbia and Montenegro; SEE) probably grew by 4.5 per cent on average (2004: 7.0 per cent). This decline mainly reflects the cooling of the Romanian economy (2005: about 4.0 per cent), which still ran the risk of overheating in 2004 with a real economic growth rate of 8.3 per cent.
Sources: Local national statistical offices, Vienna Institute for International Economic Studies (WIIW), Raiffeisen RESEARCH
Despite the severe rise of oil prices, the average inflation rate in CEE declined in 2005 with few exceptions. In some of the new EU member states, there had been significant increases of regulated prices and indirect taxes in 2004 in connection with accession to the EU. The resulting impact on inflation rates abated in the subsequent year. Added to that was a favourable development of the currencies, which appreciated against the euro, in some cases sharply. That had a dampening effect on prices of imported goods and partly offset the rise of oil prices. As a result, inflation rates in CE, at 2.4 per cent, were on average almost 2 percentage points lower than in the year before (2004: 4.3 per cent). Except for Serbia, where a severe rise of inflation to above 10 per cent was registered in 2005, the disinflation trend in SEE continued and the average inflation rate declined to 7.6 per cent (2004: 8.2 per cent). On the other hand, the CIS countries experienced an increase of average inflation rates to 12.5 per cent (2004: 11.1 per cent) due to price development in Russia and Ukraine.
Raiffeisen International 2005 Group Management Report against the US dollar since 2001, the central bank allowed the currency to revalue by about 5 per cent to UAH 5.05 in April 2005. The hryvnia appreciated even more against the euro due to the European currency’s development against the US dollar.
Realising these projects proceeded at different paces, which resulted in significant country-specific differences in the development of the banking sectors.
There has been an outright boom in consumer and mortgage lending that has now spread from the new member states (CE) and Croatia to the other countries of Central and Southeastern Europe. Croatia, Romania, and Bulgaria – all three countries have registered high current account deficits in recent years – stepped up restrictive measures to stem lending growth in 2005. Above all, the increasing share of loans in euros is also causing central banks concern in other countries. However, the volume of those loans in relation to GDP is still low in almost all CEE countries and promises strong growth in this segment for the long term.
Status: 31 December 2004, Sources: Local central banks; Vienna Institute for International Economic Studies (WIIW); Raiffeisen RESEARCH
Besides the already high market share of international banks, the degree of concentration in the CEE banking sectors has increased further. The takeover of Hypovereinsbank by UniCredit will also contribute to that. The market share of international banks in Ukraine more than doubled in 2005 as a result of Raiffeisen International’s takeover of Bank Aval. Overall, this development is likely to continue in the CEE countries. The steadily growing market share of international banks has led to significantly stiffer competition in addition to expertise in modern bank products and efficient risk management.
The bank groups operating in CEE are pursuing different strategies, which are reflected in their market involvement. While some concentrate on high market shares in a small number of markets, Raiffeisen International pursues a more broadly based strategy that covers the entire region. Raiffeisen International is present in the region with network banks and leasing companies in 16 markets and furthermore with two representative offices.
Market share of banks under foreign control, in per cent of total assets
In April 2005, the stock of Raiffeisen International was listed on the Vienna Stock Exchange in the Prime Market segment. The issuing price was set at € 32.50 per share. Because of high demand, the subscription period was shortened first for private shareholders and then for institutional investors.
In January 2005, Raiffeisen-Leasing International, a subsidiary of Raiffeisen International, founded a leasing company in Almaty, Kazakhstan. The number of markets served by our operations thus increased to 16, supplemented by two representative offices in Moldavia and Lithuania.
Raiffeisen International Group managed to raise the number of its customers in 2005 to 9.7 million. Excluding the Bank Aval acquisition, the number increased by 1.4 million customers. Our balance sheet total rose by € 11.8 billion to € 40.7 billion as of the end of 2005.
We made rapid progress in expanding our network last year. We opened 185 new business outlets (excluding Bank Aval), which represents a plus of 20.2 per cent. Including Bank Aval, the number of business outlets grew to more than 2,400. The number of our employees increased accordingly by 90.9 per cent or 20,800 versus the preceding year to about 43,600. The increase without Bank Aval amounted to 18 per cent or 4,118 employees.
Summary of consolidated performance Since 2001, the consolidated financial statements of Raiffeisen International have been prepared on the basis of the International Financial Reporting Standards (IFRS). The legal situation in Austria is that consolidated financial statements prepared in accordance with internationally accepted accounting principles have an exempting effect in that consolidated financial statements prepared in conformity with the Austrian Banking Act (BWG) and Commercial Code (HGB) are no longer required. However, Raiffeisen International Bank-Holding AG also prepares individual financial statements in conformity with Austrian law, because they provide the formal basis for calculating distributions and taxes.
Raiffeisen International Group is made up of 16 network banks, 31 finance leasing companies, and a number of financial institutions and bank-related service providers. Regarding changes in the scope of consolidation, please see section Scope of consolidation of the notes on page 106.
The significant earnings improvement in operating business was not influenced by appreciable one-off effects. The increase of operating income by 46 per cent, or € 590 million, to € 1,887 million is a result of all major earnings components. However, special note should be taken of net interest income, which grew above average by nearly 50 per cent. In addition to the acquisition in Ukraine, organic expansion of the distribution network and range of services was again accelerated in 2005. General administrative expenses consequently increased by 41 per cent, or € 339 million, in line with development of the balance sheet total.
Net interest income grew by almost half from € 803 million to € 1,202 million. Its share in operating income thus amounted to 64 per cent, which was 2 percentage points above the preceding year’s figure. In absolute terms, net commission income also increased significantly by 36 per cent to € 407 million, as did trading profit by 37 per cent to € 301 million. However, their shares in operating income decreased by 1 and 2 percentage points respectively. Other operating profit/loss played a minor role in the composition of the income statement, with a loss of € 22 million.
Minority interests in profit also grew less than proportionately by 28 per cent from € 60 million to € 77 million. That was because the profit increases came mostly from those Group units that have few to hardly any minority shareholders.
Net interest income Trading profit Net commission income Other operating profit (loss)
The gratifying development of Raiffeisen International is also evident in the reports from our business segments, all of which increased their earnings significantly.
The corporate customer segment continues to be the Group’s most important. Earnings improvement came to 47 per cent, and earnings before taxes rose to € 337 million. This increase was slightly greater than that of business volume. Risk-weighted assets went up by 44 per cent to € 14.4 billion. The positive situation in respect to provisioning for impairment losses, which were reduced by 5 per cent to € 72 million, contributed substantially to that development. Because of the sharp increase of own funds, this segment’s return on equity decreased despite the high profit growth by 2.5 percentage points to 26.9 per cent. Because of the somewhat more moderate increase of general administrative expenses by 25 per cent compared with operating income, the cost-income ratio improved further to 40.2 per cent.
In the treasury segment, Raiffeisen International achieved a pre-tax profit of € 184 million, which represents an increase of 65 per cent, or € 72 million. Both net interest income (plus 56 per cent) and trading profit (plus 47 per cent) benefited from the positive interest rate and currency environment in the CEE countries. The segment’s business volume and risk-weighted assets rose less than proportionately by 12 per cent to € 4.8 billion. Because equity is attributed to the segments based on riskweighted assets, the return on equity went up very significantly to 43.8 per cent (plus 10.6 percentage points).
Provisioning for impairment losses registered a net increase in 2005 of 22 per cent, or € 30 million, to € 167 million. Of that increase, € 7 million derived from changes in the scope of consolidation.
The Group’s loss rate (written-off loans in relation to loans outstanding) remained low, having declined from 0.15 to 0.13 per cent. The risk-earnings ratio (provisioning for impairment losses in relation to net interest income) improved further and, at 13.9 per cent, was below the medium-term target of at most 15 per cent and 3.21 percentage points below the preceding year’s figure.
