Overview of RBI Interview with the CEO 6 Report of the Supervisory Board 8 Raiffeisen at a glance 13 RBI‘s strategy 15 RBI in the capital markets 17 Corporate Governance Report 21
Monetary values in € million 2019 2018 Change 2017 2016 2015
Net fee and commission income 1,797 1,791 0.3% 1,719 1,497 1,519
Impairment losses on financial assets (234) (166) 41.2% (312) (754) (1,264)
Consolidated return on equity 11.0% 12.6% (1.6) PP 12.2% 5.8% 4.8%
Common equity tier 1 ratio (fully loaded) 13.9% 13.4% 0.6 PP 12.7% 13.6% 11.5%
Total capital ratio (fully loaded) 17.9% 18.2% (0.3) PP 17.8% 18.9% 16.8%
Employees as at reporting date (full-time equivalents) 46,873 47,079 (0.4)% 49,700 48,556 51,492
Interview with the CEO 6 Report of the Supervisory Board 8 Raiffeisen at a glance 13 RBI‘s strategy 15 RBI in the capital markets 17 Corporate Governance Report 21
Interview with CEO Johann Strobl In 2019, RBI posted a consolidated profit of 1.23 billion euros. Are you satisfied with this after the record result in the previous year? I am very satisfied with it, we have generated consolidated profit in excess of one billion euros for a third year in a row – and have done so in an environment of mostly declining interest rates and margins. The loan growth of 13 per cent significantly exceeded even our expectations. I would like to emphasize the trend in net interest income and net fee and commission income: Adjusted for the income from the Polish core banking operations which we sold in 2018, these revenues were up 8 per cent from the previous year. The development of risk costs was also positive; although they were higher in 2019 than in the preceding year, they remain at a very low level.
That does sound very positive. However, how do you view the developments in relation to COVID-19? We are on a very solid footing to navigate periods of turbulence, such as the one we are witnessing at present. It is still too early to quantify the ultimate economic impact. In the event that the situation turns out to be relatively short-lived and the macroeconomic outlook becomes clearer, we are ready to continue growing. If, on the other hand, the situation worsens, we are well-prepared to quickly respond to a changed environment.
How are the individual countries, in which RBI is active, currently developing? We expect positive economic growth in all our markets in the next couple of years. In most cases, this will be well above the euro area growth rate. I would prefer some more structural reforms in one or another country. Overall, I think that we can be very happy about the development of our CEE markets.
What were the key themes for you in 2019? Our focus over the last year has been very much on innovation and the resulting improvement in customer value. We have opened ourselves up to cooperating with fintechs, strengthened our internal innovation and further developed RBI as an adaptive organization. This will all help us to make banking as easy as possible for our customers and to offer a high level of convenience, as banking is a means to an end for our customers and not an end in itself. This applies to both business with large corporate customers as well as in our retail business. One good example of how we can make life easier for our customers through innovation is our digital know-your-customer process eKYC. We were the first Austrian bank to offer this to large companies in 2019. Furthermore, our Slovakian subsidiary bank, Tatra banka, was named the most innovative bank worldwide by Global Finance last year. We as an entire Group are very proud of this success.
What role does sustainability play at RBI? The Raiffeisen brand arose from the idea of responsible business more than 130 years ago. For us, sustainability means being guided in our business activities by social and environmental, as well as economic, concerns. We will therefore continue to contribute towards a sustainable financial system and carry on with our pioneering work in this field. RBI is the largest issuer of green bonds in Austria and we will continue to place green bonds regularly in the future. The proceeds from the issues are invested in sustainable projects according to a clearly defined policy to contribute towards improving the carbon footprint. Moreover, these innovative bonds have helped us to expand our investor base and gain green investors. Green bonds are just one part of the extensive range of sustainability measures that we are taking however. Our sustainability report for 2019 provides a comprehensive overview and further insights.
RBI’s Management Board has been reduced following the expiration of CFO Martin Grüll’s mandate. What was the reasoning behind this change? In 2018, we increased the Management Board to seven members to have three people to oversee the different market segments (retail customers, corporate customers, institutional clients and investment banking). With the reorganization, we are able to cut the size of the Management Board down to six members again. I would like to take this opportunity to thank Martin Grüll once again for his outstanding services to the bank over many years. In his 15 years as CFO, he left his mark on the bank and was responsible for some extremely important RBI capital market transactions. Our IPO, capital increases and green bond issues are just a few of these.
The general trend in cost development has proved challenging. Continuing wage pressure and necessary investment in the areas of digitalization and IT led to an increase in general administrative expenses in 2019. To counter this development and ensure the reaching of the targeted cost/income ratio of 55 per cent by 2021, the Management Board has launched an optimization program at head office. A series of measures towards increasing transparency and efficiency, as well as towards a sustainable reduction in costs, were defined under this program; the implementation of which had already commenced in 2019. Furthermore, in light of advancing digitalization and ever-changing customer requirements, the Management Board introduced important initiatives to realize the process of transforming RBI into an adaptive organization where customer needs come first. Further strategic focus areas for the Management Board and Supervisory Board in 2019, included the digital services offering as well as focused innovation measures designed to optimally intertwine the traditional and digital banking business. With an overarching goal of placing customers at the forefront of our banking business, the customer product offering should be made more attractive and cross-channel access to banking should be made as easy and as flexible as possible for customers. Developments at the subsidiary banks have been very pleasing in this regard, which is proven time and again by numerous awards from international specialist publications. Particularly notable was Tatra banka being awarded as “Best Digital Bank in the World” by specialist publication Global Finance. Furthermore, The Banker, trade magazine of the Financial Times, honored the subsidiary banks in Bulgaria, Bosnia & Herzegovina, as well as Ukraine, with the “Bank of the Year 2019” award for their respective market, whilst awarding RBI with the title of “Bank of the Year in Central and Eastern Europe”.
2019 was again marked by the dynamic political climate. Continuing tensions between the US and Iran, with no end in sight to the US-China trade dispute, which have gradually had an increasing impact on the global economy, resulted in a global economic slowdown with persistently low inflation rates. As a countering monetary policy measure, the ECB maintained its existing low interest rate policy and resumed its bond purchasing program. This very expansive monetary policy poses a big challenge for European banks in terms of their yields and profitability. At the same time, there are continuing economic sanctions on Russia, which is one of RBI’s most important markets. All these factors provided for uncertainty among investors and on the capital market, which was also reflected in RBI’s negative share price development over the last year despite RBI’s solid financial results.
At the Annual General Meeting on 13 June 2019, Martin Schaller was re-elected to the Supervisory Board of Raiffeisen Bank International AG, until the close of the Annual General Meeting which will resolve on the release from liability for the 2023 financial year, and his role was confirmed.
At its inaugural meeting on 13 June 2019, the Supervisory Board re-elected Martin Schaller as 1st Deputy Chairman of the Supervisory Board. Furthermore, Birgit Noggler was newly elected during the meeting as Chairman of the Risk Committee.
At its meeting on 10 September 2019, the Supervisory Board decided to allow the Management Board mandate of CFO Martin Grüll to expire at the end of February 2020, and not to subsequently fill the vacancy. The former areas of responsibility under the CFO will be reallocated.
The Supervisory Board thanks Martin Grüll for his long-standing successful and loyal cooperation, in which he unquestionably shaped RBI and its reputation on the capital market.
In the 2019 financial year, the members of the Supervisory Board and its Committees held meetings as detailed in the table below. This demonstrates a high level of attendance for both the Supervisory Board members and the Committees.
As part of its responsibilities, the Supervisory Board regularly and comprehensively monitored the business performance and risk developments at RBI and its principal subsidiaries. Based on the reports on risks arising from banking business, the Supervisory Board held discussions with the Management Board on the adequacy of capital and liquidity, and on the direction of the Group's business and risk strategies. In addition, the Management Board provided the Supervisory Board with regular and detailed reports on relevant matters concerning performance in the respective business areas. It also provided the Supervisory Board with regular reports on regulatory developments and the resulting measures. Based on the periodic compliance reports, the Supervisory Board addressed adherence to the Group-wide compliance policies and the results of the compliance monitoring program including on the measures taken. The Supervisory Board also regularly discussed on a well-informed and knowledgeable basis the proposals submitted by the Management Board relating to matters which require Supervisory Board approval in accordance with the Articles of Association and Rules of Procedure. The Supervisory Board made decisions after considering any potential risks. Finally, the Supervisory Board was regularly informed by the respective chairmen of the work carried out in the individual Supervisory Board Committees.
While setting priority areas, a strong focus was placed on the subject of adaptive organization in order to ensure continued competitiveness and to be able to react more effectively to future changes. Substantial progress in the transformation process represented a key building block in taking account of rapid technological development. In this connection, the Supervisory Board placed great importance on continuing to drive forward Group-wide digital initiatives, and the opportunities within the area of digitalization and their implementation were discussed in detail. As part of strategy considerations, the Supervisory Board discussed the material aspects of the new Vision statement for RBI with the Management Board, to be the most recommended financial services group in its markets in 2025.
In terms of strategy, the opportunities for focused organic and inorganic growth were discussed in depth with the Management Board. This approach is being further pursued taking a balanced risk and profitability assessment into account. Given the significance, the Supervisory Board also dealt extensively with the development and strategic direction of the Austrian financial service providers, particularly those of Raiffeisen Bausparkasse GmbH, Raiffeisen Leasing GmbH and Raiffeisen Kapitalanlage GmbH. Aside from RBI’s role as the central institution, these Austrian subsidiaries play an important role in collaborating with the Raiffeisen Banking Group Austria through their service partnership agreements.
In course of meetings on the digital transformation of RBI, the Supervisory Board also concentrated intensively on the strategic measures being taken to strengthen cyber security at RBI, to ensure the highest level of protection for customers and the early identification and successful remedy of potential threat scenarios for the bank’s IT infrastructure.
In March 2019, the ECB’s key audit areas for 2019 and the topic of adaptive organization and related aspects of transformation were the focus of the courses.
On account of the interesting topics and practical relevance of the talks at the Fit & Proper courses, there was a very high attendance rate of around 85 per cent of Supervisory Board members.
One side of the approach is the clear focus on growth strategies RBI in individual business areas relating to the further digital transformation through customer orientation. A material aspect of this transformation process is RBI’s development into an adaptive organization, in order to ensure the ability to quickly respond to changing market conditions and to adapt operations and service models to technological advancements. An appropriate IT strategy should ensure the building of a sustainable and scalable IT infrastructure and a stronger focus on the development of Data & Analytics capabilities should also enable more target-orientated analysis and understanding of customer behavior.
On behalf of the members of the Supervisory Board, I would like to thank all employees for their tireless efforts for the bank. Consistent with collective collaboration, we will also overcome future challenges together.
The Supervisory Board also discussed the efficiency of its activities, its organization and work procedures in accordance with Rule 36 of the Austrian Corporate Governance Code, and a self-evaluation and efficiency assessment conducted with support from KPMG.
In expectation of a continuing low interest rate environment in the near future, and on the basis of a prudent risk policy, revenue growth should be achieved through a sharper focus on organic customer growth. A balanced tradeoff between risk and profitability form the basis of these decisions. On the cost side, increased synergies through optimizing the Group-wide IT governance, as well as centralization and automation initiatives are planned.
Together, the 368 Raiffeisen banks with their branches, the regional Raiffeisen banks and specialist companies, make up a comprehensive and extensive banking network. The Raiffeisen banks are universal banks that provide a full range of banking services and are also the owners of their respective regional bank.
RBI AG is a member of the federal IPS as RBG’s central institution. Its members, in addition to the regional Raiffeisen banks, include: Raiffeisen-Holding Niederösterreich-Wien regGenmbH, Posojilnica Bank eGen (formerly ZVEZA Bank), Raiffeisen Wohnbaubank AG, and Raiffeisen Bausparkasse GmbH. The federal IPS is itself subject to regulatory requirements. It was within this framework that the responsible supervisory authorities, the European Central Bank (ECB) and Austrian Financial Market Authority (FMA), granted authorizations under which, among other things, receivables between federal IPS members may be risk weighted at zero per cent. This also involves joint regulatory supervision. Capital requirements must be met on a consolidated basis at federal IPS level.
Vision 2025: The most recommended financial services group RBI is a leading universal banking group in CEE and corporate and investment bank in Austria. It provides financial services to retail and corporate customers, as well as to banks and other institutional clients. RBI will continue to concentrate its core business activities in the CEE region, which offers structurally higher growth rates than Western Europe and therefore more attractive potential returns. Complemented by leading specialist institutions in Austria, RBI is broadly diversified and also benefits from the opportunities of the Austrian market.
After the successful conclusion of the Ambition 2020 transformation program, which was aimed at exiting non-core operations, a strategic repositioning in selected markets and a significant reduction in risk and complexity, RBI has turned its focus back on growth, digitalization and innovation.
 Employees: We value expertise and create a working environment which promotes collaboration, creativity and entrepreneurial spirit
 Shareholders: We aim to generate solid and sustainable shareholder value
To achieve this target, RBI is pursuing a strategy which is anchored around customer centricity and providing a stress-free, effortless banking experience, as well as excellent products and services. In addition to leveraging RBI’s already established competitive strengths (customer focus, extensive local presence, strong brand, long-term relationships, as well as a comprehensive product and service offering across all channels), efforts are being intensified in the following strategic areas:  Sales & service model: Transformation of branches, redesign of sales & service models for large corporate and institutional clients, set-up of dedicated customer experience management across all business lines
 Digital operational excellence: Improved efficiency and effectiveness through digitalization and automation; redesign of critical customer touchpoints and processes from scratch
 Group-wide innovation process: Strengthening of payments and FX capabilities with scalable group solutions, development of innovative digital lending propositions
 IT architecture: Transformation of core IT into lean and scalable architecture, evaluation of greenfield infrastructure, especially for digital retail banking
Ultimately the strategic initiatives are aimed at creating customer and revenue growth across all business lines and markets. This will be based on improved digital customer acquisition, as well as further leveraging RBI’s broad CEE coverage. The latter, specifically to further expand the Corporate and Markets & Investment Banking business.
RBI’s retail customers already benefit from state-of-the-art online and mobile banking, including video identification and contact center solutions based on telephone or chat functions. The aim is to further accelerate the adoption of these digital channels; the target is to increase active usage of mobile banking from 32 per cent in 2019 to 55 per cent by 2021. Ultimately, the aim is to further exploit the potential of new technologies and data analytics in order to provide a superior customer experience for all retail customers.
By offering innovative and convenient solutions, RBI’s long-term ambition is to become the corporate bank of choice across CEE.
For RBI’s institutional clients (e.g. banks, insurances, asset managers), one of the main focuses is on developing and implementing digital products and features in order to enhance the Markets & Investment Banking product offering; the target is to have 80 per cent of deals captured digitally in the next two years. Furthermore, RBI is designing a digital sales channel for foreign exchange (FX) business in order to become an FX-business leader in the region. Further strategic pillars are an optimization of the investment banking setup, as well as of the capital markets trading and sales architecture.
Price performance since 1 January 2019 compared to ATX and Euro Stoxx Banks
Media reports at the beginning of March purporting possible involvement in money laundering was material in the weak development of RBI’s share price despite the good financial results. The charge against an unknown party was dropped and there were no subsequent measures taken by authorities relating to the complaint. An internal audit confirmed that there were no transgressions made by RBI or its customers with regard to fully complying with anti-money laundering measures, and that strict directives as well as a comprehensive AML system are in place.
As at the editorial deadline for this report on 28 February 2020, RBI’s stock was priced at € 18.68. The stock therefore lost 17 per cent compared to the end of 2019. The ATX and the Euro Stoxx Banks both decreased 13 per cent over the same period. At the end of February 2020, global markets were impacted by fears of the spreading of the corona virus.
RBI Euro Stoxx Banks (relative to RBI) ATX (relative to RBI)
Shareholder structure The regional Raiffeisen banks’ holding was unchanged at approximately 58.8 per cent of RBI’s shares, with 41.2 per cent in free float. The shareholder base is well-diversified due to the broad geographic spread and various investment strategies. The institutional investors are primarily from North America and Europe, as well as increasingly from Asia and Australia. These include sovereign wealth funds and supranational organizations, which offer stability due to their preferred long-term investment strategies. There are also a large number of Austrian private investors among RBI’s shareholders.
For investors and analysts, the recurring core issue for 2019 was the future macroeconomic outlook in CEE and the resulting possible impacts on the business and on credit risks. The discussions also frequently covered margins and costs, acquisition opportunities and future dividend policy.
A total of 21 equity analysts and 22 debt analysts (as at 31 December 2019) regularly provide investment recommendations on RBI. Consequently, RBI is the Austrian company with the largest number of analyst teams regularly reporting on it.
RBI continuously strives to keep market participants fully informed. In the interest of making its communications as easily accessible and widespread as possible, RBI makes conference call presentations and other important events available as online webcasts. These can be viewed online at www.rbinternational.com → Investors.
Following an initial successful transaction in the previous year, RBI issued its second benchmark green bond on 17 September 2019, thereby strengthening its commitment to the green bond market. The new bond for institutional investors has a nominal amount of € 750 million and a maturity of seven years. It carries a coupon of 0.375 per cent (equivalent to a spread of 75 basis points over mid-swaps). The issue was significantly oversubscribed, with an order book of € 1.8 billion. The issue proceeds will be used to finance environmentally friendly residential and commercial properties as well as sustainable transportation infrastructure and transportation projects in Central and Eastern Europe.
Financial Calendar 2020 30 April 2020 Start of Quiet Period 14 May 2020 First Quarter Report, Conference Call 08 June 2020 Record Date Annual General Meeting 18 June 2020 Annual General Meeting 25 June 2020 Ex-Dividend Date 26 June 2020 Record Date Dividends 29 June 2020 Dividend Payment Date 28 July 2020 Start of Quiet Period 11 August 2020 Semi-Annual Report, Conference Call 29 October 2020 Start of Quiet Period 12 November 2020 Third Quarter Report, Conference Call
Raiffeisen Bank International AG Group Investor Relations Am Stadtpark 9 1030 Vienna, Austria
The ACGC is subdivided into L, C and R Rules. L Rules are based on compulsory legal requirements. C Rules (Comply or Explain) should be observed; any deviation must be explained and justified in order to ensure conduct that complies with the Code. R Rules (Recommendations) have the characteristics of guidelines; non-compliance does not need to be reported or justified. RBI deviates from the C Rules below, but conducts itself in accordance with the Code through the following explanations and justifications: C Rule 45: non-competition clause for members of the Supervisory Board RBI AG is the central institution of the Raiffeisen Banking Group Austria (RBG). Within RBG, RBI AG serves as the central institution (as defined by § 27a of the Austrian Banking Act (BWG)) of the regional Raiffeisen banks and other affiliated credit institutions. Some members of the Supervisory Board in their function as shareholder representatives therefore also hold executive roles in RBG banks. Consequently, comprehensive know-how and extensive experience specific to the industry can be applied in exercising the control function of the Supervisory Board, to the benefit of the company.
In accordance with C Rule 62 of the ACGC, RBI AG commissioned KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Vienna (KPMG) to conduct an external evaluation of compliance with the C Rules of the Code. The report on this external evaluation is publicly available at www.rbinternational.com → Investors → Corporate Governance → External Evaluation of the CG Code.
Composition of the Management Board As at 31 December 2019, the Management Board consisted of the following members: Management Board member Year of birth Original appointment End of term Johann Strobl Chairman 1959 22 September 20101 28 February 2022 Martin Grüll 1959 3 January 2005 28 February 2020* Andreas Gschwenter 1969 1 July 2015 30 June 2023 Lukasz Januszewski 1978 1 March 2018 28 February 2021 Peter Lennkh 1963 1 October 2004 31 December 2020 Hannes Mösenbacher 1972 18 March 2017 28 February 2025 Andrii Stepanenko 1972 1 March 2018 28 February 2021 1 Effective as of 10 October 2010 *The number of members of RBI AG’s Management Board will be reduced from seven to six when Martin Grüll’s Management Board mandate expires at the end of February 2020. The Management Board areas of responsibility will be reorganized in a way that aims to exploit opportunities to streamline the organization.
