Overview of RBI Interview with the CEO 6 Management Board of RBI 8 Report of the Supervisory Board 10 Raiffeisen at a glance 14 RBI‘s strategy 16 RBI in the capital markets 17 Corporate Governance Report 21 Human Resources 40
Service Glossary 278 Alternative Performance Measures (APM) 278 Addresses 280 Publication details 282
Monetary values in € million 2018 2017 Change 2016 2015 2014
Net fee and commission income 1,791 1,719 4.2% 1,497 1,519 1,586
Impairment losses on financial assets (166) (312) (46.9)% (754) (1,264) (1,750)
Consolidated return on equity 12.6% 12.2% 0.4 PP 5.8% 4.8% –
Net interest margin (average interest-bearing assets) 2.50% 2.48% 0.03 PP 2.78% 3.00% 3.24%
Number of shares in million (31/12) 328.94 328.94 0.0% 292.98 292.98 292.98
Employees as at reporting date (full-time equivalents) 47,079 49,700 (5.3)% 48,556 51,492 54,730
Interview with CEO Johann Strobl RBI produced an excellent result in 2018. What are the reasons for the success? With a consolidated profit of 1.27 billion euros, 2018 was the best year in the history of the bank. It is particularly pleasing that all of our network banks are generating profits. The main driver behind the very good result was the development in risk costs. We not only benefited from the very good economic developments in Central and Eastern Europe but also worked actively to improve our risk profile. These measures are now bearing fruit. Our NPL ratio in 2018 declined markedly and is now at just 3.8 per cent – in 2015 the ratio stood at 12 per cent. However, I am also satisfied with our revenues. In a continuingly difficult interest rate environment, we managed to increase our operating income by 4 per cent compared to the previous year.
In which areas do you still see a need for improvement? I still see it on the cost side. In 2018 we achieved a cost/income ratio of 57.5 per cent, which beat last year’s figure, but wage inflation is driving up costs in some of our markets and we also need to invest in RBI’s digital transformation. We will therefore take active countermeasures to meet our cost/income ratio target in the medium term without compromising on necessary investments. The very good result doesn’t mean that we can now sit back and relax. There will certainly be periods in the future when the economy does not perform so well. And we want to produce good results in those times too.
Besides the share price, investors naturally also look at the dividend. Are developments in this respect more positive than that of the share price? Yes, they are. Last year, we resumed our dividend payments and paid a dividend of 0.62 euros per share for the 2017 financial year. Due to our very good result, we will be able to propose a payout of 0.93 euros per share for 2018 to the Annual General Meeting. This represents an increase of 50 per cent in the dividend and a payout ratio of 24 per cent.
From your perspective, what events were especially important for RBI last year apart from the good business performance? Last year, we successfully concluded several very important projects. In January 2018, we placed 500 million euros of perpetual additional tier 1 capital on favorable terms, which was a significant step towards optimizing RBI’s capital structure. The issuance of a 500 million euro green bond followed in June. We were the first Austrian bank to issue a benchmark bond in that investment segment. The demand for green investment opportunities is growing steadily. We were able to tap into that demand with our green bond and at the same time finance sustainable projects in our CEE home market. At the end of October, we closed the sale of the core banking operations of Raiffeisen Bank Polska to BGZ BNP Paribas, as agreed in April 2018. The sale had a positive effect of around 85 basis points on our CET1 ratio.
Digitalization is the big issue for all banks. How is RBI tackling this? We are taking a very structured approach. The customer has to be the focus of all our actions. We want to be a bank that continuously develops innovations and turns them into a superior customer experience. This will only be possible if we choose to work in a different way in the future. On the one hand, we are increasing our collaboration with young innovative enterprises. With our Elevator Lab, we have created about the largest fintech accelerator program in CEE, and from which the first innovative product solutions have already been developed. We are now moving into the second round. From 2018, our venture capital company Elevator Ventures has also given us an opportunity to invest directly in selected fintechs to profit from their growth and new ideas. On the other hand, we want to further capitalize on the creativity of our employees at the same time. Last year, we therefore launched a Group-wide intrapreneurship program called Innovation Garden. The program enables us to systematically involve all employees in the process of generating new ideas and to identify innovative ideas from across the entire Group.
So you are not afraid of digital transformation? Not at all, I see it as a chance to become more efficient and further improve the way in which we respond to our customers’ needs. We already have extensive digital expertise within our network – for example in our subsidiary banks in Slovakia and Russia. Our most important task is to ensure that innovations from the different network banks are made available throughout the entire Group.
Since 2018, the Management Board has included two members from RBI’s network banks. How would you describe the way in which you are working together? It has been extremely enjoyable as well as productive, and our Management Board team is now younger and more international as a result of these appointments. Besides their outstanding expertise, they also have an in-depth understanding of our CEE markets and a wealth of management experience. Lukasz Januszewski, who is responsible for Investment Banking and Markets, very successfully built up our capital market business in Poland as a Management Board member there. Andrii Stepanenko, our Management Board member who is responsible for Retail Banking, was previously Deputy Chairman of the Management Board in Russia and responsible for the retail business there, which developed extremely well under his leadership. This means that we have a solid foundation for continuing successful work in future.
1 Reports to the entire Management Board and Supervisory Board 2 Data Protection Officer for RBI and its Austrian subsidiaries – reports to the Management Board As at 31 December 2018
In addition to its good financial results in 2018, RBI also made significant progress in the areas forming the basis for the bank’s successful development over the coming years. This included in particular the swift and focused implementation of the Groupwide digitalization program. The IT infrastructure was expanded, work progressed on developing new technologies, and digital expertise was strengthened within RBI overall. The developments in digitalization are already very advanced in some network banks. In 2018, emphasis was also placed on areas within innovation management essential for an advanced, future-oriented bank. Particular examples included the successful second round of the Elevator Lab (RBI’s accelerator program), the establishment of Elevator Ventures GmbH (RBI’s venture capital vehicle), and the holding of an internal innovation competition, the Innovation Garden, for the first time. A further focal point was the expansion of IT and cyber security. The Supervisory Board will continue to place particular emphasis on these topics in the years ahead.
The Annual General Meeting elected Andrea Gaal to the Supervisory Board on 21 June 2018. She brings extensive professional experience – including in Central and Eastern Europe – and also specialist knowledge of IT and digitalization and the corresponding regulatory environment to the Supervisory Board. Her appointment reflects the current transformation trends within the financial sector and complements the expertise of the overall Supervisory Board to optimum effect.
The new Management Board members Andrii Stepanenko (Retail Banking) and Lukasz Januszweski (Markets and Investment Banking) commenced their activities with great dedication in the first quarter of 2018, bringing new ideas and thereby making an important contribution to the further business development of RBI.
The Supervisory Board also dealt at length with further development in the area of corporate governance, commissioned corresponding policies and monitored their implementation.
Between meetings, the Supervisory Board also maintained a regular exchange of information on current developments and business issues with the Management Board. In addition, the Management Board was available where required for bilateral or multilateral discussions with members of the Supervisory Board, where applicable with the involvement of experts on the matters addressed by the Supervisory Board.
The Supervisory Board, especially the Chairman of the Supervisory Board, his Deputy Chairman, as well as the Chairmen of the Committees, also maintained constant contact with the Chairman of the Management Board and the Management Board members between meetings. The work undertaken together with the Management Board was based on a relationship of mutual trust and conducted in a spirit of efficient and constructive collaboration. The Chairman of the Supervisory Board, as well as the Chairmen of the Committees, ensure that discussions are open and critical and that opposing viewpoints are considered within the decisionmaking processes. Furthermore, the Chairman of the Supervisory Board safeguards an effective flow of information between the Management Board and Supervisory Board as well as within the Supervisory Board. Therewith ensuring that the decision-making body is making decisions on a sound and fact-based basis. If additional information was required in order to consider individual issues in more depth, this was provided to members of the Supervisory Board without delay and to their satisfaction.
The annual financial statements and the management report of Raiffeisen Bank International AG for the 2018 financial year were audited by KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft Vienna (KPMG). According to the final results of the audit, the auditor had no reason for objections and issued an unqualified auditor’s report.
The reports of the auditor of the financial statements and of the auditor of the consolidated financial statements were submitted to the Supervisory Board. The Audit Committee reviewed the 2018 annual financial statements including the management report and the 2018 consolidated financial statements and the consolidated management report and undertook preparations for the adoption of the annual financial statements by the Supervisory Board. The Supervisory Board reviewed all documents and also
The committees also carried out the following activities in relation to the duties assigned to them by law and the Articles of Association: At its inaugural meeting on 21 June 2018, the Supervisory Board replaced Heinrich Schaller with Eva Eberhartinger, an established taxation and accounting expert, as Chairman of the Audit Committee. In addition to its work relating to the auditing of the annual and consolidated financial statements and of compliance with banking regulations, the Audit Committee also dealt at length with the switch to the IFRS 9 accounting standard, the reports prepared by Internal Audit and the effectiveness of the internal control system. The Audit Committee also concerned itself with the principles for the appointment of the auditor for the next audit period.
The Nomination Committee held four meetings in 2018. Following the resignation of Bettina Selden, the Nomination Committee identified candidates for the vacant position on the Supervisory Board, with Andrea Gaal proving to be a highly qualified candidate. The Nomination Committee established that she had the necessary knowledge, skills and experience required in relation to the type, scope and complexity of RBI’s business and its risk structure. As a result, the Supervisory Board was recommended to propose to the Annual General Meeting on 21 June 2018 that Andrea Gaal be elected to the Supervisory Board in accordance with Section 108 of the Austrian Stock Corporation Act (AktG). The Nomination Committee also recommended that the Supervisory Board extend Andreas Gschwenter’s Management Board appointment for a further five-year term, and the Supervisory Board followed this recommendation.
Raif feisen Bank Internat ional | Annual Repor t 2018 the Audit Committee’s report. The Supervisory Board concurred with the 2018 annual financial statements and consolidated financial statements and approved the 2018 financial statements, which were thus adopted in accordance with Section 96 (4) of the Austrian Stock Corporation Act (AktG).
RBI has again set ambitious goals for 2019. On the basis of the successes gained over the last years, the path towards focussed growth will continue to be rigorously pursued. In a consolidating banking sector, RBI will evaluate options for organic and inorganic growth with a strengthened capital base and significantly improved risk profile. Decisions are grounded on a balanced risk-profit profile.
As a further strategic priority in 2019, RBI will continue its program for progressive digitalization and the associated transformation. Through a strengthened focus on innovation and continual improvement of the customer experience, RBI wants to develop into the most recommended financial institute in its region in the medium term. Besides the ongoing modernization of the IT infrastructure and the building up of open banking capabilities, key focal points of the transformation process will be on a Group-wide innovation process, building on data & analytics competencies as well as the intensification of agile and cross-functional working methods. Moreover, a central focus in 2019 will be on improving efficiency through the optimization of internal processes.
With these measures, RBI will strengthen its market position in its core markets, and with its strategic goals will secure a sound and sustainable value growth for RBI’s shareholders.
The Supervisory Board extends thanks in particular to all employees of RBI, whose active commitment has made the bank’s success possible. These employees are central to a strong and successful banking group.
In total, almost 47,000 RBI employees serve 16.1 million customers in more than 2,100 business outlets, the vast majority of which are in CEE. RBI AG shares have been listed on the Vienna Stock Exchange since 2005.
At year-end 2018, RBI’s total assets stood at € 140 billion. The regional Raiffeisen banks hold approximately 58.8 per cent of RBI shares, with the remaining approximately 41.2 per cent in free float.
RBI’s markets Assets 2018 in € million Change1 Business outlets Number of staff
The RBG is organized into three tiers: the independent, local Raiffeisen banks (first tier), the eight independent regional Raiffeisen banks (second tier), and RBI AG (third tier).
Raiffeisen Customer Guarantee Scheme Austria (RKÖ) In 1999, the Raiffeisen Customer Guarantee Scheme Austria (Raiffeisen-Kundengarantiegemeinschaft Österreich – RKÖ) was established as a sign of mutual support within the RBG. The members of the RKÖ at federal level consist of six regional customer guarantee associations and RBI AG. Currently, local Raiffeisen banks from six federal states, six regional Raiffeisen banks and RBI AG have joined forces in the RKÖ. If required, the economic reserves of the participating banks will be drawn upon in a legally binding manner. From such funds, the customers are then offered recoverable claims against other RBG institutions.
Liquidity Groups Pursuant to Section 27a of the Austrian Banking Act (Bankwesengesetz BWG), credit institutions affiliated to a central institution are required to hold a liquidity reserve with that central institution in order to protect financial market stability. There are liquidity groups established at both state and federal level; RBI is the central institution at federal level. There are corresponding contractual arrangements, in place for the respective liquidity groups, which cover potential utilization for in the event that this is necessary, as well as liquidity contingency plans which are also subject to regular tests.
■ RBI provides all retail customer segments with comprehensive financial services through the customers’ respective preferred sales and communication channels.
Retail customers are able to benefit from, for example, state-of-the-art internet and mobile banking applications including video identification, and from contact center solutions based on telephone or chat functions. By means of these sales and support channels – alongside around 2,100 business outlets, which remain the central component of customer service – RBI offers its customers a broad product range (e.g. account packages, clearing, settlement and payment services, consumer finance, mortgage loans and investment products) from which they can select the products that best fit their needs. Particular emphasis is placed on transparent and customer-friendly solutions, first-class advisory services, fast flow of information and short decision-making processes.
For corporate and institutional clients, key emphasis is placed on the ongoing further development of our digital interaction options for customers and on Group-wide sales and management tools, with a focus on capital- and liquidity-efficient products (particularly trade finance, capital market products including custody and administration thereof, fund management business, and clearing, settlement and payment services). At the same time, Group-wide product competence centers not only enhance efficiency through the pooling of expertise but also facilitate customer access to complex financial products (e.g. in the areas of project, real estate and export finance or capital market transactions).
RBI in the capital markets Performance of RBI stock In 2018, RBI’s stock opened at € 30.20 and initially made significant gains, already peaking at € 35.32 at the end of January. It then declined over the further course of the year and closed at € 22.20 at year-end, down 27 per cent compared to the end of 2017. However, the major stock exchange indices followed a very similar trajectory, with some reporting significant decreases. The Austrian Traded Index (ATX) lost 20 percent year-on-year, for example, while the EURO STOXX Banks, the European banking index, fell 33 per cent.
Approximately 122 million RBI shares were traded in 2018, amounting to a total value of € 3.4 billion, with an average daily volume of 494,503 shares.
