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Overview Raiffeisen Bank International (RBI) Monetary values in € million 2016 Change 2015 2014 2013 2012
Loans and advances to banks 9,900 (8.6)% 10,837 15,573 22,243 22,323
Loans and advances to customers 70,514 0.8% 69,921 77,925 80,635 83,343
Consolidated return on equity 5.8% 1.0 PP 4.8% – 4.9% 7.4%
Return on assets before tax 0.79% 0.19 PP 0.60% – 0.63% 0.73%
Provisioning ratio (average loans and advances to customers) 1.05% (0.59) PP 1.64% 2.17% 1.39% 1.21%
Common equity tier 1 ratio (transitional) 13.9% 1.8 PP 12.1% 10.8% 10.7% 10.7%
Total capital ratio (transitional) 19.2% 1.8 PP 17.4% 16.0% 15.9% 15.6%
Total capital ratio (fully loaded) 18.9% 2.2 PP 16.8% 15.1% – –
Number of shares in million (31/12) 292.98 0.0% 292.98 292.98 195.51 195.51
Employees as at reporting date (full-time equivalents) 48,556 (5.7)% 51,492 54,730 57,901 60,084
The merger of RBI with its parent company RZB, which you have been working on for some time, is due to be completed by the end of March 2017. What are the benefits of this merger? SEvELDA: The primary objective of the merger is to improve total capitalization at the group’s top level. In view of steadily rising capital requirements, this is of particular importance. Above all, the merger will eliminate regulatory minority deductions at the level of RZB, as they limit RBI’s growth. Dispensing with the minority deductions gives us more leeway for new business in order to grow in attractive markets and business areas. In addition, the merger will simplify capital planning and allocation. The removal of one level will reduce complexity and hence increase transparency. This has effects both internally and externally. Within RBI, it will result in a more efficient structure, which will, among other things, facilitate faster decision-making processes. This will clearly improve RBI’s position and will involve only slight adjustments to the proven business model. Externally, it should simplify matters for the banking regulator, who will have to keep an eye on just one institution in the future.
What will happen after the merger? STROBL: As announced at the end of November 2016, I will succeed Karl Sevelda as CEO when the merger is entered in the commercial register. Hannes Mösenbacher will take on my previous role of Chief Risk Officer. As the current Head of Risk Controlling at RBI, he is therefore well prepared for the job. The other members of RBI’s Management Board will remain with the bank. This, combined with the internal filling of vacancies, ensures a high degree of continuity. The fact that the deputy CEO is to become CEO – of course there is great mutual trust between the two of us – is a further sign of continuity, as is the well-established name of the merged entity, which will be Raiffeisen Bank International.
What will the new bank look like? STROBL: The combined bank will continue to operate in attractive markets. In Central and Eastern Europe, where RBI is present in 14 countries with banking subsidiaries, we expect economic growth to be twice as strong as in the euro area on average – probably over the coming three to four years. In addition, unemployment in the region is falling and wages are rising at the same time – these are very good prospects. In 9 of these markets, our subsidiaries are among the 5 largest banks. And in Austria, RBI has a solid business which uses the distribution channels of the local Raiffeisen banks. We are especially well positioned to serve large corporate customers with links to CEE, because we can offer them an extensive network and our local presence. The services of affiliated companies, specializing for example in asset management and property financing, will complement the Austrian business in the future. There is good demand for such services and products in Central and Eastern Europe, which offers us interesting growth opportunities. And cooperation is not starting from scratch: in CEE, for example, RBI is already working successfully with Raiffeisen Bausparkasse and UNIQA, in which RBI will hold a stake of almost 11 per cent after the merger.
“RBI is on the right track“ Interview with the CEO Karl Sevelda and CEO designate Johann Strobl
Mr. Strobl, will you find it difficult to stop focusing on risk management and take a broader view as CEO? STROBL: No. Risk management has been a very important function in all banks, especially in the more recent past. Today’s risk managers in a bank must therefore take a broad-based view. They have to know the bank’s most important customers and maintain a close dialogue with the regulators. As Karl Sevelda’s deputy, I have already been heavily involved in strategic issues such as our transformation program. In the future, I will devote even more time to strategy and the ongoing development of our business model. Among other things, I look forward to addressing digitalization, an extremely interesting area. We want to exploit the know-how already available in the network to the utmost. Our Slovakian Tatra banka, for example, is a pioneer in this field and other subsidiary banks can profit from its experience and knowledge. And of course we need to engage with and listen to our customers.
One final question, also on behalf of your shareholders: How do you rate RBI’s share price performance in 2016? STROBL: RBI’s shares performed very respectably in 2016. The share price increased by almost 30 per cent, outperforming both the ATX and the Euro Stoxx Banks. In the latter index, our shares were by far the best performer. The capital market is evidently rewarding our efforts.
During the 2016 financial year, the members of the Supervisory Board and its Committees were informed in a timely and comprehensive manner by the Management Board, in the course of meetings, about the different business areas, risk developments and relevant business developments in RBI as well as the subsidiaries. Information was provided verbally as well as in writing and enabled the Supervisory Board to duly fulfill its duty to supervise and advise the Management Board.
■ An extraordinary meeting was held after the Annual General Meeting on 16 June 2016. The only item on the agenda was the re-election of Walter Rothensteiner as Chairman of RBI’s Supervisory Board and his re-election to the Supervisory Board Committees.
■ The extraordinary meetings on 5 October 2016 and 16 December 2016 primarily dealt with the merger of RBI and RZB.
■ At the extraordinary meeting on 30 November 2016, the Management Board was authorized to finalize the negotiations and conclude the planned sale of RBPL. Also at this meeting, Johann Strobl was appointed as Chairman of the Management Board, Klemens Breuer was appointed as Deputy Chairman, and Hannes Mösenbacher as Chief Risk Officer. The appointments will become effective once the merger of RBI with RZB is registered with the commercial register.
In 2016, the Supervisory Board also conducted an effi ciency review to examine its organizational structure and working methods in order to enable it to properly carry out its duties in the interests of the shareholders and all other stakeholders. The effi ciency review was conducted on the basis of a selfevaluation and was analyzed by an external party. The results of the self-evaluation were presented in detail. Priority is given to guaranteeing open communication and to the prompt and adequate provision of information.
At the Annual General Meeting on 16 June 2016, Walter Rothensteiner was elected as member of the Supervisory Board and at the subsequent extraordinary Supervisory Board meeting he was re-elected as Chairman of the Supervisory Board.
The consistency check of the Corporate Governance Report according to § 243c of the Austrian Commercial Code (UGB) was performed by KPMG. Its fi nal report gave no reason for objections.
Following an extensive audit and discussion of the consolidated fi nancial statements and annual fi nancial statements, in the Supervisory Board meeting and preceding Audit Committee meeting, the Supervisory Board approved the annual fi nancial statements of RBI. The statements were thus adopted in accordance with § 96 (4) of the Austrian Stock Corporation Act (AktG). The consolidated fi nancial statements were noted by the Supervisory Board.
The last fi nancial year was dominated by two key issues. Firstly, the market environment, which remained challenging due to the very low interest rate level and continuing high regulatory and political pressures; secondly, the start of the process of evaluating a merger of RBI and RZB. Once again, the high level of commitment shown by the Management Board and by employees enabled a respectable, positive result and a solid capitalization to be achieved in the last fi nancial year. On behalf of the Supervisory Board, I would therefore like to express my deep gratitude to our employees and to the members of the Management Board for their contribution in this particularly demanding fi nancial year.
The market environment for banks has changed significantly in recent years. The capitalization requirements for banks were increased substantially following the 2008 financial crisis and there has also been extensive tightening of regulations by the national and international regulatory authorities. While this has benefited the overall stability of the European financial system, at the same time, the administrative burden and complexity for banks has increased markedly. Stricter requirements and regular bank stress tests, for example, require extensive preparation and tie up resources. In addition, there have been further burdens, such as bank levies in many Central and Eastern European countries. These do not contribute to the stabilization of the financial system, but negatively impact banks‘ resources and thereby reduce the potential for strengthening equity by internal generation.
Cost control will remain a high priority, and the more streamlined organizational structure will help improve efficiency and transparency.
The documents required to vote on the merger at the Extraordinary General Meeting were published on 21 December 2016, following publication of the final exchange ratio on 16 December 2016 and the completion of the legally required examinations by the merger auditor and Supervisory Boards of the merging entities. On 23 January and 24 January 2017, RZB and RBI held
Furthermore, once the merger takes effect, Klemens Breuer (Deputy CEO and responsible for Retail Banking & Markets), Martin Grüll (CFO), Andreas Gschwenter (COO/CIO), and Peter Lennkh (responsible for Corporate Banking) will be members of the Management Board. The new Management Board member responsible for Risk Management will be Hannes Mösenbacher (CRO), who previously headed Risk Controlling at RBI and has been with the company since 2008.
Extraordinary General Meetings to pass resolutions on the merger. The merger resolutions required the majority votes of threequarters of the share capital present to be passed. This majority was exceeded by a wide margin in both cases. A webcast of RBI’s Extraordinary General Meeting can be viewed online at www.rbinternational.com → Investor Relations → Presentations & Webcasts. The merger is expected to be entered in the commercial register on 18 March 2017.
The determined exchange ratio was supported by relative company valuations conducted by two internationally recognized appraisers. In keeping with Austrian merger law, the fairness of the exchange ratio was also verified by an independent, courtappointed merger auditor, also a recognized appraiser. In order to compensate RZB’s shareholders for their shares in the bank, RBI will issue new shares and thereby increase its total number of shares from 292,979,038 to 328,939,621.
Southeastern Europe Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Romania, Serbia
Group Corporates & Business booked in Austria: Austrian and international corporate customers, Group Markets, Markets Financial Institutions & Sovereigns, RBG, specialized fi nancial institution subsidiaries, small service units
Non-Core Poland, Slovenia, Zuno (in Central Europe as of 2017); Asia and USA (remaining (until 31/12/2016) wind down business booked in Group Corporates & Markets as of 2017)
The Corporate Center segment comprises RBI’s central management functions (e.g. Treasury), as well as RBI’s minority interests (inter alia UNIQA, Leipnik-Lundenburger Invest Beteiligungs AG).
These changes will result in a switch from a mixed system to an exclusively regional segmentation, with all operating business booked in a region being pooled in a segment. These changes will be in eff ect in the report for the fi rst quarter of 2017.
RBG is organized into three tiers: the autonomous, local Raiffeisen banks (first tier), the eight autonomous regional Raiffeisen banks (second tier), and RZB AG (third tier).
Raiffeisen Customer Guarantee Scheme Austria (RKÖ) In Austria, deposit protection and investor compensation with respect to banks is subject to the provisions of the Austrian Act on Deposit Guarantee Schemes and Investor Compensation (Einlagensicherungs- und Anlegerentschädigungsgesetz – ESAEG). The Österreichischen Raiffeisen-Einlagensicherung eGen (ÖRE) is responsible for the statutory deposit guarantee and investor compensation scheme for the Raiffeisen banks, the regional Raiffeisen banks, RZB AG, and RBI AG. Since 2000, the Raiffeisen Customer Guarantee Scheme Austria (“Raiffeisen-Kundengarantiegemeinschaft Österreich” or “RKÖ”) offers deposit protection supplementary to the statutory deposit protection of the RBG according to the economic reserves of the participating banks. The regional customer guarantee associations joined forces with RZB AG and RBI AG at a national level within the RKÖ. Currently, the Raiffeisen banks and regional Raiffeisen banks for seven federal states, RZB AG and RBI AG are members of the RKÖ. If required, the economic reserves of the participating banks will be drawn upon in a legally binding manner. The customers are then offered recoverable claims against other RBG institutions.
In October 2016, the Management Boards of RBI and RZB passed a resolution in principle to merge RZB into RBI. The merger will result in a strengthening of the regulatory capital ratio of the Group (elimination of the minority deduction from common equity tier 1 capital at Group level), simplified decision-making structures and streamlining of functions where there is duplication between RBI and RZB. The focus for RBI will continue to be on the CEE region, which offers structurally higher growth rates than Western Europe and which consequently has a more attractive level of interest rates and income. RBI’s business portfolio is strengthened by the addition of leading specialist institutions in Austria – notably the building society, asset management company and pension fund. Additionally, RBI benefits from the stability of the Austrian business areas, which will be further strengthened by the merger. The overall result is a balanced, attractive business portfolio.
■ RBI provides all retail customer segments with comprehensive financial services through the customer’s respective preferred sales and communication channel.
As RBG’s central institution, RZB AG is a member of the federal IPS whose members, in addition to the regional Raiffeisen banks, include: Raiffeisen-Holding Niederösterreich-Wien, Posojilnica Bank (formerly ZvEZA Bank), Raiffeisen Wohnbaubank and Raiffeisen Bausparkasse. The federal IPS is subject to regulatory supervision. Therefore, the capital adequacy requirements of the CRR must also be complied with at the level of the federal IPS. Consequently, no deductions are made for the members of the federal IPS for their holding in RZB AG. Moreover, internal receivables within the IPS can be weighted at zero per cent. It is planned that RBI AG will join the federal IPS once the merger of RZB AG and RBI AG has been entered in the commercial register.
Retail customers stand to benefit, for example, from video call or telephone advisory services, as well as state-of-the-art mobile banking options. By means of these sales and support channels – alongside around 2,500 business outlets, which remain the central component of customer service – customers are offered a broad product range (e.g. current account packages, payment transfer business, consumer financing and mortgage loans) from which they can select the products that best fit their needs. Particular emphasis is placed on transparent and customer-friendly solutions, as well as on a fast flow of information and short decision-making processes.
Price performance since 1 January 2016 compared to ATX and Euro Stoxx Banks in €
RBI EURO STOXX Banks (relative to RBI) ATX (relative to RBI) Index base = € 13.61
As of the editorial deadline for this report on 28 February 2017, RBI’s stock was priced at € 20.96. The shares therefore posted a gain of 20.6 per cent compared to 31 December 2016, which was a markedly better performance than both the ATX (up 4.9 per cent) and the Euro Stoxx Banks (down 3.2 per cent).
In 2016, approximately 187 million RBI shares were traded, amounting to a total value of € 2.4 billion and an average daily volume of 752,512 shares.
Stock data and details Price as at 31 December 2016 € 17.38
Capital market communications RBI offered institutional investors numerous opportunities to obtain first-hand information at 27 road shows and conferences in 2016. Over the course of the year, representatives of RBI and, in some cases, members of the Management Board traveled to Frankfurt, Geneva, London, New York, Paris, Stockholm, Tallinn, and Zurich, as well as to Stegersbach and Zürs in Austria.
The results of the European Banking Authority (EBA) stress test were published on 29 July 2016. RZB and thus RBI were subject to the stress test as part of Raiffeisen-Landesbanken-Holding GmbH. In a conference call on the results of this stress test, RBI and RZB Management Board members answered questions from over 260 international analysts and investors.
A total of 26 equity analysts and 20 debt analysts (as at 31 December 2016) regularly provide investment recommendations on RBI, making RBI the Austrian company on which the greatest number of analyst teams regularly report. In 2016, 545 analyst reports on RBI were published.
RBI attaches great importance to responsible and transparent business management in order to maintain the understanding and confidence of its various stakeholders – not least capital market participants. Hence, RBI is committed to adhering to the Austrian Code of Corporate Governance (ACCG or “the Code”) as laid out in the version dated January 2015. The ACCG is publicly available on the Austrian Working Group for Corporate Governance website (www.corporate-governance.at) and on the RBI website (www.rbinternational.com → Investor Relations → Corporate Governance). RBI does not have any capital market-oriented subsidiaries which are obliged to publish a corporate governance report due to local statutory regulations.
Transparency is a key corporate governance issue and is therefore of particular importance to RBI. This Corporate Governance Report is structured according to the legal guidelines contained in § 243c of the UGB and is based on the structure set forth in Appendix 2a of the ACCG.
The ACCG is subdivided into rules L, C and R. L Rules (Legal Requirements) are based on compulsory legal requirements. C Rules (Comply or Explain) should be observed; any deviation must be explained and justified in order to ensure conduct that complies with the Code. R Rules (Recommendations) have the characteristics of guidelines; non-compliance does not need to be reported or justified.
RBI deviates from the C Rule below, but conducts itself in accordance with the Code through the following explanation and justification: C Rule 45: non-competition clause for members of the Supervisory Board RBI AG is a company forming part of the Raiffeisen Banking Group Austria (RBG), which is also a majority shareholder through its central institution, RZB. Some members of the Supervisory Board therefore also hold executive roles as shareholder representatives in RBG banks. Moreover, a number of members of the Supervisory Board hold executive roles at other banks and financial services institutions. Consequently, comprehensive know-how and experience specific to the industry can be applied in exercising the control function of the Supervisory Board, to the benefit of the company.
In accordance with C Rule 62 of the ACCG, RBI AG commissioned KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft (KPMG) to conduct an external evaluation on compliance with the C Rules of the Code. The report on this external evaluation is publicly available at www.rbinternational.com → Investor Relations → Corporate Governance → External Evaluation of the CG Code.
Karl Sevelda 1950 22 September 20101 With entry of merger of RZB AG Chairman into RBI AG (expected on 18 March 2017)2
Raiffeisen Bank d.d., Bosnia and Herzegovina, Chairman Raiffeisenbank Austria d.d., Croatia, Chairman Raiffeisen Bank Polska S.A., Poland, Chairman AO Raiffeisenbank, Russia, Chairman Raiffeisen Bank S.A., Romania, Chairman Raiffeisen banka a.d., Serbia, Chairman Tatra banka, a.s., Slovakia, Chairman Raiffeisenbank a.s., Czech Republic, Chairman Raiffeisen Bank Aval JSC, Ukraine, Chairman Raiffeisen Bank Zrt., Hungary, Deputy Chairman Priorbank JSC, Belarus, member
RSC Raiffeisen Service Center GmbH, Austria, member Raiffeisen Bank Polska S.A., Poland, member Raiffeisen Bank S.A., Romania, member AO Raiffeisenbank, Russia, member Tatra banka, a.s., Slovakia, member Raiffeisenbank a.s., Czech Republic, member Raiffeisen Bank Zrt., Hungary, member
In addition to the management and governance of RBI AG, the members of the Management Board perform supervisory and managerial duties at the following material subsidiaries as Managing Director or on the Supervisory Board: O ve rv ie w O
Heinrich Schaller 1959 20 June 2012 Annual General Meeting 2nd Deputy Chairman 2017
Johannes Schuster 1970 8 July 20101 With entry of merger of RZB AG into RBI AG (expected on 18 March 2017)4
Natalie Egger-Grunicke2 1973 18 February 2016 Until further notice 1 Effective as of 10 October 2010 2 Delegated by the Staff Council 3 As a result of the merger between RZB AG and RBI AG, Walter Rothensteiner will resign his mandate as member of the Supervisory Board as of the end of the Annual General Meeting on 22 June 2017. 4 Michael Höllerer and Johannes Schuster will withdraw from their functions on the Supervisory Board once the merger is effective.
Independence of the Supervisory Board In accordance with and taking into consideration C Rule 53 and Appendix 1 of the ACCG, the Supervisory Board of RBI AG specified the following criteria for the independence of the members of the company’s Supervisory Board: ■ The Supervisory Board member shall not have been a member of the Management Board or a senior executive of the company or one of its subsidiaries in the past five years.
■ The Supervisory Board member shall not have, or have had in the previous year, any significant business relationships with the company or a subsidiary of the company. This also applies to business relationships with companies in which the Supervisory Board member has a significant financial interest, albeit not with regard to carrying out executive functions within the company. The approval of individual transactions by the Supervisory Board according to L Rule 48 of the ACCG does not automatically lead to a qualification of “not independent”.