Raiffeisenbank a.s., Czech Republic, Chairman Raiffeisen Centrobank AG, Austria, Chairman Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Austria, Deputy Chairman AO Raiffeisenbank, Russia, Member Raiffeisen Bank S.A., Romania, Member (from 7 February 2019) Tatra banka, a.s., Slovakia, Member
In addition to the management and governance of RBI AG, the members of the Management Board performed supervisory and managerial duties at the following material subsidiaries in executive roles or as supervisory board members in the 2019 financial year: Supervisory Board mandate Management
Priorbank JSC, Belarus, Chairman Raiffeisen Bank Aval JSC, Ukraine, Chairman Raiffeisenbank (Bulgaria) EAD, Bulgaria, Chairman Raiffeisen Bank S.A., Romania, Deputy Chairman AO Raiffeisenbank, Russia, Member
Raiffeisen Bank d.d., Bosnia and Herzegovina, Chairman (until 25 February 2019) Raiffeisen Centrobank AG, Austria, Deputy Chairman AO Raiffeisenbank, Russia, Member Raiffeisen Bank S.A., Romania, Member Raiffeisenbank a.s., Czech Republic, Member Tatra banka, a.s., Slovakia, Member
Susanne Unger2 1961 16 February 2012 Until further notice 1 Effective as of 10 October 2010 2 Delegated by the Staff Council
Sigrid Netzker took over Natalie Egger-Grunicke’s Supervisory Board functions for one year starting on 1 January 2019. Natalie Egger-Grunicke reassumed her Supervisory Board functions on 1 January 2020.
 The Supervisory Board member shall not be part of the Supervisory Board for longer than 15 years. This does not apply to Supervisory Board members who are shareholders with business interests in the company, or who represent the interests of such shareholders.
Klaus Buchleitner BayWa AG, Germany, Deputy Chairman; AGRANA Beteiligungs-Aktiengesellschaft, Austria, Deputy Chairman
The Supervisory Board, both in its entirety and in its committees, has the necessary knowledge and experience to match the type, scope and complexity of RBI’s business and its risk structure.
 The Supervisory Board member shall not have been an auditor of the company, nor a stakeholder in or employee of the auditing company in the previous three years.
In addition to their functions as members of RBI AG’s Supervisory Board, the following members also held supervisory board mandates at material subsidiaries during this period: Erwin Hameseder LEIPNIK-LUNDENBURGER INVEST Beteiligungs Aktiengesellschaft, Austria, Chairman Klaus Buchleitner LEIPNIK-LUNDENBURGER INVEST Beteiligungs Aktiengesellschaft, Austria, Member
The Advisory Council consists of the seven Chairmen of the supervisory boards of the regional Raiffeisen banks and the Chairman of Raiffeisenverband Salzburg. It met five times in 2019. Out of the eight members of the Advisory Council, four members attended all the meetings in 2019. Two members were excused from one meeting, one member from two meetings and one member from three meetings. Member attendance at each meeting thus ranged between 62 per cent and 100 per cent.
As long as the General Meeting passes no resolutions to the contrary in the future, Advisory Council members are paid the following annual remuneration:  For the Chairman of the Advisory Council: € 25,000 (excluding VAT)
 For every other member of the Advisory Council: € 15,000 each (excluding VAT)
The Advisory Council provides advice on matters relating to material ownership interests of the regional Raiffeisen banks as core shareholders and on selected aspects of the relationship between RBI and RBG. It also gives advice on RBI’s central institution function as defined in § 27a of the BWG and the responsibilities associated with it, and on the affiliated companies in their capacity as RBG’s distribution partners.
The RBI AG Management Board manages the company according to clearly defined goals, strategies and guidelines on its own authority, with a focus on future-oriented business management and in line with modern, sustainable business principles. In doing so, the Management Board pursues the good of the company at all times and considers the interests of customers, shareholders and employees.
 In addition, the following changes were approved in December 2019 and put into effect on 1 February 2020: - The Group Participations and International Banking Units divisions will be merged to form the Group Equity Investments division. This division will be the central point of contact for all equity investments (affiliated credit and financial institutions, associated companies and other equity investments held in and outside Austria) and RBI internal stakeholders. To maximize synergies and optimize existing processes, a single division will handle the tasks previously performed by the equity investment managers and relationship managers.
- The Retail Banking Management Board area will take over managing the Group Marketing division in order to support tighter integration between digital marketing activities and business activities.
 The Institutional Clients division was reorganized and split into two organizational units: Institutional Clients and Group Investor Services. The change eliminated one hierarchical level and separated responsibilities between account management and business management.
Management Board area of the Chief Operating Officer/Chief Information Officer (COO/CIO)
 A new Group Advanced Analytics division was created. Due to the growing importance of advanced analytics for RBI, the advanced analytics team was established as a separate B-1 unit that is responsible for the Group and reports directly to the CRO.
The Management Board areas of Martin Grüll (CFO) will be reallocated when his Management Board mandate expires on 28 February 2020.
Furthermore, the Risk Committee is also responsible for examining whether adequate consideration is given to the business model and risk strategy in the pricing of the services and products offered. To this end, the Risk Committee discusses reports submitted to it on pricing and price calculations in the customer and financial institutions business and discusses remedial action plans if necessary. The Risk Committee also monitors whether the incentives offered by the internal remuneration system give adequate consideration to risk, capital and liquidity, as well as the timing of realized profits and losses. This involves the presentation of a report on remuneration policies in the Risk Committee, which is used to assess whether the remuneration structure reflects RBI’s risk appetite.
In the last financial year, the Risk Committee focused especially on ongoing reporting, monitoring compliance with Russian and US sanctions and the regular status reports on money laundering prevention. It also devoted particular attention to reporting on possible risks associated with the portfolio of mortgages denominated in Swiss francs in Poland.
The Audit Committee monitors the accounting process. It issues recommendations for improving reliability and supervises the effectiveness of the company’s internal control, audit and risk management systems.
The Audit Committee also oversees the annual audit of the financial statements and consolidated financial statements and thus monitors the independence of the external Group auditor/bank auditor, particularly with respect to additional work performed for the audited company. The Committee examines the annual financial statements, the management report, the consolidated financial statements and the Group management report, and is responsible for the preparation for their adoption by the Supervisory Board. The Audit Committee reviews the audit plan in great detail and engages in discussions with the auditor about key facts covered in the audit of the financial statements, special focuses of the audit, the management letter and the report on the effectiveness of risk management and the internal control system. It also examines the Management Board’s proposal for earnings appropriation and the Corporate Governance Report. The Audit Committee presents a report on the results of its examinations to the Supervisory Board. It also conducts a process, in accordance with statutory requirements, for the selection of the Group auditor and bank auditor and submits a recommendation to the Supervisory Board concerning the appointment of the auditor.
Special reports are compiled on current issues; at the end of each year, the Audit Committee also defines core issues for the upcoming year.
The Remuneration Committee’s responsibilities include, first and foremost, establishing guidelines for the company’s remuneration policies and practices, particularly on the basis of the BWG, as well as relevant sections of the ACGC. In doing so, the company ’s interests along with the long-term interests of shareholders, investors and employees of the company are taken into account, as are the economic interests of maintaining a functioning banking system and the stability of the financial market. The Remuneration Committee issues detailed internal remuneration policies for RBI and makes changes as needed as part of a regular review process. On that basis, the Remuneration Committee selects the companies within RBI that are subject to the remuneration principles. This selection and the underlying selection process are reviewed at regular intervals. The Remuneration Committee is also responsible for approving the proposed list of employees and functions which have a material impact on the risk profile of the Group and/or company. The Remuneration Committee conducts regular reviews of these Identified Staff.
The Remuneration Committee is also responsible for deciding whether employees are subject to penalty or clawback events. It reviews potential cases and then, based on the facts, decides how the event will affect the payment of variable remuneration.
The Nomination Committee’s duties include filling any posts on the Management Board and Supervisory Board that have become vacant. The Nomination Committee evaluates potential candidates based on a description of the duties entailed and, after conducting an appropriate fit & proper test, issues recommendations for filling the board vacancy, giving consideration to the balance and diversity of knowledge, skills and experience of all members of the governing body in question.
The Nomination Committee also specifies a target ratio for the under-represented gender on the Management Board and the Supervisory Board, consults on the strategy for achieving the defined target ratio and regularly discusses the adoption of development programs. The Nomination Committee is also responsible for evaluating decision-making within the Management Board and Supervisory Board, ensuring that the Management Board and the Supervisory Board are not dominated by one individual person or a small group of persons in a way which is contrary to the company’s interests. The Nomination Committee verifies and makes this assessment based on the meeting processes and communication lines within each board (e.g. minute-taking, deputizing arrangements, resolutions passed by circulation in urgent cases, monitoring of courses of action taken, meeting preparations, forwarding of documents) and on the perceptions of the members themselves. The Nomination Committee’s responsibilities also include regularly assessing the structure, size, composition and performance of the Management Board and Supervisory Board, with reports on the bodies’ composition, organizational structures and the results of their work being presented as a basis for any decisions. It also regularly evaluates the knowledge, skills and experience of the individual members of both the Management Board and Supervisory Board and also of the respective governing body as a whole. The evaluation takes place in the Nomination Committee and is based on the self-evaluation of the individual members of the Management Board and Supervisory Board, as well as on individual continuing education reports.
In 2019, Supervisory Board members attended the meetings of the Supervisory Board and its Committees as shown below: n/a – not applicable, as not a member of the respective Committee
Erwin Hameseder 7/7 8/8 4/4 4/4 2/2 4/4 2/2 31 Martin Schaller 7/7 8/8 4/4 n/a 2/2 4/4 2/2 27 Heinrich Schaller 5/7 6/8 3/4 3/4 2/2 3/4 2/2 24 Klaus Buchleitner 4/7 n/a n/a n/a n/a n/a n/a 4 Peter Gauper 7/7 n/a n/a n/a n/a n/a n/a 7 Wilfried Hopfner 7/7 n/a n/a n/a n/a n/a n/a 7 Rudolf Könighofer 7/7 n/a n/a n/a n/a 3/4 2/2 12 Johannes Ortner 7/7 n/a n/a 4/4 n/a n/a n/a 11 Günther Reibersdorfer 7/7 n/a n/a n/a n/a n/a n/a 7 Eva Eberhartinger 7/7 n/a 4/4 4/4 2/2 n/a n/a 17 Andrea Gaal 7/7 8/8 4/4 4/4 2/2 4/4 2/2 31 Birgit Noggler 7/7 8/8 4/4 4/4 2/2 4/4 2/2 31 Rudolf Kortenhof 5/7 8/8 4/4 4/4 2/2 4/4 n/a 27 Peter Anzeletti-Reikl 7/7 8/8 4/4 4/4 2/2 4/4 n/a 29 Gebhard Muster 4/7 n/a n/a n/a n/a n/a n/a 4 Sigrid Netzker 5/7 n/a n/a n/a n/a n/a n/a 5 Helge Rechberger 7/7 n/a n/a n/a n/a n/a n/a 7 Susanne Unger 7/7 8/8 4/4 4/4 2/2 4/4 n/a 29
RBI’s remuneration system does not encourage the assumption of disproportionate risks, and instead supports sound, effective risk management (e.g. through a performance management process with financial and non-financial targets as well as qualitative and quantitative key performance indicators and the use of a bonus pool approach). This goal is also achieved by limiting variable remuneration through thresholds and upper limits, which also enables more precise long-term cost planning. In addition, special rules apply to Identified Staff Examples are shown below: • Variable remuneration payment installments (the payment of variable remuneration for Identified Staff is determined by a defined deferred period)
In accordance with § 39 (2) in conjunction with § 39b of the BWG including annexes, RBI AG’s Supervisory Board approved the General Principles of the Remuneration Policy and Practice in 2011. Remuneration of all employees including the Management Board and other Identified Staff, whose professional activities have a material impact on the risk profile of the company and/or the Group, must comply with these principles. These principles also applied to bonus payments for 2011 and subsequent years. The Remuneration Committee of the Supervisory Board of RBI AG reviews these principles on a regular basis and is responsible for monitoring their implementation. To reflect changes in the regulatory requirements and framework and/or adjustments to the RBI remuneration system, the remuneration principles that apply within the RBI Group in the form of an Internal Regulation Total Rewards Management (including annexes) are regularly updated and submitted to the Remuneration Committee for approval. This was last done in March 2019.
• As a general rule, 50 per cent of the variable remuneration is administered in the form of non-cash instruments (phantom shares are used to fulfil this regulatory requirement at RBI)
The following total amounts were paid to the Management Board of RBI AG: Bonuses (incl. portions for prior years) 3,196 2,493 1,882
Fixed remuneration, as shown in the table, includes salaries and benefits in kind. Performance-based components of the Management Board’s remuneration essentially consist of bonus payments, i.e. deferred bonus amounts from previous years as well as immediately payable bonus amounts for 2018 were paid out.
The payment of a bonus is linked to the achievement of annually agreed goals from various areas based on a balanced scorecard approach. These are weighted financial targets (adjusted to the respective function, e.g. return on risk-adjusted capital, total costs, risk-weighted assets), customer and employee goals, as well as process/efficiency/infrastructure goals and, where necessary, additional objectives. The amount of the bonus is determined based on return on equity (ROE) and the cost/income ratio (CIR); the targets to be achieved reflect the strategic targets for ROE and CIR at RBI level. Payment of bonuses is deferred as set forth in the BWG and implemented according to internal regulations.
Regulations regarding severance payments, in case of the early termination of Management Board mandates, are essentially based on the principles stipulated by the ACGC. Severance payments do not exceed the maximum limits stipulated in the ACGC (a maximum of two years’ total annual remuneration for early termination without serious cause – except for severance payments made under contractual agreements before 1 January 2010 – and in any case no longer than the remaining term; no severance payment is made in the event of premature termination for serious reasons attributable to the Management Board member). There are no special severance payment provisions for change of control situations, i.e. the principles laid out above also essentially apply in such cases.
 For the Deputy Chairman of the Supervisory Board: € 90,000 each
 For every other elected member of the Supervisory Board: € 60,000 each
Corresponding provisions for Supervisory Board remuneration for the financial year 2019 were formed. Members of the Supervisory Board will be paid the following remuneration for 2019, reflecting their time in office and chairman positions held: Supervisory Board member in € thousand
A D&O (Directors & Officers) financial loss and liability insurance policy was maintained with UNIQA Österreich Versicherungen AG for the 2019 financial year for the Supervisory Board, the Management Board and key executives, the cost of which is borne by the company. The policy covers both third-party claims (external cover) and also claims of the company itself (internal cover) against the managers. The internal cover also protects the company.
Annual General Meeting The Annual General Meeting for the 2018 financial year was held on 13 June 2019 in Vienna. The Annual General Meeting for the 2019 financial year will take place on 18 June 2020. The convening notice will be published in the Wiener Zeitung’s official journal and in electronic form a minimum of 28 days before the Annual General Meeting.
At the Annual General Meeting the shareholders, as owners of the company, can exercise their rights by voting. The fundamental principle of “one share one vote” applies. Accordingly, there are no restrictions on voting rights and all shareholders have equal rights. Every share issued confers one vote; registered shares have not been issued. Shareholders may exercise their voting rights themselves or by means of an authorized agent.
The RBI Group Diversity Policy was published in June 2018. It describes the relevance of this issue for RBI, defines the various responsibilities, and also describes how to implement a diversity strategy in the Group. The subsidiaries focused on local strategies in 2019.
The RBI Group Diversity Policy defines a strategy for filling Management Board and Supervisory Board positions whereby hiring must give consideration to both diversity and compliance with statutory requirements. Other important diversity aspects include age, gender and geographic origin. The main requirements for holding such a position also include solid education and professional experience, preferably in roles related to banks or financial institutions. The objective is that the boards include a wide range of qualifications and expertise in order to obtain the broadest possible variety of experience and diverse opinions, collectively resulting in sound decision-making.
Measures taken to promote women to the Management Board, the Supervisory Board and into executive positions RBI is convinced that increasing the proportion of women in management is good for the results generated by the company. Female empowerment is therefore strategically embedded in its diversity management and supported by numerous programs.
The composition of the Management Board and Supervisory Board should be structured so that the board members’ geographic origins reflect the diversity of RBI’s markets and its cultural context. With respect to the age structure of the Management Board and Supervisory Board, the board members should preferably not have all been born in the same decade. The aim is for women to fill 35 per cent of the positions within the Supervisory Board, Management Board and Tier 2 management of the RBI Group by no later than 2024.
For the entire RBI Group, the Nomination Committee has set a target of filling 35 per cent of the positions on the Supervisory Board, Management Board and in Tier 2 management with women by no later than 2024. The following figures include RBI AG and 13 network banks in CEE as well as Raiffeisen Bausparkasse Gesellschaft m.b.H., Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Raiffeisen-Leasing Gesellschaft m.b.H, Valida Vorsorge Management, Kathrein Privatbank Aktiengesellschaft and Raiffeisen Centrobank AG. As at 31 December 2019, the total proportion of women among employees in the RBI Group was 66 per cent (2018: 66 per cent). Women held 14 per cent of Management Board positions (2018: 14 per cent), 35 per cent of Tier 2 management positions (2018: 35 per cent) and 46 per cent of Tier 3 management positions (2018: 46 per cent). Women currently hold 24 per cent of Supervisory Board positions (2018: 18 per cent).
For a number of years, RBI has had internal policies that govern in detail the business transactions conducted to avoid conflicts of interest. The rules enacted in Austria in mid-2019 on transactions with related companies and people (as part of the transposition of the EU Shareholder Rights Directive into Austrian law) have been reflected in a separately issued internal directive.
Market development 42 Significant events in the reporting period 47 Earnings and financial performance 48 Comparison of results with the previous year 48 Comparison of results with the previous quarter 51 Statement of financial position 53 Total capital pursuant to the CRR/
Austrian Banking Act (BWG) 54 Research and development 55 Internal control and risk management system 56 Capital, share, voting, and control rights 59 Risk management 61 Corporate Governance 61 Consolidated non-financial report 61 Human Resources 61 Outlook 62 Events after the reporting date 63
The ECB initially left key interest rates unchanged until the summer of 2019, while reinvestments were limited to redemption payments from its existing bond portfolio. The ECB adopted a new package of monetary easing measures at the meeting in early September. The package included a reduction in the deposit rate for commercial banks from minus 0.4 per cent to minus 0.5 per cent and the resumption of net bond purchases. The ECB’s expansive monetary policy caused money market rates and yields on German government bonds to fall to historic lows over the course of the year. Between August and mid-October, even the yield on the 30-year German government bond was negative for the first time.
Solid economic climate in CE and in SEE, while restrictive fiscal policy slowed growth in Russia Inflation in the Central Europe (CE) region rose on average in 2019, compared with the previous year, and at 2.6 per cent was well above the two per cent mark. In Southeastern Europe (SEE), in contrast, inflation fell to just below 3 per cent. Inflationary pressure in SEE, as in the previous year, was driven by Romania, though this started to abate towards the end of 2019. All in all, central banks in Central & Eastern Europe (CEE) therefore found themselves able to continue their loose or rather neutral monetary policy. One exception was the Czech central bank, which had initiated a process of interest rate normalization in 2017 and reached a key interest rate level of 2.25 per cent at the beginning of 2020. Notably, the Romanian National Bank also decided to combat the underlying inflationary pressure through restrictive liquidity management. The renewed monetary easing measures taken by leading central banks, such as the ECB and the Fed, fundamentally increased the latitude for an expansive monetary policy in CEE countries. In Russia and Ukraine, in particular, the key rate was lowered in 2019 alongside falling inflation.
