Net fee and commission income 1,223 (18.3)% 1,496 1,250 933 607
Loans and advances to banks 10,310 14.1% 9,038 11,053 8,202 5,794
Loans and advances to customers 50,515 (12.8)% 57,902 48,880 35,043 24,714
Equity (including minorities and profit) 7,000 7.4% 6,518 6,622 4,590 3,277
Return on equity before tax 5.7% (16.3) PP 22.0% 25.7% 27.3% 21.8%
Consolidated return on equity (after minorities) 3.9% (13.5) PP 17.4% 20.1% 21.4% 17.2%
Net provisioning ratio (avg. risk-weighted assets, credit risk) 3.19% 1.88 PP 1.32% 0.84% 0.97% 0.81%
Core capital ratio (Tier 1), credit risk 14.1% 4.4 PP 9.7% 11.4% 9.8% 9.0%
Number of shares on 31 Dec. in million 154.67 — 154.67 154.67 142.77 142.77
Contents Preface by the Chairman of the Managing Board 8 Managing Board of Raiffeisen International 10 Report of the Supervisory Board 12 Overview of Raiffeisen International 14 Emerging stronger from the crisis with a sustainable business model 16 Stock and investor relations 19 Corporate governance report 24 Corporate responsibility 33
General economic environment 38 Banking sector development in Central and Eastern Europe 40 Performance and financials 41 Detailed review of items in the income statement 46 Statement of financial position 52 Equity 54 Research and development 56 Internal control and risk management system 56 Capital, share, voting, and control rights 59 Funding 61 Risk management 63 Operations and IT 67 Human resources 69 Outlook 71 Events after the balance sheet date 73
Regional segments 74 Central Europe 76 Southeastern Europe 85 Russia 96 CIS Other 99
The year 2009 took us on a roller coaster ride. First came the economic slump, but then also the end of the recession. Even in such turbulent times, our solid business model was able to prove itself. We are therefore sticking to our transparent “bread and butter” business. We would like to provide infor mation with a similar transparency in this annual report, with a firm orientation to facts and figures.
Raiffeisen International stands on solid ground today, as it has in the past. Strengthened by the challenges of the crisis, we occupy a good starting position for the coming years. We therefore look to the future with optimism and confidence.
Ladies and gentlemen, While 2008 was an “extraordinary” year for Raiffeisen International, 2009 will be remembered for being “challenging.” The global economic crisis and its effects on the comparatively young market economies of Central and Eastern Europe presented our banking group with completely new challenges. We were able to cope with them well thanks to our business model, which is geared to the real needs of businesses and private individuals in 17 countries in the region and has proved to be sustainably robust even in these difficult times.
However, we had to adjust the parameters of our strategy to the difficult conditions. While growth and earnings were previously in the foreground, we focused in 2009 on strengthening capital, managing liquidity and risk, raising efficiency, and lowering costs. We added € 1.25 billion to our capital cushion in the third quarter. The capital inflow occurred in the framework of two issues, which were both fully subscribed by our principal shareholder, Raiffeisen Zentralbank Österreich AG (RZB). This step contributed substantially to bringing our core capital ratio based on credit risk (Tier 1) to an impressive 14.1 per cent at year’s end. We strengthened our liquidity primarily by intensifying acquisition efforts on the deposit side, expanding our proven cooperation with supranational institutions, and financing through RZB. Now, the market situation is once again characterized by very good liquidity. More selective lending, extensive restrictions on granting foreign currency loans to private individuals, and targeted
Preface by the Chairman of the Managing Board strengthening of our loan work out and collection activities have been the highlights of Group risk management. Quick, determined, and consistent action to take advantage of cost-cutting opportunities was also extremely important. That enabled us to improve our cost-income ratio last year by 1.5 percentage points to 52.5 per cent.
The confidence of our customers has been and remains our most important indicator of success. The increase in the number of our customers during the year from 14.7 million to 15.1 million demonstrates that we are able to enjoy this confidence despite, or even because of, the extraordinarily difficult times. Our exceptionally broad position in terms of market coverage and product range was honored again in 2009 by a number of international awards. For example, Euromoney and Global Finance magazines again selected us as “Best Bank” in the CEE region.
We owe our ability to have coped so well with the past year not least to the support of our shareholders. I would like to make very special mention here of the role played by our principal shareholder RZB and the strong backing that we have received from the entire Raiffeisen Banking Group Austria. My thanks extend equally to all institutional and private investors who have remained loyal to us in the past twelve months. I am also grateful for the trust placed in us by our customers and business partners. It has been particularly gratifying to see our employees meet the challenges of 2009 not only with high motivation, but also with exceptionally great dedication. I would therefore like to thank – also on behalf of my Managing Board colleagues – the 56,530 employees of Raiffeisen International for their contribution to our company’s success.
The Supervisory Board held five meetings during the period under review. All members of the Supervisory Board participated in more than half of the meetings. At all of the meetings, the Supervisory Board performed the tasks prescribed to it by law in compliance with the Austrian Corporate Governance Code.
At the meeting on 8 June 2009, the compliance report was submitted and discussed in addition to the Managing Board’s report on the situation of the company and the Group.
In accordance with the resolution of the Annual General Meeting, the distribution of Supervisory Board remuneration was decided at the meeting on 9 June 2009.
At the meeting of 23 September 2009, the semiannual figures were submitted to the Supervisory Board. Furthermore, the management of risk and non-performing loans and the Group’s current liquidity situation were discussed in view of the crisis.
The Working Committee dealt primarily with the appointment of officers in the Group and disposition of shareholdings in Group companies.
The accompanying consolidated financial statements (income statement, statement of financial position, and notes) and the consolidated management report as well as the annual financial statements and management report of Raiffeisen International were audited by KPMG Austria GmbH, Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Vienna. The audit has revealed no reasons for objection, and the statutory requirements have been fully satisfied, thus allowing an unconditional auditor’s certificate to be issued.
After thorough review and discussion of the consolidated financial statements and the annual financial statements in the Audit Committee and in the Supervisory Board, the Supervisory Board has declared its agreement with the proposal regarding the use of profit and approves the annual financial statements of Raiffeisen International Bank-Holding AG. They have thus been ratified in accordance with Section 125 (2) of the Austrian Stock Corporation Act (AktG).
Raiffeisen entered the Central and Eastern European region more than 20 years ago by founding the first subsidiary bank in Hungary in 1986. While the company’s expansion was initially characterized by the establishment of its own banks, acquisitions of existing banks began to predominate in 2000. The successful integration of these banks into the Group was aided by many years of experience. To finance its further growth efficiently, Raiffeisen International went public in April 2005. It issued more shares in the framework of a capital increase in October 2007.
Raiffeisen International concentrates its activities exclusively on the markets of Central and Eastern Europe. Even though the economic crisis is interrupting the catch-up process of those markets, higher growth compared with Western Europe may already be expected in the region as of 2010. The broad diversification of Raiffeisen International has proven advantageous in both regional and business respects in times of crisis, as countries and sectors are affected in differing degrees by the crisis.
As of 31 December 2009, the Raiffeisen International network comprised 15 banks and other financial service enterprises, for example, in the area of asset management. Its 56,530 employees served 15.1 million customers in 17 markets.
For the fifth consecutive time, Euromoney named Raiffeisen International together with RZB as “Best Banking Group in Central and Eastern Europe (CEE)” in July 2009. Moreover, the network banks in Albania, Belarus, Bosnia and Herzegovina, Kosovo, Serbia, and Ukraine were awarded the title of “Best Bank”.
Markets of Raiffeisen International Data as of Balance sheet Change1 Business outlets Employees 31 December 2009 total in € million
Other/consolidation 986 — — 371 1 Change of balance sheet total versus 31 December 2008. Change expressed in local currencies differs due to fluctuating euro exchange rates.
also reflects the devaluation of many CEE currencies. Finally, more selective lending also contributed to this development.
How will Central and Eastern Europe develop in the near future? I am convinced that the region will continue to be the European market of the future, but we will see more moderate growth figures than before the crisis. After the GDP decline of 2009, which for the entire region came to about
6.0 per cent, Raiffeisen Research’s analysts forecast real GDP growth of 2.6 per cent for 2010. Another positive factor is that budget deficits have been reduced in most of the countries due to diminished imports. Parallel to this, we can observe a great slowing of inflation. That and the resurgence of industrial production make me very confident. Furthermore, Central and Eastern Europe have long offered plenty of economic incentives for exporters and investors. To illustrate this point, I would just mention the region’s well-educated residents, who yearn for success. Overall, I am convinced that the convergence process will continue.
The direct bank1, whose founding you announced a few months ago, can also be viewed in this context. What lies ahead in that regard? We are in the process of significantly improving our product range for private individuals. The focus there is on high-income customer groups, but also on those who intensively use the internet and online services. We want to reach the latter with the direct bank. We received the license for that in late autumn and want to launch this bank – which will offer only deposit products at first – in the current year in selected markets. The bank will further strengthen our liquidity position and will offer the best evidence that we intend to continue innovating and investing in the region.
Mild market rally from the end of the first quarter The beginning of 2009 on international stock markets was still heavily shaped by the economic crisis. Stock prices, particularly those of banks with Central and Eastern European exposure, declined worldwide to multi-year lows. That was accompanied by partial nationalizations and rating downgrades of some banks. In addition, there was a steady stream of negative economic data from many countries and pessimistic forecasts from economic research institutes. Nevertheless, the spread of stimulus packages and government guarantees which started in 2008 in several countries caused a mild market recovery toward the end of the first quarter.
Good half-year results from US companies – including many banks – and the statement by the Federal Reserve Chairman that the US economy has probably overcome the recession stimulated the stock markets appreciably in the third quarter. Better than expected economic data in various countries also contributed to that.
Following unexpectedly weak consumer confidence, positive economic news came with increasing frequency toward year’s end. That prompted Europe’s largest central banks to announce their intention to reduce the high level of liquidity in 2010. Set against that, however, were demands for stricter capital requirements on banks raised at the G-20 summit meeting in Pittsburgh and by the Bank for International Settlements. A further burden on the capital markets was the suspension of debt service by sovereign wealth fund Dubai World at the end of November. This was intensified when the Dubai government announced it would not undertake any guarantee to repay the debts, as the possibility that governments will not back their financially troubled concerns in the future became more likely with that announcement.
In the beginning of the year, Raiffeisen International stock declined significantly at first in a difficult market environment and closed at its all-time low of € 13 on 17 February. However, in the course of a general market rally, the stock advanced appreciably when shortly thereafter very good earnings were reported for the year 2008.
In the second quarter, bank stocks in particular benefited from conjectures that the recession had reached its worst point. Further positive impetus, especially for banks with CEE exposure,
came from the IMF’s Financial Stability Report, which corrected estimates of the funding requirements of Central and Eastern European countries downward. Aided by these factors, Raiffeisen International stock neared the € 30 mark several times. However, because of the subsequently released negative forecasts by the IMF and World Bank, banks and hence Raiffeisen International had to give up part of their previously achieved gains at around mid-year.
Index Basis = issue price of € 32.50 exposure, Raiffeisen International stock surpassed the € 30 mark in the third quarter and later the € 40 mark.
Raiffeisen International (RI) ATX (relative to RI) Dow Jones EURO STOXX Banks (relative to RI)
Shareholder structure With 72.8 per cent, RZB is the majority shareholder in Raiffeisen International, with the remaining 27.2 per cent in free float. Institutional investors own about 18 per cent of the company ’s stock, and private individuals about 9 per cent. The proportion of private shareholders underwent a significant increase of about 6 percentage points versus the end of 2008 to about 9 per cent at the end of the reporting period. The majority of private investors are in
Austria. Institutional investors, whose stake in Raiffeisen International decreased by about 9 percentage points compared with the end of 2008, are geographically more diversified with only 17 per cent orginating from Austria. About 30 per cent of the institutional investors are in the United States, about 37 per cent in continental Europe, and about 13 per cent in Great Britain. The remaining roughly 3 per cent of the institutional investors come from other countries such as Japan, China, the United Arab Emirates and Singapore.
Capital market communication in times of crisis Active communication with the capital market is indispensable for Raiffeisen International, especially in economically difficult times. With that in mind, the Managing Board and the Investor Relations team again attended various international investor events in London, Zurich, Paris, and New York.
Despite the crisis, which led to the merging of some banks and hence reduced the number of potential covering institutions, analyst interest in Raiffeisen International rose in 2009. At year’s end, there were 25 firms that were regularly publishing recommendations. In August, the 500th study on Raiffeisen International since the IPO in April 2005 was published, and 207 analyses appeared in 2009 alone. As of 31 December 2009, 21 per cent of the analysts recommended buying Raiffeisen International stock, and 38 per cent holding it, while 42 per cent advised selling. Current analyst recommendations may be viewed online at www.ri.co.at → Investor Relations → RI Share → Analyst Reports.
Details regarding the Annual General Meetings for 2008 and 2009 are available online at www.ri.co.at → Investor Relations → Events.
Index information Index (selection) Number of Weight of companies Raiffeisen in the index International in the index
ATX Five 5 14.5% ATX Prime 48 7.1% Dow Jones EURO STOXX 313 < 1% Dow Jones EURO STOXX Banks 38 < 1% Dow Jones STOXX 600 600 < 1% MSCI World 1,656 < 1%
Raiffeisen International Bank-Holding AG, Investor Relations Am Stadtpark 3, 1030 Vienna, Austria
Following regulation 62 of the ACGC, the Company commissioned an external evaluation by Univ.-Prof. DDr. Waldemar Jud Corporate Governance Forschung GmbH. The report about this external evaluation is available to the public on the Raiffeisen International website (www.ri.co.at → Investor Relations → Corporate Governance → Declaration regarding CG Code).
Composition of the Supervisory Board The Supervisory Board currently has 7 members: Independence of the Supervisory Board
The Supervisory Board of Raiffeisen International stipulates the following criteria for the independence of supervisory board members of a company in the meaning of Rule 53 of the ACGC: ■ The supervisory board member shall not have served as member of the management board or as management-level staff of the company or one of its subsidiaries in the past 5 years.
Managing Board Year of birth Date first End of term appointed
Walter Rothensteiner, 1953 11 May 2001 Regular Annual Gen- Chairman eral Meeting 2011
Johann Strobl 1959 10 June 2008 Regular Annual Gen- eral Meeting 2013
Kurt Geiger 1946 9 June 2009 Regular Annual Gen- eral Meeting 2013
■ The supervisory board member shall not have acted as auditor of the company or have owned a share in the auditing company or have worked there as an employee in the past 3 years.
■ The supervisory board member shall not be a close relative (direct offspring, spouse, life partner, parent, uncle, aunt, sibling, nephew, or niece) of a member of the management board or of persons who hold one of the aforementioned positions.
The exercise of functions within the group or the mere exercise by a supervisory board member of duties as a member of the management board or as a managing director shall not result in the relevant enterprise being considered an “enterprise in which the supervisory board member has a substantial economic interest” unless the circumstances give reason to believe that the supervisory board member draws an immediate personal benefit from such enterprise.
All members of the Supervisory Board participated personally in more than half of the Supervisory Board meetings last year.
No contracts subject to approval as defined by the Austrian Stock Corporation Act were made with Supervisory Board members in 2009.
The Managing Board of Raiffeisen International manages the Company according to clearly defined goals, plans, and guidelines with a forward-looking orientation and relying on modern principles of entrepreneurship. In the process, it constantly takes into account the interests of the shareholders and employees.
The area of responsibility of the Managing Board members have been defined by the Supervisory Board without prejudice to the Managing Board’s overall responsibility as follows: The Managing Board conducts the company’s business in accordance with the laws, the articles of association, and the Managing Board’s bylaws. The Chairman of the Managing Board convenes and presides over the weekly Managing Board meetings, which serve the purpose of mutual information and decision-making in all matters that require the body’s approval. The bylaws of the Supervisory Board and of the Managing Board contain the Managing Board’s duties to inform and report and a catalog of measures that require Supervisory Board approval.
1 „Learning & Development“ reports functionally to Rainer Franz. 2 Outsourced to RZB.
For the duration of the Managing Board contract, payments are made to pension funds on the basis of a contribution-oriented system. On the whole, the same rules apply to the Managing Board members as apply to employees. They provide that a basic contribution to a pension fund and an additional contribution be made by the Company if the employee makes contributions in the same amount. Individual retirement benefits that are funded by pension liability insurance additionally apply to 3 Managing Board members.
The performance-based components of the Managing Board’s remuneration normally consist of bonus payments linked to the achievement of Company objectives for profit after tax, return on risk-adjusted capital, and cost/income ratio and to the achievement of annually agreed personal objectives and the value of an allotment of shares in the framework of the share incentive program. The entire Managing Board waived payment of an annual bonus for 2008. The value of the allotted shares corresponds to 100 per cent of the performance-based remuneration components. There were no material changes in the principles for profit-sharing compared with the preceding year.
The Chairman of the Managing Board continues in his function as a member of the Managing Board of RZB. The stated remuneration also includes income from that function.
The share incentive program (SIP) is a stock-based remuneration program for the Managing Board, members of the managing boards of network banks, and executive personnel with a term of three years per tranche. At the beginning, a number of shares are conditionally allotted to beneficiaries that correspond in value to a fixed percentage of the basic annual remuneration. The number of shares actually allotted at the end of the term is geared to two equally weighted performance parameters – the average return on equity achieved during the term in comparison with a target value fixed per tranche and the TSR (total shareholder return) ranking in comparison with the banks listed in the Dow Jones EURO STOXX Banks subindex.
It is a prerequisite for participation in the SIP that the beneficiaries make an investment of their own and hold a number of Raiffeisen International shares during the term that corresponds to at least 30 per cent of the number of conditionally allotted shares.
Members of the managing boards of bank subsidiaries affiliated with Raiffeisen International Bank-Holding AG 30,380 476,966 27,807
To avoid legal uncertainties, a severance indemnity was paid in cash instead of a transfer of shares in 2 countries in accordance with plan terms and conditions for qualifying employees. In Austria, the possibility was granted to qualifying persons likewise to receive a cash settlement instead of half of the shares due in order to pay from that the wage tax due at the time of transfer. That results in the lower number of shares actually transferred in comparison with the number of shares due. The total number of own shares was reduced by the lower number of actually transferred shares.
