Reading annual reports is rarely a pleasure – even if the facts and figures contained in them are good news. They also tend to be retrospective in nature, i.e. reviewing past events rather than looking ahead. While we can look back on an excellent 2006, we are currently focusing all our efforts on achieving good results for 2007 and the years to come.
Equity (incl. minorities and profit) 4,590 4,590 40.1% 3,277 2,177 1,379 1,145
Key ratios Return on equity (ROE) before tax 45.4% 27.3% 5.5 PP 21.8% 22.2% 24.1% 19.9%
Core capital ratio (Tier 1), incl. market risk 9.0% 9.0% 1.0 PP 8.0% 10.1% 9.4% 9.8%
Consolidated Financial Statements Income statement 104 Profit development 105 Balance sheet 106 Statement of changes in equity 107 Cash flow statement 109 Notes 111 Unqualified auditor’s report 182 List of fully consolidated companies 184
The typical foods of any country always reflect its history, traditions and social development. As the saying goes: �
Join us in exploring the fascinating world of pierogi, sarma, borsch and tarator as you broaden your culinary horizons. Raiffeisen was a pioneer in many of the financial markets of Central and Eastern Europe. With us, you can also be a pioneer in the exploration of these culinary worlds.
Grill the scampi whole. Halve the lemons and place them on the grill for several minutes. Squeeze the lemons while still warm, add the olive oil, salt and pepper to the lemon juice and stir. Sprinkle the scampi with the sauce and serve.
Croatia: Hardly a Hot Tip Anymore. Croatia is often described as the new Côte d’Azur. Those in the know rave about the historical architecture of the coastal cities, the barren, rocky landscapes, the vineyards and the great diversity of the coastal regions. But Croatian-Mediterranean cuisine is equally impressive.
Slovenia: Multicultural Central Europe. Pasta, strudel, goulash – where are we? Most likely in a Slovenian restaurant or home, where the culinary spirit and taste of Central Europe are more evident than almost anywhere else. There’s a bit of Austrian Baroque, the clear air of the mountains and the azure of the sea, all spiced with the lightness of Italy. And, of course, a dash of Hungary is thrown in for good measure.
Gibanica (sweet strudel) Ingredients for 4-6 portions: For the dough: 320g of flour, 200ml of vegetable oil, 200ml of lukewarm water and salt. For the nut filling: 300g of walnuts, 100g of sugar, 1 pack of vanilla sugar and a little rum. For the curd filling: 400g of curd, 100g of sugar and 80g of raisins. For the apple filling: 500g of grated apple, 100g of sugar and a little cinnamon. For the poppy seed filling: 200g of poppy seed, 100g of sugar and a little cinnamon. For the sour cream mixture: 700ml of sour cream and 2 eggs. 200g of butter.
Sieve the flour into a bowl and form a depression in the middle into which the oil, water and a pinch of salt are added before rapidly kneading to form a pastry-like mixture. Make eight small patties and coat them with oil. Put them on a floured wooden board, cover and allow to stand for 30 minutes. Mix the ingredients for the various fillings in separate bowls. Having been allowed to stand, take each of the patties separately and roll out thinly on the floured wooden board. Cut the pastry to fit in a single layer into a baking dish greased with butter. Sprinkle on a little melted butter and add a further layer of pastry. Cover with half of the nut filling and sprinkle on some of the sour cream and egg filling before adding another layer of pastry. Add half of the curd filling and cover with another layer of pastry. Then sprinkle on a layer of the poppy seed filling followed by some of the sour cream mixture and yet another layer of pastry. This is followed by a layer of the apple filling covered with a little butter and some of the sour cream and egg mixture – also covered with a layer of pastry. Repeat all of the above layers again and then cover the finished gibanica with a final layer of pastry. Sprinkle on a little butter and the remaining sour cream mixture. Bake in a pre-heated oven for 80 minutes at 180°C.
Hungarians assess the quality of paprika with the meticulousness of a book-keeper, carefully checking the origin, variety, hotness, quality grade and lots more. Any Hungarian deserving of the name can tell the difference in his sleep between one of the milder powders, sweet paprika, the rather rare semisweet form and the somewhat hotter “rose” paprika.
Central and Eastern Europe à la carte – The Pickled Cucumber Meridian
The Pickled Cucumber Meridian. Europe is home to a number of important culinary dividing lines. Just as Switzerland is separated into the two sides of the Rösti Line (of thinly sliced fried potatoes) and the Bavarians have their Weisswurst Equator (of veal sausages), Central Europeans have a Salzgurken Meridian (of pickled cucumbers) running across the Continent from Berlin to Vienna.
Pickles are not an invention of modern times; they were already prized by the ancient Romans. But ancient history witnessed not only mass migrations of peoples but migrations of pickles as well, and a variety of cucumbers eventually settled east of the Salzgurken Meridian, only to be pickled in turn by their new fans. This can take place in a wide variety of ways, depending on the climate, soil and techniques of the region in which the cucumbers happen to be growing.
Bosnia and Herzegovina: A Wide Variety of Good Plain Cooking. Stuffed cabbage has lots of fans both inside Austria and outside as well. In Bosnia and Herzegovina this delicacy is known as sarma and provides an authentic example of the kind of food prepared on special days. Probably the gourmets of Bosnia and Herzegovina would enjoy their stuffed cabbage even more often if it did not take so much time and effort to prepare.
An attentive traveler will discover a wealth of aromas and recipes that reflect the region’s Ottoman past. There are the intensely sweet desserts, for example: a cake soaked in honey or the famous oshaf, a sheep’s cheese pudding with figs that might be equally at home in the Peloponnesus or a café in the Istanbul bazaar. And after a meal in which you have savored the intense flavors of natural ingredients, you will once again feel the breeze of the Greek islands when your host brings out a bottle of raki, which is what the Albanians call brandy.
Kosovo: It All Revolves Around Flat Bread. From the Balkan countries to the Middle East, many of the national cuisines revolve around flat, unleavened bread. What the Turks call pide and the Greeks pita, is pite in Kosovo. But the really conspicuous thing about the Kosovar version of bread made from salt, flour, yeast and water is that it is inconspicuous.
While bread may simply remain bread in other countries, in Kosovo it often remains unseen, hidden beneath layers of all kinds of imaginative delicacies. Cheese, meat, leeks, paprika and many other ingredients may play the leading role. The difference between a good and an excellent pite is decided by whether or not the coating is added immediately before the bread is returned to the hot oven to reheat it. An especially popular form of pite is rolled up in a snail-like form.
Pite Ingredients for 6 portions. For the dough: 600g of white flour, 1 cube of fresh yeast, 1 tsp. of sugar, 50g of butter, water, salt, olive oil and 6 tbsp. of sesame seeds.
Europe’s Sour Pots. We have to remember that at a time when the refrigerator had not yet been invented, it was preserved vegetables with a decidedly acidic taste that helped the people of Central and Eastern Europe to get through the long, cold winters.
No one gets sour about that, because not only does this food taste great, it is also easier to digest. And that brings us to sauerkraut, the hero of everyday cuisine in many countries but still an unknown for many people who live westwards of Alsace, where it is called choucroute. Sauerkraut offers an amazing range of possibilities. An aromatic elixir of health straight from the barrel, it also mixes well with noodles, for example in the dish known as krautfleckerln, where it is baked with flat noodles and onions, or as an accompaniment to roast pork, fish or offal, such as tripe.
Serbia: A Paradise For Carnivores. First let’s clear the air on a question that is frequently heard in Vienna: yes, the dish called “Serbian beef with rice” that is typically found on the menus of that increasingly rare species of simple Viennese restaurant, the beisl, does indeed come from Serbia. That takes us straight to the leading ingredient in Serbian cuisine, which is not rice but meat.
Tarator (Bulgarian yoghurt soup) Ingredients for 4 portions: 1 liter of plain yoghurt, 100g of chopped walnuts, 1 cucumber, 4 cloves of garlic, 1 bunch of parsley, 1/2 bunch of dill, olive oil, salt, 2 cups of ice-cold water.
Peel the cloves of garlic and crush with the side of a knife before chopping very finely. Wash the parsley and dill, dab dry and remove thicker stalks before also chopping finely. Peel the cucumber, cut in half lengthways and scrape out the seeds with a spoon. Grate the remaining cucumber. Place all of the ingredients into a bowl and mix with 2 tbsp of olive oil and salt before covering and allowing to rest in the fridge for one hour. Mix thoroughly with the yoghurt and the water before serving. Sprinkle with the chopped walnuts and a little olive oil.
What’s their secret? Some say that it’s Bulgaria’s famous yoghurt. Certainly, yoghurt is found on every menu of the week and plays a leading, or at least supporting, role in a wealth of recipes. It is eaten alone or with fresh vegetables or a modest portion of meat. Tarator, for example, is a cold yoghurt-cucumber soup that is just as much a part of summer in Bulgaria as complaining about it is in Austria. The former, however, is a lot more pleasant than the latter.
When Bulgarian tourists walk down our supermarket aisles with their incredible variety of yoghurt – milk from Austria, milk from Savoy, high-fat, low-fat, no-fat and everything in between
Romania: Cuisine with a History. Lift the lids of Romanian pots and pans and one thing becomes clear: the country’s cuisine – like that of others – is a reflection of its geography and history. The Danube and its delta with their unbelievable abundance of fish provide two of the Romanians’ favorite species: carp and pike-perch, both of which are prepared with a healthy dose of garlic. Romanian menus owe a debt of gratitude to many national cuisines and cultures, and they read like a pot-pourri of recipes from old Austrian, Italian, Jewish, Hungarian, Greek and Turkish kitchens.
Wherever you are in Romania, simply lift the lid of a soup pot in which ciorba is simmering away, and you will discovery the diversity of the country’s regional cuisines. Depending on where you are, you will find sauerkraut, tripe, ravioli, poultry or fish swimming in the soup.
The ”Little Water“. Any time fine food is served in Russia, the sine qua non to go with it is traditionally “little water” (vodka is the diminutive of the Russian word for water, voda).
The raw material used in the making of vodka is generally not the potato, as is often assumed, but rather grain, usually a mixture of rye and wheat. They are fermented to create a mash and then distilled several times. Afterwards the distillate is filtered through tons of activated charcoal to remove any foreign substances left over from fermentation. The choice of water and the grains used in fermentation have a decisive influence on the quality of the final product. But the secret of success for a truly fine vodka lies not only in its taste: if the distillate has been properly processed, the consumer can hardly tell the next morning that vodka (even in large quantities) was drunk the night before.
If it’s a quick snack they want, however, they choose zurek, a hearty soup of sliced sausage, available at almost any restaurant or snack-bar. Zurek gets its slightly sour taste from the addition of fermented cracked rye.
Pierogi Ingredients for 4-6 portions. For the pastry: 250ml of milk, 25g of yeast, 400g of flour, 150g of butter, 2 eggs, 1 tbsp. of sugar and 1 pinch of salt. For the filling: 400g of minced meat, 2 small onions, 1 tbsp. of flour, 180g of bacon (diced), salt, some soup vegetables (diced) and butter.
Warm a little milk gently and dissolve the yeast. Place the flour in a bowl and add the dissolved yeast, butter, sugar, salt, the remainder of the milk and one egg. Knead the dough well, cover with a clean cloth and allow to rise in a warm place. Knead once more and allow to rise again. Filling: chop the onions finely. Then gently fry the mince with the onions, the diced bacon and the diced vegetables in a little butter, add salt and pepper and sprinkle with a little flour. Continue frying until all of the meat juices have evaporated off. Shape the dough into a roll and cut off slices around 2cm thick. Roll the slices out to form circles with a diameter of around 10-12cm. Place a tablespoon of the meat filling in the middle of each disc, fold in the edges and press down firmly to form pierogi. Brush the pierogi with the egg yolk and either arrange on a greased baking tray or on baking foil and bake in a pre-heated oven for 15-20 minutes at 220°C.
To make the mixture, boil the potatoes and allow to cool. Peel the potatoes and mash them before adding the salt, flour and egg and kneading gently und a medium-firm mixture forms. Add a little semolina if necessary. For the filling, cut the boiled beef, smoked meat and the onion into small pieces and mince them. Chop the parsley and crush the cloves of garlic before adding to the meat mixture. Add salt and pepper to taste. Knead the ingredients thoroughly and make small balls. Shape the potato mixture on a floured surface to make a 4-5cm thick roll and then cut off equally-sized slices, each of which is rolled out again. Place balls of meat filling into the middle of the discs and form into the shape of a dumpling. Simmer gently for 10-15 minutes in lightly salted water. The dumplings are ready when they float to the surface. Serve with sauerkraut.
The Czech Republic: A Dumpling for All Seasons. There’s an old fairy-tale about a land of milk and honey that can be reached only by first eating one’s way through a thick layer of semolina pudding. The Czech version more likely features a clump of dumpling dough.
Slovakia: All Cheese. Liptauer is a spicy sandwich spread that the owners of Vienna’s distinctive wine taverns, the heurige, proclaim to be a typically Viennese specialty. The name, however, is derived from the Slovakian region of Liptov (German: Liptau). Thus it is a classic Slovakian recipe, and the original version features bryndza, ewe’s milk cheese of a type found only in Slovakia.
Caviar: Only the Best is Good Enough. Sturgeon roe is an uncompromising luxury. Not only does it taste incomparably good, it is prestige in an edible form.
A genuine problem associated with sturgeon fishing has sometimes spoiled the cosmopolitan caviar community’s taste for these delicate fish eggs. At times, the sturgeon population, in particular that of the beluga, has been threatened with extinction because of over-fishing and pollution. Even the UN has become involved. Now the alarm bells are now falling silent. Fishing quotas are being largely respected and many sturgeon fishermen have switched to more sustainable methods.
But Russians do not live by blinis alone; they also love soups. Shtshi, for example, a nutritious peasant dish of cabbage, diced vegetables, meat, spices and sour cream. It might be said to be the “babushka” of all Russian soups. Shtshi can also include beets and kvas, a sour mixture of rye flour fermented with yeast.
Warm the milk in a saucepan. Remove 1/8 liter of the lukewarm milk and stir in the yeast. Place the buckwheat flour in a bowl and make a depression in the middle. Pour in the yeast mixture and stir to form a consistent mixture. Cover and allow to stand for 20 minutes in a warm place. Boil the remaining milk and add the sugar and salt while constantly stirring. Take the milk off the heat and allow to cool a little. Add the butter, egg yolk and the slightly cooled milk to the buckwheat mixture in the bowl and knead to form a thick mixture. Cover the mixture and allow to stand for around 60-90 minutes until small bubbles form. Heat a little clarified butter in a coated frying pan and make small buckwheat pancakes on a medium heat. Repeat the procedure until all of the mixture is used. Serve the finished blini with sour cream and caviar.