Domestic demand, particularly consumer spending, supported by solid wage growth and a low unemployment rate, proved again to be the main driver of the CE economy in 2019. Despite the close trade links between industry in the CE region and Germany, the slowdown in industrial activity in CE was less pronounced than in Germany, especially in the automotive sector.
Banking sector in Austria The Austrian banking sector extended its solid track record from previous years into 2019, despite light economic headwinds during the second half of the year. The corporate customer business sustained its positive momentum in 2019. Likewise, real estate lending continued its upward trajectory, but did not reach levels that would be deemed as clearly excessive from a supervisory perspective. At just over 2 per cent, non-performing loans (NPLs) remained below the euro area average of 2.9 per cent, while the coverage ratio significantly exceeded 50 per cent. The return on equity (before tax) of Austrian banks was 9 to 10 per cent on a consolidated basis in 2019 (mostly supported by low risk costs in domestic and foreign operations), and thus well above the euro area average of 6 to 7 per cent. This positive earnings trend was broadly underpinned by ongoing positive business developments in CEE, with double-figure return on equity in the core markets of the Czech Republic, Hungary, Romania, and Russia. Adjustments and efficiency enhancement programs implemented in recent years within the CEE business of Austrian banks, (e.g. changes to geographical footprint, stronger focus on retail business, expansion of branch network), have also had an effect. Given the positive developments in the overall market, the Austrian banking sector was able to further bolster its capitalization in the reporting period relative to other Western European banking sectors, ranking it in the upper-middle echelon of its European peers. However, the capital requirements for large Austrian banks could gradually increase further due to the recalibration of the systemic risk buffer and the buffer for other systemically important institutions as recommended by the Financial Market Stability Board.
The European Commission’s proposals to revise the Capital Requirements Directive IV/Capital Requirements Regulation and the Bank Recovery and Resolution Directive (BRRD) have been finalized by the European legislature. The regulations are expected to take effect for the most part in 2021 and 2022, respectively. As far as RBI is concerned, the deduction exemption for software is particularly important in creating a level playing field with the US. Additional improvements to the regulatory capital situation are expected as a result of the revised Pillar II framework. Moreover, the harmonization of reporting requirements for credit institutions is of significant importance. Other key changes include parameters for reducing risk-weighted assets for small and medium-sized enterprises (SMEs) and infrastructure projects.
Another Capital Markets Union initiative aims to reduce the dependence of SMEs on bank loans, diversify their capital market funding opportunities and encourage SMEs to issue more bonds and shares on public markets. In addition, the legal framework for covered bonds is to be harmonized, the aim of which is to establish minimum harmonization requirements that all covered bonds marketed in the EU must meet.
A provision of € 18 million was recognized at head office to carry out these measures, primarily for the intended workforce reduction. Most of this provision will be used in 2020. The program is expected to reduce general administrative expenses in the coming years.
Raiffeisen Informatik GmbH & Co KG (R-IT), in which RBI AG indirectly holds nearly 47 per cent of the equity, sold its 100 per cent stake in Comparex AG to SoftwareONE Holding AG (SWO), a Swiss software company, at the start of the year. As part of the sale, R-IT received 14.6 per cent of the share capital of SWO among other things. R-IT sold a portion of its SWO share capital in an IPO on the Swiss stock exchange at the end of October 2019 and reduced its holding to 7.9 per cent. A positive effect of €117 million resulted from the IPO proceeds and share price increase, which is included under current income from investments in associates.
The government of Slovakia plans to double the existing bank levy, which was introduced in 2012 and originally intended to expire in 2020. The levy amounts to 0.2 per cent of total assets (minus shareholders’ equity) and will increase to 0.4 per cent. It will be collected until further notice under a resolution that the Slovakian parliament passed in November 2019. RBI’s subsidiary bank in Slovakia paid € 24 million in bank levies in 2019.
Net trading income and fair value result (17) 17 (34) –
Profit before tax reached € 1,767 million in the 2019 financial year, a slight 1 per cent, or € 13 million, increase on the previous year. As expected, the very strong results from the previous year, which were driven by exceptionally low net allocations to loan loss provisions (€ 166 million) due to impairment loss reversals and gains on sales of non-performing loans, could not be replicated, but RBI nonetheless continued on its growth trajectory in 2019. The common equity tier 1 ratio (after deduction of the proposed dividend for the 2019 financial year) reached 13.9 per cent, an increase of 0.6 percentage points.
Due to the positive developments, the Management Board has decided to propose a slightly higher dividend of € 1.00 per share for the 2019 financial year to the Annual General Meeting, an increase of 7 cents. This would correspond to a maximum dividend payout of € 329 million. Based on consolidated profit, the payout ratio would be 27 percent.
1 The current income from investments in associates previously reported in other result is now shown in a separate item.
General administrative expenses increased € 45 million year-on-year to € 3,093 million. Comparability with the previous period is limited due to the sale of the Polish core banking operations and the first-time adoption of IFRS 16 with the corresponding effects on other administrative expenses and depreciation. The sale of the Polish core banking operations led to a reduction of € 179 million, adjusted for which the increase in general administrative expenses would have been € 224 million. Staff expenses rose especially as a result of salary adjustments in several countries and a rise in staffing levels in Russia and at head office. In addition, a restructuring provision of € 18 million was formed for an optimization program at head office.
During the reporting period, credit-related provisions for litigation were allocated on a portfolio basis in an amount of € 83 million. These were related to pending lawsuits in connection with foreign currency-denominated or foreign currency-indexed mortgage loans to consumers in Poland (€ 49 million), credit clauses in Croatia (€ 20 million), and proceedings with the consumer protection authority in Romania, also with respect to alleged misuse of credit clauses (€ 14 million).
Overall, the average number of employees declined by 2,572 full-time equivalents year-on-year to 47,173. Excluding the sale in Poland, the number of full-time equivalents increased by 587. The increase in other administrative expenses is attributable to higher deposit insurance fees as well as higher advertising and consulting expenses. The number of business outlets fell by 119 year-on-year to 2,040, primarily in Romania (down 68) and Russia (down 37). Depreciation also increased, mainly as a result of higher capitalization of software at head office and in Russia, and an adjustment to the expected useful life of tangible fixed assets in Ukraine.
Impairments on investments in subsidiaries and associates rose € 65 million to € 98 million, primarily on shares in Raiffeisen Informatik GmbH & Co KG, UNIQA Insurance Group AG and the building society in Slovakia. In addition, impairments on nonfinancial assets of € 59 million were taken during the reporting period (up € 38 million), which were predominantly driven by real estate owned by an Italian leasing company and by real estate holdings in Russia. A provision of € 27 million was allocated in the reporting period for property transfer taxes in Germany, which resulted from corporate reorganizations in previous years. They related to the merger of Raiffeisen Zentralbank and Raiffeisen Bank International in 2017 and to purchases of shares in Raiffeisen Leasing Group in 2012 and 2013.
Levies and expenses for special governmental measures fell € 7 million to € 162 million compared to the same period in the previous year. Bank levies recorded a decline of € 6 million. In Poland, bank levies decreased € 18 million due to the sale of the Polish core banking operations. This reduction was counteracted in part by the newly introduced bank levy in Romania in the amount of € 10 million. Expenses from banking business due to governmental measures increased € 3 million as a result of the conversion of Swiss franc loans in Serbia. Resolution fund contributions fell € 5 million. The largest decline came from the sale of the Polish core banking operations (down € 9 million) with contributions also lower in the Czech Republic, while head office and Bulgaria recorded higher contributions.
Current income from investments in associates1 24 23 13 14 120
General administrative expenses came to € 848 million in the fourth quarter, up 13 per cent, or € 100 million, from € 748 million in the previous quarter.
The expenses for levies and special governmental measures rose € 10 million quarter-on-quarter to € 21 million. The increase was caused by the new bank levy introduced in Romania in 2019, amounting to € 10 million.
Development of the fourth quarter of 2019 compared to the third quarter of 2019
In the fourth quarter of 2019, the other result amounted to minus € 151 million, compared to minus € 35 million booked in the previous quarter. The main drivers were impairments on investments in subsidiaries and associates, which increased € 60 million, and a € 42 million increase in impairments on non-financial assets, which principally arose from real estate owned by an Italian leasing company and in Russia. In addition, loan-related provisions for litigation increased € 51 million on a portfolio basis, mainly in connection with foreign currency-denominated or foreign currency-indexed mortgage loans to consumers in Poland. This was offset by a positive effect of € 50 million from the sale of a property in Slovakia.
The consolidated profit in the fourth quarter rose 16 per cent, or € 50 million, to € 353 million, and was driven by a strong operating result.
Statement of financial position In the course of 2019, RBI’s total assets increased 9 per cent, or € 12,084 million, to € 152,200 million. Currency movements resulted in an increase of around 2 per cent, or € 2,520 million, notably from appreciation of the Ukrainian hryvnia against the euro by 19 per cent, of the Russian ruble by 14 per cent, of the Belarusian ruble by 5 per cent, and of the US dollar by 2 per cent; countered by depreciation of the Hungarian forint by 3 per cent and of the Romanian leu by 2 per cent.
Since the beginning of the year, cash and other assets rose € 2,549 million to € 32,022 million. Cash balances increased € 1,732 million to € 24,289 million, primarily at head office (increase of € 1,427 million, particularly from repo business). Other assets were up € 817 million to € 7,733 million, half of which was due to the recognition of right-of-use assets in the statement of financial position (application of IFRS 16).
The 11 per cent, or € 9,176 million, increase in deposits from customers to € 96,214 million, mainly resulted from higher deposits from non-financial corporations (€ 3,446 million), households (€ 3,865 million) and other financial corporations (€ 1,451 million). The increase was primarily driven by Russia (up € 2,816 million, or 26 per cent, half of which was currency-related), head office (up € 1,403 million or 7 per cent), the Czech Republic (up € 1,102 million or 8 per cent), Slovakia (up € 1,034 million or 9 per cent), Ukraine (up € 718 million, or 40 per cent, half of which was also currency-related), Bulgaria (up € 546 million or 17 per cent), and Romania (up € 425 million or 6 per cent).
The total comprehensive income of € 1,771 million comprised profit after tax of € 1,365 million and other comprehensive income of € 406 million. The main contribution to other comprehensive income came from currency exchange differences, particularly for the Russian ruble (€ 269 million) and the Ukrainian hryvnia (€ 72 million). The partial hedge of the net investment resulted in minus € 51 million. Further significant contributions were made by changes in the fair value of equity instruments recognized in other comprehensive income and of debt securities, in the amounts of € 97 million and € 49 million, respectively.
There was a particular focus on agile working within software development in 2019: 60 per cent of the product teams at head office, which include employees from other business areas and not just IT professionals, were working in an agile set-up by the end of the year. This iterative working method not only allows for faster but also more cost-efficient developments. By the middle of 2020, this percentage should increase to 80 per cent. Taking all areas at head office into account, the percentage of employees working in agile teams, or in teams applying agile methods, was over 40 per cent at the end of the reporting period.
RBI is focused on the opportunities that all facets of digitalization in the financial sector offers the Group. To fully capitalize on them, the Group Strategy & Innovation area combines the Strategy and Innovation departments. This aims to put focus on the strategic aspect of RBI’s digital transformation alongside the development and implementation of innovative ideas and partnerships. Since April 2018, an Innovation Board specifically created for the purpose has undertaken management and coordination of all the Group’s innovation activities.
Elevator Ventures, RBI’s corporate venture capital company, has € 25 million in investment capital and focuses on strategic direct investments in selected fintechs. Elevator Ventures represents a logical addition to Elevator Lab, through which participants can be offered the prospect of follow-up investments. Investment targets are fintechs that have gained some market experience and need capital to scale up their business models. An investment was made in kompany, an Austrian Elevator Lab participant, together with UNIQA Ventures in August 2019. RBI has integrated kompany’s solution in its innovative know your customer process eKYC, which accelerates the onboarding and data update process for customers by up to 50 per cent.
The implementation requirements of the second EU Payment Services Directive (PSD2) were the starting point for creating an API (Application Programming Interface) product offering that went beyond the minimum regulatory requirements. On 14 September 2019, RBI made the regulatory PSD2 APIs live in all its EU markets; the Czech Republic and Slovakia had already gone live to meet local requirements. For this purpose, all network banks were connected to the Merlin platform in 2019, which allows for a common data format. RBI views the Open API Initiative as a fundamental component of its strategy of encouraging cooperation between RBI, fintechs, bigtechs and developers. RBI’s API Marketplace has been online since the fourth quarter of 2019 (
Internal control and risk management system in relation to the Group accounting process Balanced and comprehensive financial reporting is a priority for RBI and its governing bodies. Compliance with all relevant statutory requirements is therefore a basic prerequisite. The Management Board is responsible for establishing and defining a suitable internal control and risk management system that encompasses the entire accounting process while adhering to company requirements. This is embedded in the company-wide framework for the internal control system (ICS).
In 2019, RBI launched the third round of its group-wide intrapreneurship program, Innovation Garden. Out of the 563 submitted ideas, the final nine made it through a multi-stage selection process to enter the twelve-week intrapreneurship program, where the selected ideas were further explored, tested and reviewed. The cross-functional teams from all network units also developed their knowledge of innovative working practices throughout the process. Three teams and ideas were selected to proceed into a six months MVP (Minimum Viable Product) phase, starting in 2020.
The topics covered range from digital blockchain-based solutions for trade/export finance (Marco Polo, Voltron) to projects for real estate transactions (Instant Property Network). RBI also works with R3 consortium partners on proof of concepts for cash/collateral tokens (IVNO Token Trial) and for asset tokenization, which makes assets tradeable by unitizing them. The Russian Raiffeisenbank developed R-Chain Payments, a Corda-based clearing, settlement and payment solution that enables real-time bank transfers.
The subsidiary banks in CEE also regularly initiate innovative projects. The experience gained here and in head office is regularly evaluated and enhanced. The stated goal of the digitalization strategy is to further refine these insights and then implement them at other Group network banks.
 regulations for the revision and repeal of directives and instructions.
The preparation of financial information on an individual Group unit level is decentralized and carried out by each Group unit in accordance with the RBI guidelines; the calculation of parts of the impairment charges under IFRS 9 is, however, carried out centrally. The Group unit employees and managers responsible for accounting are required to provide a full presentation and accurate valuation of all transactions. Differences in local accounting standards can result in inconsistencies between local individual financial statements and the financial information submitted to RBI. The local management is responsible for ensuring implementation of mandatory internal control measures, such as the separation of functions and the principle of dual control. The reconciliation and validation controls are embedded in the aggregation, calculation and accounting valuation activities for all financial reporting processes. Particular focus is placed on the controls for the core processes that play a fundamental role in the preparation of the financial statements. This primarily relates to processes which are relevant for valuations, the results of which have a significant impact on the financial statements (such as credit risk provisions, derivatives, equity participations, provisions for personnel expenses and market risk).
Each year the Annual Report contains the consolidated results in the form of a complete set of consolidated financial statements. In addition, the Group management report contains comments on the consolidated results in accordance with the statutory requirements.
Financial reporting is a primary focus of the ICS framework, whereby financial reporting processes are subject to risk-based prioritization and control examinations with results regularly reported to the Management Board and the Supervisory Board for evaluation.
Additionally, the Audit Committee is required to monitor the financial reporting process. The Management Board is responsible for ongoing company-wide monitoring. The internal control system is based on three lines of defense: The first line of defense consists of individual departments, whereby department heads are responsible for monitoring their business areas and ensuring that an appropriate control environment is established. The departments conduct control activities and plausibility checks on a regular basis, in accordance with the documented processes.
The second line of defense is made up of specialist areas focused on specific topics. These include, for example, Compliance, Data Quality Governance, Operational Risk Controlling, and Security & Business Continuity Management. Their primary aim is to support specialist areas with their control processes, to validate the actual controls, and to introduce leading practices within the organization.
Internal audits are the third line of defense in the monitoring process. Responsibility for auditing lies with Group Internal Audit and the respective internal audit departments of the Group units. All internal auditing activities are subject to the Group Audit Standards, which are based on the Austrian Financial Market Authority’s minimum internal auditing requirements and international best practices. Group Internal Audit’s internal rules also apply (notably the Audit Charter). Group Audit regularly and independently verifies compliance with the internal rules within the RBI Group units. The head of Group Internal Audit reports directly to the Management Board, with additional reporting obligations to the Chairman of the Supervisory Board and members of the Audit Committee of the Supervisory Board.
(3) RLB NÖ-Wien Sektorbeteiligungs GmbH holds around 22.24 per cent of the share capital of the company according to the most recent notification of voting rights published on 20 August 2019. By virtue of the syndicate agreement regarding RBI AG, the directly or indirectly held voting rights attached to a total of 193,449,778 shares, corresponding to a voting interest of around 58.81 per cent, are mutually attributable to the regional Raiffeisen banks and their direct and indirect subsidiaries pursuant to §§ 130 and 133 7 of the Austrian Stock Exchange Act (BörseG) as parties acting in concert as defined in § 1 6 of the Austrian Takeover Act (ÜbG) (see the notification of voting rights published on 20 August 2019). The remaining shares of RBI AG are held in free float, with no other direct or indirect shareholdings amounting to 10 per cent or more known to the Management Board.
(7) Pursuant to § 169 of the Austrian Stock Corporation Act (AktG), the Management Board has been authorized since the Annual General Meeting of 13 June 2019 to increase the share capital with the approval of the Supervisory Board – in one or more tranches – by up to € 501,632,920.50 through issuing up to 164,469,810 new voting common bearer shares in exchange for contributions in cash and/or in kind (including by way of the right of indirect subscription by a bank pursuant to § 153 (6) of the AktG) by 2 August 2024 at the latest and to fix the offering price and terms of the issue with the approval of the Supervisory Board. The Management Board is further authorized to exclude shareholders’ subscription rights with the approval of the Supervisory Board (i) if the capital increase is carried out in exchange for contributions in kind, or (ii) if the capital increase is carried out
Raiffeisen Bank International | Annual Report 2019 in exchange for contributions in cash and the shares issued under the exclusion of subscription rights do not exceed 10 per cent of the company’s share capital (exclusion of subscription rights).
 The company’s refinancing agreements and agreements concerning third-party financing for subsidiaries, which are guaranteed by the company, stipulate in some cases that the lenders can demand early repayment of the financing in the event of a change in control.
Risk management For information on risk management, please refer to the risk report in the consolidated financial statements.
Real GDP growth in Central Europe (CE) is likely to continue to slow moderately in 2020, in line with the broader economic landscape, but should remain well above the growth rate expected for the euro area (0.8 per cent) at 2.8 per cent (2019: 3.6 per cent). Private consumption should once again support the economy, thanks to a continued decline in unemployment and solid real wage growth. In contrast, industrial activity is forecast to continue weakening over the year, however growth rates should nevertheless remain in positive territory. At the individual country level, Poland is expected to achieve the highest GDP growth (3.3 per cent), followed by Hungary (3.2 per cent).
The positive trend in new business in the Austrian banking market should continue in 2020. Depending on the market segment, credit growth rates in the range of 3 to 5 per cent are expected. In the corporate customer business, a moderate weakening of growth momentum is anticipated in view of the impending economic slowdown. Ongoing positive income trends and positive market dynamics in the retail and real estate lending business should continue to provide fundamental support to lending volumes. Nevertheless, a moderate slowdown is expected in mortgage loan originations – also in light of intensified communication with national and supranational regulators with regard to possible overvaluations and aggressive lending practices. Overall, the return on equity for the Austrian banking sector should remain in the high single-digit percentage range in 2020, with risk costs stable or rising only slightly.