Net commission income showed continuous growth, increasing in 2005 by 36 per cent, or € 107 million, to € 407 million. Newly consolidated companies accounted for € 26 million of that, which was almost one-fourth of the plus. At € 229 million and a share of 56 per cent, payment transfer business remained the most important earnings source. There were also significant increases in commission from securities business, with growth of 126 per cent to € 23 million, and in foreign exchange business, whose net commission income increased by 49 per cent
Payment transfers FX, notes/coin, Credit and guarantee business precious metals business Securities business Other banking services
Trading profit advanced by 37 per cent, or € 81 million, to € 301 million. It includes both realised and unrealised gains and losses arising from all positions in the trading portfolio net of refinancing costs arising from asset items in the trading portfolio.
Raiffeisen International’s trading profit has traditionally been determined by customer-related trading in foreign exchange and notes and coins. Development on the interest rate and foreign exchange markets has little influence there, and earnings are primarily determined by the volume of orders placed by customers. Net income from currency-related business therefore increased, parallel to total net income, by almost 40 per cent to € 287 million. Of that, 52 per cent was generated in the region of Central Europe. Customer segments accounted for two-thirds of net income from foreign currency trading, with corporate customers and retail customers showing nearly equal shares.
Net income from financial investments and current financial assets contributed € 5 million to Raiffeisen International’s consolidated profit in 2005, which was 70 per cent, or € 2 million, more than in the preceding year. The largest part of this result came from sales of equity participations, including the sale of Renault Credit Rt., Budapest, and Raiffeisen OSIGURANJE d.d., Sarajevo, an insurance company.
Net income from other current financial assets rose by 12 per cent to € 6 million. It breaks down into € 4 million of realised gains and € 2 million unrealised gains.
The average number of staff working for the Group (full-time equivalent basis) grew by 38 per cent, or 7,785, to 28,588. The increase was thus slightly below that of costs, which was due to currency effects and planned wage and salary increases in the CEE region. Operating income per staff member improved further from € 62 thousand to € 66 thousand.
Bank Aval was included in the average number of staff only for one quarter. Nevertheless, the increase of staff in the CIS countries was the highest, at 140 per cent to 8,373. In the region of Central Europe, the rise was lower, at just under 10 per cent, which is due to the already high market penetration achieved in some countries.
Group Management Report Raiffeisen International 2005 many countries. The main expenditures for that concerned rents for buildings, implementation of settlement systems, and marketing.
Accounting for 27 per cent of other administrative outlay, premises and rent expenses rose by 35 per cent, or € 32 million, to € 125 million, and thus formed the most important cost pool. IT and communication expenses are likewise significant, climbing by 44 per cent to a combined total of € 112 million. The increases here are also due to system changeovers and optimisation of processes. Advertising expenses went up by 28 per cent to € 59 million and reflect measures to acquire customers in the newly developed local markets.
Other operating profit/loss improved from a loss of € 30 million to a loss of € 22 million. That was primarily due to changes in the IFRS rules concerning goodwill amortisation. While goodwill amortisation of € 21 million had been booked in the preceding year, there was only an impairment loss of € 3 million in 2005, which was charged for Raiffeisen Krekova banka d.d., Maribor.
On the other hand, non-profit-dependent taxes rose by 30 per cent to € 28 million. The balance arising from allocations to and releases from other provisions increased from zero to € 11 million. These provisions largely consisted of provisions for various legal cases.
Balance sheet development Raiffeisen International’s strong growth continued in 2005. Our consolidated balance sheet total increased by 41 per cent on the preceding year
Raiffeisen International increased its equity inclusive of consolidated profit and minority interests by half in the year under review. It amounted to € 3,276 million on the balance sheet date (2004: € 2,177 million).
Earned capital rose by 86 per cent, or € 449 million, to € 971 million. That includes consolidated profit for the year under review in the amount of € 382 million and retained earnings, which were influenced primarily by the effects of exchange rate developments in the CEE countries (€ 115 million), capital hedges (loss of € 57 million), and hyperinflation accounting (€ 5 million) in addition to ploughed-back profits from 2004 of € 207 million.
Minority interests in equity increased by 41 per cent from € 337 million to € 475 million. The main reasons for that were minority interests in profit of € 77 million, capital contributions from third parties to various Group units amounting to € 43 million, and changes in the scope of consolidation (€ 28 million).
Raiffeisen International’s consolidated own funds as defined by the Austrian Banking Act (BWG) came to € 2,938 million at the end of last year (increase of 25 per cent, or € 579 million).
Core capital rose € 415 million on the preceding year and now stands at € 2,392 million. It was positively influenced by profits in 2005, by capital increases, including especially one of € 555 million in connection with our IPO, and by the positive effects of rising CEE exchange rates on equity of about € 120 million. Set against that was the direct deduction of goodwill arising from acquisitions of about € 610 million, which was required by a different consolidation method prescribed by the Austrian Banking Act.
Those own funds compare with a steadily rising own funds requirement according to the Austrian Banking Act of € 2,393 million. This corresponds to an increase of 52 per cent, or € 822 million. The excess cover thus comes to 23 per cent.
The core capital ratio – measured in terms of the banking book – declined by 2.8 percentage points to 9.0 per cent. The core capital ratio (including market risk) – i.e., measured in terms of total riskweighted assets – results in a 2005 value of 8.0 per cent (minus 2.1 percentage points). The own funds ratio declined by 2.2 percentage points to 9.8 per cent. Raising hybrid core capital is planned for 2006, so that further growth of business volume is covered.
Risk management Active risk management is a core competence for Raiffeisen International, especially in view of the various levels of development in the countries of Central and Eastern Europe. By taking a pioneering role in many of those countries, we have gained valuable expertise in establishing a targeted risk management system. The constantly advancing integration of our network banks ensures further dynamic, but risk-conscious growth.
A detailed presentation regarding the definition of the different types of risk (market risk, credit risk, liquidity risk, and operational risk) and the organisation of our risk management activities may be found in the notes to the financial statements on page 146 ff.
Immediately after the closing, the actual transfer of ownership on 20 October 2005, work began to adapt and reorganise the risk management according to Raiffeisen International’s standards. For both banks, Raiffeisenbank Ukraine and Bank Aval, the position of chief risk officer was filled by the same person, someone with many years of experience in the Raiffeisen International Group. Further integration steps already taken included, among others, a joint credit committee and recording the exposures to the companies that had credit lines with the two banks (group of linked customers). For these customers, a uniform customer service concept has been developed. The entire portfolio of corporate loans has already been appraised on the basis of Raiffeisen International’s internal rating standards.
The implementation of a business process management system across the network using 6 Sigma methodology was a major undertaking in 2005. Key business processes were defined, measured, and improved, with specific focus on high-volume, retail-related products and processes. The optimisation and ongoing management of our key business processes will support the large growth in our retail business in a cost-effective way.
Quality and productivity remain our prime goals in the Operations area, with each unit in the network having to complete and report their most important projects and share the experience across the network. We introduced a series of KPIs (key performance indicators) for operations and IT in the Group, which serve as internal benchmarks.
We implemented a central procurement department at RI Vienna and developed standards and guidelines for procurement across the Group. All major IT purchases are routed through the central department, with the objective of achieving the best price by using framework agreements for the entire RZB Group and RI and a transparent tendering process involving electronic auctions where applicable.
We continued to expand our card processing centre in Bratislava, where card transactions are now processed for seven countries and card volume / transaction volume has increased by 49 /44 per cent. The systems were also upgraded to cover the new chip technology. In addition, we bought a card processing company in Ukraine, which currently provides card services to 30 banks. This centre should serve as a hub to provide card processing for the whole CIS region and complements our centre in Bratislava well.
Our standard treasury trading system GTS was implemented in two network banks, Russia and Croatia, and further installations are planned in several countries with high treasury volume. The system is run and managed at RZB Vienna, and the countries have on-line remote connections.
Raiffeisen International has measured up to its role as a major employer in the entire region. More than 43,600 employees are already working for the company. Due to strong organic growth and the acquisition of Bank Aval (see section on p. 53), the number of its employees has increased from about 20,800, or by 90.9 per cent, since the end of 2004.
On average, they accounted for 69 per cent of all employees at the end of 2005, although the proportion of university degree-holders varies from country to country, in some cases considerably.
However, that also depends on the countries’ different levels of development.