■ The exercise of functions within the company or merely exercising the function of a management board member or senior executive by a Supervisory Board member does not, as a rule, lead to the company concerned being regarded as a “company in which a Supervisory Board member has a significant financial interest,” to the extent that circumstances do not support the presumption that the Supervisory Board member derives a direct personal advantage from doing business with the company.
■ The Supervisory Board member shall not be a close relative (direct descendant, spouse, partner, father, mother, uncle, aunt, brother, sister, nephew, niece) of a member of the Management Board or of persons who meet one of the criteria described in the preceding points.
In accordance with the criteria listed above for the independence of Supervisory Board members, all RBI AG Supervisory Board members are considered independent.
Members of the Supervisory Board had the following additional supervisory board mandates or comparable functions in domestic and foreign stock exchange listed companies: Walter Rothensteiner UNIQA Insurance Group AG AG (Chairman) Erwin Hameseder AGRANA Beteiligungs-AG (Chairman), STRABAG SE, UNIQA Insurance Group AG,
In addition to their functions as members of RBI AG’s Supervisory Board, supervisory duties within the context of supervisory board mandates were also performed at the following material subsidiaries in the 2016 financial year: Walter Rothensteiner Kathrein Privatbank Aktiengesellschaft, Austria, Chairman Kurt Geiger Raiffeisen Bank AvAL JSC, Ukraine, member Michael Höllerer Raiffeisen Centrobank AG, Austria, member Johannes Schuster RSC Raiffeisen Service Center GmbH, Austria, member
The Working Committee is responsible for all matters referred to it by the Supervisory Board. These include, in particular, the approval of the establishment, closure and liquidation of subsidiaries, as well as the acquisition or disposal of equity participations where the change in the capitalized book value of the investment resulting from the transaction exceeds a certain amount (up to the ceiling amount for overall Supervisory Board responsibility). Moreover, the Working Committee deals with the execution of functions in the management bodies of other companies by members of the Management Board. Furthermore, the Working Committee approves the assumption of risks arising from banking business and risk limits to third parties above a certain level up to the ceiling amount for overall Supervisory Board responsibility.
The Audit Committee monitors the accounting process. It issues corresponding recommendations or proposals for guaranteeing reliability and supervises the effectiveness of the company’s internal control, audit and risk management systems. The tasks of the Audit Committee include the supervision of the annual audit of the financial statements and consolidated financial statements, as well as checking and supervising the independence of the Group’s auditors, particularly with respect to additional work performed for the audited company. The Committee examines the annual financial statements, the management report, the consolidated financial statements and the Group management report, and is responsible for the preparation for their adoption. It also examines the proposal for earnings appropriation and the consolidated corporate governance report. The Audit Committee presents a report on the results of its examinations to the Supervisory Board. It also conducts a process, in accordance with statutory requirements, for the selection of the (Group) auditor and bank auditor and submits a recommendation to the Supervisory Board concerning the appointment of the auditor. Moreover, the Audit Committee discusses the content of the management letter as well as the report on the effectiveness of the risk management system and the internal control system. Internal Audit must provide the Audit Committee with quarterly reports on the areas audited and on any audit findings from audits performed, taking into account § 42 (3) of the Austrian Banking Act (BWG). The Organization & Processes area also reports twice a year on the status of the internal control system and its effectiveness.
The responsibilities of the Risk Committee include advising the Management Board on current and future risk propensity and risk strategy, monitoring the implementation of this risk strategy with regard to the controlling, monitoring and limitation of risk in accordance with the BWG, as well as the monitoring of capitalization and liquidity. It is also responsible for checking whether the pricing of the services and products offered, the business model as well as risk strategy are given adequate consideration and where applicable for submitting a plan with corrective measures. The Risk Committee also monitors whether the incentives offered by the internal remuneration system give adequate consideration to risk, capital, liquidity and the probability as well as timing of realized profits.
Principles of remuneration policy and practices in accordance with § 39 (2) in conjunction with § 39b of the BWG In accordance with § 39 (2) in conjunction with § 39b of the BWG including annexes, RBI AG’s Supervisory Board approved the “General Principles of the Remuneration Policy and Practice” in 2011. Remuneration of all employees, including the Management Board and other “risk personnel” must comply with these principles. These principles also apply to bonus payments for 2011 and subsequent years. The Remuneration Committee reviews these principles on a regular basis and is responsible for the monitoring of these policies and their implementation. Taking the current version of § 39 (2) in conjunction with § 39b of the BWG including annexes into account, which was updated in implementation of Directive 2013/36/EU, the Remuneration Committee of RBI AG’s Supervisory Board approved a new version of the “General Principles of the Remuneration Policy and Practice” in 2014, which was applied as of 2014. This was most recently amended in 2015.
The RBI uses a simple, transparent remuneration system which reflects the Group’s business strategy and complies with regulatory requirements. The remuneration principles support the company’s long-term objectives, interests and values while at the same time containing measures to avoid conflicts of interest.
The RBI’s remuneration system does not encourage the assumption of disproportionate risks, and instead supports sound, effective risk management (e.g. through a performance management process with financial and non-financial targets as well as qualitative and quantitative key performance indicators and the use of a bonus pool approach). This is in particular also achieved by limiting variable remuneration through thresholds and upper limits, which also enables more precise long-term cost planning. In addition, special rules apply to all employees whose professional activities have significant consequences for the risk profile of the company and/or the Group (“risk personnel”).
The remuneration system of the RBI helps to address the “silo mentality” by linking a significant part of variable remuneration to the Group’s performance – in compliance with statutory and regulatory requirements. The remuneration and performance management system provides quality enhancement and aims to strengthen customer relationships in the long term.
in € thousands Fixed remuneration Bonus allocations for 2015 and prior years
Due to the immense increase in the complexity of the regulatory provisions for variable remuneration, the Management Board was prompted to review the benefits and meaningfulness of share-based remuneration. Originally intended as a variable longterm remuneration element geared towards the market and corporate success, the SIP has since lost this meaning because the annual bonus for the same target group of top executives is now deferred for 3 to 5 years, and half must be paid in instruments (e.g. shares). It was therefore decided that no further SIP tranches would be issued from the 2014 financial year onwards.
The 2011 SIP tranche matured in 2016. In accordance with the terms and conditions of the program, the number of shares actually transferred was as follows: SIP 2011
Number Value at share price on Actual number of shares due allotment date (2/5/2016) transferred shares Group of persons € 13.92
Members of the Management Board of RBI AG 24,493 € 340,943 12,809
Members of the management boards of subsidiary banks and branches affiliated to RBI AG 30,050 € 418,296 23,125
On the reporting date, contingent shares for two tranches were allocated. At 31 December 2016, the number of these contingent shares was 693,462 (of which 367,977 were attributable to the 2012 allocation and 325,485 to the 2013 allocation). The number of contingently allocated shares originally announced changed due to various personnel alterations in Group units. It is shown on an aggregated basis in the following table: SIP 2012 and 2013
Number of contingently Minimum allocation Maximum allocation Group of persons alloted shares at 31/12/2016 of shares of shares
Members of the Management Board of RBI AG 214,091 64,227 321,137
Members of the management boards of subsidiary banks and branches affiliated to RBI AG 291,910 87,573 437,865
D&O insurance For the 2016 financial year, a D&O (directors and officers) financial loss and liability insurance policy was signed with UNIQA Sachversicherung AG for the Supervisory Board, the Management Board and key executives, the cost of which is borne by the company. The policy covers both third party claims (external cover) and also claims of the company itself (internal cover) against the managers. The internal cover also protects the Company.
Report on measures taken by the company to promote women to the Management Board, the Supervisory Board and into executive positions (§ 80 of the Austrian Stock Corporation Act (AktG)) as laid down in § 243c (2) 2 of the UGB Prejudices and discrimination have no place in RBI. This is also clearly stated in the Code of Conduct which is valid across the entire Group. RBI instead advocates equality, and in keeping with its corporate identity, it offers equal opportunities for equal performance within the company, regardless of gender or other factors. This begins with staff selection, which must be without prejudice, and where the same standards must always be applied irrespective of gender.
In order to build on management skills among employees, RBI offers targeted training and continuing education programs, which also proved popular among female employees. For example, 27 per cent of the participants in the group-wide top management program “Execute” were women; in 2016, the proportion of women participating in RBI AG’s basic leadership program was 26 per cent and in the Talent Lab for managers 32 per cent.
Annual General Meeting The Annual General Meeting for the 2015 financial year was held on 16 June 2016 in vienna. In addition, on 24 January 2017, an Extraordinary General Meeting of RBI AG decided on the merger of RZB AG and RBI AG. The Annual General Meeting for the 2016 financial year will take place on 22 June 2017. The convening notice will be published in the Wiener Zeitung’s official journal and in electronic form a minimum of 28 days before the Annual General Meeting.
At the Annual General Meeting the shareholders, as owners of the company, can exercise their rights by voting. The fundamental principle of ‘one share, one vote’ applies. Accordingly, there are no restrictions on voting rights and all shareholders have equal rights. Every share confers one vote; registered shares have not been issued. Shareholders may exercise their voting rights themselves or by means of an authorized agent. RZB has not exercised its right to nominate up to one third of the Supervisory Board members to be elected by the Annual General Meeting, as per the Articles of Association, so that the share structure complies with the principle of ‘one share, one vote’. At the Extraordinary General Meeting of RBI AG on 24 January 2017, a decision was taken to remove the right to delegate members in Article 9 of RBI AG’s Articles of Association. The right to delegate members will therefore cease to exist when the amendment to the Articles of Association is registered with the commercial register.
Members of the Supervisory Board must immediately report any potential conflicts of interest to the Chairman of the Supervisory Board, who is supported by Compliance when carrying out his evaluation. In the event that the Chairman himself should encounter a conflict of interest, he must report this immediately to the Deputy Chairman. Company agreements with members of the Supervisory Board that require members to perform a service for the company or for a subsidiary outside of their duty on the Supervisory Board (§ 189 a sub-para. 7 of the UGB) in exchange for not-insignificant compensation require the approval of the Supervisory Board. This also applies to agreements with companies in which a member of the Supervisory Board has a significant financial interest. Furthermore, related party transactions as defined by § 28 of the BWG require the approval of the Supervisory Board.
Accounting and audit of fi nancial statements RBI’s consolidated fi nancial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as applied in the EU. They also comply with the regulations of the BWG in conjunction with the UGB to the extent that these are applicable to the consolidated fi nancial statements. The consolidated annual fi nancial statements are published within the fi rst four months of the fi nancial year following the reporting period. Interim reports are published no later than two months after the end of the respective reporting period pursuant to IFRS.
The Annual General Meeting on 17 June 2015 selected KPMG as external Group auditor and bank auditor for the 2016 fi nancial year. KPMG has confi rmed to RBI that it has the certifi cation of a quality auditing system. It has also declared that there are no reasons for disqualifi cation or prejudice. The Supervisory Board is informed of the result of the audit by a statutory report regarding the audit of the consolidated fi nancial statements by the auditor, as well as by the report of the Audit Committee. Furthermore, the auditor assesses the eff ectiveness of the company’s risk management in accordance with the ACCG, based on the documents submitted to the auditor and otherwise available. The resulting report is presented to the Chairman of the Supervisory Board, who is responsible for ensuring the report is addressed in the Audit Committee and presented to the Supervisory Board.
Nine of RBI’s subsidiary banks have an Environmental and Social Management System (ESMS) and a corresponding Environmental and Social Policy (E&S Policy), which define the bank’s principles for ecological and social risk management. These are based on the standards of the International Finance Corporation (IFC) and/or the Multilateral Investment Guarantee Agency (MIGA).
RBI is also a member of the Green Bond Principles of the International Capital Market Association (ICMA). These principles define a uniform issuance process to promote transparency and integrity in this fast-growing market.
RBI works continuously with the sustainability rating agencies, oekom research, Sustainalytics, MSCI and vIGEO EIRIS, when preparing the assessment documents. In November 2016, the oekom research sustainability rating was upgraded from ”C-“ to “C” (corresponding to “prime” status) in recognition of measures undertaken. Among other factors, the upgrade reflected the increasing importance of environmental and social management within the Group, the strategic approach to diversity as well as the excellent performance with respect to CDP (formerly Carbon Disclosure Project). Around 550 companies are currently assigned oekom research’s “prime” status (the oekom “Prime Universe”), and form a comprehensive basis for structuring sustainable capital investments/investment products. In fall 2016, RBI was again rated an “Outperformer” by Sustainalytics.
This year, around 9 per cent of over 1,800 globally listed companies secured a place on the A List of the non-profit organization CDP. In 2016, RBI was again included on the A List and was rated country leader in Austria in the “Financials” sector for the second time in succession. In 2015, the CO2 footprint per employee stood at 2,693 kg CO2e, marking a 24 per cent reduction since 2011.
The seventh Stakeholder Council was held in November, at which the expectations and needs of internal and external participants in relation to the following areas were discussed in workshop groups: Sustainable investments and activities, developing awareness among employees, impact of the Climate Conference, investments in the community, diversity in the core business: consequences of social transformation, and sustainability in the supply chain. The numerous findings will be incorporated into the various areas of action for the 2017 sustainability strategy, to contribute to ongoing further development in the field of sustainability.
Markets swayed by monetary policy Developments in the money and capital markets continued to be dominated last year by international central bank policies. In the spring of 2016, for example, the European Central Bank (ECB) decided among other things to expand its bond-buying program from € 60 billion per month to € 80 billion, to offer banks funding through long-term refinancing operations, as well as to cut key interest rates. The central bank made adjustments to its policy mix at its last meeting in 2016. The minimum remaining period for its bond purchases was extended to the end of 2017, with the monthly volume to return to € 60 billion as of April 2017. Money market rates fluctuated between the central bank’s deposit rate and main refinancing rate over the course of last year, and were in negative territory across all maturities since mid-January 2016. The yield on two-year German government bonds was already negative in 2015, with yields at the short end continuing to fall in 2016. The yield on ten-year German government bonds came down in the first half of 2016, due to falling inflation expectations and the increase in ECB bond purchases; however, started increasing as of last autumn. In the US, the Fed raised its key rate range by 25 basis points to 0.50-0.75 per cent in December after a one-year pause.
According to preliminary data, real GDP in the euro area grew 1.7 per cent in 2016. Consequently, the upswing in the monetary union continued, despite the fact that economic growth concerns repeatedly surfaced last year. Economic growth was driven primarily by private consumption and to a lesser extent by government consumption and gross fixed capital formation. At the country level, economic development continued to be highly varied. Whereas Spain’s GDP expanded by 3.3 per cent, Italy posted GDP growth of a mere 1.0 per cent. The average price level of consumer goods remained virtually unchanged in the euro area during most of the year. The lack of general inflationary pressure on consumer goods was attributable to falling prices for energy and imported goods. Only when energy prices increased towards the end of 2016 ‒ compared to prior year levels ‒ did the inflation rate pull away appreciably from the zero per cent mark.
China’s economic growth stabilized and is estimated to be 6.7 per cent for 2016. Although the government’s economic support initiatives are likely to have kicked in, these primarily benefited large state enterprises through infrastructure investment. Growth impetus continued to come from the real estate sector.
SEE reported strong economic growth of 3.9 per cent year-on-year in 2016. Once again, the Serbian and Croatian economies significantly stepped up their pace of growth compared to the previous year. The Croatian economy benefited from political stabilization. In Romania, household demand was stimulated by tax cuts. With GDP growth of 3.3 per cent, Bulgaria caught up somewhat with Romania. Overall, economic growth in SEE was at its strongest pace in several years. Although a portion of this growth was attributable to temporary factors, it nonetheless underscores that the weak phase of previous years has been overcome.
Economic conditions in Eastern Europe (EE) improved in 2016. Russia benefited from a recovery in oil prices over the course of the year. Prudent monetary and fiscal policy had a stabilizing effect but failed to deliver additional growth impetus. The recession in Russia flattened out significantly, and economic output fell only 0.2 per cent year-on-year in 2016. Russia’s manufacturing sector improved somewhat towards the end of last year, but private household demand remained weak. Ukraine’s economy bottomed out in 2015 and returned to growth of 2.2 per cent in 2016. The Belarusian economy, which is heavily dependent on financial support from and exports to Russia, remained in a persistent recession. Inflation rates in EE retreated from high levels amid more stable exchange rate developments and weak domestic demand.
The Sustainability Package, which was launched in 2012, has helped to strengthen the local funding base of Austrian subsidiary banks in CEE. The loan/deposit ratio fell from 117 per cent in 2008 to 88 per cent in the first quarter of 2016, and was primarily attributable to an increase in local savings deposits. Accordingly, credit growth is increasingly financed on a local basis.
The Single Resolution Mechanism (SRM) became fully effective on 1 January 2016. The Single Resolution Board (SRB) is the central body responsible for making all decisions relating to the resolution of major banks that are either failing or at risk of failing. The measures are implemented in cooperation with the relevant national resolution authorities.
In November 2016, the European Commission published a legislative proposal to change the prudential requirements (CRD IV/CRR), as well as to amend the recovery and resolution framework (BRRD, SRM). The documents provide the basis for follow-up negotiations with the EU Parliament and European Council and at the same time offer a preview of the regulatory challenges for the years following 2017.
On the one hand, the proposed changes to the CRR can be broken down thematically into criteria for classification under the finalized Basel III. This comprises, for example, the introduction of a binding minimum leverage ratio and net stable funding ratio (NSFR), as well as add-ons to the bank recovery and resolution regulations, in order to meet the Total Loss Absorbing Capacity (TLAC) requirements for global systemically important banks. On the other hand, the drafts include adjustments whose content already relates to Basel IV, e.g. the introduction of a standardized approach for measuring counterparty risks, an overhaul of market price risk regulations within the framework of the Fundamental Review of the Trading Book (FRTB) and new rules for investment funds. Compared to the previous implementation of Basel standards, it is clearly evident that proportionality is given far greater weight, in particular, to meet the needs of the numerous smaller banks in the EU. According to the latest information, the new rules and regulations are expected to be applicable from 2019 onwards.
The European Commission aims to improve access to capital market funding for all companies, especially small and medium-sized enterprises (SMEs). It wants to break down barriers that are blocking cross-border investments on the capital market. The action plan of 30 September 2015, provides for a bundle of measures through to 2017, including specific legislative proposals relating to securitization and consultations on covered bonds. The work packages for the action plan were processed and/or expedited in 2016. While the fundamental aim of driving cross-border investments is certainly to be welcomed, it cannot provide a realistic alternative to credit financing for SMEs through banks. Instead, the proposed measures can arguably only be considered as measures to supplement financing by banks.
On 5 October 2016, the Management and Supervisory Boards of RBI AG and RZB AG passed in principle a resolution to merge RBI AG and RZB AG. The respective Extraordinary General Meetings of the participating companies subsequently approved the merger by a clear majority in January 2017. Accordingly, the merger of RZB AG into RBI AG will become effective in the first quarter of 2017 with its entry in the commercial register. Consequently, reporting will be prepared on the basis of the combined bank as of the first quarter of 2017. The Company will continue to operate under the name of Raiffeisen Bank International AG, and RBI shares will remain listed on the Vienna Stock Exchange. The shareholding of the RBI free float will be 41.2 per cent following the merger. The regional Raiffeisen banks will hold approximately 58.8 per cent of RBI shares. There is a related syndicate agreement that contains, among other things, lock-up provisions.