For the CEE banking markets, credit growth rates in the range of 5 to 8 per cent are forecast for the next 12 to 18 months, i.e. a moderate slowdown in growth compared to the previous year. Credit growth dynamics in CE and SEE in 2020 are expected to have a positive overall impact on CEE bank earnings. In the EE markets, further decisive interest rate cuts by central banks, over the course of the year, should reduce earnings prospects, while no significant shifts in the interest rate landscape are expected in CE and SEE, expect for in Hungary. However, tighter micro- and macro-prudential regulations are likely to slow down further growth in mortgage and consumer lending, especially in the Czech Republic and Slovakia, as well as in some Southeastern European countries and Russia. Thanks to the adjustments made in recent years – such as the decrease in foreign currency loans, more prudent lending standards and the reduction of NPL portfolios – no significant negative effects on earnings are currently expected, even in the event of a moderate economic downturn in CE and SEE. Overall, the return on equity of the CEE banking sector in 2020 should almost reach the level of 2019, even if risk costs in some regions potentially rise slightly (from a low base). Risks to the growth prospects and earnings situation in the CEE banking sector are currently primarily political in nature (e.g. remaining litigation relating to old foreign currency loan portfolios, special sector taxation). In the medium term, the wave of consolidation currently emerging in CEE banking markets could have a positive impact on earnings prospects.
We seek to maintain a CET1 ratio of at least 13 per cent in the medium term.
This results in the following segments:  Central Europe: Czech Republic, Hungary, Poland, Slovakia, and Slovenia  Southeastern Europe: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Romania, and Serbia  Eastern Europe: Belarus, Russia and Ukraine  Group Corporates & Markets (operating business booked in Austria): operating business at head office divided into subsegments: Austrian and international corporate customers, Markets, Financial Institutions & Sovereigns, business with the Raiffeisen Banking Group (RBG) and specialized financial institution subsidiaries, e.g. Raiffeisen Centrobank AG, Kathrein Privatbank Aktiengesellschaft, Raiffeisen Leasing Group, Raiffeisen Factor Bank AG, Raiffeisen Bausparkasse Österreich Gesellschaft mbH, Valida Group (pension fund business) and Raiffeisen Kapitalanlage-Gesellschaft mit beschränkter Haftung
Return on equity before tax 11.3% 11.1% 0.2 PP 2.0% 11.7% (9.7) PP
Return on equity after tax 8.1% 8.6% (0.4) PP – 6.6% –
Provisioning ratio (average loans to customers) 0.13% 0.41% (0.28) PP 0.63% 0.16% 0.47 PP
The 2019 financial year was characterized by strong organic growth, with loans and advances to customers increasing by 7 per cent. The Central Europe segment’s profit after tax decreased € 56 million year-on-year to € 290 million due to the negative Polish earnings contribution of minus € 113 million. There was a positive impact from an € 84 million decline in net provisioning for impairment losses on financial assets.
Net fee and commission income decreased € 108 million year-on-year to € 441 million. This decline was also attributable to the sale of the Polish core banking operations. In Hungary, in contrast, net fee and commission income rose € 15 million to € 149 million, mainly driven by a volume- and margin-related increase in income from clearing, settlement and payment services and from foreign exchange business.
Net gains/losses from hedge accounting increased € 10 million, as the termination of the existing portfolio cash flow hedges in the previous year in connection with the sale of the Polish core banking operations resulted in a reclassification of minus € 13 million that was recognized in profit or loss.
Other net operating income improved € 15 million due to the release of a provision in the Czech Republic and lower net provisioning for litigation in Slovakia.
In the reporting period, impairment losses on financial assets totaled € 38 million, or € 84 million less than in the previous year, despite a negative effect of € 43 million from the application of the revised EBA default definition in risk management for retail customers. Impairments in Poland decreased € 62 million to € 27 million as a result of the sale of the Polish core banking operations and were recognized in the remaining retail customer portfolio as a result of parameter adjustments and the application of the revised EBA default definition in the reporting period. In the Czech Republic, impairments declined € 17 million to € 16 million. Changes to retail model parameters and a significant improvement in the corporate customer business resulted in releases of loan loss provisions, which were partially offset by allocations related to the application of the revised EBA default definition. In Slovakia, changes in parameters were also responsible for a decline of € 6 million to € 20 million.
Customers in million 0.0 0.0 1.0 0.9 1 The current income from investments in associates previously reported in other result is now shown in a separate item.
Employees as at reporting date (full-time equivalents) 227 196 4,029 3,995
Net fee and commission income 417 421 (1.0)% 103 113 (9.0)%
Return on equity after tax 16.1% 18.4% (2.3) PP 16.0% 13.7% 2.2 PP
The Southeastern Europe segment’s profit after tax declined 9 per cent, or € 42 million, year-on-year. This was mainly due to the € 32 million decrease in profit in Romania resulting from provisions totaling € 23 million for litigation in connection with state subsidies for building society savings and proceedings involving the consumer protection authority, as well as the first-time booking of bank levies of € 10 million. Bosnia and Herzegovina contributed € 12 million towards the reduction in profit, mainly reflecting higher impairment losses on financial assets.
The segment’s net interest income was up 6 per cent year-on-year, or € 53 million, to € 867 million. The strongest growth was reported in Romania with an increase of € 38 million. Higher market interest rates there had resulted in a considerably higher net interest margin (up 31 basis points), while growth in lending to households and non-financial corporations also contributed to the rise. In Bulgaria, higher volumes were also responsible for a € 10 million increase in net interest income. In Serbia, net interest income grew € 3 million, on the back of higher interest income; whereas net interest income in Croatia decreased € 3 million due to lower margins. In all other countries in the segment, there were only slight changes in net interest income. The improvement of 3 basis points in the segment’s net interest margin to 3.63 per cent was primarily attributable to the positive interest rate environment in Romania.
The net trading income and fair value result was up € 8 million year-on-year to € 39 million. Decreases due to derivatives were more than offset by higher income from debt securities.
The segment’s other net operating income fell € 16 million to € 5 million. Romania reported a decline of € 4 million as a result of a provision for litigation in connection with state subsidies for building society savings. Higher results in the previous year from the derecognition of financial and non-financial assets, mainly in Croatia and Serbia, were also responsible for the decrease.
The segment's general administrative expenses increased 3 per cent year-on-year, or € 22 million, to € 721 million. Staff expenses were up 2 per cent, or € 6 million, to € 323 million, primarily due to salary adjustments in Bulgaria. The average number of employees fell by 199 to 14,547, largely reflecting developments in Romania and Croatia. In other administrative expenses, deposit insurance fees were up € 8 million primarily in Romania. IT expenses as well as legal, advisory and consulting expenses also increased. The number of business outlets in the segment fell by 68 year-on-year to 894, primarily due to closures in Romania. The cost/income ratio remained constant at 53.9 per cent.
The segment’s NPE ratio as at 31 December 2019 was 3.0 per cent (down 0.6 percentage points year-on-year), while the NPE coverage ratio improved to 69.9 per cent (up 6.4 percentage points year-on-year).
Levies and special governmental measures (1) (1) 0 0 (5) (4)
Return on equity before tax 12.5% 14.5% 14.6% 17.8% 16.9% 16.7%
Provisioning ratio (average loans to customers) 0.51% (0.73)% 1.06% 0.38% 0.07% 0.00%
Employees as at reporting date (full-time equivalents) 1,241 1,226 1,316 1,358 2,633 2,589
Return on equity after tax 9.1% 7.5% 18.7% 25.2% 10.7% 12.0%
Provisioning ratio (average loans to customers) 0.12% 0.79% 0.68% 0.74% 0.20% 0.17%
Employees as at reporting date (full-time equivalents) 1,860 1,982 4,987 5,115 1,581 1,537
Net fee and commission income 557 466 19.7% 165 153 7.9%
Net trading income and fair value result 32 34 (4.6)% (4) 8 –
Impairment losses on financial assets (59) (32) 84.8% (26) (20) 31.2%
Provisioning ratio (average loans to customers) 0.44% 0.31% 0.13 PP 0.69% 0.65% 0.04 PP
The segment’s general administrative expenses were up 14 per cent year-on-year, or € 90 million, to € 721 million. The increase in the average number of employees from 18,445 to 18,716 was driven mainly by the developments in Russia (headcount up 456 to 9,092). Staff expenses increased 18 per cent, or € 59 million, to € 386 million, due to salary adjustments in Russia and Ukraine. In contrast, the segment’s other administrative expenses were down 1 per cent to € 237 million. The first-time application of IFRS 16 led to a shift from other administrative expenses to depreciation. On the other hand, deposit insurance fees were up € 12 million – above all in Russia. Aside from the impact of the first-time application of IFRS 16, changes in the useful lives of tangible fixed assets in Ukraine were largely responsible for the increase in depreciation. The cost/income ratio rose slightly from 41.3 per cent to 41.5 per cent.
The segment’s profit after tax was up € 51 million, or 7 per cent, year-on-year to € 735 million, mainly as a result of a further improvement in profit in Russia. The considerable 30 per cent growth in lending, which was partly due to currency movements, led to a 12 per cent increase in net interest income. The segment also reported a marked 20 per cent rise in net fee and commission income.
Detailed results of individual countries in the segment: Belarus Russia Ukraine
Net fee and commission income 57 49 394 324 106 92
Net trading income and fair value result 3 6 15 21 14 7
Return on equity before tax 23.1% 26.3% 32.7% 36.8% 57.8% 81.0%
Current income from investments in associates1 1 14 (93.9)% 0 1 –
Net fee and commission income 394 371 6.4% 118 97 21.7%
Net gains/losses from hedge accounting 0 0 >500.0% 0 0 –
Customers in million 2.0 2.1 (7.4)% 2.0 2.0 (0.3)% 1 The current income from investments in associates previously reported in other result is now shown in a separate item.
The Group Corporates & Markets segment encompasses RBI’s operating business booked in Austria. The contributions to profit come from the corporate customer and markets business of head office, with further significant contributions from the Austrian specialized financial institution subsidiaries. The following table shows the main profit contributions by sub-segment: in € million 2019 2018 Change Q4/2019 Q3/2019 Change
Specialized financial institution subsidiaries and other 66 114 (41.7)% 15 27 (45.5)%
Despite income being negatively impacted by the persistent low interest rate environment and pressure on loan margins in the Corporates Vienna sub-segment, expansion of business volumes and strong cross-selling of bank products and services resulted in higher operating income. Alongside traditional credit business, significant contributions came in particular from structured project and acquisition financing, real estate financing, the export and trade financing business and transaction banking.
Segment net interest income was up 12 per cent year-on-year, or € 64 million, to € 598 million. This was mainly due to a volumerelated increase in lending (project and export financing) in the Corporates Vienna sub-segment. The segment’s net interest margin decreased 5 basis points to 1.23 per cent as a consequence of lower market interest rates combined with an increase in average interest-bearing assets.
Net fee and commission income increased 6 per cent, or € 24 million, to € 394 million. Higher fee and commission income was reported at head office, primarily in corporate lending and cash management, as well as in the institutional investor business. There was also a volume-related increase in income from asset management. In the debt capital markets business, head office benefited significantly from the positive market developments and consolidated its key position in the issuance of Schuldschein loans and senior bonds. Alongside the good results from clearing, settlement and payment services, the entire capital markets business was also a growth driver, including new bond issues, related securities sales, customer currency trading, securities lending and asset-based finance. Growth was likewise steady in the investment fund business and the custody business, and higher income was generated by asset management due to volumes.
Other net operating income was down € 12 million to € 130 million. In the previous year, there was income of € 25 million in the Markets Vienna sub-segment from the release of a provision in connection with the termination of a long-standing legal dispute with an Icelandic bank; the Raiffeisen Leasing Group generated income of € 12 million from residential construction in the reporting period.
The other result came to minus € 31 million, compared to minus € 13 million in the previous year. This was mainly due to a € 24 million increase in impairment losses on non-financial assets to € 27 million, primarily on property owned by an Italian leasing company. A provision in the amount of € 4 million was recognized for German property transfer tax resulting from corporate reorganizations in previous years, which was related to the acquisition of shares in Raiffeisen Leasing Group in 2012 and 2013. In contrast, there was a € 9 million higher result from the disposal of Group assets.
Impairments of € 64 million were booked in the reporting period, relating to individual cases in the large corporates business; this compared to net releases of loan loss provisions in the amount of € 62 million due to inflows and recoveries in the previous year’s period. The figure for the previous year also included a net release in the amount of € 25 million relating to an Icelandic bank in the Markets Vienna sub-segment.
The segment’s general administrative expenses rose 8 per cent, or € 52 million, to € 700 million. The increase primarily resulted from a € 44 million rise in staff expenses, due among other things to the higher headcount and the allocation of a restructuring provision at head office. The cost/income ratio in the segment rose to 59.5 per cent.
Income tax expense decreased € 17 million to € 78 million, mainly due to the lower profit.
Corporate Center in € million 2019 2018 Change Q4/2019 Q3/2019 Change
Net gains/losses from hedge accounting 7 0 >500.0% 6 (4) –
Levies and special governmental measures (57) (52) 9.4% 1 1 89.6%
This segment essentially comprises net income from the head office’s governance functions and from equity participations. Its results are therefore generally more volatile, with the vast majority relating to intra-Group transactions and consequently having no impact on consolidated profit. The € 211 million improvement in profit in the reporting period primarily related to the loss of € 184 million recognized in the previous year from the sale of the Polish core banking operations and from the recycling of accumulated exchange rate differences and to € 86 million higher operating income driven by current income from associates (up € 105 million).
Net interest income decreased € 55 million year-on-year to minus € 87 million. The reduction was mostly due to lower investment income from excess liquidity and lower income from intra-Group lending, partly offset by lower refinancing costs. A reclassification of hedge accounting income also contributed to the reduction in net interest income.
Impairments on investments in companies valued at equity were recognized in the amount of € 96 million in the reporting period (an increase of € 76 million), primarily on interests in Raiffeisen Informatik GmbH, UNIQA Insurance Group AG and the Slovakian building society. A provision in the amount of € 23 million was recognized for German property transfer tax resulting from corporate reorganizations in previous years. This related to the merger of Raiffeisen Zentralbank and Raiffeisen Bank International in 2017.
For the implementation of the funding plan in 2019, in addition to long-term deposits, Group Treasury once again made increased use of benchmark-sized international bonds in various formats. A successful € 500 million Tier 2 issue in September accompanied by an offer to buy back an existing bond was followed by a € 750 million senior green bond, also in September, and a € 500 million covered bond in November. The covered bond is mortgage-backed and the first publicly placed bond of this type issued by RBI. Head office covered the remaining requirement with small unsecured private placements. The total volume of multi-year deposits taken in and issuances amounted to around € 4.5 billion and had a weighted maturity of approximately 6 years. At year-end 2019, the total volume of outstanding issued unsecured bonds excluding additional tier 1 capital amounted to approximately € 7.1 billion.
Current income from investments in associates increased € 105 million to € 166 million and related to Raiffeisen Informatik GmbH & Co KG (R-IT) due to a valuation gain on a listed equity interest. R-IT, in which RBI AG indirectly holds just under 47 per cent, sold its 100 per cent stake in Comparex AG to SoftwareONE Holding AG (SWO), a Swiss software company, at the start of the year. In the course of the sale, R-IT received 14.6 per cent of the share capital in SWO among other things. R-IT sold a portion of its SWO share capital on the Swiss stock exchange at the end of October 2019 and reduced its holding to 7.9 per cent.
Consolidated return on equity amounted to 11.0 per cent in the financial year (2018: 12.6 per cent). It fell 1.6 percentage points due to a 10 per cent increase in the average equity base.
As no conversion rights or options were outstanding, no dilution of earnings per share occurred. The dividend on additional tier 1 capital is calculated; the effective payment is based on the decision of the Board at the respective payment date.
Deferred taxes on items which are not reclassified to profit or loss [22, 29] (9,885) 1,758
Hedge of net investments in foreign operations [19, 27] (51,089) 56,858
Adaptions to the cash flow hedge reserve [19, 27] 3,324 9,435
Currency developments led to a positive effect of € 331,916 thousand in the financial year (2018: minus € 230,243 thousand). The 14 per cent appreciation of the Russian ruble produced a positive effect of € 268,799 thousand. The 19 per cent appreciation of the Ukrainian hryvnia led to an additional gain of € 72,413 thousand. On the other hand, the Romanian leu depreciated 2 per cent, resulting in a decrease of € 24,402 thousand. The 3 per cent depreciation of the Hungarian forint resulted in an additional decrease of € 18,891 thousand.
Fair value changes due to changes in credit risk of financial liabilities [25] (21,766) 33,692
Share of other comprehensive income from companies valued at equity [20] 29,306 (19,413)
The changes in the fair value of designated liabilities caused by a change in the default risk of RBI amounted to minus € 21,766 thousand in the reporting period (2018: € 33,692 thousand). The difference between the current fair value of these designated liabilities and the amounts contractually required to be paid at maturity was € 395,118 thousand (2018: € 404,000 thousand). There have been no significant transfers within equity or derecognition of liabilities designated at fair value in the reporting period.
Cash, cash balances at central banks and other demand deposits [13, 44] 24,289,265 22,557,484
Financial assets - designated fair value through profit/loss [17, 32, 44] 2,275,832 3,192,115
Financial assets - held for trading [18, 32, 44] 4,182,372 3,893,609
Items that may be reclassified subsequently to profit or loss 0 (300,261) 42,988 (5,731) (27,989)
Net gains/losses reclassified to income statement 0 (8,077) 0 0 0 in € thousand Fair value option At equity Deferred taxes Total
Unrealized net gains/losses of the period (27,032) 0 0 0 30,113
Items that may be reclassified subsequently to profit or loss 0 (7,163) 1,797 (296,360)
Cash, cash balances at central banks and other demand deposits as at 1/1 [13] 22,557,484 16,905,455
Net provisioning for liabilities and charges and impairment losses on financial assets [7, 11, 28] 337,787 147,892
Financial assets - fair value through other comprehensive income [15, 32] 1,865,421 (1,942,235)
Non-trading financial assets - mandatorily fair value through profit/loss [16, 32] (206,117) (366,265)
Financial assets - designated fair value through profit/loss [17, 32] 915,884 1,352,670
Financial liabilities - designated fair value through profit/loss [25, 32] (83,425) (394,125)
Investing activities: Cash and cash equivalents from disposal of subsidiaries (28,521) (941,564)
Payments for purchase of: Tangible and intangible fixed assets [21] (568,866) (313,721)
Proceeds from sale of: Tangible and intangible fixed assets [21] 57,462 124,152
Net cash from operating activities comprises inflows and outflows from principal revenue-producing activities of the company and other activities that are not investing or financing activities. When using the indirect method to determine capital flows from operating activities, the profit/loss before tax from the income statement is adjusted for non-cash components and cash related changes in assets and liabilities. In addition, the income and expense items attributable to investment or financing activities are deducted. The interest, dividend and tax payments from operating activities are separately stated in their own rows.
Cash and cash equivalents comprise the item on the statement of financial position cash, cash balances at central banks and other demand deposits.
As a rule, internal management reporting at RBI is based on the current organizational structure. This matrix structure means that each member of the Management Board is responsible both for individual countries and for specific business activities (country and functional responsibility model). A cash generating unit (CGU) within the Group is a country. The presentation of the countries includes not only subsidiary banks, but all operating units of RBI in the respective countries (such as leasing companies). Accordingly, the RBI management bodies – Management Board and Supervisory Board – make key decisions that determine the resources allocated to any given segment based on its financial strength and profitability, which is why these reporting criteria are an essential component in the decision-making process. Segment classification is therefore also undertaken in accordance with IFRS 8. The reconciliation contains mainly the amounts resulting from the elimination of intra-group results and consolidation between the segments.