The structure of our personnel changed only slightly compared with the preceding year. The proportion of women was 68 per cent. The average age in all units came to 34 years. In regional distribution, there was a shift in favour of the segment comprising the CIS countries due to the acquisition of Bank Aval.
We established a training architecture in 2005 to ensure uniform standards in all our network banks. The goal is to achieve not only a common level of training, but also a systematic management process for conducting training activities. The training architecture consists of the following modules, with the content geared to the various areas of employment: - Introduction for all new employees, regardless of level in the hierarchy and previous education - Employees in the business outlets (including cashiers) - Advisors for small and medium-sized enterprises - Advisors for corporate customers - Employees in treasury and investment - Risk managers (for all segments) - Management
Southeastern Europe: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania, Serbia and Montenegro (incl. Kosovo) Central Europe: Poland, Slovakia, Slovenia, Czech Republic, Hungary CIS countries: Belarus, Russia, Ukraine
To ensure efficient implementation of the training programme, we have established a regional training centre in Zagreb, for example, where all employees of our network banks in Albania, Bosnia and Herzegovina, Croatia, Serbia and Montenegro, and Slovenia receive their internal introductory and advanced training. In addition to concentrating expertise in one location, this also has the desired effect of further improving networking among the region’s employees.
The performance management process consists of the following elements: - Definition of objectives and standards of conduct - Support of employees in achieving objectives - Ongoing monitoring of work performance and feedback to employees - Performance evaluation: What (objectives)
and how (conduct) - Recognition and reward of deserving performance - Preparation of employee development plans
The goal of the job-grading project (evaluation of individual functions) within an organisational unit is to create uniform structures throughout the Group. These structures serve as the basis for succession planning, compensation, selection of employees for junior management programmes, and preparation of career paths. We have used an internationally recognised method to set up the structures. The staff responsible for that has already been trained in Vienna so that the method is efficiently implemented in the individual network banks.
In all our network banks, all management functions that involve reporting directly to the managing boards in the individual countries were evaluated in 2005. We are evaluating all other functions step by step. The goal is to establish a systematic job structure.
The Managing Board of Raiffeisen International has established a share incentive programme, which the Supervisory Board approved on 23 August 2005. The programme provides for a performancebased allotment of shares in the company to members of the top management after a three-year qualifying period. The share incentive programme is for the Managing Board, members of the managing boards of Raiffeisen International’s bank subsidiaries, and selected executives of Raiffeisen International Bank-Holding AG. To benefit from the programme, the top management personnel must themselves make an up-front investment and buy Raiffeisen International shares. The individual managers must hold the purchased shares for a period of three years.
We expect strong earnings growth for the medium term in the CIS countries and above all in Ukraine and Russia. Due to the acquisition of Bank Aval, business in Ukraine will be marked in 2006 by the integration of our two banks there. Subject to pending approvals after the completed acquisition, the Russian firm Impexbank will also be consolidated in the course of this year and therefore only affect the full year’s earnings pro rata temporis. Restructuring measures in these two countries will burden earnings accordingly.
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We continue to judge the potential for the countries of Southeastern Europe optimistically, but somewhat more cautiously because of restrictions on credit growth prescribed by supervisory authorities there. In Central Europe, we are increasingly focusing on the fast-growing segment of asset management products in addition to traditional business.
Our dense network with more than 2,400 business outlets in 16 markets and two representative offices makes us one of the leading banking groups for Eastern Europe. Our outstanding market position is a good basis for optimally utilising the substantial potential there and hence continuing to generate strong organic growth.
On 31 January 2006, Raiffeisen International Bank-Holding AG signed a contract to purchase 100 per cent of Russian JSC Impexbank. The purchase price will be up to US$ 550 million plus a possible price adjustment due to the revaluation of a real estate asset. The acquisition is still pending subject to a successful closing and in particular the approval of the relevant authorities, including the Austrian Financial Market Authority, the Central Bank of Russia, and competition authorities in Russia and Austria. The acquisition would mean an acceleration of Raiffeisen International’s existing retail strategy in Russia. The takeover of Impexbank would make Raiffeisen International the largest foreign banking group in Russia.
• Commonwealth of Independent States (CIS) Belarus, Kazakhstan, Russia, and Ukraine
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General administrative expenses went up by 22 per cent and were thus in line with earnings growth. The number of business outlets grew by 79 to 422, causing the (average) number of staff to increase by 10 per cent to 9,123. One-off system conversions led to slightly more than proportionate need of write-downs. In comparison with the preceding year, the cost-income ratio therefore remained stable, increasing by only 0.5 percentage points to 66.2 per cent.
In the corporate customer segment, the bank acquired an especially large number of medium-sized customers with sales of up to SKK 1 billion. The larger corporate customers acquired came mainly from the automotive sector. Tatra banka expanded its project financing business and financed numerous real estate projects. With a market share of 39 per cent, it is the leader in local foreign currency trading.
The bank’s balance sheet total rose by about 12 per cent to € 4.8 billion. As of the balance sheet date, its network consisted of 136 business outlets, at which it serves 518,000 personal banking customers and 2,100 corporate customers. In December 2005, Tatra banka’s long-term rating was upgraded by Standard & Poor’s to A-, which is the best rating of any Slovakian bank.
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The Czech banking market is considered very developed, but still exhibits high growth rates, especially in individual and mortgage loans for retail customers. The number of customers rose last year by one-fifth to more than 160,000. The number of mortgage loans increased by 130 per cent in 2005 to more than 3,000, and the corresponding amount was € 150 million at year’s end. The number of credit cards grew by 45 per cent to just under 7,000.
Lending to corporate customers expanded by 15 per cent to € 995 million. Syndicated loans totalled € 380 million. Raiffeisenbank also significantly expanded its structured business, particularly in real estate project financing, where it has solidified its position as one of the country’s three leading institutions.
Numerous new products and services also helped win new corporate customers. For example, a new appraisal system for micro-enterprises was developed that is also used to speed up the extension of credit to small and medium-sized enterprises. This system makes Raiffeisen Bank the only bank in Hungary that can approve a loan within three hours. The bank increased its financing of housing construction and of housing cooperatives that are particularly geared to building renovation.
Earnings before taxes increased by 86 per cent in the region of Southeastern Europe, driven by strong growth of net interest income by 61 per cent to € 424 million. Nevertheless, the interest margin fell slightly by 3 basis points. The other income components also developed positively. Trading profit grew by 48 per cent to € 96 million, primarily due to a higher volume of foreign currency transactions. Other operating profit/loss improved from a loss of € 10 million to a loss of € 1 million because of changes in goodwill amortisation rules under IFRS 3.
General administrative expenses went up by 42 per cent to € 418 million. That was due to higher capital investment in modernising existing banking outlets and further expanding distribution channels. The number of banking outlets grew by 70 to 566. The average number of staff rose to 11,093, with increases particularly in Bulgaria (65 per cent) and in Serbia and Montenegro (56 per cent). Wage and salary catch-up effects in Romania were partly responsible for the rise. The cost-income ratio improved in the Southeastern Europe region from 67.4 to 62.8 per cent.
Segment’s contribution to consolidated profit before tax 33.0% 29.6% 3.4 PP
By establishing its own departments to serve small and medium-sized enterprises as well as large enterprises in the fourth quarter of 2004, the bank increased its lending activity significantly. By the end of 2005, loans amounting to € 112 million had been granted to corporate customers. Altogether, the number of customers rose by 41 per cent to 427,000. The branch network was enlarged by four business outlets to 87. In addition, a credit centre was opened for personal banking customers in Tirana.
Founded in 1992 as Market banka, Raiffeisen Bank d.d. Bosna i Hercegovina ranked with a balance sheet total of € 1.3 billion at the top of the local banking sector. Last year, it achieved impressive successes in all business segments. It granted more than 100,000 loans in retail banking, which increased the amount lent by one-fourth to € 384 million. The number of credit and debit cards issued to personal and corporate customers stood at just under 150,000 on the balance sheet date, of which about 30,000 were issued in 2005, a plus of 25 per cent year on year. After an increase of 22 per cent in 2005, the bank was serving 520,000 personal banking customers at year’s end. Raiffeisen Bank operates 63 ATMs. It expanded its network further by opening six branches in 2005 and had 68 business outlets at year’s end, which also makes it one of the country’s leading banks in that respect.