Price performance since 1 January 2018 compared to ATX and EURO STOXX Banks in €
Shareholder structure The regional Raiffeisen banks’ holding was unchanged at approximately 58.8 per cent of RBI’s shares, with 41.2 per cent in free float. The shareholder base is well diversified due to the broad geographic spread and various investment strategies. The institutional investors are primarily from North America and Europe, as well as increasingly from Asia and Australia. These include sovereign wealth funds and supranational organizations, which offers stability as a result of their preferred long-term investment strategies. There are also a large number of Austrian private investors among RBI’s shareholders.
Annual General Meeting and dividend proposal RBI’s Annual General Meeting on 21 June 2018 approved all of the proposed resolutions relating to the individual agenda items. Among other things, the Annual General Meeting passed a resolution to distribute a dividend of € 0.62 per ordinary share (with dividend entitlement). Entrepreneur Andrea Gaal was newly elected to the Supervisory Board.
The next Annual General Meeting will take place on 13 June 2019. The Management Board decided to propose a dividend distribution of € 0.93 per share to the Annual General Meeting for the 2018 financial year. Based on the shares issued, this equates to a maximum distribution amount of around € 306 million. This amount will be distributed to shareholders on 24 June 2019, provided that the Annual General Meeting approves the resolution.
On 7 February 2018, RBI announced its preliminary figures for the 2017 financial year. To mark the release of RBI’s final results for the 2017 financial year, RBI’s Management Board met with investors in Vienna on 14 March – RBI regularly invites Austrian investors to an investor lunch on publication of the results – and also held a conference call with over 150 participants. On the following day, RBI invited institutional investors and analysts to its customary investor presentation in London. The event, which has taken place on the day following the publication of the full-year results for a number of years now, met with keen interest among the more than 80 participants.
Following the announcement of the sale of the core banking operations of Raiffeisen Bank Polska, RBI held a conference call devoted to the topic of Poland and Russia on 11 April, with around 440 participants.
On 15 May 2018, RBI published its figures for the first quarter of 2018. Some 150 institutional investors and international analysts participated in the subsequent conference call. In the second quarter, RBI also offered interested investors an opportunity to obtain first-hand information at road shows and conferences in Amsterdam, Frankfurt, Hong Kong, London, Los Angeles, Milan, Paris, The Hague, Tokyo, Zurich and Zürs. RBI gave presentations in Amsterdam, Copenhagen, Frankfurt, Helsinki, London, Paris, Rotterdam and The Hague as part of a deal-related road show for the first benchmark-sized issue of a green bond by an Austrian bank.
RBI continuously strives to keep market participants fully informed. In the interest of making its communications as easily accessible and widespread as possible, RBI makes conference call presentations and other important events available as online webcasts. These can be viewed online at www.rbinternational.com → Investors → Presentations & Webcasts.
New issues RBI again placed perpetual additional tier 1 capital (AT1), in an amount of € 500 million and with a value date of 24 January 2018. The security has a coupon of 4.5 per cent p.a. until mid-June 2025, after which it will be reset. The transaction was preceded by numerous investor calls. Together with the € 650 million issue in July 2017, RBI thereby completed its planned AT1 issuance program.
The second important own account transaction for RBI in 2018 was the issuance of the first benchmark-sized green bond by an Austrian bank on 28 June, in an amount of € 500 million and with a maturity of three years. The coupon is mid-swap plus 40 basis points. The order book was significantly oversubscribed with orders of € 1.3 billion.
The issuance of a green bond represents a further step in implementing the sustainable business strategy that RBI has had in place for many years. The proceeds from the bond will be used to finance sustainable projects across the RBI network, with allocation of funds based on a clearly defined selection and evaluation process. Ongoing post-investment reporting will verify compliance with the stated criteria and track the extent to which the investment contributes to sustainability improvements.
RBI also placed a € 500 million senior bond on 26 November 2018.
Financial Calendar 2019 14 March 2019 RBI Investor Presentation, London 1 May 2019 Start of Quiet Period 15 May 2019 First Quarter Report, Conference Call 3 June 2019 Record Date Annual General Meeting 13 June 2019 Annual General Meeting 19 June 2019 Ex-Dividend Date 21 June 2019 Record Date Dividends 24 June 2019 Dividend Payment Date 25 July 2019 Start of Quiet Period 8 August 2019 Semi-Annual Report, Conference Call 31 October 2019 Start of Quiet Period 14 November 2019 Third Quarter Report, Conference Call
RBI deviates from the C Rules below but complies with the Code through the following explanations and justifications: C Rule 45: non-competition clause for members of the Supervisory Board RBI AG is the central institution of the Raiffeisen Banking Group Austria (RBG). Within RBG, RBI AG serves as the central institution of the regional Raiffeisen banks and other affiliated credit institutions. Some members of the Supervisory Board in their function as shareholder representatives therefore also hold executive roles in RBG banks. Consequently, comprehensive know-how and extensive experience specific to the industry can be applied in exercising the control function of the Supervisory Board, to the benefit of the company.
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 ACGC.
The ACGC is subdivided into L, C and R Rules. L Rules are based on compulsory legal requirements. C Rules (Comply or Explain) should be observed; any deviation must be explained and justified in order to ensure conduct that complies with the Code. R Rules (Recommendations) have the characteristics of guidelines; non-compliance does not need to be reported or justified.
After Klemens Breuer resigned at the end of October 2017, Johann Strobl temporarily oversaw the Markets area of the Management Board and Peter Lennkh temporarily assumed responsibility for the Retail Banking area. This lasted until 28 February 2018. On 1 March 2018, responsibility for the Markets & Investment Banking area passed to Lukasz Januszewski while Andrii Stepanenko took over the Retail Banking area.
Members of the Management Board held supervisory board seats or comparable functions in the following domestic and foreign companies that are not included in the consolidated financial statements: Andreas Gschwenter RSC Raiffeisen Service Center GmbH, Austria, Deputy Chairman Peter Lennkh Oesterreichische Kontrollbank Aktiengesellschaft, Austria, Member
In addition to the management and governance of RBI AG, the members of the Management Board performed supervisory and managerial duties at the following material subsidiaries in executive roles or as supervisory board members in the 2018 financial year: Raiffeisen Bank d.d., Bosnia and Herzegovina, Deputy Chairman Raiffeisen banka a.d., Serbia, Chairman Raiffeisenbank a.s., Czech Republic, Deputy Chairman Raiffeisen Bank Polska S.A., Poland, Member (until 3 November 2018) Raiffeisen Bank S.A., Romania, Member AO Raiffeisenbank, Russia, Member Tatra banka, a.s., Slovakia, Member Raiffeisen Bank Sh.A., Albania, Chairman Raiffeisen Bank Kosovo J.S.C, Kosovo, Chairman (from 16 April 2018)
Raiffeisen Centrobank AG, Austria, Chairman (from 25 April 2018) Raiffeisenbank a.s., Czech Republic, Chairman (from 24 April 2018) AO Raiffeisenbank, Russia, Member (from 14 May 2018) Tatra banka, a.s., Slovakia, Member (from 6 September 2018) Raiffeisen Kapitalanlage-Gesellschaft mit beschränkter Haftung, Austria, Member (from 28 September 2018)
Raiffeisen Centrobank AG, Austria, Member (from 25 April 2018) Raiffeisen Bank Aval JSC, Ukraine, Member (from 27 April 2018) Raiffeisenbank a.s., Czech Republic, Member (from 24 April 2018) AO Raiffeisenbank, Russia, member (from 14 May 2018) Kathrein Privatbank Aktiengesellschaft, Austria, Chairman (from 17 July 2018) Tatra banka, a.s., Slovakia, Chairman (from 10 October 2018) Raiffeisen Kapitalanlage-Gesellschaft mit beschränkter Haftung, Austria, Chairman (from 28 September 2018)
AO Raiffeisenbank, Russia, Chairman Raiffeisen Bank Polska S.A., Poland, Chairman (until 3 November 2018) Raiffeisen Bank S.A., Romania, Chairman Tatra banka, a.s., Slovakia, Member Raiffeisenbank a.s., Czech Republic, Member
Priorbank JSC, Belarus, Chairman Raiffeisen Bank Aval JSC, Ukraine, Chairman Raiffeisenbank (Bulgaria) EAD, Bulgaria, Chairman Raiffeisen Bank Polska S.A., Poland, Deputy Chairman (until 3 November 2018) Raiffeisen Bank S.A., Romania, Deputy Chairman AO Raiffeisenbank, Russia, Member Tatra banka, a.s., Slovakia, Member (until 6 September 2018) Raiffeisenbank a.s., Czech Republic, Member (until 24 April 2018)
Independence of the Supervisory Board In accordance with and taking into consideration C Rule 53 and Appendix 1 of the ACGC, 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 be a member of the management board of another company in which a Management Board member of the company is a member of the supervisory board.
Members of the Committees The procedural rules of the Supervisory Board govern its organization and allocate particular tasks to the Working, Audit, Remuneration, Risk, Nomination and Personnel Committees. These committees comprise the following members: Member
Eva Eberhartinger assumed the chairmanship of the Audit Committee on 21 June 2018. The Audit Committee, Working Committee and Risk Committee each consist of one-third core shareholder representatives, one-third free float representatives, and one-third employee representatives.
In her main role, Eva Eberhartinger chairs the Tax Management division at the Institute for Accounting & Auditing at the Vienna University of Economics and Business (Wirtschaftsuniversität Wien). Between 2006 and 2011, she was the Vice Rector of the Vienna University of Economics and Business for Finance, Accounting, and Controlling.
On account of her high level of expertise and many years of experience in research and lecturing at both national and inter-national universities, Eva Eberhartinger is a recognized expert in the areas of finance and accounting as well as in taxation.
Her research focuses on the areas of accounting, financing and taxes, european/international tax accounting, and international tax law. Furthermore, Eva Eberhartinger has numerous publications in diverse academic journals. From 2013, Eva Eberhartinger has been on the Supervisory Board of the Austrian Treasury and was the Deputy Chair until 2017. She has also been a member of the Supervisory Board of maxingvest AG (Germany) from 2014.
With the appointment of Eva Eberhartinger, the composition of the Supervisory Board of RBI is further strengthened overall with regard to the necessary knowledge and experience, as well as the ability to approach the scope and complexity of RBI’s business and risk structure.
The Advisory Council consists of the seven Chairmen of the supervisory boards of the regional Raiffeisen banks and the Chairman of Raiffeisenverband Salzburg. It met five times in 2018. All the members of the RBI Advisory Council attended all the Advisory Council meetings in 2018, with the exception of one meeting not attended by two Advisory Council members.
■ For the Chairman of the Advisory Council: € 20,000 (excluding VAT)
■ For every other member of the Advisory Council: € 15,000 each (excluding VAT)
Each member of the Advisory Council is additionally paid an attendance fee of € 1,000 (excluding VAT) for each meeting.
The RBI AG Management Board manages the company according to clearly defined goals, strategies and guidelines on its own authority, with a focus on future-oriented business management and in line with modern business principles. In doing so, the Management Board pursues the good of the company at all times and considers the interests of shareholders and employees.
Raiffeisen Research 1 Data Protection Officer for RBI and its Austrian subsidiaries – reports to the Management Board 2 Reports to the entire Management Board and Supervisory Board
Management Board members’ areas of responsibility have been defined by the Supervisory Board, without prejudice to the general responsibility of the Management Board, as follows (as at 31 December 2018): O VE
In the 2018 financial year, the following significant organizational changes, among others, took place at Tier 2 management level (B-1): Management Board area of the Chief Executive Officer (CEO)
■ Legal Services provides the data protection officer from now on, who supports RBI and its Austrian subsidiaries with respect to compliance with the EU’s General Data Protection Regulation (GDPR). The data protection officer reports directly to the Management Board.
■ The Group Strategy and Group Digital Banking divisions were merged to form Group Strategy & Innovation. This division continues to concentrate on RBI’s strategy and the opportunities and possibilities that the ongoing digitalization of the financial sector presents for the Group. The aim of the merger is to increase the focus on the strategic aspect of RBI’s digital transformation in addition to developing innovations and partnerships and putting them into effect.
■ The Tax Management division was renamed Group Tax Management in order to give due consideration to its corporate function.
The Retail Banking & Markets area of the Management Board was divided into the Retail Banking and Markets & Investment Banking Management Board areas on 1 March 2018.
The Audit Committee also oversees the annual audit of the financial statements and consolidated financial statements and thus monitors the independence of the external Group auditor/bank auditor, particularly with respect to additional work performed for the audited company. The Committee examines the annual financial statements, the management report, the consolidated financial statements and the Group management report, and is responsible for the preparation for their adoption by the Supervisory Board.
The Management Board manages the company’s business in accordance with the law, the Articles of Association and the Management Board’s rules of procedure. The Management Board’s weekly meetings are convened and led by the Chairman. The meetings facilitate mutual gathering and exchange of information, consultation and decision-making with respect to all matters requiring the board’s approval. The procedural rules of the Supervisory Board and the Management Board describe the duties of the Management Board in terms of information and reporting, as well as a catalog of measures that require the approval of the Supervisory Board.
The Audit Committee reviews the audit plan in great detail and engages in discussions with the auditor about key facts covered in the audit of the financial statements, special focuses of the audit, the management letter and the report on the effectiveness of risk management and the internal control system. It also examines the Management Board’s proposal for earnings appropriation and the 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.
The Remuneration Committee is also responsible for deciding whether employees are subject to penalty or clawback events. It reviews potential cases and then, on that basis, decides how the event will affect the payment of variable remuneration.
Furthermore, the Risk Committee is also responsible for examining whether adequate consideration is given to the business model and risk strategy in the pricing of the services and products offered. To this end, the Risk Committee discusses reports submitted to it on pricing and price calculations in the customer and financial institutions business and discusses remedial action plans if necessary. The Risk Committee also monitors whether the incentives offered by the internal remuneration system give adequate consideration to risk, capital and liquidity, as well as the probability and timing of realized profits. This involves the presentation of a report on the current structure of remuneration policies in the Risk Committee, which is used for an assessment of whether the remuneration structure reflects RBI’s risk appetite.
Number of meetings of the Supervisory Board and of the Committees
Andrea Gaal 2) 3/3 3/3 2/2 0/0 0/0 1/1 2/2 11
The following total amounts were paid to the Management Board of RBI AG: Fixed remuneration 5,154 4,571
Fixed remuneration, as shown in the table, includes salaries and benefits in kind. Performance-based components of the Management Board’s remuneration essentially consist of bonus payments and share-based remuneration under the Share Incentive Program (SIP). In 2018, deferred bonus amounts from 2016 and previous years as well as immediately payable bonus amounts for 2017 were paid out. The last allocation of share-based payments occurred in 2018; this was from the 2013 tranche of the SIP (see below for details), which has thereby been terminated.