Wash, peel and grate the potatoes as finely as possible. Place the potato flakes in a clean tea towel and squeeze out the fluid. Put the potato flakes in a bowl and add the onion (finely chopped), eggs and some salt before kneading into a dough-like ball. Heat some oil in a heavy, flat-bottomed frying pan. Scoop small flat cakes out of the mixture using a large spoon and carefully place these in the frying pan. Fry until golden brown on both sides. Place on kitchen roll to soak up excess oil. Serve hot. Can be served with fried mushrooms or even pureed berries as a sweet alternative.
Belarus: Rare Foods from Forest and Field. Everyone has heard about borsch. But who knows what draschenji is, for example? And who has heard of motshanka? Have you?
The fields and forests of Belarus supply the ingredients for a bold cuisine, in which potatoes, mushrooms and berries are prepared according to centuries-old recipes, many of which have been handed down by word of mouth. “Processed” rather than prepared might be the appropriate word in some cases. Decadent Western diners may turn up their noses at some of the wild mushrooms that feature in Belarusian cuisine, considering them “inedible.” It’s true that some of the wilder ones have to be “tamed” by hours of slow cooking before being brought to the table.
But this is the way that Belarusian chefs take these rare products, whose availability varies depending on the soil and weather, and transform them into tasty main courses or side dishes. They pay no attention to the clock, and there’s no real reason to, either. Diners in the know gladly wait for the aroma of draniki – little pancakes made of freshly grated potato, and fried in lard – to waft from the kitchen: it’s a sure sign that a fantastic meal is about to be served.
But now all the evidence is in, and researchers agree: borsch was first served in Ukraine. This event took place on the northern Black Sea coast, where an inventive housewife conceived the idea of making a soup of meat, bacon, garlic and much more. And, of course, she also added beets to give the concoction its bright-red color and inimitable sweet-sour aroma.
What few people realize, however, is that this classic winter dish is also served in the summer months in a chilled version: “borsch light.” But no matter how many different possibilities there may be for preparing borsch, fans of the red soup all agree: a spoonful of sour cream, added just before serving, is a must.
Borscht Ingredients for 4 portions: 500g of boiling beef (bone in), 2 1/2 liters of water, 200g of potatoes, 200g of white cabbage, 2 onions, 1 bunch of vegetables for making soups, 2 beetroot, 1 pepper, a little tomato puree, salt, chopped parsley and dill, and 1 bay leaf.
Overall, 2006 was another record year for our company, even if one subtracts the one-off effects. With growth of the balance sheet total by 37 per cent to € 55.9 billion, we continued our dynamic evolution. But it was even more gratifying that group profit without one-off effect grew by 55 per cent to € 594 million. Taking into account the year’s one-off events the group profit rose by even more than 200 per cent to € 1.2 billion. The return on equity increased last year by 5.5 percentage points to 27.3 per cent. Despite continued high investments, the cost-income ratio improved by 2.5 percentage points to 59.1 thanks to great cost discipline and efficiency increases. Our successes ultimately also found expression in very gratifying share price performance and hence significant gains in company value for our shareholders.
We are pleased to have received several awards from internationally recognized financial magazines, once again in 2006, acknowledging our successful work. Euromoney chose us for the second consecutive time as “Best Bank in Central and Eastern Europe.” The Banker awarded us the title “Bank of the Year in Central and Eastern Europe,” after honoring us the year before as “Emerging Market Bank of the Year.” These and other awards acknowledge the achievements of our staff and serve as great motivation for us to meet future challenges. It will be our primary goal again in 2007 to expand market shares through above-average growth in the region and to keep business performance at a high level or further improve it.
48 www.ri.co.at Pre face Managing Board Super v isor y Board‘s Repor t Over v iew In t e r v iew S tock
Raiffeisen International Bank-Holding AG (Raiffeisen International) had an exceptionally successful year in 2006. Prudent management and consistent commitment to our strategic goals in the home markets of Central and Eastern Europe made the record result reported here possible. Being able to achieve such results requires a framework that promotes success. Raiffeisen International enjoys that in the stable group environment of Raiffeisen Zentralbank Österreich AG.
Expansion was again the hallmark of our development last year with the acquisition of Impexbank in Russia and eBanka in the Czech Republic. However, rapid growth also requires vision. We raised the core capital of Raiffeisen International last May by  500 million to secure our growth momentum in a lasting way by means of a hybrid bond.
Internationally watched transactions such as the sale of Raiffeisenbank Ukraine gave our strong annual result an additional boost and made an already excellent financial year into a unique one. Raiffeisen International went to the starting gate as a growth stock. In view of the current figures, it is therefore a good idea to keep an eye on the long-term perspective regarding the use of earnings.
The regular annual meeting on 7 June 2006 appointed Walter Rothensteiner (Chairman), Manfred Url (Deputy Chairman), and Karl Sevelda for another five years as Supervisory Board members. On behalf of my colleagues, I would like to thank the shareholders for the confidence that they have placed in us. For its part, the Supervisory Board named Herbert Stepic as Managing Board chairman and Heinz Wiedner as a member of the Managing Board for another five years.
There were five Supervisory Board meetings, and the attendance rate was 97 per cent. No member was absent for more than half of the meetings. At all meetings, the Supervisory Board performed its duties prescribed by law and the articles of incorporation and in observance of the Austrian Corporate Governance Code.
KPMG Austria GmbH, Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Vienna, has audited the accompanying consolidated financial statements (balance sheet, income statement, and notes) and the consolidated management report as well as the annual financial statements and management report of Raiffeisen International Bank-Holding AG. Their audit has revealed no grounds for objection, and the statutory requirements have been fully satisfied, thus allowing an unconditional auditor’s certificate to be issued. After thorough review and discussion in the Audit Committee and in the Supervisory Board, the latter declares its agreement with the Managing Board’s report on the audit results and the proposal regarding the use of profit and has approved the consolidated financial statements and the annual financial statements of Raiffeisen International. They have thus been ratified in accordance with Section 125 (2) of the Austrian Stock Corporation Act (AktG).
The submitted annual financial statements prove that Raiffeisen International is utilizing opportunities in its home markets of Central and Eastern Europe with great entrepreneurial skill. Raiffeisen International seeks to offer financial services that meet the highest international standards to a constantly growing number of customers. With this goal firmly in view, the Supervisory Board looks forward to ensuring, together with the Managing Board and the entire staff, that Raiffeisen International continues to grow and prosper.
A functioning financial infrastructure is a prerequisite for the growing interconnection of economic areas within Europe. Raiffeisen International sees itself as a pathfinder and service provider for this development. We place special importance on providing customers with service and assistance that measure up to international standards. Raiffeisen has been present in Central and Eastern Europe for more than 20 years. Our first subsidiary bank was founded in Hungary in 1986 and began operations in the following year. Since then, our network has grown both organically and through acquisitions.
Bosnia and Herzegovina, Raiffeisen Bank d.d. Bosna i Hercegovina 1,592 23.8% 75 1,303
The year 2006 began turbulently for Raiffeisen International with the acquisition of Impexbank. Was there any recovery phase? While many of us were able to gather new energy at the end of 2005 and beginning of last year, a project team was busy studying and evaluating the Russian Impexbank and then entered into takeover negotiations with the owners. So we actually started the year quite busily. At the end of January, the takeover of Impexbank was finally completed. It was certain to be a record-setting acquisition. We were the first Western bank to acquire a Russian bank with a strong nationwide branch network. That is not only a logical continuation of our strategy, but also proof again of our pioneering role.
Were the bank’s about 200 branches the main motive for the acquisition? Definitely! We had already been very successful in Moscow and St. Petersburg for many years with our Raiffeisenbank. We did not begin expansion into other Russian regions until 2004. The acquisition of Impexbank will save us about four years of hard work expanding the branch network. We can now offer our services largely with full coverage across the entire country, which extends over 11 time zones. We are thus optimally positioned in Russia, the largest and fastest-growing market in the region. The asset growth of the Russian banking sector in 2006 was 44 per cent. In this extremely dynamic environment, time is an extraordinarily critical factor. In that regard, we are now in great shape, but we must continue on our path with determination.
Today, Raiffeisen International is the largest Western banking group in the Commonwealth of Independent States. Did you think that possible a few years ago? Of course! With our Raiffeisenbank, we had already been among the top three Western-owned banks in Russia since the end of the 1990s. By acquiring Impexbank and Bank Aval in Ukraine in 2005, we have become the largest international banking group in Russia and the entire CIS. That accords with our declared strategy to be at the very top in high-growth markets. This ascent to market leadership has not only brought us great attention, but has also taken us another crucial step closer to our vision of being the leading banking group in Central and Eastern Europe. Particularly in the CIS, we are still at the beginning of our development. In the coming year, we will move decisively forward with and complete substantial parts of the integration of the newly acquired banks into the Group. That will find most striking expression in the merger of our Russian Raiffeisenbank with Impexbank, which will then jointly appear on the market under the Raiffeisenbank brand. We intend in any case to solidify our position as Number 1 in the CIS.
The generally very positive business trend also finds expression in the price of our stock and in our market capitalization. The market price of our stock at the end of last year was € 115.51, which is 108 per cent above its level at the end of 2005. And with market capitalization of € 16.5 billion, we now rank among the world’s 500 largest listed corporations.
And which development from the overall result is especially noteworthy for you? Business with private customers deserves special mention in that regard, of course. We began establishing this business segment on a large scale in 1999. Despite high investment costs, we were already profitable in 2004. In 2006, the segment already contributed 30 per cent to profit before tax, even though corporate customer business, our strongest segment by assets and income items, continued to grow in absolute terms. The growth momentum of personal banking business can also be gathered easily from that. We now have a total of about 12.1 million customers. Taking into account only organic growth, this means that we enjoy the confidence of more than 150,000 new private and corporate customers every month. We will continue to work hard to justify that confidence and more. We offer these customers our services now in 2,848 business outlets, which numbered only 2,443 at the end of 2005.
What will be the main object of your attention in 2007? Besides the already mentioned integration of the new banks, strengthening distribution has the highest priority. Despite great progress, we still need to widen our range and make distribution of our products more targeted and uniform. We also intend to continue developing our asset management. In 2006, we increased our assets under management by 59 per cent to  3.3 billion. However, leveraging cost-cutting potential by means of centralized purchasing and increasing efficiency, for example, by means of Six Sigma process optimization, are also right at the top of our agenda. In customer business, we would like to address the mid-market segment even more efficiently with targeted promotions. Finally, we would like to secure our long-term success through targeted personnel development. I am quite confident that 2007 will be another eventful year – in the positive sense – for our young company.
Thanks to further corporate earnings growth and advancing economic activity in Europe, major European stock markets continued to perform positively in 2006. Interest rate and liquidity fears briefly impaired international stock markets around mid-year, with those of the emerging markets especially coming under pressure. This changed risk assessment also burdened the ATX more than average because of its very strong orientation to Eastern Europe. The price losses were more than made up, however, in the second half of the year. With a plus of 22 per cent in 2006, the ATX, Austria’s most important stock index, increased to the same extent as other European indices.
The successful trend of Raiffeisen International stock continued in 2006. After a good start into the new year, the stock temporarily registered significant price losses, especially in May. This price downturn ran parallel to development on other European stock markets. After relatively small declines in June, the stock price then recovered rapidly. The previous losses were made up, and significant gains on that level were registered in the following months. The stock outperformed by far not only the ATX but also the sector average. On 6 December 2006, the stock price passed the  100 mark (intraday) for the first time. It stood at  55.55 at the end of 2005 and advanced to  115.51 by the last trading day of 2006. The stock of Raiffeisen International thus registered a plus of 108 per cent as of year’s end.
The outstanding performance of our stock has been driven by Raiffeisen International’s consistently pursued strategy of expanding with a first mover advantage over competitors in Central and Eastern European markets with a focus on retail business. Raiffeisen International thus acquired Impexbank, a Russian firm, on 31 January 2006. Impexbank is geared primarily to serving personal banking customers as well as small and medium-sized enterprises with a nationwide network of 203 branches and offices and about 400 distribution outlets. Purchasing Impexbank has made Raiffeisen International the largest foreign banking group in Russia. With the official closing, Raiffeisen International also completed the takeover of the Czech eBanka on 24 October 2006. eBanka began operations in 1998 and is primarily geared to business with personal banking customers as well as small enterprises. This acquisition increased the number of Raiffeisen International customers in the Czech Republic to about 310.000.
Number of stocks Weight of RI Index (selection) in index in index
The number of Raiffeisen International shares outstanding is 142.8 million. Raiffeisen Zentralbank Österreich AG owns 70 per cent, institutional investors 26.5 per cent, and private individuals 3.5 per cent. The institutional investors include, among others, a member of the World Bank Group, the International Finance Corporation (IFC), and the European Bank for Reconstruction and Development. The 30 per cent of share outstanding held by institutional and individual investors constitutes the free float of Raiffeisen International stock.
An increasingly balanced distribution may be observed in the case of institutional investors. About one-third of them are in the United States and one-third in Great Britain. Only 6.5 per cent of institutional investors are domiciled in Austria. The remaining institutional investors are mostly in other European countries, with a small, but growing group in Asia. Most individual investors reside in Austria.
Raiffeisen International considers capital market communication not only as a commitment to openly providing shareholders with information, but also more as an opportunity to enter into constant dialogue with all interested parties. By not treating analysts and media differently, we promote uniform dissemination of information to institutional and individual investors in regard to both time and content.
Conference calls with analysts and media regarding interim reports are always held on the same day. Moreover, Raiffeisen International’s first annual meeting, which about 700 participants attended on 7 June 2006 in Vienna’s Austria Center, was also webcast, an offering that accommodated mainly small investors and was heavily used.
The aim of Raiffeisen International’s e-mail service is, in particular, to provide information to institutional and individual investors simultaneously. Interested parties may register for this service online at www.ri.co.at ➞ Investor Relations ➞ Ordering and E-mail Service.