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Raiffeisenbank is the market leader in the area of corporate bonds and foreign currency transactions. It arranged 16 bonds for a total of € 155 million as lead manager or joint lead manager and hence achieved a market share of 57 per cent.
In existence since 1994, Raiffeisenbank Austria d.d. achieved a market share of 10 per cent as measured by balance sheet totals and thus occupies fourth place in the market. The number of customers increased by 16 per cent to almost 500,000, and the number of business outlets rose from 34 to 39.
The Raiffeisen Compulsory Pension Fund was selected by Investment & Pensions Europe as the best in its category. Our investment funds registered strong growth. Our local building society became the market leader.
Raiffeisen Bank achieved significant growth in personal banking business in 2005. The number of customers was almost 2 million at year’s end. Loans were up by almost 90 per cent to € 516 million, and deposits by 54 per cent to € 517 million. The threshold of 1 million bankcards was crossed in 2005. At the same time, the sale of the Raiffeisen Bank-Connex credit card, a premiere on the Romanian market, expanded further.
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The number of personal banking customers doubled to about 300,000 in the past year. That growth is also reflected in expansion of the business outlet network (from 26 to 45). At the end of 2005, total loans granted to personal banking customers amounted to € 253 million, of which the year under review accounted for € 150 million. Raiffeisenbank thus achieved a market share of more than 18 per cent. Deposits from personal banking customers rose by 30 per cent to almost € 336 million. The bank introduced credit cards at the end of 2004, and more than 68,000 were issued in 2005.
The number of customers in the segment of small and medium-sized enterprises increased almost threefold on the preceding year to more than 11,000. The loan portfolio in this segment more than doubled to € 101 million on the balance sheet date.
The number of customers in the retail banking segment rose by 38 per cent in 2005 to 92,000. Raiffeisen Bank maintained its leadership in the segment of small and medium-sized enterprises (SMEs) with a market share of about 29 per cent. It launched numerous new products for personal banking and SME customers. Those include, for example, current account loans and savings accounts for SMEs and mortgage loans for personal banking customers. Raiffeisen Bank is the country’s only bank so far to obtain a license to issue VISA and MasterCard debit cards.
The number of corporate customers doubled in the year under review to 347. In lending business, a shift occurred from overdraft facilities to traditional medium-term loans. Most loans were granted in connection with privatisation or investment after privatisation.
Raiffeisen International owns 61.3 per cent of the shares in Priorbank JSC, which was founded in 1989 as Minsk Innovation Bank. In 2002 and 2003, we acquired a majority stake by means of a stock purchase, a capital increase, and a public takeover bid. The bank’s balance sheet total rose um 33 per cent in 2005 to more than € 640 million. It thus remains the country’s third-largest bank with a network of 43 business outlets.
The number of personal banking customers increased two and a half times to more than 61,000, and the corresponding credit portfolio multiplied to € 111 million. With a market share of 5.2 per cent, Raiffeisenbank ranks fifth in Ukraine. It is first in the mortgage loan segment. Deposits of personal banking customers doubled to € 128 million.
The bank began doing business with small and medium-sized enterprises in the beginning of 2005. By year’s end, it had acquired 4,000 customers. Raiffeisenbank introduced some products for this segment of the Ukrainian market, including overdraft facilities, investment financing, and mortgage loans.
The number of corporate customers increased to 1,800. The volume of loans to corporate customers exceeded € 480 million at the end of 2005, which represents a plus of more than 35 per cent on 2004. Deposits doubled to € 172 million. The constant introduction of new services, such as factoring and cash management, supported the growth trend in this segment. The bank is one of the leading institutions in real estate project financing.
Bank Aval has been fully consolidated in Raiffeisen International since 1 October 2005. It served about 3 million customers last year in 1,342 business outlets with 16,645 employees. Its balance sheet total amounted to € 3.4 billion at the end of 2005, which represents a doubling compared with the preceding year. You will find a detailed view starting on p. 53.
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Net income from financial investments and current financial assets (6) 10,908 8,273 31.9%
Net income from financial investments and current financial assets 1,023 1,789 1,941 6,154
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* Because of amended and new IFRS rules, the comparative figures have been adjusted slightly (see notes pages 101 ff).
Effects of initial application of amended and new IFRS - - 1,735 (1,506) - 229
Own shares / share incentive program (290) (3,398) (478) - - (4,166)
As of 31 December 2005, Raiffeisen International Bank-Holding AG’s capital stock as defined by the articles of incorporation amounted to € 434,518 thousand. Including the shares issued in the IPO, the capital stock comprises 142,770 thousand no-par bearer shares. Excluding own-stock holdings of 95,260 shares, the stated subscribed capital came to € 434,228 thousand.
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The 17,050 no-par profit participating certificates in the nominal amount of € 1,705 thousand previously stated under subscribed capital were repaid by the company in the second quarter of 2005.
Other changes in retained earnings are largely due to hyperinflation accounting in accordance with IAS 29 at the Group unit in Belarus. Adjustments from foreign currency translation and the capital hedge, which are items booked in retained earnings, developed as follows: Translation Capital €000 differences hedge
Net provisioning for liabilities and charges and impairment losses 181,749 181,222
Gains (losses) from disposals of tangible fixed assets and financial investments 1,204 1,213
Outlay on purchases of: Financial investments and equity participations (3,152,002) (2,715,912)
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Cash and cash equivalents at the end of period 2,908,161 1,895,356
Net cash from investing activities shows inflows and outflows associated with financial investments, tangible fixed assets and intangible fixed assets, and outlay on the acquisition of subsidiaries. The impact on liquidity of acquired subsidiaries is shown on page 108.
Net cash from financing activities relates to inflows into and outflows from equity and subordinated capital. It therefore concerns above all inflows from capital increases, dividend payments, and changes in subordinated capital.
Raiffeisen International Bank-Holding AG is a financial holding company domiciled at Am Stadtpark 9, A-1030 Vienna, Austria. It is registered in the Companies Register at the Vienna Commercial Court (Handelsgericht Wien) under Companies Register number FN 122.119m. Its stock has been listed on the Prime Market of the Vienna Stock Exchange since 25 April 2005. Raiffeisen Zentralbank Österreich AG, Vienna, holds the majority stake in the company, totalling 70 per cent of its issued share capital as of the balance sheet date. Raiffeisen-Landesbanken-Holding GmbH, Vienna (Group parent) consolidates the company. This financial holding owns the majority stake in Raiffeisen Zentralbank Österreich AG.
Newly published standards applicable from the 2005 financial year have made it necessary to carry out minor adjustments to the financial statements for 2004 needed for the purposes of prior-period comparisons. Adjustment is required by IFRS.
Goodwill (IFRS 3) The new IFRS 3 regarding business combinations, already published in 2004, reviews the presentation, measurement, and impairment testing of goodwill. The straight-line amortisation of goodwill has been abolished and replaced by annual impairment testing. The same applies to companies accounted for using the equity method. IFRS does not require adjustment of prior periods. In 2004, Raiffeisen International linearly amortised some € 10 million in goodwill. This practice will therefore be discontinued as of the 2005 financial year. Instead, this asset position is to be impairment tested annually and additionally whenever there is an indication of value impairment.
Financial instruments (IAS 39) The stricter new definition of loans and receivables that no longer qualify as originated by the enterprise changed the entry for equity from 1 January 2005. If financial instruments are classified as other current financial assets, they must be carried at market value if an active market exists. Reclassifications and remeasurements were carried out with respect to a number of primary securities issues. Restructuring (reclassification and remeasurement) of the portfolio increased other current financial asset by € 38 million. All reallocations were charged against the balance sheet entry for financial investments. The effect on equity has been immaterial.
For the time being, Raiffeisen International is not exercising the fair value option for stating non-securitised receivables or liabilities with effect on earnings.