The self-evaluation is based on a questionnaire that was developed by the Working Group for Corporate Governance for voluntary external evaluations and was adapted to RBI’s particular circumstances by KPMG. The Supervisory Board members were asked in particular for their assessment of the organizational structure, working methods, access to information, composition and independence of the Supervisory Board. A further section of the questionnaire also deals with the conducting of the efficiency review by the Supervisory Board.
The amounts listed for Lukasz Januszewski and Andrii Stepanenko, who joined the Management Board during the year, are prorated based on the period in which they served on the Management Board. In addition to the amounts listed above, Herbert Stepic, Aris Bogdaneris, Klemens Breuer and Karl Sevelda were paid a total of € 1,759 thousand in deferred bonus amounts on account of their previous work on the Management Board and a total of € 357 thousand in connection with the 2013 SIP tranche. A further € 1,142 thousand in benefits for the termination of his Management Board mandate were paid to Karl Sevelda. No other exceptional one-off payments were made.
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 of the Supervisory Board of RBI AG reviews these principles on a regular basis and is responsible for monitoring their implementation. To reflect changes in the regulatory requirements and framework and/or adjustments to the RBI remuneration system, the remuneration principles that apply within the RBI Group in the form of an Internal Law Total Rewards Management (including annexes) are regularly updated and submitted to the Remuneration Committee for approval. This was last done in March 2018.
RBI’s remuneration system does not encourage the assumption of disproportionate risks, and instead supports sound, effective risk management (e.g. through a performance management process with financial and non-financial targets as well as qualitative and quantitative key performance indicators and the use of a bonus pool approach). This goal is also achieved by limiting variable remuneration through thresholds and upper limits, which also enables more precise long-term cost planning. In addition, special rules apply to 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 RBI helps to address silo mentality by linking a significant part of variable remuneration to the Group’s performance – in compliance with statutory and regulatory requirements. At the same time, 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 2017 and prior years
Due to the immense increase in the complexity of the regulatory provisions for variable remuneration and the deferral of the annual bonus for top managers, the Management Board decided in 2014 not to issue any more SIP tranches from the 2014 financial year onwards.
Members of the management boards of subsidiary banks and affiliated branches of RBI AG 43,470 1,178,906 34,005
■ For the Chairmen of the Audit Committee and Risk Committee: an additional € 10,000 each
At the Annual General Meeting the shareholders, as owners of the company, can exercise their rights by voting. The fundamental principle of ‘one share one vote’ applies. Accordingly, there are no restrictions on voting rights and all shareholders have equal rights. Every share issued confers one vote; registered shares have not been issued. Shareholders may exercise their voting rights themselves or by means of an authorized agent.
Report on measures taken by the company to promote women to the Management Board, the Supervisory Board and into executive positions and a description of the diversity strategy (§ 80 of the Austrian Stock Corporation Act (AktG) as laid down in § 243c (2) 2 and 2a of the UGB)
The key components of this policy include RBI’s diversity vision, mission statement and daily implementation guidelines, which were drawn up in 2017. In them, RBI presents its stance on this issue: “RBI believes that diversity adds value. Capitalizing on the opportunities from diversity provides long-term benefits to the company and its employees as well as to the economy and society as a whole. RBI is continuing Raiffeisen’s 130 year success story as it embraces diversity. RBI actively and professionally harnesses the potential of diversity to give clients the best possible service as a strong partner and to position itself as an attractive employer.”
The RBI Group Diversity Policy defines a strategy for filling Supervisory Board and Management Board positions whereby hiring must give consideration to both diversity and compliance with statutory requirements. Other important diversity aspects include age, gender and geographic origin. The main requirements for holding such a position include solid education and professional experience, preferably in roles related to banks or financial institutions. The objective is that the boards include a wide range of qualifications and expertise in order to obtain a variety of opinions, perspectives and experience resulting in sound decision-making.
For the entire RBI Group, the Nomination Committee has set a target of filling 35 per cent of the positions on the Supervisory Board, Management Board and in Tier 2 management with women by no later than 2024. The following figures include RBI AG and 13 network banks in CEE (2017: 14 network banks), as well as: Raiffeisen Bausparkasse Gesellschaft m.b.H.; Raiffeisen KapitalanlageGesellschaft mit beschränkter Haftung; Raiffeisen-Leasing Gesellschaft m.b.H; Valida Vorsorge Management; Kathrein Privatbank Aktiengesellschaft; and Raiffeisen Centrobank AG. As at 31 December 2018, the total proportion of women among employees in the RBI Group was 66 per cent (2017: 67 per cent). Women hold 14 per cent of Management Board positions (2017: 12 per cent), 35 per cent of Tier 2 management positions (2017: 36 per cent) and 46 per cent of Tier 3 management positions (2017: 45 per cent). Women hold 18 per cent of Supervisory Board positions (2017: 15 per cent).
Personnel development As at 31 December 2018, RBI had 47,079 employees (fulltime equivalents), which was 2,621 or 5 per cent fewer than at the end of 2017. The largest decline occurred as a result of the sale of the core banking operations of Raiffeisen Bank Polska S.A. (down 3,675); whereas, the largest increases were reported in Russia (up 769) and in Austria (up 294). The average age of employees remained relatively low at 39 years and women accounted for 66 per cent of the workforce. Graduates make up 76 per cent of employees, indicating a highly skilled workforce.
Moving towards an agile, adaptive organization When implementing the diverse digitalization projects at RBI and increasing the level of agility within the company, it is important to closely coordinate business, technology and HR objectives. For HR, this means, on the one hand, re-thinking and adapting its own work processes and creating new ones when necessary, as well as testing the use of new technologies to improve efficiency and user-friendliness. The experiences of employees within the company are a key focus here. On the other hand, employees must also be effectively prepared for the changes brought about by digitalization and be given corresponding support. Here, RBI is focusing on the concept of adaptive work organization and associated new ways of thinking, as well as on the development and use of new working methods such as design thinking or scrum.
As part of the ongoing change process, the bank actively enables its employees to be more flexible and creative in their work. This aims to make them better able to address changes in customer needs and use new technological opportunities to optimum effect. To simultaneously improve RBI’s attractiveness as an employer, special emphasis was placed on attentiveness and understanding at all levels. In total, four main goals to be achieved on the path towards an adaptive organization were identified for the change process.
In 2018, RBI worked towards this future-oriented transformation with the launch of pilot projects at Group head office and at several Group subsidiaries. At Group head office, 20 agile product teams have already been established and others are in the start-up phase. The Romanian subsidiary bank has created a cross-divisional agile community; one of whose aims is to promote agile thinking and working in the respective areas, while also supporting both employees and managers in develoing the necessary skills. In 2018, the local leadership program at the Bulgarian subsidiary bank also focused on digitalization, customer experience and agility. Meanwhile, the Serbian subsidiary bank trained product owners, scrum masters and agile coaches, while also adapting internal project governance, and the Russian subsidiary bank has revised its organizational structure. HR has closely followed and supported the development and implementation of all these measures.
Digitalization HR regularly reviews how new technology can be used and/or how improved systems and methods may be implemented in order to make human resources management more user-friendly and increase agility and efficiency. With this in mind, RBI’s HR system landscape was significantly enhanced in the last financial year. A new training system was introduced in Austria, as well as in Albania, Bosnia and Herzegovina, Croatia, Kosovo, Serbia, and Slovakia. In addition, a new performance and talent-management solution was implemented in Slovakia, and is scheduled to be introduced in Austria in 2019. The aim is to replace the existing HR systems of the participating network units with digital solutions, and so significantly improve the user experience. In order to utilize synergies and strengthen the cooperation and exchange of know-how be-tween individual units, the new HR system, which originated at the Czech network bank, will be operated centrally from a competence center.
The ECB left key rates unchanged in 2018 and incrementally scaled back its bond purchase program: Its net monthly purchases averaged € 30 billion from January to September 2018, with its net monthly volume reduced to € 15 billion from October to endDecember 2018, at which time the program was completely halted. Money market rates remained largely flat across all maturities throughout the year. The yield on 10-year German government bonds, however, strongly fluctuated with rates of between 0.8 per cent in February to under 0.2 per cent in May being observed. Overall, it was a light downward trend (start of year: 0.4 per cent, end of year: 0.2 per cent).
Austria’s economy put in a very robust performance once again in 2018, although it lost some growth momentum over the year. Thanks to the very strong 2017/2018 winter months, real GDP growth reached 2.7 per cent overall, following growth of 2.6 per cent in 2017. The overall positive development was broad based: exports withstood mounting global headwinds while private consumption continued to rise at a stable rate. Likewise, the strong equipment investment cycle continued in 2018 – albeit at a somewhat slower pace. Employment growth hit its peak in early 2018, posting its strongest growth rate in full-year 2018 since the beginning of the 90s. Mirroring this trend, the unemployment rate dropped below 5 per cent to come in at 4.9 per cent (2017: 5.5 per cent).
In China, economic growth momentum slackened in 2018: Real GDP growth came to 6.6 per cent for the full year, around 0.3 percentage points below the previous year’s rate. This was mainly attributable to the Chinese government’s restructuring measures. Credit growth – notably on the part of shadow banks – slowed considerably while investment and production momentum temporarily dropped to the lowest level since 2015. In contrast, the simmering trade conflict with the US was initially reflected only in sentiment surveys while exports held up well for the time being thanks to pull-forward effects.
Annual real GDP growth in per cent compared to the previous year
Development of the banking sector in CEE Multiple factors in 2018 underpinned the significant recovery of the CEE banking sector relative to the partly still subdued development of the previous years. New lending and asset growth both continued to accelerate in some CE and SEE countries (e.g. in the Czech Republic, Slovakia and Romania). Moreover, a greater number of banking markets (e.g. Hungary, Serbia and Croatia, as well as Bosnia and Herzegovina) participated in the overall positive trend, with significant asset growth recorded virtually across the board. In Russia, foreign banks with a sustainable business model benefited from the generally improving general market environment despite a further market shakeout driven by the central bank. In particular, the necessary nationalization of two of the larger banks in Russia in the fall of 2017 had no impact either on the overall market or on Western foreign banks operating as niche players, which even increased their market share slightly in Russia in 2018. Virtually all CEE banking markets now show a comfortable loan/deposit ratio (well below 100 per cent for the most part), which constitutes a solid foundation for future growth. In addition, significant progress was made in terms of reducing non-performing loans (NPLs). In CE and SEE in particular, the NPL ratio dropped to just under 5 per cent in 2018, its lowest level since 2008. Against the backdrop of the positive overall market development, return on equity in the CEE banking sector solidified at double-digit levels in 2018. In particular, banking markets in Southeastern Europe made a significant recovery. As a result, major Western European banks operating in the CEE region also posted a double-digit return on equity in 2018.
Changes to prudential requirements (CRD IV/CRR) and the recovery and resolution framework (BRRD, SRMR)
The European Commission’s proposals to revise the Capital Requirements Directive IV/Capital Requirements Regulation and the Bank Recovery and Resolution Directive (BRRD) have been finalized by the European legislature. The regulations are expected to take effect in 2021 and 2022, respectively. As far as RBI is concerned, the deduction exemption for software is particularly important in creating a level playing field with the US. The legislation also harmonizes reporting requirements for credit institutions. Other key changes include parameters for reducing risk-weighted assets for SMEs and infrastructure projects.
In January 2013, the Basel Committee on Banking Supervision issued 14 generally formulated principles for risk data aggregation and risk reporting of credit institutions (BCBS 239). They reflect the Basel Committee’s conclusions that data quality and governance play a fundamental role in bank management and efficiency of banking operations.
Due to its classification as a systemically important institution, RBI is required to comply with these principles. It has developed a comprehensive Group-wide action and implementation plan that ensures compliance with the BCBS 239 principles which is currently being implemented in consultation with the relevant supervisory authorities.
RBI has a Group recovery plan as required by law. It sets out measures for restoring financial stability in the event that this becomes necessary. The BaSAG also requires the resolution authority, in close collaboration with RBI, to draw up resolution plans based on the preferred resolution strategy, including analyzing which liabilities are eligible as MREL (minimum requirement for own funds and eligible liabilities). RBI has adopted a multiple point of entry (MPE) approach as the preferred resolution strategy. The resolution authorities define resolution groups, and for each resolution group an individual resolution plan has to be developed. The resolution plan has to describe the resolution strategy and its implementation, by the use of the resolution tools. The resolution authority decides which resolution tools (sale of business, bridge institution, asset separation and bail-in) should be used. Official MREL quotas are being set for each resolution group and are expected for the second half of 2019.
The new Payment Services Directive (PSD 2), which came into force on 13 January 2018, is designed to better protect consumers by promoting service security and the use of new technologies as part of an open banking system. The directive opens up the payment services market to new participants – known as third-party providers (TPPs) – such as fintech companies. It also regulates TPPs’ relationships with traditional banks, which are required to give the TPPs access to the accounts of customers who have given their consent. These rules governing TPP access to payment service user data will take effect on 14 September 2019. They were further elaborated on in the course of last year while work on their implementation had already begun.
The EU General Data Protection Regulation (GDPR) has been in effect since 25 May 2018. It applies to personal data (e.g. that of customers or employees) and strengthens the rights of control that individuals have with respect to their data. The GDPR affects all departments at RBI that handle individuals’ personal data. RBI has adopted the new requirements as part of a wide-ranging project. Various processes were implemented, including those for complying with the data subjects’ rights (e.g. right of access, right of erasure) and identifying personal data protection breaches; the required IT framework was created; relevant contracts were thoroughly reviewed and examined; and the requisite organizational structure was established. In addition to the project at head office, other projects were conducted at the network units and the Austrian companies in which equity participations are held, with coordination and support provided by head office.
The implementation of MiFID II began in 2018, which had a large-scale effect on RBI’s market and customer divisions and required an extensive implementation project. PRIIPs (Packaged Retail and Insurance-based Investment Products) under which a 3page standard customer information sheet is required for packaged (securities) products also came into effect in 2018. One new issue on European level is the regulation of covered bonds, which has not yet been implemented in Austria. The changeover of benchmark indices and related uncertainty – primarily Eonia and Euribor, scheduled for early 2020 – was postponed for two years in response to market participants’ objections and concerns (implementation beginning in early 2022). Other important new developments for all financial market participants include the Commission’s action plan and regulatory proposals on sustainable
In addition to the adoption of IFRS 9, RBI also changed the presentation of its balance sheet, which is now aligned with the financial reporting standards (FINREP) issued by the European Banking Authority (EBA). With the adoption of the standards, it was also
In 2018, the ECB’s banking supervision activities focused on four areas: risks related to the business model, profitability, credit risk with emphasis on non-performing loans, and risk management in general. In relation to this fourth area, i.e. activities with multiple risk dimensions, RBI participated in the European Banking Authority’s EU-wide stress test in 2018. The stress test results essentially depend on three factors: the capital ratio at the beginning of the stress test, losses caused by the simulated stress scenario, and the resulting capital ratio at the end of the stress test horizon. RBI’s performance with respect to these factors was significantly better than in the previous stress test conducted in 2016 (participating institution: RLB Holding), although the 2018 test was more stringent. In an adverse scenario, RBI’s hypothetical remaining common equity tier 1 ratio (CET1) was projected to stand at 9.7 per cent in 2020. The stress scenario simulated a sharp slump in economic growth and house prices as well as pessimistic assumptions about economic developments in most Central, Eastern and Southeastern European countries. RBI’s better result reflects in particular the strengthening of its capital ratio following the merger of RZB and RBI and improved portfolio quality.