A new tranche has heretofore been issued in the framework of the SIP every year. That means that conditional shares are allotted respectively for three tranches as of the balance sheet date. The number of those conditional shares amounted to 536,736 as of 31 December 2009 (the 2007 allotment accounted for 50,905 of those, the 2008 allotment for 83,368, and the 2009 allotment for 402,463). The originally disclosed number of conditionally allotted shares changed as a result of various personnel changes in Group units and the maturing of the 2006 SIP tranche, and it is presented in the following table as an aggregate: SIP 2007 to 2009
In respect to cessation of duties or employment and departure from the company, it is generally the case that 2 members of the Managing Board have rights to severance benefits in accordance with the Austrian Salaried Employees Act, 2 members in accordance with contractual stipulations, and 2 members in accordance with the Austrian Company Pension Fund Act. The severance rights according to the Salaried Employees Act or to contractual stipulations generally lapse upon notice of termination by the employee except in the case of a Managing Board member. Furthermore, 4 Managing Board members have a contractual right to severance benefits at the end of their current term in office or at the end of their limited employment contract.
The contracts of Managing Board members are made for the duration of the terms in office or limited to at most 5 years.
Furthermore, no compensation agreements are to be made between the company and the members of its Managing or Supervisory Boards in the event of a public take-over bid.
Group of persons Number of Minimum Maximum contingently allotted allotment allotment shares as of of shares of shares 31 December 2009
The Annual General Meeting resolved on 9 June 2009 to pay the Supervisory Board members total remuneration of € 305,000 and assigned to the Supervisory Board the task of distributing that amount. Fees for meeting attendance were not paid.
The opening comments and speeches by the Managing Board are broadcast live on the internet at www.ri.co.at → Investor Relations → Events → Annual General Meeting and may also be viewed there later. This creates the greatest possible transparency for all shareholders who were unable to attend the Annual General Meeting.
Conflicts of interest The obligation to disclose all and any conflicts of interest applies to both the Managing Board and the Supervisory Board of Raiffeisen International.
The Company did not enter into any such contracts in 2009.
The Annual General Meeting appointed KPMG Austria GmbH, Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Vienna as auditor for 2009. KPMG received compensation of € 30,750 for other services ordered by the Company. Further consulting services beyond the previous year’s extent have not yet been agreed for the current year. KPMG has confirmed that it has a certificate from a quality assurance system. It has likewise been declared to Raiffeisen International that there are no grounds for exclusion or a charge of partiality. The auditor of the financial statements prepares the legally prescribed audit report and is responsible for performing the auditor’s duty to report. The auditor writes a management letter to the Managing Board that also contains references to weaknesses in the Company. The letter is brought to the attention of the Chairman of the Supervisory Board, who ensures that it is dealt with in the Audit Committee and a report of that is made to the Supervisory Board.
The commitment to corporate responsibility is reflected in the modern Raiffeisen principles, which originated in the concept of “helping people to help themselves” developed by Friedrich Wilhelm Raiffeisen. These principles make Raiffeisen International a reliable partner for customers, investors, and employees, and demonstrate a dedication to responsibility especially in difficult economic times.
■ We are here to stay. This principle expresses Raiffeisen International’s responsibility to the regions of Central and Eastern Europe and their people. This principle also attests to a long-term strategy aimed at sustainability.
■ The best become better with us. The object here is the interplay between the commitment to performance of the employees and the social commitment of the employer.
Sustainability program for 2009/2010 In 2009, Raiffeisen presented an overview of the Group’s numerous social and environmental activities, particularly in Central and Eastern Europe, with its first corporate responsibility report (CR Report). At the same time, a comprehensive sustainability program was also developed. Examples of the Raiffeisen International Group’s far-reaching corporate responsibility activities are presented in the report. A two-year reporting cycle is planned, so the next CR Report will appear in 2011. The current report is available online at www.ri.co.at → Company Info → Corporate Responsibility.
Organizational anchoring of corporate responsibility The significance of sustainability for Raiffeisen International was reinforced in 2009 through further development of the strategic corporate responsibility organization. The supervision and decision -making authority for sustainability agendas are the responsibility of the Managing Board at Raiffeisen International.
In a further step, the Extended Corporate Responsibility Committee (CR Committee) was established, and its first meeting held in June 2009. The body is composed of notable representatives of the stakeholders, including owners, non-profit organizations, and a representative of the network banks. The CR Committee has the task of informing and providing consultation to the Managing Board about current socially relevant trends from the respective areas, and contributes to accentuating Raiffeisen International’s corporate responsibility activities in Austria and in Central and Eastern Europe.
Corporate responsibility within the framework of business activity An important aspect of corporate sustainability is linking responsible conduct with the company’s original business purpose. Raiffeisen International accomplishes that by ensuring that the highest standards are observed in the areas of compliance and corruption prevention as well as by assuming environmental responsibility in the financing of facilities for the use of renewable energy sources and capital investments to enhance energy efficiency. Raiffeisen International demonstrates social commitment directly related to core business through financial inclusion, financial education, and microfinance as described below.
Compliance and corruption prevention In June 2009, Raiffeisen International published a revised version of its Code of Conduct which upholds the principles of the organization and which is dedicated chiefly to the topics of compliance and corruption prevention. This catalog of conduct rules is applied throughout the Group and comprises the following topics: workplace and employees, fight against bribery and corruption, treatment of customers and business partners, prevention of market abuse, accounting and finance, and sensitive business areas. To do justice to the importance of the subject, a comprehensive training and communication process has been set up at the Raiffeisen International Group with the technical assistance of the Basel Institute on Governance. In addition to keeping employees’ knowledge up-to-date, this measure is designed to promote increased awareness of the need for smooth implementation.
Financing renewable energy sources In the area of renewable energy, Raiffeisen-Leasing International put the corporate responsibility concept into practice with projects in the segments of wind and solar energy. After a focus mainly on setting up wind farms in 2008, photovoltaic plants gained in importance in 2009. Currently, for example, several photovoltaic projects are being developed in the Czech Republic and in Slovakia. Renewable energy sources will also be an important strategic theme for Raiffeisen International in the years ahead.
Raiffeisen International’s social involvement As a responsible company, Raiffeisen International is also actively involved in areas that are not directly connected with its original business purpose.
Therapy center for handicapped persons A pertinent project is under way in Bosnia and Herzegovina. Under the name “Koraci Nade” (Steps of Hope), construction of a day therapy center made accessible for the handicapped in Tuzla, began in November 2009. This medical center will serve about 150 young persons with motor and mental handicaps, learning and speech disorders, and sensory disorders. The “Koraci Nade” project is being assisted by experts from the local Raiffeisen Bank, and at the same time, RZB will have made a financial contribution of € 450,000 by the time of planned completion of the building in the first half of 2010.
In December 2009, Raiffeisen International employees at the head office in Vienna organized a Christmas action for needy children for the second time. They collected used but working toys and packaged them as a “surprise in a box.” These gifts were distributed to children and teenagers at Christmas through the Caritas center for asylum seekers. A similar action has been conducted in the Hungarian Raiffeisen Bank for several years with great success.
Among the new EU member states of Central Europe (Czech Republic, Hungary, Poland, Slovakia, and Slovenia), Poland stands out especially. It is Europe’s only relatively large economy that achieved growth in 2009. The reasons for that are a relatively large share of domestic output and a robust financial sector that has hardly been impaired by the global crisis. In contrast, the Czech Republic and Slovakia, whose economies are strongly geared to export, and the automotive industry in particular, were affected significantly more on an annual basis. The cash-for-clunkers programs launched in many Western European countries to bolster the automotive industry also proved helpful, however, for automobile exports from Central and Eastern Europe. This put the Czech Republic and Slovakia among the EU economies that showed the strongest growth in the third quarter of 2009 by quarterly comparison. On the other hand, the Hungarian economy suffered a decline in the same period for the fourth consecutive quarter. Because of necessary budget consolidation, Hungary has hardly any maneuvering room left for fiscal policy measures. Altogether, the economic output of the new EU member states of Central Europe decreased in 2009 by 1.8 per cent year-on-year.
The robust Polish market and favorable loan/deposit ratios in the Czech Republic and Slovakia had a positive effect on the new EU member states. Lending volume in Hungary declined in 2009. Slovenia and Slovakia already benefited from their status as members of the euro zone, which grants them direct access to ECB funding lines. In the transition countries in Southeastern Europe, lending volume is likely to have remained stable in 2009. One reason for that is a commitment from international banks not to reduce their lending volume in some countries, in which the IMF has extended financial assistance. On the other hand, lending volume is likely to have decreased slightly in the CIS.
Despite the sharp economic downturn in most CEE countries, Raiffeisen International’s operating income declined in 2009 by only 9 per cent, or € 191 million, to € 2,056 million compared with the preceding year’s level.
Depreciation on intangible and tangible fixed assets (246) 0.8% (244) (223)
The sharpest decline was registered by net fee and commission income, which fell by 18 per cent, or € 273 million, to € 1,223 million. Accordingly, its share of operating income declined by 3 percentage points to 28 per cent. In particular, the decline strongly affected the CIS Other segment (minus 25 per cent) and the Central Europe segment (minus 23 per cent), where income from banking services fell due to volume effects caused by the economic situation. That mainly concerned foreign currency and precious metals business, where income declined by 34 per cent due to the smaller extent of foreign currency loans and foreign payment transfers. An earnings reduction by 16 per cent was also registered in the payment transfer business, which is a main component of fee and commission income with a share of 44 per cent.
With the onset of the economic crisis in the CEE region, cost-cutting programs were immediately started. General administrative expenses fell for that reason, but also because of currency effects in the reporting year, by 14 per cent, or € 363 million, to € 2,270 million. Staff costs were reduced the most, by 17 per cent to € 1,054 million, and their share of total operating expenses declined by 2 percentage points. The average number of employees decreased
Net interest income Net fee and commission income Net trading income Other net operating income in € million
(€ 1,010 million) than in the case of corporate customers (€ 727 million). However, the risk/ earnings ratio (which is the ratio of provisioning for impairment losses to net interest income ) was significantly higher in the corporate customer division (75.9 per cent) than in the retail customer division (60.5 per cent). From a segment perspective, the focus of net allocations to provisioning for impairment losses was in the CIS Other segment, with a share of 30 per cent, or € 514 million (plus 184 per cent). It thus showed a risk/earnings ratio of 105.3 per cent. In the other regions, the risk/ earnings ratio was between 46 per cent and 50 per cent. In Southeastern Europe, net allocations likewise grew above average, by 160 per cent to € 414 million. Central Europe and Russia each showed an increase of 84 per cent, with provisioning needs of € 487 million and € 322 million, respectively.
In contrast to profit after tax, minority interests in profit declined by only 22 per cent to € 75 million. That was due to the different distribution of earnings changes within the Group. Substantial earnings contributions were achieved specifically at Group units with significant minority interests such as those in Slovakia, the Czech Republic, and Croatia. After deducting minority interests, consolidated profit allocable to Raiffeisen International came to € 212 million and was thus lower than the preceding year’s level by 78 per cent, or € 770 million.
The return on equity (ROE) before tax declined in the reporting year from 22.0 per cent to 5.7 per cent, primarily due to the increased net allocation to provisioning for impairment losses. At € 6,394 million, average equity used in the calculation of this figure remained nearly unchanged on the preceding year. In the calculation of equity, deductions due to dividend
Average equity Profit before tax ROE before tax ROE before tax (without one-off effect)
payments for 2008 and negative currency developments were set against an increase due to issued participation rights. The consolidated ROE, which is based on the capital allocable to Raiffeisen International shareholders, fell by 13.5 percentage points to 3.9 per cent because of the earnings decline.
Equity reaches € 7 billion Raiffeisen International’s equity including minority interests rose in the past financial year by 7 per cent, or € 482 million, and stood at € 7 billion as of the balance sheet date.
Comprehensive income increased equity by € 37 million. That already included profit after tax of € 287 million. Other profit/loss, i.e., earnings components directly contained in equity, amounted to minus € 250 million. Those mainly comprised currency differences (minus € 266 million) caused by devaluation of local currencies in the CEE region and corresponding hedging measures. The devaluation of the Russian rouble (minus 5 per cent), the Belarusian rouble (minus 33 per cent), and the Ukrainian hryvnia (minus 5 per cent) had the greatest impact.
In August 2009, Raiffeisen International increased its capital by € 600 million by issuing participation rights in accordance with Section 174 of the Austrian Stock Corporation Act.
On the liability side, the funding base consequently decreased in respect to deposits from banks by 23 per cent to € 20,110 million. Thanks to increased acquisition efforts, deposits from customers fell by only 4 per cent to € 42,578 million.
Since no significant changes in the scope of consolidation occurred in 2009, the reported figures were comparable with those of the preceding year. However, the items of the income statement were influenced more strongly than in the previous years by the fluctuations of some CEE currencies.
Detailed review of items in the income statement a narrowing of the interest margin by 26 basis points to 3.73 per cent (based on the average balance sheet total). That affected all Group segments, but particularly Russia, with a minus of 67 basis points. The interest margin also fell significantly in Central Europe and Southeastern Europe, by 24 basis points and 26 basis points, respectively.
er interest expenses by 25 per cent were shown for deposits from banks, which is in line with the volume reduction. Interest expenses for subordinated liabilities, needed mainly because of local supervisory regulations, came to € 88 million (minus 6 per cent).
Provisioning for impairment losses Net allocations to provisioning for impairment losses in the reporting year totaled € 1,738 million and thus registered an increase of € 958 million, or 123 per cent. That includes income from the sale of loans amounting to € 13 million. Less that income, individual provisions accounted for € 1,565 million, and portfolio-based provisions for € 186 million. A look at the development over the year reveals a slight flattening of momentum in net allocations after the second quarter of 2009, when the largest net allocations were made.
The net provisioning ratio, which is the ratio of net allocations to average risk-weighted assets (credit risk), increased by 1.88 percentage points to 3.19 per cent. The loss rate, which is the ratio of written-off loans to total lendings, rose from 0.11 per cent to 0.30 per cent.
New portfolio-based provisions were formed in the amount of € 186 million in the year under review. The largest net allocations were registered in Central Europe at € 106 million and in Southeastern Europe at € 62 million.
Net fee and commission income Net fee and commission income decreased by 18 per cent, or € 273 million, in 2009 to € 1,223 million. The result from payment transfer business made the largest contribution to that, at 44 per cent, or € 543 million. However, that was below the preceding year’s level by 16 per cent, or € 100 million, due to lower transaction volumes. The CIS Other segment contributed the most to that reduction, with a minus of € 47 million, due to devaluation of the Ukrainian hryvnia and a decrease of payment transfer transactions.
The results from interest-based and currencybased activities developed in opposite directions in the reporting period. While the result from interest-based transactions turned from minus € 88 million to € 117 million, the result from currency-based transactions fell from € 258 million to € 71 million. The result from equity and index-based business remained at the preceding year’s level of minus € 1 million.
Interest-based transactions contributed € 117 million and hence the largest amount to net trading income. The reason for this is that valuation losses of € 93 million which occurred in the preceding year due to interest rate fluctuations were partly made up in 2009 (plus € 76 million). The Russia segment registered a result from interest-based transactions of € 59 million, followed by € 34 million from Southeastern Europe and € 33 million from Central Europe.
Payment transfers Loan and guarantee business Securities business FX, notes/coins, precious metals business Other banking services in € million
The result from currency-based transactions fell by € 187 million to € 71 million. The main reason for that decline was the Group unit in Russia, which booked valuation losses from currency forwards used for hedging purposes due to changes in interest rate and exchange rate differences between the Russian rouble and the US dollar. In the preceding year, valuation gains had been made on these transactions.
Net income from financial investments While net income from financial investments was characterized by valuation losses in 2008, valuation gains were achieved in the reporting year thanks to a rally on the capital markets.
The Group’s average number of employees (expressed in full-time equivalents) fell in 2009 by 2 per cent, or 1,268, to 60,186. The segments with the largest declines were CIS Other, where the average number sank by 7 per cent, or 1,341 employees, and Russia, with a minus of 3 per cent, or 303 employees. In Central Europe, the average number rose by 2 per cent, or 252 employees, while Southeastern Europe registered a plus of 21 employees. Operating income per employee decreased from € 79 thousand to € 72 thousand.
Other administrative expenses registered a decline of 13 per cent, or € 143 million, in 2009 to € 970 million. The reductions extended to nearly all expense categories. The most heavily affected were advertising, PR, and promotional expenses, office supplies, training expenses, and travelling expenses. The most significant reductions of other administrative expenses were in Ukraine and in Russia.
The number of business outlets came to 3,018 at the end of the year, which represents a net decrease on the preceding year’s level by 213 business outlets. Due to further location optimizing measures, the number in the CIS Other segment fell year-on-year by 188 business outlets (181 in Ukraine and 7 in Belarus), and by 22 in Russia. Closures also led to a minus of 23 business outlets in Central Europe (in Slovakia and Hungary). The only net increase occurred in Southeastern European, by 20 business outlets.
Staff expenses Other administrative expenses Depreciation on intangible and tangible fixed assets in € million
Depreciation on tangible and intangible fixed assets remained nearly unchanged year-onyear with an increase of 1 per cent, or € 2 million, to € 245 million. Tangible assets accounted for € 147 million of that, intangible assets for € 69 million, and assets from operating leasing business for € 30 million.
Group-wide investments in the reporting period amounted to € 407 million, of which 55 per cent (€ 225 million) flowed into own tangible assets. Intangible assets accounted for 33 per cent of investments, which primarily concerned software systems. The rest was invested in assets for the operating leasing business.
Other net operating income worsened from minus € 16 million in the preceding year to minus € 20 million in 2009. Various components were responsible for that. For example, net proceeds from non-banking activities improved by € 5 million to € 4 million (2008: minus € 1 million) on the basis of higher revenues from IT activities. In contrast, the result from agency services fell by € 6 million to minus € 4 million. That was caused by higher expenses which arose primarily in Poland due to non-deductible taxes.