This segment comprises Belarus, Russia and Ukraine. In Belarus, RBI is represented by a bank and a leasing company. Raiffeisenbank Russia is one of the leading foreign banks in Russia and services both corporate and retail customers. The branch network also offers products targeted toward affluent retail customers and small and medium-sized entities, with the focus on large cities. Furthermore, RBI is active in the issuance business. The product range in Russia is completed by the leasing business. In Ukraine, RBI is represented by a bank, a leasing company and a card-processing company and provides a full range of financial services via a tightly knit branch network.
The Group Corporates & Markets segment covers operating business booked in Austria. This primarily comprises financing business with Austrian and international corporate customers serviced from Vienna, Financial Institutions & Sovereigns and business with the institutions of the Raiffeisen Banking Group (RBG). This segment also covers the capital market-based customer and proprietary business in Austria. Besides RBI AG, this also includes financial services outsourced to subsidiaries, such as Vienna-based entities like Raiffeisen Centrobank AG (equity trading and capital market financing), Kathrein Privatbank Aktiengesellschaft, Raiffeisen Leasing Group, Raiffeisen Factor Bank AG, Raiffeisen Bausparkasse Österreich Gesellschaft m.b.H., Valida Group (pension fund business) and Raiffeisen Kapitalanlage-Gesellschaft mit beschränkter Haftung. Card complete Service Bank AG, Vienna, a company valued at equity, is also allocated to this segment.
The Corporate Center segment encompasses services in various areas provided by head office that serve to implement the Group’s overall strategy and that are allocated to this segment to ensure comparability. Therefore, this segment includes the following areas: Liquidity management and balance sheet structure management, equity participation management, the banking operations carried out by head office for financing Group units, the Austrian transaction and services business for financial services providers, as well as other companies outside the financial service provider business that do not fall directly under another segment. Also allocated to this segment are the minority interests from the non-bank segment (income from companies valued at equity). These include equity participations in UNIQA Insurance Group AG, Vienna, as well as LEIPNIK-LUNDENBURGER INVEST Beteiligungs AG, Vienna (holding company with strategic participations in the flour, mill and vending segments).
In accordance with the Basel III framework, specific legal regulations are to be considered. The proportion of common equity tier 1 capital to total risk-weighted assets (common equity tier 1 ratio) is for example an important indicator of whether the underlying capital is adequate for the business volume. Industry sector specifics lead to different risk weights within the calculation of riskweighted assets according to CRR. These factors are crucial for the calculation of the regulatory minimum total capital requirements. As part of the annual Supervisory Review and Evaluation Process (SREP), the ECB stipulates in a notification that additional CET1 capital must be held in order to cover those risks which are not considered or are insufficiently considered in Pillar I. Moreover, the efficient use of the available capital is calculated internally, whereby the actual usage is compared to the theoretically available risk coverage capital. The long-term liquidity ratios are also restrictive and are defined in accordance with the regulatory requirements.
Significant changes in profit/loss are described below: In Central Europe, the 2019 financial year was characterized by strong organic growth, with loans and advances to customers increasing by 7 per cent. The Central Europe segment’s profit after tax decreased € 56 million year-on-year to € 290 million due to the negative Polish earnings contribution of minus € 113 million. There was a positive impact from an € 84 million decline in net provisioning for impairment losses on financial assets.
Segment Corporate Center: This segment essentially comprises net income from the head office’s governance functions and from equity participations. Its results are therefore generally more volatile, with the vast majority relating to intra-Group transactions and consequently having no impact on consolidated profit. The € 211 million improvement in profit in the reporting period primarily related to the loss of € 184 million recognized in the previous year from the sale of the Polish core banking operations and from the recycling of accumulated exchange rate differences and to € 86 million higher operating income driven by current income from investments in associates (up € 105 million).
Raiffeisen Bank International | Annual Report 2019 2018 in € thousand Central Europe
Customers in million 0.0 – 16.1 1 The current income from investments in associates previously reported in other result is now shown in a separate item.
The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) and the international accounting standards adopted by the EU on the basis of IAS Regulation (EC) 1606/2002 including the applicable interpretations of the International Financial Reporting Interpretations Committee (IFRIC/SIC). All standards published by the IASB as International Accounting Standards and adopted by the EU have been applied to the financial statements. The consolidated financial statements also satisfy the requirements of Section 245a of the Austrian Commercial Code (UGB) and Section 59a of the Austrian Banking Act (BWG) regarding exempting consolidated financial statements that comply with internationally accepted accounting principles. IAS 20, IAS 41 and IFRS 6 have not been applied as there were no relevant business transactions in the Group.
The cost of the defined benefit pension plan is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. The interest rate used to discount the Group's defined benefit obligations is determined on the basis of the yields obtained in the market at the balance sheet date for high quality fixed-income corporate bonds. Considerable discretion has to be exercised in this connection in setting the criteria for the selection of the corporate bonds representing the universe from which the yield curve is derived. Mercer´s recommendation is used to determine the discount rate. The main criteria for the selection of such corporate bonds are the issuance volumes of the bonds, the quality of the bonds and the identification of outliers, which are not considered. Assumptions and estimates used for the defined benefit obligation calculations are described in the section on pension obligations and other termination benefits. Quantitative information on long-term employee provisions are disclosed in the notes under (28) Provisions for liabilities and charges.
Certain non-financial assets, including goodwill and other intangible assets are subject to an annual impairment test. Goodwill and other intangible assets are tested more frequently if events or changes in circumstances, such as an adverse change in the business climate, indicate that these assets may be impaired. The determination of the recoverable amount in the context of the impairment test requires judgments and assumptions to be made by management. As amendments in the underlying conditions and assumptions could result in significant differences to the amounts reported, the Group considers these estimates to be critical. Details concerning the impairment test of non-financial assets are disclosed in the section on business combinations. Additionally, the carrying amounts of goodwill are presented in the notes under (21) Tangible and intangible fixed assets.
According to IFRS 10, a Group controls an investee if it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. IFRS 10 also provides specific information on the acknowledgement or assessment of potential voting rights, codecision rights or protective rights of third parties and constellations that are characterized by delegated or retained decision-making rights or de facto control. Whether control exists requires a comprehensive assessment (i.e. requiring discretion) of the economic influence of the parent company over the investee. Details are provided in (69) Group composition.
RBI has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4. The details of accounting policies under IAS 17 and IFRIC 4 are disclosed separately if they are different from those under IFRS 16. The impacts on the consolidated financial statements are disclosed in section Application of new and revised standards.
Assessment of which companies are structured entities and what involvement in such companies actually represents an interest, requires judgments to be made. Details are provided in (69) Group composition, in the section structured entities.
Right-of-use assets amounting to approximately € 455,971 thousand were recognized as at 1 January 2019 based upon the initial application of IFRS 16. Nearly all of that related to leases for buildings for the company’s own use. The carrying amount of the right-of-use asset exceeds that of the corresponding lease liabilities because of taking advance lease payments and renovation costs into account.
The lessee’s weighted average incremental borrowing rate applied to the lease liabilities as at 1 January 2019 was about 3 per cent. Additional information on IFRS 16 leases can be found in the notes under (59) RBI as lessee.
Specifically, the amendments include:  IFRS 3 Business Combinations and IFRS 11 Joint Arrangements: The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it must remeasure its previously held interests in that business. The amendments to IFRS 11 additionally clarify that when an entity obtains joint control of a business that is a joint operation, it is not required to remeasure its previously held interests in that business.
 IAS 23 Borrowing Costs: The amendments clarify that if any borrowing costs applicable to borrowings made specifically for the purpose of obtaining a qualifying asset remain outstanding after the related asset has been prepared for its intended use or sale, those borrowing costs are included in the calculation of the capitalization rate for the funds generally borrowed for obtaining the asset.
As a result of the amendments to IAS 19, in the event of amendment, curtailment or settlement of a defined benefit plan, it is now mandatory that the current service cost and the net interest for the remaining fiscal year be recalculated using the current actuarial assumptions applied to the required remeasurement of the net liability/net asset. In addition, amendments were included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. Application of the amendment had no effect on the consolidated financial statements of RBI.
Accumulated exchange differences are reclassified from the item exchange differences shown in other comprehensive income to the income statement under net income from deconsolidation, in the event of a disposal of a foreign business operation which leads to loss of control, joint management or significant influence over this business operation. In the case of one subsidiary headquartered in the euro area, the Russian ruble was the reporting currency for measurement purposes given the economic substance of the underlying transactions.
The following exchange rates were used for currency translation: 2019 2018 As at Average As at Average Rates in units per € 31/12 1/1-31/12 31/12 1/1-31/12
The amendments clarify that an entity must apply IFRS 9 Financial Instruments (including the impairment provisions) to long-term interests in associates or joint ventures that form part of the net investment in the associate or joint venture but to which the equity method is not applied. Hence the application of IFRS 9 takes precedence over the application of IAS 28. Application of the revised IAS 28 had no significant impact on RBI’s consolidated financial statements.
Amendment to IAS 19 (Plan Amendment, Curtailment or Settlement; effective date: January 1, 2019)
Non-trading financial assets - mandatorily fair value through profit/loss 15,179 23,312
Net interest income includes interest income of € 561,154 thousand (2018: € 623,918 thousand) from marked-to-market financial assets, and interest expenses of € 488,102 thousand (2018: € 444,322 thousand) from marked-to-market financial liabilities.
Despite a decline of € 191,191 thousand due to the sale of the Polish core banking business, net interest income rose € 50,320 thousand to € 3,412,067 thousand.
The largest increase of € 77,185 thousand was booked in Russia, driven by higher lending volumes to both non-financial corporations and households. In the Czech Republic, net interest income rose € 57,004 thousand through higher market interest rates and higher lending volumes, mainly to households. In Romania, higher volumes and repricing measures also caused net interest income to rise € 38,147 thousand. In Ukraine, net interest income increased € 30,608 thousand due to the revaluation of the Ukrainian hryvnia and higher credit volumes to non-financial corporations and households. In Belarus, net interest income increased € 13,047 thousand, mainly driven by volumes, and in Bulgaria, net interest income rose € 10,348 thousand, also due to higher volumes.
Non-trading financial assets - mandatorily fair value through profit/loss 204 954
Investments in subsidiaries and associates include dividend income from subsidiaries not fully consolidated and associates not valued at equity. The decline in this line item was mainly due to dividend income from subsidiaries not fully consolidated as a result of higher distributions, especially from real estate companies and insurance agencies in the previous year.
The current income from investments in associates increased € 91,431 thousand year-on-year to € 171,198 thousand.
products and income from clearing, settlement and payment services in the Czech Republic and Slovakia. Income from customer resources distributed but not managed also fell € 4,854 thousand to € 44,652 thousand, primarily in Romania.
Net gains/losses on non-trading financial assets - mandatorily fair value through profit or loss 41,143 (16,925)
Net gain/losses on financial assets and liabilities - designated fair value through profit/loss 31,361 15,879
A positive change of € 49,485 thousand was reported in debt securities held for trading and was attributable largely to proceeds from sales and valuation gains at head office.
Moreover, in net gains/losses on non-trading financial assets – mandatorily fair value through profit/loss, a one-off gain of € 27,021 thousand was booked from the sale of equity instruments in Slovakia. Net gains/losses on debt securities and loans and advances held in this category increased € 21,080 thousand and € 9,668 thousand respectively, mainly as a result of interest -rate-induced valuation changes.
The sale of the core banking operations of Raiffeisen Bank Polska S.A. resulted in the termination of the existing portfolio cash flow hedges in 2018. These hedged cash flow fluctuations from foreign currency loans and deposits in local currency by means of foreign currency interest rate swaps. The termination of this hedge relationship had a neutral effect on capital but resulted in the reclassification through profit and loss of the cash flow hedge reserve of minus € 13,417 thousand recognized in other comprehensive income in previous periods.
In total, losses of € 327,794 thousand were recognized in the reporting period on derivatives in net gains/losses on financial assets and liabilities – held for trading (2018: losses of € 199,038 thousand). Derivatives are mainly used to hedge interest rate and currency risks. A large portion of these losses are offset by (net) currency translation gains of € 241,461 thousand (2018: € 265,694 thousand), mostly relating to changes in the Russian ruble exchange rate and in foreign currency exposures at head office.
The changes of € 30,737 thousand in debt securities – designated fair value through profit/loss and, on the liabilities side, of minus € 8,271 thousand in debt securities issued – designated fair value through profit/loss were primarily caused by interest-rateinduced valuation changes at head office. These changes are set against opposite valuation gains/losses on derivatives held for economic hedge purposes that are presented in the net gains/losses on financial assets and liabilities – held for trading item.
Gains/losses on derecognition of non-financial assets held for sale (258) 42
General administrative expenses increased € 45,304 thousand on the previous year to € 3,093,066 thousand. While the sale of the Polish core banking operations led to a reduction of € 178,794 thousand, salary adjustments and staff increases were the main reasons for the increase, especially in Russia and at head office. Currency developments resulted in an increase of general administrative expenses of € 18,715 thousand during the period under review, mainly due to the appreciation of Eastern European currencies (based on the average rate for the period). The introduction of IFRS 16 mainly resulted in a shift in expenses from other administrative expenses to depreciation.
The increase of € 6,692 thousand to € 63,216 thousand derived mainly from head office. Members of the Management Board are subject in principle to the same regulations as apply to employees. These regulations provide for a basic contribution to a pension fund from the company and an additional contribution if the employee pays own contributions of the same amount. Two members of the Management Board additionally have individual retirement benefits, which are funded by a reinsurance policy.
In the event of termination of function or employment contract and departure from the company, one member of the Management Board is entitled to severance payments according to contractual agreements; six members of the Management Board have entitlements under the Company Retirement Plan Act (Betriebliches Mitarbeitervorsorgegesetz). The entitlement to receive severance payments according to contractual agreements lapses in the case of termination by the employee.
Expenses for other long-term employee benefits excl. deferred bonus program (5,807) (6,367)
Staff expenses rose 1 per cent to €1,610,041 thousand. While the sale of the Polish core banking operations (minus €101,030 thousand) reduced expenses, salary adjustments and an increase in staff numbers drove staff expenses higher, mainly in Russia, at head office, in Ukraine, Slovakia and the Czech Republic. In addition, a restructuring provision was formed for an optimization program at head office (€18,208 thousand). The average number of employees declined 2,572 full-time equivalents year-onyear to 47,173. The average number of employees fell year-on-year 2,572 full-time equivalents to 47,173, and was also driven by the sale of the Polish core banking operations. Excluding the effect of Poland, an increase of 587 full-time equivalents would have occurred, primarily due to Russia, head office, Hungary, and Slovakia.
Other administrative expenses fell 7 per cent to € 1,094,115 thousand. The decline was mainly due to the sale of the Polish core banking operations (decrease of € 66,917 thousand) and lower office space expenses as a result of the application of IFRS 16. In contrast, depreciation experienced an increase commensurate with the growth in capitalized right-of-use assets. Increases within other administrative expenses resulted from a € 15,230 thousand rise in deposit insurance fees, mainly in Russia and Romania, as well as from increased legal, advisory and consulting expenses, and higher advertising, PR and promotional expenses, principally in the Czech Republic and Slovakia. Expenses for leases include expenses for short-term leases as well as leases of low-value assets according to IFRS 16.
Impairment or reversal of impairment on investments in subsidiaries and associates (98,066) (33,360)
Impairment on non-financial assets increased € 38,484 thousand to € 59,281 thousand. In the reporting period, impairment was mainly made on real esate in possession of an Italian leasing company (€ 27,125 thousand) and predominantly on real esate in Russia (€ 16,993 thousand). In the previous year, the goodwill of € 7,943 thousand resulting during the initial consolidation of a Hungarian real esate company, was fully impaired and impairment on other non-financial assets of € 12,854 thousand related to real estate in Ukraine and Russia.
In the reporting period, impairment on investments in subsidiaries and associates amounted to € 98,066 thousand, thus representing an increase of € 64,705 thousand compared to previous year. The increase was largely due to higher impairment on investments in companies valued at equity (increase: € 75,799 thousand), mainly due to UNIQA Insurance Group AG, Raiffeisen Informatik GmbH & Co KG, and the Slovakian building society.
The result of deconsolidation amounted to € 52,048 thousand in the reporting period and was due to the sale of real estate in Slovakia (€ 49,812 thousand) and real estate in Czech Republic (€ 8,198 thousand). The position other primarily contains various specialized companies of the Raiffeisen Leasing Group, a holding company, and several companies rendering ancillary services.
The contributions to the resolution fund, which had to be booked entirely at the beginning of the year, declined € 4,779 thousand to € 49,344 thousand. The decrease was caused by the sale of the Polish core banking operations (down € 8,846 thousand) and lower contributions in the Czech Republic and Croatia. In contrast, head office, Bulgaria and Romania reported increases.
The new definition of default applied by risk management resulted in additional provisioning of € 73,538 thousand in the retail portfolio, especially in the Czech Republic and Romania. In the previous year, refinements of IFRS 9 models (€ 105,413 thousand ) and an additional impairment loss of € 53,853 thousand resulting from the recognition of provisions for expected credit risks arising from extraordinary events that were not reflected in the model (mainly future sanctions relating to Russia) led to impairments of financial assets. In the year under review, an additional € 38,707 thousand was provisioned for expected credit risks that could not be modelled due to extraordinary events.
At head office, impairment losses of € 72,484 thousand were allocated to individual cases involving large corporate customers, whereas in the previous year, a net release of € 53,511 thousand was realized due to higher sales of non-performing loans and recoveries. In Russia, impairment losses grew € 11,038 thousand to € 68,122 thousand, mainly due to retail and corporate customers and an increase in existing impairments. In the Czech Republic, impairment losses fell € 17,060 thousand to € 15,587 thousand. Lower impairment losses for corporate customers and positive effects from parameter adjustments in the retail models were offset by higher impairment losses from the application of the revised definition of default. In Poland, impairment charges decreased € 61,957 thousand to € 26,704 thousand, mainly due to the sale of the Polish core banking operations. These charges were recognized in the reporting period for the remaining retail customer portfolio due to the application of the revised definition of default and parameter adjustments in the retail models. In Ukraine, net releases fell from € 19,856 thousand to € 9,685 thousand due to higher sales of non-performing loans in the comparable period.
Russia was a main driver of the group’s higher tax expense, where it grew € 27,187 thousand as a result of an increase in profit and tax payments from previous periods. The € 17,192 thousand decrease in tax expense due to the sale of the Polish core banking operations was offset by an impairment loss on deferred tax assets of € 25,060 thousand during the reporting period as no utilization of it is expected based on medium-term tax planning. Taxes in Croatia fell by € 8,245 thousand, mainly because of the use of tax loss carry forwards resulting from the merger of Raiffeisen Factoring Ltd. into Raiffeisenbank Austria d.d., Zagreb.
Tax decrease because of tax-exempted income from equity participations and other income 86,658 94,406
Impairments on loss carry forwards increased in connection with a write-down of deferred tax assets in Poland in the amount of € 25,060 thousand. Other changes include unrecognized deferred taxes arising from disposals, mainly from the sale of a property in Slovakia (€ 12,453 thousand). These deferred tax assets were not capitalized as no utilization is expected based on the current mid-term tax planning.
Further information can be found under item (55) Pending legal issues.
The item balances at central banks includes € 283,550 thousand (2018: € 277,853 thousand) of minimum reserves at central banks. The item other demand deposits at banks includes cash securities, mainly for borrowed securities, of € 157,430 thousand (2018: € 1,309,182 thousand).
Valida Pension AG, Vienna (AT), Investment fund - Valida Nostro 100 (AT0000A1H088) − 34,217
Valida Pension AG, Vienna (AT) Investment fund - PID2 (AT0000767622) − 19,940
Securities under financial assets – held for trading provided as collateral, which the recipient is entitled to sell or pledge, amounted to € 125,789 thousand (2018: € 309,030 thousand).