On 1 January 2018, the new accounting standard for financial instruments (IFRS 9) took effect. This replaces the previous accounting standard, IAS 39 (Financial Instruments: Recognition and Measurement). The regulations set out in the new standard are primarily reflected in the impairment on financial instruments valued at amortized cost or at fair value recognized directly in equity. Under IFRS 9, the impairment requirements also apply to credit commitments and financial guarantees off the statement of financial position. The model used to determine impairment loss changes from a historically oriented model under IAS 39 (incurred losses) to a future oriented model under IFRS 9 (expected losses). The impact of the new regulations on the market valuation of loans, by contrast, is of lesser significance. In total, € 301 million of loans must be accounted for at market value, representing 0.3 per cent of the volume of financial instruments.
The adoption resulted in an adjustment of minus € 169 million to equity on 1 January 2018, taking deferred taxes into account; the effect on the CET1 ratio (fully loaded) amounted to around 19 basis points. Impairment losses increased € 285 million. As a result of the new classification of financial instruments, there was a positive impact of € 70 million, which was essentially due to the reallocation of liabilities recognized at fair value.
necessary to adjust the figures comparable period and comparable reporting date. The changes are described in more detail in the notes, in the chapter on principles underlying the consolidated financial statements, under changes in the presentation of financial statements.
The sales price was PLN 3,250 million (€ 749 million), equating to a price/tangible book value multiple of 0.94 times. This is based on core banking operations equity of approximately € 869 million at the time of the demerger. The sale resulted in a positive impact of 85 basis points on RBI Group’s CET1 ratio (fully loaded). Under the terms of the agreement with the buyer, total assets of approximately € 9.5 billion and total risk-weighted assets of approximately € 4.9 billion have been allocated to the core banking operations.
The direct impact of the sale on RBI Group’s consolidated profit amounted to minus € 120 million, already recognized in the income statement in the second quarter of 2018. Additional equity neutral effects from the disposal after closing amounted to minus € 64 million and was primarily due to already realized currency effects.
RBI transferred the remaining Raiffeisen Bank Polska S.A. operations following the demerger, mainly comprising the foreign currency retail mortgage loan portfolio, to a newly established Polish branch of RBI AG. The branch has total assets of approximately € 3.2 billion at its disposal as at the reporting date.
On 28 June, RBI issued the first benchmark-sized green bond from an Austrian bank. The bond has a notional amount of € 500 million, a maturity of three years, and carries a coupon of mid-swap plus 40 basis points. The offering was significantly oversubscribed, with an order book of € 1.3 billion. The issuance forms part of RBI's ongoing strategy - which it has been putting into effect for many years - to pursue sustainable business activities. The proceeds from the green bond will be used to finance sustainable projects across the entire RBI network. The allocation of funds follows a clearly defined selection and evaluation process. Ongoing reporting also ensures that the criteria are fulfilled after the investment is made and assesses the contribution to improved sustainability.
Consolidated profit for the reporting period amounted to € 1,270 million, an improvement of 14 per cent, or € 154 million, compared to the prior year.
The Management Board has resolved to propose a dividend payment of € 0.93 per share for the 2018 financial year to the Annual General Meeting. This would correspond to a maximum dividend payout of € 306 million and a payout ratio of 24 per cent.
Operating income was up 4 per cent year-on-year, or € 199 million, to € 5,298 million. Net interest income rose 4 per cent to € 3,362 million driven by lending growth, with Group average interest-bearing assets up 3 per cent. There was loan growth in almost all markets, with the main contributions coming from head office, the Czech Republic, Romania, and Slovakia. The net interest margin rose 3 basis points to 2.50 per cent, primarily driven by higher interest rates in Romania, the Czech Republic, and Ukraine. Net fee and commission income was up € 72 million year-on-year to € 1,791 million despite significant depreciation of Eastern European currencies (depreciation of the Russian ruble of 11 per cent and of the Belarusian ruble of 9 per cent). Increases were mainly posted at Raiffeisen Bausparkasse, head office, and in Romania.
General administrative expenses increased € 37 million year-onyear to € 3,048 million. Currency developments caused a € 65 million reduction. The average number of staff decreased, by 394 full-time equivalents year-on-year to 49,745, due to the disposal of the Polish core banking operations. Excluding this effect, full-time equivalents would have increased by 759. Staff expenses rose € 26 million to € 1,580 million, mainly due to a higher level of salary increases in many markets, as well as higher bonus payments. Other administrative expenses rose € 21 million year-on-year, primarily due to higher deposit insurance fees in Russia, Romania, and Poland, as well as for IT services purchased for innovation projects at head office. The number of business outlets declined 250 year-on-year to 2,159, mainly reflecting the sale of the Polish core banking operations. Adjusting for the one-off effect of the sale, the reduction came to 13.
Depreciation of tangible and intangible fixed assets was down 3 per cent, or € 10 million, with Russia and Croatia reporting the largest reductions.
Profit attributable to non-controlling interests changed only slightly year-on-year, from € 130 million to € 128 million. Consolidated profit improved € 154 million to € 1,270 million.
The expense for levies and special governmental measures rose € 7 million year-on-year to € 170 million. This change mainly resulted from a release of provisions totaling € 21 million in the previous year in connection with the Walkaway Law in Romania. In contrast, contributions to the resolution fund, which (as with the majority of the bank levies) have to be recognized in full at the start of the year, fell € 11 million primarily due to lower contributions in Romania and Austria. The expense for bank levies declined € 5 million to € 116 million, reflecting the disposal of the Polish core banking operations.
Impairment losses on financial assets amounted to € 166 million in the reporting period, compared to € 312 million in the prior year. Non-performing loans decreased, reflecting the good macroeconomic environment. Drivers of this positive trend also included inflows and recoveries in an amount of € 587 million, generating a positive effect of € 116 million. The most significant changes to risk costs occurred in the Group Corporates & Markets segment (down € 199 million), in Romania (down € 35 million) and in Croatia (down € 29 million). Impairment losses in the fourth quarter, however, were up € 159 million due to fine-tuning of the IFRS 9 models (for performing loans) and provisions for expected credit losses, due to specific events which were not fully captured by the risk models. The improvement in the NPL ratio continued in 2018: it declined 1.9 percentage points since the start of the year and stood at 3.8 per cent at the end of December. The NPL coverage ratio rose a further 10.6 percentage points to 77.6 per cent, primarily due to sales of highly collateralized loans and the first-time application of IFRS 9.
Net interest income was down 2 percent, or € 13 million, to € 843 million, reflecting a € 35 million decline in Poland due to the sale of the Polish core banking operations, partly offset by higher interest income in a large number of other countries on the back of higher volumes. The Czech Republic reported the strongest growth of € 7 million following increased customer loans. In Russia, higher interest income, generated primarily from growth in investments in public sector bonds in the third quarter as well as higher customer loan volumes, led to a € 2 million increase. RBI’s net interest margin increased 1 basis point to 2.52 percent.
Compared to the third quarter of 2018, net fee and commission income improved 3 per cent, or € 12 million, to € 467 million. The increase mainly resulted from higher fee and commission income from loan and guarantee business at head office and at Raiffeisen Bausparkasse, as well as higher revenue from clearing, settlement and payment services in Russia. This was offset by lower fee and commission income in Poland due to the sale of the Polish core banking operations.
Other net operating income fell quarter-on-quarter from € 14 million to € 8 million. This mainly reflected the recognition of other provisions (increase of € 5 million) in Russia and Romania for litigation in the fourth quarter. Net income from derecognition of financial assets and liabilities fell € 4 million to € 2 million, primarily in the Czech Republic and Russia. Offsetting this, net income
The largest changes in this respect were in the Eastern Europe segment, with an increase of € 58 million. In Russia alone, impairment losses were € 52 million higher. The increase in Central Europe amounted to € 54 million, of which € 20 million derived from Slovakia, and € 16 million from both the Czech Republic and Poland. In Southeastern Europe, the quarter-on-quarter increase amounted to € 49 million, of which € 25 million was attributable to Romania, € 11 million to Croatia, and € 6 million to Bulgaria. The Group Corporates & Markets segment posted an increase of € 27 million.
Income taxes decreased € 71 million to € 40 million, mainly due to the level of profit. However, the effective tax rate increased 4 percentage points to 24 per cent.
Consolidated profit reduced markedly by € 319 million to € 97 million. This mainly reflected a € 194 million increase in impairment losses on financial assets and a € 124 million reduction in the operating result, driven primarily by the sale of the Polish core banking operations and seasonal effects relating to general administrative expenses.
In the fourth quarter of 2018, the other result was minus € 74 million, compared to a positive result of € 7 million in the third quarter. This was due to two main factors: In the fourth quarter, the recycling of cumulative foreign currency differences previously recognized under other comprehensive income in connection with the sale of the Polish core banking operations generated a negative effect of € 64 million, and impairment losses of € 19 million were recognized in relation to investments in associates.
Deposits from customers rose € 2,064 million to € 87,038 million, despite the sale of the Polish core banking operations (€ 8,237 million). Without the sale, they would have increased by 12 per cent or € 10,301 million. The largest increases were posted at head office (up € 5,007 million, or 34 per cent, primarily due to short-term deposits), in Russia (up € 1,680 million, or 18 per cent, primarily due to short-term deposits from non-financial corporations and households),
After taking into account the reduction of € 169 million resulting from the application of IFRS 9, equity including capital attributable to non-controlling interests increased € 1,341 million to € 12,413 million. Of this, € 496 million was attributable to capital transactions and € 1,217 million to the total comprehensive income for the financial year, while dividend payments had a negative effect of € 343 million.
The CET 1 ratio (fully loaded) improved 0.6 percentage points to 13.4 per cent, with the sale of the Polish core banking operations accounting for 0.9 percentage points. The tier 1 ratio (fully loaded) improved by 1.3 percentage points to 14.9 per cent, and the total capital ratio (fully loaded) by 0.3 percentage points to 18.2 per cent.
RBI is continuously focused on the prospects and opportunities that the ongoing process of digitalization in the financial sector offers the Group. In view of the significance of this trend, RBI merged the former Group Strategy and Group Digital Banking & Innovation divisions in 2018. The new Group Strategy & Innovation area reports to the CEO and combines the Strategy department with the Fintech Partnerships and Innovation Management departments and the Group Transformation department. These changes were made not only to develop and implement innovations and partnerships, but also to shift the focus onto the strategic aspect of RBI’s digital transformation. As part of its innovation strategy, the bank also established its own Innovation Board in April 2018 to coordinate and manage all of the Group’s innovation activities.
RBI successfully concluded the first round of Elevator Lab, the fintech partnership program, at the start of 2018. Five selected fintechs presented the results of their pilot projects which they had developed over the previous four months. In May 2018, a cooperation agreement was also entered into with one of the participants, kompany, an Austrian enterprise. Working jointly with kompany, RBI has now developed and implemented an innovative know-your-customer (KYC) solution which is optimally aligned to RBI’s regulatory needs. RBI continues to hold in-depth talks with two other participating companies and is in the process of developing joint projects.
In 2018, RBI not only expanded its collaboration with fintechs, but also increased the focus on strengthening the innovative capabilities of its own employees. In June 2018, for example, RBI launched a group-wide intrapreneurship program. More than 3,600 employees registered for the program and 765 ideas were submitted. From August to December, eight interdisciplinary teams worked on developing pilot projects. The employees also developed their knowledge of modern working practices and technologies during the process.
The work that began in the previous year on advanced analytics – the advanced analysis and evaluation of data that can be used to better understand and also manage business processes – was continued in the reporting period. A concept developed in the prior year has now been made operational.
In 2018, RBI became the first bank in Austria to offer video identification (video ID) to its corporate customers. This allows customers to carry out the statutory identification by video in just a few minutes, eliminating the need for a time-consuming appointment with a bank employee or notary. RBI has set up the Identification & Verification Competence Center in Vienna to implement this service.
An internal control system has been in place for many years at the Group, which includes directives and instructions on key strategic issues. It incorporates:  The hierarchical decision-making process for approving Group and company directives, as well as departmental and divisional instructions.
The senior management of each Group unit is responsible for implementing the Group-wide instructions. Compliance with Group rules is monitored by Group Accounting & Reporting and in the course of the audits performed by internal Group and local auditors.
The subsequent consolidation steps are then performed using the consolidation system, including capital consolidation, expense and income consolidation, and debt consolidation. Finally, intra-Group gains are eliminated where applicable. At the end of the consolidation process, the notes to the financial statements are prepared in accordance with IFRS and the BWG/UGB.
In addition to the Management Board, the general control system also encompasses middle management. All control measures constitute part of the day-to-day business processes and are used to prevent, detect and correct any potential errors or inconsistencies in the financial reporting. Control measures range from managerial reviews of the results for the period, as well as the specific reconciliation of accounts, through to analyzing ongoing accounting processes.
Throughout the year, consolidated monthly reports are produced for the Group’s senior management. The statutory interim reports conform to the provisions of IAS 34 and are published quarterly in accordance with the Austrian Stock Exchange Act. Before publication, the consolidated financial statements are presented to senior managers and the Chief Financial Officer for final approval and then submitted to the Supervisory Board’s Audit Committee. Analyses pertaining to the consolidated financial statements are also provided for management, as are forecast Group figures at regular intervals. The financial and capital planning process, undertaken by Group Planning & Finance, includes a three-year Group budget.
Financial reporting is a main focus of the ICS framework, whereby financial reporting processes are subject to monitoring and control reviews, the results of which are regularly reported to the Management Board and the Supervisory Board for evaluation. Additionally, the Audit Committee is required to monitor the financial reporting process. The Management Board is responsible for ongoing company-wide monitoring. The internal control system is based on three lines of defense: The first line of defense is formed by individual departments, where department heads are responsible for monitoring their business areas. The departments conduct control activities and plausibility checks on a regular basis, in accordance with the documented processes.