New securities category (IAS 39) In the case of asset for which a fair value within the meaning of IAS 39 was available, the available-for-sale financial assets in the accounts at year-end 2004 in the amount of € 612 million were reclassified as financial assets at fair value through profit and loss as of 1 January 2005, whereby changes in value are also being recognised in the income statement in the 2005 financial year. These financial assets will continue to be recorded under other current financial assets in the balance sheet. These financial instruments belong to a group of financial assets whose performance is judged by reference to fair value and which are being controlled according to a documented risk management or investment strategy.
In addition, Raiffeisen International’s other current financial assets also included financial instruments available for sale. These are for the most part assets for which stock exchange prices were not available but whose measurement did not have a material effect on equity in the period under review.
As of 2005, the interest rate underlying a lease must be calculated in such a way that initial direct costs incurred by the lessor are automatically included in the finance lease receivable and must not be added as a separate item. Similarly as of 2005, any initial direct costs of the lessee under such a lease must be asset to the amount recognised as an asset.
In the case of Raiffeisen International, that increased equity directly in the amount of € 1.7 million and decreased it indirectly in the amount of € 1.5 million carried to the equity by way of the adapted profit for the year 2004. The result was a net increase in equity of € 0.2 million as 1 January 2005.
Equity (IAS 1 in conjunction with IAS 27) According to the revised provisions, minority interests must be presented in the balance sheet within equity. This means that as of 2005, minority interests must be presented in the consolidated balance sheet within equity but separately from consolidated equity (the parent’s shareholders’ equity).
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Net income from financial investments and current financial assets 8,273 8 8,265
Material interests in associated undertakings were accounted for using the equity method and recorded under financial investments in the balance sheet. Profits of companies accounted for using the equity method were recorded for the first time balanced in net interest income. The same rules were applied to companies accounted for using the equity method (offsetting acquisition costs against prorated fair net asset value) as to fully consolidated companies. As a rule, the process was based on the IFRS financial statements of the associated undertakings in question.
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The fully consolidated members of the Raiffeisen International Group were all significant subsidiaries in which Raiffeisen International Bank-Holding AG held direct or indirect stakes of more than 50 per cent and companies upon whose business and financial policies it exercised a controlling influence.
Material interests in associated undertakings – companies upon whose business and financial policies the Group exercised a significant influence – were accounted for using the equity method.
Eighty-five subsidiaries were not included in the consolidated financial statements because of their minor importance in giving a view of the Group’s assets, financial state, and profit position (2004: 85). They were recognised at amortised cost under financial investments as interests in subsidiaries. The balance sheet totals of excluded companies came to less than 2 per cent of the Group’s aggregated balance sheet total.
Financial institution: Eastern European Invest GmbH, Vienna (AT) 100.0% 1/11 New
RLRE & Eube OC – TERRONOC I., s.r.o., Prague (CZ) 69.0% 1/1 Materiality
Banking-related ancillary services: RISP Beteiligungs- und Finanzierungsmanagement GmbH, Vienna (AT) 100.0% 1/10 New
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The following table shows the assets and liabilities revalued in the current financial year at the time of their first consolidation: €000 AVAL UPC MBLCZ Total
Other current financial assets 152,504 - - 152,504 of which corporate customer base 7,717 - - 7,717 of which retail customer base 78,246 - - 78,246
Brands Companies use registered trademarks (brands) to differentiate their services from the competition.
Raiffeisen International intends to maintain the AVAL brand and build it up in the future, as this brand is very well positioned in Ukraine. Bank Aval benefits from being a preferred partner in handling state pension payments, which has given it a large customer base. Pursuant to IFRS 3, the brand is being accounted for separately. The brand has an unlimited term of use and is thus not subject to scheduled amortisation. It is to be tested annually for impairment and additionally whenever indications of impairment occur. No impairment of the Aval brand’s value was determined in 2005.
From the time of acquisition forward, depreciation and amortisation totalling € 1,192 thousand were recognised with effect on profit. The book values of the existing customer base thus come to € 7,455 thousand for corporate customers and € 77,316 thousand for retail customers as of 31 December 2005. The customer base was valued using the multiperiod excess earnings method based on projected future income and expense allocable to the respective customer base. The projections are based on planning figures for the corresponding years.
MB Leasing a.s. (MBLCZ) In October 2005, Raiffeisenbank a.s., Prague, acquired a 100% stake in MB Leasing a.s., Mladá Boleslav, which it first consolidated as of 1 October 2005. MB Leasing a.s. focuses on mobile asset leasing and in that area especially on motor vehicle leasing.
Financial statements of fully consolidated companies prepared in foreign currencies were translated into euros employing the modified current rate method in conformity with IAS 21, whereby equity was translated at historical exchange rates and all other assets and liabilities and declarations in the notes were translated at the prevailing exchange rates on the balance sheet date. Differences arising from the translation of equity components (applying historical exchange rates) were offset against retained earnings and not recognised in the income statement.
At one Group company, Priorbank JSC, Minsk, economic conditions made it necessary to apply IAS 29 (financial reporting in hyperinflationary economies). In the case of two subsidiaries (Raiffeisen Leasing SRL, Bucharest, and GSI Group Software Investment AG, Zug), the euro was the reporting currency for measurement purposes given the economic substance of the underlying transactions.
The following exchange rates were used for currency translation purposes: Balance sheet Balance sheet
A financial instrument is defined as any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. IFRS-compliant balance sheets differentiate between the following four categories: 1. Financial assets or liabilities recognised at fair value in the income statement a. Trading assets/liabilities b. Designated financial instruments at fair value 2. Financial investments held to maturity 3. Loans and receivables 4. Available-for-sale financial assets.
1 b. Designated financial instruments recognised at fair value This category mainly comprises those financial assets that were recognised at fair value as designated financial instruments at the time of their first balance sheet statement. These instruments may be bonds and other fixed-interest securities or equities and other non-fixed-interest securities.
2. Financial investments held to maturity Non-derivative financial assets (securities with fixed or determinable payments and fixed maturities) that were purchased with the intent and ability to hold them to maturity are stated under the balance sheet item financial investments. They are valued at amortised cost with differences being amortised over the residual maturity and recognised in the income statement under net interest income. Coupon payments are likewise recognised under net interest income/expense. These financial instruments may only be sold in rare, exceptional cases as set forth in IAS 39.
Derivative instruments not held for trading because they had been acquired for hedging purposes were subdivided into the following categories reflecting differing modes of recognition on the IFRS-compliant balance sheet: a) Fair value hedges within the meaning of IAS 39 Interest-rate swaps that satisfy the prerequisites for hedge accounting are contracted to hedge against the interest-rate risks arising from loans. Hedges are formally documented, continuously assessed, and rated to be highly effective. In other words, throughout the term of a hedge, one can assume that changes in the fair value of a hedged item will be nearly completely offset by a change in the fair value of the hedging instrument and that the actual outcome will lie within a band of 80 to 125 per cent.
Derivative instruments held to hedge the fair values of individual balance sheet items in the banking book were recognised at their fair values (dirty prices) under other assets (positive dirty prices) or other liabilities (negative dirty prices). Changes in the carrying amounts of hedged items (assets or liabilities) were allocated directly to the corresponding balance sheet items and reported separately in the notes. Both the effect of changes in the carrying values of positions requiring hedging and the effects of changes in the clean prices of the derivative instruments were recorded under other operating profit/loss (net result from hedge accounting).
Payables were measured at amortised cost. Discounted debt securities and similar obligations were recognised at their present value.
Under genuine repurchase agreements (repo transactions), the Group sells assets to a counterparty and agrees at the same time to repurchase those assets at an agreed time and price. The assets remain on the Group’s balance sheet and are measured applying the rules governing the particular balance sheet item. Cash inflow from repurchase agreements is recognised in the balance sheet as liabilities to banks or liabilities to customers depending on the counterparty.
In the case of reverse repurchase transactions, assets are acquired subject to a simultaneous undertaking to sell them in the future. Cash outflows from repurchase agreements are recognised in the balance sheet under loans and advances to banks or loans and advances to customers.
According to IFRS, a finance lease exists if substantially all the risks and rewards incident to ownership of an asset are transferred to the lessee. In conformity with IAS 17, the present value of future lease payments and any residual values are recorded in the lessor’s accounts under loans and advances to banks or loans and advances to customers. Lessees under a finance lease recognise the asset under the pertinent tangible fixed asset heading and balance the entry with a corresponding lease liability.