Raiffeisen International was regularly covered by 15 investment banks and analyst firms in 2006. A total of 90 research reports in four languages were written, some of which are available in PDF format at www.ri.co.at ➞ Investor Relations ➞ RI Stock ➞ Analyst Reports.
Price on 31 December 2006  115.51 High/low (closing prices) in 2006  115.51 /  55.20 Earnings per share for the full year 2006 without one-off effect  4.17 Market capitalization as of 31 December 2006  16.5 billion Average daily trading volume (single counting) in 2006 263,778 shares Stock exchange turnover in 2006 (single counting)  4.73 billion Free float 30%
Corporate Governance Trusting and efficient cooperation of the various corporate bodies, protection of shareholder interests, and open and transparent communication are the central guidelines for Raiffeisen International in implementing modern corporate governance. As a company listed on the stock exchange, Raiffeisen International is committed to the principles of good and responsible corporate governance as set forth in the Austrian Corporate Governance Code and agrees to comply with them. These remarks on compliance with the Code in the period under review (1 January to 31 December 2006) refer to the new version of the Austrian Corporate Governance Code of January 2006.
Open and transparent communication with shareholders and the interested public is a special concern of Raiffeisen International. We therefore offer extensive information on our website: – Ad hoc announcements, press releases, and IR mailings – Our stock: Share price chart and information – Analyst reports, including PDF files to download – Ordering and e-mail service: Requesting printed materials and joining the investor relations mailing list – Financial reports: Interim and annual reports – Financial calendar: Report publication dates and the annual meeting and dividend payment dates – Directors’ dealings – Articles of Association of Raiffeisen International as PDF to download – Facts and figures: Strategy, shareholder structure and data overview
The Managing Board of Raiffeisen International has six members. The body manages the company. The Supervisory Board also has six members. Four of them, Walter Rothensteiner, Manfred Url, Patrick Butler and Karl Sevelda, are also members of RZB’s Managing Board. To create clear structures internally, the rules of procedure of the Managing Board, the Supervisory Board and the Working, Audit, and Personnel Committees assign well-defined responsibilities. In that way, control and management of the company is achieved that is oriented to the future and accords with modern entrepreneurial principles. You will find further information concerning the bodies of Raiffeisen International on page 180.
The annual meeting will be held on 5 June 2007 at the Austria Center in Vienna. The invitation will be published at least three weeks in advance of that date. There are no cross-shareholdings in the Group. The one-share-one-vote principle applies, and all shareholders without voting right limitations have completely equal rights. Registered shares have not been issued. We had no information concerning syndicate contracts before going to press. To increase the transparency of the annual meeting, the opening and the speech of the Managing Board will be broadcast live on the internet at www.ri.co.at ➞ Investor Relations ➞ Events à Annual Meeting.
Rule 16 says that the Managing Board shall be constituted of several persons, with one member acting as the chairperson of the Managing Board. Internal rules of procedure of the Managing Board shall define the distribution of responsibilities and the mode of cooperation between management board members. The Managing Board of Raiffeisen International has six members, and its chairman is Herbert Stepic. The Managing Board’s rules of procedure govern the mode of cooperation in the Managing Board and with the Supervisory Board. The distribution of responsibilities is regulated separately.
Record GDP growth in the Central European new EU member countries
Looking back one year to the beginning of 2006 our expectations for the year were rather ambitious for Central and Eastern Europe (CEE) but, as it turned out, they have been exceeded. Preliminary real GDP growth reached a record high of 5.4 per cent yoy (4.2 per cent in 2005) in the Central European (CE) new EU member countries (Poland, Czech Republic, Slovakia, Hungary, Slovenia) and is close to the 2004 highs. Real GDP growth in the Southeastern European (SEE) countries (Romania, Bulgaria, Croatia, Serbia, Bosnia and Herzegovina, Albania) reached 6.6 per cent (4.7 per cent in 2005). The economies of European countries of the Commonwealth of Independent States (CIS: Russia, Ukraine, Belarus) grew by 7.0 per cent.
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Banking sector development in CEE Total banking assets continued to grow strongly throughout CEE in 2006, despite the implementation of ever more restrictive measures by a number of central banks in SEE. Based on annualised half-year figures the growth of banking sector assets in EUR terms in CEE was 26.4 per cent in 2006, slightly down from the record 31.3 per cent growth in 2005. However, given the strong appreciation of the CEE currencies in the second half of 2006, the final growth figures will likely even have exceeded those of 2005. Banking sector growth remains driven by consumer and mortgage lending, which have both been boosted by the expectation of increasing property prices and rising incomes. Holdings of mutual and pension funds have recorded very high growth rates in an increasing number of banking markets, albeit coming from very low comparative levels.
The market share of international banks has reached high levels in a number of CEE countries in the course of banking sector restructuring and privatisation over the last decade. In the Czech Republic, Slovakia, Croatia, Bosnia and Herzegovina as well as in Albania the market share of majority foreignowned banks exceeded 90 per cent of total banking assets in 2005 and with the privatisation of Banca Comerciala Romana the same will also be the case in Romania. The largest increase in the market share of foreign banks in 2005 was recorded in Serbia and in Ukraine. In Serbia the market share of majority foreign-owned banks jumped to 69 per cent of total banking assets in 2005, up from 36.8 per cent in 2004 as the banking privatization process was largely completed. In Ukraine the market share of majority foreign-owned banks increased to 25 per cent of total banking assets in 2005, up from around 7 per cent before that due to the acquisition of Bank Aval, the second largest bank in the country, by Raiffeisen International, and a number of other takeovers by international banks who were trying to gain a foothold in this large and strongly growing market. In the context of large and strongly growing markets, the market share of majority foreign-owned banks in Russia, although still comparatively small (6.8 per cent of total banking assets in 2005), increased somewhat in 2006 with Raiffeisen International’s acquisition of Impexbank and several other acquisitions by international banks.
Consolidated profit (after tax and minority interests) rose to  1,182 million thanks to strong organic growth and one-off effects.
Raiffeisen International has expanded its operations, especially in the retail segment, with two more relatively large acquisitions.
Note: Data as of end 2005 Source: Local central banks, Raiffeisen RESEARCH
66 www.ri.co.at Pre face Managing Board Super v isor y Board‘s Repor t Over v iew In t e r v iew S tock 400 distribution outlets. Impexbank had a balance sheet total of  1.8 billion with profit before tax of  20.8 million at the end of 2006. The number of staff was 5,517. The purchase price amounted to USD 563 million. The firm’s legal merger with ZAO Raiffeisenbank Austria, founded in Moscow in 1996, is planned during 2007.
Besides the above-mentioned changes due to acquisitions and divestments, Raiffeisen International continued its strong organic growth. Excluding one-off effects, due to the divestments, profit after tax grew by 49 per cent. The balance sheet total showed organic growth of  13.5 billion, or 33 per cent.
Raiffeisen International’s earnings felt the additional positive influence of two one-off effects. The impact amounts to  588 million and is attributable to the above-mentioned divestments of Raiffeisenbank Ukraine ( 486 million) and the minority stake in Bank TuranAlem in Kazakhstan ( 102 million). These two divestments account for almost 50 per cent of consolidated profit (after minority interests).
The increase of operating expenses was below that of operating income. For the cost/income ratio, a benchmark of efficiency that sets general administrative expenses in relation to operating income, that means an improvement from 61.6 to 59.1 per cent.
The consolidated profit attributable to Raiffeisen International increased by 209 per cent, or  800 million, and now stands at  1,182 million. Excluding one-off effects, consolidated profit comes to  594 million, which still means an increase of 55 per cent, or  211 million.
Once again, Raiffeisen International can report increases in all business areas for 2006. The success of our strategy to expand retail operations is reflected in a significant improvement of results from the business area of retail customers. Excluding one-off effects, this already contributes 30 per cent of total earnings after 21 per cent in 2005.
The largest segment, with a share of 52 per cent (excluding one-off effects), corporate customers continued to develop well in 2006. Earnings before tax rose by 38 per cent to  467 million and hence by more than business volume. The risk assets allocable to this segment grew by 33 per cent to  19.1 billion. At 35 per cent each, net interest income and net commission income contributed equally to earnings growth, while general administrative expenses increased by only 23 per cent. The cost/income ratio thus climbed by another 3.5 percentage points to 36.7 per cent. On the other hand, provisioning for impairment losses increased by 61 per cent, with almost half booked in the CIS. Because equity allocable to the corporate customers segment rose by only 18 per cent, its return on equity improved by 4.8 percentage points to 31.7 per cent.
Average equity Profit before tax ROE before tax ROE without one-off effect
Detailed review of items in the income statement The results compared with the preceding year are influenced by changes in the scope of consolidation. Raiffeisen Bank Aval was consolidated for the first time in the fourth quarter of 2005 and is therefore only included in the preceding year for three months. Impexbank was initially consolidated into the Group in May 2006, and eBanka in November 2006. Finally, Raiffeisenbank Ukraine is only taken into account in the income statement up to the beginning of November 2006. The year’s gain on deconsolidations is shown on the line income from disposal of group assets of its own in the income statement.
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Retail banking contributed a 59 per cent share (plus 5 percentage points) of total net interest income. The increase was primarily volume-driven. On the other hand, the share from corporate customers fell by 3 percentage points to 33 per cent despite improved interest margins at mid-market enterprises.
Allocations to provisioning for impairment losses rose in 2006 by 85 per cent, or  142 million, to  309 million. About  60 million of that increase derives from changes in the scope of consolidation. The net provisioning ratio – based on the risk assets of the banking book – increased by 16 basis points to 0.97 per cent. The loss rate, i.e., written-off loans in relation to total lendings, amounts to only 0.16 per cent and is thus only 3 basis points above the preceding year’s level of 0.13 per cent.
The risk/earnings ratio, i.e., the ratio of provisioning for impairment losses to net interest income, comes to 17.5 per cent due to the significant increases, which represents a deterioration of 3.6 percentage points.
Newly formed individual provisions rose by 101 per cent on the preceding year to  189 million. This higher need to provisioning is distributed relatively equally over all business areas and regions, with Southeastern Europe registering the highest increases at about  70 million. Most of the cases in this
Net new allocations to portfolio-based loan loss provisions amount to  119 million, which represents a plus of 64 per cent. The emphasis is clearly in the CIS, where adjustment to Group standards as a result of newly acquired Group units has required additional allocations to provisions.
Net commission income from retail customers shows the largest increase with a plus of 69 per cent to  592 million. The segment contributes more than 63 per cent to total earnings. The regional mainstay of growth is the CIS with a plus of 134 per cent to  322 million, which is primarily due to Raiffeisen Bank Aval.
Payment transfers Credit and guarantee business Securities business FX, notes/coin, precious metals business Other banking services
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Net income from currency-based transactions is the most important earnings contributor at 80 per cent. It rose in the year under review by 63 per cent to  141 million. Besides a higher volume of transactions in foreign-currency trading, favorable development of exchange rates contributed to this increase in some markets, especially in Romania. Furthermore, a valuation gain of  33 million that arose in the parent company in connection with the Impexbank acquisition is included here.
Trading profit from interest rate and credit products plays a subordinate role for Raiffeisen International, because the limits approved by the management are relatively small and are only employed selectively.
Nevertheless, profit from this type of proprietary trading improved by 108 per cent to  26 million. This is attributable to a valuation loss suffered in the preceding year from both Treasury bills in Slovakia and to gains at Impexbank, which has been consolidated in May 2006. Trading profit from equity-based transactions amounts to  7 million up from  2 million in the preceding year and derived mainly from activities in Croatia and in Bosnia and Herzegovina.
The dominant influence on net income from financial investments and current financial assets was the sale of the minority stake in Bank TuranAlem in Kazakhstan, which yielded net proceeds of  102 million. Altogether, the item amounts to  103 million after being  5 million in the preceding year. It includes, among other items, proceeds of  2 million from the sale of Market Investment Group d.o.o., Sarajevo, Bosnia.
Net income from other current financial assets declined from  6 million to  1 million. Particularly in Southeastern Europe, valuation prices of securities classified as current assets fell in contrast to the preceding year.
General administrative expenses increased in the year under review by 46 per cent, or  531 million, to  1.694 million. Additions to the scope of consolidation account for more than half of this increase (about  270 million). The organic rise in general administrative expenses compared with the preceding year amounts to only 22 per cent, or  261 million.
Staff expenses increased by 49 per cent, or  273 million, to  825 million and their share of general administrative expenses rose by 2 percentage points on the preceding year to 49 per cent. Organic growth was responsible for  129 million of that amount, while  144 million was attributable to the described changes in the scope of consolidation.
76 www.ri.co.at Pre face Managing Board Super v isor y Board‘s Repor t Over v iew In t e r v iew S tock especially software, accounted for  49 million of that (preceding year:  39 million). This item also includes extraordinary amortization of the Impexbank brand ( 5 million). As a result of Impexbank’s upcoming integration into Raiffeisenbank, the name is no longer of value.
Other operating profit/loss improved from a loss of  22 million to a value just above zero. Two factors contributed to this increase. Firstly, including Raiffeisen Real Estate Management Zrt., Budapest, Hungary resulted in the releases of negative goodwill of  8 million from the first-time consolidation. An impairment loss of  3 million was charged in the preceding year for Raiffeisen Krekova banka d.d., Maribor, Slovenia. The second factor concerns operating leasing business, where earnings increased from  4 million to  15 million. This business is mainly conducted in Croatia and to a small extent in Poland.
For reasons of materiality, the gains on deconsolidations that occurred in the year under review are shown in the separate line income from disposal of group assets of the income statement. The gain of  507 million derives primarily from a one-off effect, the sale of Raiffeisenbank Ukraine, which was deconsolidated when the sale closed in November 2006. The gain at the time of the deconsolidation amounted to  486 million. In addition, two other Group enterprises were divested, represented by two project companies belonging to Raiffeisen Real Estate Management, whose core business is the development and sale of real estate projects in Hungary. At  20 million, the net effect was significantly higher than in the previous years.
Raiffeisen International 2006 of consolidation declined in comparison with the preceding year, mainly attributable to the sale of Raiffeisenbank Ukraine in the fourth quarter, which took  1.6 billion in assets from the Group. The currency effect, i.e., the net effects from the different changes in CEE currencies, comes to  0.6 billion. The Group’s organic growth amounts to  13.5 billion, an increase of one-third compared with the end of 2005.
Lending to corporate customers rose by 37 per cent, or  5.9 billion and reached a value of  21.7 billion at year’s end. The increase in lending to retail customers amounted to 52 per cent, reaching a total of  12.4 billion at year’s end.