The sale of Raiffeisen-Leasing Polska S.A., Warsaw, to PKO Leasing S.A., Warsaw, was closed on 1 December 2016. The purchase price was € 193 million. Including reclassified realized currency effects, this led to a positive impact of approximately € 18 million on RBI’s consolidated profit in the fourth quarter. The transaction also resulted in an improvement of 33 basis points in RBI’s CET1 ratio (fully loaded). RWA decreased around € 1,272 million.
Following the inconclusive sales process relating to ZUNO BANK AG, parts of the existing business are being integrated into the subsidiary banks in the Czech Republic and Slovakia. It is planned to complete the integration by the middle of 2017.
As a result of the measures described, RBI reached its CET1 ratio (fully loaded) target of at least 12 per cent by the end of 2017, ahead of schedule, and significantly exceeded it with a ratio of 13.6 per cent (fully loaded) at the end of 2016. The transformation program was thereby completed ahead of time, and the Non-Core segment is to be dissolved as of the beginning of 2017. The remaining business will be integrated into the existing segments.
RBI’s former ultimate parent company, Raiffeisen-Landesbanken-Holding GmbH, Vienna, and its wholly owned subsidiary R-Landesbanken-Beteiligung GmbH, Vienna, in which 82.4 per cent of the shares in Raiffeisen Zentralbank Österreich AG were pooled, were merged into Raiffeisen Zentralbank Österreich AG at the end of September 2016. The latter will thus serve as ultimate parent company of RBI up until its merger into RBI, forming a consolidated group. Once RZB AG is merged into RBI AG, then RBI AG itself will be the ultimate parent company.
Overview of the financial year In addition to the persistently low interest rate level, which also resulted in a decline in RBI’s operating result, the financial year was primarily influenced by significantly lower impairment losses on loans and advances. In CEE, nearly all markets registered declines. Also in Asia, impairment losses were € 118 million lower than in the previous year. Net provisioning for impairment losses fell 40 per cent year-on-year, or € 509 million, to € 754 million. The largest declines occurred in Ukraine, Asia and at Group head office. Consolidated profit amounted to € 463 million and improved 22 per cent year-on-year, or € 84 million.
The average number of staff was further reduced, down 3,906 year-on-year to 50,186. The number of business outlets decreased 199 year-on-year to 2,506.
Equity including capital attributable to non-controlling interests increased 9 per cent, or € 731 million, to € 9,232 million. Increases resulted from profit after tax of € 574 million and other comprehensive income of € 190 million. Exchange rate differences represented the largest item in other comprehensive income and amounted to € 291 million in the reporting period (2015: minus € 194 million).
In 2016, net interest income declined 12 per cent, or € 391 million, to € 2,935 million. This was primarily attributable to continuing low market interest rates in many of the Group’s countries, existing excess liquidity, and a reduction of € 215 million, particularly in Russia, in interest income from derivatives entered into for hedging purposes. This was a result of the lower interest rates in 2016 (the interbank interest rates were exceptionally high in Russia in the first half of 2015) and of a lower volume of USD swaps. The decline in loan portfolios in Asia also contributed to the reduction in net interest income; across the Group, the volume of interest-bearing assets declined 5 per cent.
Net interest income Net fee and commission income Net trading income Recurring other net operating income
Net trading income increased € 198 million year-on-year to € 215 million. Currency-based transactions rose € 176 million to € 116 million, primarily as a result of a more limited Ukrainian hryvnia devaluation than in the previous year (€ 81 million increase ). Another positive effect was attributable to the discontinuation of a hedging transaction for Russian rouble denominated dividend income, which had resulted in a € 70 million reduction in the previous year. Net trading income also increased as a result of valuation gains on derivatives and foreign currency positions in Russia (€ 13 million increase) and Croatia (€ 6 million increase). In contrast, Group head office (down € 82 million) and Belarus (down € 61 million) reported declines resulting from lower net income from open foreign currency positions due to valuations and volumes and to the termination of a strategic currency position. Net income from interest-based business rose € 51 million to € 119 million, primarily due to valuation gains and higher interest income from derivatives and securities positions at Group head office. In contrast, net income from equity and index-based transactions fell € 25 million to minus € 18 million, as a result of an adjustment of the yield curve due to changed market conditions.
Recurring other net operating income decreased € 21 million year-on-year to € 45 million. This included a € 13 million decline in net income from the allocation and release of other provisions, caused by higher allocations for litigation in Slovakia. Net income from investment property fell € 7 million, predominantly due to the disposal of a Group unit in the Czech Republic.
The Group’s general administrative expenses were down 2 per cent, or € 66 million, to € 2,848 million in the reporting period. The cost/income ratio increased 1.6 percentage points to 60.7 per cent due to lower operating income.
The average number of staff (full-time equivalents) fell 3,906 year-on-year to 50,186. The largest declines occurred in Ukraine (down 1,728), in Poland (down 1,143) due to the sale of the Polish leasing company, in Russia (down 358), in Slovenia (down 189) due to the sale of the Slovenian subsidiary bank, and in Hungary (down 150). The largest increases occurred in the Czech Republic (up 341) and in Slovakia (up 154).
Depreciation of tangible and intangible fixed assets fell 6 per cent year-on-year, or € 20 million, to € 331 million. The most significant decline occurred in Hungary, which reported impairment charges in the previous year as a result of branch closures (€ 5 million) and in relation to software (€ 7 million). Ukraine also reported a decline of € 10 million, following impairment charges in relation to buildings and the brand in the previous year. The impairment charge in relation to the Polbank brand amounted to € 21 million in the previous year, with the remaining € 26 million written down in the year under review. An increase was reported in Russia, where investments in software and licenses resulted in higher depreciation.
Net provisioning for impairment losses declined 40 per cent overall year-on-year, or € 509 million, to € 754 million. This included a € 555 million reduction in individual loan loss provisions to € 769 million, while net releases for portfolio-based loan loss provisions declined € 45 million to € 4 million. Proceeds from the sale of impaired loans remained almost unchanged at € 10 million.
The majority of net provisioning for impairment losses in the reporting year was attributable to corporate customers, for which provisions of € 506 million were required. The figure for retail customers was € 237 million, of which € 88 million related to the switch to a rating-based model (PD/LGD) to calculate portfolio-based loan loss provisions, which had commenced in the previous year. An amount of € 28 million was already reported in the previous year.
The provisioning ratio – net provisioning for impairment losses in relation to the average volume of loans and advances to customers – fell 0.59 percentage points year-on-year to 1.05 per cent.
Net income from financial investments improved € 84 million year-on-year to € 153 million. This was primarily attributable to net proceeds from the sale of equity participations, which rose € 144 million year-on-year to € 145 million. The sale of Visa Europe shares to Visa Inc. in June 2016 resulted in proceeds of € 132 million, of which € 78 million was transferred from other comprehensive income. Impairment charges relating to equity participations fell € 28 million in the reporting year to € 18 million. In contrast, the valuation result for securities in the fair value portfolio declined € 59 million to € 16 million, mainly due to significantly lower valuation results on fixed income government bonds linked to the US dollar in Ukraine. Net income from the sale of securities from the fair value portfolio also fell € 23 million. This decline was primarily due to the sale of Icelandic bonds at Group head office in the previous year.
The expense for bank levies rose € 39 million year-on-year to € 158 million. The increase was primarily due to expenses of € 34 million for the newly-introduced bank levy in Poland.
The “Walkaway Law” came into force in Romania in the second quarter of 2016. The expected utilization resulted in a provisioning requirement of € 27 million in the reporting period. The new mortgage loan law stipulates that borrowers can sign their properties over to banks and thereby settle their debts, even if the outstanding volume of the loan exceeds the value of the property. The law relates to certain mortgage loans taken out by private individuals in any currency and applies retroactively. Since the Group is of the opinion that this contravenes the Romanian constitution, corresponding proceedings were initiated. In October 2016, the Romanian Constitutional Court repealed sections of the law connected with its retroactive application.
A provision of € 67 million was released in the previous year in connection with the implementation of the adjustments required in 2014 under the Settlement Act in Hungary, and a further € 7 million was released in the reporting period.
In Croatia, a law to enforce the conversion of loans denominated in Swiss francs resulted in a negative one-off effect of € 77 million in the previous year (2016: minus € 10 million). Proceedings initiated by the banks against the Croatian government challenging the constitutionality of the law are pending.
Comparison of results with the previous quarter in € million Q4/2016 Q3/2016 Change absolute Change
Compared to the third quarter of 2016, net interest income rose 2 per cent, or € 16 million, to € 748 million in the fourth quarter. The net interest margin (calculated on interest-bearing assets) increased 6 basis points from the previous quarter to 2.83 per cent. The primary cause of this positive development was the € 21 million increase in interest income from loans and advances to customers, predominantly in Russia and at Group head office.
Net fee and commission income grew 6 per cent compared to the third quarter, or € 22 million, to € 400 million. The increase was based in part on exchange rate movements in Eastern Europe, but was largely due to volume effects. Net income from the payment transfer business posted the largest increase, up 5 per cent, or € 9 million, to € 176 million, due to higher fee and commission income driven by volumes and margins in Russia, at Group head office and in Romania. Net income from the loan and guarantee business improved by € 7 million to € 46 million, due to higher guarantee income at Group head office and higher volumes, notably in Russia and in the Czech Republic. Net income from the foreign currency, notes/coins and precious metals business rose € 6 million to € 105 million, particularly at Group head office and in Poland.
Compared to the previous quarter, net trading income improved € 27 million to € 78 million. Net income from currency-based transactions increased € 21 million to € 44 million, primarily due to exchange rate-related valuation gains on foreign currency positions and on derivatives at Group head office, at Raiffeisen Centrobank and in Russia. This was set against valuation losses from foreign currency positions, notably in Ukraine and Asia. Net income from equity and index-based transactions posted a € 6 million increase as a result of higher levels of activity in securities trading, as well as positive valuation effects in connection with changed market conditions.
Staff expenses rose € 15 million in the fourth quarter to € 362 million. In addition to currency effects, this was mainly due to higher wages and salaries, predominantly in Russia, Ukraine and the Czech Republic, whereas staff expenses in Poland and Asia were down due to lower staff numbers.
Overall, net individual loan loss provisioning rose € 116 million to € 226 million. Net portfolio-based loan loss provisions amounted to € 28 million in the fourth quarter, while net releases of € 5 million were recognized in the third quarter.
Bank levies amounted to € 43 million in the fourth quarter (third quarter: € 34 million). The largest amounts were at Group head office (€ 23 million) and in Poland (€ 9 million). The “Walkaway Law” came into force in Romania in the second quarter of 2016. As a result of the expected take-up rate under the new law, a provision of € 43 million was recognized in May, with releases in the amount of € 12 million in the fourth quarter and € 3 million in the third quarter.
Income tax expense decreased € 38 million quarter-on-quarter to € 46 million, notably in Ukraine, Russia and Slovakia. The effective tax rate was 33 per cent, up from 28 per cent in the previous quarter.
Statement of financial position In the course of 2016, RBI’s total assets declined 2 per cent, or € 2,563 million, to € 111,864 million. The reduction was attributable to changes in the scope of consolidation of around € 2,400 million, primarily as a result of the sale of the Polish leasing company and the Slovenian subsidiary bank. Currency developments – predominantly the appreciation of the Russian rouble (up 25 per cent) and the US dollar (up 3 per cent) against the euro – resulted in a rise of around € 1,700 million.
Loans and advances to banks before deduction of impairment losses (€ 50 million) fell 9 per cent over the year, or € 937 million, to € 9,900 million. This was primarily attributable to a decline of € 1,004 million to € 1,412 million in receivables from the lending business, mainly at Group head office. In contrast, receivables from repurchase agreements and securities lending increased € 2,194 million to € 3,374 million.
Loans and advances to customers before deduction of impairment losses (€ 4,905 million) increased 1 per cent, or € 593 million, to € 70,514 million in the reporting period. In particular, this included a € 943 million net increase in loans and advances to retail customers to € 25,578 million, while loans and advances to corporate customers declined € 195 million to € 44,277 million, and loans and advances to sovereigns fell € 155 million to € 659 million. Loans to private individuals recorded a rise of € 1,514 million. This included an increase in mainly in Russia (primarily currency-related), in the Czech Republic (as a result of organic growth in the lending and mortgage lending business and of the acquisition of Citibank’s retail customer and credit card business), and in Slovakia. The € 571 million decline in loans and advances to small and medium-sized entities to € 2,185 million was attributable to the sale of the Polish leasing business. Declines in loans and advances to corporate customers in Asia and the US, due to the planned reduction in business volumes, were largely offset by increases in the Czech Republic, in Russia (notably currency -related) and in Romania.
For information relating to funding, please refer to the risk report, note (42) to the consolidated financial statements.
Capital of non-controlling interests rose € 47 million to € 581 million.This was primarily due to the proportion of total comprehensive income attributable to non-controlling interests of € 96 million, the payment of dividends of € 40 million to minority shareholders of Group units – mainly from Tatra Banka (€ 24 million) and Raiffeisenbank in the Czech Republic (€ 13 million) – as well as other smaller capital movements.
Common equity tier 1 after deductions stood at € 8,339 million. The increase from the 2015 comparable level totaled € 668 million, mainly due to the inclusion of the net profit for 2016 and to positive currency effects, especially in relation to the Russian rouble. In contrast, the application of transitional provisions for 2016 and the inability to continue to recognize the hybrid capital of RZB Finance Jersey IV since May, due to the change in interest terms as stipulated in the prospectus, had a negative impact. Tier 2 capital declined € 118 million compared to the previous year and totaled € 3,198 million. The decline was mainly attributable to matured tier 2 capital instruments in RBI AG. As at 31 December 2016, total capital under CRR amounted to € 11,537 million. This corresponds to an increase of € 550 million compared to the 2015 year-end figure.
Based on total risk, the common equity tier 1 ratio (transitional) was 13.9 per cent, with a total capital ratio (transitional) of 19.2 per cent. Excluding the transitional provisions as defined in the CRR, the common equity tier 1 ratio (fully loaded) stood at 13.6 per cent, and the total capital ratio (fully loaded) was 18.9 per cent.
In the context of financial engineering, however, it does develop customized investment, financing and risk hedging solutions for its customers. Financial engineering encompasses not only structured investment products, but also structured financing, i.e. financing concepts that go beyond the application of standard instruments and are used in areas such as acquisition or project financing. RBI also develops individual solutions to hedge a broad spectrum of risks, from interest rate risk and currency risk through to commodity price risk. Besides financial engineering, RBI is also actively working on the further development of integrated product solutions for international payment transfers within cash management.
In CEE, the RBI subsidiary banks in Slovakia and the Czech Republic are leaders in the mobile and online banking field. To learn from the experiences and know-how in these markets, an extensive project to establish a Group-wide digital roadmap was launched at the end of 2016.
As part of innovation management, networking with ambitious start-up companies, renowned research institutes and original thinkers provides new incentives and solutions for changing customer requirements, which are then placed at the disposal of the Raiffeisen Banking Group. Here, too, the focus is on developing a culture of innovation and supporting the digital transformation of the entire Raiffeisen Banking Group.
The senior management of each Group unit is responsible for implementing the Group-wide instructions. Compliance with Group rules is monitored as part of the audits performed by internal and local auditors.
The consolidated financial statements are prepared by Accounting & Reporting, which reports to the Chief Financial Officer. The associated responsibilities are defined for the Group within the framework of a dedicated Group function.
The preparation of individual financial statements is decentralized and carried out by each Group unit in accordance with the RZB or RBI guidelines. The Group unit employees and managers responsible for accounting are required to provide a full presentation and accurate valuation of all transactions. Differences in local accounting standards can result in inconsistencies between the individual financial statements and the figures submitted to RBI. The local management is responsible for ensuring implementation of mandatory internal control measures, such as the separation of functions and the principle of dual control. The reconciliation and validation controls are imbedded in the aggregation, calculation and accounting valuation activities for all financial reporting processes.
Financial reporting is a main focus of the ICS framework, whereby financial reporting processes with inherent misstatement risk are identified and subject to additional monitoring and control reviews – the results of which are presented to the Management Board and the Supervisory Board’s Audit Committee for evaluation. The Management Board is responsible for ongoing company-wide monitoring. In accordance with the target operating model, three successive lines of defense are established to meet the increased requirements for internal control systems.
The second line of defense is provided by specialist areas focused on specific issues. These include, for example, Compliance, Data Quality Governance, Operational Risk Controlling, and Security & Business Continuity Management. Their primary aim is to support the individual departments when carrying out control steps, to validate the actual controls and to introduce state-of-the-art practices within the organization.
Articles of Association that only affect the respective wording. This right may be delegated to committees. Furthermore, there are no regulations regarding amendments to the company Articles of Association beyond the provisions of the relevant laws.
Pursuant to § 159 (2) 1 of the AktG, the share capital has been increased contingently by up to € 119,258,123.20 through the issue of up to 39,101,024 common bearer shares (contingent capital). The contingent capital increase will only be undertaken if and when use is made of an irrevocable exchange or subscription right to shares granted by the company to creditors holding convertible bonds issued on the basis of the resolution of the Annual General Meeting held on 26 June 2013 and the Management Board does not decide to allocate own shares. Pursuant to § 174 (2) of the AktG, the Annual General Meeting of 26 June 2013 authorized the Management Board to issue, in one or more tranches, convertible bonds in a total nominal amount of up to € 2,000,000,000, which grant holders conversion or subscription rights for up to 39,101,024 common bearer shares of the company with a proportional amount of the share capital of up to € 119,258,123.20, within five years from the date of the resolution adopted by the Annual General Meeting, with the approval of the Supervisory Board. Shareholders’ subscription rights to the convertible bonds are excluded. No convertible bonds have been issued to date.
The Management Board was further authorized, pursuant to § 65 (1b) of the AktG, to decide, with the approval of the Supervisory Board, on the sale of own shares by means other than the stock exchange or a public tender, to the full or partial exclusion of shareholders’ subscription rights, and to stipulate the terms of sale. Shareholders’ subscription rights may only be excluded if the own shares are used to pay for a contribution in kind, to acquire enterprises, businesses, operations or stakes in one or several companies in Austria or abroad, or for the purpose of implementing the company’s Share Incentive Program for executives and members of the Management Boards of the company and affiliated companies. In addition, if convertible bonds are issued in accordance with the Annual General Meeting resolution of 26 June 2013, shareholders' subscription rights may also be excluded in order to issue (own) shares to the holders of these convertible bonds who exercise the conversion or subscription rights granted them under the terms of the convertible bonds to shares of the company. This authorization may be exercised in whole, in part or in several partial amounts for one or more purposes by the company, a subsidiary (§ 189a 7 UGB) or by third parties for the account of the company or a subsidiary and remains in force for five years from the date of this resolution, i.e. until 15 June 2021.
The Annual General Meeting of 16 June 2016 also authorized the Management Board, under the provisions of § 65 (1) 7 of the AktG, to purchase own shares for the purpose of securities trading, which may also be conducted off-market, during a period of 30 months from the date of the resolution (i.e. until 15 December 2018), provided that the trading portfolio of shares purchased for this purpose does not exceed 5 per cent of the company’s respective share capital at the end of any given day. The consideration for each share to be acquired must not be less than half the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition. This authorization may be exercised in full or in part or also in several partial amounts by the company, by a subsidiary (§ 189a 7 UGB) or by third parties acting for the account of the company or a subsidiary. This authorization replaces the authorization to purchase own shares for the purpose of securities trading that was granted in the Annual General Meeting of 4 June 2014.