Positive fair values of derivatives in micro fair value hedge 278,154 357,837
Positive fair values of derivatives in micro cash flow hedge 5,120 2,347
Positive fair values of derivatives in net investment hedge 0 16,616
Fair value adjustments of the hedged items in portfolio hedge of interest rate risk (4,909) (43,485)
2019 Carrying amount 2019 Carrying amount card complete Service Bank AG, Vienna (AT) 25.0% 13,631 25,523
Because of their minor importance in giving a view of the Group’s assets, financial and earnings position, 309 subsidiaries (2018: 312) were not included in the consolidated financial statements.
Raiffeisen Informatik GmbH & Co KG, Wien (AT) 47.6% 147,076 48,669
UNIQA Insurance Group AG, Vienna (AT) 10.9% 330,718 327,047 1 The share of the voting rights amounts to 49 per cent.
The carrying amount of investments in associates valued at equity increased from € 765,001 thousand to € 836,406 thousand. Most of the increase came from Raiffeisen Informatik GmbH & Co KG (R-IT), which sold its stake in Comparex AG, a German firm, to SoftwareONE Holding AG, a Swiss software company, at the start of the year. In return, Raiffeisen Informatik received shares in SoftwareONE Holding AG whose value increased significantly when SoftwareONE Holding AG had a successful IPO in October 2019. The carrying amount of investment in Prva stavebna sporitelna a.s., Bratislava, was impaired by € 27,084 thousand following an increase in Slovakian bank levies.
Total comprehensive income attributable to the Group 1,040 542 6,177 1,753 2,459 947
2019 UNIQA1, 2 in € thousand POSO PSS RIZ1 R-Leasing 30/9/2019
Profit/loss after tax from discontinued operations 0 0 25,433 0 0
The fair value of investment property was € 331,243 thousand (2018: € 333,603 thousand). No single investment of more than € 10,000 thousand was made during the financial year.
Total comprehensive income attributable to the Group (1,018) 4,834 131,663 113 59,818
The increase in tangible fixed assets mainly reflected the right-of-use assets recognized on the statement of financial position following the application of IFRS 16 regulations.
Fixed assets developed as follows: Cost of acquisition or conversion in € thousand As at 1/1/2019
Land and buildings used by the group for own purpose (453,573) 0 (41,504) 609,291
The item software comprises acquired software amounting to € 475,769 thousand (2018: € 424,439 thousand) and internally developed software amounting to € 160,275 thousand (2018: € 146,279 thousand).
Cost of acquisition or conversion in € thousand As at 1/1/2018
Change in consolidated group Exchange differences Additions Disposals Transfers As at 31/12/2018
In the course of impairment testing the carrying amount of each cash generating unit (CGU) is compared with the recoverable amount. If the recoverable amount of a cash generating unit is below its carrying amount, the difference is recognized as impairment in the income statement under other result.
The Group generally identifies the recoverable amount of cash generating units on the basis of the value-in-use concept using a dividend discount model. The dividend discount model reflects the characteristics of the banking business including the regulatory framework. The present value of estimated future dividends that can be distributed to shareholders after taking into account relevant regulatory capital requirements represents the recoverable value.
Growth rates in phase I and II 2.1% 1.8% 2.0% 1.8%
Raiffeisen Bank International | Annual Report 2019 profit retention relating to growth while ensuring compliance with capital requirements is imperative. If, however, zero growth is assumed in the stabilization phase, no profit retention is required.
The use value of a cash generating unit is sensitive to various parameters: primarily to the level and development of future dividends, to the discount rates as well as the nominal growth rate in the stabilization phase. The applied discount rates have been calculated using the capital asset pricing model: they are composed of a risk-free interest rate and a risk premium for entrepreneurial risk taking.
Fee income is assumed to be under pressure from new regulations relating to areas such as early repayment fees, SEPA payment fees, or increased ATM transaction fees.
Increase in discount rate 3.6 PP 4.6 PP 3.1 PP 2.8 PP
Group companies use brands to differentiate their services from those of the competition. According to IFRS 3, brands of acquired companies have been recognized separately under the item intangible fixed assets. Brands have an indeterminable useful life and are therefore not subject to scheduled amortization. Brands are tested annually in the course of the impairment test for goodwill per cash generating unit and additionally whenever indications of impairment arise.
Brand rights are only recognized for Raiffeisen Bank Aval JSC, Kiev. The carrying amount of the brand was € 9,972 thousand (2018: € 8,362 thousand) and the cumulative impairment loss € 17,730 thousand (2018: € 14,867 thousand). The change is based solely on changes in the exchange rate of the Ukrainian hryvnia.
According to IAS 36.9 at the end of each reporting period, an entity is required to assess whether there is any indication that an asset may be impaired based on a series of external and internal indicators of impairment.
Merchandise inventory and suspense accounts for services rendered not yet charged out 286,759 239,929
Financial assets and liabilities - designated fair value through profit/loss 18,768 23,916
Non-current assets and disposal groups classified as held for sale 20,588 54,142
Merchandise inventory and suspense accounts for services rendered not yet charged out included property under construction or not yet sold of Raiffeisen Leasing Group in Austria and Italy of € 136,935 thousand.
The increase in the item other assets resulted mainly from precious metal transactions at head office.
Other debt securities issued 7,457,355 7,239,063 hereof convertible compound financial instruments 1,070,346 1,339,644 hereof non-convertible 6,387,009 5,899,418
The change in current deposits from banks was mostly attributable to higher volumes at head office (up € 560,967 thousand) and higher volumes combined with exchange rate effects in Russia (up € 178,167 thousand). Deposits with agreed maturity from banks moved in the other direction. In this case, the year-on-year change was mainly driven by declines at head office (down € 927,858 thousand) and in the Czech Republic (down € 442,500 thousand). The increase in repurchase agreements with banks was almost entirely attributable to Russia. This reporting period marks the first time that deposits with agreed maturity from banks contain lease liabilities of € 1,367 thousand pursuant to IFRS 16.
Current accounts/overnight deposits from customers changed by € 6,054,169 thousand from the previous year, principally as a result of higher deposits from households. Non-financial corporations also demonstrated a clear preference for current deposits. Looking at the details, the overall increase in current deposits from customers was partly attributable to higher volumes throughout the Group and partly caused by substantial exchange rate effects, particularly in Russia. Russia stands out in this regard since its volume was only slightly above the previous year’s level, but the exchange rate effect had an extraordinary impact on the change in current accounts/overnight deposits from customers. All in all, Russia alone contributed € 1,231,230 thousand to the increase in this item. The remaining changes were mainly volume-driven and spread across the entire Group, although particularly strong increases were reported in Romania (up € 955,603 thousand), Slovakia (up € 921,765 thousand) and Ukraine (up € 558,437 thousand). In contrast, head office in Vienna reduced the item by € 506,092 thousand.
The following table provides a breakdown of deposits from banks and customers by asset classes: Other financial corporations 10,929,405 9,457,538
Other debt securities issued 285,034 366,467 hereof convertible compound financial instruments 285,034 366,467
Negative fair values of derivatives in micro fair value hedge 41,132 20,914
Negative fair values of derivatives in micro cash flow hedge 3,651 5,390
Negative fair values of derivatives in net investment hedge 6,706 0
The following table shows the changes in provisions for liabilities and charges in the reporting year, although provisions for offbalance -sheet items pursuant to IFRS 9 are not included. These are shown under (38) Development of impairments.
Provisions for off-balance sheet items 399 0 11,400 0 0 518 12,317
Pensions and other post employment defined benefit obligations 164,538 (10) 28,237 (17) (8,743) 4,563 188,567
Pending legal issues and tax litigation 129,096 (2,336) 31,309 (50,742) (20,080) 1,530 88,777
For pensions there are different plans: unfunded, partly funded and fully funded. The partly and fully funded plans are all invested by Valida Pension AG. Valida Pension AG is a pension fund, and is subject in particular to the provisions of the PKG (Pension Act) and BPG (Company Pension Act).
The defined benefit obligations developed as follows: Defined benefit obligation as at 1/1 144,811 132,706
The increase in new measurements in the reporting period resulted from the change of the discount rate, while the increase in the previous year was due to the adjustment of the mortality tables.
The return on plan assets for 2019 was € 5,103 thousand (2018: minus € 1,880 thousand). The fair value of rights to reimbursement recognized as an asset was € 14,560 thousand as at year-end 2019 (2018: € 12,524 thousand).
The following table shows the longevity assumptions used to calculate the net defined benefit obligation: Longevity at age 65 for current pensioners - males 22.9 22.8
Longevity at age 65 for current pensioners - females 25.4 25.3
Longevity at age 65 for current members aged 45 - males 25.7 25.6
Longevity at age 65 for current members aged 45 - females 27.9 27.8
Changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below: 2019 2018 in € thousand Increase Decrease Increase Decrease
Details of the deferred tax liablilites are stated under (22) Tax assets.
The Annual General Meeting of 21 June 2018 also authorized the Management Board, under the provisions of Section 65 (1) 7 of the AktG, to purchase own shares for the purpose of securities trading, which may also be conducted off-market, during a period of 30 months from the date of the resolution (i.e. until 20 December 2020), provided that the trading portfolio of shares purchased for this purpose does not exceed 5 per cent of the company's respective share capital at the end of any given day. The consideration for each share to be acquired must not be less than half the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition.
Pursuant to Section 169 of the AktG, the Management Board has been authorized from the Annual General Meeting of 13 June 2019 until no later than 2 August 2024 to increase the capital stock – in one or more tranches – by up to € 501,632,920.50 by issuing up to 164,469,810 new common bearer shares with voting rights against contributions in cash and/or in kind (including by way of the right of indirect subscription by a bank pursuant to Section 153 (6) of AktG) and to fix the offering price and terms of the issue with the approval of the Supervisory Board. The Management Board is further authorized to exclude shareholders’ subscription rights, with the approval of the Supervisory Board, (i) if the capital increase is carried out by contributions in kind or (ii) if the capital increase is carried out by contributions in cash and the shares issued under the exclusion of subscription rights do not exceed 10 per cent of the company’s capital stock (exclusion of subscription rights).
Net increase in cash and cash equivalents 21,439 67,666 (167,985) 27,516 (32,421)
Dividends paid to non-controlling interests during the year1 44,609 14,942 13,954 2,834 0 1 Included in net cash from financing activities
For Raiffeisenbank a.s., Prague, a syndicate contract exists between RBI AG and the joint shareholder. The syndicate contract regulates especially purchase options between direct and indirect shareholders. The syndicate contract expires automatically if control over the company changes – also in the case of a takeover bid.
As at end of 2014, the Ukrainian National Bank launched foreign currency transfer controls. This payment restriction was lifted by the Ukrainian National Bank in July 2019.
For bonds, tradable market prices are mostly used. If no quotes are available, a discounted cash flow model is used to value the securities. The yield curve and an adequate credit spread are used as measurement parameters. The credit spread is determined through comparable financial instruments available on the market. Credit default spreads were used to measure a small part of the portfolio. In addition, consideration is given to third party external measurements, which are indicative in all cases. The positions are assigned to levels at the end of the reporting period.
In addition, the fair value of the embedded options is calculated for the living loan portfolio, and the method applied is based on the segment (i.e. retail and non-retail). The measurement of the embedded options in the retail segment is based on behavioral modeling (e.g. linear regression/moving twelve-month average of prepayment rates). The measurement of embedded options in loans in the non-retail segment is based on the assumption that the customer will behave in an entirely rational manner. The embedded options in non-retail loans such as prepayment, disbursement and replenishment are replicated with swaptions and measured using the trinomial tree Hull-White structural model. The Black model, which is based on the log-normal distribution of yields, is generally used to measure interest rate options (caps and floors). As we are in a negative interest rate environment, the shifted log-normal Black model is used to measure interest rate options. It is based on a displaced diffusion model (log-normal distribution with a shift in interest rates.
Non-trading financial assets - mandatorily fair value through profit/loss 393,687 54,117 328,133 193,650 54,151 311,981
Financial assets - fair value through other comprehensive income 3,912,452 681,391 187,512 5,707,630 571,383 210,003
Liabilities 2019 2018 in € thousand Level I Level II Level III Level I Level II Level III
Financial liabilities - designated fair value through profit/loss 0 1,842,725 0 0 1,931,076 0
A reclassification from Level I to Level II involves instruments for which market quotes were provided in the past, but are no longer available. Such securities are now valued on the basis of a discounted cash flow model together with the respective valid yield curve and an appropriate credit spread.
A reclassification from Level II to Level I involves instruments for which a discounted cash flow model was previously used to determine the valuation results. As market quotes are now available, they can be used for the valuation.
The following tables show the changes in the fair value of financial instruments whose fair value cannot be calculated on the basis of observable market data and are therefore subject to other measurement models. Financial instruments in this category have a value component which is unobservable directly or indirectly on the market and which has a material impact on the fair value.
Non-trading financial assets - mandatorily fair value through profit/loss 311,981 0 10,079 107,049 (93,583)
Financial assets - designated fair value through profit/loss 53 0 (0) 9 (48)
Non-trading financial assets - mandatorily fair value through profit/loss (3,832) 0 0 (3,562) 328,133
Financial liabilities - held for trading 45 0 3,631 (146) 7,268
Forward foreign exchange contracts 12 Discounted cash flow method Interest rate curve 10 - 30%
Forward foreign exchange contracts 24 Discounted cash flow method Interest rate curve 10 - 30%
Retail: Discounted cash flow method (incl. prepayment option, withdrawal option etc.) Non Retail: Discounted cash flow method/Financial option pricing (Black-Scholes (shifted)
The financial instruments in the following table are not managed on a fair value basis and are therefore not measured at fair value in the statement of financial position. For these instruments the fair value is calculated only for the purposes of providing information in the notes, and has no impact on the consolidated statement of financial position or on the consolidated income statement. With the introduction of IFRS 9, the calculation of the fair value of receivables and liabilities not reported at fair value was reclassified and, among other things, input factors are also used in the models which are not observable on the market, but which have a significant influence on the calculated value. A simplified fair value calculation method for retail and non-retail portfolios is applied for all short-term transactions (transactions with maturities up to three months). The fair value of these short-term transactions will be equal to the carrying amount of the product. For the other transactions the methodology as described in the section entitled Fair value of financial instruments reported at fair value is applied.
Deposits from banks and customers1 0 0 109,051,828 109,051,828 110,583,061 (1,531,233)
Provisions for off-balance sheet items according to IFRS 9 (160,561) (125,750)
In addition to the provisions for off-balance-sheet risks according to IFRS 9, provisions for other commitments given were recognized according to IAS 37 in the amount of € 12,317 thousand (2018: € 399 thousand).
The following table shows the loan commitments given, financial guarantees and other commitments given: Loan commitments given 35,135,831 31,226,964
The following table was prepared in accordance with Section 51 (13) BWG and shows the nominal amount and provisions for off-balance-sheet liabilities from commitments and financial guarantees under IFRS 9: 2019 Nominal amount Provisions for off-balance sheet items according to IFRS 9 in € thousand Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 2018 Nominal amount Provisions for off-balance sheet items according to IFRS 9 in € thousand Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
The credit quality analysis of financial assets is a point in time assessment of the probability of default of the assets. It should be noted that for financial assets in Stages 1 and 2, due to the relative nature of significant increase in credit risk it is not necessarily the case that Stage 2 assets have a lower credit rating than Stage 1 assets, although this is normally the case. The following list provides a description of the grouping of assets by probability of default:  Excellent are exposures which demonstrate a strong capacity to meet financial commitments, with negligible or no probability of default (PD range 0.0000 - 0.0300 per cent).
The following table shows the carrying amounts of the financial assets – amortized cost by rating categories and stages: 2019 Stage 1 Stage 2 Stage 3 Total in € thousand 12 month ECL Lifetime ECL Lifetime ECL
In the reporting year, no longer defaulted, purchased or originated credit-impaired financial assets (POCI) are now included in Stage 2, while they were reported solely in Stage 3 in the previous period. The category unrated includes financial assets for households for whom no ratings are available. The rating is therefore based on qualitative factors. These are mainly a portfolio of mortgage loans to households in the Czech Republic.
Non-trading financial assets - mandatorily fair value through profit/loss 456,792 0 270,279
It should be noted that the collateral values shown in the tables are capped at the maximum value of the gross carrying amount of the financial asset. The following table shows non-trading loans and advances as well as loan commitments, financial guarantees and other commitments that are subject to impairment: Maximum exposure to credit risk Fair value of collateral
Approximately two thirds of collateral which can be considered by RBI relate to loans collateralized by immovable property and of this more than 70 per cent is residential immovable property. Other sources of collateral include guarantees (16 per cent) and collateral from reverse repos and securities lending (18 per cent).
Loan commitments, financial guarantees and other commitments 139,057 18,808 120,249 (56,859)
For retail exposure on the other hand, the remaining cumulative PDs are compared. In general, a significant increase in credit risk is considered to have occurred with a relative increase in the cumulative remaining PD above a certain threshold. The level of the threshold was estimated empirically for each individual portfolio based on the characteristics of the relevant rating model used for the given facility, and it ranges between 150 and up to 300 per cent.
With regard to the threshold at which a financial instrument must be transferred to stage 2, RBI has decided on the aforementioned thresholds based on the current market practice.
For sovereign, bank, corporate customer and project finance portfolios, if the borrower meets one or more of the following criteria:  External market indicators  Changes in contract terms  Changes to management approach  Expert judgment
The assessment of significant increase in credit risk incorporates forward-looking information and is performed on a monthly basis at an individual transaction level for all retail portfolios held by RBI.
A backstop is applied and the financial instrument considered to have experienced a significant increase in credit risk if the borrower is more than 30 days overdue on its contractual payments. In a few limited cases, the presumption that financial assets which are more than 30 days overdue should be moved to Stage 2, is rebutted.
The expected credit loss is measured on either a twelve-month or lifetime basis depending on whether a significant increase in credit risk has occurred since initial recognition or whether an asset is considered to be credit-impaired. Forward-looking economic information is also included in determining the twelve -month and lifetime PD, EAD and LGD. These assumptions vary by product type. Expected credit losses are the discounted product of the probability of default (PD), loss given default (LGD), exposure at default (EAD) and discount factor (D).
 Retail lending and mortgage loans: The default profile is generated using parametric survival regression in competing risk frameworks. Forward-looking information is incorporated into the probability of default using satellite models.
The expected credit loss is the product of PD, LGD and EAD times the probability not to default prior to the considered time period. The latter is expressed by the survivorship function S. This effectively calculates future values of expected credit losses, which are then discounted back to the reporting date and summed. The calculated values of expected credit losses are then weighted by forward-looking scenario.
Different models have been used to estimate the provisions of outstanding lending amounts and these can be grouped into the following categories:  Sovereign, corporate customers, project finance, financial institutions, local and regional governments, insurance companies and collective investment undertakings: Stage 3 provisions are calculated by workout managers who discount expected cash flows by the appropriate effective interest rate.
 Other retail lending: Stage 3 provision is generated by calculating the statistically derived best estimate of expected loss which has been adjusted for indirect costs.
These economic variables and their associated impact on the probability of default, loss given default and exposure at default vary by category type. Forecasts of these economic variables (the base economic scenario) are provided by Raiffeisen Research on a quarterly basis and provide the best estimate view of the economy over the next three years. The set of forward-looking information also includes the credit clock used for improvement of the regression which reproduces the current state of the credit cycle and the derived outlook of the credit cycle development. After three years, to project the economic variables for the full remaining
lifetime of each instrument, a mean reversion approach has been used, which means that economic variables tend to either a long-term average rate or a long-term average growth rate until maturity. The impact of these economic variables on the probability of default, loss given default and exposure at default has been determined by performing statistical regression to understand the impact changes in these variables have had historically on default rates and on the components of loss given default and exposure at default.