Securities, belonging to several valuation categories and balance sheet items but combined in the chart on this page, increased marginally by 12 per cent to  6.5 billion. However, there were some reallocations, particularly an increase of trading assets by 62 per cent at the expense of investments geared to the medium and longer term. Altogether, the share of securities in the balance sheet total decreased from 14 per cent to 11 per cent.
The share of other assets remained unchanged at 13 per cent. Liquid funds (cash reserves) increased by 40 per cent to  4.1 billion, while tangible and intangible assets together increased by  0.7 billion.
Loans and advances to banks Loans and advances to costumers Securities Other assets
The share of other liabilities rose slightly by 1 percentage point to 11 per cent. Included are liabilities evidenced by paper, i.e., funding via the capital market in the framework of issuing debt securities, which grew in the reporting period by 87 per cent to  1.4 billion, mainly due to issues in Slovakia.
Own funds, consisting of equity and subordinated capital, make up 11 per cent of the balance sheet total (plus 1 percentage point). The subordinated capital included in own funds rose by 144 per cent to  1.4 billion. In May 2006, hybrid Tier 1 capital was made available to the Group for the first time in the amount of  500 million.
Of the remaining subordinated capital, which is important mainly for the local regulatory purposes of subsidiary banks, 88 per cent was financed by RZB as Raiffeisen International’s main shareholder, and 12 per cent by supranational institutions.
Raiffeisen International increased its equity inclusive of consolidated profit and minority interests by 40 per cent, or  1,314 million, in the year under review. It amounts to  4,590 million at the balance sheet date (2005:  3,276 million).
Paid-in capital, consisting of subscribed capital and capital reserves, decreased by  10 million to  1,820 million as a result of share buy-backs, which were purchased because of the Share Incentive Program (SIP).
 1,182 million and retained earnings of  980 million. In addition to ploughed-back profits from 2005, the main contributing factors were the effects of exchange rate developments in the CEE countries (minus  34 million) and valuation gains arising from capital hedges ( 108 million) made to safeguard part of the exchange rate effects in equity.
Set against the increase are dividend payments for 2005 in the amount of  111 million. In June 2006, the annual general meeting of Raiffeisen International decided on a dividend of  0.45 per share, which adds up to  64 million. The remaining profit distributions are to minority shareholders of Group units.
Raiffeisen International is not a separate banking group within the meaning of the Austrian Banking Act (BWG) and therefore is not itself as group subject to banking regulations. The following figures have been calculated according to the regulations of the Banking Act and are accounted for within the scope of the RZB banking group. They are provided here for information purposes only.
Raiffeisen International’s consolidated own funds as defined by the Austrian Banking Act (BWG) came to  4,513 million at the year’s end 2006 (increase of 54 per cent, or  1,575 million).
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The core capital ratio, based on the banking book, rose by 0.8 percentage points to 9.8 per cent. The core capital ratio (including market risk), i.e., measured based on total risk assets of  41.0 billion, results in a value of 9.0 per cent at the end of 2006 (plus 1.0 percentage points). The own funds ratio increased by 1.2 percentage points to 11.0 per cent.
The corresponding local supervisory requirements, which in some cases diverge from EU regulations, are fulfilled by all affected Group units.
– Uniform rating methods are used throughout the Group – Credit guidelines are revised and approved during the annual budgeting and planning process. – There are clear Chinese walls between operational staff and all risk management personnel – Provisions for default on loans to corporate customers are formed mainly on a case-by-case basis that includes risk of loss. Provisions for default on loans to retail customers are based on the portfolio approach
– Generally, new product launches in the retail area are subject to head office approval
Further strengthening of infrastructure in the retail segment was the hallmark of 2006. Raiffeisen International launched a comprehensive framework for retail risk management that divides various areas (for example organization, portfolio management, and fraud prevention) into three complexity levels of and setting uniform standards for each. Every local retail risk organization performed a evaluation of existing credit risk structures based on these standards. Moreover, they agreed on country- and area-specific personnel development plans with central risk management in Vienna. These development plans then formed a key element in the process of negotiating personal targets for retail risk managers in the network banks. The self-evaluation also provided a yardstick for the extent of support that the individual banks received from the Head Offices (HO).
Several risk tools, guidelines, and procedures, besides the framework itself, were introduced. They included a standard stress test of a retail portfolio denominated in foreign currency or linked to a foreign currency, as well as detailed documentation for the formation and budgeting of provisions for personal banking customers and micro portfolios that supplements IAS 39 and the Group Financial Statement Handbook and contains clear guidelines. Also a comprehensive package for monitoring collection results and other collection tools were developed and have been introduced into the individual network units.
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No changes will be made in the emphasis of our risk management for 2007. The aim will continue to be the expansion of retail risk management. Raiffeisen International will further evaluate and promote infrastructure development based on the framework evolved in the past years. In view of the strong portfolio growth in general and especially in the CIS, Raiffeisen International’s risk management will concentrate in particular on collection, and on fraud detection and on prevention. Revenue growth will be supported by further standardization and rationalization of products and risk processes. Reporting platforms continue to be adjusted in order to improve valuation and depth analysis. For Basel II, staff is concentrating on introducing the concepts adapted in 2006. Moreover, data quality management is being strengthened.
In the area of corporate risk management, we continued to harmonize standards of Group-wide risk management in 2006. Lending principles as well as the structural and process organization are set forth in a credit manual (in accordance with Basel II and the standards of the Austrian Financial Market Authority, FMA). It covers, inter alia, principles concerning the application of uniform risk evaluation methods, credit handling and decision processes, and guidelines for a country-specific risk policy. The credit handbook applies to all companies of Raiffeisen International.
Local risk management units are implemented in each network unit to evaluate and manage country-specific risks in line with the local market conditions. The network units are granted local approval authorities which depend on the size of the respective network unit and on additional country-specific factors and which are approved centrally by the bodies of Raiffeisen International in Vienna. Transactions that exceed the network unit’s local approval authority are examined by Head Office risk management in Vienna, assigned a recommendation, and passed on for decision to the responsible supervisory board. Intensive training and exchange programs supported the correct application of Group-wide uniform standards. For example, about 60 corporate risk managers, corporate credit officers, and senior corporate account managers passed several one-week credit analysis and risk management workshops. Internships and training-on-the-job modules in Vienna promote close contact with the central units.
In the process of transforming the leasing area of Raiffeisen International, which started in 2006, we placed special importance on closely connecting the local leasing companies with the respective network banks. The leasing companies’ risk management units were put under a functional reporting line to the risk management of the respective network bank or integrated completely into it. The transformation process aims at increasing the efficiency of the credit process and at a coherent and consistent risk management in the respective local banking and leasing institutions.
Operations and IT The main priority within Operations and IT in 2006 was to build the right infrastructure to support the fast growth in retail business, especially in retail lending and in the countries with the highest transaction volume and planned growth, namely Romania and the CIS.
The transformation process for Raiffeisen Bank Aval in Ukraine started with a focus on implementation of group wide standards on risk management, audit, security and other vital banking areas. The
A decision was made to establish a new regional payment center for the group in Romania. This center will start operations in 2007 and will firstly concentrate on centralizing all SWIFT traffic and later also on central processing and routing of cross-border payments. As a next step it is envisaged to concentrate all Single European Payments Area (SEPA) transactions.
The 6 Sigma inititiative which was started in 2004, also led to the completion of several business process improvement projects across all networkbanks and business areas contributing significantly to increased productivity, while improving service levels at the same time. A recent success in this area was the reengineering of payment processing at Raiffeisenbank Bulgaria which led to 50 and 70 per cent less processing time for domestic payments, foreign payments respectively.
Process re-engineering was followed by centralization of processing and of modern scanning and workflow technology. Another example was the improvement of application processing for micro lending at Raiffeisenbank in the Czech Republic. The time to approval was reduced from three days to 24 hours which led to three times the business volume as before the change.
Raiffeisen International started utilizing open source products such as Open Office. Especially in Russia and Ukraine this step promises high cost saving potential. In addition several other IT-related cost saving initiatives were launched, for example central IT production, server consolidation, and outsourcing of print services.
Again Raiffeisen International continued the growth of recent years in 2006. Our acquisition of Impexbank in Russia and eBanka in the Czech Republic, in particular, led to a significant increase of personnel. The continuous organic growth of our network banks likewise contributed substantially to the rising number of employees. That Raiffeisen International is a young and dynamic company is also clearly reflected in our personnel structure. The average employee age in all group organizations is 34 years. The staff of Raiffeisen International is highly qualified. That is shown by the high ratio of university graduates, which stood at 70 per cent in 2006. In some countries, there are relatively large divergences from this average. Such country-specific differences are explained partly by differing labor market structures and educational systems and partly by the respective macroeconomic situations. This is also true of the company’s ratio of female employees, which averaged 68 per cent in 2006.
Processes of change present special challenges for a company’s development and training activities. For that reason, the integration of Bank Aval, acquired in 2005 and now named Raiffeisen Bank Aval, is a focal point of personnel development for Raiffeisen International.
We plan to continue and widen the program for developing management capacities in 2007 by adding further training modules.
Within only five years, the number of Raiffeisen International employees has increased fivefold to more than 54,700 persons at the end of 2006. Performance management, as a cyclical business process for measuring, improving, and rewarding the achievements of individual employees, is a key element for guiding this rapid growth according to plan. Performance management serves to implement Group strategy because the individual planning targets of the employees are adapted by this process to the company’s goals. Clear positioning in the value chain gives the individual employee orientation in the fulfillment of his or her functions. Objective evaluation of individual achievement, regular feedback, and appropriate recognition have a positive effect on the motivation of individual employees and thereby promote the efficiency of the entire company.
– Redesign of the performance management systems for the top and middle management levels of the network banks.
– Execution of standardized performance management refresher courses in all countries.
Further projects to promote Group-wide performance management standards will also be carried out in 2007 with some extending into 2008.
In supporting strategic initiatives through continuing education measures, we have paid special attention to employees in retail business.
In the area of retail risk management, we have further expanded our offering for network banks of international training programs, which are uniform throughout the Group. It now comprises 16 modules, with which Raiffeisen International – in cooperation with international training providers – ensures comprehensive continuing education for employees involved with retail risk at all network banks.
The management training programs for senior and junior executives have been expanded further in the individual network banks, based on the key competency model that is standard in Group.
Altogether, about 180 of the 500 most important management employees made use in the reporting year of executive training courses and individual development programs that are geared to each person with central coordination.
To have a broad basis of management talents, we have started new programs in most network banks so that Raiffeisen International will be able in the future to get the best people, develop their skills, and ensure their long-term loyalty. To that end we have, for example, intensified cooperation with local universities, set up trainee programs and defined development paths.
For the period to 2009, we anticipate annual growth of our balance sheet total by at least 20 per cent. The largest increases should continue to come from the CIS despite the absence of Raiffeisenbank Ukraine.
We forecast a return on equity (ROE) before tax of more than 25 per cent. The cost/income ratio is expected to be below 58 per cent. We have set a target for the risk/earnings ratio of about 15 per cent.
The CIS segment registered an exceptionally large increase of profit before tax of  728 million to  879 million (plus 482 per cent). That increase was shaped especially by one-off and extraordinary influences in addition to strong organic growth. The changes in the scope of consolidation (initial consolidation of Impexbank in May 2006 and of Raiffeisen Bank Aval in November 2005), the sale of a 100 per cent stake in Raiffeisenbank Ukraine in October 2006, the proceeds from the sale of a minority stake in Kazakhstan-based Bank TuranAlem, and a one-off net valuation gain in the parent company connected with the Impexbank acquisition.
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Central Europe The region of Central Europe, where Raiffeisen International has been present since 1987 and hence the longest, is still the largest with a 41 per cent share of assets (43 per cent in the preceding year). For 2006, the region shows asset growth of 34 per cent to  23.2 billion. Its risk-weighted assets rose by 33 per cent to  17.2 billion. The growth on the asset side is only due to a small extent to the takeover of eBanka in the Czech Republic (balance sheet total of  800 million).
Raiffeisen International’s acquisition of eBanka closed in October 2006. The price of the 100 per cent stake came to  130 million. This acquisition has increased by more than 70 per cent the number of Raiffeisen International customers in the Czech Republic, which stands at about 310,000 as of the balance sheet date.
Despite a slightly lower net interest margin, net interest income rose by 17 per cent from  514 million to  603 million.
Proceeding from an already high level in the preceding year, net commission income rose by  75 million to  343 million. The continuous growth is based on steadily increasing business volume, which led to higher fees and commissions especially in payment transfers and in securities business. The largest increases in fees and commissions in Central Europe were registered in Poland (plus 182 per cent) and Hungary (plus 86 per cent).
Trading profit amounts to  42 million and is thus at a similar level as in the preceding year, although earnings developed differently in the Group units. Net valuation gains of security investments especially improved in Slovakia, while declines were registered in Poland and Hungary due to fluctuating exchange rates.
The Retail Banking segment, Raiffeisenbank is an important player in the lending business. The total volume of new mortgages granted reached the counter value of  254 million in 2006. This 114 per cent increase is the highest in the local market. Furthermore, the bank also offers a wide range of savings and investment products. It was the first in the Czech Republic to offer investment certificates.
Raiffeisenbank also plays an important role in providing services to corporate customers. In 2006, the Corporate Banking division recorded the best result in its history, with lending increasing by 54 per cent to  1.8 billion. The bank continued its expansion in structured financing and, above all, in the financing of real estate projects. Furthermore, Raiffeisenbank is one of the three strongest local institutions in project finance. There has been proven success in factoring and trade and export
94 www.ri.co.at Pre face Managing Board Super v isor y Board‘s Repor t Over v iew In t e r v iew S tock financing, with a market share of approximately 7 per cent. As a result of the record loans growth and plans for further dynamic development, the bank has increased its capital by  40 million to  168 million.
Raiffeisen Bank Zrt. began business operations at the beginning of 1987. With a balance sheet total of  6.3 billion, it is the country’s sixth largest bank. Raiffeisen Bank just concluded the three-year fasttrack expansion of its branch network by opening 51 new units to reach a total of 122 banking outlets. The number of personal banking customers passed a milestone when the bank acquired its 400,000th customer in November 2006. Currently, Raiffeisen Bank serves more than 30,000 small and mediumsized enterprises and 6,500 corporate customers.