The amount of € 76,000 shown under net income from disposal of Group assets contains a subsequent improvement of the sale price for a Group leasing company which was sold in the preceding year.
Assets Shifts occurred in the structure of assets in the year under review. Loans and advances to customers (after provisioning) declined by 4 percentage points as a share of total assets, but continued to dominate the asset side of the statement of financial position at 62 per cent. The share of loans and advances to banks increased by 3 percentage points, and that of financial investments (including the trading portfolio) by 4 percentage points to 14 per cent each. The share of other assets fell by 3 percentage points to 10 per cent.
In 2009 loans and advances to customers fell by € 7.4 billion, or 13 per cent, to € 50.5 billion, of which almost two thirds was due to lower demand in the lending business due to the recession. Loans to corporate customers decreased by 16 per cent, or € 5.4 billion, while loans to private individuals fell by 9 per cent, or € 2.0 billion. Because of the significant decline of the loan portfolio, the loan/deposit ratio improved by 12 percentage points to 119 per cent.
After the end of the reporting year, Raiffeisen International’s statement of financial position was characterized by significantly higher provisions for impairment losses, which totaled € 3.1 billion as of 31 December 2009 after € 1.6 billion in the preceding year. Large corporate customers accounted for € 1.4 billion of that, and private individuals for € 1.2 billion. The highest level of provisions for impairment losses was booked in Central Europe at € 1.0 billion. The CIS Other segment showed a level of € 0.8 billion, while Southeastern Europe and Russia each had € 0.6 billion.
Loans and advances to banks increased by € 1.3 billion, or 14 per cent, to € 10.3 billion. Because of the normalization of interbank business, deposits were shifted from central banks (minus € 1.7 billion) to commercial banks, and short-term transactions with the latter were expanded.
Compared with the end of 2008, a significant increase of € 2.1 billion to € 11.0 billion was registered in financial investments (including trading assets). Of that, € 2.4 billion was newly invested in fixed-income securities, consisting predominantly of debt instruments issued by public authorities. By investing liquidity surpluses in this way, the share of the securities in the balance sheet total rose by 4 percentage points to 14 per cent.
Thanks to increased efforts to acquire and retain customers, deposits from customers declined only moderately by 4 per cent, or € 1.6 billion, to € 42.6 billion in 2009. All CEE countries were affected by this reduction. The largest decreases were registered in Central Europe at € 1.0 billion and in Southeastern Europe at € 0.9 billion. While deposits from retail customers increased by € 1.0 billion, deposits from corporate customers fell by € 1.9 billion. The public sector also reduced its deposits by € 0.7 billion.
Funding from banks fell by 23 per cent, or € 6.1 billion, to € 20.1 billion. The factor mainly responsible for this decline was funding by international commercial banks, which was down by € 5.6 billion compared with the end of 2008. Deposits from central banks decreased by € 0.8 billion, while those from multilateral development banks rose by € 0.3 billion. Long-term funding arrangements fell by € 3.3 billion, while money market dealings declined by € 2.8 billion.
Structure of liabilities on the statement of financial position in € billion
Own funds, consisting of equity and subordinated capital, rose year-on-year by € 1.3 billion. Core capital was increased by € 1.25 billion in the year under review. This capital inflow occurred as a result of two issues, one of € 0.6 billion in the form of participation rights and one of € 0.65 billion in the form of hybrid Tier 1 capital. Both issues were entirely subscribed by RZB.
Raiffeisen International’s balance sheet equity including consolidated profit and minority interests rose by 7 per cent, or € 482 million, on 2008 to € 7,000 million.
Earned capital, consisting of consolidated profit and retained earnings, declined by € 194 million to € 2,365 million. In the year under review, consolidated profit fell from € 982 million in 2008 to € 212 million mainly due to high net allocations to provisioning for impairment losses.
The significant currency devaluation at the end of 2008 lost momentum in 2009, and the rates of some currencies recovered in the course of the year. Nevertheless, currency effects and capital hedging measures associated with them (minus € 13 million) reduced retained earnings by € 261 million. The currency effect in the preceding year was minus € 923 million.
In Russia, cash flow hedge accounting had already been introduced in the preceding year to hedge variable-interest-rate positions. Changes in the market value of hedging instruments increased retained earnings by € 13 million in 2009. On the other hand, the dividend of € 0.93 per share paid out in the year under review reduced retained earnings by € 143 million.
Raiffeisen International is not a separate banking group within the meaning of the Austrian Banking Act (BWG) and therefore is not itself subject as a Group to the regulatory provisions for banks. Since the beginning of 2008, the calculation of capital adequacy has been performed in accordance with Basel II. Credit risk and market risk are calculated generally according to the Standardized Approach pursuant to Section 22 of the BWG, but the credit risk for loans and advances to banks, corporates, and sovereigns is calculated according to the internal ratings-based approach (IRB) at the network banks in Croatia, Romania, Slovakia, the Czech Republic, and Hungary. The following consolidated figures have been calculated according to the provisions of the BWG and are accounted for within the scope of the RZB-Kreditinstituts gruppe.
Consolidated own funds according to the BWG amounted to € 8,328 million as of 31 December 2009. Compared with the preceding year, this represents a plus of € 1,337 million. That is mainly due to a capital increase of € 600 million in the form of participation rights and an issue of hybrid capital in the amount of € 650 million. Both were entirely subscribed by RZB. On the other hand, exchange rate movements of currencies, including especially the Russian rouble, Serbian dinar, Ukrainian hryvnia, and Belarusian rouble, had a negative impact on core capital. Altogether, that resulted in a decrease of € 206 million.
Excess cover amounted to € 3,212 million at the end of the year and thus improved on the preceding year by € 1,987 million which resulted in an excess cover ratio of 62.8 per cent.
Research and development Raiffeisen International does not engage in research and development.
Internal control and risk management system in regard to the Group accounting process Balanced, complete financial reporting is an important goal for Raiffeisen International and its corporate bodies. Complying with all relevant provisions of law is, of course, a basic prerequisite for that. The Managing Board bears responsibility for establishing and arranging an internal control and risk management system in regard to the accounting process that meets the requirements of the Company. The aim of this internal control system is to support the management by ensuring effective and continuously improved internal controls in regard to accounting. The control system is geared to compliance with standards and regulations, on the one hand, and to creation of optimal conditions for specific control measures, on the other.
The management of the respective network unit is responsible for implementing the Group instructions. Compliance with these Group rules is monitored in the context of audits on Group and local level.
Risk assessment Material risks in regard to the Group accounting process are evaluated and monitored by the Managing Board. Complex accounting principles can lead to an increased risk of error, and the same is true of non-uniform principles of valuation, particularly for financial instruments that are essential in the Group. Furthermore, a difficult business environment also poses the risk of material errors in reporting. To prepare consolidated financial statements, it is necessary to estimate various asset and liability items for which no reliable fair value can be determined. That applies particularly to lending business, social capital, and the intrinsic value of securities, participations, and goodwill.
The financial statement data received from the Group units are checked for initial plausibility in the Group finance department by the key account manager responsible for the Group unit. The further consolidation steps, including capital consolidation, expense and income consolidation, and debt consolidation, are then performed in the Cognos Controller consolidation system. Finally, any intercompany profits are eliminated by means of entries in Group accounts. Preparing the data for the notes to the financial statements required by the IFRS and UGB forms the conclusion of the consolidation process.
The general control environment also comprises the middle management level (department heads) in addition to the Managing Board. All control measures are applied in the current business process to ensure that potential errors or divergences in the financial reporting are prevented or detected and corrected. The control measures range from the examination of periodic results by the management to the specific reconciliation of accounts to the analysis of ongoing processes in the accounting department.
The consolidated results are assembled into complete consolidated financial statements in the Group finance department. In addition, a Group management report is prepared, in which the consolidated results are explained in words in accordance with the legal specifications. The consolidated financial statements and the management report are examined by the external auditor appointed for that purpose.
Capital, share, voting, and control rights Disclosures pursuant to Section 243 a (1) of the Austrian Commercial Code
(1) The Company’s capital stock amounts to € 471,735,875 and is divided into 154,667,500 voting common bearer shares. Of those, 984,511 shares were in the portfolio of own shares, so 153,682,989 shares were outstanding as of the balance sheet date. Please consult the notes to this report (p. 166 onwards) for more information.
(3) RZB holds 72.8 per cent of the shares in the Company by way of its indirect 100 per cent subsidiary Cembra Beteiligungs GmbH, Vienna. The remaining shares are free float, which contains no direct or indirect participations in capital amounting to 10 per cent or more.
(6) Pursuant to the articles of association, a person who is 68 years or older may not be appointed as a member of the Managing Board or be reappointed for another term in office. The rule for the Supervisory Board is that a person who is 75 years or older may not be elected as a member of the Supervisory Board or be elected for another term in office. Furthermore, there are no regulations regarding the members of the Managing Board and the Supervisory Board beyond the provisions of the relevant laws.
The Annual General Meeting of 10 June 2008 authorized the Managing Board in accordance with the provisions of the Austrian Stock Corporation Act to buy own shares and, if deemed appropriate, to retire them without further prior involvement of a general meeting of shareholders. The proportion of shares to be bought and shares already bought may not exceed 10 per cent of the Company’s respective capital stock. The duration of the authorization to buy own shares is limited to 30 months from the date of the Annual General Meeting’s resolution. No own shares have been bought since the authorization was issued in June 2008.
(8) The following material agreements to which the company is a party and which take effect upon a change of control in the company as a result of a takeover bid exist in the context of the D & O insurance and the share incentive program: “If the insured, Raiffeisen International, comes under new control due to a change in the management or control in respect to the management or control over a subsidiary or if it merges with another enterprise, the insurance will only cover events of loss due to wrongful acts occurring prior to the change in control and management and only for events of loss up to the end of the period of insurance.”
The company’s share incentive program provides upon change in corporate control as follows: “If a change of corporate control or a merger occurs during the vesting period without the combination being exclusively concerned with subsidiaries, all contingent shares will lapse without replacement at the time of acquiring the shares of Raiffeisen International and the investor’s actual possibility of disposing of them, or at the time of the merger. An indemnification payment will be made for the contingent shares.”
Many countries reacted to this rise in funding costs which affected the entire banking sector by providing capital injections and state guarantees, while central banks lowered key interest rates and expanded the supply of liquidity. These measures noticeably eased the situation in the second quarter of 2009. Because of more selective lending by banks due to the crisis and intensified acquisition of customer deposits, the liquidity situation improved significantly in the course of the reporting period. The former difficulty of supplying the banking sector with liquidity no longer exists. A simultaneous decline in credit demand similarly contributed to this development.
Funding measures Intensified cooperation among Raiffeisen International, its network banks, and the Group, particularly in regard to managing liquidity, providing funding, and supplying treasury products, made it possible to cope well with the challenges of the market environment again in 2009. Especially in the first half of the year, the liquidity committee set up in 2008 assumed major coordination tasks regarding funding projects for the entire Group. Cooperation with RZB and the network banks was strengthened in the reporting period, both bilaterally and through an international sales network that serves as a virtual platform for financial market products.
The EBRD and IFC are also important partners in long-term funding for Raiffeisen International as a bank with Central and Eastern European exposure. That is because Raiffeisen International fulfills the prerequisites for the distribution of supranational credits that the EBRD and IFC make available to promote the CEE region’s economic development. Raiffeisen Inter national had total funding of € 1.4 billion, outstanding at the end of 2009 and granted primarily on a long-term basis. Further cooperation with these supranational institutions is planned.
Although the importance of wholesale funding for Raiffeisen International is tending to diminish, the international financing possibilities continue to be a substantial factor. The Group has strong funding partners, which have excellent access to the international capital markets. Raiffeisen International’s 2010 funding needs which are foreseeable at the end of the reporting period were taken care of on this basis. Besides customer deposits, which are the leading source, the possibilities of funding by way of RZB and supranational institutions and furthermore by way of house banks, will continue to shape the funding structure in 2010.
The economic crisis shaped the development of Raiffeisen International’s risk management in 2009. The focus in retail risk management was on an intensification of collections, loan restructuring, stress tests, and scenario analyses at the portfolio level. In corporate risk management, an early warning system was established in light of the crisis, workout management was expedited, and more stress tests were conducted.
In general, Raiffeisen International’s risk management is governed by Group-wide guidelines for credit policy. This ensures coordinated application in all network units of the criteria centrally adopted by the Managing Board. Work on area-wide implementation of the advanced approach of Basel II likewise contributes to standardization.
A comprehensive program was launched at the beginning of 2009 to intensify collection activities in the retail division. It involves a proactive approach at the portfolio level. The program has already been implemented in 9 countries, and will be put into practice in another 3 countries in 2010.
The collections excellence program has necessitated measures to be taken on the personnel side, which have been achieved through retraining, especially of account managers, and through new hiring. The general training program established in 2008 was continued throughout the Group in the past year.
The agreements typically made with customers in cases of restructuring include lengthening of loan terms, provision of additional collateral, temporary reduction of installments (while maintaining the net present value of the loan), and selective adjustment of rates.
Aspects such as quality of the customer relationship, collateral, and the customer’s debt/income ratio play an important role in this. The greatest need for restructuring in 2009 arose in Ukraine, Romania, Bulgaria, and Hungary.
Corporate risk management The measures already taken in 2008 to mitigate the effects of the crisis, such as tightening lending criteria, were continued and supplemented with additional elements. Reducing unsecured credit lines, lowering loan-to-value ratios, and restricting lending to companies particularly sensitive to cyclicality effects were basically continued and expanded to local and regional government financing and adapted to the prevailing situation.
In addition to the local risk management units of the respective network banks, central risk management continues to play a key role in the overall Group organization. Besides setting up Group standards, it pursues their uniform implementation and observance Group-wide.
In view of the continuing economic difficulties of many companies in Central and Eastern Europe as a result of the crisis and its effects on the corporate customer division’s loan portfolio, workout functionality was significantly revised and expanded in the past year. The key topics were processing and decision-making processes, employee motivation by means of a specific incentive system, and organizational issues. These minimum standards were rolled out in the entire network.
The process is divided into the following categories: standard (no need for action), pre-workout (first signs of a potential problem case), and workout (subdivided into the phases of early workout and late workout).
Results of the newly structured workout process include both standardized pre-workout and considerably cheaper and more efficient handling of non-performing loans.
Raiffeisen International successfully underwent the IRB approval process according to plan: this was carried out in Slovenia and Hungary for business relating to private individuals, and for business dealing with customers such as small and medium enterprises, large enterprises and financial institutions in Croatia and Romania. The approval process was successfully completed, subject to only a very low number of conditions. The conditions set by supervisory authorities in Hungary, Slovakia, Poland and the Czech Republic – the authorization was given for the latter two in the previous year – were quickly fulfilled in the candidate countries. In 2010, these contents will be implemented in the entire network for the purpose of optimizing the risk process. That also applies to countries in which the standard approach is still being used.
Operations and IT Cutting costs and raising productivity When the economic crisis emerged in 2008, Raiffeisen International reacted immediately and reduced its costs. Total costs therefore decreased by around 14 per cent year-on-year.
Savings were achieved through a balanced combination of cuts to personnel costs and a reduction of administrative expenses. This development was additionally promoted by the devaluation of many CEE currencies. Savings were not evenly distributed among all countries and departments, but were achieved in targeted areas where decreased business volume and the crisis had especially severe effects. Care was also taken that savings not be made at the expense of strategic projects that are necessary for Raiffeisen International’s future competitive positioning.
A Group-wide cost management program had already been set up toward the end of 2008, coordinating and guiding all above-mentioned initiatives. Together with risk management, optimizing the collections operations was another focus of action. As a result, significant improvements of efficiency were achieved in a very short time. Above all, processes, organizational structures, capacity planning, and technical support were optimized.
Both network banks and the head office were particularly called upon to reduce costs through procurement. The focus was on lowering those expenses that in sum account for the majority of administrative costs, which means expenditures for information technology (IT), rent, and advertising and consulting costs. The majority of rental agreements were thus renegotiated in all countries. IT-systems were consolidated to reduce maintenance expense. Moreover, new frame agreements for servers and “thin clients” (terminals that are restricted to input and output were signed).
At the same time, preparations were in full swing for the launch of Finacle from Infosys, a new core banking system oriented to retail customers. The pilot bank for that is Raiffeisenbank a.s. in the Czech Republic.
The launch of further Group solutions, such as the internal reporting system (MIS), collections, treasury (GTS), and compliance, moved forward successfully in 2009. With one exception (Ukraine), all network banks were connected via CRISP, the shared service center in Romania, to the central SWIFT hub and to transaction and customer screening (FISA) at the end of the reporting period. These centralized applications support further strengthening of the compliance function.
Further improvements in IT security were made in the reporting period. They are designed to protect electronic banking solutions, in particular, but also internal applications and IT processes even better from possible external threats.
Card processing Raiffeisen International’s two card processing centers, in Kiev and Bratislava, increased their profitability and productivity. These centers processed 518 million transactions in the Group in 2009. 12.5 million cards were issued as of the end of the reporting period. Preparations are now being made for a new Group-wide application platform for issuing cards and for managing and processing card transactions. The medium-term goal is to bundle processing of all card transactions in the two centers.
Payment transfers also play a great role in the business strategy for corporate customers and private individuals. Raiffeisen International therefore constantly invests in new electronic channels (internet banking, mobile banking) to make fast, convenient service possible for its customers. The money transfer product Bystraya Pochta (“Express Mail”), which is offered to private customers in Russia and in the CIS Other segment, held up well even in the crisis, and will again be a main focus in the CIS Other segment in the year ahead.
Gross income / full-time equivalent Operating expenses / full-time equivalent Difference in €
Because of the financial crisis and its very noticeable effects on the real economy in 2009, Raiffeisen International was forced to adjust the number of its employees to current business needs. Compared with the end of the previous year, the level of personnel was therefore down as of 31 December 2009 by 10.8 per cent, or 6,846 persons, to 56,530 employees (measured in terms of full-time equivalents).