 The company’s SIP provides the following upon a change in corporate control: “If a change in corporate control or a merger occurs during the vesting period, and the combination does not exclusively concern subsidiaries, all contingent shares will lapse without replacement at the time of acquiring the shares of RBI AG and the investor’s effective power to dispose of them, or at the time of the merger. An indemnification payment will be made for these contingent shares. The indemnity sum calculated will be paid out with the next possible salary payment.”
 RBI AG is a member of the Professional Association of Raiffeisen Banks. Upon a change in control of RBI AG which results in the attainment of control by a shareholder outside of the Raiffeisen Banking Group Austria, membership of the Professional Association of Raiffeisen Banks and of the Raiffeisen Customer Guarantee Scheme Austria may be terminated.
(9) There are no indemnification agreements between the company and its Management Board and Supervisory Board members or employees that would take effect in the event of a public takeover bid.
In 2016, the training budget was primarily used for strategic objectives and initiatives. As well as ensuring regulatory training requirements were met, increasing emphasis was placed on key areas such as digital banking, sales, affluent retail customer business, procurement and IT. The “Branch Management Academy ”, a training initiative for managers within sales, was implemented throughout the Group.
A similar program, “FIRE” (Freedom – Inspiration – Raiffeisen – Energy), was also implemented in Hungary, focusing on key leadership skills such as credibility and integrity, or resilience and inspiration.
The new performance management model for Group executives developed during 2015 was successfully implemented in 2016. This included introducing clearly defined target categories (similar to a balanced scorecard approach) and improving consultation between head office and Group units. Other measures included a new competence model and the intensification of dialog and feedback. Based on these concepts, an international team developed the guidelines and fundamental principles for the new performance management process for all other employee levels. Some subsidiary banks have already launched corresponding pilot projects. In Hungary, for example, the focus was on increasing the level of individual responsibility with respect to target definition and performance, as well as on regular and mutual feedback, coaching and staff development.
The annual standard processes to identify and develop talent – each with varying local focal points – were carried out again in 2016. The intensive efforts produced results, with talent pipelines at all levels in almost all units. Data for Austria, for example, shows that 39 per cent of talented individuals identified have advanced in their careers in the last two years (compared to 14 per cent of other employees).
In 2016, around 40,000 employees participated in a Group-wide employee survey. The overall response rate was 87 per cent. Improvements were achieved for the two key factors employee engagement (commitment to the company and associated willingness to voluntarily make additional effort) and employee enablement (existence of an environment which nurtures success). Of the employees surveyed, 65 per cent felt committed to the company and 67 per cent felt their environment nurtured success. Compared to the last Group-wide survey, this represents an increase of 4 and 3 percentage points respectively.
In order to more strongly reflect the critical importance of RBI’s medium-term objectives and its capitalization in the compensation system, the bonus system was further adapted in 2016 by expanding the “step-in” criteria for Group executives and adjusting the criteria for target achievement.
The diverse measures taken by HR managers from the subsidiary banks designed to continuously improve HR functions and processes were again recognized by a number of awards during the year under review. The Hungarian subsidiary bank, for example, received the “Employer Partner Certificate” in recognition of high quality standards and “best HR practice”. Headhunters ranked the Russian subsidiary bank among the “Top 10 best places to work” and the Head of HR was awarded the accolade “Best HR director in the banking sector”. In Romania, the subsidiary bank’s project “Inspire to Aspire-Wakanda Challenge” prevailed against 17 competitors and won an HR award in the category “Training and Development of People”. This program places special emphasis on adapting leadership behavior. The Bulgarian subsidiary bank received the “Best HR project in a large company award” for the restructuring and modernization of its HR area. In the Czech Republic, RBI received the “HR Excellence Award” which is awarded by HR managers and experts from 300 Czech companies. Finally, the Hungarian bank subsidiary received the “Colibri Internship Award” as the best employer for interns.
Following somewhat weaker growth last year, growth in Central Europe (CE) is expected to pick up again in 2017. Ongoing expansionary monetary policy in the region, a solid growth climate in the euro area and an expected recovery in investment demand – amid continued strong private household consumer spending – should support this positive momentum. Leading the way are Poland and Slovakia, each with projected growth of 3.3 per cent, closely followed by Hungary, whose economy should grow by 3.2 per cent. In the Czech Republic, growth is forecast to reach 2.7 per cent.
The Southeastern European (SEE) region is likewise expected to continue its growth trend. Following very strong GDP growth of 3.9 per cent in 2016, SEE should increase its economic output in 2017 by slightly more than 3 per cent, which is its current potential growth rate. In particular, Romania could continue its solid growth trajectory with GDP growth of 4.2 per cent, but momentum is already slowing somewhat following last year’s peak of over 4.8 per cent. Conversely, negative overheating effects such as a ballooning current account deficit should be avoided as a result. Serbia and Croatia, the two countries showing the strongest economic recovery in 2016, should both achieve economic growth of around or just over 3.0 per cent.
We expect net provisioning for impairment losses for 2017 to be below the level of 2016 (€ 754 million).
We further aim to achieve a cost/income ratio of between 50 and 55 per cent in the medium term, unchanged from our previous target.
Our medium term return on equity before tax target is unchanged at approximately 14 per cent, with a consolidated return on equity target of approximately 11 per cent.
Central Europe 67 Southeastern Europe 70 Eastern Europe 74 Group Corporates 77 Group Markets 78 Corporate Center 80 Non-Core 81
Net provisioning for impairment losses (38) (133) (71.3)% (7) 2 –
Net fee and commission income declined 1 per cent year-on-year, or € 5 million, to € 383 million. Net income from the payment transfer business reduced € 9 million to € 187 million as a result of lower margins, particularly in the Czech Republic, as well as changes to regulations in Slovakia. Net income from the loan and guarantee business decreased 21 per cent, or € 9 million, to € 34 million due to legal restrictions on fees for early loan repayments in Slovakia and lower income in Hungary. Net income from the management of investment and pension funds also fell € 6 million to € 15 million, largely as a result of a market-driven decline in Slovakia. Net income from the foreign currency, notes/coins, and precious metals business, in contrast, increased € 14 million to € 95 million as a result of improved margins, primarily in the Czech Republic. Net income from the securities business rose € 4 million to € 39 million, mainly due to higher income in the Czech Republic.
Net trading income fell 9 per cent, or € 3 million, to € 28 million. This included a € 6 million year-on-year decrease in net income from interest-based transactions to € 3 million, attributable to valuation losses on interest-based derivatives in the Czech Republic. Net income from currency-based transactions, in contrast, increased € 2 million year-on-year to € 26 million, primarily as a result of valuation gains on derivatives and foreign currency positions in the Czech Republic and Slovakia.
The bank levies contained in the other results increased € 3 million to € 38 million. The increase was evenly distributed between Hungary and Slovakia.
Net income from financial investments rose € 51 million year-on-year to € 47 million, mainly driven by the sale of Visa Europe Ltd. shares to Visa Inc., which closed in June and generated proceeds of € 56 million. Of this total, € 30 million was attributable to Slovakia, € 19 million to the Czech Republic and € 6 million to Hungary. This was offset by an increase of € 6 million in impairment charges for equity participations, primarily relating to Hungarian equity participations.
Recurring other net operating income 21 3 >500.0% 7 11 (37.4)%
Return on equity before tax 18.5% 15.0% 3.6 PP 11.2% 25.9% (14.7) PP
In contrast, net fee and commission income increased 3 per cent year-on-year, or € 10 million, to € 390 million. Net income from the payment transfer business was up € 9 million to € 209 million due to a rise in income from the credit card business, mainly in Romania, Bosnia and Herzegovina and Albania. Net income from the foreign currency, notes/coins and precious metals business also increased € 4 million to € 85 million, largely as a result of higher volumes in Romania und Croatia. Net income from the sale of own and third party products was up € 2 million to € 22 million, primarily in Romania. In contrast, net income from the securities business fell € 4 million as a result of lower income, largely in Romania.
Net trading income grew 7 per cent year-on-year, or € 4 million, to € 54 million in Southeastern Europe. Higher valuation gains on foreign currency positions, mostly in Croatia, were mainly responsible for the € 4 million increase to € 34 million in currencybased transactions, while Serbia and Albania reported valuation losses. Net income from interest-based business remained almost unchanged.
Net provisioning for impairment losses declined € 16 million year-on-year, or 8 per cent, to € 175 million. Net individual loan loss provisioning fell € 40 million to € 149 million, while portfolio-based loan loss provisions were up € 25 million to € 27 million. The positive trend in individual loan loss provisioning was primarily attributable to loan sales, while the implementation of a PD-/LGDbased calculation of the portfolio-based loan loss provisions in the retail customer business had a negative effect in further Group units.
In the second quarter of 2016, the “Walkaway Law” entered into force in Romania. This resulted in a charge of € 27 million in the reporting period. The new mortgage loan law stipulates that borrowers may transfer ownership of their properties to the banks and thereby settle their debt, even if the loan exceeds the value of the property. The law relates to certain mortgage loans taken out by private persons in any currency and applies retroactively. As RBI believes that this violates the Romanian constitution, legal action has been initiated. In October 2016, the law was partially repealed by the Romanian constitutional court. As a result of the ruling, an amount of € 12 million was released from the required provisioning of € 43 million in the fourth quarter. The releases amounted to € 3 million in the third quarter.
Return on equity before tax 41.3% 33.5% 7.8 PP 32.4% 49.6% (17.2) PP
Recurring other net operating income was up € 15 million year-on-year to minus € 7 million, mainly as a result of a € 12 million decline in other provisions in Russia due to branch closures in the previous year.
General administrative expenses fell 8 per cent year-on-year, or € 44 million, to € 519 million. Russia and Ukraine accounted for most of the reduction, which largely reflected the depreciation of the Russian rouble and Ukrainian hryvnia. The € 16 million decrease in staff expenses was based on currency devaluations and a lower headcount. Other administrative expenses fell € 24 million due to a decrease in legal, advisory and consulting expenses, as well as in office space expenses. The number of business outlets in the segment fell by 91 to 771. Of these, 80 were in Ukraine. Depreciation was down € 4 million following impairment charges for buildings in Ukraine in the previous year. The cost/income ratio improved 1.9 percentage points to 39.5 per cent.
Net provisioning for impairment losses fell 61 per cent year-on-year, or € 258 million, to € 163 million. In Ukraine, net provisioning for impairment losses was down € 214 million; thus in the reporting year, there was a net release of € 2 million. This was attributable primarily to the high provisioning requirements for loans to retail and corporate customers in the comparable period of the previous year, due to the economic situation in the Donbass region and currency movements. In addition, restructuring and loan sales reduced risk costs. The credit risk situation also improved in Russia in the retail and corporate customer areas; net provisioning for impairment losses fell € 36 million to € 145 million. In Belarus, the provisioning requirement declined € 6 million to € 20 million due to a reduction in corporate customer loan volumes.
Compared to the start of 2016, the portfolio of non-performing customer loans in Eastern Europe declined € 326 million to € 1,576 million. The currency-adjusted fall was € 403 million. The biggest drop (€ 299 million) was reported in Ukraine, compared to € 152 million in Russia. In contrast, non-performing loans increased € 47 million in Belarus. The proportion of non-bank non-performing loans in the segment’s loan portfolio fell 4.2 percentage points year-on-year to 14.7 per cent. The NPL coverage ratio dropped 0.6 percentage points to 85.7 per cent.
The tax expense declined slightly to € 126 million. In Ukraine, the tax expense increased € 22 million as a result of the turnaround, while it was € 15 million and € 9 million lower in Belarus and Russia respectively for income-related reasons. The effective tax rate amounted to 19 per cent compared to 23 per cent in the previous year.
Net provisioning for impairment losses (74) (141) (47.2)% (18) 6 –
The improvement in profit before tax in the Group Corporates segment was mainly due to lower net provisioning for impairment losses, after high provisions for impairment losses on loans and advances to large corporate customers – above all from the Donbass region in Ukraine – were required in the previous year. This was set against declining operating income and higher general administrative expenses.
Net provisioning for impairment losses declined 47 per cent year-on-year, or € 66 million, to € 74 million. In the previous year, individual provisions for losses on loans to large corporate customers, especially from the Donbass region, were significantly higher. On a currency-adjusted basis, the portfolio of non-performing loans declined € 587 million to € 688 million, since the start of the year, as a result of sales of loans. The proportion of non-bank non-performing loans in the segment’s loan portfolio fell 4.7 percentage points to 4.6 per cent. The NPL coverage ratio increased 9.2 percentage points to 65.9 per cent.
Income tax expense increased 44 per cent, or € 11 million, to € 37 million as a result of higher income.
Net fee and commission income 113 122 (7.3)% 30 27 11.1%
Net provisioning for impairment losses (34) 7 – (7) (33) (79.0)%
Return on equity before tax 13.4% 17.2% (3.7) PP 14.3% – –
Net interest income decreased 16 per cent, or € 12 million, to € 62 million. The excess liquidity in the market and the associated lower credit demand had a negative effect in this respect. Interest income from loans and securities also decreased as a result of lower volumes due to the reduction of a securities portfolio in the bank book. The net interest margin declined 17 basis points to 0.60 per cent.
Net trading income increased € 44 million to € 122 million. Higher volumes in business with institutional investors had a positive impact, while losses resulted from the abolition of the minimum exchange rate for the Swiss franc in the previous year. Despite the
withdrawal from individual markets and discontinuation of business with specific customer groups, a slight increase was also reported in banknote trading due to improved margins.
Net provisioning for impairment losses amounted to € 34 million in the reporting period after a net amount of € 7 million was released in the previous year. Non-performing loans (including to banks) declined € 284 million to € 131 million. The proportion of non-performing loans in relation to the segment’s total credit exposure amounted to 1.9 per cent. The NPL coverage ratio amounted to 71.9 per cent.
Recurring other net operating income 114 154 (25.7)% 28 31 (9.4)%
Net provisioning for impairment losses (9) (23) (59.3)% (1) 2 –
Net interest income fell 68 per cent year-on-year, or € 762 million, to € 362 million. This was mainly due to a decline of € 604 million in dividend income from the Central and Eastern European Group units, after higher dividends were received in the previous year, particularly from Russia (€ 479 million) and Croatia (€ 84 million). Interest income from intra-Group refinancing also declined due to the decreasing financing volumes.
In contrast, net fee and commission income increased € 24 million year-on-year to € 42 million. This increase mainly resulted from higher income from cash management, while net fee and commission income from the loan and guarantee business declined due to lower volumes
Net trading income improved 83 per cent year-on-year, or € 122 million, to minus € 26 million. This was mainly due to a loss of € 70 million from a hedging transaction for dividend income in Russian roubles, booked in the previous year, and lower currencyrelated valuation losses from a property company.
Net income from the disposal of Group assets amounted to € 11 million in the reporting period, after a negative amount of € 49 million – mainly as a result of a provision booked for the sale of Raiffeisen Banka d.d., Maribor (€ 52 million) – was reported in the previous year.
Net interest income was down 14 per cent year-on-year, or € 54 million, to € 331 million. Asia reported the largest decline, with a volume-related reduction of 56 per cent, or € 47 million, to € 37 million. The € 7 million decrease in Slovenia is attributable to
Net trading income was down € 5 million year-on-year to minus € 5 million. Net income from currency-based transactions declined € 3 million due to valuation losses on foreign currency positions in Poland. Net income from interest-based transactions declined € 3 million, primarily in Poland.
Recurring other net operating income declined € 20 million to almost zero due to losses from the disposal of tangible and intangible fixed assets in Poland (negative impact of € 5 million), lower income from the allocation and release of other provisions (down € 5 million), higher other operating expenses (up € 8 million), especially in Poland, and lower net income from nonbanking activities (down € 4 million).
General administrative expenses dropped 12 per cent, or € 57 million, to € 406 million. Staff expenses decreased 6 per cent, or € 11 million, to € 187 million, primarily due to the windown in Asia and the sale of the subsidiary bank in Slovenia. Other administrative expenses declined 22 per cent, or € 44 million, to € 154 million. This decrease was based on lower deposit insurance fees due to an exceptional payment relating to the default of a Polish bank in the previous year. Furthermore, a one-off payment was made in the previous year to a mortgage borrowers’ support fund in Poland. Depreciation of tangible and intangible fixed assets fell 3 per cent, or € 2 million, to € 65 million. The Polbank brand’s residual value of € 26 million was written off in the reporting year due to the results of the endeavors to sell the company. In the previous year, a partial impairment of € 21 million was recognized in relation to the Polbank brand. Depreciation of tangible fixed assets, in contrast, was lower. The number of business outlets fell by 73 to 305, with most of the decline occurring in Poland (down 58) and Slovenia (down 13). The cost/income ratio rose 4.4 percentage points to 84.6 per cent.
Net provisioning for impairment losses declined 32 per cent year-on-year, or € 120 million, to € 255 million. This development was mainly attributable to Asia, where net provisioning for loans to large corporate customers declined € 118 million to € 179 million. Net provisioning for impairment losses in Poland fell € 4 million year-on-year to € 40 million. This was primarily due to an improvement in the credit risk situation of corporate customers. In Slovenia, a net amount of € 2 million in provisions was released before the bank was sold in the middle of the year, as compared to the previous year when net provisioning was € 19 million. In the US, net provisioning for corporate customers who had already defaulted amounted to € 36 million (up € 23 million).
The segment’s other results fell € 19 million year-on-year to minus € 22 million. Expenses of € 34 million for the newly-introduced bank levy in Poland had a negative impact. Net income from financial investments primarily increased due to € 22 million resulting from the sale of Visa Europe Ltd. shares to Visa Inc. (in Poland: € 18 million, ZUNO BANK AG: € 4 million).
Tax expense increased 73 per cent year-on-year, or € 17 million, to € 41 million as a result of the write off of tax assets from prior periods in Poland. The effective tax rate for the segment was 20 per cent.
Statement of comprehensive income 86 Statement of financial position 89 Statement of changes in equity 90 Statement of cash flows 91 Segment reporting 93 Notes 100 Risk report 148 Auditor‘s report 233 Statement of all legal representatives 239
Net gains (losses) on financial assets available-for-sale (77,321) 82,418 (70,428) 75,640 (6,893) 6,778
According to IAS 19, revaluations of defined benefit plans are to be shown in other comprehensive income. This resulted in other comprehensive income of € 2,704 thousand in the reporting year (2015: € 2,941 thousand).
Cash flow hedging has been applied in two Group units to hedge against interest rate risk. In the reporting year, no gains or losses were reclassified to the income statement. In the previous year, losses of € 1,079 thousand were reclassified to the income statement.
Unrealized net gains (losses) of the period 2,941 (189,089) 90,316 0 399 75,624 (32,835)
Loans and advances to banks [14, 33, 49] 9,900,012 10,837,209 (8.6)%
Statement of cash flows in € thousand Notes 2016 2015 Profit/loss after tax 573,615 434,991
Non-cash positions in profit/loss and transition to net cash from operating activities: Write-downs/write-ups of tangible fixed assets and financial investments [7, 8, 20, 22] 338,745 325,974
Gains (losses) from disposals of tangible fixed assets and financial investments [7, 9] (177,926) (78,297)
Trading assets/trading liabilities (net) [12, 17, 18, 28, 39] 1,020,621 530,573
Proceeds from sale of: Tangible and intangible fixed assets [9, 20, 21, 22] 212,390 173,022
The statement of cash flows shows the structure and changes in cash and cash equivalents during the financial year and is broken down into three sections:  net cash from operating activities  net cash from investing activities  net cash from financing activities
As a rule, internal management reporting at RBI is based on the current organizational structure. This matrix structure means that each member of the Management Board is responsible both for individual countries and for specific business activities (country and functional responsibility model). A cash generating unit (CGU) within the Group is either a country or a business activity. Accordingly, the RBI management bodies – Management Board and Supervisory Board – make key decisions that determine the resources allocated to any given segment based on its financial strength and profitability, which is why these reporting criteria are an essential component in the decision-making process. Segment classification is therefore also undertaken in accordance with IFRS 8. The reconciliation contains mainly the amounts resulting from the elimination of intra-group results and consolidation between the segments.