The most significant assumptions used as a starting point for the expected credit loss estimates at year-end are shown below. (Source: Raiffeisen Research 18 October 2019)
Post-model adjustments to expected credit loss allowance estimates are adjustments which are used in circumstances where existing inputs, assumptions and model techniques do not capture all relevant risk factors. Existing inputs, assumptions and model techniques might not capture all relevant risk factors due to transient circumstances, insufficient time to appropriately incorporate relevant new information into the rating, re-segmentation of portfolios and when lending exposures within a group of lending exposures react to factors or events differently than initially expected. The emergence of new macroeconomic, microeconomic or political events, along with expected changes to parameters, models or data that are not incorporated in current parameters, internal risk rating migrations or forward-looking information are examples of such circumstances. In general RBI Group units use postmodel adjustments to allowances for expected credit losses only as an interim solution. In order to reduce the potential for bias post-model adjustments are of a temporary nature and in general valid for no longer than 1-2 years. All material adjustments are authorized by the Group Risk Committee (GRM). From an accounting point of view all post-model adjustments are based on collective assessment, but do not necessarily result in a change in expected credit losses within the same stage. The post-model adjustments result in additional provisions up to € 92,560 thousand (2018: € 53,853 thousand) as additional Stage 2 provisions. The major part relates to a provision on Russian corporate exposures for covering possible losses related to potential future sanctions. It also includes slightly higher expected defaults on mortgage loans due to government-imposed interest rate clauses for retail customers in the Czech Republic and foreign-currency lending to retail customers due to consumer protection initiatives in Romania. In the reporting year, further model adjustments were made for Croatia as a result of changed market expectations regarding the debt-to-income ratio.
The table below provides a comparison between the reported accumulated impairment for expected credit losses for financial assets in Stages 1 and 2 (weighted by 25 per cent optimistic, 50 per cent base and 25 per cent pessimistic scenarios) and then each scenario weighted by 100 per cent on their own. The optimistic and pessimistic scenarios do not reflect extreme cases, but the average of the scenarios which are distributed in these cases. This information is provided for illustrative purposes.
100% Performing loans in Stage 1 Impact of Staging 31/12/2018 (25/50/25%)
The contractual amount outstanding on financial assets that were written off and are still subject to enforcement activity was € 1,716,563 thousand (2018: € 1,844,101 thousand).
RBI’s credit portfolio is well diversified in terms of type of customer, geographical region and industry. Single name concentrations are also actively managed (based on the concept of groups of connected customers) by limits and regular reporting. As a consequence, portfolio granularity is high. The following table shows the financial assets – amortized cost based on the respective counterparties and stages. This reveals the bank’s focus on non-financial corporations and households: 2019 Gross carrying amount Accumulated impairment ECL Coverage Ratio in € thousand Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 2018 Gross carrying amount Accumulated impairment ECL Coverage Ratio in € thousand Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
The following breakdown of financial assets – amortized cost by segment shows the high level of diversification of RBI’s credit business in the European markets: 2019 Gross carrying amount Accumulated impairment ECL Coverage Ratio in € thousand Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 1 Austria mainly includes the business of the head office and Raiffeisen Bausparkasse. Other also includes any consolidation effects.
The following table shows the credit commitments, financial guarantees and other commitments by counterparties and stages.
The following table shows the gross carrying amount and impairment of the financial assets – amortized cost and financial assets – fair value through other comprehensive income that have moved in the reporting period from expected twelve-month losses (Stage 1) to expected lifetime losses (Stages 2 and 3) or vice versa: 2019 Gross carrying amount Impairment ECL Coverage Ratio in € thousand 12 month ECL Lifetime ECL 12 month ECL Lifetime ECL 12 month ECL Lifetime ECL
Movement from lifetime ECL to 12 month ECL 3,249,005 (3,249,005) 43,792 (145,930) 1.3% 4.5%
The increase in expected credit losses arising from the measurement of the loss allowance moving from twelve-month expected credit losses to lifetime losses was € 269,552 thousand (2018: € 182,541 thousand). The decrease in expected credit losses arising from the measurement of the loss allowance moving from lifetime losses to twelve-month expected credit losses was € 102,138 thousand (2018: € 52,067 thousand).
2018 Gross carrying amount Impairment ECL Coverage Ratio in € thousand 12 month ECL Lifetime ECL 12 month ECL Lifetime ECL 12 month ECL Lifetime ECL
Movement from 12 month ECL to lifetime ECL (6,070,961) 6,070,961 (53,391) 235,932 0.9% 3.9%
The following table shows the development of impairments on loans and bonds in the measurement categories of financial assets – amortized cost and financial assets – fair value through other comprehensive income: 2019 Stage 1 Stage 2 Stage 3 Total in € thousand 12 month ECL Lifetime ECL Lifetime ECL
Changes due to model/risk parameters (322) 4,379 74,054 78,111 2018 Stage 1 Stage 2 Stage 3 Total in € thousand 12 month ECL Lifetime ECL Lifetime ECL
The following table shows the breakdown of impairments and provisions in accordance with IFRS 9 stages by asset classes: 2019 Stage 1 Stage 2 Stage 3 Total in € thousand 12 month ECL Lifetime ECL Lifetime ECL
Loan commitments, financial guarantees and other commitments given 43,715 30,069 86,777 160,561 2018 Stage 1 Stage 2 Stage 3 Total in € thousand 12 month ECL Lifetime ECL Lifetime ECL
The following table shows the breakdown of impairments and provisions in accordance with IFRS 9 stages of impairment by segments: 2019 Stage 1 Stage 2 Stage 3 Total in € thousand 12 month ECL Lifetime ECL Lifetime ECL
2018 Stage 1 Stage 2 Stage 3 Total in € thousand 12 month ECL Lifetime ECL Lifetime ECL
Gross carrying amount before modifications of financial assets 1,832,152 170,822 52,063 2,055,038
Gross carrying amount of modified assets as at 31/12, which moved to Stage 1 during the year − 21,072 0 21,072 2018 in € thousand Stage 1 Stage 2 Stage 3 Total
Gross carrying amount before modifications of financial assets 754,975 101,235 62,451 918,662
The disclosures set out in the tables below include financial assets and financial liabilities that are offset in the Group’s statement of financial position or are subject to an enforceable/unenforceable master netting arrangement or similar agreement that covers similar financial instruments, irrespective of whether they are offset in the statement of financial position or not.
Raiffeisen Bank International | Annual Report 2019 2018 Stage 1 Stage 2 Stage 3 Total in € thousand 12 month ECL Lifetime ECL Lifetime ECL
Reverse repurchase, securities lending and similar agreements (legally enforceable) 795,334 0 795,334 779,854 0 15,479
In 2019, assets which were not subject to legally enforceable netting agreements amounted to € 138,960,937 thousand (2018: € 130,310,110 thousand), of which an immaterial part was accounted for by derivative financial instruments and cash balances from reverse repo business. Liabilities which were not subject to legally enforceable netting agreements totaled € 135,614,259 thousand in 2019 (2018: € 125,248,281 thousand), of which only an immaterial part was accounted for by derivative financial instruments and cash deposits from repo business.
Synthetic Transaction EIF Western Balkans EDIF Croatia 1 Junior tranche held in the Group 2 Junior tranche held in the Group 3 Due to full amortization of the senior tranche, the amount of the externally placed junior tranche corresponds to the amount of the securitized portfolio. 4 Outstanding portfolio (securitized and retained) SME: Small and Medium-sized Enterprises
The synthetic transaction, ROOF Slovakia 2017, is split into a senior, a mezzanine and a junior tranche. The mezzanine tranche in the amount of € 83,800 thousand was sold to institutional investors, while the credit risk of the junior and senior tranches is retained.
As part of the JEREMIE initiative, the participating subsidiaries (Raiffeisenbank S.A., Bucharest, and Tatra banka a.s., Bratislava) have received guarantees from the European Investment Fund (EIF) to support lending to small and medium-sized enterprises. Since 2016 the Slovakian JEREMIE transaction has been converted into a funded credit guarantee via a Slovakian state-owned fund. EIF is no longer part of the transaction.
As part of the Western Balkans Enterprise Development and Innovation Facility, the participating subsidiaries (Raiffeisenbank Sh.a., Tirana, and Raiffeisenbank Austria d.d., Zagreb) each signed a portfolio guarantee agreement which was funded by the EU and which, like the JEREMIE initiatives, is aimed at providing access to finance for small and medium-sized enterprises.
Financial assets - fair value through other comprehensive income 45,497 0 45,497 47,750 0 47,750 2018 Transferred assets Associated liabilities in € thousand Carrying amount hereof securitizations hereof repurchase agreements Carrying amount hereof securitizations hereof repurchase agreements
Financial assets - fair value through other comprehensive income 218,097 4,836 119,858 5,209
The table below shows securities and other financial assets accepted as collateral: Securities and other financial assets accepted as collateral which can be sold or repledged 12,095 9,138,919 hereof which have been sold or repledged 2,365 1,603,132
Financial assets - fair value through other comprehensive income 140,260 445,138 741,557 2,290,988 1,163,412
Non-trading financial assets - mandatorily fair value through profit/loss 311,368 26,823 17,947 61,344 358,455
Financial assets - fair value through other comprehensive income 1,544,399 395,164 1,073,671 2,369,427 1,106,356
Non-trading financial assets - mandatorily fair value through profit/loss 182,644 55,549 27,253 57,544 236,792
Financial assets - designated fair value through profit/loss 56,490 7,801 78,560 2,143,256 906,008
Financial liabilities - designated fair value through profit/loss 0 142,574 265,799 975,203 547,500
2019 Nominal amount Maturity Carrying amount in € thousand Up to 3 months
More than 5 years Assets Liabilities 2018 Nominal amount Maturity Carrying amount in € thousand Up to 3 months
Changes in fair value of the hedged items1 in € thousand Assets Liabilities Assets Liabilities 1 Fair value changes in the underlying transactions which were used to calculate ineffectiveness
Active risk management is a core competency of RBI. In order to effectively identify, measure, and manage risks the Group continues to develop its comprehensive risk management system. Risk management is an integral part of overall bank management. Particularly, in addition to legal and regulatory requirements, it considers the nature, scale, and complexity of the Group’s business activities and the resulting risks. In this respect it should be mentioned that RBI’s internal risk models to measure risk-weighted assets (RWA) have been reviewed by the supervisory authority within the framework of the TRIM (Targeted Review of Internal Models). RBI is one of the few banks not to have conditions imposed regarding its internal models, i.e. the models used in the bank do not lead to any underestimates of the risk and therefore meet the expectations of the supervisory authority and of the CRR. The figures below refer to the regulatory scope of consolidation pursuant to CRR. In terms of risk, the companies in the IFRS scope of consolidation that are not included therein are covered by the participation risk.
The Group has a system of risk principles and procedures in place for measuring and monitoring risk, which is aimed at controlling and managing material risks at all banks and specialist companies in the Group. The risk policies and risk management principles are laid out by the Management Board. The principles include the following risk policies:  Integrated risk management: Credit, country, market, liquidity, and operational risks are managed as key risks on a Groupwide basis. For this purpose, these risks are measured, limited, aggregated, and compared to available risk coverage capital.
Risk management functions are performed on different levels in the Group. RBI AG develops and implements the relevant concepts as the parent credit institution and in cooperation with the subsidiaries of the Group. The central risk management units are
responsible for the adequate and appropriate implementation of the Group’s risk management processes. Particularly, they establish common Group directives and set business-specific standards, tools, and practices for all Group entities.
The Group Risk Committee is the most senior decision-making body for all the Group’s risk-related topic areas. It decides on the risk management methods and on the control concepts used for the overall Group and for key subdivisions, and is responsible for ongoing development and implementation of methods and parameters for risk quantification and for refining steering instruments. This also includes setting the risk appetite and the various risk budgets and limits at overall bank level as well as monitoring the current risk situation with respect to internal capital adequacy and the corresponding risk limits. It approves risk management and control activities (such as the allocation of risk capital) and advises the Management Board in these matters.
Maintaining an adequate level of capital is a core objective of the Group. Capital requirements are monitored regularly based on the risk level as measured by internal models, and in choosing appropriate models the materiality of risks annually assessed is considered. This concept of overall bank risk management provides for meeting capital requirements from both a regulatory perspective (sustainability and going concern perspective) and from an economic point of view (target rating). Thus it covers the quantitative aspects of the Internal Capital Adequacy Assessment Process (ICAAP) as legally required and as described in the ICAAP Directive published by the European Central Bank. The full ICAAP process of the Group is audited during the supervisory review process for RBI credit institution group (RBI-Kreditinstitutsgruppe) on an annual basis.
Value-at-Risk Risk of falling below the capital adequacy requirement under the CRR rules
Risk taking capacity (projected earnings plus capital in excess of the regulatory requirement) must exceed the Group’s value at risk (one- year risk horizon)
Economic capital is compared to internal capital, which – in compliance with the ICAAP Directive published by the European Central Bank – no longer takes account of the tier 2 capital as at year-end 2019. Due to this change in the method used to calculate the internal capital and because of the increase in economic capital described above the total utilization of available risk capital (the ratio of economic capital to internal capital) increased to 58.7 per cent (2018: 46 per cent) as at year-end 2019.
Risk contribution of individual risk types to economic capital: in € thousand 2019 Share 20181 Share 1 Adaptation of previous year figures (market risk)
Regional allocation of economic capital by Group unit domicile: in € thousand 2019 Share 20181 Share 1 Adaptation of previous year figures (market risk)
Economic capital is an important instrument in overall bank risk management. Economic capital limits are allocated to individual business areas during the annual budgeting process and are supplemented in day-to-day management by volume, sensitivity, and value-at-risk limits. The Group planning process is undertaken on a revolving basis for the coming three years and incorporates future changes in economic capital as well as available internal capital. Economic capital thus substantially influences plans for future lending activities and the overall limit for market risk.
The Group’s calculated economic capital increased during the year to € 7,064,987 thousand. Although participation risk increased € 418,592 thousand to € 726,957 thousand as at 31 December 2019 due to an adjustment of the currently used model for other affiliated companies and equity participations, materially lower participation risks may be expected again in the course of 2020 as a result of the development of a comprehensive new model. The currency risk inherent in the capital position also increased € 100,648 thousand to € 229,412 thousand and is now calculated in all currencies for a holding period of one year. The increase in the credit risk of retail customers of € 574,913 thousand to € 1,750,650 thousand was the result of the implementation of the regulatory capital already held in Pillar I into economic capital with regard to the foreign currency mortgage loans in Poland. In the risk capital allocation as at 31 December 2019, the bulk of the economic capital – 40 per cent (2018: 32 per cent) – was consumed by Group units located in Austria. The year-on-year increase was the result of participation risk and the risk presented by the foreign currency mortgage loans of the RBI AG’s Polish branch.
In pursuit of the hedging objective, expected profits, expected loan loss provisions and surplus capital (considering various limits on eligible capital) are counted towards risk-taking capacity. The figure for risk-taking capacity is compared to the overall value-atrisk (including expected losses), which is calculated using similar techniques as those used under the economic capital approach (albeit using a lower confidence level of 95 per cent). The Group takes this approach to ensure adequate regulatory capitalization (going concern) with the given probability.
This perspective thus also complements traditional risk measurement methods based on the value-at-risk concept (which is in general based on historical data). Therefore, it can account for exceptional market situations that have not been observed in the past, and permits estimation of the potential impact of such developments. The stress test also allows for analyzing risk concentrations (e.g. individual positions, industries, or geographical regions) and gives insight into profitability, liquidity situation, and solvency under extreme situations. Building on these analyses, risk management in the Group actively contributes to portfolio diversification, for example via limits for the total credit exposure to individual industry segments and countries and through ongoing updates to lending standards.
The whole limit application process is based on defined uniform principles and rules. Account management for multinational customers doing business with more than one RBI Group unit simultaneously is supported by the Global Account Management System, for example. This is made possible by Group-wide unique customer identification in the non-retail asset classes.
Credit portfolio management in the Group is, among other aspects, based on the credit portfolio strategy which is in turn based on the business and risk strategy. The strategy selected is used to limit the exposure amount in different countries, industries or product types and thus prevents undesired risk concentrations. Additionally, the long-term potentials of different markets are continuously analyzed. This allows for an early strategic repositioning of future lending activities.
The following table shows the reconciliation of items on the statement of financial position to the credit exposure (banking and trading book positions), which is used in portfolio management. It includes both exposures on and off the statement of financial position before the application of credit-conversion factors, and thus represents the total credit exposure. It is not reduced by the effects of credit risk mitigation such as guarantees or physical collateral, effects that are, however, considered in the total assessment of credit risk. The total credit exposure is used – if not explicitly stated otherwise – for referring to exposures in all subsequent tables in the risk report. The reasons for the differences in the values used for internal portfolio management and for external financial accounting are the different scopes of consolidation (regulatory versus accounting rules according to IFRS) and differences in the classification and presentation of exposure volumes.
Cash, cash balances at central banks and other demand deposits 19,761,386 18,425,583
Financial assets - fair value through other comprehensive income 4,555,355 6,216,922
Other commitments given 3,297,568 2,942,779 1 Items on the statement of financial position contain only credit risk amounts
The following table shows the credit exposure according to internal corporate rating (large corporates, mid-market and small corporates ). For presentation purposes, the individual grades of the rating scale have been combined into nine main rating grades.
Credit exposures in the rating grades from good credit standing to minimal risk increased € 6,567,904 thousand to € 44,533,609 thousand, corresponding to a share of 54.4 per cent (2018: 51.8 per cent).
Rating grade 1 increased € 713,934 thousand to € 5,785,489 thousand, mainly due to swap transactions in Great Britain and to rating improvements at individual Russian customers from rating grade 2. The increase was partly offset by a decline in facility financing in Austria. The increase of € 743,027 thousand to € 11,876,959 thousand in rating grade 2 was mainly the result of an increase in documentary credits and facility financing in Switzerland, whereby there were also rating improvements at individual Swiss customers from rating grade 3. In addition, there was an increase in facility financing in Germany, Great Britain and Luxembourg and in credit financing in France and Russia (partly due to the appreciation of the Russian ruble). The decrease in repo transactions in Austria partially compensated for the increase in rating grade 2. Rating grade 3 registered an increase of € 2,476,846 thousand to € 13,834,231 thousand, which was due to repo transactions in Great Britain and credit financing in Austria, the Czech Republic, Germany and Luxembourg. In addition, facility financing increased in Austria and Germany, while it fell in Great Britain. The increase of € 2,634,097 thousand in rating grade 4 to € 13,036,930 thousand was attributable to credit financing in France, the Czech Republic, Great Britain, Russia (largely due to the appreciation of the Russian ruble) and Switzerland. There was also an increase in facility financing in France, Spain, Romania, Italy and the USA and in guarantees issued in Austria, the Czech Republic, Russia and Switzerland. Rating grade 5 registered an increase of € 585,712 thousand to € 16,409,891 thousand, which was due to guarantees issued in Russia, facility financing and repo transactions in the USA. In addition, there were rating improvements at individual Russian customers from rating grade 6. The increase in rating grade 5 was reduced by a decline in credit financing in Germany and Slovakia and by rating downgrades of individual German and Slovakian customers to rating grade 6. Besides the aforementioned rating downgrade, credit financing in the Czech Republic,
Romania, Russia (partly due to the appreciation of the Russian ruble) and Ukraine was responsible for the increase in rating grade 6 by € 2,237,937 thousand to € 14,510,666 thousand.