The changed conditions also made it necessary to increase the number of employees in some areas, including compliance, risk management, collections, and workout. However, in other areas, such as sales, fewer employees were needed. Targeted continuing education and retraining measures were therefore implemented to prepare employees quickly and effectively for deployment in areas with increased capacity needs.
Data relevant to personnel, e.g. including the return on investment of human capital, training days per employee, the turnover rate, personnel costs per employee, and profit per employee, have been collected and internally evaluated to create a solid basis for business decisions.
Systematic identification and promotion of top performers and high potentials continued in 2009 despite the difficult environment. Particularly in times of change it is important to counteract an exodus of such talent by responding appropriately.
A number of activities to ensure top performers’ loyalty to the company and systematic promotion were started in the network units. The above-mentioned human resources controlling system makes the success of those activities measurable and visible throughout the Group. As a result, turnover of these high potentials already declined in the period under review.
Succession planning for Managing Board members and management positions in the network banks continued to be improved systematically in the reporting period and extended to lower management levels. For the first time, the selection of possible successor candidates for the Managing Board level was supported Group-wide by a standardized potential analysis process. Development of candidates in the top talent pool – the potential future executives for the highest management levels – was also an important focus. Increasing professional depth through horizontal career opportunities and time-limited job rotation as well as systematically enhancing management qualifications were at the fore in that regard.
Early on, Raiffeisen International identified changes in the educational needs of its employees due to the difficult business environment. It therefore shifted the focus of its educational offering already in the beginning of 2009 to topics such as customer service, risk management, restructuring of the loan portfolio, collections, and workout. In addition, competence in serving affluent customers was further increased through intensive training programs. Although educational budgets were also cut in the framework of Group-wide cost optimization, training intensity remained nearly at the level of the previous years as a result of shifting to less expensive training measures. Those included, for example, increased use of internal instead of external trainers, intensification of eLearning, and replacement of international with local training programs.
Know-how transfer, exchange of information, and shared eLearning productions are being promoted through intensive, cross-border cooperation of eLearning experts. As a result, initial cost savings and quality improvements were already achieved in 2009.
The national economies of Central and Eastern Europe should also continue to lag significantly behind their growth potential in 2010. There are several factors responsible for this: the inflows of foreign direct investments are likely to be significantly below the level of the past years again in 2010. Furthermore, credit growth will probably turn out to be extremely moderate, and public budgets are likely to remain very heavily strained. Nevertheless, average real GDP growth of about 2.6 per cent is expected for the CEE national economies in 2010 (2009: minus 6.0 per cent).
Among the relatively new EU member states of Central Europe (Czech Republic, Hungary, Poland, Slovakia, and Slovenia), Poland probably remains the country with the best growth prospects. The Czech Republic, Slovakia, and Slovenia should also show positive GDP growth, but it is likely at best to match that of the euro area. Stagnation of GDP is expected for Hungary. Altogether, the region should achieve a plus of about 1.8 per cent on average (2009: minus 1.8 per cent) in 2010, and thus just above the GDP growth forecast for the eurozone area.
The CIS countries (Belarus, Russia, and Ukraine) oriented to basic materials suffered the most from the global economic crisis. However, the decline of real GDP by almost 8.3 per cent in 2009 also lays the foundation for a significant recovery. Above all, the price of oil, which is very important for Russia, already rose sharply in the second half of 2009, and demand for steel recovered strongly. The region’s average GDP growth should reach about 3.4 per cent.
Business with corporate customers proved to be the backbone of the Group in 2009. We aim to intensify lending business in this area selectively in 2010. Special attention will be given to business with customers in the mid-market segment and to selected industries. Moreover, fee and commission business will be strengthened further, for example, by means of targeted cross-selling.
Overall demand for credit will probably remain subdued in 2010, but from today’s perspective, we expect a slight rise of lending to customers for Raiffeisen International in the course of the year.
Events after the balance sheet date On 22 February 2010, Raiffeisen International published an ad-hoc release which addressed the issue of the examination of a potential merger between Raiffeisen International and RZB as one of several strategic options under review. At the time of the editorial deadline, no official decisions were made to implement any of these options.
■ Southeastern Europe Southeastern Europe includes Albania, Bosnia and Herzegovina, Croatia, Kosovo, Moldova,
Serbia, as well as Bulgaria and Romania, which joined the EU on 1 January 2007. Moldova has been included in this segment due to its close economic ties to Romania and the respective management structures within the Group.
■ Russia This segment includes the results of the Raiffeisen International companies in the Russian Federation. The Group is represented in Russia by a bank, a leasing company, and a capital management company, among others.
■ Commonwealth of Independent States (CIS) Other This segment comprises Belarus, Kazakhstan, and Ukraine.
The figures stated in the segment report derive from the individual financial statements prepared according to IFRS and underlying the consolidated financial statements. Divergences from locally published data are possible, as the latter may be based on different valuation rules – within IFRS or between IFRS and accounting standards applicable in the individual countries – and on different scopes of consolidation.
Segment overview Raiffeisen International’s regional segments exhibited very different economic developments in the year under review. On the one hand, the mild recovery of the financial markets had a positive effect in Central Europe and Southeastern Europe, especially through market value appreciation of securities, bonds, and other interest and money market products. On the other hand, the effects of the economic crisis were clearly discernible in yearly comparison. The continuing difficult credit environment weighed heavily on earnings, especially in Ukraine and Hungary. The increase of non-performing loans found expression in a corresponding rise of provisioning for impairment losses. Overall, the earnings of all Raiffeisen International segments therefore declined in the year under review.
The regional segment of Central Europe achieved the second-highest profit before tax of all the segments, which amounted to € 234 million. Despite positive development of net trading income, it was burdened considerably by increased net allocations to provisioning for impairment losses. Balance sheet assets fell by 7 per cent on the preceding year.
Net fee and commission income decreased in nearly all countries of the region, which resulted in an overall decline of 23 per cent, or € 133 million, to € 435 million. Only in the Czech Republic was a considerable increase achieved, thanks to an aggressive pricing policy. A sharp fall in income from foreign exchange and notes/coins business, by 45 per cent to € 141 million, played a substantial part in the decline of net fee and commission income. The main reason for that was the introduction of the euro in Slovakia. Significantly negative influences also arose from a volume reduction of foreign exchange business in Poland, and diminishing new business in foreign currency loans especially in the first half of the year in Hungary. Net income from payment transfers and account services was down in all countries of the region, by 17 per cent to € 168 million. Securities business also contracted by 25 per cent year-on-year to € 29 million due to lower customer activity, especially in Hungary.
The Central Europe segment’s net trading income amounted to € 89 million and was thus 60 per cent above the preceding year’s level. Currency-based transactions, to which Hungary and Poland contributed substantially, accounted for € 58 million of that. In interest-based transactions, the region booked a net result of € 33 million, which came about mainly through valuation gains from interest rate swap transactions and from fixed-income bonds in Slovakia. Equity- and indexrelated business caused a loss of € 2 million, almost half of which was incurred in Hungary.
Net income from financial investments amounted to € 37 million and included proceeds of € 12 million from the cross-segment sale of a company in Slovakia, which was consolidated in the Group result. Moreover, this item includes valuation gains from securities in all Group units of the region, of which the largest occurred in the Czech Republic at € 8 million and in Slovakia at € 7 million.
increased overall by 2 per cent on the preceding year to 13,517. Other administrative expenses fell by 11 per cent on the comparable period to € 348 million, and depreciation on intangible and tangible fixed assets sank by € 11 million to € 75 million. The number of business outlets was reduced by 4 per cent, or 23, on the preceding year to 549 locations. The segment’s cost/income ratio improved significantly by 2.9 percentage points to 53.9 per cent.
At the end of 2009, Raiffeisen International in the Czech Republic had 2,638 employees serving about 408.000 customers in 111 branches. Profit after tax achieved in the reporting period of € 75 million, which was 40.1 per cent more than in the preceding year, confirms the dynamic development of Raiffeisen International in the Czech Republic. With a balance sheet total of € 7.7 billion, total deposits increased by 17.9 per cent to € 4.9 billion, while the loan portfolio grew by 4.7 per cent to € 5.7 billion. The cost-income ratio improved in the reporting period from 60.7 per cent to 52.4 per cent.
Measured in terms of profitability, 2009 was the most successful year in Raiffeisenbank’s history. Global Finance awarded it the title of “Best Bank” in the Czech Republic in 2009.
At the end of 2009, Raiffeisen International owned 51 per cent of Raiffeisenbank. Furthermore, Raiffeisenlandesbank Niederösterreich-Wien and Raiffeisenlandesbank Oberösterreich AG held indirect stakes in the bank of 24 per cent and 25 per cent, respectively.
Hungary The Hungarian economy has been going through a painful budget consolidation for some years. Since Hungary was one of the first countries that had to request financial assistance from the IMF and the EMU at the beginning of November 2008, it could not slacken its fiscal reins despite the economic crisis. The global collapse in demand therefore dealt the local economy an especially severe blow, and real GDP shrank by 6.3 per cent in 2009. Even in this very difficult environment, however, the total amount of outstanding loans declined only slightly. After devaluation in the first quarter to over HUF 300 per euro, the currency was able to recover in the further course of the year and rose by 14 per cent as of year’s end.
Founded as Unicbank in 1986, Raiffeisen Bank Zrt. was Hungary’s sixth-largest bank at the end of 2009. At the same time, it is one of the largest banks in Raiffeisen International’s network. At the end of last year, it had 3,197 employees serving 660,000 customers in 145 business outlets. Those include not only private individuals and small and medium-sized enterprises, but also a large number of corporate customers. At year’s end, loans to customers amounted to about € 6.5 billion, while deposits from customers came to € 4.9 billion. The balance sheet total stood at € 8.8 billion.
However, the difficult development of the Hungarian economy led to continuing deterioration of the credit environment in the past year. In line with the market trend, the result was a corresponding rise of provisioning for impairment losses, and particularly of portfolio-based provisions for loans to private individuals.
Expenses were reduced substantially in the year under review thanks to strict cost management. They mainly concerned reductions of staff costs by means of job cuts and lower bonuses. In addition, the closing of 19 business outlets, reorganization of processes, and integration of leasing business led to an appreciable lowering of other administrative expenses. Weaker turnover in securities business, lower volumes of foreign exchange transactions, and increased funding costs for customer deposits had an income-reducing effect in the past year.
thereof foreign currency loans in per cent 76.3% 77.5% (1.2) PP
The expense of acquiring customer deposits rose significantly due to intensified competition on the money market since the beginning of the year. However, only part of the increase was passed on to customers. Consequently, net interest income in 2009 remained below the value of the previous year. Net trading income, on the other hand, turned out better than in the preceding year due to successful currency-related transactions. However, a decline of payment transfers and lower customer margins in foreign exchange business had an adverse effect on net fee and commission income.
Despite the difficult market environment for leasing business in Poland, Raiffeisen International maintained its position as the third-largest provider in that area in the past year with a portfolio of about € 1.3 billion. In factoring, Raiffeisen International continued to be among the country’s market leaders in 2009. Raiffeisen Bank Polska has operated successfully for years in the area of mutual fund sales.
Founded in 1991 as Slovakia’s first private bank, Tatra banka a.s. ranked third in the market at the end of 2009. Listed on the Bratislava Stock Exchange, Tatra banka was especially successful in business with both corporate and retail customers in 2009. Serving affluent customers is one activity that the bank has focused on since its beginning. Subsidiaries in the areas of fund management and leasing complete the range of services which this comprehensive financial group covers.
At the end of the reporting period, Raiffeisen International in Slovakia had over 152 business outlets, 3,601 employees, and about 742,000 customers. With a balance sheet total of € 9.3 billion, total deposits declined in 2009 by 9.8 per cent to € 6.7 billion, while the loan portfolio fell by 6.1 per cent to € 5.8 billion. Taking into account one-off effects due to the selling of a subsidiary, profit after tax amounted to about € 91 million. The cost-income ratio rose, among other things, because of the costs of introducing the euro from 53.3 per cent in the previous year to 57.4 per cent.
Slovenia Because of its relatively heavy dependence on exports, the Slovenian economy was hard hit by the global slump in demand in 2009. Among the new EU member states of Central Europe, Slovenia showed the sharpest decline of real GDP with minus 8.0 per cent for the full year of 2009. Since the country had already joined the euro area in 2007, the economic crisis affected the local banking sector less severely than it did in a number of other Central and Eastern European countries. By the end of the third quarter of 2009, it registered an increase of total lending, including both private individuals and corporate customers.
Founded in 1992, Krekova banka was taken over by Raiffeisen in 2002 and renamed Raiffeisen Banka d.d. in 2007. Measured in terms of balance sheet total, it ranked 11th of all Slovenian banks at the end of the past year and offers its customers a full range of financial services as a universal bank.
thereof foreign currency loans in per cent 1.5% 21.0% (19.5) PP
In October 2009, Raiffeisen Banka officially opened its new corporate headquarters in Maribor, whose design greatly emphasizes ecologically sustainable construction. The new building thus underscores the forward-looking dedication of Raiffeisen International in Slovenia.
With 86.3 per cent, Raiffeisen International was Raiffeisen Banka’s largest shareholder at the end of 2009. Except for a small free float, the remaining shares are held indirectly by RaiffeisenLandesbank Steiermark AG and Raiffeisenlandesbank Burgenland und Revisionsverband registrierte Genossenschaft mit beschränkter Haftung.
thereof depreciation on intangible and tangible fixed assets (98) (90) 9.6%
Net allocations to provisioning for impairment losses rose in 2009 by € 255 million to € 414 million, primarily because of net allocations to individual provisions. In Romania, where the highest net allocations were registered, that mainly concerned loans to private individuals. In Croatia and Bulgaria, on the other hand, net allocations for loans to corporate customers increased significantly. Portfolio-based provisions were likewise formed in all Group units of the region, but net allocations for that remained overall € 26 million below the preceding year’s level. The share of non-performing loans in the portfolio increased by 4.2 percentage points on the preceding year to 6.5 per cent and was thus the lowest of all the regions.
Net fee and commission income was down by 14 per cent year-on-year to € 398 million. Payment transfers contributed € 171 million to that and were thus 2 per cent above the preceding year’s level. The Group unit in Romania, still the strongest fee and commission earner, made the largest contribution at € 89 million, for which commissions on credit cards and payment transactions, money transfers with Western Union, and other bank transactions were primarily responsible. Income from foreign exchange and notes/coins business fell by 22 per cent to € 79 million. Furthermore, lending and guarantee business generated € 67 million, nearly all of which was achieved in Romania.
Net trading income registered positive development in Southeastern Europe in 2009 and rose from € 57 million in the preceding year to € 88 million. Currency-based transactions made a significant contribution of € 69 million to that. A considerable € 44 million of which derived from the valuation of cross-currency interest rate swaps, which had been used in Romania to hedge foreign currency loans to customers. In Croatia, the country with the region’s largest trading portfolio, the valuation of various derivative financial instruments led to profits in the amount of € 28 million. In interest-based transactions, a profit of € 20 million was registered, which was spread evenly among the region’s countries. Mostly positive adjustments of the securities portfolio to market values led to an offset of the valuation losses registered in the preceding periods.
Net income from financial investments rose to € 8 million, after having turned out negative in the preceding year. This increase was based on the appreciation of securities. Valuation gains from fixed-income bonds in Romania in the amount of € 11 million contributed especially to that.
At a total of € 741 million, general administrative expenses remained 4 per cent below the preceding year’s level. Staff costs fell by € 18 million to € 326 million, while the average number of employees remained almost unchanged on the preceding year. Other administrative expenses were down by 7 per cent on the preceding year at € 317 million. Depreciation on intangible and tangible fixed assets, mostly for branch investments, increased by 10 per cent to € 98 million. Beginning from 1,184 business outlets at the end of the preceding year, their number rose by 2 per cent to 1,204. The cost/income ratio increased slightly, by 0.8 percentage points to 52.7 per cent.
At € 24 million, other net operating income remained almost unchanged in comparison with the preceding year. Besides minor expense items, that mainly included income from operating leasing business in the amount of € 31 million, which was achieved predominantly in Croatia.
Raiffeisen International has been represented in the Albanian market since 2004 by Raiffeisen Bank Sh.a., which was founded in 1992 as Banka e Kursimeve i Shqipërisë. At the end of 2009, it was the country’s leading bank and offers financial services in all business areas as a universal bank. Its focus in 2009 was on expanding services provided to affluent customers.
On a balance sheet total of € 1.8 billion, loans to customers at the end of 2009 were above the level of the previous year at € 683 million. Set against that were customer deposits of € 1.5 billion.
By acquiring the leading Albanian private pension fund, American Institute of Supplementary Private Pensions, Raiffeisen Bank also succeeded in entering the pension fund market in 2009. As a 100 per cent subsidiary, this company now offers private pension products under the name Raiffeisen Pensions Sh.a.
Founded in 2006, subsidiary Raiffeisen Leasing Sh.a. successfully defended its leading market position in the period under review.
Last year, Raiffeisen Bank was once again named “Best Bank” by Euromoney and “Bank of the Year 2009” by The Banker.
At the end of 2009, Raiffeisen International in Bulgaria had a balance sheet total of € 4.0 billion, 3,282 employees, and a network of 199 business outlets. In addition, distribution has been supplemented for years by mobile bankers, who sell the bank’s products to customers on a contract basis. The number of customers reached a total of around 706,000, which amounts to an increase of around 53,500 customers in 2009. Total lending amounted to about € 3 billion at the end of the year, and customer deposits came to € 2.1 billion. Provisioning for impairment losses increased in 2009, following the market trend.
The foreign currency deposit rating published by Moody’s for Raiffeisenbank is Baa3 with a negative outlook. In 2009, Raiffeisenbank was awarded the title of “Best Bank” in Bulgaria by Global Finance.