This segment comprises Belarus, Russia and Ukraine. In Belarus, RBI is represented by a bank and a leasing company, whilst in Kazakhstan it is represented in the leasing business. Raiffeisenbank Russia is one of the leading foreign banks in Russia and services both corporate and retail customers. The branch network also offers products targeted toward affluent retail customers and small and medium-sized entities, with the focus on large cities. Furthermore, RBI is active in the new issuance business. The product range in Russia is rounded off by leasing business. In Ukraine RBI is represented by a bank, a leasing company and a cardprocessing company and provides a full range of financial services via a tightly knit branch network.
The Group Corporates segment covers business with Austrian and international corporate customers of RBI AG, which is managed from Vienna and grouped within the Corporate Customers profit center. These customers include Austria's largest companies and Western European multinational customers. The segment also contains the large corporate business with Central and Eastern European customers as well multinationals with CEE business, included in the Network Corporate Customers & Support profit center.
The Non-Core segment includes all business activities which are to be sold, rescaled or exited as a result of the strategic review decided upon in February 2015. These include the countries Poland and Slovenia as well as the online bank ZUNO BANK AG and the business activities in Asia and the USA.
The presentation of segment performance is based on the income statement and geared to the reporting structure internally used. Income and expenses are attributed to the country and/or business area in which they are generated. Operating income positions are the net interest income, net fee and commission income, net trading income and the recurring other net operating income. The other results include the net income from financial investments, the net income from derivatives and liabilities, the net income from disposal of group assets, the bank levies, the impairment of goodwill, the release of negative goodwill and the profit/loss from banking business due to governmental measures which is shown in sundry operating expenses. The segment result is shown up to the profit/loss after deduction of non-controlling interests. The segment assets are represented by the total assets and the riskweighted assets. The item liabilities includes all positions from the liabilities side of the statement of financial position except the equity. The reconciliation includes mainly the amounts resulting from the elimination of intra-group results and consolidation between the segments. This is supplemented with financial ratios conventionally used within the industry to evaluate performance. The values shown in the segment reporting are for the most part taken from the IFRS individual financial statements which are also used for the compilation of the consolidated financial statements. In some units profit center results are taken from the internal management income statement.
Provisioning ratio (average loans and advances to customers) 0.20% 1.32% 1.61% 0.52% 1.44%
Net income in the Southeastern Europe segment improved, mainly due to the proceeds from the sale of Visa shares (€ 38 million) and a € 50 million reduction in the negative impact of banking business costs following governmental measures. In the reporting year, a new mortgage loan law in Romania resulted in expenses of € 27 million, while expenses of € 77 million had to be booked in the previous year in connection with the conversion of Swiss franc loans in Croatia.
The Non-Core segment encompasses those business areas which are to be sold or reduced in line with RBI’s strategic review, as laid out in 2015. The segment’s profit before tax improved 23 percent to minus € 203 million. This mainly resulted from lower net provisioning for impairment losses on loans and advances predominantly in Asia and reduced general administrative expenses. Operating income declined as a result of the planned reduction in volumes.
Provisioning ratio (average loans and advances to customers) 0.71% 1.44% 3.54% 0.94% (0.24)%
Provisioning ratio (average loans and advances to customers) – 2.68% – 1.64%
Raiffeisen Bank International AG (RBI AG) is registered at the Vienna Commercial Court (Handelsgericht Wien) under Companies Register number FN 122.119m. The company address is at Am Stadtpark 9, 1030 Vienna. The consolidated financial statements are lodged with the Companies Register in accordance with Austrian disclosure regulations and published in the official journal of the Wiener Zeitung.
Raiffeisen Bank International (RBI) is a universal bank focusing on corporate and retail customers in Central and Eastern Europe (CEE) and exclusively on corporate customers in Austria. In CEE, RBI has a closely-knit network of subsidiary banks, leasing companies and numerous specialized financial service providers with around 2,500 business outlets. In Austria, RBI specializes in corporate banking and investment banking business. It is Austria’s corporate finance bank and provides services to the country’s top 1,000 companies. Numerous major international and multinational customers and financial firms also trust in its comprehensive service offering.
The consolidated financial statements were signed by the Management Board on February 28, 2017 and subsequently submitted for the notice of the Supervisory Board.
The consolidated financial statements are based on the reporting packages of all fully consolidated Group members, which are prepared according to IFRS rules and uniform Group standards. All fully consolidated companies prepare their annual financial statements as at and for the year ended 31 December. Figures in these financial statements are stated in € thousand. The following tables may contain rounding differences.
The following exchange rates were used for currency translation: 2016 2015 As at Average As at Average Rates in units per € 31/12 1/1-31/12 31/12 1/1-31/12
At each reporting date, all financial assets, not measured at fair value through profit or loss, are subject to an impairment test to determine whether an impairment loss is to be recognized through profit or loss. In particular, it is required to determine whether there is objective evidence of impairment as a result of a loss event occurring after initial recognition and to estimate the amount and timing of future cash flows when determining an impairment loss. Risk provisions are described in detail in the notes under (42) Risks arising from financial instruments, in the section on credit risk.
Certain non-financial assets, including goodwill and other intangible assets, are subject to an annual impairment review. Goodwill and other intangible assets are tested more frequently if events or changes in circumstances, such as an adverse change in business climate, indicate that these assets may be impaired. The determination of the recoverable amount requires judgments and assumptions to be made by management. Because these estimates and assumptions could result in significant differences to the amounts reported if underlying circumstances were to change, the Group considers these estimates to be critical. Details concerning the impairment review of non-financial assets are disclosed in the section on business combinations. Additionally, the carrying amounts of goodwill are presented in the notes under (20) intangible assets.
According to IFRS 12, structured entities are companies that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the company. This applies, for instance, when any voting rights relate to administrative tasks only, and the relevant activities are directed by means of contractual arrangements. For the purposes of this IFRS, an interest in another entity is a contractual or non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity.
Assessment of which companies are structured entities, and what involvement in such companies actually represents an interest, requires judgments to be made. Details are provided in (52) Group composition, in the section on “Structured entities”.
Net realized gains (losses) on financial assets not measured at fair value through profit and loss 10,008 10,724
Impairment on financial assets not measured at fair value through profit and loss (763,478) (1,274,243)
Net realized gains (losses) on financial assets not measured at fair value through profit and loss 13,128 11,750
Write-ups/impairment on financial assets not measured at fair value through profit and loss (55) 21
(3) Net provisioning for impairment losses Net provisioning for impairment losses on items reported on and off the statement of financial position is as follows: Individual loan loss provisions (768,835) (1,324,169)
Net income from securities at fair value through profit and loss 14,768 97,147
In the 2016 financial year, most of the net proceeds from sales of equity participations came from the sale of Visa Europe Ltd. shares to Visa Inc. and the associated recycling of accumulated gains of € 133,623 thousand to profit or loss.
Legal, advisory and consulting expenses include audit fees in relation to RBI AG and its subsidiaries which comprise expenses for the audit of financial statements amounting to € 6,531 thousand (2015: € 6,172 thousand) and tax advisory as well as other additional consulting services provided by the auditors amounting to € 8,524 thousand (2015: € 5,747 thousand). Thereof, € 1,879 thousand (2015: € 2,157 thousand) relates to the Group auditor for the audit of the financial statements and € 1,434 thousand (2015: € 1,450 thousand) accounts for the other consulting services.
Net proceeds from disposal of tangible and intangible fixed assets (1,650) 1,196
Net expense from allocation and release of other provisions (17,288) (4,470)
Usage of provision for assets held for sale 0 51,772 0 51,772
Net income from disposal of group assets 17,600 (5,647) 6,961 18,914
RBSI: Raiffeisen Banka d.d., Maribor RLPL Group: Raiffeisen-Leasing Polska S.A., Warsaw, and subsidiaries
In the previous year, net income amounted to € 41,111 thousand. The sale of ZAO NPF Raiffeisen, Moscow, resulted in a gain of € 86,171 thousand. The currency effects of minus € 4,018 thousand that were realized from this transaction were reclassified to the income statement. In contrast, a provision of € 51,772 thousand was recognized for the expected loss from the sale of Raiffeisen Banka d.d., Maribor.
Theoretical income tax expense in the financial year based on the domestic income tax rate of 25 per cent (221,399) (177,736)
Tax decrease because of tax-exempted income from equity participations and other income 65,449 38,059
Other changes include € 89,224 thousand unrecognized deferred taxes from temporary differences. They were not capitalized because there was no utilization based on the current mid-term tax planning.
Positive fair values of derivatives not designated as hedging instruments according to IAS 39 hedge accounting are reported in the measurement category “trading assets”.
The purchased loans amounting to € 257,469 thousand (2015: € 49,781 thousand) are fully assigned to the measurement category “loans and advances”.
Loans and advances to customers are distributed among asset classes as follows: Corporate customers – large corporates 41,676,239 41,685,252
The reduction in impairment losses on loans and advances was largely caused by the sale of non-performing loans with a nominal value of € 1,186,945 thousand and the derecognition of uncollectible loans.
Loans and advances and loan loss provisions according to asset classes are shown in the following table: in € thousand Fair value
Treasury bills and bills of public authorities eligible for refinancing 632,054 1,029,632
Positive fair values of derivatives in fair value hedges (IAS 39) 641,851 691,539
Positive fair values of derivatives in net investment hedge (IAS 39) 0 16,711
The carrying amount of the securities reclassified into the category “held-to-maturity” amounted at the date of reclassifications to € 452,188 thousand. Thereof, reclassifications in 2008 amounted to € 371,686 thousand and in 2011 € 80,502 thousand. As of 31 December 2016, the carrying amount totaled € 3,314 thousand and the fair value totaled € 3,707 thousand. In 2016, a result from the reclassified securities of € 213 thousand (2015: € 557 thousand) was shown in the income statement. If the reclassification had not been made, a loss of € 78 thousand (2015: loss of € 355 thousand) would have arisen.
Equity participations valued at amortized cost for which fair values could not be measured reliably amounted to € 249,143 thousand (2015: € 231,869 thousand).
Development of goodwill 2016 in € thousand RBCZ Other Total 2015 in € thousand RBCZ Other Total 1 Calculated with average exchange rates RBCZ: Raiffeisenbank a.s., Prague (CZ)
In the 2016 financial year, € 2,431 thousand in goodwill was acquired and impaired in connection with the purchase of a Citibank operation in the Czech Republic. The impairment was included in general administrative expenses. The cumulative impairments resulted from impairments recognized in previous years for Raiffeisen Bank Sh.a., Tirana, Raiffeisen Bank Polska S.A., Warsaw, and AO Raiffeisenbank, Moscow.
The calculation of the recoverable amount is based on a five-year detailed planning period. The sustainable future growth (stabilization phase) is based on the premise of perpetuity (perpetual annuity); in the majority of cases country nominal growth rates of earnings are assumed, which are based on the long-term expected rate of inflation. For companies that have a significant overcapitalization an interim period of five years is defined, but without extending the detailed planning phase. Within this period, it is possible for these CGUs to make full payments without violating the capital adequacy requirements. In the stabilization phase, profit retention relating to growth while ensuring compliance with capital requirements is imperative. If, however, zero growth is assumed in the stabilization phase, no profit retention is required.
The assumptions are based on internal as well as external sources. Macroeconomic assumptions of the research department were compared with external data sources and the 5year plans were presented to the Management Board. Moreover, the detail planning phase was approved by the Supervisory Board.
Brand rights are only recognized for Raiffeisen Bank Polska S.A., Warsaw (RBPL) and for Raiffeisen Bank Aval JSC, Kiev (AVAL). The carrying values of the brands as well as gross amounts and cumulative impairment losses have developed as shown below: 2016 in € thousand AVAL RBPL Total
Cumulative impairment2 (16,964) (20,357) (37,321) 1 Calculated with average exchange rates 2 Calculated with period-end exchange rates AVAL: Raiffeisen Bank Aval JSC, Kiev (UA) RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL)
According to IAS 36.9 at the end of each reporting period, an entity is required to assess whether there is any indication that an asset may be impaired based on a list of external and internal indicators of impairment. The assumptions underlying the value of the Polbank brand had to be revisited in light of new information in the third quarter of 2016 due to the planned sale of Raiffeisen Bank Polska S.A., Warsaw. IAS 36 defines the recoverable amount as the higher of fair value less costs to sell and the value in use. Both of these perspectives provided strong indications that the brand was impaired since it provided no value in use for potential buyers. This was due to the current consolidation of the Polish banking market. The consolidation process is being primarily driven by regulatory pressure on capital ratios, the introduction of bank taxes and other negative impacts on the banking business due to governmental measures. In this environment, the advantages posed by a brand (cross selling and client loyalty) appear to be greatly diminished. As a result, an impairment of € 26,133 thousand was recognized for the brand Polbank.
Cumulative impairment2 (11,758) (10,280) (22,039) 1 Calculated with average exchange rates 2 Calculated with period-end exchange rates AVAL: Raiffeisen Bank Aval JSC, Kiev (UA) RBCZ: Raiffeisenbank a.s., Prague (CZ) RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL)
Land and buildings used by the Group for own purpose 753,778 (16,436) 29,568 33,021 (46,052) 1,197 755,076 of which land value of developed land 11,449 0 (230) 0 (2,728) 0 8,491
Office furniture, equipment and other tangible fixed assets 967,604 (21,191) 23,932 89,914 (90,441) 544 970,362
Write-ups, amortization, depreciation, impairment Carrying amount hereof hereof As at in € thousand Cumulative Write-ups Depreciation 31/12/2016
Change in consolidated group Exchange differences Additions Disposals Transfers As at 31/12/2015
The decline in the item “Assets held for sale” is attributable to the fact that Raiffeisen Banka d.d., Maribor, was sold as of 30 June 2016 and ZUNO BANK AG, Vienna, was reclassified because the sales negotiations were inconclusive.
The net deferred taxes result from the following items: Loans and advances to customers 28,999 199,441
The Group refinances itself periodically with international commercial banks and multinational development banks. These credit contracts contain ownership clauses normally used in business. These clauses grant permission to the parties to the contracts for exceptional termination in the event of a change in direct or indirect control of RBI AG. This could lead to increased refinancing costs for the Group.
Deposits from banks classified regionally (counterparty domicile) break down as follows: Deposits from banks break down into the following segments: Multilateral development banks 1,128,536 1,898,085
The following table contains debt securities issued amounting to or exceeding € 200,000 thousand nominal value: Issuer ISIN Type Currency Nominal value in € thousand Coupon Due
Provisions for banking business due to governmental measures 114,762 0 26,741 (7,109) (119,885) (7) 14,503
The item “Severance and similar payments” includes provisions for service anniversary bonuses and other payments in the amount of € 25,979 thousand (2015: € 26,600 thousand) and obligations from other benefits due to termination of employment according to IAS 19 amounting to € 58,544 thousand (2015: € 63,070 thousand).
The change in provisions for banking business charges due to governmental measures was partly due to the provisioning of € 26,741 thousand for the "Walkaway Law" in Romania and the useage of the provision relating to the mandatory conversion of loans denominated in Swiss francs at the historical rates at the time of lending in Croatia.
The Group is involved in litigation arising from the undertaking of banking business. The Group does not expect that these legal cases will have a material impact on the financial position of the Group. As of 31 December 2016, Group-wide provisions for pending legal issues amounted to € 84,914 thousand (2015: € 80,770 thousand). Single cases involving provisions in excess of € 10,000 thousand occurred in Austria and Slovakia (2015: in Austria and Slovakia).
 In Slovakia, a customer has taken legal action in relation to a disputed amount of approximately € 71,150 thousand against Tatra banka a.s., Bratislava. The case revolves around agreed credit facilities and a contract breach allegedly committed by Tatra banka a.s. through failing to execute payment transfer orders and renew credit facilities, which ultimately led to the termination of the customer's business activities.
Plan assets developed as follows: Plan assets at fair value as at 1/1 13,762 14,687
The return on plan assets for 2016 was € 548 thousand (2015: € 311 thousand). The fair value of rights to reimbursement recognized as an asset was € 15,200 thousand (2015: € 15,519 thousand) as at year-end 2016.
Future salary growth (0.5 per cent change) 433 (414) 496 (474)
The other termination benefits developed as follows: DBO as at 1/1 63,458 60,186
Future salary growth (0.5 per cent change) 3,119 (2,903) 3,545 (3,333)
Negative fair values of derivatives in fair value hedges (IAS 39) 132,565 194,932
Negative fair values of derivatives in net investment hedge (IAS 39) 17,749 0
The table below shows the expected hedged cash flows from liabilities affecting the statement of comprehensive income by maturity: More than 1 year, up to 5 years 587,577 385,701
Net gains of € 5,788 thousand (2015: net loss € 435 thousand) relating to the effective portion of cash flow hedges were recognized in other comprehensive income.
The Management Board was further authorized pursuant to Section 65 (1b) of the Austrian Stock Corporation Act (AktG), to decide, with the approval of the Supervisory Board, on the sale of own shares by means other than the stock exchange or a public tender, to the full or partial exclusion of shareholders’ subscription rights. Shareholders’ subscription rights may only be excluded if the own shares are used to pay for a contribution in kind, to acquire enterprises, businesses or branches of activity of one or several companies in Austria or abroad, or for the purpose of implementing the company’s Share Incentive Program (SIP) for executives and members of the Management Boards of the company and affiliated enterprises.
Pursuant to Section 169 of the Austrian Stock Corporation Act (AktG), the Management Board has been authorized since the Annual General Meeting of 4 June 2014 to increase the capital stock – in one or more tranches – by up to € 446,793,032.95 by issuing up to 146,489,519 new common bearer shares with voting rights against contributions in cash and/or in kind (including by way of the right of indirect subscription by a bank pursuant to Section 153 (6) of AktG) and to fix the offering price and terms of the issue with the approval of the Supervisory Board. The Management Board is further authorized to exclude shareholders ’ subscription rights, with the approval of the Supervisory Board, (i) if the capital increase is carried out by contributions in kind or (ii) if the capital increase is carried out by contributions in cash and the shares issued under the exclusion of subscription rights do not exceed 10 per cent of the company’s capital stock (exclusion of subscription rights).
In the Annual General Meeting held on 26 June 2013, the Management Board was authorized pursuant to Section 174 (2) of the Austrian Stock Corporation Act (AktG) to issue – with the approval of the Supervisory Board – convertible bonds in a total nominal amount of up to € 2,000,000 thousand, also in several tranches, within five years from the date of the resolution, which grant holders conversion or subscription rights for up to 39,101,024 common bearer shares of the company with a pro-rata share in the subscribed capital of up to € 119,258 thousand. Shareholders` subscription rights to the convertible bonds are excluded. However, no convertible bonds have been issued to date.
In relation to the approval of the acquisition of Polbank shares, a commitment was made – besides other undertakings – to the Polish Financial Supervision Authority that 15 per cent of the shares in the Polish banking unit would be listed on the Warsaw Stock Exchange by June 2017 at the latest. Furthermore, a commitment was made in relation to the approval that RBI shares would also be listed on the Warsaw Stock Exchange (in addition to the listing on the Vienna Stock Exchange) from June 2018 at the latest or, alternatively, that the listed proportion of shares in the Polish banking unit would be increased to 25 per cent.