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Proprietary and purchased software, brand rights, acquired client bases, and especially goodwill are stated under this item. Goodwill and other intangible assets without definite useful lives are impairment tested at least on every balance sheet date. If circumstances suggest that the expected benefit no longer exist, impairments are applied pursuant to IFRS 3.
DInventory was recognised at the lower of cost or market. Write-downs were carried out insofar as the cost of the item of inventory was above its exchange price or fair value on the balance sheet date or if limited usability or longer periods of storage had impaired its value.
The computation of severance payments and anniversary bonuses was likewise based on an interest rate of 4.25 per cent per annum (previous year: 5.25 per cent per annum), an average salary rise of 3 per cent per annum and an individual career trend of 2 per cent per annum (previous year: 1.5 per cent per annum).
The biometrical basis for the computation of all provisions relating to social capital was provided by AVÖ 1999-PRechnungsgrundlagen für die Pensionsversicherung (computational framework for pension insurance) – Pagler & Pagler, using the variant for salaried employees.
Income tax was recognised and calculated in conformity with IAS 12 applying the balance sheet orientated liability method. Deferred taxes were computed on the basis of all temporary differences in recognition and measurement between the consolidated balance sheet and the tax base that were going to balance out in subsequent periods under consideration of the tax scales applicable in the countries concerned. Deferred tax assets were capitalised with respect to tax loss carryforwards insofar as taxable profits at the equivalent amount were to be expected within the same company in the future. Deferred tax assets were offset against deferred tax liabilities on a subsidiary-by-subsidiary basis.
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The basis for primary segment reporting within the meaning of IAS 14 is Raiffeisen International’s internal management reporting system, whose primary reporting format was mainly customer-oriented. Business segmentation takes place as follows: • Corporate Customers • Retail Customers • Treasury • Participations and other
To be included in the corporate customers segment, small and medium-sized enterprises must either have annual sales of at least € 5 million or clearly have something to do with project or trade finance. All other small and medium-sized enterprises are included in the retail SME sub-segment within the retail customers segment.
Banks includes Austrian and foreign corporate, retail, and private banks. This segment also includes supranational institutions like the World Bank, the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the International Monetary Fund (IMF). Financial service providers includes brokers and asset managers such as investment banks, investment fund companies, finance leasing companies and other companies that perform activities connected with the credit industry. The insurers sub-segment encompasses all kinds of insurers and reinsurers. That includes property, health, life, and pension insurers. Public sector includes all public sector entities such as ministries, provinces, municipalities, and similar public corporations. Embassies and trade representations also belong to this sub-segment.
Because of the rather limited contribution to the consolidated results of Raiffeisen International made by public sector and financial institutions, their results are now included in the corporate customer segment, having still been reported separately in prior years.
Proprietary trading and positioning involves on-balance-sheet and off-balance-sheet interest rate and currency products (futures, options), which include money market business, foreign exchange business, cash management, refinancing, and asset/liability management (covering with matching assets).
Pure trading in financial instruments is centrally controlled and subject to strictly monitored limits. In addition, Raiffeisen International has a portfolio of medium-term and long-term financial investments.
Whereas the entirety of the Group’s proprietary trading activities are included in this segment, some treasury transactions carried out on customers’ accounts are recognised in other segments, including retail customers and, above all, corporate customers. Components of proceeds that exceed market prices are assigned to the customer segments.
Raiffeisen International employs two central steering benchmarks: • The return on equity before tax states the ratio of profit before tax over average equity employed. It expresses the return on capital employed in the segment concerned.
Financial year 2005 Corporate Retail Participations €000 customers customers Treasury and other Total
Net income from financial investments and current financial assets 357 - 1,425 9,126 10,908
Return on equity (ROE) before tax 26.9% 15.1% 43.8% - 21.8%
Net income from financial investments and current financial assets (21) (2,139) 7,305 3,128 8,273
Return on equity (ROE) before tax 29.4% 11.1% 33.2% - 22.2%
Income items and head office costs in Austria, most of which accrue within the holding company, are apportioned between the above segments according to their cause. If a direct allotment is impossible, apportionment is based on other criteria such as holdings of risk-weighted assets.
The net interest income position includes interest income and expense from items in banking business, dividend income, and commissions with interest characteristics.
The interest margin on the respective averages of the stated base evolved as follows: Per cent 2005 2004
Interest margin (in relation to risk-weighted assets in the banking book) 5.85% 5.74%
Details on risk provisioning are listed under item 14 of provisions for impairment losses.
Net provisioning ratio (in relation to average risk-weighted assets) 1) 0.81% 0.98%
Net provisioning ratio (in relation to loans outstanding) 2) 0.45% 0.52%
1) New provisions for impairment losses / average risk assets on the banking book 2) New provisions for impairment losses / total loans and advances outstanding 3) Use + direct amortisation + income from amortised receivables / total loans and advances outstanding 4) New provisions for impairment losses / total loans and advances outstanding 5) New provisions for impairment losses / net interest income/expense
Foreign exchange, notes and coins, and precious metals business 26,311 17,708
The position net income from financial investments and current financial assets comprises valuation gains and sale proceeds on securities in the financial investment portfolio and equity participations. These include holdings in associated companies, companies consolidated using the equity method, and other company investments.
Net proceeds from sales of securities held to maturity - (94)
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of which expenditure on severance payments and retirement benefits (854) (1,213)
During the year under review, € 217 thousand in negative differences from first consolidation (2004: € 1,997 thousand) were immediately expensed in the income statement. The position goodwill amortisation shows only one impairment item in the amount of € 2,506 thousand.
The position revenue from non-banking activities covers rental income from real estate held as a financial investment in the amount of € 1,297 thousand. Income and expense from leasing services posted under other operating income and other operating expenses in 2004 are from 2005 on shown in the position revenues and expenses from non-banking activities.
Income tax expense broke down as follows: Current income tax (120,195) (68,826)
The following transitional account shows the connection between profit for the year and effective tax burden: Profit before tax 568,557 340,772
Reduction in the tax burden because of tax-exempt income from equity participations and other tax-exempt income 15,148 17,355*
Increase in the tax burden because of non-tax-deductible expenses (20,736) (20,615)
Loans and advances to banks break down along geographical lines as follows: Central Europe (CE) 1,550,438 1,312,854
Loans and advances to customers break down as follows: Credit business 12,618,329 9,536,290
Loans and advances to banks 204 223 13 (346) - 85 178
Impairment provisions for off-balance-sheet obligations 27,565 2,216 26,332 (26,973) - 357 29,497 * Because of new and amended IFRS rules, the status as of 1 January 2005 has been adapted. ** Allocations inclusive of direct write-downs and recoveries of receivables already written down
Trading assets consists of the following securities and derivative instruments held for trading: Debt securities and other fixed-interest securities 1,442,440 2,032,805 of which public-authority debt instruments eligible for refinancing 213,251 1,002,572 of which other debt instruments issued by the public sector 653,625 492,367 of which bonds and debt securities issued by other issuers 575,564 537,866
Positive fair values arising from derivative financial instruments 181,935 384,207 of which interest rate contracts 44,663 44,691 of which exchange rate contracts 136,346 339,516 of which from share- and index-related contracts 926 -
Other current financial assets contain the following available-for-sale securities: Debt securities and other fixed-interest securities 1,278,499 640,073 of which public-authority debt instruments eligible for refinancing 883,625 405,999 of which other debt instruments issued by the public sector 41,141 62,478 of which bonds and debt securities issued by other issuers 352,741 144,952 of which debt securities originated by the enterprise - 26,644
Financial investments contain securities held to maturity and strategic equity participations held on a long-term basis: Debt securities and other fixed-interest securities 2,724,423 2,255,375 of which public-authority debt instruments eligible for refinancing 1,504,805 1,309,495 of which other debt instruments issued by the public sector 937,758 596,879 of which bonds and debt securities of other issuers 281,860 349,001
The increase in the item goodwill is mostly due to the acquisition of Bank Aval. € 120,921 thousand for the Aval brand has been capitalised under other intangible asset. Moreover, an asset position of € 84,771 thousand has been set up to take account of client base acquired with Bank Aval.