(3) RLB NÖ-Wien Sektorbeteiligungs GmbH holds around 22.24 per cent of the share capital of the company according to the most recent notification of voting rights published on 7 September 2018. By virtue of the syndicate agreement regarding RBI AG, the directly or indirectly held voting rights attached to a total of 193,449,778 shares, corresponding to a voting interest of around 58.81 per cent, are mutually attributable to the regional Raiffeisen banks and their direct and indirect subsidiaries pursuant to §§ 130 and 133 7 of the Austrian Stock Exchange Act (BörseG) as parties acting in concert as defined in § 1 6 of the Austrian Takeover Act (ÜbG) (see the notification of voting rights published on 7 September 2018). The remaining shares of RBI AG are held in free float, with no other direct or indirect shareholdings amounting to 10 per cent or more known to the Management Board.
(4) The Articles of Association do not contain any special rights of control associated with holding shares. According to the syndicate agreement for RBI AG, the regional Raiffeisen banks can nominate nine members of the RBI AG Supervisory Board. In addition to the members nominated by the regional Raiffeisen banks, the RBI AG Supervisory Board should also include three independent representatives of free-float shareholders who are not attributable to the Austrian Raiffeisen Banking Group.
(6) Pursuant to the Articles of Association, a person who is 68 years or older may not be appointed as a member of the Management Board or be reappointed for another term in office. The rule for the Supervisory Board is that a person who is aged 75 years or older may not be elected as a member of the Supervisory Board or be re-elected for another term in office. Moreover, no person who already holds eight supervisory board mandates in publicly traded companies may be a member of the Supervisory Board. Holding a position as chairman of the supervisory board of a publicly traded company would count twice for this purpose. The Annual General Meeting may choose to waive this restriction through a simple majority of votes if permitted by law. Any candidate who has more mandates for, or chairman positions on, supervisory boards in publicly traded companies must disclose this to the Annual General Meeting. There are no further regulations regarding the appointment or dismissal of members of the Management Board and the Supervisory Board beyond the provisions of the relevant laws. The Articles of Association stipulate that the resolutions of the Annual General Meeting are, provided that there are no mandatory statutory provisions to the contrary, adopted by a simple majority of the votes cast. Where the law requires a capital majority in addition to the voting majority, resolutions are adopted by a simple majority of the share capital represented in the votes. As a result of this provision, members of the Supervisory Board may be dismissed prematurely by a simple majority. The Supervisory Board is authorized to adopt amendments to the 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.
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. 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 20 June 2023.
This authorization replaces the authorization approved by the 16 June 2016 Annual General Meeting to purchase and retire own shares pursuant to § 65 (1) 8 of the AktG. No own shares have subsequently been purchased either on the basis of the now expired June 2016 authorization or the authorization from June 2018 which is now in effect.
(8) The following material agreements exist, to which the company is a party and which take effect, change or come to an end upon a change of control in the company as a result of a takeover bid:  RBI is insured under a Group-wide D&O policy. Insurance cover would remain in place following a merger with another legal entity belonging to the RBI Group. In the event of a merger with a legal entity outside the RBI Group, the insurance policy would automatically cease at the end of the insurance period in which the merger took effect. In such cases, insurance cover only exists for claims for damages arising from breaches of obligations that occurred before the merger, which are reported to the insurer prior to any termination of RBI’s Group-wide D&O insurance cover, and thereafter, within the agreed notification period of five years.
 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 shareholders 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. RBI AG continues to serve as the central institution of the Raiffeisen Banking Group at a national level. Upon a change in control of RBI AG, related contracts (membership of the liquidity group pursuant to § 27a of the BWG; membership of the federal IPS pursuant to Art. 113 (7) of the CRR) may end or change.
Corporate Governance The Corporate Governance Report can be found on the RBI website (www.rbinternational.com → Investors → Corporate Governance), as well as in the Corporate Governance Report chapter of the Annual Report.
Following a somewhat stronger 2018, the Russian economy is expected to grow at a low rate of 1.5 per cent in 2019, and therefore continue on its moderate growth trajectory. Oil prices should support the economy, while no significant impetus is expected from the continued comparatively restrictive monetary and fiscal policy. Risks of sanctions continue to persist, which could negatively affect the currency and economic development. In Ukraine, parliamentary and presidential elections are scheduled for 2019, but the renewed cooperation with the International Monetary Fund should have a stabilizing effect. Economic growth in Ukraine should reach a moderate 2.7 per cent in 2019.
Economic conditions in Central Europe (CE) should remain favorable overall in 2019, despite global headwinds and that GDP growth is expected to slow somewhat: A growth rate of 3.4 per cent is anticipated for 2019 – down from 4.5 per cent in 2018. Thanks to a continuing decline in unemployment and solid real wage increases, private consumption should remain a stable pillar of economic growth. Despite the prospect of lower GDP growth rates, investment is also likely to be a key source of support for the economy in 2019. At country level, Slovakia and Poland are expected to post the strongest increases (at 4.0 per cent and 3.6 per cent, respectively).
The positive trend in new business in the Austrian banking market should continue in 2019. Depending on the market segment, credit growth rates are expected to range between 3 per cent and 5 per cent. A pick-up in the corporate customer business, despite the economic slowdown, continued to support positive momentum in the sector. Moreover, the continuing positive wage trends should support the granting of loans. Nonetheless, a moderate downturn in the granting of mortgage loans is expected following stricter communication by the regulator. All in all, the return on equity of Austrian banks should be in the high single-digit percentage range in 2019, with stable or only slightly increasing risk costs.
For the CEE banking markets, credit growth rates are expected to range between 5 per cent and 9 per cent over the next 12-18 months. Accordingly, solid economic growth in the CE and SEE regions should have an overall positive impact on CEE banks’ earnings in 2019, despite moderately weaker momentum. Given new unemployment rate lows in CE and SEE, growth in wages
The provisioning ratio for FY 2019 is expected to be around 45 basis points.
We aim to achieve a cost/income ratio of around 55 per cent in 2021.
Central Europe 69 Southeastern Europe 73 Eastern Europe 77 Group Corporates & Markets 80 Corporate Center 82
 Corporate Center: central control functions in RBI AG (e.g. Treasury), other Group units and minority interests (including UNIQA Insurance Group AG and LEIPNIK-LUNDENBURGER INVEST Beteiligungs AG)
Net fee and commission income 549 557 (1.4)% 125 141 (11.7)%
Net trading income and fair value result 41 50 (17.4)% 4 23 (81.6)%
Levies and special governmental measures (85) (91) (6.4)% (9) (12) (30.0)%
Net trading income and fair value result fell € 9 million year-on-year to € 41 million. The Czech Republic reported a drop of € 29 million as a result of currency translation effects. In contrast, the result in Poland improved € 11 million, which was mainly attributable to currency translation. In Hungary, the result was up € 8 million due to higher valuation gains from derivative financial instruments.
General administrative expenses decreased € 33 million year-on-year to € 854 million. This was largely a consequence of the sale of the Polish core banking operations at the end of October, which reduced expenses in Poland by € 30 million. Unlike in Poland, staff expenses increased € 6 million in Slovakia and by € 2 million in Hungary due to salary adjustments, while office space expenses fell € 10 million in Hungary as a result of a one-off effect in the previous year. IT expenses were down, particularly in Hungary and Slovakia, with each reporting decreases of € 3 million.
Levies and expenses from special governmental measures fell € 6 million year-on-year to € 85 million. Bank levies were down € 5 million to € 59 million, largely due to lower expenses in Poland resulting from the sale of the Polish core banking operations. Contributions to the resolution fund also decreased, which have to be recognized in full at the start of the year, by € 2 million to € 26 million. Contributions declined the most in Poland and Slovakia, while the Czech Republic reported an increase.
Other net operating income declined € 40 million to minus € 34 million. The decrease of € 22 million in Poland was attributable to the sale of the Polish core banking operations. In addition, income of € 10 million was no longer included following the deconsolidation of a real estate fund in Hungary. The Czech Republic reported a reduction of € 10 million, which reflected the sale of bonds and loans in the previous year.
Southeastern Europe in € million 2018 2017 Change Q4/2018 Q3/2018 Change
Net gains/losses from hedge accounting 0 0 – 0 0 >500.0%
Levies and special governmental measures (11) 6 – 0 0 162.6%
Impairment losses on financial assets (61) (113) (45.5)% (57) (9) >500.0%
The rise of 30 per cent, or € 105 million, year-on-year in the segment’s profit after tax was driven by a 17 per cent improvement in the operating result and positive developments in the risk situation, especially in Romania and Croatia.
Net fee and commission income increased 5 per cent, or € 20 million, to € 421 million. The largest increase was reported in Romania (up € 13 million), due to higher volumes and margins in clearing, settlement and payment services, as well as in the credit card business. In both Serbia and Bulgaria, net fee and commission income was up € 4 million, mainly as a result of higher fee and commission income in clearing, settlement and payment services.
Net trading income and the fair value result increased € 10 million year-on-year to € 31 million. Decreases due to currency translation were more than offset by higher income from derivatives and loans and advances in Romania and Serbia.
The proportion of non-bank non-performing loans in the segment’s loan portfolio was 5.1 per cent (down 2.4 percentage points year-on-year) as of 31 December 2018. The NPL coverage ratio was 88.6 per cent (up 7.6 percentage points year-on-year following the adoption of IFRS 9).
General administrative expenses increased 3 per cent, or € 21 million, year-on-year to € 699 million. Staff expenses were up 4 per cent to € 317 million as a result of salary increases. The average number of employees fell 149 to 14,746, primarily due to developments in Romania (down 115) and Croatia (down 69). Other administrative expenses were up 4 per cent, or € 11 million, to € 303 million, mainly reflecting a rise in IT expenses, deposit insurance fees and legal, advisory and consulting expenses in Romania, Serbia, Bulgaria and Croatia.
The number of business outlets fell by 16 year-on-year to 962, largely due to closures in Romania. The cost/income ratio improved from 57.0 to 53.9 per cent.
Despite an increase in impairments resulting from fine-tuning of IFRS 9 models, the risk situation improved considerably in Southeastern Europe in 2018. This was largely attributable to the positive trend in Romania and Croatia. In Romania, the need for impairments was € 35 million lower. In the comparable prior year period, it amounted to € 73 million largely as a result of the voluntary conversion of Swiss franc loans and impairment losses relating to non-financial corporations. In Croatia, risk costs also improved markedly: in the reporting period, impairments of € 19 million were recognized, while in the comparable period in the previous year corporate customer defaults led to impairments of € 48 million. In Serbia, impairments of € 2 million were recognized. In the same period in the previous year, recoveries from impaired loans led to a net release of € 9 million. In Bulgaria, there was no net requirement for impairments, while in the prior year a step-up in collection activity and the termination of a large corporate customer’s non-performing loan resulted in a net release of € 9 million.
Levies and special governmental measures (1) 0 0 0 (4) (4)
Return on equity after tax 12.9% 17.4% 16.0% 14.9% 15.1% 15.8%
Provisioning ratio (average loans to customers) 0.79% 1.96% 0.74% 1.59% 0.17% (0.74)%
Net fee and commission income 71 71 189 176 45 41
Impairment losses on financial assets (19) (48) (38) (73) (2) 9
Employees as at reporting date (full-time equivalents) 1,982 2,106 5,115 5,333 1,537 1,541
Eastern Europe in € million 2018 2017 Change Q4/2018 Q3/2018 Change
Net trading income and fair value result 34 53 (36.8)% 18 6 198.9%
Net gains/losses from hedge accounting 0 (20) – 0 0 –
Levies and special governmental measures 0 0 – 0 0 –
Impairment losses on financial assets (32) 5 – (57) 0 –
In the previous year, a net loss from hedge accounting of € 20 million was recognized in connection with the termination of a portfolio fair value hedge relationship in Russia.
Other net operating income increased € 20 million to € 7 million, as a result of the release of provisions for litigation in Russia and Ukraine.
Income taxes fell € 13 million year-on-year to € 171 million, reflecting a decrease in profit. The tax rate fell 1 percentage point to 20 per cent.
The proportion of non-bank non-performing loans in the segment’s loan portfolio was 4.2 per cent (down 2.1 percentage points year-on-year) as at 31 December 2018. The NPL coverage ratio was 79.1 per cent (up 0.4 percentage point year-on-year).
Levies and special governmental measures 0 0 0 0 0 0
Return on equity before tax 26.3% 27.5% 36.8% 34.5% 81.0% 105.5%
Group Corporates & Markets in € million 2018 2017 Change Q4/2018 Q3/2018 Change
Net fee and commission income 371 308 20.5% 105 90 16.8%
Net trading income and fair value result 22 81 (72.7)% (20) 18 –
The strong increase in net income in the Group Corporates & Markets segment was mainly due to the positive developments in terms of risk costs. Net releases of loan loss provisions of € 62 million were booked in the reporting period, due to reversals of impairment losses and gains realized on the sale of non-performing loans; compared to impairment charges of € 137 million booked in the same period of the previous year, due to defaults on the part of some large corporate customers. The operating result was at the previous year’s level.
Net interest income declined 9 per cent year-on-year, or € 53 million, to € 534 million, due to margin reductions in the corporate customer business and system adjustments in connection with the adoption of IFRS 9, which entailed a change in the allocation of interest components. The segment’s net interest margin continues to be impacted by the weak interest rate environment and decreased by 16 basis points to 1.28 per cent in the reporting period.
Levies and special governmental measures (22) (21) 4.6% (5) (5) 8.0%
Specialized financial institution subsidiaries and other 114 75 51.0% 17 28 (38.7)%
Dividend income increased € 5 million to € 24 million, mainly due to a dividend payment from an unconsolidated leasing company.
Other net operating income improved € 38 million to € 142 million. RBI AG reported income of € 25 million from the release of a provision in connection with the termination of a long-standing legal dispute with an Icelandic bank. A further € 11 million derived from the sale of registered bonds.
In the reporting period, the other result amounted to € 1 million compared with a loss of € 36 million in the previous year. In the period under review, impairment charges of € 3 million were recognized in relation to buildings in the Raiffeisen Immobilienfonds portfolio, while these amounted to € 25 million in the previous year’s comparable period. Furthermore, current income from associates rose € 5 million compared with the previous year, with the earnings contribution from card complete rising due to a valuation effect. This was offset by a € 5 million lower result from the disposal of Group assets in the period under review.
For the aforementioned reasons, the non-performing loan stock declined € 464 million to € 838 million. The share of non-bank non-performing loans in the segment’s loan portfolio fell 1.9 percentage points to 3.0 per cent. The NPL coverage ratio improved 17.8 percentage points to 66.0 per cent due to the elimination of more highly collateralized loans and the adoption of IFRS 9.
Net trading income and fair value result (95) (116) (17.9)% (4) (55) (92.2)%
Net gains/losses from hedge accounting 0 6 (96.1)% (13) 2 –
Dividend income, which comes primarily from Group units belonging to other segments and which is therefore of an intra-Group nature, decreased € 358 million to € 735 million.