Members of the management board of the company 24,493 340,943 12,809
Executives of the company and other affiliated companies 19,839 276,159 11,384
To avoid legal uncertainties, eligible employees in three countries were given a cash settlement instead of an allocation of shares as permitted by the program terms and conditions. In Austria, eligible parties were granted the option of accepting a cash settlement in lieu of half of the shares due in order to offset the income tax payable at the time of transfer. Therefore, fewer shares were actually transferred than the number that were due. The portfolio of own shares was subsequently reduced by the lower number of shares actually transferred.
This means that as at the reporting date, contingent shares for two tranches were allocated. As at 31 December 2016, the number of these contingent shares was 693,462 (of which 367,977 shares were attributable to the 2012 allotment and 325,485 shares to the 2013 allotment). The originally published number of contingently allotted shares changed due to various personnel changes within Group units. It is shown on an aggregated level in the following table: Share incentive program (SIP) 2012 – 2013 Group of persons
Executives of the company and other affiliated companies 187,461 56,238 281,192
(33) Breakdown of remaining terms to maturity 2016 Short-term assets/liabilities Long-term assets/liabilities in € thousand Due at call or without maturity Up to 3 months More than 3 months, up to 1 year More than 1 year, up to 5 years More than
Impairment losses on loans and advances (4,955,132) 0 0 0 0 2015 Short-term assets/liabilities Long-term assets/liabilities in € thousand Due at call or without maturity Up to 3 months More than 3 months, up to 1 year More than 1 year, up to 5 years More than
In the reporting year no new securitization programs resulting in a significant transfer of risk were initiated with external investors. The following securitization programs concluded in former years were still active in the reporting year: In December 2015 a synthetic securitization of € 1,000,000 thousand in loans and advances to corporate customers and project finance loans originated by Raiffeisenbank a.s., Prague, was concluded. This synthetic securitization is referred to as “ROOF RBCZ 2015” and was split into a senior, a mezzanine and a junior tranche. The mezzanine tranche was sold to two institutional investors, while Raiffeisenbank a.s., Prague, holds the credit risk of the junior and senior tranches.
A synthetic securitization of real estate loans and advances to corporate customers from Austria and Germany originated by RBI AG was concluded in July 2015 under “ROOF Real Estate 2015”. The transaction was split into a senior and a junior tranche. The junior tranche was externally placed and amounted to € 51,445 thousand as at 31December 2016 (2015: € 49,720 thousand).
Within the scope of further synthetic securitizations, the Group participated in the JEREMIE programs in Romania in 2010 (“EIF JEREMIE Romania), as well as in Slovakia since 2013 (“EIF JEREMIE Slovakia SME 2013-1”). The European Investment Fund (EIF) provides guarantees from EIF under the JEREMIE initiative to subsidiaries granting loans to small and medium-sized enterprises. The maximum volume of the portfolio under the JEREMIE first loss guarantees amounts to € 172,500 thousand for Raiffeisenbank S.A., Bucharest, and € 60,000 thousand for Tatra banka a.s., Bratislava.
In 2015 Raiffeisenbank Austria d.d., Zagreb, signed a portfolio guarantee agreement under the Western Balkans Enterprise Development and Innovation Facility (EIF Western Balkans EDIF Croatia); the agreement is financed by the EU and aims to support small and medium-sized enterprises in accessing finance. The maximum volume is € 20,107 thousand.
The table below shows the carrying amounts of financial assets transferred: 2016 Transferred assets Associated liabilities in € thousand Carrying amount hereof securitizations hereof repurchase agreements Carrying amount hereof securitizations hereof repurchase agreements 2015 Transferred assets Associated liabilities in € thousand Carrying amount hereof securitizations hereof repurchase agreements Carrying amount hereof securitizations hereof repurchase agreements
The following table shows securities and other financial assets accepted as collateral: Securities and other financial assets accepted as collateral which can be sold or repledged 5,139,516 1,780,968 hereof which have been sold or repledged 418,169 307,566
Other financial instruments (legally enforceable) 188,172 0 188,172 0 0 188,172
In 2016, assets which were not subject to legally enforceable netting agreements amounted to € 104,226,968 thousand (2015: € 109,067,016 thousand), of which an immaterial part was accounted for by derivative financial instruments and cash balances from reverse repo business. Liabilities which were not subject to legally enforceable netting agreements totaled € 99,535,179 thousand in 2016 (2015: € 102,392,574 thousand), of which only an immaterial part was accounted for by derivative financial instruments and cash deposits from repo business.
Reverse repurchase, securities lending & similar agreements (legally enforceable) 1,326,950 0 1,326,950 1,310,863 0 16,087
(39) Derivative financial instruments 2016 Nominal amount by maturity Fair values in € thousand Up to 1 year More than 1 year, up to 5 years More than 5 years Total Positive Negative
Foreign exchange rate and gold contracts 36,878,782 9,413,284 18,535,556 64,827,623 913,876 (1,070,164)
The surplus of negative market values for equity/index contracts is offset by shares purchased for hedging purposes. These shares are recorded under trading assets and are not shown in the above table.
Determination of the fair value a credit value adjustment (CVA) is also necessary to reflect the counterparty risk associated with OTC derivative transactions, especially of those contractual partners with whom hedging via credit support annexes has not yet been conducted. This amount represents the respective estimated market value of a security which could be used to hedge against the credit risk of the counterparties to the Group's OTC derivative portfolios.
For OTC derivatives, credit value adjustments (CVA) and debit value adjustments (DVA) are used to cover expected losses from credit business. The CVA will depend on the expected future exposure (expected positive exposure) and the probability of default of the contractual partner. The DVA is determined based on the expected negative exposure and on RBI's credit quality. The expected positive exposure is calculated by simulating a large number of scenarios for future points in time, taking into account all available risk factors (e.g. currency and yield curves). OTC derivatives are measured at market values taking into account these scenarios at the respective future points in time and are aggregated at counterparty level in order to then ascertain the expected positive exposure for all points in time. Counterparties with CSA contracts (credit support annex contracts) are taken into account in the calculation. Here, the expected exposures are not calculated directly from simulated market values, but from a future expected change in market values based on a "margin period of risk" of 10 days.
Shares and other variable-yield securities 164,159 350 65 202,603 449 237
Bonds, notes and other fixed-interest securities 1,935,030 1,972,712 51,322 2,222,415 3,072,102 64,764
Shares and other variable-yield securities 3 0 2,721 3 0 2,496
Level I Quoted market prices Level II Valuation techniques based on market data Level III Valuation techniques not based on market data 2016 2015 in € thousand Level I Level II Level III Level I Level II Level III
Liabilities at fair value through profit and loss 0 2,783,648 0 0 2,588,259 0
The following tables show the changes in the fair value of financial instruments whose fair value cannot be calculated on the basis of observable market data and which are therefore subject to other measurement models. Financial instruments in this category have a value component which is unobservable on the market and which has a material impact on the fair value. Due to a change in the observable valuation parameters, certain financial instruments were reclassified from Level III. The reclassified financial instruments are shown under Level II as they are valued on the basis of market input parameters.
in € thousand Gains/loss in P/L Gains/loss in other comprehensive income Transfer to level III Transfer from level III As at 31/12/2016
Financial assets at fair value through profit or loss 8,569 0 0 0 52,490
Financial assets available-for-sale 129,399 (89,459) 0 0 73,585 in € thousand As at 1/1/2016 Change in consolidated group Exchange differences Purchases Sales, repayment in € thousand Gains/loss in P/L Gains/loss in other comprehensive income Transfer to level III Transfer from level III As at 31/12/2016
Closed end real estate fund 65 Net asset value Haircuts 40-90%
in € thousand Level I Level II Level III Fair value Carrying amount Difference
Subordinated capital 0 3,565,784 406,123 3,971,907 3,641,811 330,096 1 Adaptation of previous year figures
The central Risk Controlling division assumes the independent risk controlling function required by banking law. Its responsibilities include developing the Group-wide framework for overall bank risk management (integrating all risk types) and preparing independent reports on the risk profile for the Risk Committee of the Supervisory Board, the Management Board and the heads of individual business units. It also measures required risk coverage capital for different Group units and calculates the utilization of the allocated risk capital budgets in the internal capital adequacy framework.
The Credit Committees are staffed by front office and back office representatives with different participants depending on the customers (corporate customers, banks, sovereigns and retail). They decide upon the specific lending criteria for different customer divisions and countries and approve all credit decisions concerning them according to the credit approval authority (depending on rating and exposure size).
Local risk management units and committees ▪ for all risk categories ▪ for all Group units
The Contingency/Recovery Committee is a decision-making body convened by the Management Board. The composition of the committee varies as circumstances require depending on the intensity and focus of the specific requirements pertaining to the situation (e.g. capital and/or liquidity). The core task of the committee is to maintain or recover financial stability in accordance with BaSAG (Austrian Bank Recovery and Resolution Act) and BRRD (Banking Recovery and Resolution Directive) in the event of a critical financial situation.
Quality assurance with respect to risk management refers to ensuring the integrity, soundness, and accuracy of processes, models, calculations, and data sources. This is to ensure that the Group adheres to all legal requirements and that it can achieve the highest standards in risk management related operations.
Risks in the target rating perspective are measured based on economic capital which represents a comparable measure across all types of risks. It is calculated as the sum of unexpected losses stemming from different Group units and different risk categories (credit, participation, market, liquidity, macroeconomic and operational risk as well as risk resulting from other tangible fixed assets). In addition, a general buffer for other risk types not explicitly quantified is held.
During the year, the economic capital of the Group decreased 5 per cent, or € 289,746 thousand, to € 5,309,708 thousand. Overall, as at the reporting date, credit risk accounted for 61 per cent (2015: 60 per cent) of economic capital. Additionally, a general buffer for other risks, unchanged at 5 per cent of calculated economic capital, is added. In the allocation of risk capital as at 31 December 2016, the largest share of economic capital, at 34 per cent (2015: 41 per cent), is consumed by Group units located in Central Europe.
The risk position “FX risk capital position” was shown separately for the first time as at 30 June 2016. It represents the risk from the foreign currency capital positions. A longer holding period (1 year) is assumed for non-hedgeable currencies. The breakdown also eliminates diversification effects between the two risk types shown. The comparative values for 31 December 2015 for market risk and FX risk capital position were adapted based on the methodology used as at 30 June 2016.
Regional allocation of economic capital according to Group booking unit: in € thousand 2016 Share 20151 Share 1 Adaptation of previous year figures
The main focus of this integrated stress test is the resulting tier 1 ratio at the end of the multi-year period. It should not fall below a sustainable level and thus neither require the bank to substantially increase capital nor to significantly reduce business activities. The current minimum amount of tier 1 capital is therefore determined by the size of the potential economic downturn. In this downturn scenario the need for allocating loan loss provisions, potential pro-cyclical effects that increase minimum regulatory capital requirements, the impact of foreign exchange rate fluctuations as well as other valuation and earnings effects are incorporated.
Credit portfolio management in the Group is, among other aspects, based on the credit portfolio strategy which is in turn based on the business and risk strategy. By means of the selected strategy, the exposure amount in different countries, industries or product types is limited and thus prevents undesired risk concentrations. Additionally, the long-term potentials of different markets are continuously analyzed. This allows for an early strategic repositioning of future lending activities.
Reconciliation of figures from the IFRS consolidated financial statements to total credit exposure (according to CRR)
The following table translates items of the statement of financial position (bank and trading book positions) into the maximum credit exposure, which is used in portfolio management. It includes exposures on and off the statement of financial position before the application of credit-conversion factors and thus represents the maximum credit exposure. It is not reduced by the effects of credit risk mitigation such as guarantees and physical collateral, effects that are, however, considered in the total assessment of credit risks. The maximum credit exposure is used – if not explicitly stated otherwise –- in all subsequent tables in the risk report. The reasons for different values used for internal portfolio management and external financial accounting are the different scopes of consolidation (regulatory versus accounting rules according to IFRS, i.e. corporate legal basis), different classifications and presentation of exposure volumes.
In 2016 the presentation of the total credit exposure was extended to include the loans and advances contained in synthetic securitizations. The values of the comparative period were adapted accordingly.
6.2 Good project risk profile – low risk 1,850,736 22.9% 2,180,389 27.0%
Retail customers are subdivided into private individuals and small and medium-sized entities (SME). For retail customers a two-fold scoring system is used – consisting of the initial and ad-hoc scoring based on customer data and of the behavioral scoring based on account data. The table below provides a breakdown of the retail credit exposure of the Group: in € thousand 2016 Share 2015 Share
Retail customers – small and medium-sized entities 2,668,266 9.1% 3,225,167 11.6%
Retail customers – small and medium-sized entities 1,002,360 738,631 403,160 522,804 1,310 hereof individual loan loss provision 273,452 371,579 643,693 233,462 45 hereof portfolio-based loan loss provision 86,772 90,081 55,444 16,997 0 in € thousand Central Europe Southeastern
In the table below the total retail credit exposure by products is shown: in € thousand 2016 Share 2015 Share
The increase in mortgage loans was mainly attributable to the Czech Republic, Russia and Slovakia, but was partly offset by a decrease in Poland and Ukraine. Personal loans also rose due to Russia, Poland and Romania. The increase in credit card exposure resulted from the purchase of a loan portfolio in the Czech Republic and from organic growth in Russia. The decline in car loans was on the one hand due to the decision, taken in 2015, to withdraw from this product category in Russia and also to the sale of Raiffeisen-Leasing Polska S.A., Warsaw.
Southeastern Europe Eastern Europe Non-Core Group Markets 2015 in € thousand Central Europe
Compared to year-end 2015, loans denominated in Swiss francs, euros and US dollars decreased. The decrease in foreign currency loans denominated in Swiss francs was mainly due to the statutory provisions concerning the mandatory conversion at historical rates for loans granted in Croatia.
The final rating includes the potential support from an owner and/or by a government. An assessment is made as to whether the owner or government would support the bank in question in the event of financial difficulties and whether it would be able to support it. Based on this assessment and a strict algorithm, the viability rating is improved and a final rating is determined.
A country ceiling is used in order to take the transfer risk of international transactions into account. The default probability applied for the bank must be at least as high as the default probability of the relevant country.
At the end of 2013, a 25-step master scale was introduced in conjunction with the rating models for corporate customers. This master scale comprises nine principal grades with up to three sub-grades A, B or C, i.e. 1C, 2A, 2B, 2C, 3A,…, 9A, 9B, 9C. Each grade is linked to a fixed PD band which represents the risk associated with the respective grade. The same 25-step master scale (i.e. both the same designations for the rating grades and also the same PD bands) is also used for the revised rating model for banks. This offers the advantage that in future, risk ratings of corporate customers can be directly compared with ratings for banks. This will make it possible to improve the management of the portfolio and significantly simplify reporting.
Due to the change in the internal rating model for banks, it is not possible to make a direct comparison with the previous year 2015.
The total credit exposure to banks amounted to € 18,627,544 thousand (2015: € 16,996,536 thousand) at year-end 2016. The largest increase of € 1,280,436 thousand was recorded by Western Europe, mainly due to an increase in repo transactions. The rise of € 790,028 thousand in Eastern Europe also resulted from an increase in repo transactions. Central Europe recorded growth of € 237,377 thousand due to an increase in the bond portfolio and in facility financing and repo transactions. The increase in the overall credit portfolio was, however, partly offset by a decrease in Austria. This was mainly due to a reduction in short-term money market business.
The medium rating grades good credit standing (rating A3) to mediocre credit standing (rating B3) represented the highest share at 68.6 per cent (2015: 49.6 per cent). The high exposure in the medium rating grades resulted amongst other factors from bonds of central banks and central governments. The medium rating grades also reflected minimum reserves and money market transactions. The rating grade A3 good credit standing showed an increase due to money market business in the Czech Republic, which was however partly offset by a reduction in the bond portfolio in Slovakia and the Czech Republic. The change in rating grade B3 mediocre credit standing and B4 weak credit standing was on the one hand due to a rating upgrade of Hungary and on the other due to the decline in deposits at the Hungarian National Bank.
The table below shows the total credit exposure to sovereigns (including central banks) by products: in € thousand 2016 Share 2015 Share
Compared to year-end 2015, the credit exposure to sovereigns in non-investment grade decreased € 448,262 thousand to € 7,743,206 thousand. This decrease resulted primarily from a reduction in short-term money market business. The increase in Other was largely due to an increase in facility financing in Ghana.
Loans and advances to banks and customers net of allocated loan loss provisions (net exposure), the additional exposure off the statement of financial position (contingent liabilities, commitments, and revocable credit lines), and the market prices (fair value) of collateral pledged in favor of the Group are shown in the following table: 2016 Maximum credit exposure Fair value of collateral in € thousand Net exposure Commitments/guarantees issued
In the retail business, restructured loans are subject to an observation period of at least three months in order to ensure that the customer meets the re-negotiated terms. For retail portfolios which are subject to PD/LGD calculation (Probability of Default/Loss Given Default) of portfolio-based loan loss provisions, it is necessary to avoid artificial improvement of the PD estimates for the non-performing restructured exposure. This is achieved either by, despite the restructuring, continuing to use those variables based on the days past due (DPD) before restructuring, which are foreseen for overdue payments prior to restructuring, for the duration of the observation period or by using a separate calibration for the partial volume of restructured loans. In exceptional cases, if neither of the aforementioned methods is technically possible, the PD of the next worse rating grade is used for the duration of the observation period. For retail portfolios where the amount of the portfolio-based loan loss provision is determined based on product portfolios and/or delinquencies, whether or not the loan was more than 180 days overdue prior to the renegotiation is taken into account. In those cases where the customer concerned meets the re-negotiated terms and the credit exposure was not overdue for 180 days before the re-negotiation, the credit exposure is transferred from the portfolio under observation to the living portfolio. Those credit exposures already overdue for more than 180 days prior to the re-negotiation or where the customers did not meet the re-negotiated terms remain in the portfolio which is fully impaired.
The following table shows the non-performing exposure according to asset classes: Refinancing Instruments with modified time and modified conditions NPE total in € thousand 2016 2015 2016 2015 2016 2015
Exchange differences Additions Disposals As at 31/12/2016 in € thousand As at 1/1/2015 restated Change in consolidated group/
The following table shows the share of non-performing loans (NPL) in the defined asset classes loans and advances to customers and loans and advances to banks as reported in the statement of financial position (excluding items off the statement of financial position): NPL NPL ratio NPL coverage ratio in € thousand 2016 2015 2016 2015 2016 2015
In 2016, in the asset class corporate customers, non-performing loans decreased € 1,693,923 thousand to € 4,357,420 thousand (2015: € 6,051,344 thousand), mainly due to the derecognition of uncollectible loans in the amount of € 938,618 thousand.
The ratio of non-performing loans to credit exposure fell 3.2 percentage points to 9.3 per cent. The NPL coverage ratio increased 3.4 percentage points to 71.5 per cent. In the retail portfolio, non-performing loans sank 6.5 per cent, or € 146,997 thousand, to € 2,126,518 thousand (2015: € 2,273,515 thousand). The ratio of non-performing loans to credit exposure decreased 0.9 percentage points to 8.3 per cent; the NPL coverage ratio increased 2.2 percentage points to 82.2 per cent. The portfolio of non-performing loans to banks decreased € 50,219 thousand to € 77,277 thousand at year-end and the NPL coverage ratio decreased 28.7 percentage points to 65.4 per cent.