Raiffeisenbank Austria d.d. was founded in 1994 as the first foreign bank in Croatia. Fifteen years later, Raiffeisen International is established as one of the top names in the country, not only for large and medium-sized corporate customers, but in recent years also to a greater extent for micro businesses and private individuals. Raiffeisen International was the largest shareholder of Raiffeisenbank Austria at the end of 2009 with a stake of 73 per cent in 2009, and together several Raiffeisen Landesbanken indirectly held another 24 per cent. The remaining shares were owned by employees.
thereof foreign currency loans in per cent 73.6% 72.1% 1.5 PP
Kosovo According to an IMF estimate, real GDP in Kosovo grew in 2009 by 3.8 per cent, after a plus of 5.4 per cent in the preceding year. The effects of the economic crisis on the country’s banking sector were thus limited, to which its comparatively early stage of development and a favorable loan-deposit ratio contributed. However, the budget showed a deficit due to a slow-down in growth, and consumer price inflation temporarily fell into negative territory.
The full takeover of American Bank of Kosovo, founded in November 2001, and renaming of it to Raiffeisen Bank Kosovo J.S.C. by Raiffeisen International was completed in 2003.
For the second time in a row, Euromoney selected Raiffeisen Bank Kosovo as the country’s “Best Bank” in 2009.
Romania The third quarter of 2009 was the fourth in a row in which the Romanian economy contracted, although the important agricultural sector delivered a positive surprise. For the full year, real GDP in Romania registered a decline of 7.2 per cent. After the country received financial assistance from the IMF and the EU in May 2009, international banks operating in Romania agreed not to reduce lending as far as possible. That helped bring about a slight increase of lending to both private individuals and corporate customers as of 30 September 2009. After devaluation at the end of 2008, the Romanian lei was kept largely stable by the central bank in 2009 and recovered further toward the end of the year.
In the year under review, Raiffeisen Bank concentrated on strengthening deposit business and its house bank functions for primary customers in all business areas. In retail business, more attention was focused on affluent customers and small businesses, while in the case of corporate customers, the bank stepped up customer business that requires less capital to support, including cash management products, for example.
The difficult situation of the Romanian real economy led in 2009 to an increase of provisioning for impairment losses, and particularly for loans to private individuals. Lower margins on customer deposits and on deposits from banks led to a decline of net interest income in the past year. Extensive cost-cutting measures led to a significant personnel reduction by over 660 employees compared with the preceding year (minus 9.6 per cent). Also in reaction to the crisis, business processes were further centralized, and risk management strengthened.
thereof foreign currency loans in per cent 62.6% 66.2% (3.6) PP
Serbia Serbia officially filed its application for EU membership in December 2009. In the context of the economic crisis, the local economy held up well, with real GDP declining by 3.0 per cent yearon -year. Serbia had already received financial assistance from the IMF in January 2009, which was replenished in May 2009. In the process, international banks agreed as far as possible not to reduce lending. As a result, Serbia’s total lending rose slightly by the end of the third quarter of 2009. After the currency’s devaluation at the end of 2008, the central bank kept the Serbian dinar largely stable in 2009.
At the end of 2009, Raiffeisen International in Serbia had 1,982 employees and about 586,000 customers. Raiffeisen banka is one of the country’s most important banks for corporate customers and private individuals. With a balance sheet total of about € 2.8 billion, loans to customers reached about € 1.4 billion at the end of the reporting year, and funding was mainly accomplished by means of customer deposits of over € 1.1 billion.
Raiffeisen banka’s focus in 2009 was on further developing its product range. Once again, the bank demonstrated innovativeness in that regard and so reinforced its pioneering role in the local market. Raiffeisen was thus among the first banks in Serbia last year to offer their customers interest rate swaps to hedge risks of interest rate change.
Well-known financial magazines such as Euromoney and Global Finance named Raiffeisen banka as Serbia’s “Best Bank” in 2009.
thereof depreciation on intangible and tangible fixed assets (33) (27) 21.5%
The decline of net interest income by 15 per cent, or € 114 million, to € 650 million was largely due to a reduction of the loan portfolio, particularly in respect to corporate customers. The region ’s net interest margin decreased by 67 basis points to 4.96 per cent, and balance sheet assets fell year-on-year by 22 per cent, or € 3.3 billion, to € 11.7 billion. Credit risk-weighted assets were also down by 34 per cent at € 7.3 billion, mainly due to the reduction of business volume. They thus registered a sharper decline than that of balance sheet assets, which was primarily caused by the reduction of credit line commitments and of contingent liabilities in the off-balance sheet area. Total outstanding loans at year’s end amounted to € 6.4 billion, and customer deposits stood at € 5.8 billion.
Net income from derivatives amounted to € 11 million in the year under review. It was primarily based on valuation results from interest rate swaps that had been used to reduce yield curve risk.
Net income from financial investments in Russia came to € 3 million and resulted from the recognition of fixed-income securities holdings at fair values.
The segment’s other net operating income remained almost unchanged on the preceding year at minus € 19 million. The main reasons for that were expenses for taxes not dependent on income and costs connected with branch closings.
Founded in 1996, ZAO Raiffeisenbank ranked ninth in the Russian banking market at the end of the reporting period and is thus one of the country’s leading banks.
Standard & Poor’s recently rated Raiffeisenbank at BBB- with a stable outlook. Fitch rated the bank at BBB+ with a negative outlook, and thus better than Russia. The rating from Moody’s stands at Baa3 with a negative outlook and is thus only just below that of the Russian state.
Global Finance awarded Raiffeisenbank the title of Russia’s “Best Consumer Bank” in 2009.
The CIS Other segment registered a decline in profit before tax by € 353 million to minus € 126 million in the year under review. A differentiating view should be taken of this result, however, as the countries of this region exhibit very heterogeneous development. High net allocations to provisioning for impairment losses in Ukraine and devaluation of the local currency there had a very strong effect in this segment and were the main reasons for the earnings decline. In Belarus, on the other hand, Raiffeisen International registered very positive business development. Group units there booked a significant earnings plus thanks to increased profit from operating activities, which partly offset the region’s losses.
The segment’s net interest income fell overall by 8 per cent, or € 45 million, to € 488 million. In Ukraine, currency effects had an especially strong profit-reducing influence despite significant improvement of customer margins on the asset side. In Belarus, an increase of net interest income was achieved through repricing measures for loans in all business areas. Balance sheet assets decreased by 22 per cent, or € 1.7 billion, year-on-year to € 6.3 billion. The net interest margin fell slightly, by 8 basis points to 6.84 per cent. Due to the reduction of business volume, credit risk-weighted assets also went down by 27 per cent to € 5.1 billion. That the decline of this item was somewhat greater than that of the balance sheet total was due to the lapse of many credit line commitments for customers in Ukraine.
Net fee and commission income registered a sharp decline, by 25 per cent to € 175 million, mainly due to curbed customer activity in general payment transfers and limited new lending in Ukraine. Payment transfers business continued to make the most important contribution at € 116 million, while the foreign exchange and notes/coins business contributed € 53 million.
Net income from derivatives amounted to € 1 million in the year under review. It was mostly booked by the leasing company in Kazakhstan.
General administrative expenses decreased overall by 26 per cent, or € 103 million, to € 294 million. The largest reduction was in staff costs, which declined by 30 per cent, or € 63 million, to € 145 million. The average number of employees in the region fell by 7 per cent, or 1,341, on the comparable period to 18,670 as a result of cost-cutting programs immediately initiated with the outbreak of the crisis. Other administrative expenses decreased by 25 per cent, or € 37 million, to € 113 million. That was achieved primarily by selectively closing 181 business outlets in Ukraine. At € 36 million, depreciation on intangible and tangible fixed assets was also down by 7 per cent on the preceding year’s level. The region’s cost/income ratio improved significantly, by 5.0 percentage points to 43.4 per cent.
The segment’s other net operating income amounted to minus € 3 million. Besides minor expense and income items, taxes not dependent on income were the primary component in that amount.
Priorbank JSC was founded in 1989 as a commercial customer bank and taken over by Raiffeisen International in 2003. At the end of 2009, Raiffeisen International’s holding in the bank amounted to about 88 per cent. The remaining shares were in free float. Measured in terms of balance sheet totals, it ranked fifth in the local banking market and offered all the services of a modern universal bank.
After further expansion in 2009, Raiffeisen International in Belarus had a countrywide distribution network of 96 business outlets and 2,147 employees serving 850,000 customers at the end of the reporting period. The loan portfolio amounted to € 919 million, with a balance sheet total of € 1.2 billion. Non-performing loans increased by 137 per cent in 2009 to € 30 million. Set against the loan portfolio were customer deposits of € 623 million.
Founded in 2005, SOOO Raiffeisen Leasing maintained its market position in the reporting period as the country’s third-largest leasing company in close cooperation with the branch network of Priorbank.
Ukraine Ukraine was one of the Central and Eastern European economies hardest hit by the economic crisis, with real GDP declining in 2009 by 15.0 per cent year-on-year. That was partly due to a difficult political situation, which led to the people’s loss of confidence in the local currency. The hryvnia lost more than 40 per cent of its value against the US dollar from the fourth quarter of 2008 to the end of the first quarter of 2009, but then stabilized in the further course of last year. Ukraine was one of the first countries to receive financial assistance from the IMF at the beginning of November 2008. The banking sector was shaped in this environment by a sharp rise of nonperforming loans and registered a slight decline of total lending at the end of the third quarter of 2009, which was significant mainly in the area of loans to private individuals.
At the end of 2009, Raiffeisen International in Ukraine had almost 4.8 million customers, 15,225 employees, and 953 branches. Loans to customers amounted to € 4.4 billion, with a balance sheet total of almost € 5.0 billion. Non-performing loans increased by 172 per cent in 2009 to € 1,041 million. Set against loans were customer deposits of € 2.3 billion.
Moody’s gave Raiffeisen Bank Aval a foreign currency deposit rating of B3 with a negative outlook. The bank was awarded the title of “Best Bank” in Ukraine by Euromoney in the year under review.
thereof foreign currency loans in per cent 66.2% 69.8% (3.6) PP
The corporate customer division comprises business with local and international mid-market companies and large corporations. The retail customer division includes private individuals and small and medium-sized businesses, which as a rule have a yearly turnover of up to € 5 million. The treasury division encompasses the treasury’s proprietary trading and investment banking activities, which are carried out only in a few Group units. Besides non-banking activities, the participations and other division concerns the management of participations. Moreover, other cross-divisional functions are involved, including especially those performed by parent company Raiffeisen International Bank-Holding AG.
Net income from disposal of Group assets 0 0 0 0 0
Corporate customers The corporate customer division registered a sharp earnings decline in the year under review, and profit before tax fell by 75 per cent to € 224 million. A significant rise of net allocations to provisioning for impairment losses by € 458 million to € 727 million was mainly responsible for that. Most of the increase was caused by net allocations of € 209 million in Russia, where a strong business orientation to corporate customers prevails. Another emphasis was in Poland, which had € 40 million in net allocations to provisioning.
Net income from disposal of Group assets 0 0 0 8 8
Other net operating income was down by 12 per cent to € 29 million. The operating leasing business in Croatia continued to contribute the most to that at € 22 million.
Business with medium and large enterprises is bundled in the corporate customer division, which amounted to more than 79,000 customers at the end of 2009.
Reduced corporate capital spending led to a decline in credit demand in 2009. In line with that, customer deposits also fell as businesses financed mostly low capital expenditures and replacements increasingly from own funds. Nevertheless, Raiffeisen International kept the ratio of lendings to customer deposits constant in corporate customer business and supplied house bank customers with liquidity in a difficult environment.
Further challenges were posed by increased default probabilities and higher funding costs on the financial markets, which necessitated adjustment of margins in customer business. That kept interest income from financing business constant and partly cushioned higher risk costs.
Triggered by the economic crisis, there will be consolidation of market participants in the future on both the bank and customer sides. Opportunities were therefore also taken in 2009 to set the appropriate course for a stronger market position of Raiffeisen International.
The corporate customer division’s already low cost-income ratio was reduced further to 31 per cent through strict cost management. The achieved efficiency enhancement has increased striking power for the future.
The retail customers division served around 15 million private individuals and small enterprises at the end of the reporting period. Customers are served by more than 25,000 sales advisers and service personnel through a network of 3,018 business outlets as well as over 7,000 automated teller machines and about 1,500 car dealers and retailers as contracting partners of Raiffeisen International.
Total deposits from retail customers remained stable despite significantly slower GDP growth in Central and Eastern Europe. New product introductions such as savings plans and products with upfront interest rates combined with regular above-the-line marketing campaigns and sales incentives contributed to a 4.1 per cent growth in term deposits from private individuals. In 6 countries (Belarus, Bosnia and Herzegovina, Bulgaria, the Czech Republic, Romania and Russia) network banks registered double-digit growth rates for deposits year-on-year. Despite difficult economic conditions the market share grew in Ukraine as well. Overall, the division’s loan-deposit ratio improved from 94 per cent as of 31 December 2008 to 83 per cent at the end of 2009.
After a very tough first quarter in 2009, Raiffeisen International’s fund management business recovered significantly in the further course of the year, parallel to the positive trend on international stock markets. In this context, the cooperation with Raiffeisen Capital Management played an important role. Assets under management increased from the interim low of € 3.44 billion at
the end of March 2009 to € 4.32 billion at year’s end. An increase of 21 per cent year-on-year was thereby registered. Nearly 80 percent of funds under management consist of local money market funds produced by local asset management companies. In 2010, significant resources will be devoted to building “profile funds” designed to better match customer risk profiles to specific fund allocations. In addition, dedicated sales support teams will be activated to further support branch sales.
Raiffeisen International continued rolling out its premium banking service for affluent customers (personal financial assets above € 25,000). The personal financial consulting is already available to qualified customers in Serbia, Croatia, Hungary, Slovakia, Romania, Russia, Poland, and the Czech Republic. Its launch in other network banks is planned.
Net trading income amounted to € 185 million and was largely influenced by appreciation of securities holdings in Croatia and Romania, which particularly lost value in the last quarter of 2008.
In contrast to the preceding year, net income from financial investments was positive in the amount of € 38 million. It resulted largely from valuation gains of fixed-income securities in the Hungarian and Romanian units.
General administrative expenses were reduced by 20 per cent year-on-year. Since operating income likewise showed a sharp decline by 22 per cent to € 271 million, the cost/income ratio remained almost unchanged, rising only slightly by 0.7 percentage points to 32.1 per cent.
Participations and other Profit before tax in the participations and other division amounted to € 48 million. Net interest income increased sharply on the preceding year to € 237 million. The result was mainly positive because it includes the computational results from the investment of equity, which increased strongly in the reporting period thanks to the high interest rate level in the CEE region.
In addition to net income from participations and non-banking activities, this division includes the costs of central Group management, which remained stable compared with the preceding year. Such costs remain in the division, in accordance with internal guidelines, and are not distributed among the other divisions.
Net income from disposal of group assets (10) 76 7,860 (99.0)%
Capital hedge comprises hedges for investments in economically independent sub-units in accordance with IAS 39.102.
Deferred taxes on income and expenses directly recognized in equity (5,001) 2,420 0 0
Net income from disposal of group assets 0 5,834 (188) 2,213
Impairment losses on loans and advances (17, 35) (3,084,023) (1,641,262) 87.9%
Provisions for liabilities and charges (29, 35, 36) 311,531 436,767 (28.7)%
Own shares/share incentive program (618) 0 (19,706) 0 0 0 (20,325)
Gains (losses) from disposals of tangible fixed assets and financial investments (5,462) 2,754
Changes in assets and liabilities arising from operating activities after corrections for non-cash positions: Loans and advances to banks and customers 6,329,441 (5,814,006)
Proceeds from sale of: Financial investments and equity participations 1,829,907 1,099,311
Cash and cash equivalents at the end of previous period 7,129,860 3,664,187
Cash and cash equivalents at the end of period 4,179,572 7,129,860
As of 31 December 2009 the following Group segments existed. The location of the respective business outlets served as the criterion for segment assignment: • Central Europe
This segment contains the five countries that joined the EU on 1 May 2004 – the Czech Republic, Hungary, Poland, Slovakia, and Slovenia. They represent not only the most fully developed banking markets in Central and Eastern Europe, but also the markets in which Raiffeisen International had its earliest presence.
• Southeastern Europe Southeastern Europe includes Albania, Bosnia and Herzegovina, Croatia, Kosovo, Moldova, Serbia, as well as Bulgaria and Romania, which joined the EU on 1 January 2007. Moldova has been included in Romania due to its close economic ties and the respective management structures within the Group.
The segment reporting according to IFRS 8 shows the segment performance on the basis of internal management reporting, supplemented with the reconciliation of the segment results to the group results. In principle, Raiffeisen International’s management reporting is based on IFRS. Therefore, no differences occur in the recognition and measurement principles between segment reporting and consolidated financial accounts.
In order to ensure transparent and significant segment reporting, the following control and reporting indicators were used to evaluate the performance of a CGU.
• The return on equity before tax measures the rentability of every CGU. This figure shows the proportion between the profit before tax and the average capital employed. The return on equity shows the return of the capital employed in each segment. For a rentability measurement, the Return on Risk Adjusted Capital Ratio (RORAC) is used within the internal management reporting system. The figure shows the return of the risk-adjusted equity (economic equity). This figure is not an indicator according to IFRS.
• The cost/income ratio represents the cost efficiency of the segment. The cost/income ratio shows the proportion of the administrative expenses and the sum of net interest income, net fee and commission income, net trading income and the other net operating income.
The presentation of segment performance is based on the income statement. Income and expenses are attributed to the country in which they are generated. Income positions are the net interest income, net fee and commission income, net trading income and the other net operating income. Additionally, the current income from associates that are accounted for at equity is stated. The material expense positions, which are part of the segment reporting, are included in the income statement. The segment performance is reported up to the consolidated profit. The segment assets are represented by the total assets and the riskweighted assets. The item liabilities includes all positions of the liabilities side except the equity.