Net trading income and fair value result increased € 21 million year-on-year to minus € 95 million, mainly due to the improvement in the capital hedge result.
General administrative expenses were up 7 per cent, or € 23 million, to € 344 million, mainly as a result of higher IT expenses.
Impairment losses on financial assets (5) (3) 88.3% 0 0 –
Raiffeisen Bank International AG (RBI AG) is registered in the commercial register of the Commercial Court of Vienna under FN 122.119m. Its address is Am Stadtpark 9, 1030 Vienna.
The changes are explained in greater detail in the notes in the section entitled, principles underlying the consolidated financial statements, under changes in the presentation of the financial statements and IFRS 9 transition.
Material changes The provisions of the new accounting standard for financial instruments (IFRS 9) took effect on 1 January 2018. In addition to the introduction of IFRS 9, RBI has also made changes to the presentation of the statement of financial position. It is now based on the requirements for the reporting of financial information (FINREP) issued by the European Banking Authority (EBA). The change also made it necessary to adapt the figures of the comparable period and the comparable reporting date. This change firstly improves comparability while also enabling more efficient processing of financial statements in accordance with commercial law and regulatory requirements.
Income statement RBI changed the structure of the income statement during the financial year. It is now aligned with the financial reporting standards (FINREP) issued by the European Banking Authority (EBA). The disclosures for the previous year were adapted accordingly. The changes are explained in greater detail in the notes in the section on principles underlying the consolidated financial statements, under changes in the presentation of the financial statements.
Share of other comprehensive income from companies valued at equity [19] (19,413) (2,360)
Items that may be reclassified subsequently to profit or loss (199,796) (61,045)
Hedge of net investments in foreign operations [18, 26] 42,988 (6,042)
In 2017, RBI elected to adopt on an early basis the requirements of IFRS 9.7.1.2 regarding the presentation of gains and losses on financial liabilities designated at fair value through profit or loss. IFRS 9 requires changes in the fair value of these designated liabilities caused by a change in the default risk of RBI to be booked in other comprehensive income. Under IAS 39, these changes were reported in the income statement. € 33,692 thousand were recognized directly in other comprehensive income in the reporting period; the effect amounted to minus € 139,643 thousand in the same period of the previous year. The difference between the current fair value of these designated liabilities and the amounts contractually required to be paid at maturity was € 404,000 thousand at the time of maturity. There have been no significant transfers within equity or derecognition of liabilities designated at fair value in the reporting period.
The changes in the fair value of equity instruments resulted in a positive contribution of € 30,243 thousand. In contrast, the changes in the fair value of financial assets recognized in other comprehensive income produced a negative result of € 30,601 thousand in the financial year (2017: minus € 717 thousand). Changes in equity of companies valued at equity mainly relate to UNIQA Insurance Group AG, Vienna. They largely consist of valuation changes in the securities portfolio used for liquidity management.
The capital hedge for foreign activities comprises hedges for investments in economically independent sub-units. A positive result of € 42,988 thousand resulting from the depreciation of the Russian ruble was posted in the financial year. The previous year had a negative result of € 6,042 thousand.
As a result, the opening statement of financial position as at 1 January 2017 was added to the presentation of the statement of financial position pursuant to IAS 1.40A.
Cash, cash balances at central banks and other demand deposits [12, 44] 22,557,484 16,905,455 21,301,789
Financial assets - fair value through other comprehensive income [14, 31, 44] 6,489,016 6,589,446 4,524,370
Financial assets - designated fair value through profit/loss [16, 31, 44] 3,192,115 5,370,028 8,488,900
Financial assets - held for trading [17, 31, 44] 3,893,609 4,622,036 5,560,434
Financial liabilities - held for trading [25, 31, 44] 5,101,835 4,414,477 5,439,374
Statement of financial position RBI changed the presentation of the statement of financial position during the financial year. It is now aligned with the financial reporting standards (FINREP) issued by the European Banking Authority (EBA). The disclosures for the comparative period were updated accordingly. The changes are explained in greater detail in the notes in the section on principles underlying the consolidated financial statements, under changes in the presentation of the financial statements.
Financial liabilities - designated fair value through profit/loss [24, 31, 44] 1,931,076 2,508,622 2,783,648
The growth in cash, cash balances at central banks and other demand deposits was primarily attributable to an increase in deposits at the Austrian National Bank at the head office. The increase in financial assets – amortized cost resulted from credit growth in Austria, Romania, the Czech Republic and Slovakia. Most of the growth in financial liabilities – amortized cost is attributable to increases in deposits with agreed maturity from banks and current accounts/overnight deposits from customers.
In addition to changing the presentation of the statement of financial position, the presentation of changes in equity was also modified with respect to retained earnings. Cumulative other comprehensive income is now reported separately from other retained earnings. Changes in cumulative other comprehensive income are explained on the following pages.
The provisions of the new accounting standard for financial instruments (IFRS 9) took effect on 1 January 2018. The changeover effect reduced equity by minus € 169,438 thousand. This reduction was caused partly by changes in the impairment rules of IFRS 9 versus IAS 39, which amounted to minus € 285,381 thousand, and partly by discontinuances of deposits and debt instruments previously designated at fair value, which added up to € 69,938 thousand. In addition, mandatory reclassifications of loans to non-trading financial assets – mandatorily at fair value through profit/loss resulted in a remeasurement of € 7,277 thousand, while reclassifications of securities to financial assets – fair value through other comprehensive income produced a remeasurement of € 3,413 thousand. Deferred tax assets of € 35,316 thousand, which largely consist of the temporary difference between loan loss provisions for tax purposes and loan loss provisions pursuant to IFRS 9, were included in equity.
Unrealized net gains/losses of the period 6,252 (62,417) 0 0 0
Unrealized net gains/losses of the period (27,032) 0 13,869 0 30,113
Cash, cash balances at central banks and other demand deposits as at 1/1 [12] 16,905,455 16,485,890
Gains/losses from the measurement and derecognition of assets and liabilities [8] 443,056 89,138
Net of net interest income and dividend income [1, 2] (3,413,035) (3,207,718)
Non-trading financial assets - mandatorily fair value through profit/loss [15, 31] (366,265) 0
Investing activities: Payments for purchase of: Tangible and intangible fixed assets [20] (313,721) (371,003)
Net cash from financing activities consists of inflows and outflows of equity and subordinated capital. This primarily covers capital increases, dividend payments, and changes in subordinated capital.
This segment comprises Belarus, Russia and Ukraine. In Belarus, RBI is represented by a bank and a leasing company. Raiffeisenbank Russia is one of the leading foreign banks in Russia and services both corporate and retail customers. The branch network also offers products targeted toward affluent retail customers and small and medium-sized entities, with the focus on large cities. Furthermore, RBI is active in the issuance business. The product range in Russia is completed by the leasing business. In Ukraine RBI is represented by a bank, a leasing company and a card-processing company and provides a full range of financial services via a tightly knit branch network.
The Corporate Center segment encompasses services in various areas provided by head office that serve to implement the Group’s overall strategy and that are allocated to this segment to ensure comparability. Therefore, this segment includes the following areas: Liquidity management and balance sheet structure management, equity participation management, the banking operations carried out by head office for financing Group units, the Austrian transaction and services business for financial services providers, as well as other companies outside the financial service provider business that do not fall directly under another segment. Also allocated to this segment are the minority interests from the non-bank segment (income from companies valued at equity). These include equity participations in UNIQA Insurance Group AG, Vienna, as well as LEIPNIK-LUNDENBURGER INVEST Beteiligungs AG, Vienna (holding company with strategic participations in the flour & mill and vending segments).
In accordance with the Basel III framework, specific legal regulations have to be considered. The proportion of common equity tier 1 capital to total risk-weighted assets (common equity tier 1 ratio) is for example an important indicator of whether the underlying capital is adequate for the business volume. Industry sector specifics lead to different risk weights within the calculation of riskweighted assets according to CRR. These factors are crucial for the calculation of the regulatory minimum total capital requirements.
As part of the annual Supervisory Review and Evaluation Process (SREP), the ECB stipulates in a notification that additional CET1 capital must be held in order to cover those risks which are not considered or are insufficiently considered in Pillar I. Moreover, the efficient use of the available capital is calculated internally, whereby the actual usage is compared to the theoretically available risk coverage capital. The long-term liquidity ratios are also restrictive and are defined in accordance with the regulatory requirements.
with the institutions of the Raiffeisen Banking Group (RBG). This segment also covers the capital market-based customer and proprietary business in Austria. Besides RBI AG, this also includes financial services outsourced to subsidiaries, such as Vienna-based entities like Raiffeisen Centrobank AG (equity trading and capital market financing), Kathrein Privatbank Aktiengesellschaft, Raiffeisen Leasing Group, Raiffeisen Factor Bank AG, Raiffeisen Bausparkasse Österreich Gesellschaft m.b.H., Valida Group (pension fund business) and Raiffeisen Kapitalanlage-Gesellschaft mit beschränkter Haftung. Card complete Service Bank AG, Vienna, a company valued at equity, is also allocated to this segment.
The cost/income ratio represents the cost efficiency of the segment. The cost/income ratio shows general administrative expenses in relation to operating income, which is the sum of net interest income, dividend income, net fee and commission income, net trading income and fair value result, net gains/losses from hedge accounting and other net operating income.
The following key performance indicators are relevant in ensuring a reasonable and sustainable business structure, whereby the composition of the results and the underlying portfolio parameters are of significance. The structure of the primary funding basis for loans and advances to customers is measured using the loan/deposit ratio (net) which is the proportion of loans and advances to customers to deposits from customers (each less claims and obligations from (reverse) repurchase agreements and securities lending). The share of the result derived from the core business is also relevant. The net interest margin is calculated based on average interest-bearing assets. The proportion of the net fee and commission income to operating income is also a key performance indicator, which is included in the target setting for the business mix.
Significant changes in profit/loss are described below: In Central Europe, profit after tax fell € 72,553 thousand year-on-year to € 346,309 thousand. This was mainly the result of a € 66,549 thousand decline in profit in Poland due to the sale of the Polish core banking operations. In Hungary, profit declined € 39,670 thousand as a result of higher net releases of loan loss provisions due to sales of non-performing loans in the previous year and the deconsolidation of a real estate fund. In contrast, the Czech Republic reported an increase in profit after tax of € 21,793 thousand, which was mainly attributable to higher net interest income.
In Southeastern Europe, the rise in the profit after tax of 30 per cent, or € 105,302 thousand, year-on-year was driven by a 17 per cent improvement in the operating result and positive development in the risk situation, especially in Romania and Croatia.
Net trading income and fair value result 41,417 31,184 33,743 22,251
The Corporate Center segment essentially comprises net income from the head office’s governance functions and other Group units. Therefore, its results are generally more volatile. Profit after tax fell € 435,785 thousand or 67 per cent, reflecting a reduction of € 358,157 thousand in intra-Group dividend income, the loss of € 119,848 thousand from the sale of the Polish core banking operations and a negative effect of € 63,650 thousand from recycling of the accumulated exchange rate differences previously recognized in other comprehensive income.
Net trading income and fair value result 50,135 21,498 53,421 81,474
Employees as at reporting date (full-time equivalents) 13,069 14,792 18,132 2,680
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 of the main fully consolidated companies prepare their annual financial statements as at and for the year ended 31 December. Some IFRS details which are included outside the notes form an integral part of the consolidated financial statements. These are mainly explanations on net income from segments, which are included in the notes on segment reporting. In addition to the disclosures pursuant to IFRS 7 which are included in the notes, the risk report section in particular contains detailed information on credit risk, concentration risk, market risk and liquidity risk. This information is presented in accordance with IFRS 8 Operating Segments and IFRS 7 Financial Instruments Disclosures.
As of 1 January 2018, the provisions of the new accounting standard for financial instruments (IFRS 9) became effective. Further details regarding the first-time adoption of IFRS 9 can be found in this section. The changes and impacts of the new provisions are presented in the section IFRS 9 transition. The comparative information was not adjusted in accordance with IFRS 9.7.2.15 and has consequently been prepared in accordance with the provisions of IAS 39. The accounting policies in accordance with IAS 39 are explained in the consolidated financial statements for 2017 (see Annual Report 2017, page 218 ff).
In addition to the introduction of IFRS 9, RBI has also made changes to the presentation of the statement of financial position. It is now closely based on the requirements for the reporting of financial information (FINREP) issued by the European Banking Authority (EBA). The change also made it necessary to adapt the disclosures for the presentation of the comparable period and the comparable reporting date. The changes are explained in more detail in the section Changes in the presentation of the financial statements.
The cost of the defined benefit pension plan is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. The interest rate used to discount the Group's defined benefit obligations is determined on the basis of the yields obtained in the market at the balance sheet date for high quality fixed-income corporate bonds. Considerable discretion has to be exercised in this connection in setting the criteria for the selection of the corporate bonds representing the universe from which the yield curve is derived. Mercer´s recommendation is used to determine the discount rate. The main criteria for the selection of such corporate bonds are the issuance volumes of the bonds, the quality of the bonds and the identification of outliers, which are not considered. Assumptions and estimates used for the defined benefit obligation calculations are described in the section on pension obligations and other termination benefits. Quantitative information on long-term employee provisions are disclosed in the notes under (27) Provisions for liabilities and charges.
Certain non-financial assets, including goodwill and other intangible assets are subject to an annual impairment test. Goodwill and other intangible assets are tested more frequently if events or changes in circumstances, such as an adverse change in the business climate, indicate that these assets may be impaired. The determination of the recoverable amount in the context of the impairment test requires judgments and assumptions to be made by management. As amendments in the underlying conditions and assumptions could result in significant differences to the amounts reported, the Group considers these estimates to be critical. Details concerning the impairment test of non-financial assets are disclosed in the section on business combinations. Additionally, the carrying amounts of goodwill are presented in the notes under (20) Tangible and intangible fixed assets.
Deferred tax assets are recognized only to the extent that it is probable that in the future sufficient taxable profit will be available against which those tax loss carry-forwards, tax credits or deductible temporary differences can be utilized. A planning period of five years is used to this end. This assessment requires significant judgments and assumptions to be made by management. In determining the amount of deferred tax assets, the management uses historical tax capacity and profitability information and, if relevant, forecasted operating results based upon approved business plans, including a review of the eligible carry-forward period.
To distinguish between finance leases on the one hand and operating leases on the other, judgments have to be made from the view of the lessor, the criterion being the transfer of substantially all risks and rewards from the lessor to the lessee. Details are provided in (57) Finance leases and (58) Operating leases.