The following table shows the share of non-performing loans in the defined asset classes loans and advances to customers and loans and advances to banks as reported in the statement of financial position (excluding items off the statement of financial position) according to segments: NPL NPL ratio NPL coverage ratio in € thousand 2016 2015 2016 2015 2016 2015
In the segment Group Markets, non-performing loans fell 68.5 per cent, or € 284,186 thousand, to € 130,905 thousand (2015: € 415,090 thousand) due to the derecognition of uncollectible loans. The NPL ratio fell 3.8 percentage points to 1.9 per cent; the NPL coverage ratio fell 10.1 percentage points to 71.9 per cent.
In the segment Non-Core, non-performing loans decreased 14.1 per cent, or € 268,485 thousand, to € 1,634,393 thousand (2015: € 1,902,879 thousand), mainly due to the sale of Raiffeisen Banka d.d., Maribor, in Slovenia. The ratio of non-performing loans to credit exposure rose 2.6 percentage points to 16.7 per cent compared to previous year-end; the NPL coverage ratio rose 4.2 percentage points to 66.6 per cent.
Portfolio-based loan loss provisions 381,982 (5,667) 179,338 (183,778) (55) 9,134 380,954 1 Allocation including direct write-downs and income on written down claims 2 Usage including direct write-downs and income on written down claims
Portfolio-based loan loss provisions 438,106 588 194,730 (244,421) (1,120) (5,901) 381,982 1 Allocation including direct write-downs and income on written down claims 2 Usage including direct write-downs and income on written down claims
The following table shows the breakdown of loan loss provisions according to segments: Individual loan loss provisions 4,697,411 5,770,893
As part of the strategic realignment the limit structures related to concentration risk for each customer segment were reviewed.
Wholesale trade and commission trade (except car trading) 11,976,256 8.2% 13,014,461 8.6%
Public administration and defence and social insurance institutions 11,844,457 8.1% 11,774,484 7.8%
The Group invests in structured products. The total exposure to structured products is shown under (35) Securitization. Around 55 per cent of this portfolio (2015: 67 per cent) is rated A or better by external rating agencies. The pools mainly contain loans and advances to European customers.
The default of a counterparty in a derivative, repurchase, securities lending or borrowing transaction can lead to losses from reestablishing an equivalent contract. In the Group this risk is measured by the mark-to-market approach where a predefined add-on is added to the current positive fair value of the contract in order to account for potential future changes. For internal management purposes potential price changes, which affect the fair value of an instrument, are calculated specifically for different contract types based on historical market price changes.
The Group defines market risk as the risk of possible losses arising from changes in market prices of trading and investment positions. Market risk estimates are based on changes in exchange rates, interest rates, credit spreads, equity and commodity prices, and other market parameters (e.g. implied volatilities).
The Group uses a comprehensive risk management approach for both the trading and banking book (total-return approach). Market risks are managed therefore consistently in all trading and banking books. The following values are measured and limited on a daily basis in the market risk management system:  Value-at-Risk (VaR) – (confidence level 99 per cent, risk horizon one day) Value-at-risk is the main market risk steering instrument in liquid markets and normal market situations. VaR is measured based on a hybrid simulation approach, where 5,000 scenarios are calculated. The approach combines the advantages of a historical simulation and a Monte-Carlo simulation and derives market parameters from 500 days historical data. Distribution assumptions include modern features like volatility declustering and random time change. This helps in reproducing fat-tailed and asymmetric distributions accurately. The Austrian Financial Market Authority approved this model so that it can be used for calculating total capital requirements for market risks. Value-at-risk results are not only used for limiting risk but also in the economic capital allocation.
The following tables show the VaR (99 per cent, one day) for individual market risk categories of the trading and banking book. The Group’s VaR mainly results from structural equity positions, structural interest rate risks, and credit spread risks of bonds, which are held as liquidity buffer.
Banking book VaR 99% 1d VaR as at Average VaR Minimum VaR Maximum VaR VaR as at in € thousand 31/12/2016 31/12/2015
Total VaR 99% 1d VaR as at Average VaR Minimum VaR Maximum VaR VaR as at in € thousand 31/12/2016 31/12/2015
The following table shows all material open foreign exchange rate positions as at 31 December 2016 and the corresponding values for the previous year. The numbers include both trading positions as well as capital positions of the subsidiaries with foreign currency denominated statements of financial position.
The changes in the UAH and USD positions were attributable to the change in capital position and hedging strategy.
The following table shows the change in the present value of the Group’s banking book given a one-basis-point interest rate increase for the whole yield curve in € thousand for reporting dates 31 December 2016 and 31 December 2015. Currencies where the total interest rate sensitivity exceeds € 1 thousand are shown separately.
Liquidity adequacy is ensured from both an economic and also a regulatory perspective. In economic terms, the Group has established a governance framework comprising internal limits and control measures which complies with the Principles for Sound Liquidity Risk Management and Supervision established by the Basel Committee on Banking Supervision and the credit institutions risk management directive (KI-RMV) issued by the Austrian regulatory authority.
Treasury is obliged to comply with certain performance indicators and risk-based principles. The current performance indicators include general targets (e.g. for return on risk-adjusted capital (RORAC) or coverage ratios), as well as specific Treasury targets for liquidity (such as a minimum survival horizon in defined stress scenarios or diversification of the financing structure). Besides achieving a structural contribution by means of maturity transformation which reflects the liquidity and market risk assumed by the bank, Treasury must pursue a prudent and sustainable risk policy in its management of the statement of financial position. Strategic objectives include reducing the parent company’s funding to the Group subsidiaries, further stabilization of the customer deposit base and ongoing compliance with regulatory requirements and with internal rules and limits.
Regulatory and internal liquidity reports and ratios are generated and determined based on defined modelling approaches. Whereas the regulatory reports are generated in accordance with the requirements of the authorities, the internal reports are based on assumptions from empirical observations.
The Group has a substantial database along with expertise in forecasting capital flows arising from all material items on and off the statement of financial position. Cash inflows and outflows are modelled in a sufficiently detailed manner which, as a minimum, distinguishes between products, customer segments and, where applicable, currencies. Modelling of retail and corporate customer deposits includes assumptions concerning the retention times for deposits after maturity. The modelling approaches are prudent, in that they do not, for example, assume “rollover” of deposits from financial institutions and all financing channels and liquidity buffers are subject to simultaneous stress testing, without considering the mitigating effects of diversification.
Stress tests are conducted on a daily basis for the individual Group units and for the “Liquidity Association Vienna” (comprising Raiffeisen Bank International AG, Vienna, ZUNO BANK AG, Vienna, Kathrein Privatbank Aktiengesellschaft, Vienna, RB International Finance (USA) LLC, New York, and Raiffeisen Centrobank AG, Vienna) and on a weekly basis at Group level. The tests cover three scenarios (market, reputational and combined crisis), consider the effects of the scenarios for a period of up to three months and demonstrate that stress events can simultaneously result in a time-critical liquidity requirement in several currencies. The stress scenarios include the principal funding and market liquidity risks, without considering beneficial diversification effects (i.e. in the stress tests of the Group, all network units are simultaneously subject to a pronounced combined crisis for all their major products ). The results of the stress tests are reported to the Chief Risk Officer and the Chief Financial Officer as well as other members of management on a weekly basis; they also form a key component of the monthly ALCO meetings and are included in the bank’s strategic planning and contingency planning.
The calculation of expected cash inflows and outflows as well as HQLA is based on regulatory guidelines.
The NSFR is not shown for year-end 2015 due to limited comparability.
Letters of credit (documentary business) 993,936 1,033,747 651,050 290,573 92,124 0
Operational risk is defined as the risk of losses resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. In this risk category internal risk drivers such as unauthorized activities, fraud or theft, conductrelated losses, modelling errors, execution and process errors, or business disruption and system failures are managed. External factors such as damage to physical assets or fraud are managed and controlled as well.
As with other risk types the principle of firewalling of risk management and risk controlling is also applied to operational risk in the Group. To this end, individuals are designated and trained as Operational Risk Managers for each business area. Operational Risk Managers provide central Operational Risk Controlling with reports on risk assessments, loss events, indicators and measures. They are supported in their work by Dedicated Operational Risk Specialists (DORS).
Identifying and evaluating risks that might endanger the Group’s existence (but the occurrence of which is highly improbable) and areas where losses are more likely to arise more frequently (but have only limited impact) are important aspects of operational risk management.
In order to monitor operational risks, early warning indicators are used that allow prompt identification and minimization of losses.
Since October 2016, the Group has calculated the equity requirement for a significant part of the Group using the Advanced Measurement Approach (AMA). This includes units in Bulgaria, Romania, Russia, Slovakia and principal banks in Austria (Raiffeisen Bank International AG, Vienna, Kathrein Privatbank Aktiengesellschaft, Vienna, Raiffeisen Centrobank AG, Vienna). The Standardized Approach (STA) is still used to calculate the operational risk of the remaining units in the CRR scope of consolidation.
(43) Fiduciary business Fiduciary business not recognized in the statement of financial position was concluded with the following volumes on the reporting date: Loans and advances to banks 0 11,168
Fiduciary income and expenses break down as follows: Fiduciary expenses (53) (352)
The reduction in the net investment value in finance leases is mainly attributable to the sale of the leasing company in Poland. Write-offs on unrecoverable minimum lease payments also fell, to € 9,633 thousand (2015: € 65,618 thousand).
The main focus is on the regulatory (minimum) capital ratios and the economic capital within the framework of ICAAP (Internal Capital Adequacy Assessment Process, a quantitative method used to assess the adequacy of internal capital). Moreover, the optimal mixture of capital instruments (e.g. additional tier 1 capital and tier 2 capital) plays an important role and is continuously analyzed and optimized.
The determination of the target values in relation to the compulsory minimum requirements necessitates additional internal control calculations. The Risk Controlling department calculates the value-at-risk in relation to the above defined risk taking capacity. Moreover, a comparison between economic capital and internal capital is drawn. Further details regarding this calculation are contained in the risk report.
RBI calculates the regulatory total capital and total capital requirement according to CRR. The implementation of these requirements in the European Union was carried out by way of a regulation (CRR) and a directive (CRD IV).
A breach of the combined buffer requirement would lead to restrictions, for example, on dividend distributions and coupon payments for certain capital instruments. The capital requirements in force over the year, including a sufficient buffer, were met on a partially consolidated basis (Group level).
Further expected regulatory changes and developments are monitored, and included and analyzed in scenario calculations undertaken by Planning & Finance jointly with RZB’s Group Regulatory & Transformation Office on an ongoing basis. Potential effects are taken into account in planning and governance, insofar as the extent and implementation are foreseeable.
The determination of eligible total capital – including 2016 profit – in accordance with the applicable regulations is based on international accounting standards. Further details can be found in the regulatory disclosure report pursuant to Article 431 ff CRR.
The total capital broke down as follows: Paid-in capital 5,886,199 5,885,624
The basis for the assessment of credit risk by asset class was as follows: Risk-weighted assets according to standardized approach 20,025,409 21,884,143
The total capital requirement composition was as follows: Total capital requirement for credit risk 3,907,300 4,116,692
Within the framework of CRR and in addition to the total capital requirements the leverage ratio was implemented as a new instrument to limit the risk of excessive indebtedness. According to Article 429 CRR, the leverage ratio is the ratio of capital to the leverage exposure. This means tier 1 capital in relation to unweighted exposure on and off the statement of financial position. The Basel Committee set a minimum ratio of 3 per cent. After a test period in which the credit institutions are required to publish the figures, and possible modification of the minimum ratio, the leverage ratio is set to become effective as of 1 January 2018.
The increase of 1.2 percentage points in the leverage ratio (transitional and fully loaded) compared to the previous year is attributable to the increase in tier 1 capital and a reduced total risk position – largely due to the changed classification of offbalance sheet transactions under Annex I of the CRR and the lower credit conversion factors (CCF) that were applied as a result.
(49) Related parties Companies can carry out business with related parties that may affect the entity’s assets, financial and earnings position. Information about related parties refers to the highest level of consolidation, that of Raiffeisen Zentralbank Österreich Aktiengesellschaft.
The following tables show the relationships to related parties. At the end of September 2016, the previous parent company, Raiffeisen-Landesbanken-Holding GmbH, Vienna, and its wholly owned subsidiary R-Landesbanken-Beteiligung GmbH, Vienna, were merged into Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna. Transactions with the 306 subsidiaries that are not included in the consolidated financial statements due to immateriality are reported under affiliated companies. Disclosures on RBI’s transactions with key management are reported in the notes under (50) Relations to key management.
Provisions for liabilities and charges 0 816 0 0 2016 in € thousand Parent companies Affiliated companies
Post-employment benefits comprise payments to pension funds, business insurances and payments according to Retirement Plan Act (Mitarbeitervorsorgegesetz) as well as net allocations to provisions for retirement benefits and severance payments.
An amount of € 511 thousand (2015: € 509 thousand) was paid in pension benefits to former members of the Management Board and to their surviving dependants. In addition to these amounts, deferred bonus components and pro-rata payments from a matured SIP tranche totaling € 493 thousand (2015: € 420 thousand) were paid to former members of the Management Board.
The Annual General Meeting held on 16 June 2016 approved annual remuneration for the members of the Supervisory Board of € 550 thousand and assigned the distribution to the Supervisory Board. The members of the Supervisory Board determined the distribution by resolution on 9 May 2016 subject to approval of the Annual General Meeting held on 16 June 2016 as follows: Chairman € 70 thousand, Deputy Chairman € 60 thousand, members of the Supervisory Board € 50 thousand. Meeting attendance fees are not paid.
In the financial year 2016, no contracts subject to approval within the meaning of Section 95 (5) 12 of the Austrian Stock Corporation Act (AktG) were concluded with members of the Supervisory Board.
At the Supervisory Board meeting on 30 November 2016, it was decided, in connection with the merger of RZB AG with RBI AG, to appoint Johann Strobl as Chairman of the Management Board with effect as of the date of the merger, Klemens Breuer as Deputy Chairman of the Management Board, and Hannes Mösenbacher as member of the Management Board.
Johannes Schuster 8 July 20101 With entry of merger of RZB AG into RBI AG (expected on 18 March 2017)⁴
Included for the first time in the financial period 3 15
Raiffeisen-Leasing Real Estate Sp. z o.o., Warsaw (PL) 100.0% 1/1. Immaterial
Roof Russia DPR Finance Company S.A., Luxembourg (LU) <0.1% 1/1 Immaterial
SCTF Szentendre Ingatlanforgalmazó és Ingatlanfejlesztő Kft., Budapest (HU) 100.0% 1/1 Immaterial
The above special purpose vehicles (SPV) are consolidated, as the Group is exposed to variability in returns from these structured entities. The returns are primarily from activities such as holding debt securities or issued financial guarantees. Beyond the ongoing management of the receivables (which is carried out by the Group under a service agreement), significant decisions only become necessary when there is a default on the part of the structured entity.
Because of their minor importance in giving a view of the Group’s assets, financial and earnings position 227 subsidiaries were not included in the consolidated financial statements (20115: 224). They are recognized at cost as interests in affiliated companies, under financial investments, and are assigned to the measurement category available-for-sale. Total assets of the companies not included came to less than 1 per cent of the Group’s aggregate total assets.
Infrastruktur Heilbad Sauerbrunn RBI-Leasing GmbH & Co.KG., Bad Sauerbrunn (AT) 0 EUR 75.0% FI
Limited Liability Company Raiffeisen Leasing Aval, Kiev(UA) 180,208,527 UAH 72.3% FI
Raiffeisen Bank d.d. Bosna i Hercegovina, Sarajevo (BA) 247,167,000 BAM 100.0% BA
Raiffeisen Leasing Bulgaria OOD, Sofia (BG) 5,900,000 BGN 100.0% FI 1 Less own shares 2 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
RB International Finance (USA) LLC, New York (US) 1,510,000 USD 100.0% FI
RB International Markets (USA) LLC, New York (US) 8,000,000 USD 100.0% FI
Sky Tower Immobilien- und Verwaltung Kft, Budapest (HU) 41,000 HUF 100.0% OT
Tatra-Leasing, s.r.o., Bratislava (SK) 6,638,785 EUR 78.8% FI 1 Less own shares 2 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
Nature, purpose and extent of the Group’s interests in non-consolidated structured entities
Structured entities are consolidated when the substance of the relationship between the Group and the structured entities indicate that the structured entities are controlled by the Group.
The Group provides funding to structured entities that hold a variety of assets. These entities may take the form of funding entities, trusts and private investment companies. The funding is collateralized by the assets in the structured entities. The group’s investment activity involves predominantly lending.
The Group establishes securitization vehicles which purchase diversified pools of assets, including fixed income securities, company loans, and asset-backed securities (predominantly commercial and residential mortgage-backed securities and credit card receivables). The vehicles fund these purchases by issuing multiple tranches of debt and equity securities, the repayment of which is linked to the performance of the assets in the vehicles.
The Group often transfers assets to these securitization vehicles and provides financial support to these entities in the form of liquidity facilities.
As a sponsor, the Group is often involved in the legal set up and marketing of the entity and supports the entity in different ways such as providing operational support to ensure the entity’s continued operation.
The gross proceeds from sponsored entities for the year ending 31 December 2016 amounted to € 18,197 thousand (2015: € 21,923 thousand).
Centrotrade Chemicals AG - in liquidation, Zug (CH) 5,000,000 CHF 100.0% OT
CP Logistikcenter Errichtungs- und Verwaltungs GmbH, Vienna (AT) 37,000 EUR <0.1% OT
Doplnková dôchodková spoločnosť Tatra banky, a.s., Bratislava (SK) 1,659,700 EUR 100.0% FI
FMK Fachmarktcenter Kohlbruck Betriebs GmbH, Eschborn (DE) 30,678 EUR <0.1% FI
Kathrein & Co. Trust Holding GmbH, Vienna (AT) 35,000 EUR 100.0% FI
Limited Liability Company European Insurance Agency, Moscow (RU) 120,000 RUB 100.0% OT
Neptun Property, s.r.o., Prague (CZ) 50,000 CZK 100.0% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance; SC Securities firms
P & C Beteiligungs Gesellschaft m.b.H., Vienna (AT) 36,336 EUR 100.0% OT
Raiffeisen Ingatlan Üzemeltető Kft., Budapest (HU) 3,000,000 HUF 100.0% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance; SC Securities firms
Raiffeisen Investment Ukraine TOV - in liquidation, Kiev (UA) 3,733,213 UAH 100.0% FI
Belarussian currency and stock exchange JSC, Minsk (BY) 9,006,584 BYN <0.1% SC
Euro Banking Association (ABE Clearing S.A.S.), Paris (FR) 53,000 EUR 1.9% FI
Limited Liability Company Scientific-Production Enterprise Assembling and Implementation of Telecommunication Sytems, Dnepropetrovsk (UA) 500,000 UAH 10.0% OT
Open Joint Stock Company Kiev Special Project and Design Bureau Menas, Kiev (UA) 3,383,218 UAH 4.7% OT
Open Joint Stock Company Volodymyr-Volynskyi Sugar Refinery, Volodymyr-Volynskyi Stadt (UA) 13,068,010 UAH 2.6% OT
Public Joint Stock Company Settlement Center for Servicing of Contracts in Financial Markets, Kiev (UA) 153,100,000 UAH <0.1% FI
Society for Worldwide Interbank Financial Telekommunication scrl, La Hulpe (BE) 13,781,250 EUR 0.5% FI
Trading assets/liabilities are acquired or incurred principally for the purpose of generating profit from short-term fluctuations in market prices. Securities (including short selling of securities) and derivative financial instruments held-for-trading are recognized at their fair values. If securities are listed, the fair value is based on stock exchange prices. Where such prices are not available, internal prices based on present value calculations for originated financial instruments and futures or option pricing models for options are applied. Present value calculations are based on an interest rate curve which consists of money market rates, future rates and swap rates. Option price formulas Black-Scholes 1972, Black 1976 or Garman-Kohlhagen are applied depending on the kind of option. The measurement for complex options is based on a binominal tree model and Monte Carlo simulations. Derivative financial instruments held-for-trading are shown under the item "trading assets" or "trading liabilities". Positive fair values including accrued interest (dirty price) are shown under trading assets. Negative fair values are recorded under trading liabilities. Positive and negative fair values are not netted. Changes in dirty prices are recognized in net trading income. Derivatives that are used neither for trading purposes nor for hedging purposes are recorded under the item "derivatives". Any liabilities from the short-selling of securities are shown in "trading liabilities".