Reconciliation Total thereof current income from associates 0 2,931 0 0 – 2,931
Net interest income after provisioning 497,771 481,678 328,231 (26,051) (83,009) 1,198,620
Net income from financial investments 36,861 8,450 3,239 4,262 (11,462) 41,350
1 The figures for the segments Russia and CIS Other were adapted due to a different mapping.
Net income from disposal of group assets 7,860 0 0 0 - 7,860
Return on equity before tax1 16.9% 25.8% 36.4% 29.9% – 22.0%
Consolidated return on equity after minorities 13.2% 23.3% 26.0% 21.9% – 17.4%
These consolidated financial statements were signed by the Managing Board on 26 February 2010 and subsequently submitted to the Supervisory Board for review and approval (ascertainment).
The consolidated financial statements are based on the reporting packages of all fully consolidated Group members, which are prepared according IFRS rules and uniform Group standards. All fully consolidated companies prepared their annual financial statements as of 31 December with the exception of two subsidiaries accounted for within interim financial statements – the balance sheet date is on 30 June due to reasons of dividend policy. Figures in these financial statements are stated in thousands of euros. The following tables may include rounding differences.
Deferred taxes were not separately shown in the income statement and on the statement of financial position. Details are provided in the Notes (11), (25) and (29).
Material interests in associated companies – the Group exerts a significant influence on financial and operating polices of these companies – are valued at equity and reported under investments in associates. Profit or losses occurring in companies valued at equity are shown net in current income from associates. The same rules apply to companies valued at equity (offsetting acquisition costs against proportional fair net asset value) as apply to fully consolidated companies. On principle, IFRS financial statements of associated companies are used. Changes in equity of companies valued at equity are shown in the consolidated accounts in other comprehensive income.
Shareholdings in subsidiaries not included in the consolidated financial statements because of their minor significance and shareholdings in companies that have not been valued at equity are shown under financial investments and are measured at amortized cost.
Business combinations In the course of capital consolidation, all identifiable assets, liabilities and contingent liabilities of the subsidiary are measured at their fair values on the acquisition date according to IFRS 3. The acquisition costs are offset with the proportional net assets. The resulting positive differences are capitalized as goodwill. The goodwill is tested annually for impairment. Negative differences arising within initial consolidation will be recognized immediately in profit.
The estimation of the future development of the cash generating units starts with macroeconomic facts (gross domestic product, inflation expectations) and considers specific market conditions and the business policy. In order to better reflect the mid-term development, a ten-year detail planning period was chosen. The data is used to capture the terminal value on a going concern concept. The profit after tax in compliance with the solvency regulations considering a security reserve serves as basis for the calculation. Discounting is made on different country-specific equity capital cost rates, which are based on the capital asset pricing model. The individual components (risk-free interest rate, inflation difference, market risk premium, country-specific risks and beta factors) are defined by using external information sources. The inflation-adjusted discount rates used in 2009 for the
cash generating units range from 9.66 per cent to 24.17 per cent (2008: 10.14 per cent and 31.51 per cent). The annual impairment test for goodwill for 2009 and 2008 did not result in an impairment loss as the recoverable amount for all cash generating units was higher than their respective carrying amount.
Consolidation entries In the scope of debt consolidation, intra-group balances between parent company and subsidiaries and intra-group balances between subsidiaries are eliminated in the consolidated accounts. Remaining temporary differences are recognized under other assets/other liabilities.
Intra-group income and expenses are off-set and timing differences resulting from bank business transactions are shown in net interest income. Other differences were shown in other net operating income.
The number of fully consolidated companies and companies valued at equity changed as follows: Because of their minor importance in giving a view of the Group’s assets, and financial and earnings position, 92 subsidiaries were not included in the consolidated financial statements (2008: 87). They were recognized at amortized cost under financial investments. The total assets of the companies not included in the Group came to less than 1 per cent of the Group’s aggregated total assets.
A list of fully consolidated companies, companies valued at equity and other equity participations may be found on page 218 ff.
In the financial year 2009, the following companies were included into the consolidated financial statements for the first time: 1 Computed effective share; integration due to control.
In the financial year 2009, three mergers took place: Raiffeisen Finance d.o.o., Sarajevo, was merged as of 30 September 2009 into Raiffeisen Leasing d.o.o., Sarajevo. SCTAI Angol Iskola Kft., Budapest, was merged as of 1 October 2009 into SCT Brit Iskola Kft., Budapest and renamed in SCTAI Angol Iskola Kft., Budapest. Negyedik Vagyonkezelö Kft., Erd, was incorporated as of 1 December 2009 into Raiffeisen Ingatlan Vagyonkezelö Kft., Budapest.
Included for the first time in the financial period 8 19 0 0
Raiffeisen International Direct Bank AG, Vienna (AT) 100.0% 1/12 Start of operations
ACB Ponava, s.r.o., Prague, operating in real estate leasing business was integrated for the first time as of 1 March 2009. As of 22 December 2009, the company was excluded from the consolidated group due to sale to Raiffeisen-Leasing GmbH, Vienna.
These instruments are debt securities and other fixed-interest securities or equities and other variable-yield securities. These financial instruments are valued at fair value under IAS 39. In the statement of financial position they are shown under the item financial investments, current income is shown under net interest income, valuation results and proceeds from disposals are shown in net income from financial investments.
2. Financial assets held-to-maturity Non-derivative financial assets (securities with fixed or determinable payments and fixed maturities) purchased with the intention and ability to hold them to maturity are reported in the item financial investments. They are recognized at amortized cost and differences are amortized over the term to maturity and recognized in the income statement under net interest income. If impairment occurs it is taken account of when determining the amortized cost and impairment is shown in net income from financial investments. Coupon payments are also recognized under net interest income. A sale of these financial instruments is only allowed in cases as stated in IAS 39.
3. Loans and advances Non-derivative financial assets with fixed or determinable payment for which there is no active market are allocated to this category. They are measured at amortized cost. If impairment occurs it is taken account of when determining the amortized cost. If there is a difference between the amount paid and face value – and this has interest character – the effective interest method is used and the amount is accrued as profit or loss. Profits from the sale of receivables are recognized in the income statement item provisioning for impairment losses. Moreover, debt instruments are also stated there if there is no active market. Derecognition of financial assets within the framework of securitizations is – after checking if the securitized special purpose entity has to be integrated into the consolidated accounts – done on a risk and rewards or control test according to IAS 39 after identifying loss of control over the contractual rights arising from the financial asset.
4. Financial assets available-for-sale The category of financial assets available-for-sale contains those financial instruments (mainly equity participations for which there are no active market) that did not qualify for any of the other three categories. They are stated at fair value, if a fair value is reliably measurable. Valuation differences are shown in other comprehensive income and only recognized in the income statement under net income from financial investments if there is an objective indication of impairment. For equity instruments impairment exists, among other things, if the fair value is either significantly or for a prolonged period of time below cost.
The fair value is the amount for which an asset could be exchanged and liability settled between knowledgeable, willing parties at arm's length terms.
Quotation on an active market (level I) If market prices are available, the fair value is reflected by the market price. This category contains equity instruments traded on the stock exchange, debt instruments traded on the interbank market, and derivatives traded on the stock exchange.
Measurement techniques based on observable market data (level II) When current bid and asking prices for financial instruments are unavailable, the prices of similar financial instruments provide evidence of the current fair value or are determined by accepted measurement methods enclosing observable prices and parameters (in particular present value calculation or option price model). These methods concern the majority of the OTCderivates and non-quoted debt instruments.
As the nature of the financial instruments is already shown by the classification of the items of the statement of financial position, the formation of categories is built in line with these items, which include financial instruments. Categories of financial instruments on the asset side are cash reserve, loans and advances to banks, loans and advances to customers, trading assets, derivative financial instruments, derivatives for hedge accounting, and financial investments (among this category are separately financial assets not traded on an active market and which are shown at cost). Categories of financial instruments on the liability side are liabilities from trading activities, derivative financial instruments, derivatives for hedge accounting, deposits from banks, deposits from customers, debt securities issued and subordinated capital.
Negative fair values of derivatives for hedge accounting (IAS 39) X n/a
Credit derivatives, whose value is dependent on future expected specified credit (non-) events are shown under derivatives (positive fair values on the asset side and negative fair values on the liability side with their fair values). Changes in valuation are recognized under net income from derivatives.
b) Cash-flow hedge Cash flow hedge accounting according to IAS 39 applies for those derivatives that are used to hedge against the risk of fluctuating future cash flows. Especially variable-interest liabilities are subject to such cash flow risks. Interest rate swaps used to hedge against the risk of fluctuating cash flows arising from specific variable interest-rate items, were recognized as follows: The hedging instrument was recognized at fair value, therefore changes in its clean price are recorded as separate item in other comprehensive income.
c) Hedge of a net investment in a foreign operation (capital hedge) In the Group, hedges of investments in economically independent sub-units (IAS 39.102) were made in order to reduce differences arising from the translation of equity. Liabilities in foreign currency, currency options, currency futures and currency swaps are mainly used as hedging instruments.
Any ineffective part of this hedge relation is recognized in net trading income. The related interest components are shown in net interest income. There were no deferred taxes calculated due to the applied exception regulations according to IAS 12.39.
Credit risk is accounted for by making individual impairment provisions and portfolio-based impairment provisions. The latter comprise impairment provisions for portfolios of loans with identical risk profiles that may be compiled under certain conditions. In the retail segment, provisions are built according to product portfolio and past due days. Individual and portfolio-based impairment provisions are not netted against corresponding receivables but are stated separately in the statement of financial position.
For credit risks related to loans and advances to customers and banks, provisions are made in the amount of expected loss according to homogeneous Group-wide standards. Risk of loss is deemed to exist if the discounted projected repayment amounts and interest payments are below the carrying value of the loans, taking collateral into account. Portfolio-based impairments are calculated according to valuation models that estimate expected future cash flows for the loans in the respective loan portfolio based on loss experience history. This is carried out regularly by considering economic conditions. For retail portfolios without a documented loss history of their own, peer group benchmark figures serve as a comparative base.
The entirety of the provision for impairment losses arising from loans reported in the statement of financial position (individual loan loss provisions and portfolio-based provisions) is shown as a separate item on the assets side, below loans and advances to banks and customers. The provision for impairment losses arising from transactions outside the statement of financial position is recorded under provisions for liabilities and charges.
Securitization transactions The group securitizes several financial assets from transactions with private customers and business customers by selling them to a special purpose entity that issues securities to investors. The assets transferred are derecognized fully or partly. Rights to securitized financial assets can be retained in the form of junior or subordinated tranches, interest claims or other remaining claims (retained rights).
Securities lending transactions are shown in the same way as genuine sale and repurchase agreements. This means loaned securities continue to remain in the securities portfolio and are valued according to IAS 39. Borrowed securities are not recognized and not valued. Cash collateral provided for securities-lending transactions are shown as a claim and collateral received are shown as a liability.
Other shareholdings are categorized as financial assets available-for-sale upon initial recognition. Changes in value are therefore recognized in other comprehensive income. Permanent impairment is shown in net income from financial investments.
Acquired intangible fixed assets (software, and customer base) with determinable useful lives are capitalized at acquisition cost and amortized over their estimated useful lives.
Inventories are measured at the lower of cost or net realizable value. Write-downs are made if the acquisition cost is above the net realizable value as of the balance sheet date or if limited usage or longer periods for storage have impaired the value of the inventory.
Non-current assets and discontinued operations classified as held for sale are valued at the lower amount of their original carrying value or fair value less costs to sell and are reported under other assets.
The actuarial calculation of pension obligations for active employees is based on the following assumptions: Calculations are based on an assumed retirement age of 65 years and are subject to transitional statutory regulations and special arrangements in individual contracts. Actuarial gains or losses calculated for pension obligations are recognized immediately in profit. The right to vote according to IAS 19.92 (corridor method) was not applied.
The actuarial computation of severance payments and anniversary bonuses is based on the following assumptions: The biometrical basis for the calculation of provisions for pensions, severance payments and anniversary bonuses of Austrian companies is provided by AVÖ 2008-P-Rechnungsgrundlagen für die Pensionsversicherung (Computational Framework for Pension Insurance) – Pagler & Pagler, using the variant for salaried employees. In other countries, comparable actuarial parameters are used for calculation.
The item comprises subordinated capital and supplementary capital. Liabilities documented or undocumented, are subordinated if, in the event of liquidation or bankruptcy, they can only be met after the claims of the other – not subordinated – creditors have been satisfied. Supplementary capital contains all paid in own funds which are available for the company for more than eight years, for which interest is paid only from the profit (before changes in reserves) and which can be repaid in the case of solvency only after all other debtors are satisfied.
The Managing Board of Raiffeisen International Bank-Holding AG obtained Supervisory Board approval to institute a share incentive program (SIP) offering performance-based allotments of company shares for eligible employees at home and abroad for a given period of time. All Managing Board members of Raiffeisen International Bank-Holding AG, managing board members of affiliated bank subsidiaries, and selected upper management personnel of Raiffeisen International Bank-Holding AG and its affiliated enterprises are eligible to participate.
Interest and similar income mainly includes interest income on loans and advances to banks and customers and from fixedinterest securities. In addition, current income from shares and other variable-yield securities (especially dividends), income from equity participations and from investments accounted for at equity, and similar income calculated as interest are also reported under net interest income. Interest paid and similar charges mainly include interest paid on deposits from banks and customers and on debt securities issued and subordinated capital. Interest income and interest expenses are accrued in the reporting period.
Deferred taxes are recognized and calculated in accordance with IAS 12 applying the liability method. Deferred taxes are based on all temporary differences that result from comparing the carrying amounts of assets and liabilities in the IFRS accounts with the tax bases of assets and liabilities and will reverse in the future. Deferred taxes are calculated by using tax rates applicable in the countries concerned. A deferred tax asset should also be recognized on tax loss carry-forwards if it is probable that sufficient taxable profit will be available against which the tax loss carry-forwards can be utilized within the same entity. Deferred tax assets and deferred tax liabilities within the same entity are netted.
The Group has contingent liabilities from guarantees, credit guarantees, letters of credit and loan commitments recognized at face value. Guarantees are used in situations in which the Group guarantees payment to the creditor to fulfill the obligation of a third party. Irrevocable credit lines must be reported when a credit risk exists. These include commitments to provide loans, to purchase securities or to provide guarantees and acceptances. Loan loss provisions for contingent liabilities and irrevocable loan commitments are reported under provisions for liabilities and charges.
The cash flow statement reports the change in the cash and cash equivalents of the company through the net cash from operating activities, investing and financing activities. Cash flows for investing activities mainly include proceeds from the sale, or payments for the acquisition of financial investments and tangible fixed assets. The net cash from financing activities shows all cash flows from equity capital, subordinated debt, and participation capital. All other cash flows are – according to international practices for financial institutions – assigned to cash flows from operating activities.
Information about risks arising from financial instruments is disclosed in the particular notes. Especially, the risk report contains detailed information in the sections credit risk, country risk, concentration risk, market risk and liquidity risk.
Information on capital management, regulatory own funds and risk-weighted assets are disclosed under note (50) capital management and regulatory own funds.
Notes to the income statement (1) Income statement according to measurement categories
Net realized gains (losses) on financial assets not measured at fair value through profit and loss 8,540 24,171
Impairment on financial assets not measured at fair value through profit and loss (5,076) (3,171)
Net realized gains (losses) on financial assets not measured at fair value through profit and loss 12,652 0
Impairment on financial assets not measured at fair value through profit and loss (1,750,535) (780,301)
Net realized gains (losses) on financial assets not measured at fair value through profit and loss 3 (38)
Impairment on financial assets not measured at fair value through profit and loss (1,608) 0
from balances at central banks 108,972 206,147 from loans and advances to banks 120,786 298,548 from loans and advances to customers 4,498,805 4,902,210 from financial investments 399,036 263,702 from leasing claims 283,266 354,957 from derivative financial instruments (non-trading), net 168,118 139,064 from shares and other variable-yield securities 30 1,188 from shares in affiliated companies 1,473 2,829 from other interests 1,535 5,121
Current income from associates 2,931 603 on deposits from central banks (9,259) (9,780)
Net trading income also includes interest and dividend income, refinancing costs, commissions and any changes in fair value of trading portfolios.
In the previous year, the item currency-based transactions included a loss of € 93,936 thousand resulting from the ineffective part of capital hedge for investments in the Ukrainian and Belarusian network unit. In 2009, no positions were attributable to capital hedge.
Net income from hedge accounting comprises on the one hand, a valuation result of derivatives in fair value hedges amounting to € 1,564 thousand (2008: € 8,199 thousand) and on the other hand, changes in the carrying amounts of the fair value hedged items totaling plus € 877 thousand (2008: minus € 15,631 thousand).
Net income from other derivatives includes valuation results and results from early termination of derivatives, which are held to hedge against market risks (except trading assets/liabilities). They are based on an inhomogeneous portfolio and do not satisfy the requirements for hedge accounting according to IAS 39.
Amortization of intangible fixed assets capitalized in the course of initial consolidation was € 5,687 thousand (2008: € 7,233 thousand). This is due to scheduled amortization of the acquired customer base.
Other net operating income captures, among other things, sales revenues and expenses from non-banking activities, income and expenses from disposal as well as income from the revaluation of tangible and intangible fixed assets.
Income taxes break down as follows: Sales revenues from non-banking activities 118,627 194,863
Net expense from allocation and release of other provisions (3,951) 4,516
Raiffeisen International Bank-Holding AG and two of its domestic subsidiaries are members of a joint tax entity headed by Raiffeisen Zentralbank Österreich Aktiengesellschaft. This enables them to allocate Group member losses to the Group parent’s tax income. In 2009, Raiffeisen International Bank-Holding AG was apportioned a tax benefit of € 13,198 thousand including payments of previous periods (2008: € 28,682 thousand) from Raiffeisen Zentralbank Österreich Aktiengesellschaft.
The following reconciliation shows the relation between profit before tax and the effective tax burden: Other tax deductions and tax increases among others include group taxation, belated tax payments and tax refunds for prior periods.