Raiffeisen Bank Polska S.A. was founded in 1991 and focuses on private individuals as well as on small and medium-sized enterprises. 2006 was a very successful year for the entire Polish banking sector and particularly for Raiffeisen Bank Polska. Its dynamic market expansion and the record results achieved were the result of excellent economic conditions and efficient preparations by the bank for operations in an increasingly competitive environment. The bank succeeded in increasing its loan portfolio by 35 per cent to  2.7 billion, while deposits grew by 31 per cent to  2.8 billion. Total assets amounted to  4 billion at the end of the year, an increase of 40 per cent compared with 2005.
The high quality of customer service and the attractive products are highly appreciated by clients and recognized in the market. Raiffeisen Bank Polska has won the Friendly Bank competition organized by Newsweek for the second year in a row and was once again acknowledged as “Best Bank” in Poland by industry magazine Gazeta Bankowa.
Raiffeisen Krekova banka d.d. was founded in 1992 and acquired by Raiffeisen International in 2002. With a balance sheet total of approximately  958 million (plus 5 per cent) as at year-end 2006, it ranks tenth on the local banking market. The bank focuses its business activities on private individuals as well as on small and medium-sized enterprises and services its customers via 14 banking outlets. It was the first bank in Slovenia to gain a license for selling foreign investment funds.
In 2006, Raiffeisen Krekova banka reinforced its position as market leader in the segment of investment products. Assets under management in Raiffeisen Capital Management’s funds, which are distributed by Raiffeisen Krekova banka, amounted to  182 million (plus 70 per cent compared with 2005). By launching a guarantee and an index certificate in November 2006, the bank also took the local lead in derivative securities. Looking ahead, the product range will be complemented by investment certificates and investment funds, and institutional investors will become another focal point of the bank’s business efforts.
Founded in 1991, Tatra banka a.s., is now the third-largest bank in Slovakia by total assets with a balance sheet total of  6 billion (plus 24 per cent). The bank has been considered a long-time leader in areas such as corporate banking, electronic banking, treasury, asset management, payment cards and private banking. Through its network of 145 business outlets, it offers a comprehensive range of banking services for its 650,000 retail and 2,800 corporate customers (plus 6 and 34 per cent, respectively).
In 2006, the bank increased its total loans by almost 48 per cent to more than  3 billion, making it the country’s number two in that respect. Deposits increased by almost 20 per cent to  4.6 billion. A market share of approximately one third makes the local asset management company a clear market leader.
The return on equity improved by 5.6 percentage points to 28.2 per cent.
Thanks to the increase of business volume and slightly higher net interest margin, net interest income grew by 32 per cent to  560 million. Balance sheet assets increased by 35 per cent to  18.8 billion, with Southeastern Europe continuing to account for 34 per cent of total assets. Risk-weighted assets rose by 34 per cent to  12.6 billion.
Share of profit before tax (excl. one-off effects) 32.0% 33.0% (1.0 PP)
Net commission income grew by 34 per cent to  268 million, which was achieved primarily by higher income from payment transfers and credit business. The largest relative increases of net commission income were registered in Serbia (plus 72 per cent) and Romania (plus 33 per cent).
Trading profit grew by one-fifth to  51 million. Development was mixed among the region’s individual countries. Strong increases due to the revaluation of the Romanian currency by 8 per cent stood in contrast to somewhat weaker net investment income in other countries.
Other operating profit (loss) went up from minus  1 million to plus  12 million, due primarily to higher income from operating leasing business.
Raiffeisenbank (Bulgaria) EAD was founded in 1995. Following another successful year, its balance sheet total amounted to  2.4 billion at year-end 2006, up 70 per cent. Its distribution network has expanded by 37 locations to 111 outlets. 147 mobile bankers complement the bank’s presence on the local market.
Raiffeisenbank Austria d.d. was founded in 1994 and quickly developed into one of the country’s leading banks. With a market share of 11 per cent and total assets of  4.6 billion as at year-end 2006, it is the fourth largest bank in Croatia. The bank’s network comprised 48 business outlets at year end 2006, expanding by nine during the year. In 2006, loans to corporate customers grew by more than one third to total  768 million. In spite of fierce competition, the bank succeeded in increasing its corporate deposits by 38 per cent to  956 million.
Small and medium-sized enterprises were the subject of special focus and sales efforts, resulting in an increase in credit activities of 49 per cent to  333 million. Out of a total population in Croatia of 4.4 million, Raiffeisenbank services over 478,500 private individuals. In 2006, the bank recorded a growth of 11 per cent to  1.28 billion in deposits, and the loan portfolio in that sub-segment increased likewise, to  1.36 billion. More than 14,000 new credit cards (up 29 per cent) and more than 57,000 new debit cards (up14 per cent) were issued in the year. With a market share of about one third the local asset management company is clearly leading the investment fund-market in Croatia. In Investment Banking, Raiffeisenbank achieved success as Joint Lead Manager and Joint Bookrunner for the Initial Public Offering of INA, the country’s largest company.
Raiffeisen Bank Kosovo S.A. was founded in November 2001 as American Bank of Kosovo. Raiffeisen International finalized its full acquisition and renamed the bank in 2002. It maintained its position as the second largest bank in Kosovo with total assets of  372 million (up 41 per cent), corresponding to a market share of 35 per cent. The bank operates in a small but dynamic market. The market trends are quite variable and unpredictable due to the fact that Kosovo is characterized by a rapidly changing political, economic and social environment.
Raiffeisen Bank S.A. commenced operations in 1998 and was merged with Banca Agricola in 2001. With a balance sheet total of  4.6 billion (plus 40 per cent) the bank operates a countrywide network of 266 outlets (2005: 216). The bank services 2.1 million individuals, 130,000 small or medium-sized enterprises and 5,000 corporations.
The volume of total loans to private customers doubled to  986 billion. Small loans, which were the core credit business, accounted for to about  400 million. Mortgage loans grew to over  300 million. The first mortgage centers in the country were opened in April 2006 and accounted for about 10 per cent of that growth. These units specialize in housing loans and provide consultancy throughout the entire buying process. “Raiffeisen Exclusive”, the new private banking trademark, contributed half of the overall increase in deposits of more than 14 per cent to  705 million.
In corporate banking, the bank focused on supporting its customers in developing a smooth conversion to new requirements related to the EU accession. Corporate business continued to show a consistent growth on both sides of the balance sheet, with total loans expanding by 63 per cent to  1.27 billion and deposits by 47 per cent to  1.39 billion.
Raiffeisen banka a.d., the first foreign bank following the political changes in fall 2000, began operations in 2001 and has been Serbia’s largest bank since November 2004. The bank increased its balance sheet total by 56 per cent to  2.2 billion during the reporting period. Its more than 425,000 customers (an increase of 37 per cent) are serviced via a local network of 68 business outlets (plus 23).
Raiffeisen banka has continued a satisfactory trend in the development of its private individual subsegment in 2006. The loan portfolio grew by 39 per cent to  352 million, while deposits advanced by more than one third to  548 million. The total number of VISA revolving cards doubled to almost 127,000. This translates into a market share of 15 per cent. The number of small and medium-sized enterprise customers increased by more than half and amounted to 17,600. The respective loan portfolio grew by 43 per cent and amounted to  144 million at year-end.
As in the preceding year, the CIS again had the highest growth rates in almost all areas in 2006. The earnings contribution from the region increased substantially not only because of Raiffeisen International’s last acquisitions, but also because of the strong growth of existing Group units, especially in Russia, and one-off effects.
The development of provisioning for impairment losses reflects the organic and acquisition-driven growth of the credit portfolio. Provisioning for impairment losses rose from  55 million to  127 million, which means an increase of 130 per cent. Newly consolidated units predominantly account for the allocations. The risk/earnings ratio increased slightly, from 20.9 to 21.2 per cent.
Net commission income amounts to  322 million with a striking increase of 134 per cent and is based largely on business expansion in transfer payments and in card business. Raiffeisen Bank Aval in Ukraine made the largest contribution to net commission income of  132 million.
Trading profit rose by 307 per cent, or  62 million, to  83 million. In addition to the newly consolidated Impexbank (contribution of  8 million), all other Group units likewise show significant increases. An extraordinary effect was the net valuation gain of  33 million that arose in the parent company in connection with the Impexbank acquisition.
Because of Raiffeisen International’s pursuit of expansion in the CIS markets, general administrative expenses rose almost in line with income. The increase by 171 per cent to  573 million is mainly due to the expansion of business and measures to integrate Impexbank and the full consolidation of Raiffeisen Bank Aval. Of course, this was also driven by the significant rise in the average number of staff from 8,373 to 25,313 (a catch-up effect of integrating Raiffeisen Bank Aval in fall 2005) and expansion of the distribution network in Russia and Belarus. In Russia, 203 business outlets were added by the acquisition of Impexbank. In Ukraine, 38 business outlets were lost in connection with the sale of Raiffeisenbank Ukraine. The cost/income ratio rose from 50.9 to 57.9 per cent, which is largely due to the retail emphasis of Raiffeisen Bank Aval and Impexbank.
Other operating loss increased by  10 million to  15 million and is to be attributed to newly integrated Group units. The reduction mainly concerns  7 million in taxes not dependent on income. The sale of 100 per cent of the shares in Raiffeisenbank Ukraine to OTP Bank Zrt. in Hungary with a net effect of  486 million contributed an extraordinary 55 per cent to segment earnings.
OAO Priorbank was founded in 1989. Having acquired the majority of the bank’s shares in 2002 and 2003, Raiffeisen International owned 63.05 per cent of the bank’s shares at year-end 2006. Since the time of acquisition, Priorbank’s total assets have increased fivefold (26 per cent in 2006, up to  809 million). It is the third largest bank in the country by balance sheet total, and services its customers through 62 business outlets, 19 more than the previous year.
In 2006, several credit products were implemented for corporate customers, such as structured financing for oil trading companies and working capital lines for trading and manufacturing companies. All these measures resulted in an increase in the corporate loan portfolio of 12 per cent to  381 million.
Priorbank was awarded the title “Best Bank” by Global Finance and Euromoney, by the latter for the second year running.
ZAO Raiffeisenbank Austria started its business activities in 1997. Its total assets of  6.5 billion were up 65 per cent compared with year-end 2005. Raiffeisenbank confirmed its reputation as a reliable partner in providing top-quality services to Russian and foreign companies operating in the country. 14 new branches were opened during the year under review, bringing the number of local outlets to 41.
Raiffeisenbank’s dynamic development and commitment to the highest standards of transparency and reliability are time and again illustrated by local and international awards, e.g. “Best Overseas Bank in Russia” and “Best Bank for Treasury and Cash Management” by Global Finance magazine and “For trust in the Russian market” by Finans magazine.
In 2007, OAO Impexbank, acquired by Raiffeisen International in 2006, is scheduled to be merged with Raiffeisenbank making it the largest western bank in Russia. The combined market share of Raiffeisen currently reaches 2.1 per cent. The management of Raiffeisen International assumes a doubling of the added balance sheet total by 2009.
One of Impexbank’s most important services is the money transfer service Bystraya pochta (rapid mail). The volume of transfers increased by 80 per cent in 2006, and exceeded  620 million. With a market share in the CIS of 11 per cent, the bank is among the top-5 Russian providers of money transfers. With 500 cash dispensers, Impexbank is in possession of one of the country’s largest ATM networks. The bank has 330,000 debit cards in operation.
Business with small and medium-sized enterprises is another focal point. Total loans for this customer group amounted to  267 million at year-end 2006, corresponding to an increase of 30 per cent. Deposits amounted to  181 million, and lending to corporate customers reached  293 million.
There are no conversion or option rights outstanding, so undiluted earnings per share are equal to diluted earnings per share.
Net interest income after provisioning 1,455,004 1,034,838 40.6% Commission income 1,108,855 718,556 54.3%
Net commission income (4) 933,289 606,639 53.8% Trading profit (5) 174,823 100,997 73.1%
Net income from financial investments and current financial assets (6) 103,187 10,908 >500.0%
Profit before tax 1,479,612 568,557 160.2% Income taxes (9) (205,240) (108,964) 88.4%
Net interest income after provisioning 322,829 341,953 356,630 433,593 Net commission income 184,971 230,586 245,374 272,358
Net interest income after provisioning 230,137 242,116 249,352 313,233 Net commission income 133,433 146,801 150,915 175,490
Profit after tax 109,295 111,807 113,840 124,651 Minority interests in profit (16,524) (18,772) (20,593) (21,371)
Equity as of 1/1/2005 382,140 935,410 313,087 209,437 336,957 2,177,031 Capital increases 52,378 500,395 - - 70,923 623,695
Equity as of 1/1/2006 434,228 1,395,626 589,031 382,334 475,144 3,276,363 Capital increases - - - - 73,335 73,335
Own shares / share incentive program (509) (5,831) (687) - - (7,027)
The annual general meeting held on 7 June 2006 authorised the Managing Board to increase the subscribed capital by up to € 217,258,695.65 issuing up to 71,385,000 no-par bearer shares. At the same time the authorisation of the Managing Board pursuant to Section 169 of the Austrian Stock Corporation Act to increase the capital up to € 12,917,387.13 in the period to 8 March 2010 – even excluding subscription rights for existing shareholders – was withdrawn.
Adjustments from foreign currency translation (equity) and the capital hedge directly booked in retained earnings developed as follows: Exchange differences
As of 1/1/2005 (143,532) 2,183 Net changes in financial period 114,897 (57,469)
As of 1/1/2006 (28,635) (55,284) Net changes in financial period (34,186) 108,119
Profit after tax 1,274,372 459,593 Non-cash positions in profit and transition to net cash from operating activities: Write-downs/write-ups of tangible fixed assets and financial investments 171,253 127,319
Subtotal 1,625,020 642,575 Changes in assets and liabilities arising from operating activities after corrections for non-cash positions: Loans and advances to banks and customers (14,871,493) (11,287,682)
Net cash from operating activities 382,669 1,519,373 Proceeds from sale of: Financial investments and equity participations 2,144,539 2,751,647
Net cash from investing activities (96,440) (1,237,019) Capital increases 66,956 623,695
The cash flow statement shows the structure and changes in cash and cash equivalents during the financial year and is broken down into three sections: operating activities, investing activities and financial activities.
Net cash from operating activities comprises inflows and outflows from loans and advances to banks and customers, trading assets, and other assets. Further inflows and outflows from deposits from banks and customers, liabilities evidenced by paper, trading liabilities and other liabilities are shown in operating activities. The interest and dividend received from operating activities are also reflected in net cash from operating activities.