Unquoted equity instruments which, due to a lack of materiality, are not fully consolidated are measured at cost of acquisition because the fair values do not represent a better approximation of the fully consolidated values. Other unquoted equity instruments for which reliable fair values cannot be assessed regularly are valued at cost of acquisition less impairment losses. It is not permitted to show an appreciation in the value. Reliable fair values cannot be regularly assessed in emerging countries due to the absence of comparative yardsticks for the “market approach” and due to the inherent difficulties when using the “income approach ”. This kind of financial instrument is reported under the item “financial investments”.
Liabilities are predominantly recognized at amortized cost. Discounted debt securities issued and similar obligations are measured at their present value. Financial liabilities are reported in the statement of financial position under the items "deposits from banks", “deposits from customers", "debt securities issued" or "subordinated capital". Financial liabilities measured at fair value are shown in the category "liabilities at fair value through profit and loss". Interest expenses are stated under net interest income.
Within the operating activity, the Group carries out different transactions with derivative financial instruments for trading and hedging purposes. The Group uses derivatives including swaps, standardized forward contracts, futures, credit derivatives, options and similar contracts. The Group uses derivatives in order to meet client requirements concerning their risk management, to manage and hedge risks and to generate profit in proprietary trading. Derivatives are initially recognized at the time of the transaction at fair value and subsequently revalued to fair value. The resulting valuation gain or loss is recognized immediately in net income from derivatives and liabilities, unless the derivative is designated as a hedging instrument for hedge accounting purposes and the hedge is effective. Here the timing of the recognition of the gain or loss on the hedging instrument depends on the type of hedging relationship.
Derivatives which are used for hedging against market risk (excluding trading assets/liabilities) for a non-homogeneous portfolio do not meet the conditions for IAS 39 hedge accounting. These are recognized as follows: the dirty price is booked under the item "derivatives" in the statement of financial position (positive fair values under assets and negative fair values under liabilities). The change in value of these derivatives, on the basis of the clean price, is shown in net income from derivatives and liabilities (net income from other derivatives) and interest is shown in net interest income.
Credit derivatives, the value of which is dependent on future specified credit (non-)events are shown at fair value under the item "derivatives" (positive fair values under assets and negative fair values under liabilities). Changes in valuation are recognized under net income from derivatives and liabilities.
If market prices are available, the fair value is reflected best by the market price. This category contains equity instruments traded on the stock exchange, debt instruments traded on the interbank market, and derivatives traded on the stock exchange. The valuation is mainly based on external data sources (stock exchange prices or broker quotes in liquid market segments). In an active market, transactions involving financial assets and liabilities are traded in sufficient frequency and volumes, so that price information is continuously available. Indicators for active markets are the number, the frequency of update or the quality of quotations (e.g. banks or stock exchanges). Moreover, narrow bid/ask spreads and quotations from market participants within a certain corridor are also indicators of an active liquid market.
Objective evidence for an impairment may exist when the issuer or the counterparty faces considerable financial difficulties, a breach of contract occurs (for example, default or delay in interest or principal payments) or it can be assumed with high probability that insolvency or other restructuring proceedings will be instituted against the borrower.
Credit risk is accounted for by forming individual loan loss provisions and portfolio-based loan loss provisions. The latter comprise impairment provisions for portfolios of loans with the same risk profiles that are formed under certain conditions for IBNR losses (incurred but not reported). This involves cases where there is not yet any objective evidence of an individual impairment of a financial asset and for this reason groups of financial assets with a similar default risk profile are collectively examined for impairment. The underlying rating models for corporate customers are distinguished between “corporate large” and “corporate regular” as well as “SME large” and “SME regular”. Moreover, portfolios for which the “financial institutions” or “project finance” rating models are applied are separately evaluated. A Group-wide uniform approach is in place for calculation of portfolio-based provisions in that centrally calculated historical Group default rates (“Group HDRs”) for each rating class are evaluated and applied. These Group HDRs show the average actually observed probability of default over the last five years. In the retail segment, with the exception of one Group unit where the amount of the portfolio impairment is calculated according to product portfolio and past due days, provisions are formed using a PD/LGD-based calculation (probability of default/loss given default).
For credit risks related to loans and advances to customers and banks, provisions are formed in the amount of expected loss according to homogeneous Group-wide standards. Risk of loss is deemed to exist if the discounted projected repayment amounts and interest payments are below the carrying value of the loan – taking collateral into account. Portfolio-based impairments are calculated using valuation models that estimate expected future cash flows for the loans in the respective loan portfolio based on loss experience history.
All material subsidiaries over which RBI AG directly or indirectly has control are fully consolidated. The Group has control over an entity when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
 the purpose and the constitution of the entity,  the relevant activities and how they are determined,  if the Group has the ability to determine the relevant activity through its rights,  if the Group is exposed to risks of or has rights to variable returns,  if the Group has the ability to use its power over the investee in order to affect the amount of variable returns.
In debt consolidation, intra-group loans and liabilities are eliminated. Remaining temporary differences are recognized under the items "other assets/other liabilities" in the consolidated statement of financial position.
If the consideration transferred includes a contingent consideration, this is measured at the acquisition-date fair value. Changes in the fair value of the contingent consideration within the measurement period are adjusted retroactively and are booked against goodwill. Adjustments within the measurement period are corrections to reflect additional information about facts and circumstances already existing at the acquisition date. The measurement period may not exceed one year from the acquisition date.
Internally developed intangible assets comprise exclusively software and are capitalized if it is probable that the future economic benefits attributable to the asset will accrue to the Group and the cost of the asset can be measured reliably. Expenses for research are recognized as an expense when they are incurred.
An internally developed intangible fixed asset resulting from development activities or from the development stage of an internal project is capitalized when the following evidence is provided:  The final completion of the intangible fixed asset is technically feasible so that it will be available for use or sale.  It is intended to finally complete the intangible fixed asset and to use or to sell it.  The ability exists to use or to sell the intangible fixed asset. The intangible fixed asset is likely to generate future economic benefit.  The availability of adequate technical, financial and other resources required in order to complete development and to use or sell the intangible fixed asset is assured.  The ability exists to reliably determine the expenditure incurred during the development of the intangible fixed asset.
Intangible fixed assets with a definite useful life are amortized over the period during which the intangible fixed asset can be used. The useful life of the acquired customer base was set at 20 years in the retail business of Raiffeisen Bank Aval JSC. For the customer base of Polbank EFG S.A. a useful life of ten years was set for the purchase price allocation.
The land and buildings as well as office furniture and equipment reported under tangible fixed assets are measured at cost of acquisition or conversion less depreciation. Depreciation is recorded under the item "general administrative expenses". The straight-line method is used for depreciation and is based on the following useful life figures: Useful life Years
This is property that is held to earn rental income and/or for capital appreciation. Investment property is reported at amortized cost using the cost model permitted by IAS 40 and is shown under tangible fixed assets because of minor importance. Straight line depreciation is applied on the basis of useful life. The normal useful life of investment property is identical to that of buildings recognized under tangible fixed assets. Depreciation is recorded under the item "general administrative expenses".
Investment property is derecognized on disposal or when it is no longer to be used and no future economic benefit can be expected from disposal. The resulting gain or loss from the disposal is determined as the difference between the net proceeds from the disposal and the carrying value of the asset and is recognized in other net operating income in the reporting period in which the asset was sold.
Impairment tests for goodwill based on cash-generating units use a multi-year plan drawn up by the relevant management team and approved by the bodies responsible. This covers the CGU's medium-term prospects for success taking into account its business strategy, overall macroeconomic conditions (gross domestic product, inflation expectations, etc.) and the specific market circumstances. The data is then used to capture the terminal value based on a going concern concept. Discounting of the earnings relevant for the measurement, i.e. potential dividends, is undertaken using risk-adapted and country-specific equity capital cost rates determined by means of the capital asset pricing model. The individual interest rate parameters (risk-free interest rate, inflation difference, market risk premium, country-specific risks and beta factors) were defined by using external information sources. The entire planning horizon is divided into three phases with phase I covering the management planning period of three years. Detailed planning, including macroeconomic planning data, is extrapolated in phase II, which lasts another two years. The terminal value is then calculated in phase III based on the assumption of a going concern. Details on impairment testing can be found in the notes under (20) Intangible fixed assets.
Non-current assets and disposal groups classified as held for sale are valued at the lower amount of their original carrying value or fair value less costs to sell and are reported under other assets. Income from non-current assets held for sale and discontinued operations is reported under other net operating income. If the impairment expense of the discontinued operations exceeds the carrying value of the assets which fall under the scope of IFRS 5 (Measurement), there is no special provision in the IFRS on how to deal with this difference. This difference is recognized as other provisions in the item “provisions for liabilities and charges” in the statement of financial position.
 All additional criteria and prerequisites for the allocation and/or payment of variable remuneration, as defined from time to time by the Management Board or the Supervisory Board (REMCO) of RZB/RBI, are met.
The Management Board, with approval of the Supervisory Board, of RBI AG has approved a share incentive program (SIP) for the years 2011, 2012 and 2013 which provides performance based allotments of shares to eligible employees domestically and abroad for a given period. Eligible employees are current board members and selected executives of RBI AG, as well as executives of its affiliated bank subsidiaries and other affiliated companies. In 2014, it was already decided not to continue the program due to the complexity of the regulatory rules regarding variable compensation.
Annual Improvements to IFRS – 2010–2012 cycle (entry into force February 1, 2015)
The Annual Improvements to IFRS – 2010–2012 cycle include numerous amendments to various IFRS. These amendments have no material impact on the consolidated financial statements of RBI.
The amendments aim to remove obstacles encountered by those responsible for preparing the financial statements relating to the exercise of discretion in the presentation of financial statements. These amendments have no material impact on the consolidated financial statements of RBI.
These amendments provide guidelines for methods of depreciation on tangible and intangible fixed assets to be used; especially related to revenue-based methods of depreciation. These amendments have no material impact on the consolidated financial statements of RBI.
Amendment to IFRS 10, IFRS 12 and IAS 28 (Investment entities: Applying the consolidation exception; entry into force January 1, 2016)
IFRS 15 (Revenue from contracts with customers; entry into force January 1, 2018)
For subsequent measurement of financial assets measured at amortized cost, IFRS 9 provides for three stages which determine the future amount of losses to be recognized and the recognition of interest. The first stage requires that at the time of initial recognition, expected losses must be shown in the amount of the present value of an expected twelve-month loss. If there is a significant increase in the default risk, the risk provision must be increased up to the amount of the expected full lifetime loss (stage 2). When there is an objective indication of impairment, the interest in step 3 must be recognized on the basis of the net carrying amount. In addition to transitional provisions, IFRS 9 also includes extensive provisions on disclosure both during transition and during ongoing application. New provisions relate in particular to impairment. The mandatory date of the initial application of IFRS 9 will be January 1, 2018.
RBI is implementing a centrally managed IFRS 9 program (“IFRS 9 Implementation”) which is sponsored by the Group’s Chief Financial Officer and Chief Risk Officer and for which experts provide support in matters relating to methodology, data acquisition and modelling, IT processes and accounting. Overall steering is the responsibility of an IFRS 9 steering committee (“Steering Committee IFRS9 Business Policy & Group Implementation”), whose members include Finance and Risk employees together with the board members with relevant responsibility. Policies and training on IFRS 9 are being provided across all Group units and Group functions as part of the IFRS 9 program in order to prepare for IFRS 9’s entry into force for the Group as of January 1, 2018. During the 2016 financial year, RBI also further developed the relevant technical concepts and associated implementation guidelines. As part of the project, steps were commenced to conduct Group-wide iterative impact analyses with regard to classification and measurement (“SPPI test” and “benchmark test”) and impairment of financial instruments. RBI will complete the analyses in stages in 2017 and move the project into its implementation phase.
RBI also anticipates that the application of IFRS 9 in the future may have an impact on amounts reported in respect of the Group's financial assets and financial liabilities. It is expected that overall, IFRS 9 will increase the level of risk provision. This estimate is based on the requirement to recognize a risk provision in the amount of the expected loan defaults for the first twelve months even for those instruments where the credit risk has not increased significantly since initial recognition. Moreover, it is based on the estimate that the volume of assets for which the “lifetime expected loss” is applied is probably larger than the volume of assets where loss events pursuant to IAS 39 have already occurred.
RBI also assumes that IFRS 9 will have consequences for the classification and measurement of financial instruments. Following a detailed analysis, it was established with regard to classification and measurement that for certain contractual cash flows of financial assets there is a risk that parts of the portfolio will have to be re-measured “at fair value through profit or loss”.
IFRS 9 grants accounting options for hedge accounting. RBI plans to continue to apply the provisions on hedge accounting pursuant to IAS 39 while, however, taking into account the changes in the information in the notes pursuant to IFRS 7. In addition, RBI will adapt the structure of the consolidated financial statements due to the first-time application of IFRS 9 and resulting changes to IFRS 7 and regulatory requirements (especially (FINREP).
Amendments to IAS 7 (Disclosure initiative; entry into force January 1, 2017)
The amendments include in particular:  IFRS 1 First-time adoption of International Financial Reporting Standards: Deletion of the remaining short-term exemptions in IFRS 1 for first-time users.
The amendments to IFRS 12 are applicable from January 1, 2017, the amendments to IFRS 1 and IAS 28 from January 1, 2018. Earlier application is permitted.
IFRIC 22 (Foreign currency transactions and advance consideration; entry into force January 1, 2018)
The amendments serve to clarify the provisions in relation to transfers to or from investment properties. In particular, the amendments clarify whether property which is under construction or development which was previously classified under inventories can be transferred to investment properties when there is an evident change of use.
Events after the reporting date Extraordinary General Meeting approves merger with RZB The Extraordinary General Meeting of RBI approved the merger with RZB by a clear majority on 24 January 2017. The shareholders also approved the capital increase related to the merger. RBI's share capital will be increased by € 109,679,778.15, from € 893,586,065.90 to € 1,003,265,844.05, through the issuance of 35,960,583 new no par value common bearer shares. The number of shares issued will therefore increase to 328,939,621.
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2016, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU, and the additional requirements pursuant to Sections 245a UGB (Austrian Commercial Code) and 59a BWG (Austrian Banking Act).
We conducted our audit in accordance with the EU Regulation (EU) 537/2014 ("EU Regulation") and with Austrian Standards on Auditing. These standards require the audit to be conducted in accordance with International Standards on Auditing (ISA). Our responsibilities pursuant to these rules and standards are described in the “Auditors’ Responsibility” section of our report. We are independent of the audited entity within the meaning of Austrian commercial law and professional regulations, and have fulfilled our other responsibilities under those relevant ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements. Key audit matters are selected from the matters communicated with the audit committee, but are not intended to represent all matters that were discussed with them. Our audit procedures relating to these matters were designed in the context of our audit of the consolidated financial statements as a whole. Our opinion on the consolidated financial statements is not modified with respect to any of the key audit matters described below, and we do not express an opinion on these individual matters.
Loans and advances to customers as at the Balance Sheet date amout to EUR 70.5 billion. This is made up of EUR 44.2 billion in loans to corporates, EUR 25.6 billion in loans to retail customers and EUR 0.7 billion in loans to the public sector. For these assets individual as well as portfolio loan loss provisions amounting to a total of EUR 4.9 billion have been recognized, comprising EUR 3.1 billion for loans to corporates and EUR 1.8 billion loans to retail customers.
The Board describes the process of monitoring the credit risk and the procedures for determining the loan loss provisions within the “Risk Report” and “Recognition and Measurement Principles” chapters within the notes of the Financial Statements.
Where there is an indication of impairment on loans to corporates, provisions are formed in the amount of the expected loss according to homogeneous Group-wide standards. This occurs when the discounted projected future repayment amounts, including interest and any amounts realisable from collateral, is below the carrying value of the loan. This assessment is significantly influenced by the estimate of the clients economic situation and development, the estimate of collateral values and the amount and timing of future cash flows.
For retail clients individual loan loss provisions are calculated using the Internal Rating Based Approach using the default definitions of the internal rating systems. One entity uses the Delinquency Bucket based Approach whereby all amounts overdue by more than 180 days are fully provisioned.
For retail clients the portfolio loan loss provision is calculated automatically using general probability of default rates and loss given default rates. These parameters are based on historical statistic data.
The calculation of loan loss provisions is significantly influenced by management’s assumptions and estimates. These assumption and estimate uncertainties lead to a risk of mistatement in the Financial Statements.
Finally we asssessed whether the disclosures in the notes to the Financial Statements regardings loan loss provisions were appropriate.
The Board describes its derivative financial instruments, the designation of derivatives to a hedging relationship as well as the calculation of fair value of financial instruments within the “Recognition and Measurement Principles” chapter in the notes of the Financial Statements.
In order to apply hedge accounting, the bank is required to document the hedging relationship as well as the hedge effectiveness testing. In the case of a suitably documented strategy, bank book derivatives can be designated as hedging instruments for both micro hedges and portfolio hedges.
We have analysed the allocation of derivatives and their presentation in the Statement of Financial Position using a sampling approach. We have analysed the process documentation regarding derivate closing, settlement, valuation, risk and limit monitoring, clearing and internal data management. The design and implementation of essential controls in the processes were critically assessed and the effectiveness of these controls was tested.
The credit spread curve is a significant input to the fair value calculation and due to the indicative nature of the price quotations leads to a risk of mistatement in the Financial Statements.
Finally, we assessed whether the disclosures in the notes regarding the fair valued liabilities was appropriate and complete.
The Company’s management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU, and the additional requirements pursuant to Sections 245a UGB (Austrian Commercial Code) and 59a BWG and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Management is also responsible for assessing the Group’s ability to continue as a going concern, and, where appropriate, to disclose matters that are relevant to the Group’s ability to continue as a going concern and to apply the going concern assumption in its financial reporting, except in circumstances in which liquidation of the Group or closure of operations is planned or cases in which such measures appear unavoidable.
As part of an audit in accordance with the EU Regulation and with Austrian Standards on Auditing, which require the audit to be performed in accordance with ISA, we exercise professional judgment and retain professional skepticism throughout the audit.
 We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates as well as related disclosures made by management.
 We conclude on the appropriateness of management’s use of the going concern assumption and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity ’s ability to continue as a going concern. In case we conclude that there is a material uncertainty about the entity’s ability to continue as a going concern, we are required to draw attention to the respective note in the financial statements in our audit report or, in case such disclosures are not appropriate, to modify our audit opinion. We conclude based on the audit evidence obtained until the date of our audit report. Future events or conditions however may result in the Company departing from the going concern assumption.
 We evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.