As of 1 January 2018, the provisions of the new accounting standard for financial instruments (IFRS 9) became effective. Changes in accounting standards resulting from the application of IFRS 9 have generally been applied retrospectively, with the exception of those described below: RBI took advantage of the exemption allowing it not to restate comparative information for prior periods with to classification and measurement (including impairment) changes. Differences in the carrying amounts of financial assets and financial liabilities resulting from the application of IFRS 9 were recognized in retained earnings as of 1 January 2018. The following assessments had to be made on the basis of the facts and circumstances existing at the time of first application:  The determination of the business model in which a financial asset is held.  The designation and revocation of previous designations of certain financial assets and financial liabilities measured at FVTPL.  The designation of certain strategic investments not held for trading as at FVOCI.
As permitted by IFRS 9, RBI utilized the option to continue to apply IAS 39 hedge accounting requirements.
IFRS 9 contains principles for recognition, measurement and derecognition, and for hedge accounting. The key requirements of IFRS 9 can be summarized as follows: According to IFRS 9, all financial assets are measured either at amortized cost or at fair value. Debt instruments which are held within the framework of a business model whose objective is to collect the contractual cash flows and whose contractual cash flows consist of solely payments of principal and interest on the principal amount outstanding must be measured at amortized cost
According to IFRS 12, structured entities are companies that have been designed so that voting or similar rights are not the determining factor in deciding who controls the company. This applies, for example, 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 and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity.
in the subsequent periods. All other instruments must be measured at fair value through profit or loss.
The application of IFRS 9 has fundamentally changed the accounting for allowances for credit risks by RBI. According to IFRS 9, the rules for impairment are applicable for financial assets measured at amortized cost or at fair value through other comprehensive income. In accordance with IFRS 9, the impairment rules are also applicable to loan commitments off the statement of financial position and financial guarantees. The model for the risk assessment changes from a historic-oriented model in accordance with IAS 39 (incurred loss model) to a future-oriented model in accordance with IFRS 9 (expected loss model).
The methods for determining the amount of impairment are explained in the section impairment general (IFRS 9). The quantitative effects of the application of IFRS 9 as at 1 January 2018 are shown in the section IFRS 9 transition.
IFRS 15 (Revenue from contracts with customers; entry into force 1 January 2018)
The accounting rules apply a five-step model for all customer agreements to determine how and when income is recognized. However, they have no effect on the recognition of income arising in connection with financial instruments within the scope of IFRS 9 or in connection with the recognition of leases in accordance with IAS 17. IFRS 15 now replaces several other IFRS standards, e.g. IAS 18 Revenue and IAS 11 Construction Contracts as well as interpretations that determine the timing of revenue recognition under IFRS. In addition, the new rules require the provision of more meaningful and relevant disclosures in the notes to the financial statements. The IASB published clarifications to IFRS 15 in 2016. These amendments address three of the five issues identified (identification of contractual obligations, principal/agent considerations and licenses) and aim at facilitating the transition for modified and concluded contracts. As the focus of IFRS 15 is not on the recognition of revenues from financial instruments and leases, and as this IFRS is by definition only a subsidiary standard to IFRS 9 and IAS 17 for revenues from banking and leasing, its first-time adoption does not have any material impact on the consolidated financial statements of RBI or the consolidated statement of changes in equity, as can be seen from the following remarks. RBI has decided to apply the modified retrospective method, which also means that no adjustments are made to comparative information in the 2018 reporting period.
Fees and charges that fall within the scope of IFRS 15 due to their economic substance are either recognized in profit or loss on the date on which the service is rendered or are deferred and recognized on a straight-line basis. Due to the fact that income within the scope of IFRS 15 includes performance fees for services in loan administration and management, which have already been deferred as commission income under IAS 18 and must also be deferred under IFRS 15, no effect arises in relation to net commission income.
Where fees are charged to customers in the lending business, such as land registration fees, these are recognized immediately as income in the same way as under IAS 18.
Annual improvements to IFRS – cycle 2014-2016 (entry into force 1 January 2017/2018)
 IAS 28 Investments in associates and joint ventures: clarification that the option to measure an investment in an associated entity or joint venture held by a venture capital company or other qualifying entity may be exercised differently for each investment.
IFRIC 22 (Foreign currency transactions and advance consideration, entry into force 1 January 2018)
Multi-component contracts exist only to a minor extent in the Group and, due to their immateriality, no noteworthy effects arose in relation to IFRS reporting in the reporting period.
The amendments serve to clarify the provisions related to transfers to or from the investment property portfolio. In particular, the amendments clarify whether property is under construction or development which was previously classified under inventories can be transferred to investment property when there is an evident change of use. The adoption of these amendments had no impact on RBI's consolidated financial statements.
In addition to the first-time adoption of IFRS 9, RBI has also made changes in the presentation of the financial statements. The presentation of the financial statements is now closely based on the requirements for the reporting of financial information (FINREP) issued by the European Banking Authority (EBA) and enables greater transparency and comparability. The changes mainly relate to the presentation of financial instruments. The items in the consolidated statement of financial position and the consolidated income statement and also in the relevant items in the notes reflect the new accounting categories pursuant to IFRS 9.
Investments in subsidiaries and associates 0 0 0 0 0 0
Financial liabilities - designated fair value through profit/loss 616,867 0 1,119,810 0 0
Financial liabilities - held for trading 0 0 0 0 4,256,546
Cash, cash balances at central banks and other demand deposits 0 0 0 0 0 16,905,455
Investments in subsidiaries and associates 194,314 728,945 0 0 0 923,259
Financial liabilities - designated fair value through profit/loss 0 0 771,944 0 2,508,622
The following tables show the reconciliation of the categories presented on 1 January 2017 to the new accounting format. The column headings represent the previous items on the statement of financial position, while the line headers reflect the new presentation of the statement of financial position: Assets 1/1/2017 in € thousand
Financial assets - designated fair value through profit/loss 0 0 15,689 0 0 0
Financial assets - held for trading 0 0 0 0 4,944,112 616,322
Financial liabilities - held for trading 0 0 0 0 5,067,584
Cash, cash balances at central banks and other demand deposits 0 0 0 0 0 21,301,789
Financial assets - held for trading 0 0 0 0 0 5,560,434
Financial liabilities - designated fair value through profit/loss 0 0 658,510 0 2,783,648
Financial liabilities - held for trading 371,790 0 0 0 5,439,374
Net trading income and fair value result 0 0 0 131,702 (25,392)
Net trading income and fair value result (70,839) 0 0 0 35,473
Net interest income: Dividend income was removed from net interest income and shown as a separate item dividend income. The current income from associates was reported under net interest income until 2017 and is now reported under other result.
Net interest income, net trading income and fair value result Adjustments in accordance with IFRS 9/FINREP
Impairment: Impairment losses on non-financial assets are now recognized in other result, while impairment losses on loans, advances and bonds are recognized directly in impairment losses on financial assets.
Levies and special governmental measures: Bank levies, bank charges from banking business due to governmental measures as well as resolution funds are now combined under levies and special governmental measures.
This section contains an analysis of the transition from the figures reported as at 31 December 2017 to those after the first-time adoption of IFRS 9 as at 1 January 2018. The transition provisions for IFRS 9 do not require any retroactive application to earlier reporting periods; consequently, the effect of the first-time adoption is reflected in the equity of the opening balance for the 2018 financial year. The transition effect shown in equity amounted to minus € 169,438 thousand.
The following tables give an overview of the consequences of the change in assets for classification and measurement, taking into account impairments for items on and off the statement of financial position which are affected by IFRS 9, from IAS 39 as at 31 December 2017 to IFRS 9 as at 1 January 2018.
Financial liabilities - designated fair value through profit/loss 2,508,622 (447,781) (69,938) 1,990,903
The carrying amount of the assets reclassified from financial assets – designated fair value through profit / loss, financial assets – held for trading and financial assets – available for sale (IAS 39) to financial assets – amortized cost amounted to € 295,388 thousand at the date of reclassification. As at 31 December 2018, the fair value was € 271,997 thousand. If no reclassification had been applied this would have led to a contribution to earnings of minus € 3,100 thousand in the income statement and € 2,355 thousand in other comprehensive income. For financial assets reclassified from financial assets – designated fair value through profit / loss to financial assets – amortized cost, the weighted effective interest rate at the time of reclassification was 4.18 per cent. The interest income recognized amounted to € 5,064 thousand.
Additions from financial assets - held for trading – 58,845 (5,772) – (5,772) –
Additions from financial assets - designated fair value through profit/loss – 77,018 (2,438) – (2,438) –
Required subtractions to non-trading financial assets - mandatorily fair value through profit/loss – (20,394) 0 – – –
Elected subtractions to financial assets - fair value through other comprehensive income – (15,929) 0 – – –
Required subtractions to non-trading financial assets - mandatorily fair value through profit/loss – (313,599) 0 – – –
A financial asset is subsequently measured at fair value through other comprehensive income (FVOCI) if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. In addition, the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The category financial assets – fair value through other comprehensive income mainly includes securities from the liquidity reserve and equity instruments that were allocated to the measurement category financial assets – available for sale under IAS 39.
Additions from financial assets - designated fair value through profit/loss – 521,685 0 – (2,585) 2,585
Additions from financial assets - designated fair value through profit/loss – 151,159 0 – – –
Elected subtractions to financial assets - amortized cost – (159,526) 0 – – –
Financial assets which are not held for trading, which additionally do not meet the criteria for classification as assets and are subsequently to be measured at amortized cost or at FVOCI are classified as assets which are subsequently to be measured at fair value through profit/loss. This measurement category includes largely additions of loans and advances to customers that have contractual cash flows that are not solely payments of principal and interest and thus have to mandatorily be measured at fair value (€ 301,529 thousand). Affected are loans and other debt instruments which include incongruent interest components and did not pass the required quantitative test (see also section classification and measurement of financial assets and financial liabilities ). The resulting elected or required reclassifications in the form of additions and subtractions from the former IAS 39 measurement categories are shown in the table below.
Additions from financial assets - loans and receivables – 12,070 0 – 0 –
Required subtractions to non-trading financial assets - held for trading – (21,817) 0 – – –
Additions from financial assets - fair value through other comprehensive income – 10,790 0 – 859 (859)
Elected subtractions to non-trading financial assets - mandatorily fair value through profit/loss – (151,159) 0 – – –
Subtractions, due to reclassifications from assets held for trading to the measurement category financial assets – amortized cost, amounting to € 58,845 thousand were made where the two conditions were fulfilled that the asset is held within a business model whose objective is achieved by managing assets in order to collect contractual cash flows and where the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Additions from financial assets - designated fair value through profit/loss 0 21,817 0 0 – –
Elected subtractions to financial liabilities - amortized cost – (70,800) (15,271) – 12,445 2,826
Elected subtractions to financial liabilities - amortized cost – (387,872) (54,771) – (2,089) 56,860
The remeasurements column relates to changes in impairment due to changes in the methods used to determine the impairment allowances for financial assets that were already under IAS 39 for financial assets and under IAS 37 for credit risks off the statement of financial position within the scope of the impairment requirements.
The following exchange rates were used for currency translation: 2018 2017 As at Average As at Average Rates in units per € 31/12 1/1-31/12 31/12 1/1-31/12
Non-trading financial assets - mandatorily fair value through profit/loss 23,312 0
Financial assets - fair value through other comprehensive income 118,318 58,903
Non-trading financial assets - mandatorily fair value through profit/loss 954 198
Financial assets - fair value through other comprehensive income 14,398 18,575
The improvement in the net interest margin was driven in some measure by healthy margin growth in Romania and the Czech Republic, but above all by Ukraine as a result of the positive development of loans to non-financial corporations.
Net fee and commission income increased € 72,419 thousand to € 1,791,290 thousand despite significant depreciation among Eastern European currencies compared to the same period in the previous year. Net income from clearing, settlement and payment services was up € 25,581 thousand, increasing most at head office due to higher income from credit card business. Net income from the loan and guarantee business went up € 60,649 thousand, above all at head office and in Czech Republic. This was partly the result of a changed allocation of commission income following the introduction of IFRS 9 which was previously disclosed as interest-like income. On the other hand, Russia and Romania recorded volume-driven increases. In contrast, income from securities business decreased € 16,726 thousand due to lower turnover from issuance business as well as higher fees. Other net fee and commission income increased € 23,669 thousand primarily at Raiffeisen Bausparkasse because of a changed disclosure in connection with brokerage expenses.
Net gains/losses on financial assets and liabilities - held for trading (247,758) 189,208
Net gain/losses on financial assets and liabilities - designated fair value through profit/loss 15,879 (12,649)
Ineffectiveness of cash flow hedge recognized in profit or loss (13,411) 54
The sale of the core banking operations in Poland resulted in the termination of the existing portfolio cash flow hedges in the second quarter of 2018. These hedged the cash flow fluctuations from foreign currency loans and deposits in local currency by means of foreign currency interest rate swaps. The termination had a neutral effect on capital, but resulted in the reclassification through profit or loss of the cash flow hedge reserve of minus € 13,417 thousand recognized in other comprehensive income in previous periods.
Net gains/losses from hedge accounting were also influenced by the termination of a hedging relationship in the 2017 financial year, as the item fair value changes of the hedging instruments included a one-off effect of minus € 20,109 thousand. This arose in connection with the termination of a portfolio fair value hedge in Russia.
Gains/losses on derecognition of financial assets and liabilities - not measured at fair value through profit/loss 25,544 42,047
Net expense from allocation and release of other provisions 17,784 (27,373)
In the reporting period, the Russian ruble, the Belarusian ruble and the Ukrainian hryvnia depreciated 11, 9 and 6 per cent respectively year-on-year on the basis of average exchange rates. In contrast, the Czech koruna appreciated 3 per cent. The currency movements led to a reduction of € 64,902 thousand in general administrative expenses.
Other administrative expenses increased 2 per cent to € 1,178,070 thousand. They rose due to higher deposit insurance fees of € 11,206 thousand in Russia, Romania and Poland, and an increase in IT expenses (up € 17,833 thousand), primarily for acquired IT services at head office. By contrast, office space expenses fell € 22,405 thousand due to an advance rental payment in Hungary in 2017 and the sale of the Polish core banking operations in October 2018.
Depreciation of tangible and intangible fixed assets fell 3 per cent or € 9,693 thousand. The biggest decreases were reported in Russia in connection with an adjustment to the useful life of software, in Croatia due to the reduction in the operating lease portfolio, as well as in Slovakia and Hungary due to increased IT depreciation in the same period of the previous year. This was offset by slight increases due to the capitalization of software in the Czech Republic, Romania and at head office.
Impairment or reversal of impairment on investments in subsidiaries and associates (33,360) (51,581)
Result from non-current assets and disposal groups classified as held for sale and deconsolidation (181,662) 3,575
The position other primarily contains various specialty companies of the Raiffeisen Leasing Group.