Net cash from investing activities shows inflows and outflows from financial investments, tangible and intangible assets, proceeds from disposal of group assets, and payments for acquisition of subsidiaries. The impact on liquidity of acquired and sold subsidiaries is shown on page 115 ff.
This consolidated financial statement was signed by the Managing Board on 1 March 2007 and subsequently submitted to the Supervisory Board for review and approval (ascertainment).
The consolidated financial statements for the financial year 2006 and the comparative figures for the financial year 2005 were prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) and the international accounting standards adopted by the EU on the basis of IAS Regulation (EC) 1606/2002 including the interpretations of the International Financial Reporting Interpretations Committee (IFRIC/SIC) that were already applicable. All standards have been applied that have been published by the IASB in the 2006 International Financial Reporting Standards as International Accounting Standards to be applied to financial statements for 2006, and have been adopted by the EU.
The consolidated financial statements are based on the IASB framework and on the following relevant IAS/IFRS: IAS 11, IAS 20, IAS 31, IAS 41 and IFRS 4 are not applied as there were no relevant business transactions in the Group during the financial year.
The consolidated financial statements are based on the reporting packages of all fully consolidated Group members which are prepared according to uniform Group standards and IFRS rules. All fully consolidated companies prepared their annual financial statements as of 31 December. Figures in these financial statements are stated in thousands of euros.
Associates and deferred taxes were not accounted for separately in the Income Statement and on the Balance Sheet. Details are provided under the appropriate headings in the Notes.
In the course of capital consolidation, all identifiable assets, liabilities and contingent liabilities of the subsidiary are measured at their fair values on the acquisition date according to IFRS 3. The acquisition costs are offset with the proportional net assets. The resulting positive differences are capitalised as goodwill. The goodwill is tested annually for impairment, or more frequently, if events or changes in circumstances indicate impairment. Impairment test was carried out on the basis of the updated respective calculation models of the individual subsidiaries. According to IAS 36.99, the calculation model of the previous years can be used if the goodwill is unlikely to be lower. In view of the results, we concluded that the goodwill is definitely higher at the balance sheet date than in the past years and there is no need for impairment. Negative differences arising within initial consolidation will be recognised immediately in profit.
Companies of Raiffeisen International Group use brands to differentiate their services from the competition. According to IFRS 3, brands of acquired companies have been recognised separately under the item intangible fixed assets. Brands have an undeterminable useful life and are therefore not subject to scheduled amortisation. Brands have to be tested annually for impairment and additionally whenever indications of impairment arise. The value of brands was determined using the comparable historical cost approach, because neither immediately comparable transactions nor a market with observable prices were available at the time of purchase price allocation. Documentation of brand-related marketing expenses in the previous years was taken as the data base for the historical cost approach.
If customer contracts and associated customer relationships are acquired in a business combination, they must be recognised separately from goodwill, if they are based on contractual or other rights. The acquired companies meet the criteria for a separate recognition of non-contractual customer relationships for existing customers. The customer base is valued using the multi-period excess earnings method based on projected future income and expenses allocable to the respective customer base. The projections are based on planning figures for the corresponding years.
Included for the first time in the financial period 45 29 - -
The following table shows the assets and liabilities revalued as of the acquisition date: €000 IMPEX* EBANKA Total
Assets 1,672,897 704,006 2,376,903 * Figures are on a consolidated level with Vneshleasing
www.ri.co.at Preface Managing Board Supervisory Board‘s Report Overview Interview Stock €000 IMPEX* EBANKA Total
Goodwill (312,960) (75,580) (388,540) * Figures are on a consolidated level with Vneshleasing
The effect of acquired subsidiaries on liquidity is shown as follows: €000 IMPEX* EBANKA Total
Cash flow for the acquisition of subsidiaries (384,491) (89,493) (473,985) * Figures are on a consolidated level with Vneshleasing
As of the acquisition date, Impexbank had a balance sheet total of € 1,664,443 thousand, and its equity was € 155,743 thousand. Due to the takeover of Impexbank, OOO “Vneshleasing“, a company operating in equipment leasing, was also consolidated for the first time as of 1 May 2006. The company reported a balance sheet total of € 34,155 thousand and equity of € 2,496 thousand at the acquisition date.
eBanka a.s., Prague, was included in the consolidated financial accounts as of 1 November 2006 for the first time. The contract to purchase 100 per cent of the shares in eBanka a.s. which operates in the retail business was signed in July 2006. The deal closed at the end of October 2006. The purchase price for the acquisition of eBanka was € 130,000 thousand. As of the acquisition date, the balance sheet total of eBanka amounted to € 704,006 thousand, and its equity was € 54,420 thousand. In the context of allocating the purchase price pursuant to IFRS 3, intangible fixed assets were identified as follows: The value of the eBanka brand was € 4,191 thousand as of 1 November 2006. The acquisition cost of the existing customer base in the retail segment came to € 4,683 thousand. The existing customer base is amortised over five years.
Some new companies were founded in the leasing business: Raiffeisen-Leasing sh.a., Tirana, and TOV „Raiffeisen Leasing Aval“, Kiev, will focus at first on movables and motor vehicle leasing. Two other new companies were founded, both leasing specialists in Serbia: Raiffeisen Rent doo, Belgrade, will engage in operating leasing, and RLOL ESTATE 1 d.o.o., Belgrade, is active in real estate leasing. In Poland, Vela SP z o.o, Warsaw, was founded in connection with a securitisation deal for Polish leasing receivables. In the financial year eight newly founded project companies of Raiffeisen-Leasing Real-Estate s.r.o., Prague, were included for the first time. These companies operate in project finance leasing of real estate.
In April 2006, a new company was founded in Jersey, RI Finance (Jersey) Limited, St. Helier. In May, new hybrid Tier 1 capital amounting to € 500,000 thousand was made available to the Group. Raiffeisen International’s share of the voting capital is 100 per cent.
In the financial year, a 100 per cent share in JSCB Raiffeisenbank Ukraine, Kiev, was sold to the Hungarian OTP Bank Zrt., Budapest. At the time of deconsolidation, JSCB Raiffeisenbank Ukraine reported a balance sheet total of € 1,591,567 thousand and had 42 business outlets. The selling price totalled € 650,000 thousand. The transaction closed in November 2006 and Raiffeisen International realised gains on the disposal of group assets of € 486,479 thousand as of 1 November 2006, the date of deconsolidation.
In December 2006, Raiffeisen Ingatlan Vagyonkezelö Kft. (SCT02) sold its 75.3 per cent share in SCTFO Fogarasi UT Kft. to OROC Group, Endurance Asset S.a.r.l, Luxembourg. The selling price for this shareholding came to € 3,709 thousand and income from disposal of group assets was € 3,591 thousand.
The following table shows assets and liabilities of the sold subsidiaries as of the disposal date: €000 RBUA POC* SCTFO Total
Income from disposal of group assets 486,479 16,484 3,591 506,553 * Figures are on a consolidated level with POCM Kft.
The effect of sold subsidiaries on liquidity is shown as follows: €000 RBUA POC* SCTFO Total
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. The resulting gains and losses from currency translation are shown in equity without affecting profit and are separately shown in the statement of changes in equity, insofar as the hedging relation is effective. The ineffective part of this hedge relation is recognised in profit. The related interest components are shown in net interest income.
These instruments are measured at fair value according to IAS 39. They are stated under the balance sheet item other current financial assets, current income is shown under net interest income, and valuation gains and losses and proceeds from sale are stated in net income from financial investments and current financial assets.
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 or any of the other three categories. They are stated at fair value, if a fair value is reliably measurable. Valuation differences are shown directly in equity and only recognised in the income statement if there is an objective indication of impairment. Only in the case of debt instruments such impairments are recognised in the income statement. In case of equity instruments, such impairments are booked versus equity. This kind of financial instruments is reported under financial investments or other current financial assets.
Liabilities are recognised at amortised cost. Discounted debt securities and similar obligations are measured at their present value.
Derivative instruments held to hedge the fair values of individual balance sheet items (except trading assets/liabilities) are recognised at their fair values (dirty prices) under other assets (positive dirty prices) or other liabilities (negative dirty prices). Changes in the carrying amounts of hedged items (assets or liabilities) are allocated directly to the corresponding balance sheet items and reported separately in the notes. Both the effect of changes in the carrying values of positions requiring hedging and the effects of changes in the clean prices of the derivative instruments are recorded under other operating profit/loss (net result from hedge accounting).
In the case of identity of borrower and lender, offsetting of loans and liabilities with matching maturities and currencies occurs, only if a legal right, by contract or otherwise exists and offsetting is in line with the actually expected course of the business.
Credit risk is accounted for by making specific 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. Specific and portfolio-based impairment provisions are not netted against corresponding receivables but are stated separately in the balance sheet.
Other shareholdings are categorised as designated financial instruments at the balance sheet date if reliably measurable market prices are available and are measured at fair value. Changes in value are therefore recognised in profit. If there is no active market for other interests or if a fair value is not reliably measurable, they are categorised as available for sale. The changes in value are directly shown in equity without effecting income statement.
Under this item, internally developed and acquired software, brand rights, acquired customer bases and especially goodwill are stated. Goodwill and other intangible fixed assets without definite useful lives are tested for impairment at every balance sheet date. Whenever events or changes in circumstances indicate that the expected benefit no longer exists, impairment must be made pursuant to IFRS 3.
Acquired intangible fixed assets (software, and customer base) with determinable useful lives are capitalised at cost and amortised over their estimated useful lives.
Internally developed intangible fixed assets comprise without exemption software. Software is capitalised if it is probable that the future economic benefits attributable to the asset will accrue to the enterprise and the cost of the asset can be measured reliably. The useful life of software is between four and six years and may be longer for major software projects. The useful life of the acquired customer base was set at seven years for corporate customers and for the acquired customer base in the retail segment of Raiffeisen Bank Aval at 20 years and for Impexbank and eBanka at five years.
An operating lease exists if the lessor bears all risks and enjoys the rewards of ownership. The leased assets are reported by the lessor under fixed assets and depreciated in accordance with the principles applicable to the type of fixed assets involved.
The actuarial calculation of pension obligations for active employees is based on an interest rate of 4.5 per cent per year (2005: 4.25 per cent per year) and an unchanged effective salary increase of 3 per cent per year and an unchanged individual career trend of 1.5 per cent per year, respectively. The parameters for retired employees are an interest rate of 4.5 per cent per year (2005: 4.25 per cent per year) and an expected increase in retirement benefits of 2 per cent per year (2005: 2 per cent per year). 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 recognised 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 an interest rate of 4.5 per cent per year (2005: 4.25 per cent per year), an unchanged average increase in salary of 3 per cent per year and an unchanged individual career trend of 1.5 per cent per year.
The balance sheet 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 with the creditor renouncing prior notice, for which interest is paid only from the profit (before reserve transactions) and which can be repaid in the case of solvency only after all other debtors are satisfied.
The number of common shares in Raiffeisen International Bank-Holding AG to be actually transferred will depend on meeting two performance criteria: the targeted average return on equity (ROE) and the total shareholder return (TSR) for Raiffeisen International Bank-Holding AG shares in relation to TSR s of shares in the DJ EURO STOXX BANKS – index after a three-year holding period. Moreover, beneficiaries have to be in active service for Raiffeisen International. SIP participation is voluntary.
Trading profit comprises the customer margins resulting from the foreign exchange business, results due to foreign exchange -revaluations and all realised and unrealised gains and losses from financial assets and liabilities at fair value. In addition, it includes all interest and dividend income attributable to trading activities and related refinancing costs.
According to IFRS 30 transactions arising from the holding and placing of assets on behalf of third parties are not shown in the balance sheet. Fees arising from these transactions are shown under net commission income.
The basis for primary segment reporting according to IAS 14 is Raiffeisen International’s internal management reporting system which is mainly customer-oriented. Business is divided into the following segments: • Corporate customers • Retail customers • Treasury • Participations and other
Small and medium-sized companies belong to corporate customers if their annual sales are at least € 5 million or clearly relate to project or trade finance. All other small and medium-sized enterprises are included in the Small Entities subsegment of the retail segment.
The Public sector and companies owned by state-owned entities and institutions are also part of corporate customers. The public sector comprises all public sector entities such as ministries, provinces, municipalities and similar public corporations. Embassies and trade representations also belong to this segment.
Retail customers are all private individuals (consumers), self-employed (Micro) and small and medium-sized enterprises with annual revenues of less than € 5 million (Small Entities), whereby smaller country-specific deviations may occur. They are offered standardised products such as saving books and saving deposits, time deposits, current and salary accounts, consumer credits, overdraft lines, credit cards, and mortgages as well as other earmarked loans.
Own-account trading involves on-balance and off-balance sheet interest and currency products (futures, and options) which include money market transactions, currency transactions, cash management, refinancing and asset/liability management (maturity conversion).
Whereas the entirety of the Group’s proprietary trading is shown in the treasury segment, treasury activities carried out on customers´ account are recognised in other segments like corporate customers and retail customers. That part of proceeds exceeding market prices is assigned to the customer segments.
Raiffeisen International applies two central steering benchmarks: • The return on equity before taxes is the ratio that states the profit before tax to average equity employed and expresses the return on capital employed.
Segment reporting is based on Raiffeisen International’s internal management income statement which is similar to a multi-stage contribution costing calculation. Income and expenses are allocated according to the causation principle. Income items are interest income, commission income, trading profit and other operating income. Net interest income is calculated using the market interest rate method. Net interest received from equity is apportioned to individual segments on the basis of regulatory capital requirements and recognised under net interest income.
Provisioning for impairment losses on loans and advances consists of net allocations of impairment losses on credit risks, direct write-downs as well as income received from written-down claims. General administrative expenses include direct and indirect costs. Direct costs (staff expenses and other administrative expenses) are incurred by business segments while the indirect costs are allocated according to agreed ratios.
The risk-weighted assessment base pursuant to Section 22 of the Austrian Banking Act (BWG) serves as sector-specific substitute for segment assets (including market risk).