Land and buildings used by the Group for its own operations 294,461 159,755
The fair value of other land and buildings (investment property) came to € 4,258 thousand (2004: € 7,350 thousand).
Tangible and intangible fixed assets developed in financial year 2005 as follows: Cost of acquisition or conversion Change in
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Tangible and intangible assets developed in financial year 2004 as follows: Cost of acquisition or conversion Change in
Land and buildings used by the Group for its own operations 191,393 15,608 6,108 30,390 (11,826) 4,785 236,458 of which land value of developed land 9 - - - - - 9
Tax assets 46,564 28,999 of which current tax assets 15,142 10,889 of which deferred tax assets 31,422 18,110
Insofar as they satisfied the prerequisites for hedge accounting within the meaning of IAS 39, derivative financial instruments were measured at their fair values (dirty prices) in their function as hedging instruments. The hedged items’ underlying fair-value hedges were loans and advances to customers. The hedged risks were interest rate risks. The respective balance sheet items also include the positive fair values of hedged underlying transactions within the meaning of IAS 39.
This item also includes the positive fair values of derivative financial instruments that neither were held for trading nor constitute fair-value hedging instruments within the meaning of IAS 39. The item other assets also includes assets available for sale in the meaning of IFRS 5 amounting to € 1,116 thousand.
Deferred taxes break down as follows: Deferred tax assets 31,422 18,110
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The net deferred taxes result from the following items: Provisioning for impairment losses 32,408 17,020
The consolidated financial statements contain capitalised benefits from unused tax loss carryforwards in the amount of € 15,877 thousand. The bulk of tax loss carryforwards was capable of being carried forward for an unlimited amount of time.
Deposits from banks break down as follows: Giro and clearing business 322,151 351,850
Deposits from banks break down along geographical lines as follows: Central Europe (CE) 1,219,051 1,079,254
Deposits from customers break down into product groups as follows: Sight deposits 10,694,718 6,896,160
Deposits from customers break down into business segments as follows: Public sector 719,444 706,735
Deposits from customers break down along geographical lines as follows: Central Europe (CEE) 10,611,077 9,249,172
Negative fair values of derivative financial instruments 170,214 408,345 of which from interest rate contracts 72,972 85,254 of which from exchange rate contracts 96,184 323,051 of which from share- and index-related contracts 1,058 40
Negative fair values of other derivative financial instruments 16,845 20,182 of which arising from interest rate contracts 7,217 2,690 of which arising from exchange rate contracts 9,613 17,492 of which arising from share- and index-related contracts 15 -
Insofar as they satisfied the prerequisites for hedge accounting within the meaning of IAS 39, derivative financial instruments were measured at their fair values (dirty prices) in their function as hedging instruments. The hedged items’ underlying fair-value hedges were loans and advances to customers.
For data on equity development and other disclosures, see page 97.
After the split, the Raiffeisen International Bank-Holding AG share has a theoretical value of € 3,045. The number of shares outstanding developed as follows: Number of shares 2005 2004
The management of Raiffeisen International Bank-Holding AG obtained supervisory board approval to institute a share incentive program (SIP) offering performance-based allotments of company shares for eligible employees at home and abroad for a given period of time. All managing board members of Raiffeisen International Bank-Holding AG, managing board members of associated bank subsidiaries, and select upper management of Raiffeisen International Bank-Holding AG and its associated enterprises are eligible to participate.
Number of contingently Minimum Maximum allotted shares as allotment allotment Group of persons of 31/12/2005 of shares of shares
Executives of Raiffeisen International Bank-Holding AG and other affiliated companies 20,995 5,249 31,493
Companies can conduct business with related enterprises and persons that may affect the company’s asset, financial, and income situation.
Disclosures on Raiffeisen International’s relations with persons in key positions are shown under item 47.
In financial year 2005, transactions with related enterprises are shown below: Companies Companies Parent with significant Affiliated valued using Other equity €000 companies influence companies equity method participations
Assets and liabilities vis-à-vis counterparties outside Austria developed as follows: (34) Expenditure on subordinated liabilities
The following repurchase and redelivery commitments were in place on 31 December: Genuine repurchase agreements (as borrower)
Securities put up for repurchase amounted to € 216,090 thousand in the year under review. Securities taken in for redelivery amounted to € 1,311,178 thousand. A total of € 5,524 thousand in collateral securities were passed or sold on.
The following items were secured by assets shown in the balance sheet: Deposits from banks 209,518 10,160
Loans are deemed non-performing if either the counterparty’s financial situation is such that no recovery of funds may be expected or the counterparty has not met its financial obligations for a period of more than 90 days.
Unrealized financial income 274,952 209,172 up to 3 months 34,074 24,538 from 3 months up to 1 year 78,283 62,385 from 1 year up to 5 years 141,711 111,576
Write-offs on unrecoverable minimum lease payments outstanding came to € 15,547 thousand in the year under review
A bank’s ability to extensively capture and measure risks, to monitor them in real time and to manage them is increasingly becoming a decisive competitive factor. To ensure the long-term success of the Group and to allow its selective growth, Raiffeisen International’s risk management and risk controlling activities are directed at ensuring the careful handling and professional management of credit and country risks, market and liquidity risks and operational risks.
Raiffeisen International measures all risks on a Group-wide basis applying a value-at-risk (VaR) approach.
In parallel with that procedure, risk (VaR) is also calculated on the basis of a confidence interval of 99 per cent. The resulting figure is likewise weighed against a corresponding estimate of risk-bearing capacity.
Credit risk within Raiffeisen International consists mainly of the default risk that arises from business with retail and corporate customers, other banks and sovereign borrowers. Default risk is the risk that a customer will not be able to fulfil contractually agreed financial obligations. However, one also distinguishes between migration risks (caused by deteriorations in customers’ ratings) and country risks.
Loans and advances to banks and customers as well as off-balance-sheet transactions break down by region as follows: * EU-25 without explicitly naming member states
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The internal system for controlling credit risks encompasses every form of monitoring measure that is directly or indirectly integrated into the processes that require monitoring. Against the background of the new capital adequacy framework for banks that is currently under development (Basel II), the seamless management, monitoring, and control of credit risks at Raiffeisen International are thus assured.
The following table shows loans and advances to banks (excluding central banks) by internal rating in € 000: Internal Rating 2005 Proportion 2004 Proportion
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The loan portfolio and borrowers are constantly monitored. Both corporate customers and banks undergo review at least once a year with a particular focus on detecting any early-warning signs. Troubled loans are normally handled by specially trained and experienced staff. Those staff members play a decisive part in charting, analyzing, and allocating any impairment losses on loans and advances (write-downs, value adjustments, provisioning). By becoming involved at an early stage, they reduce the losses caused by troubled loans. Cases in which restructuring or settlements take place are analyzed to ascertain their causes. Lending processes are then adapted as necessary on the basis of such analysis.
of which currency risk without capital position 953 4,109 350 10,608
Raiffeisen International uses the standard methodology within the meaning of the capital adequacy directive to calculate its own funds requirement for the trading book.
Interest maturity gaps at Raiffeisen International as of 31 December 2004 (€ 000): Maturity gap 2004 >6-12 mon >1-2 yrs >2-5 yrs >5 yrs
To curb liquidity risk, the individual Group units use limits that require a positive short-term liquidity gap under conservative assumptions for liquid asset positions and liability outflows.
Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Insofar as market prices were available (which was mainly the case for securities and derivative instruments traded on stock exchanges or in functioning markets), they were used.
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As a subsidiary of RZB, Raiffeisen International Bank-Holding AG does not have a banking group of its own within the meaning of the Austrian Banking Act (Bankwesengesetz, BWG). As a result, it is not itself subject to regulatory requirements. However, the following figures are accounted for within the scope of RZB-Kreditinstitutsgruppe. They are provided here for informational purposes only.