Tax deductions because of tax-exempted income from equity participations and other income 97,436 37,521
Provisions for impairment losses are formed in accordance with uniform Group standards and cover all recognizable credit risks. A table with the development of the impairment losses on loans and advances can be found in the risk report on page 187. Provisions for impairment losses are allocated to the following asset classes according to Basel II definition: Corporate customers – large 25,371,785 29,564,406
In contrast to 2008, no reclassification was made for securities held-for-trading to category held-to-maturity in 2009. The carrying amount at the date of reclassification in 2008 amounted to € 371,686 thousand. As of 31 December 2009, the carrying amount was € 284,581 thousand and the fair value totaled € 286,092 thousand. In 2009, a result from the reclassified securities of € 13,709 thousand (2008: € 12,630 thousand) was shown in the income statement. If the reclassification had not been made, a gain of € 3,983 thousand would have arisen (2008: loss of € 10,252 thousand).
For the following subsidiaries syndicate contracts between Raiffeisen International and the respective shareholders exist: Raiffeisenbank a.s. (Czech Republic), Tatra banka a.s. (Slovakia), Raiffeisen Bank, Zrt. (Hungary) namely Raiffeisen-RBHU Holding GmbH (Austria), Raiffeisen Banka d.d. (Slovenia), respectively, as well as Raiffeisenbank Austria d.d. (Croatia). These syndicate contracts regulate especially purchase options between direct and indirect shareholders.
The carrying amount of goodwill as basis for the impairment test was allocated to the following cash generating units, the change in the carrying amount is mainly due to currency differences: assets Total revenues Profit/loss after tax Shareholders’
Raiffeisen Banca pentru Locuinte S.A., Bucharest (RO) 76,992 5,899 (264) 16,315
Land and buildings used by the Group for own purpose (147,303) 0 (25,345) 526,408 thereof land value of developed land 0 0 0 8,826
Deferred taxes break down as follows: Write-ups, amortization, depreciation, impairment Carrying amount €000 Cumulative Write-ups Depreciation As of 31/12/2008
The net deferred taxes result from the following items: Deferred tax assets are recognized for unused tax loss carry-forwards and amounted to € 79,107 thousand (2008: € 26,324 thousand). The tax loss carry-forwards are mainly without any time limit. The Group did not recognize deferred tax assets of € 2,464 thousand (2008: € 1,815 thousand) because from current point of view there is no prospect of realizing them within a reasonable period of time.
Deposits from banks classified regionally (counterparty’s seat) break down as follows: Deposits from banks break down into the following bank segments: (27) Deposits from customers
Negative fair values of derivatives in fair value hedges (IAS 39) 5,113 1,358
Negative fair values of derivatives in cash flow hedges (IAS 39) 44,913 49,531
Non-cumulative Subordinated Perpetual Callable Step-up 500,000 EUR EURIBOR + 1.1% –
Non-cumulative Subordinated Perpetual Callable Fixed Rate Hybrid Capital 650,000 EUR 10% –
Subscribed capital The subscribed capital of Raiffeisen International Bank-Holding AG as defined by the articles of incorporation amounted to € 471,736 thousand as of 31 December 2009. It comprises 154,667,500 no-par bearer shares. Excluding own shares of 984,511 the stated subscribed capital totaled € 468,733 thousand.
The Managing Board made use of the authorization and decided to strengthen the core capital by the issuance of participation rights of € 600,000 thousand. The issuance was fully subscribed by Raiffeisen Zentralbank Österreich AG. Participation rights are perpetual and carry a call option – the right of early redemption by the issuer – whereas economic incentives for the Issuer for an early redemption exist as the participation rights dividend increase. The dividend amounts to 10 per cent in the first five years and progressively increases. Thereafter the repayment is limited to the nominal amount issued, thus the investor does not participate in the value of growth of Raiffeisen International. Hence, there is no dilution of the existing shareholders.
Own shares The Annual General Meeting held on 10 June 2008 authorized the Managing Board to acquire own shares, pursuant to Section 65 (1), items 4 and 8 of the Austrian Joint Stock Companies Act (AktG), during a period of 30 months as of the date of the resolution, up to 10 per cent of the subscribed capital of the company and to withdraw if applicable. The Managing Board was given the authorization to decide, with the approval of the Supervisory Board, on the sale of own shares by different means than the stock exchange or a public tender, to the exclusion of shareholders´ subscription rights. The acquisition of own shares mainly serves to cover the obligation of Raiffeisen International Bank-Holding AG within the framework of the share incentive program (SIP) towards the Managing Board and executive employees. These bonus payments are carried out in the form of company shares.
Authorized and contingent capital and convertible bonds remaining as of 31 December 2009: Authorized capital In the Annual General Meeting held on 5 June 2007, the Management Board was authorized, with the approval of the Supervisory Board, to increase the subscribed capital by a maximum of € 217,724 thousand by issuing up to a maximum of 71,385,000 no-par bearer shares with voting rights against a contribution in cash and/or in kind within five years, after having the respective changes in the Articles of Association recorded in the Company Register (authorized capital). € 36,287 thousand (11,897,500 shares) were used for the capital increase on 5 October 2007 (Secondary Public Offering). As of 31 December 2009, the authorized capital not used amounted to € 181,437 thousand.
Contingent capital Also in the Annual General Meeting held on 10 June 2008, the resolution on the contingent increase of the nominal capital by a maximum of € 47,174 thousand by issuing a maximum of 15,466,750 new ordinary bearer shares in order to grant the creditors of the convertible bonds issued their conversion or subscription right, as well as to correspondingly amend the Articles of Association in Section 4 (Capital and Shares) by adding the following paragraph: In keeping with Section 159 (2) item 1 of the Austrian Joint Stock Companies Act, the subscribed capital has been increased contingently by a maximum of € 47,174 thousand by issuing a maximum of 15,466,750 ordinary bearer shares (contingent increase of capital). The contingent increase of capital will only be implemented to the extent that the owners of convertible bonds, issued on the basis of the resolution taken by the Annual General Meeting on 10 June 2008, actually exercise their right to convert these bonds into shares of the company. The amount of issue and the conversion ratio shall be determined on the basis of recognized methods of investment mathematics, as well as the price of Raiffeisen International Bank-Holding AG shares in a recognized pricing procedure (basis for calculating the amount of issue). The amount of issue must not be less than the pro-rata amount of the nominal capital. The new shares, which are issued under the contingent increase of capital, are entitled to receive the dividend that corresponds to that of the shares that are traded on the stock exchange at that time. The Managing Board is authorized, with the approval of the Supervisory Board, to determine the further details for implementing the contingent increase of capital. The Supervisory Board is authorized to adopt any amendments in the Articles of Association as they result from the issue of shares on the basis of the contingent increase in capital.
The number of shares outstanding developed as follows: 1 Return of unused shares from SIP 2005.
Share-based remuneration In 2009, the second allotment of the share incentive plan (SIP – SIP allotment 2006) matured. According to the program conditions (published in the Wiener Zeitung as of 28 July 2006) the number of shares shown in the table below was transferred: In order to avoid legal uncertainties, the entitled employees in two countries received cash compensation instead of the distribution of shares, according to the program conditions. In Austria, the entitled persons had the alternative to receive cash compensation instead of half of the due shares, to be able to settle the payable income tax due at the transfer date. For that reason the number or actually transferred shares is lower than the number of due shares; the stock of the own shares was, therfore reduced by the lower number of actually distributed shares.
Within the framework of the SIP, a new allotment has been issued on a yearly basis to date. This implies that on the balance sheet date contingent shares for three allotments are assigned. As of 31 December 2009, the contingent allotment under the share incentive program came to 536,736 shares (50,905 shares are due to the allotment of 2007, 83,368 shares are due to the allotment of 2008, 402,463 shares are due to the allotment of 2009). The originally announced contingent of allotted shares has changed as a result of various management changes in the Group units and due to the maturation of the SIP allotment 2006.This is shown on an aggregated level in the following table: Number of shares 2009 2008
Members of the Managing Board of Raiffeisen International Bank-Holding AG 16,986 266,680 10,761
In the financial year 2009, no own shares were bought back for the share incentive program.
Members of the managing boards of bank subsidiaries affiliated with Raiffeisen International Bank-Holding AG 285,280 81,905 427,920
Executives of Raiffeisen International Bank-Holding AG and other affiliated companies 86,607 25,031 129,911 31/12/2009
From a Group view, the non-derecognized loans arising from the true sale transaction ROOF Russia 2007-1 amount to € 117,077 thousand at year end 2009 (2008: € 263,707 thousand). In this case, the decrease of the carrying value is mainly explained by the maturity of the consumer loan volume in original currency, above-average high pre-term repayments as well as the currency translation effect resulting from USD against the euro. Within the space of a year the consumer loan volume in original currency matured by € 146,631 thousand.
Within the scope of synthetic securitizations ROOF CEE 2006-1, the non-derecognized loans amounted to € 364,285 thousand at year end (2008: € 404,403 thousand). The differences compared to the volumes at the beginning of the transactions are due to maturing volumes and to changes in currency exchange rates. Furthermore, originators like Raiffeisenbank Polska, S.A., Warsaw (PL), and Raiffeisenbank a.s., Prague (CZ), exercised the option to refill the volumes in a marginal extent and hence to exceed slightly the original values.
Up to now the following transactions have been executed (the indicated amounts represent the transaction volumes at the closing date): 1 As soon as there is a placement to external investors
The following repurchase and redelivery commitments are shown as of 31 December: Assets sold in a genuine sale and repurchase agreement amounted to € 1,024,330 thousand (2008: € 655,448 thousand) as of 31 December 2009. Assets, where the borrower has the right to sell or repledge totaled € 894,255 thousand (2008: € 638,875 thousand) and were bonds, notes and other fixed-interest securities.
Security lending serves to fulfill delivery obligations. The loaned securities as of 31 December 2009 amounted to € 4,696 thousand (2008: 0).
Write-offs on unrecoverable minimum lease payments outstanding totaled € 46,597 thousand (2008: € 9,130 thousand).
Assets under finance leases break down as follows: (43) Operating leases
Operating leases from view of lessor Future minimum lease payments under non-cancelable operating leases are as follows: Operating leases from view of lessee Future minimum lease payments under non-cancelable operating leases are as follows: Real estate leasing 530,245 493,871
In order to ensure a consistent and coherent risk management approach within the Group, the Managing Board of Raiffeisen International decides on the risk strategy and risk management rules within the framework laid down by RZB. These targets which are defined in the risk strategy include the risk appetite, limits for all material risks, and the demand on a minimum riskadjusted return. Also limits on large exposures, product/sector/industry weights, regional concentrations, and for market risks (e.g. structural open foreign exchange positions) are defined. The Managing Board of Raiffeisen International Bank-Holding AG is responsible for implementing these targets and for an adequately monitoring and controlling of the resulting risks.
Furthermore, the Managing Board of Raiffeisen International Bank-Holding AG ensures the proper organization and ongoing development of risk management. It decids which procedures are to be employed in identifying, measuring, and monitoring risks, and makes steering decisions according to the created risk reports and analyses. The Managing Board is supported in fulfilling these duties by independent risk management units and specially appointed committees.
Organizational structure Basically, risk management functions are performed on different levels in the Group. Raiffeisen International Bank-Holding AG develops and implements the according concepts in close cooperation and coordination with Raiffeisen Zentralbank Österreich Aktiengesellschaft as the parent company and its individual subsidiaries.
The Market Risk Committee (MACO) controls market risks of trading and banking book transactions of Raiffeisen International and establishes corresponding limits and processes. For this purpose, the committee evaluates business results, the amount of risks taken and the limit utilization, as well as the results from scenarios and stress tests.
This concept for overall bank risk management also satisfies the requirement for an internal capital adequacy assessment process (ICAAP) as required by Basel II (Pillar 2) regulations.
Economic capital shows – as in the last year – that credit risk of the corporate customer division remains the dominant risk category. Its share in total risk (29 per cent), however, is decreasing steadily in annual comparison. Credit risks in total account for 69 per cent of economic capital. Market and operational risks account for 11 and 8 per cent respectively and in addition a general risk buffer is allocated for other risks as well.
nomic capital to internal capital) amounted to 87 per cent at the end of the reporting period (2008: 92 Prozent). The decreased utilization in comparison to the previous year mainly results from a fall of foreign exchange rate risk in the market risk area and the strengthening of the capital base.
Based on these calculations, Raiffeisen International also carries out risk-adjusted performance measurement. In doing so, the profitability of business units is set in relation to the amount of economic capital attributed to these units (risk-adjusted return on risk-adjusted capital, RORAC), which yields a comparable performance measure for all business units of the Group. The RORAC measure in turn is a key figure for overall bank management, for future capital allocations to business units, and influences performance-oriented compensation of the Group’s executive management.
Going concern perspective Parallel to that procedure, internal capital adequacy also is assessed with focus on the uninterrupted operation of the Group on a going concern basis. In this perspective, risks again are compared to risk taking capacity with a view to regulatory capital and minimum capital requirements.
According to this target, risk taking capacity is calculated as the amount of planned profits, expected risks costs, and the excess of own funds (taking into account various limits on eligible capital). This capital amount is compared to the overall value-at-risk (including expected losses). Quantitative models used in the calculation mostly are comparable to the target rating perspective, (albeit on a lower 99 per cent confidence level). Using this perspective the Group ensures adequate regulatory capitalization (going concern) with the given probability.
This perspective thus also complements traditional risk measurement based on the value-at-risk concept, which is in general based on historic data. Therefore it can incorporate exceptional market situations that have not been observed in the past and it is possible to estimate the potential impact of such developments. The stress test also allows analyzing risk concentrations (e.g. individual items, industries, or geographical regions) and gives insight into the profitability, liquidity situation, and solvability under extreme situations.
The internal credit risk controlling system includes different types of monitoring measures which are tightly integrated into the work flow that lead from the customer’s initial credit application, to the bank’s credit approval, and finally to the repayment of the loan.
Limit application process No lending transaction is performed without running through the limit application process beforehand in the non-retail segments. This process is also consistently applied – besides new lending – to increases in existing limits, extensions, overdrafts, and if changes in the risk profile of a borrower occur (e.g. with respect to the financial situation of the borrower, the terms and conditions, or collateral) compared to the time an original lending decision was made. In addition it is used when setting counterparty limits in treasury and investment banking operations, other limits leading to credit risk, and for equity participations.
The values of collateral and other risk mitigation techniques are calculated with each credit assessment as well. For the calculation of risk mitigation effects, the value accounted for is the value Raiffeisen International expects to receive when selling the collateral within a reasonable liquidation period. Eligible collaterals are defined in the Group’s collateral catalogue and evaluation guidelines for collateral. The respective value of the collateral is calculated via specified methods, which include standardized calculations based on market values, predefined minimum discounts, and expert assessments.
Rating models and credit structure The rating process is the process of determining the creditworthiness of a counterparty. Raiffeisen International uses internal ratings for assessing credit risk where different risk-classification procedures (rating and scoring models) for different asset classes are employed. Non-retail rating and scoring models are used uniformly in the whole Group and are available as specific software tools (e.g. for determining the creditworthiness and calculating the rating, rating documentation in the rating database).
Corporate customers The internal rating model for corporate customers takes qualitative factors as well as several business and performance figures which are tailored to the various industries and financial reporting standards into account.
Internal rating 2009 Proportion 2008 Proportion 4.0 Weak credit standing/sub-standard 6,632,624 17.4% 5,626,043 11.8%
From year-end 2008 to year-end 2009, the retail portfolio in total decreased by 7 per cent to € 21,943,482 thousand. This decrease was caused mainly by implementing measures for selectively reducing the credit portfolio. Partial product restrictions with respect to foreign currency loans as a response to the economic development in some CEE countries and exchange rate effects contributed to this decrease in assets as well. The largest exposure decrease took place in the small and medium enterprises division (minus 14 per cent), whereas loans to private individuals decreased just by 6 per cent.
The total exposure to sovereigns decreased by 8 per cent. This was caused mainly by shifting liquid funds. Due to the gradual normalization of the interbank market, liquidity was placed again at other banks instead of central banks. Compared to the previous year the total exposure of the best rating class A1 decreased by 11 per cent. The decline of portfolio in rating class A3 was caused by a reduction in deposits at and securities issued by Slovakian sovereigns.
Default and workout standards in the retail area are defined for the whole restructuring and collection process for private individuals and small enterprises. A restructuring guideline defines the Group’s restructuring framework including the strategy, organization, methods, monitoring and controlling. In the collection process customers are classified into three categories "Early", "Late" and "Recovery", for which a standardized customer handling process is defined each.
Restructuring of loans As of 31 December 2009 the carrying amount of loans for which terms were renegotiated in connection with a substantial and immediate loss that would otherwise be past due or impaired amounted to € 483,909 thousand. Split by asset classes, € 160,282 thousand of that is attributable to corporate customers and € 323,627 thousand to retail customers.
Impairments and provisioning The impact of the economic crisis led to a strong increase in credit defaults in the year 2009.
Breakdown of non-performing loans by region Breakdown of loan loss provisions by region
The retail customer division has the highest ratio of non-performing loans to total loans. The NPL ratio in this division increased to 9.2 per cent. In particular, the NPL ratio in the relatively small segment CIS Other increased significantly from 8.0 per cent to 26.0 per cent. In total, non-performing loans in the retail area reached € 1,850,220 thousand where € 992,218 thousand were available as collateral. For the difference between these values € 1,380,225 thousand in impairment losses on loans have been allocated.
The following table summarizes the development of loan loss provisions and provisions for off-balance sheet obligations in the fiscal year and that of the underlying positions on the balance sheet: 1 Allocation including direct write-downs and income on written down claims. 2 Usage including direct write-downs and income on written down claims.
The following table shows the geographic breakdown of loan loss provisions by region according to the domicile of the booking unit: 1 Allocation including direct write-downs and income on written down claims. 2 Usage including direct write-downs and income on written down claims.