Net interest income after provisioning 355,320 555,118 119,924 4,475 1,034,838 Net commission income 247,100 349,802 8,853 884 606,639
Profit before tax 336,773 117,607 184,128 (69,952) 568,557 Basis of assessment (incl. market risk) 14,356,058 8,905,963 4,822,625 1,829,510 29,914,156
Net interest income after provisioning 460,357 840,943 136,076 17,628 1,455,004 Net commission income 332,994 591,698 2,870 5,727 933,289
Net income from financial investments and current financial assets (60) - 770 102,478 103,187
Secondary segment reporting shows earnings components and portfolio figures by regional aspects. Allocation criteria are the headquarters of the respective company. The regional segments under review are described below (internal English-language abbreviations in parenthesis): • Central Europe (CE)
• Southeastern Europe (SEE) Southeastern Europe includes Albania, Bosnia and Herzegovina, Bulgaria, Kosovo, Croatia, Serbia and Romania.
Regional allocation by respective headquarters considering refinancing costs: CE SEE CIS Total
Net income from financial investments and current financial assets (291) 874 102,604 103,187
Profit before tax 315,524 284,947 879,141 1,479,612 Total assets 23,203,900 18,783,659 13,879,435 55,866,995
Profit before tax 229,941 187,655 150,961 568,557 Total assets 17,341,123 13,938,489 9,415,250 40,694,863
The interest margin on the respective averages of the stated base is as follows: Interest income 3,240,435 2,097,294 from loans and advances to banks 401,769 251,266 from loans and advances to customers 2,438,188 1,454,700 from current financial assets 42,869 56,683 from financial investments 148,210 156,043 from leasing claims 168,633 131,927 from derivative financial instruments (non-trading), net 40,766 46,675
Individual loan loss provisions (189,400) (94,313) Allocation to provisions for impairment losses (371,820) (258,318)
* Reclassification to net commission income (see note on page 127)
Net proceeds from sales of other current financial assets 3,791 4,509
Net proceeds from disposal of tangible and intangible fixed assets 815 (1,147)
Profit before tax 1,479,612 568,557 Theoretical income tax expense in the financial year based on the domestic income tax rate of 25 per cent (369,903) (142,139)
Tax deductions because of tax-exempted income from equity participations and other income 161,911 15,148
Provisions for impairment losses are formed in accordance with uniform Group standards and cover all recognisable counterparty risks. Provisions for impairment losses are allocated to the following segments: Money market business 7,088,688 4,170,552
Shares and other variable-yield securities 24,693 23,863 Shares and other variable-yield securities 24,693 22,103
Bonds, notes and other fixed-interest securities 954,702 1,278,499 Treasury bills and bills of public authorities eligible for refinancing 383,885 883,625
The syndicate contracts expire if control over the company changes – also in the case of a takeover bid. The following agreement has been made with the European Bank for Reconstruction and Development (EBRD) regarding Priorbank, OAO (Belarus): EBRD has the option to sell all shares held in Priorbank, OAO to the company, if control over the company changes.
Raiffeisen Banca pentru Locuinte S.A., Bucharest (RO) 73,084 3,956 (3,472) 14,917 9,455
Raiffeisen stambena stedionica d.d., Zagreb (HR) 292,362 12,027 (3,819) 6,415 2,476
The fair value of investment property totalled € 12,769 thousand (2005: € 4,258 thousand).
Intangible and tangible fixed assets developed in the financial year 2006 as follows: Land and buildings used by the Group for own purposes 487,257 294,461
Office furniture and equipment as well as other tangible fixed assets 450,788 370,961
Change in consolidated group Exchange differences Additions Disposals Transfers As of 31/12/2006
Write-ups, amortisation, depreciation, impairment Book value €000 Cumulative Write-ups Depreciation As of 31/12/2006 Intangible fixed assets (225,461) 23 (49,024) 1,220,747
Insofar as the conditions for hedge accounting according to IAS 39 are fulfilled, derivative financial instruments are measured at their fair values (dirty prices) in their function as hedging instruments. The hedged items in connection with fair value hedges are loans and advances to customers. The hedged risks are interest rate risks. The changes in carrying amount of the hedged underlying transactions in IAS 39 fair value hedges are included in the respective balance sheet items.
Positive fair values of derivatives in fair value hedges (IAS 39) 5,544 -
Positive fair values of banking book derivatives without hedge accounting 30,219 25,149
The item also includes the positive fair values of derivative financial instruments that neither are held for trading nor constitute fair value hedging instruments under article 39 of IAS. Assets held for sale according to IFRS 5 amounting to € 560 thousand (2005: € 1,116 thousand) were recognised in other assets.
Deferred taxes break down as follows: The net deferred taxes result from the following items: Deferred income tax assets are recognised for unused tax loss carry-forwards and amounted to € 7,670 thousand (2005: € 15,877 thousand). The tax loss carry-forwards are mainly without any time limit.
Raiffeisen International refinances itself periodically with international commercial banks and multinational development banks. These credit contracts contain ownership clauses as normally used in business. These clauses give permission to an exceptional termination if Raiffeisen Zentralbank Österreich AG looses the majority shareholding in Raiffeisen International. This would lead to increased refinancing cost for Raiffeisen International in the future.
Deposits break down into the following segments: Deposits from customers classified regionally (counterparty’s seat) are as follows: (24) Liabilities evidenced by paper
Insofar as they satisfy the requirements for hedge accounting under article 39 of IAS, derivative financial instruments are measured at their fair values (dirty prices) in their function as hedging instruments. The underlying transaction in connection with fair value hedges are loans and advances to customers. Risks arising from changes in interest rates are hedged.
Of total subordinated capital, Raiffeisen Zentralbank Österreich AG and other subsidiaries of RZB provided € 1,251,160 thousand (2005: € 431,502 thousand). The following table contains borrowings which exceed 10 per cent of the subordinated capital.
In 2006, expenses on subordinated liabilities totalled € 52,046 thousand (2005: € 22,757 thousand).
Negative fair values of bankbook derivatives without hedge accounting 19,571 16,845
The Managing Board intends to propose at the annual general meeting that a dividend of € 0.71 per ordinary share be distributed from Raiffeisen International Bank-Holding AG´s profit for the financial year 2006, which represents a maximum distribution of € 101,181 thousand, and that the remaining amount be carried forward.
The share of Raiffeisen International Bank-Holding AG has a theoretical value of € 3,045. The number of shares outstanding developed as follows: The number of authorised shares but not yet issued totalled 71,385,000 no-par shares.
Number of shares issued as of 31/12 142,770,000 142,770,000 Own shares as of 1/1 (95,260) -
As of 31 December 2006, the contingent allotment under this program came to 199,833 no-par shares (124,338 shares are due to the allotment of 2005 and 75,495 shares to 2006). The originally announced share allotment has changed as a result of various management changes in the Group segments.
The shares required for the SIP have been raised through share buybacks. In 2006, Raiffeisen International bought back 167,000 no-par shares at a weighted average value of € 58.53. The fair value of this allotment program came to € 2,811 thousand in 2006 (2005: € 1,119 thousand) and was shown under staff expenses. A buy option has been made to secure more own shares needed for further SIPs. Option premiums paid for this were immediately netted against retained earnings.
Members of the Managing Board of Raiffeisen International Bank-Holding AG 19,299 4,825 28,949
Executives of Raiffeisen International Bank-Holding AG and other affiliated companies 12,399 3,100 18,599
Members of the Managing Board of Raiffeisen International Bank-Holding AG 31,416 7,854 47,124
Members of the managing boards of bank subsidiaries affiliated with Raiffeisen International Bank-Holding AG 75,101 18,775 112,652
Securitization is the packaging of designated portfolios of loans or leasing claims with an appropriate level of credit enhancement and the redistribution of these portfolios to investors. The objective of Raiffeisen International’s securitisation is to ease the strain on the Group's regulatory own funds. The following transactions are executed in 2006: In both transactions, own funds requirements for the junior tranche (first loss piece) were taken by group companies.
The following repurchase and redelivery commitments are shown as of the balance sheet date: €000 Date of contract Maturity Volume Secured party
True sale transaction ROOF Poland 2006 12/1/2006 about 8 years 167,000 Raiffeisen Leasing Polska S.A., Warsaw (PL)
Securities sold in a genuine sale and repurchase agreement amounted to € 460,977 thousand (2005: € 216,090 thousand ). Securities purchased in a genuine sale and repurchase agreement totalled € 1,345,289 thousand (2005: € 1,311,178 thousand). There were no sold or repledged securities-collaterals in the financial year (2005: € 5,524 thousand).
Genuine repurchase agreements as lender (reverse-repurchase-agreement) Loans and advances to banks 943,862 1,189,381
Fees income from fiduciary business amounted to € 5,622 thousand (2005: € 2,878 thousand). Fees expenses totalled € 818 thousand (2005: € 401 thousand).
Write-offs on unrecoverable minimum lease payments outstanding totalled € 13,502 thousand (2005: € 15,547 thousand ).
Assets under finance leases break down as follows: (40) Operating leases
Operating leases from view of Raiffeisen International as lessor: Future minimum lease payments under non-cancellable operating leases are as follows: Operating leases from view of Raiffeisen International as lessee: Future minimum lease payments under non-cancellable operating leases are as follows: Real estate leasing 306,807 214,457
A bank’s ability to capture and measure risks on an extensive scale, to monitor them in real time, and to manage them is increasingly becoming a decisive competitive factor. To ensure the long-term success of the Group and to allow its selective growth, Raiffeisen International’s risk management and risk controlling activities are directed at ensuring the careful handling and professional management of credit and country risks, market and liquidity risks and operational risks. As a subsidiary and key sub-group of RZB, Raiffeisen International is integrated into RZB’s risk management system.
Under the Austrian Banking Act (BWG), RZB as parent company is obliged to install a risk management system appropriate to the scope, type, and complexity of the business in question that, in addition to meeting statutory requirements, also meets internal needs for risk control, risk management, and risk limiting.
Once each quarter, the available covering assets and funds (earnings, reserves, and equity) are compared with aggregated risks on a value-at-risk basis in a multistage process. The Group’s risk-bearing capacity thereby sets a ceiling on its aggregated overall banking risk. In addition to actual measured risk, existing risk limits are also taken into account.
Parallel to that procedure, risk (VaR) is also calculated on the basis of a confidence level of 99 per cent. The resulting figure is likewise weighed against a corresponding estimate of risk-bearing capacity and is used for purposes of corporate governance.
Credit risk within Raiffeisen International consists mainly of the default risks that arise from business with retail and corporate customers, other banks, and sovereign borrowers. Default risk is the risk that a customer will not be able to fulfill contractually agreed financial obligations. However, one also distinguishes between migration risks (caused by deteriorations in customers’ ratings), settlement risks, and country risks.
Credit risks are monitored and analyzed both on an individual loan and customer-by-customer basis and on a portfolio basis. Credit risk management and lending decisions are based on the credit risk policy approved by the Managing Board of Raiffeisen International Bank-Holding AG. Besides new lending, the areas to which lending decisions pertain also include overdrafts, increases in credit lines, renewals and risk-relevant changes in circumstances compared with the time an original lending decision was made (e.g. with respect to collateral or purpose) as well as the setting of limits for particular borrowers (e.g. issuer limits).
Raiffeisen International employs risk-classification procedures for assessing counterparty risk (rating procedures, scoring models) when assessing creditworthiness, so as to provide an independent assessment of credit risk (as required inter alia by Basel II) and in future to calculate regulatory own funds using an internal ratings based approach (IRB). Throughout the Group, the internal rating models for corporate customers, financial institutions, and sovereigns each rank creditworthiness in ten classes.
The retail customers segment is divided into private individuals and small and medium-sized enterprises (SMEs). The table below shows the exposure of this segment by regions in thousands of euros: 2006 Total Proportion CE SEE CIS
The following table provides a breakdown according to IRB of the credit exposure to financial institutions (excluding central banks) in thousands of euros: Internal Rating 2006 Portion 2005 Portion
The following table provides a breakdown according to IRB of the credit exposure to sovereigns (including central banks) in thousands of euros: Impairments and provisions
In the implementation of Basel II, all definitions of default have been adapted to the IRB approach and then been applied throughout Raiffeisen International-Bank Holding AG. According to Raiffeisen International, a default exists if a customer is overdue with respect to a material account receivable of the bank for at least 90 days, if the customer is the subject of insolvency or similar proceedings, if a value adjustment or direct write-down has been carried out to a customer account receivable, or if Credit Risk Management has judged an account receivable from the customer to be not wholly recoverable.
Loans and advances to banks 178 - 2,040 (33) (2,037) 13 161
The following table shows loans outstanding and off-balance sheet transactions (excluding those with banks and central banks) of Raiffeisen International by business sectors: Public administration and social insurance institutions 5,353,191 10.3% 3,776,458 10.2%
Raiffeisen International defines market risk as the risk of possible losses arising from market changes due to fluctuating or changing interest rates, foreign exchange rates, share prices, and prices in general (directly observable, as in indices and commodities, or indirectly observable, as in volatilities and correlations). This risk category encompasses both trading book and banking book positions. These risk-exposed positions are the result either of business done for customers or of the deliberate assumption of positions.
Value-at-risk is of central importance in setting limits. It is calculated on a weekly basis for all Group units using a variance -covariance matrix and applying a confidence level of 99 per cent. Market data are taken from the preceding year applying a retention period of 10 days. The informative value and reliability of the value-at-risk approach based on past market developments are checked using appropriate backtesting.
The ascertained value-at-risk figures forecast maximum losses under normal market conditions but do not specifically contain information about the effects of exceptional extreme market movements. To take such events into account, Raiffeisen International carries out weekly defined stress tests that capture the biggest daily market movements in the preceding five years. That procedure allows the simulation of crisis situations and of major changes in market parameters and the application of those simulations to positions. The results are an important foundation for risk management.
Raiffeisen International’s market risk mainly consists in currency risk resulting from foreign group units’ local-currency equity and related hedging transactions, which are controlled by the Assets/Liabilities Management Committee.
The table below shows the risk figures (99%, VaR, 10-day) for market risk in the trading books of Raiffeisen International by risk type in thousands of euros:
Interest maturity gaps at Raiffeisen International as of 31 December 2006 in thousands of euros: Interest maturity gaps at Raiffeisen International as of 31 December 2005 in thousands of euros: VaR as of 31/12/2006
The change in the present value of Raiffeisen International’s banking book in the year ended 31 December 2006 in thousands of euros given a simultaneous one-basis-point increase in interest rates: The change in the present value of Raiffeisen International’s banking book in the year ended 31 December 2005 in thousands of euros given a simultaneous one-basis-point increase in interest rates: Liquidity risk
Liquidity risk is the risk that an entity is unable to meet its current and future financial obligations in full or in good time. Liquidity risk arises from the danger that, for example, refinancing can only be obtained at very disadvantageous terms or is entirely impossible, assets can only be sold on short notice at a large discount, repayments in credit business are not made on time, or an unexpected claim is asserted on credit commitments or deposits are unexpectedly withdrawn on a large scale.