The rating model for project finance has five grades and takes both individual probabilities of default and available collateral into account. The breakdown of the bank’s project finance exposure is shown in the table below: in € thousand 2019 Share 2018 Share 6.1 Excellent project risk profile – very low risk 5,366,921 74.4% 5,307,911 75.3%
The following table provides a breakdown by country of risk of the credit exposure for corporate customers and project finance structured by region, taking into account the guarantor: in € thousand 2019 Share 20181 Share 1 Previous year figures adjusted due to changed allocation
6.2 Good project risk profile – low risk 1,309,563 18.2% 968,352 13.7%
As at 31 December 2019, the credit exposure reported under project finance increased € 161,863 thousand to € 7,212,158 thousand. The increase in the 6.2 rating grade of € 341,211 thousand to € 1,309,563 thousand resulted from new project financing in Austria, Hungary, Russia and Slovakia. In addition, there were rating downgrades at Slovakian customers from rating grade 6.1. The increase in rating grade 6.2 was partly offset by rating improvements of Czech and Romanian customers to rating grade 6.1. The assignment of a Dutch and Austrian customer to rating grade 6.1 and expired project financing in Serbia led to a reduction of € 163,770 thousand to € 10,924 thousand in customers not rated.
At 92.6 per cent, the rating grades excellent project risk profile – very low risk and good project risk profile – low risk. This mainly reflected the high level of collateralization in these types of specialized lending transactions.
1 The previous year's figures were adjusted due to an optimized allocation of individual areas of activity at large companies and conglomerates.
Retail customers – small and medium-sized entities 1,370,316 687,641 348,580 374,636 hereof non-performing exposure1 714,775 458,403 203,694 29,264 1 The previous year's figures were adjusted due to the inclusion of non-defaulted non-performing loans
Central Europe registered an increase of € 1,045,862 thousand to € 19,793,429 thousand due to an increased volume of mortgage loans in the Czech Republic and Slovakia. Increasing mortgage and personal loans in Bulgaria, Croatia and Romania and a rise in credit card financing in Romania and SME financing in Bulgaria were responsible for the increase of € 1,138,635 thousand in Southeastern Europe to € 10,546,382 thousand. The increase in Eastern Europe of € 1,708,780 thousand to € 6,477,770 thousand resulted from credit card financing, mortgage loans and personal loans in Russia, partly due to the appreciation of the Russian ruble. The appreciation of the Ukrainian hryvnia also had a growing impact.
The table below shows the retail credit exposure by products: in € thousand 2019 Share 2018 Share
The increase in mortgage loans of € 1,944,981 thousand to € 24,501,823 thousand was mainly attributable to Russia (partly due to the appreciation of the Russian ruble), the Czech Republic, Austria, Bulgaria, Croatia, Romania and Slovakia. Russia (partly due to the appreciation of the Russian ruble), Bulgaria, Croatia, Hungary and Romania were mainly responsible for the increase of € 1,169,985 thousand in personal loans to € 9,626,944 thousand.
2019 in € thousand Central Europe Southeastern Europe Eastern Europe Group Corporates & Markets
2018 in € thousand Central Europe Southeastern Europe Eastern Europe Group Corporates & Markets
The credit exposure came to € 21,977,973 thousand, an increase of € 2,770,722 thousand compared to year-end 2018.
The increase in rating grade 2 of € 1,917,915 thousand to € 7,722,741 thousand resulted from deposits with banks, an increase in the bond portfolio in Austria, Great Britain, Poland and Slovakia and repo transactions in Austria, France and Great Britain. The rating improvement of Russian customers in rating grade 3 also had a positive effect. Overall, rating grade 3 registered an increase of € 599,678 thousand to € 7,741,973 thousand. This was due to an increase in repo transactions in France, Germany, Spain and Italy. The increase in rating grade 4 of € 565,813 thousand to € 1,912,565 thousand resulted from repo transactions in Great Britain and from the rating improvement of a French customer.
The following table provides a breakdown of the credit exposure by country of risk grouped into regions: in € thousand 2019 Share 2018 Share
The increase in repo transactions was responsible for the rise of € 2,811,527 thousand to € 11,046,661 thousand in Western Europe.
The increase in repo transactions of € 3,707,886 thousand to € 7,353,045 thousand was attributable to Austria, Germany, Spain, Great Britain and Italy. The decline in money market transactions of € 574,011 thousand to € 2,149,468 thousand was largely attributable to Austria.
Compared to year-end 2018, the credit exposure to sovereigns declined € 752,015 thousand to € 35,757,056 thousand.
Rating grade A1 registered a decline of € 312,178 thousand to € 898,251 thousand, which was due to lower facility financing in Germany and the decrease in the bond portfolio of the Republic of Germany and the Netherlands. Rating grade A2 registered a decline of € 1,259,922 thousand to € 13,395,868 thousand, which was due to deposits with the Austrian National Bank and the decrease in the bond portfolio of the Republic of Austria and France. There was a decline of € 347,661 thousand to € 8,302,314 thousand in rating grade A3. This was the result of repo transactions in the Czech Republic and rating shifts at individual German customers. The decline was offset by an increase in minimum reserve at the Slovakian National Bank and money market transactions in the Czech Republic as well as by rating improvements of individual Polish customers in rating grade B1. Improvements in the ratings of these Polish customers were responsible for the decline in rating grade B1 of € 404,603 thousand to € 532,386 thousand. Rating improvements of Russia, Bulgaria and Croatia resulted in shifts of € 4,826,449 thousand from rating grade B3 to rating grade B2. The decrease of € 549,283 thousand in rating grade B4 to € 664,699 thousand resulted from the improvement in Serbia's rating to rating grade B3. Rating grade B5 registered an increase of € 1,031,330 thousand to € 1,391,615 thousand, which was due to the improvement in the ratings of Belarus and Ukraine from rating grade C and an increase in the minimum reserve at the Central Bank of Bosnia and Herzegovina as well as new money market transactions in Belarus.
The table below shows non-investment grade credit exposure to sovereigns (rating B3 and below): in € thousand 2019 Share 2018 Share
Improvements in the ratings of Russia, Bulgaria and Croatia led to a reclassification from rating grade B3 to rating grade B2. This led to a significant reduction in non-investment grade credit exposure.
The following tables show the development of non-performing exposure in the defined asset classes (excluding items off the statement of financial position): in € thousand As at 1/1/2019 Change in consolidated group Exchange rate Additions Disposals As at 31/12/2019
NPE NPE ratio NPE coverage ratio in € thousand 2019 2018 2019 2018 2019 2018
Loans and advances (NPL) 3,399,562 0 62,118 1,180,660 (1,704,300) 2,938,040 Bonds 9,004 0 0 11,334 (8,994) 11,344 in € thousand As at 1/1/2018 Change in consolidated group Exchange rate Additions Disposals As at 31/12/2018
The volume of the non-performing exposure decreased € 459,183 thousand. A decline of € 521,301 thousand was mainly due to the sale of non-performing loans and the derecognition of loans that were no longer economically recoverable totaling € 269,657 thousand for RBI AG, € 208,384 thousand for Southeastern Europe, € 207,535 thousand for Central Europe and € 138,421 thousand for Eastern Europe. On the other hand, currency movements were responsible for an increase of € 62,118 thousand (mainly Ukrainian hryvnia and Russian ruble). The NPE ratio in relation to the total exposure fell 0.5 percentage points to 2.1 per cent, while the coverage ratio increased 2.7 percentage points to 61.0 per cent.
Non-financial corporations registered a decline of € 345,269 thousand compared to the beginning of the year to € 1,734,409 thousand. In the Group Corporates & Markets segment, the decrease was mainly due to disposals totaling € 106,216 thousand and write-offs of € 172,692 thousand, in Central Europe to disposals totaling € 84,354 thousand and writeoffs of € 28,684 thousand, in Southeastern Europe to write-offs of € 61,309 thousand and in Eastern Europe mainly to write-offs of € 34,137 thousand. The share of non-performing exposure declined 1.1 percentage points to 3.9 per cent, while the coverage ratio increased 2.4 percentage points to 57.4 per cent. In the households portfolio, non-performing exposure fell € 87,046 thousand to € 1,141,255 thousand, mainly in Southeastern Europe due to write-offs totaling € 98,791 thousand and sales of € 40,718 thousand, in Central Europe due to write-offs totaling € 60,401 thousand and sales of € 34,097 thousand, and in Eastern Europe due to sales totaling € 48,399 thousand and write-offs of € 42,996 thousand. The share of non-performing exposure to credit exposure fell 0.6 percentage points to 3.2 per cent, and the coverage ratio increased 4.4 percentage points to 66.8 per cent. Non-performing exposure to other financial corporations fell € 25,002 thousand to € 55,844 thousand. The coverage ratio fell 22.2 percentage points to 58.7 per cent.
In Central Europe, the non-performing exposure declined € 142,087 thousand to € 988,929 thousand, primarily due to sales and write-offs of € 40,572 thousand in the households portfolio and € 39,942 thousand in the non-financial corporations portfolio in Hungary as well as due to sales and write-offs of € 34,707 thousand in the households portfolio and € 35,565 thousand in the non-financial corporations portfolio in the Czech Republic. The NPE ratio decreased 0.5 percentage points to 2.4 per cent, and the coverage ratio increased 2.6 percentage points to 58.6 per cent.
In Southeastern Europe, non-performing exposure decreased € 101,940 thousand to € 746,819 thousand compared to the start of the year, mainly driven by sales and write-offs of € 94,107 thousand in Romania and € 24,527 thousand in Croatia. The NPE ratio fell 0.6 percentage points to 3.0 per cent, and the coverage ratio increased 6.4 percentage point to 69.9 per cent.
The Eastern Europe segment registered a decrease in non-performing exposure of € 53,717 thousand to € 438,179 thousand attributable to Ukraine, which recorded an overall decline of € 43,383 thousand due to write-offs and sales in the households portfolio amounting to € 50,722 thousand, while the appreciation of the Ukrainian hryvnia had a strong countervailing effect. In Russia, non-performing exposure remained unchanged compared to the beginning of the year. This was positively influenced by write-offs and sales in the households portfolio amounting to € 39,660 thousand and in the non-financial corporations portfolio amounting to € 24,069 thousand. The appreciation of the Russian ruble had a countervailing effect. The share of non-performing exposure to credit exposure in Eastern Europe fell 0.9 percentage points to 2.0 per cent, and the coverage ratio also declined 1.8 percentage points to 60.0 per cent.
Non-performing exposure in the Group Corporates & Markets segment fell € 127,875 thousand to € 770,935 thousand at year's end. In the reporting period, the non-performing exposure at RBI AG fell € 147,283 thousand, mainly due to sales and write-offs, while at Raiffeisen Leasing Group it fell € 16,199 thousand. The NPE ratio declined 0.7 percentage points to 1.7 per cent, and the NPE coverage ratio stood at 55.9 per cent, 1.8 percentage points above the figure at the start of the year.
The regional breakdown of the exposures reflects the broad diversification of credit business in the Group’s markets.
The following table shows the distribution of credit exposures across all asset classes by the country of risk, grouped by regions: in € thousand 2019 Share 2018 Share
The € 5,193,561 thousand increase in euro exposure to € 100,663,196 thousand was mainly driven by credit and facility financing and repo transactions. However, this was partly offset by a decline in deposits with the Austrian National Bank. The US dollar registered an increase of € 1,584,621 thousand to € 18,007,980 thousand due to repo transactions. With regard to Russian ruble exposure, credit financing and an increase in the retail business resulted in growth of € 4,291,762 thousand to € 17,260,651 thousand. In addition, the Russian ruble appreciated. The increase of € 696,709 thousand in the exposure to the Ukrainian hryvnia to € 2,805,649 thousand was the result of currency appreciation.
Retail trade except repair of motor vehicles 5,099,390 2.7% 4,750,188 2.7%
The following table shows credit exposure across all asset classes by currencies: in € thousand 2019 Share 2018 Share
Public administration and defense and social insurance institutions 13,770,783 7.3% 14,293,144 8.2%
Wholesale trade and commission trade (except car trading) 14,805,845 7.8% 13,723,051 7.9%
The increase in the credit exposure was essentially fueled by an increase of € 4,941,619 thousand in banking and insurance to € 50,884,049 thousand, which was mainly attributable to increased repo transactions in Austria, and by an increase of € 3,835,927 thousand to € 39,134,241 thousand in the private households portfolio, primarily in Russia and Slovakia.
The Group invests in structured products. The total exposure to structured products showed a nominal amount of € 348,946 thousand (2018: € 594,999 thousand) and a carrying amount of € 348,944 thousand (2018: € 580,996 thousand). These are mainly investments in asset-backed securities (ABS), asset-based financing (ABF), and in some cases collateralized debt obligations (CDO). A total of 42.12 per cent of the portfolio (2018: 53.4 per cent) contains loans and advances to European customers, and 31.61 per cent of the portfolio (2018: 13.7 per cent) has been rated A or better by external rating agencies. The yearon -year increase is attributable to current transactions, which include interim repayments and new acquisitions.
The Market Risk Management department ensures that the business volume and product range comply with the defined strategy of the Group. It is responsible for implementing and enhancing risk management processes, risk management infrastructure and systems, manuals, and measurement techniques for all market risk categories and credit risk arising from market price changes in derivative transactions. Furthermore, Market Risk Management independently measures and reports all market risks on a daily basis.
All products in which open positions can be held are listed in the product catalog. New products are added to this list only after successfully completing the product approval process. Product applications are investigated thoroughly for any risks. They are approved only if the new products can be implemented in the bank’s front- and back-office and risk management systems.
Trading book VaR 99% 1d VaR as at Average VaR Minimum VaR Maximum VaR VaR as at in € thousand 31/12/2019 31/12/2018
Total VaR 99% 1d VaR as at Average VaR Minimum VaR Maximum VaR VaR as at in € thousand 31/12/2019 31/12/2018
In the 2019 reporting year, there was one hypothetical backtesting exceeding. The following graph compares the VaR to the theoretical gains and losses on a daily basis. The VaR represents the maximum loss which will not be exceeded within one day, with a confidence level of 99 per cent. It is compared to the respective theoretical gain or loss which would arise on the following day due to the actual market conditions at the time.
In March there was a strong positive change in hypothetical profit and loss against a stable VaR. This was due to daily market fluctuations in long-term euro interest rates of up to minus 9 basis points. As in August, this affected a portfolio of equity instruments, which also explained the hypothetical profit when interest rates fell. This portfolio was reduced towards the end of March, which was reflected in the volatility of the hypothetical profit and loss and a reduced VaR.
The main reason for the fluctuation in hypothetical profit and loss in August was the volatility of euro interest rates. In addition, a hypothetical backtesting exceeding was measured and reported to the regulator at the beginning of August. The background was strong daily market value fluctuations in long-term euro interest rates. A portfolio of equity instruments, measured in the internal model as perpetuals with maturity in 2099, was the main driver.
There are two different approaches for managing exchange rate risk:  Preserve equity: With this hedging strategy an offsetting position is held on Group level for local currency denominated equity positions. However, the necessary hedging positions cannot be established in all currencies in the required size. Moreover, these hedges might be inefficient for some currencies if they carry a high interest rate differential.
Market risk in the Group results primarily from exchange rate risk, which stems from foreign-currency denominated equity investments in foreign Group units and the corresponding hedging positions entered into by the Group Asset/Liability Committee. In a narrow sense, exchange rate risk denotes the risk of losses being incurred due to open foreign exchange positions. However, exchange rate fluctuations also influence current revenues and expenses. They also affect regulatory capital requirements for assets denominated in foreign currencies, even if they are financed in the same currency and thus do not create an open foreign exchange position.
Different maturities and repricing schedules of assets and the corresponding liabilities (i.e. deposits and financing from money markets and capital markets) cause interest rate risk in the Group. This risk arises in particular from different interest rate sensitivities, rate adjustments, and other optionality of expected cash flows. Interest rate risk in the banking book is material for the euro and US dollar as major currencies as well as for local currencies of Group units located in Central and Eastern Europe.
Responsibility for ensuring adequate levels of liquidity lies with the overall Management Board. The functionally responsible board members are the Chief Financial Officer (Treasury/ALM) and the Chief Risk Officer (Risk). Accordingly, the processes regarding liquidity risk are run essentially by two areas within the bank: On the one side the Treasury units, which take on liquidity risk positions within the strategy, guidelines and parameters set by the responsible decision-making bodies. On the other side they are monitored and supported by independent Risk Controlling units, which measure and model liquidity risk positions, set limits and supervise the compliance with those.
The Group has a substantial database along with expertise in forecasting cash flows arising from all material on- and off-balance sheet positions. The modelling of liquidity in- and outflows is carried out on an appropriate granular level, differentiating between product and customer segments, and, where applicable, currencies as well. Modelling of retail and corporate customer deposits includes assumptions concerning the retention times for deposits after maturity. The model assumptions are quite prudent, e.g. there is a no rollover assumption on funding from banks and all funding channels and the liquidity buffer are stressed simultaneously without taking mitigating effects from diversification into account.
The liquidity scenarios are modelled using a Group-wide approach, acknowledging local specifications where they are justified by influencing factors such as the market environment or certain business characteristics; the calculation is performed at RBI AG. The modelling of cash inflows and outflows differentiates between product and customer segments, while if applicable, a distinction between different currencies is made as well. For products without a contractual maturity, the distribution of cash inflows and outflows is calculated using a geometric Brownian motion which derives the statistical forecasts for future daily balances from the observed, exponentially weighted historical volatility of the corresponding products.
Monitoring of limits and reporting limit compliance is performed regularly and effectively. Any breach by Group units is reported to the Group ALCO and escalated. In such cases, appropriate steps are undertaken in consultation with the relevant unit or contentious matters are escalated to the next highest responsible body.
Stress tests are conducted for RBI AG and the network banks on a daily basis and on Group level on a weekly basis. The tests cover three scenarios (market, reputational and combined crisis), consider the effects of the scenarios for a period of several months and demonstrate that stress events can simultaneously result in a time-critical liquidity requirement in several currencies. The stress scenarios include the principal funding and market liquidity risks, without considering beneficial diversification effects. This means that in the stress tests of the Group, all network units are simultaneously subject to a pronounced combined crisis for all their major products. The results of the stress tests are reported to the Chief Risk Officer and the Chief Financial Officer as well as other members of management on a weekly basis; they also form a key component of the monthly ALCO meetings and are included in the bank’s strategic planning and contingency planning.
As shown by the daily liquidity risk reports, the main Group units actively maintain and manage liquidity buffers, including high quality liquid assets (HQLA) which are always sufficient to cover the net outflows expected in crisis scenarios. The Group has sizeable, unencumbered and liquid securities portfolios and favors securities eligible for Central Bank tender transactions in order to ensure sufficient liquidity in various currencies. The main Group units ensure the availability of liquidity buffers, test their ability to utilize central bank funds, constantly evaluate their collateral positions as regards their market value and encumbrance and examine the remaining counterbalancing capacity, including the funding potential and the sale ability of the assets.
In compliance with regulatory requirements for intraday liquidity management a daily stressed forecast of available intraday liquidity at defined critical times during a business day is calculated for RBI. This stressed forecast, which considers outflow assumptions analogous to the regular liquidity stress testing in the Group (see above), is quite conservative since inflows that are not final (revocable ) are not considered at all. In case of limit breaches, the intraday contingency and escalation process is triggered. At Group Unit level the local intraday liquidity management process is within the responsibility of the local Treasury Unit which ensures that the following minimum standards are implemented locally: clear responsibilities and workflows for managing intraday liquidity; daily monitoring of available intraday liquidity; intraday liquidity forecasting model and limit; escalation and contingency processes and measures in case of limit breaches.
The liquidity coverage ratio (LCR) requires the short-term resilience of banks by ensuring that they have an adequate stock of unencumbered high-quality liquid assets (HQLAs) to meet potential liability run offs that might occur in a crisis, which can be converted into cash to meet liquidity needs for a minimum of 30 calendar days in a liquidity stress scenario.
The increase in short-term secured capital market transactions at RBI AG led to a rise in inflows, which was accompanied by an increase in short-term secured and unsecured deposits. The growth of retail deposits in the Group also contributed to higher outflows.