Loans and advances as well as loan loss provisions according to Basel II asset classes are shown in the following table: 31/12/2009
Overdue financial assets The definition of default and the assessment of the expected recovery value are heavily influenced by the number of days payments are late. The following table shows the amount of overdue – not impaired – financial assets for different time bands: 31/12/2009 Current Overdue
Impaired assets The following table shows the carrying amount of impaired assets, the amount of specifically allocated provisions, and the corresponding net value of available collateral: 31/12/2009 Impairments and collaterals
The maximum credit risk exposure and the fair value of collaterals without default of debtor are shown in the following table: Collateral, where reselling or repledging is allowed without default of debtor amounted to € 15,540,905 thousand (2008: € 18,185,718 thousand).
31/12/2009 Maximum credit exposure Fair value of collaterals €000 Net exposure Commitments /
Concentration risk Raiffeisen International’s lending portfolio is broad and well diversified in terms of region and industry. The ten largest corporate exposures (as groups of connected customers) with a weighted average rating between 3.0 and 3.5 account for 3.6 per cent of the corporate portfolio.
Within the scope of its risk policy and assessments of creditworthiness, Raiffeisen International also considers the borrower’s industry. The following table covers the customer credit exposure (including off-balance sheet exposure, but without banks and central banks): 1 Adaptation of previous year figures due to different mapping.
Exposure to financial institutions and customers by geographical region (including off-balance sheet)
Value-at-risk is of central importance for setting limits. The value-at-risk results for 2009 are still reported based on a variancecovariance model. In this calculation the Group uses a confidence level of 99 per cent, sets the holding period to 10 days, and derives volatilities and correlations from historical market data of one business year. The accuracy and reliability of this value-atrisk approach, which is based on past market developments, is checked using appropriate backtesting.
Interest rate risk and price risks (e.g. stocks and funds) are also important, whereas commodity risk is not material at all. The table below provides value-at-risk figures (99 per cent, 10-day) by risk type for market risk in the trading book of Raiffeisen International: The following table shows the market risks for the year 2008: The own funds requirement for the trading book is calculated using the standardized approach as defined in Austria’s solvability directive.
thereof currency risk without capital 18,213 18,573 3,891 37,267 €000 VaR as of 31/12/2008 Average VaR Minimum VaR Maximum
Raiffeisen International aims at stabilizing its core capital ratio in the Group’s risk management of foreign exchange rate risks. Changes in foreign exchange rates thus lead to changes in consolidated capital amounts; however, also the regulatory capital requirements for credit risks stemming from assets denoted in foreign currencies change correspondingly. This risk is managed monthly in the Group’s Asset Liability Committee based on historical foreign exchange volatilities, exchange rate forecasts, and the sensitivity of the core capital ratio to changes in individual foreign exchange rates.
This risk is mainly hedged by a combination of on- and off-balance sheet transactions where the Group uses in particular interest rate swaps and – to a smaller extend – also interest rate forwards and interest rate options. Balance sheet management is a core task of the central treasury department and of individual network banks, which receive assistance from asset/liability management committees. They base their decisions on various interest income analyses and simulations that ensure proper interest rate sensitivity in line with expected changes in market rates and the overall risk appetite.
Interest rate risk in the banking book is not only measured in a value-at-risk framework but also managed by traditional tools for nominal and interest rate gap analysis. The following table shows the change in the present value of Raiffeisen International’s banking book given a one-basis-point interest rate increase for the whole yield curve in € thousand: Present value change of Raiffeisen International’s banking book in the previous year given a simultaneous one-basis-point interest rate increase in € thousand: Liquidity risk
Liquidity management, i.e. ensuring that the Group meets is obligations at all times, is performed both centrally by Raiffeisen International and on a decentralized basis by the local banks. Cash flows are calculated and analyzed by currency on a weekly basis in an internal monitoring system. Based on this data, the Group creates liquidity balances, and analyzes whether the Group’s always conforms to legal regulations on liquidity positions and the defined internal liquidity limits. Liquidity analyses also include simulations on the sensitivity of liabilities and the liquidity of assets as well as defined liquidity crises in scenariobased cash flow forecasts. All these analyses are discussed in the Group’s Asset Liability Management Committee.
€000 1 week 1 month 1 year 1 week 1 month 1 year
Derivatives in the trading book 510,127 4,311,777 2,202,506 1,600,674 442,235 66,363 Hedging derivatives 50,026 107,399 6,992 38,592 61,957 (143) Other derivatives 209,407 3,223,034 2,425,043 463,114 277,712 57,164 Credit derivatives 0 0 0 0 0 0
In line with Basel II, operational risk is defined as the risk of unexpected losses resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. In this risk category Raiffeisen International manages internal risk drivers like unauthorized activities, fraud or theft, execution and process errors, or business disruption and system failures. External factors are managed as well such as damage to physical assets or consciously conducted human fraud.
Monitoring KRIs are measurable quantities that are used to promptly identify and mitigate operational risks. Key risk indicators are specifically tailored to all network units as well. A common catalog of key risk indicators, which is defined by the head office for internal benchmarking purposes, is mandatory for all Group members. All network units then add additional relevant KRIs and define thresholds (two levels of thresholds have to be defined as an early warning system) as most appropriate for their business.
Risk reduction in operational risks is initiated by business managers who decide on preventive actions like risk mitigation or risk transfer. These managers also define contingency plans if these scenarios would become real and nominate responsible persons or departments for initiating the defined actions if these events occur. In addition, several dedicated organizational units provide support to business units for reducing operational risks. An important role, for instance, plays fraud management in the retail segment which is dedicated to proactive monitoring and preventing fraud. Raiffeisen International also executes an extensive staff training program and has different emergency plans and back-up systems in place.
Up to 1 year More than 1 year, up to 5 years
Fair values different from the carrying amount are calculated for fixed-interest loans and advances to and deposits from banks or customers, if the remaining maturity is more than one year. Variable-interest loans and advances and deposits are taken into account if they have an interest rollover period of more than one year. The fair value of loans and advances is calculated by discounting future cash flows and using interest rates at which similar loans and advances with the same maturities could have been granted to customers with similar creditworthiness. Moreover, the specific credit risk and collaterals are considered for the calculation of fair values for loans and advances.
Loans and advances to banks 10,306,241 10,310,101 (3,860) 10,308,502 9,038,096 1,270,406
Loans and advances to customers 49,184,889 50,514,971 (1,330,082) 56,909,867 57,902,304 (992,437)
(47) Fair value of financial instruments reported at fair value 1 Including other derivatives. 2 Includes only securities traded on the stock exchange.
Positive fair values of derivatives1 85,846 768,055 3,729 1,078,688 1,052,023 212,823
Shares and other variable-yield securities 9,364 1,278 0 35,771 0 1,203
Bonds, notes and other fixed-interest securities 2,540,747 582,545 29,205 1,508,990 722,047 0
Bonds, notes and other fixed-interest securities 2,298,067 738,342 0 1,503,527 471,445 0
Positive fair values of derivatives from hedge accounting 0 21,565 0 16,366 211 0
Call/time deposits for trading purposes 4,072 0 0 0 10,572 0
For Raiffeisen International, the main focus is on the core capital ratio. This control is monitored by the Managing Board.
The determination of the target values in relation to the compulsory minimum requirements needs additional control calculations. The department Risk Controlling calculates the value-at-risk in comparison with the risk taking capacity. Moreover, a balance between economic capital and the respective cover is drawn. These calculations assure that the capitalization and the capital target rate are consistent with the risk agreed to by the Group. Further details are stated in the risk report.
Group relations of key management Key management refers to the Managing Board and Supervisory Board of Raiffeisen International Bank-Holding AG, the parent company, and Raiffeisen Zentralbank Österreich Aktiengesellschaft, the majority shareholder. Relations of key management to Raiffeisen International are as follows (respective fair values): The following table shows relations of close family members of key management to Raiffeisen International: Moreover, as of 31 December 2009 guarantees for a loan granted to a member of the Managing Board amounted to € 765 thousand (2008: € 765 thousand). There is no compensation agreed between the company and their members of the Managing Board and Supervisory Board in the case of a takeover bid.
Remuneration of members of the Managing Board The members of the Managing Board of Raiffeisen International Bank-Holding AG are remunerated as follows: The table contains fixed remuneration, performance-based remuneration, remuneration for membership of boards of affiliated subsidiaries, bonuses, and payments in kind. In the financial year 2009, the share of performance-based remuneration components of the remuneration of members of the Managing Board was 5.5 per cent (2008: 60.7 per cent).
The Chairman of the Managing Board is furthermore still working for the board of Raiffeisen Zentralbank. Remuneration stated in the above table also covers this position.
Performance-based remuneration components of the Managing Board consist usually of bonus payments which are linked to achieve the objectives regarding profit after tax, return on risk adjusted capital, cost/income ratio and to achieve the personal objectives that are agreed annually and of the amount of the allotment regarding SIP program (see page 168 share-based remuneration). For the year 2008, all members of the Managing Board waived the right for bonus payments. The value of the distributed shares in 2009 amounts to 100 per cent (2008: 65.7 per cent) of the performance-based remuneration. There were no material changes in principle for profit sharing against the previous year.
In 2006, bonus payments totaling € 4,750 thousand in connection with acquisitions were agreed. Although the targets of the subsidiaries for the financial years 2006 until 2008 were achieved and the bonus payments became due in 2009, the members of the Managing Board renounced any claim to bonus payments.
Remuneration of members of the Supervisory Board The Annual General Meeting held on 9 June 2009 decided an annual remuneration for the members of the Supervisory Board of € 305 thousand and transferred the distribution to the Board itself. The members of the Supervisory Board settled the distribution in their meeting of 9 June 2009 as follows: Chairman € 70 thousand, Deputy-Chairman € 60 thousand, members of the Supervisory Board € 50 thousand. Session fees were not paid. It has to be mentioned, that Johann Strobl as member of the Supervisory Board received € 25 thousand instead of € 50 thousand as he was member of the Supervisory Board for only half of the year 2008.
In the financial year 2009, € 305 thousand was paid to the Supervisory Board. In the previous year, the members of the Supervisory Board received remuneration of € 330 thousand.
The members of the Supervisory Board have further mandates in the Supervisory Board or similar functions in quoted companies at home and abroad: • Walter Rothensteiner: UNIQA Versicherungen AG • Karl Sevelda: Bene AG • Kurt Geiger: Raiffeisen Bank Aval JSC
Raiffeisen Zentralbank Österreich Aktiengesellschaft is entitled to send up to one third of the members of the Supervisory Board, insofar as it has a shareholding in Raiffeisen International. Individuals older than 75 years of age are not eligible to be elected as a member of the Supervisory Board and may not be appointed for another functional period. In addition, individuals having more than 8 mandates in Supervisory Boards of quoted companies may not be elected. The chairmanship in the Supervisory Board of a quoted company is counted twice.
The following table shows a selection of operating companies of Raiffeisen International’s consolidated group. The complete list of the equity participations of Raiffeisen International Bank-Holding AG is deposited with the Group parent’s headquarters.
1 Company type: BA…Bank, BR…Company rendering banking-related ancillary services, FI…Financial institution
OOO Raiffeisen Capital Asset-Management Company, Moscow (RU) 225,000,000 RUB 100.0% FI
Raiffeisen Mandatory Pension Fund Management Company d.d., Zagreb (HR) 110,000,000 HRK 73.6% FI
Tatra Leasing spol. s r.o., Bratislava (SK) 200,000,000 SKK 70.6% FI
We have audited the accompanying consolidated financial statements of Raiffeisen International Bank-Holding AG, Vienna, for the year from 1 January 2009 to 31 December 2009. These consolidated financial statements comprise the consolidated balance sheet as of 31 December 2009, the consolidated statement of comprehensive income, the consolidated statement of cash flows and the consolidated statement of changes in equity for the year ended 31 December 2009 and a summary of significant accounting policies and other explanatory notes.
Statement of the Managing Board We confirm to the best of our knowledge that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group as required by the applicable accounting standards and that the group management report gives a true and fair view of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties the Group faces.
Affluent banking – Support for wealthy customers that includes additional and above all more individually tailored products in comparison to the customary support for private customers.
Cash flow hedge – Protection against the risk of variability in projected cash flows, resulting either from risk associated with a recognized asset or liability or risk associated with a forecasted transaction. Whereas the effective portion of the hedge relating to changes in value of the hedging instruments can be directly recognized in equity, the ineffective portion has a direct effect on profit and loss.
CIS – Commonwealth of Independent States, consisting predominantly of territories of the former Soviet Union.
Core capital – So called tier I, involves regulatory core capital as defined in Section 23 BWG.
Cost/income ratio – Indicator of an enterprise’s cost efficiency based on the ratio of expenses to earnings. It is calculated by comparing general administrative expenses (comprising staff expenses and other administrative expenses and depreciation on intangible and tangible fixed assets) with operating income (net interest income, net commission income, trading profit/loss and other operating profit/loss).
Credit risk – The risk of loss due to a debtor’s non-payment of a loan or other line of credit.
Cross selling – Marketing strategy in which additional products and services are actively offered to existing customers.
Fair Value Level III – (evaluation method through non-observable parameters). If observable parameters are not available; the fair value will be measured through valuation methods appropriate for the financial instrument.
Hedging – Designating one or more hedging instruments so that their change in fair value is an offset, in whole or in part, to the change in fair value or cash flows of a hedged item.
Liquidity risk – Risk that the bank could be unable to meet its current and future financial obligations in full or in good time. This arises from the danger that, e.g. refinancing can only be obtained at very disadvantageous terms or is entirely impossible.
Quarter-on-quarter – compared to the quarter which precedes the quarter under consideration; for example, the third quarter of 2010 in comparison to the second quarter of 2010.
Risk-weighted assets (incl. market risk) – Comprises the basis of assessment within the meaning of Section 22 of the Austrian Banking Act (BWG) plus 12.5 times the own funds required as cover for the trading book and open currency positions.
Risk-weighted assets (credit risk) – This is the sum of the weighted accounts receivable and includes receivables in the form of asset items, off-balance-sheet items according to annex 1 of Section 22 and derivatives according to Annex 2 of Section 22 BWG.
Statement of cash flows – Statement of cash flows during the financial year arising from operating activities, investing activities and financing activities and a reconciliation of cash and cash-equivalents held at the beginning and the end of the financial year.
Total shareholder return – is a ratio illustrating the development of a share investment over a period considering the dividends and changes in share price.
Austria Am Stadtpark 3 1030 Wien Tel.: +43-1-71707 0 Fax: +43-1-71707 1715 www.ri.co.at investor.relations@ri.co.at ri-communications@ri.co.at
Belarus Priorbank JSC 31A V. Khoruzhey 220002 Minsk Tel.: +375-17-289 9090 Fax: +375-17-289 9191 SWIFT/BIC: PJCBBY2X www.priorbank.by
Bosnia and Herzegovina Raiffeisen Bank d.d. Bosna i Hercegovina Zmaja od Bosne bb 71000 Sarajevo Tel.: +387-33-287 101 Fax: +387-33-213 851 SWIFT/BIC: RZBABA2S www.raiffeisenbank.ba
Croatia Raiffeisenbank Austria d.d. Petrinjska 59 10000 Zagreb Tel.: +385-1-456 6466 Fax: +385-1-481 1624 SWIFT/BIC: RZBHHR2X www.rba.hr
Hungary Raiffeisen Bank Zrt. Akadémia utca 6 1054 Budapest Tel.: +36-1-484 4684 Fax: +36-1-484 4444 SWIFT/BIC: UBRTHUHB www.raiffeisen.hu
Kosovo Raiffeisen Bank Kosovo J.S.C. Rruga UÇK, No. 51 10000 Pristina Tel.: +381-38-222 222 Fax: +381-38-2030 1130 SWIFT/BIC: RBKORS22 www.raiffeisen-kosovo.com
Serbia Raiffeisen banka a.d. Bulevar Zorana Djindjića 64a 11070 Novi Beograd Tel.: +381-11-320 2100 Fax: +381-11-220 7080 SWIFT/BIC: RZBSRSBG www.raiffeisenbank.rs
Ukraine Raiffeisen Bank Aval JSC Vul Leskova, 9 01011 Kyiv Tel.: +38-044-490 8888 Fax: +38-044-285 3231 SWIFT/BIC: AVALUAUK www.aval.ua
Albania Raiffeisen Leasing Sh.a. Rruga Kavajes 44 Tiranë Tel.: +355-4-2274 920 Fax: +355-4-2232 524 www.raiffeisen.al
Belarus SOOO Raiffeisen Leasing 31A V. Khoruzhey 220002 Minsk Tel.: +375-17-289 9395 Fax: +375-17-289 9394 www.priorbank.by
Romania Raiffeisen Leasing IFN S.A. Calea 13 Septembrie 90 Grand Offices Marriott Grand Hotel Sector 5 050726 Bucureşti Tel.: +40-21-403 3334 Fax: +40-21-403 3298 www.raiffeisen-leasing.ro
Russia OOO Raiffeisen Leasing Stanislavskogo Str. 21/1 109004 Moskwa Tel.: +7-495-721 9980 Fax: +7-495-721 9901 www.rlru.ru
Serbia Raiffeisen Leasing d.o.o. Milutina Milankovića 134a 11000 Novi Beograd Tel.: +381-11-20177 00 Fax: +381-11-31300 81 www.raiffeisen-leasing.rs
Ukraine LLC Raiffeisen Leasing Aval Moskovskiy Prospect, 9 Corp. 5 Office 101 04073 Kyiv Tel.: +38-044-590 2490 Fax: +38-044-200 0408 www.rla.com.ua
Publication details The forecasts, plans, and statements addressing the future are based on knowledge and assumptions of Raiffeisen International at the time at which they are drawn up. Like all statements addressing the future, they are exposed to risks and uncertainty factors that may lead to considerable deviations in the result. No guarantees can therefore be provided that the forecasts and targeted values, or the statements addressing the future, will actually materialize. We have exercised utmost diligence in the preparation of this annual report and checked the data contained therein. However, rounding, transmission, printing, and typographical errors cannot be ruled out. The present English version is a translation of the report that the company originally prepared in German. The company only recognizes the German version as the authentic version.
To make for easier reading all references to people are made using the masculine form: the feminine form is to be understood to be included in this.