The tasks of managing liquidity and liquidity risk and in turn of ensuring the bank’s solvency at all times are performed both by Raiffeisen International and on a decentralized basis by the local banks. An internal monitoring system records and analyzes cash flows by currency both for each location and globally on a weekly basis.
The following evaluation shows the (cumulative) liquidity overhang for selected maturities including the balance sheet items and off-balance sheet transactions. Based on expert opinions and statistical analyses and including country-specific differences, cautious estimates of the liquidability of defined asset items and of the customer deposit base also flow into the calculation.
Maturity 1 week 1 month 1 year 1 week 1 month 1 year Liquidity overhang 5,855 7,314 3,052 3,308 4,426 965
Liquidity ratio in per cent 1.71 1.67 1.11 1.48 1.4 1.05
Change of present value 6-12 months 1-2 years 2-5 years >5 years
In line with Basel II, Raiffeisen International defines operational risk as the risk of unexpected losses resulting from inadequate or failed internal processes, people and systems, or from external events, including legal risks. As is the case with other types of risk, the principle of firewalling between risk management and risk controlling is also applied to operational risk. Operational risk is analyzed and managed on the basis of the bank’s own historical loss data and the results of risk evaluations. It intends to apply the standardized approach to operational risk by business process and event type per business segment. Raiffeisen International plans to introduce standardized early-warning indicators in operational risk monitoring.
To reduce operational risk further, the group is stepping up its staff training program as well as working on the development of emergency plans and back-up systems. It is also applying the Six Sigma method for enhancing business processes.
The total volume of unsettled financial instruments as of 31 December 2006 breaks down as follows: Nominal amount by maturity Fair values €000 Up to 1 year
Products traded on stock exchange: OTC products: Equity-/index-based options 87 16,300 - 16,387 2,650 (3,459)
OTC products: OTC products: Cross-currency interest rate swaps 6,875 71,362 15,927 94,164 2,432 (877)
Fair Value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction. As far as market prices are available (mainly securities and derivatives quoted on stock exchange or active markets), this quotation represents the fair value.
Loans and advances to banks 8,196,980 8,202,445 (5,465) 5,794,293 5,794,266 27
As a subsidiary of Raiffeisen Zentralbank Österreich AG, Raiffeisen International Bank-Holding AG does not have its own banking group as defined by the Austrian Banking Act (BWG). Therefore, it is not itself subject to the relevant regulatory requirements. However, the following figures are accounted for within the scope of RZB-Kreditinstitutsgruppe. They are provided here for information purposes only.
The own funds of Raiffeisen International according to the Austrian Banking Act (BWG) break down as follows: The total own funds requirement is as follows: The risk-weighted basis of assessment (including market risk) amounted to € 41,051,810 thousand (2005: € 29,914,156 thousand).
Eligible own funds 4,488,527 2,912,744 Tier 3 capital (short-term subordinated own funds) 24,406 24,839
The average number of staff employed during the financial year (full-time equivalents) break down as follows: (46) Expenses on severance payments and retirement benefits
The same regulations are in principle valid for members of the Managing Board and employees. These regulations provide from the part of the company a basic contribution to a pension fund and an additional contribution if the employee pays own contributions of the same amount. Two managing board members additionally have individual retirement benefits which are funded by business insurances.
The members of the Managing Board of Raiffeisen International Bank-Holding AG are remunerated as follows: The table contains fixed remunerations and performance-based remunerations as well as remunerations for membership of boards of subsidiaries, bonuses, and payments in kind. In the financial year 2006, the share of performance-based remuneration components including a special bonus was 58.5 per cent (2005: 28.5 per cent).
Performance-based remuneration components of the Managing Board are linked to achieve the objectives regarding profit after tax, Return on Standard Capital and Cost Income Ratio as well as to achieve the personal objectives that are agreed annually. There were no material changes in the principle for profit-sharing.
Individuals finishing the stage of life of 68 years are not able to be elected to a member of the Managing Board and may not be appointed of another functional period.
Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the EU. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Opinion Our audit did not give rise to any objections. Based on the results of our audit in our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the group as of 31 December 2006, and of its financial performance and its cash flows for the financial year from 1 January to 31 December 2006 in accordance with International Financial Reporting Standards as adopted by the EU.
Report on Other Legal and Regulatory Requirements Laws and regulations applicable in Austria require us to perform audit procedures whether the consolidated management report is consistent with the consolidated financial statements and whether the other disclosures made in the consolidated management report do not give rise to misconception of the position of the group.
In our opinion, the consolidated management report for the group is consistent with the consolidated financial statements.
The following tables show a selection of equity participations. The complete list of Raiffeisen International’s equity participation is deposited with the Group parent’s headquarters.
Raiffeisen Bausparkasse a.s., Prague (CZ) 650,000,000 CZK 25.0% BA Raiffeisen Bausparkasse Rumänien S.A., Bucharest (RO) 96,000,000 RON 33.3% BA Raiffeisen stambena štedionica d.d., Zagreb (HR) 70,000,000 HRK 26.0% BA
Biroul de Credit S.A., Bucharest (RO) 4,114,615 RON 14.4% FI CJSC Areximbank "American-Russian Export-Import Bank", Eriwan (AM) 176,234,862 RUB 19.9% FI Doplnková dôchodková spoločnosť Tatra banky, a.s., Bratislava (SK), Bratislava (SK) 50,000,000 SKK 67.6% FI ELIOT, s. r. o., Bratislava (SK) 48,610,000 SKK 67.6% BR OOO "Priorleasing", Minsk (BY) 500,000,001 BYR 63.0% FI Raiffeisen Asset Management (Bulgaria) EAD, Sofia (BG) 250,000 BGN 100.0% FI Raiffeisen Biztosításközvetítö Kft., Budapest (HU) 5,000,000 HUF 72.7% BR Raiffeisen BROKERS doo, Sarajevo (BA) 1,000,000 BAM 97.0% FI Raiffeisen Business Premises d.o.o., Zagreb (HR) 1,000,000 HRK 73.7% BR Raiffeisen Capital & Investment S.A., Bucharest (RO) 1,600,000 RON 99.5% FI Raiffeisen consulting Ltd., Zagreb (HR) 14,900,000 HRK 73.7% FI Raiffeisen Economic and Tax Consulting Zrt., Budapest (HU) 20,000,000 HUF 70.3% FI Raiffeisen Energy Service Ltd., Budapest (HU) 20,000,000 HUF 72.7% OT Raiffeisen Faktoring Sp. z.o.o., Warsaw (PL) 3,847,500 PLN 100.0% FI RAIFFEISEN FUTURE AD, Belgrade (RS) 1,500,000 EUR 100.0% FI Raiffeisen Invest d.o.o., Zagreb (HR) 8,000,000 HRK 73.7% FI Raiffeisen Investment Fund Management Zrt., Budapest (HU) 100,000,000 HUF 70.3% FI Raiffeisen Pension Insurance d.o.o., Zagreb (HR) 14,400,000 HRK 73.7% 0.7% FI Raiffeisen Property Lízing Rt., Budapest (HU) 50,000,000 HUF 70.3% BR Raiffeisen Real-Estate Management, Ltd., Zagreb (HR) 100,000 HRK 73.7% 73.7% BR RAIFFEISEN SERVICES EOOD, Sofia (BG) 3,000,000 BGN 100.0% BR Raiffeisen Services SRL, Bucharest (RO) 30,000 RON 99.5% 99.5% FI RAIFFEISEN SPECIAL ASSETS COMPANY d.o.o., Sarajevo (BA) 400,000 BAM 97.0% FI RAIFFEISEN TRAINING CENTER LTD., Zagreb (HR) 20,000 HRK 91.3% BR Raiffeisen Voluntary Pension Fund Management d.o.o., Zagreb (HR) 33,445,300 HRK 73.7% FI Raiffeisen-Agent Pénzügyi Kft., Budapest (HU) 3,000,000 HUF 70.3% 2.3% BR Raiffeisen-Leasing Real Estate Spzoo, Warsaw (PL) 50,000 PLN 43.8% 21.9% OT S.A.I. Raiffeisen Asset Management S.A., Bucharest (RO) 3,600,000 RON 99.5% FI Tatra Asset Management sprav.spol., a.s., Bratislava (SK) 52,000,000 SKK 67.6% FI TATRA Residence, s.r.o., Bratislava (SK) 25,053,000 SKK 67,6% BR
Affiliated companies – Entity over which the investor has control (=power to govern the financial and operating policies).
Back testing – The backward comparison of VaR figures with actual results to test the quality of a model.
Cash flow statement – Statement of cash flows during the financial year arising from operating activities, investing activities and financing activities and a reconciliation of cash and cashequivalents held at the beginning and the end of the financial year.
CE – Central Europe. For RZB it is defined as total of Hungary, Poland, Slovakia, Slovenia, and Czech Republic.
Dirty Price – Price of a financial instrument including accrued interest.
Futures – Standardised forward contracts traded on a stock exchange under which a commodity traded in a money, capital, precious metal or currency market is to be delivered or accepted at a price fixed in an exchange environment.
Net provisioning ratio (Ø risk-weighted assets banking book) – Risk valuation ratio. Is calculated by provisioning for impairment losses divided by average risk-weighted assets of the banking book.
Operating lease – Lease under which commercial and legal ownership remains with the lessor with the effect that the lessor must show the asset on its balance sheet.
Operating profit/loss – In IFRS-compliant financial statements, it consists of operating income net of general administrative expenses. Operating income comprises net interest income, net commission income, trading profit (loss) and other operating profit (loss) adjusted by the net result from hedge accounting and net income from other derivative instruments. General administrative expenses comprise staff expenses and other administrative expenses and depreciation/amortisation of tangible and intangible fixed assets.
Options – Instruments that give the holder the right to purchase the underlying from a contract-ing party at an agreed price and at an agreed time or within an agreed period (call option) or to sell the underlying to a contracting party at an agreed price and at an agreed time or within an agreed period (put option).
OTC instruments – Financial instruments that are neither standardised nor traded on a stock ex-change. They are traded directly between market participants “over-the-counter”.
Own funds ratio – The ratio‘s numerator is own funds within the meaning of the Austrian Banking Act (BWG) and its denominator is the basis of assessment pursuant to section 22 BWG plus 12.5 times the own funds required as cover for the trading book and open currency positions.
Projected unit credit method – An actuarial valuation method defined by IAS 19 that sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation (sometimes known as the accrued benefit method prorated pro-rated on service or as the benefit/years of service method).
Risk-weighted assets of the banking book – According to the Austrian Banking Act (BWG) these are on-balance sheet assets, off-balance sheet and special off-balance-sheet banking book asset positions weighted by business and counterparty risk, respectively.
ROE (return on equity) – Return on the total equity including minority interests, i.e. profit before tax respectively after tax in relation to weighted average balance sheet equity. Average equity is calculated on month-end figures and does not include current year profit.
Trading book – Bank regulators‘ term for assets held by a bank for short-term resale to exploit fluctuations in prices and interest rates.
Albania Raiffeisen Bank Sh.a. “European Trade Center” Blvd. “Bajram Curri” Tiranë Tel. +355-222 669 Fax +355-275 599 SWIFT/BIC: SGSBALTX www.raiffeisen.al
Hungary Raiffeisen Bank Zrt. Akadémia utca 6 1054 Budapest Tel. +36-1-484 4400 Fax +36-1-484 4444 SWIFT/BIC: UBRTHUHB www.raiffeisen.hu
Kosovo Raiffeisen Bank Kosovo S.A. UÇK Street No. 51 Priština Tel. +381-38-226 400 Fax +381-38-226 408 SWIFT/BIC: RBKOCS22 www.raiffeisen-kosovo.com
Poland Raiffeisen Bank Polska S.A. Ul. Pieçkna 20 00549 Warszawa Tel. +48-22-585 2000 Fax +48-22-585 2585 SWIFT/BIC: RCBWPLPW www.raiffeisen.pl
Serbia Raiffeisen banka a.d. Bulevar AVNOJ-a 64a 11070 Novi Beograd Tel.: +381-11-320 2100 Fax: +381-11-220 7080 SWIFT/BIC: RZBSRSBG www.raiffeisenbank.co.yu
Raiffeisen International Bank-Holding AG Austria Am Stadtpark 9, 1030 Vienna www.ri.co.at investor.relations@ri.co.at ri-communications@ri.co.at
Bulgaria Raiffeisen Leasing Bulgaria OOD Business Park Sofia Building 11, 2nd floor 1715 Sofia Tel. +359-2-970 7979 Fax +359-2-974 2057 www.rlbg.bg
Poland Raiffeisen-Leasing Polska S.A. Ul. Jana Pawla II 78 00175 Warszawa Tel. +48-22-562 3700 Fax +48-22-562 3701 www.rl.com.pl
Romania Raiffeisen Leasing IFN SA Calea 13 Septembrie 90 Grand Offices Marriott Grand Hotel Sector 5 76122 Bucures̨ti Tel. +40-21-403 3300 Fax +40-21-403 3298 www.raiffeisen-leasing.ro
Russia OOO Raiffeisen Leasing Nikoloyamskaya 13/2 109240 Moskwa Tel. +7-495-721 9980 Fax +7-495-721 9901 www.rlru.ru
Hungary Raiffeisen Inglatan Rt. Akadémia utca 6 1054 Budapest Tel. +36-1-484 8400 Fax +36-1-484 8404 www.raiffeiseninglatan.hu
Publisher: Raiffeisen International Bank-Holding AG Registered under FN 122119m at Handelsgericht Wien Editor: Investor Relations Editorial deadline: 1 March 2007
Raiffeisen International Bank-Holding AG Am Stadtpark 9 1030 Vienna, Austria Tel. +43-1/71707 0 Fax +43-1/71707 1715 www.ri.co.at
You will find the online version of the annual report at ar2006.ri.co.at (The original German version of the report is available at gb2006.ri.co.at)
Investor Relations E-mail: investor.relations@ri.co.at Website: www.ri.co.at ➞ Investor Relations Phone: +43 ( 1) 71 707 2089