The average number of staff during the financial year (full-time equivalents) broke down as follows: Salaried employees 27,901 20,543
These amounts include fixed remunerations, remunerations for membership of the boards of subsidiaries, bonuses, payments in kind and outlay on retirement benefits and severance payments. In financial year 2005, the share of performance-based remuneration components was 28.5 per cent, not including compensation benefits for early termination of the long-term bonus program.
The Supervisory Board received compensation totalling € 304 thousand (2004: € 120 thousand) in the year under review.
Remuneration for Raiffeisen International’s key management broke down as follows (respective fair values): Sight deposits 92 169
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To the Managing Board and Supervisory Board of Raiffeisen International Bank-Holding AG, Vienna: “We have audited the German version of the accompanying consolidated financial statements of Raiffeisen International Bank-Holding AG as of December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
The following table shows the core operating companies in Raiffeisen International’s scope of consolidation. The complete list of Raiffeisen International Bank-Holding AG’s equity participations is on file at the Group parent’s headquarter.
Raiffeisen Financial Services Company Ltd., Budapest (H) 20,000,000 HUF 70.3% FI
Tatra Group Servis spol.s.r.o., Bratislava (SK) 370,000,000 SKK 72.4% 0.4% BR
Tatra Leasing spol. s r.o., Bratislava (SK) 200,000,000 SKK 73.8% FI
Companies accounted for using the equity method in the consolidated balance sheet
Leasing private unitary enterprise “Priorleasing”, Minsk (BY) 500,000,001 BYR 63.1% FI
Raiffeisen Economic and Financial Consulting Ltd., Budapest (HU) 20,000,000 HUF 84.9% FI
Raiffeisen Ingatlan Vagyonkezelö Kft., Budapest (HU) 3,000,000 HUF 74.8% 3.7% BR
Raiffeisen Voluntary Pension Fund Management d.o.o., Zagreb (HR) 25,945,300 HRK 72.9% FI
S.A.I. Raiffeisen Asset Management S.A., Bucharest (RO) 3,600,000 RON 99.5% FI
Associated undertaking – Company upon whose business or financial policies a significant influence is exerted.
Basis of assessment (incl. market risk) – Comprises the basis of assessment within the meaning of section 22 of the Austrian Banking Act (BWG) plus 12.5 times the own funds required as cover for the trading book and open currency positions.
Cash flow statement – Statement of cash flows during the financial year arising from operating activities, investing activities and financing activities and a reconciliation of cash and cash-equivalents held at the beginning and the end of the financial year.
Core capital ratio – This ratio’s numerator is core capital (tier 1) and its denominator is the basis of assessment (incl. market risk).
with operating income (net interest income, net commission income, trading profit/loss and other operating profit/ loss adjusted by the net result from hedge accounting and net income from other derivative instruments).
Deferred tax assets – The amounts of income taxes recoverable in future periods in respect of deductible temporary differences, the carryforwards of unused tax losses, and the carryforwards of unused tax credits.
Derivatives – Financial instruments whose value changes in response to the change in a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index, or similar variable, that requires no initial net investment or little initial net investment and that is settled at a future date.
Futures – Standardised forward contracts traded on an exchange under which a commodity traded in a money, capital, precious metal or currency market is to be delivered or accepted at a price fixed in an exchange environment.
Held-for-trading – Securities held for trading purposes to take advantage of short-term market fluctuations.
Held-to-maturity – Financial assets that an enterprise has the positive intent and ability to hold to maturity.
IFRIC, SIC – International Financial Reporting Interpretation Committee – Interpreter of the International Financial Reporting Standards, formerly also SIC (Standing Interpretations Committee).
Loans outstanding – Comprises all onbalance sheet exposures (receivables, debt securities) and off-balance-sheet exposures (guarantees, credit line) that expose Raiffeisen International to credit risk.
Own shares – Repurchased equity instruments (shares originated by the enterprise ) held by the originating enterprise itself or by its subsidiaries.
Risk-weighted assets of the banking book – According to the Austrian Banking Act (BWG) these are off-balance sheet and special off-balance-sheet banking book asset positions weighted by business or counterparty risk.
Segment reporting – Disclosure of earnings and asset data for individual fields of business (primary) and geographical areas (secondary).
Albania Raiffeisen Bank Sh.a. Rruga Kavajes, Tirana Phone +355-4-274 912 Fax +355-4-230 013 SWIFT/BIC: SGSBALTX www.raiffeisen.al Contact: Steven Grunerud steven.grunerud@raiffeisen.al 87 banking outlets
Bulgaria Raiffeisenbank (Bulgaria) EAD 18/20 Gogol Ulica, 1504 Sofia Phone +359-2-9198 5101 Fax +359-2-943 4528 SWIFT/BIC:RZBBBGSF www.rbb.bg Contact: Momtchil Andreev momtchil.andreev@rbb-sofia.raiffeisen.at 74 banking outlets
Phone +420-221-141 111 Fax +420-221-142 111 SWIFT/BIC: RZBCCZPP www.rb.cz Contact: Lubor Žalman lubor.zalman@rb.cz 50 banking outlets
Kosovo Raiffeisen Bank Kosovo J.S.C UÇK Street 51, Priština Phone +381-38-226 400 Fax +381-38-244 193 SWIFT/BIC: RBKOCS22 www.raiffeisen-kosovo.com Contact: Oliver Whittle oliver.whittle@raiffeisen-kosovo.com 29 banking outlets
Romania Raiffeisen Bank S.A. Piaţa Charles de Gaulle 15 011857 Bucures̨ti 3 Phone +40-21-306 1000 Fax +40-21-230 0700 SWIFT/BIC: RZBRROBU www.raiffeisen.ro Contact: Steven C. van Groningen centrala@raiffeisen.ro 216 banking outlets
Phone +421-2-5919 1111 Fax +421-2-5919 1110 SWIFT/BIC: TATRSKBX www.tatrabanka.sk Contact: Rainer Franz rainer_franz@tatrabanka.sk 136 banking outlets
Fax +386-2-252 4779 SWIFT/BIC: KREKSI22 www.r-kb.si Contact: Zoran Nemec zoran.nemec@r-kb.si 13 banking outlets
JSPP Bank Aval 9, Leskova vul. , 01011 Kyiv Phone: +38-044-490 88 88 Fax: +38-044-295 32 31 SWIFT/BIC: AVAL UA UK www.aval.ua Contact: Leonid Zyabrev leonid.zyabrev@rbu-kiev.raiffeisen.at 1,342 banking outlets
Croatia Raiffeisen Leasing d.o.o. Froudeova 11a, Siget, 10 002 Zagreb Phone +385-1-659 5000 Fax +385-1-659 5050 Contact: Miljenko Tumpa miljenko.tumpa@rba-zagreb.raiffeisen.at 11 branches
Hungary Raiffeisen Lízing Rt. Váci utca 81-85, 1139 Budapest Phone +36-1-298 8200 Fax +36-1-298 8010 Contact: Pál Antall pal.antall@raiffeisen.hu 14 branches
Kazakhstan Raiffeisen Leasing Kazakhstan LLP Ul. Shevchenko Street 146, office 12 1st floor, Almaty Phone +7-3272-709 836 Contact: Uwe Fisker uwe_fisker@rlk.kz
Poland Raiffeisen-Leasing Polska S.A. Ul. Jana Pawla II 78 00175 Warszawa Phone +48-22-562 3700 Fax +48-22-562 3701 Contact: Arkadiusz Etryk arkadiusz.etryk@raiffeisen.pl 52 branches
Phone +421-2-5919 3168 Fax +421-2-5919 3048 Contact: Igor Horvath igor_horvath@tatrabanka.sk 8 branches
Czech Republic Raiffeisen Leasing Real Estate s.r.o. Olbrachtova 2006/9, 140 21 Praha
The forecasts, plans, and statements addressing the future are based on knowledge and estimates at the time at which they are drawn up. Like all statements addressing the future, they are exposed to risks and uncertainty factors that may lead to considerable deviations in the result. No guarantees can therefore be provided that the forecasts and targeted values, or the statements addressing the future, will actually materialise. 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 the German language. The company only recognises the German version as the authentic version.
Net provisioning ratio (risk-weighted assets) 0.81% (0.17 PP) 0.98% 0.86% 0.69%