Net income from the disposal of group assets consisted of the following: in € thousand RBPL SAMPRO Other Total
Bank levies affect Austria with a one-off payment of € 40,750 thousand as well as current payments of € 56,561 thousand (2017: € 56,601 thousand), Hungary with € 12,551 thousand (2017: € 12,626 thousand), Slovakia with € 22,268 thousand (2017: € 20,286 thousand) and Poland with € 24,139 thousand (2017: € 31,137 thousand).
hereof financial assets - fair value through other comprehensive income (1,727) 3,870 hereof financial assets - amortized cost (167,522) (312,319)
The effective tax rate reduced 2.4 percentage points to 20.3 per cent. This was primarily the result of an improved contribution to earnings by RBI AG.
Theoretical income tax expense in the financial year based on the domestic income tax rate of 25 per cent (438,333) (403,016)
The increase in balances at central banks resulted mainly from the increase in deposits at the Austrian National Bank at head office. The item balances at central banks includes € 277,853 thousand of minimum reserves at central banks which are not freely available. The item other demand deposits at banks includes € 1,309,182 thousand in cash securities, mainly for borrowed securities.
The carrying amount of financial assets – amortized cost increased € 2,448,387 thousand compared to year-end 2017. During the reporting year the Polish core banking operations were sold, which at the time of deconsolidation included financial assets – amortized cost of € 4,298,004 thousand.
Valida Pension AG, Vienna (AT), Investment fund - Valida Nostro 100 (AT0000A1H088) 34,217 48,124
DZ BANK AG, Frankfurt am Main (DE), Deutsche Zentral-Genossenschaftsbank ordinary shares 12,953 13,060
PSA Payment Services Austria limited company, Vienna (AT), company shares 10,933 14,228
The carrying amount of financial assets – fair value through other comprehensive income decreased € 100,430 thousand compared to year-end 2017. In the reporting year the Polish core banking operations were sold, which at the time of deconsolidation included financial assets – fair value through other comprehensive income of € 3,933,348 thousand. This reduction was partly offset by the purchase of bonds from the Russian central bank by AO Raiffeisenbank, Moscow.
Valida Pension AG, Vienna (AT) Investment fund - VANL7 (AT0000A1G4LG) 19,777 19,985
Equity instruments recognized at fair value through profit and loss were reported under financial assets – designated fair value through profit/loss at year-end 2017. Since the start of 2018, these equity instruments have been reported in the new IFRS 9 measurement category non-trading financial assets – mandatorily fair value through profit/loss.
Securities under financial assets – held for trading provided as collateral, which the recipient is entitled to sell or pledge, amount-
Group's interest in net assets of investee as at 31/12 25,712 79,099 13,123 51,609 332,524 1 Consolidated financial statements: Profit and equity is after deduction of non-controlling interests. 2 Figures as at 30 September 2018 because UNIQA is a listed company and has not yet published 2018 consolidated financial statements. Fair value of the shares held and based on stock exchange price as at 31 December 2018 amounted to € 264,065 thousand (2017: € 296,318 thousand). POSO: Posojilnica Bank eGen, Klagenfurt (AT) PSS: Prva stavebna sporitelna a.s., Bratislava (SK) R-Leasing: Raiffeisen-Leasing Management GmbH, Vienna (AT) RIZ: Raiffeisen Informatik GmbH, Vienna (AT) UNIQA: UNIQA Insurance Group AG, Vienna (AT)
2018 UNIQA1, 2 in € thousand POSO PSS R-Leasing RIZ1 30/9/2018
Profit/loss after tax from discontinued operations 0 0 0 21,475 0
Total comprehensive income attributable to the Group (9,683) 2,604 14,123 17,740 8,057
Fixed assets developed as follows: Cost of acquisition or conversion in € thousand As at 1/1/2018
Land and buildings used by the group for own purpose 999,906 (29,452) (23,341) 38,353 (22,475) 42,764 1,005,756
Cost of acquisition or conversion in € thousand As at 1/1/2017
The item software comprises acquired software amounting to € 424,439 thousand (2017: € 454,928 thousand) and internally developed software amounting to € 146,279 thousand (2017: € 139,106 thousand).
Other land and buildings (investment property) 537,049 14,474 (5,068) 19,985 (68,611) (320) 497,509
Key assumptions that have been made for the individual cash generating units: 2018 2017 Cash generating units RBCZ RKAG RBCZ RKAG
The use value of a cash generating unit is sensitive to various parameters: primarily to the level and development of future dividends, to the discount rates as well as the nominal growth rate in the stabilization phase. The applied discount rates have been calculated using the capital asset pricing model: they are composed of a risk-free interest rate and a risk premium for entrepreneurial risk taking. The risk premium is calculated as the market risk premium that varies according to the country in which the unit is
RBCZ The Czech Republic is a core market for the Group where a selective growth strategy is pursued. Improvements through improved liability margins. Stable costs are assumed.
Pressure on fee income through greater competition. Moderate credit risk in the medium term.
The planning assumptions are based on internal and external sources. Macroeconomic assumptions were compared with external data sources and the 5-year plan and were presented to the managers of the company. The planning was approved by the Supervisory Board.
RBCZ: Raiffeisenbank a.s., Prague (CZ) RKAG: Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Vienna (AT)
Reduction of the growth rate in phase III - (0.5) PP - 0.5 PP RBCZ: Raiffeisenbank a.s., Prague (CZ) RKAG: Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Vienna (AT)
Due to the change in the presentation of the statement of financial position, preparation of a direct comparison with the previous year would entail disproportionate effort. The following table therefore shows the balance of deferred taxes as at the reporting date for the previous year: Loans to customers 47,787
Merchandise inventory and suspense accounts for services rendered not yet charged out 193,963 118,832
Non-current assets and disposal groups classified as held for sale mainly consisted of two buildings owned by Raiffeisen Immobilienfonds, Vienna, in an amount of € 49,602 thousand. As at 31 December 2017, this item also included assets of Raiffeisen Pension Insurance d.d., Zagreb, of € 61,591 thousand, which have no longer been classified as held for sale as according to the assessment on the balance sheet date, a sale is unlikely within a year.
Non-current assets and disposal groups classified as held for sale 54,142 123,169
In other convertible debt securities issued, Raiffeisen Wohnbaubank Aktiengesellschaft redeemed issuances of € 182,789 thousand. The increase in non-convertible debt securities issued was firstly attributable to a reclassification, as at 1 January 2018, from the measurement category designated fair value through profit/loss (subtraction) to the measurement category amortized cost (addition) at head office and secondly to new issuances by head office.
The following table shows the principal debt securities issued: Issuer ISIN Type Currency Nominal value in € thousand Coupon Due
Negative fair values of derivatives in net investment hedge 0 9,637
Fair value changes of the hedged items in portfolio hedge of interest rate risk (62,274) 60,079
The Group is involved in litigation arising from the undertaking of banking business, but does not expect that these legal cases will have a material impact on the financial position of the Group. Group-wide provisions for pending legal issues amounted to € 88,777 thousand (2017: € 129,096 thousand). The reduction shown here mainly resulted from writebacks at RBI AG. Following a final court decision in RBI’s favor against an Icelandic bank in March 2018, there was a positive effect totaling € 50,000 thousand (€ 25,000 thousand recognized in pending legal issues and tax litigation and € 25,000 thousand recognized under commitments and guarantees given). The case relates to a lawsuit brought against RBI by the insolvency administrator in 2012. As at the reporting date, in 2018 and 2017 single cases involving provisions in excess of € 10,000 thousand occurred only in Slovakia.
 In Slovakia, a customer took legal action against Tatra banka a.s., Bratislava, in 2012. 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. The total disputed amount is € 121,609 thousand. The case against the bank has already been rejected in the courts of first and second instance. The case is currently pending before the Supreme Court of Slovakia.
The following table shows the changes in provisions for liabilities and charges in the reporting year, although provisions for offbalance -sheet items pursuant to IFRS 9 of € 125,750 thousand are not included. These are shown under (37) Development of impairments.
The Group expects to pay € 481 thousand in contributions to its defined benefit plans in 2019. In the financial year 2018, the Group’s contribution to defined benefit plans was € 371 thousand.
The increase in new measurements resulted from the adjustment in the mortality tables.
The weighted average duration of the net defined benefit obligation was 13.0 years (2017: 12.6 years).
In the reporting year, most of the plan assets were quoted on an active market; less than 10 per cent were not quoted on an active market.
Longevity at age 65 for current members aged 45 - males 25.6 24.7
Longevity at age 65 for current members aged 45 - females 27.8 26.9
Future pension increase (0.25 per cent change) 3,974 (3,824) 3,563 (3,378)
Details of employee benefit expenses (expenses for defined benefit pension plans, other benefits due to termination of employment ) are stated under (7) General administrative expenses.
Financial assets and liabilities - designated fair value through profit/loss 23,916
The presentation of equity was adjusted to reflect changes in the presentation of the statement of financial position. The development of equity is shown under the statement of changes in equity section.
Due to the change in the presentation of the statement of financial position, preparation of a direct comparison with the previous year would entail disproportionate effort. A presentation of the balance of deferred taxes as at the reporting date for the previous year is shown under (21) Tax assets.
As at 31 December 2018, the subscribed capital of RBI AG as defined by the articles of incorporation amounted to € 1,003,266 thousand and the subscribed capital consisted of 328,939,621 non-par bearer shares. After deduction of own shares of 322,204, the stated subscribed capital totaled € 1,002,283 thousand.
The Management Board was further authorized, pursuant to Section 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. This authorization may be exercised in whole, in part or in several partial amounts for one or more purposes by the company, a subsidiary as defined by Section 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 20 June 2023.
The Management Board of RBI AG will propose to the Annual General Meeting to pay a dividend of € 0.93 per share from the net profit shown in the 2018 annual financial statements. The total dividend paid based on shares issued would be no more than € 305,914 thousand.
Valida Pension AG, Vienna (AT) 42.6% 53,266 3,350 131 3,481 in € thousand
The European Bank for Reconstruction and Development (EBRD) participated in the capital increase of Raiffeisen Bank Aval JSC, Kiev, (AVAL) which took place in December 2015. Within the course of this transaction, RBI agreed with EBRD to offer RBI shares to EBRD in exchange for the AVAL shares held by EBRD after six years of its participation in a so-called share swap. The execution of this transaction is subject to approvals from regulatory authorities, the Annual General Meeting and other committees.
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 was due. The portfolio of own shares was subsequently reduced by the lower number of shares actually transferred.
The DVA is determined by the expected negative exposure and by RBI's credit quality and represents the value adjustment for own probability of default. The method of calculation is similar to that for the CVA, but the expected negative market value is used instead of the expected positive market value. Instead of the expected positive exposures, expected negative exposures are calculated from the simulated future aggregated counterparty market values; these represent the Group’s expected liability to the counterparty at the respective future points in time. Values implied by the market are also used to calculate RBI’s probability of
Non-trading financial assets - mandatorily fair value through profit/loss 193,650 54,151 311,981 – – –
Financial assets - designated fair value through profit/loss 3,135,148 56,915 53 5,290,102 324,417 11,120
Financial assets - fair value through other comprehensive income 5,707,630 571,383 210,003 4,937,631 1,307,097 237,757 1 As a result of the changes in the presentation of the statement of financial position, the preparation of a direct prior-year comparison would require undue cost and effort.
The figures shown are the same as those published as at 31 December 2017.
Assets 2018 20171 in € thousand Level I Level II Level III Level I Level II Level III
Financial assets - held for trading 1,614,690 2,278,821 98 2,046,723 2,284,925 24,860
Financial liabilities - held for trading 344,090 4,756,829 916 413,065 4,000,070 1,343
Level I inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access on the measurement date (IFRS 13.76).
The shares of financial assets classified as Level I and as Level II both decreased compared to year-end 2017, mainly due to the sale of the Polish core banking operations.
Level III inputs are input factors which are unobservable for the asset or liability (IFRS 13.86). The fair value is calculated using the valuation method.
The remaining decrease resulted largely from disposals from the individual categories. Moreover, there was a shift from Level I to Level II in the category of financial assets – held for trading. This was due to the fact that directly quoted market prices for these financial instruments were not available at the reporting date.
The following tables show the changes in the fair value of financial instruments whose fair value cannot be calculated on the basis of observable market data and are therefore subject to other measurement models. Financial instruments in this category have a value component which is unobservable directly or indirectly on the market and which has a material impact on the fair value. Due to the move to IFRS 9, substantial additions were shown in various categories in the opening balance as at 1 January 2018. The reductions from the sale of the Polish core banking operations are shown in the changes in consolidated group column.
Financial assets - held for trading 125,276 (50,023) 1 19 (75,194)
Non-trading financial assets - mandatorily fair value through profit/loss 329,202 (11,586) 8,316 96,790 (89,748)
Financial assets - designated fair value through profit/loss 7,928 (0) (0) 0 (7,882)
Financial assets - held for trading 0 0 20 0 98
Non-trading financial assets - mandatorily fair value through profit/loss (20,993) 0 0 0 311,981
Financial assets - designated fair value through profit/loss 0 7 0 0 53
Financial assets - fair value through other comprehensive income 7,552 7,952 1,448 (15,064) 210,003
Financial liabilities - held for trading 1,004 (19,242) (2) 61,680 (42,398)
Financial liabilities - held for trading 0 0 700 (826) 916
0.094947 - 11.43995% (depending on the rating: from AA to CCC)
Mortgage bonds/fixed coupon bonds and floating rate notes 61,861 DCF method
In a sensitivity analysis, loans recognized at fair value (€ 270,279 thousand) were subjected to an interest rate shock of minus 50 basis points. On that assumption, the fair value would be reduced by up to 10 per cent or about € 27,000 thousand.
Qualitative information for the valuation of financial instruments in Level III
Other interests (shares) 1 Simplified net present value method – –
2018 Carrying in € thousand Level I Level II Level III Fair value amount Difference
Subordinated capital 0 3,006,906 95,518 3,102,424 3,016,033 86,391 Level I Quoted market prices Level II Valuation techniques based on market data Level III Valuation techniques not based on market data
The following table shows the loan commitments given, financial guarantees and other commitments given.
2018 Nominal amount Provisions for off-balance-sheet items under IFRS 9 in € thousand Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
 Substandard are exposures which require varying degrees of special attention and default risk is of greater concern (PD range 7.3344 - 100.0 per cent).
The following table sets out information about the credit quality of financial assets measured at amortized cost and fair value through other comprehensive income. The amortized cost and fair value through other comprehensive income amounts represent the gross carrying amount. For loan commitments and financial guarantee contracts, the amounts in the table represent the amounts committed or guaranteed.
The credit quality analysis of financial assets is a point in time assessment of the probability of default of the assets. It should be noted that for financial assets in stage 1 and 2, due to the relative nature of significant increase in credit risk it is not necessarily the case that stage 2 assets have a lower credit rating than stage 1 assets, although this is normally the case. The following list provides a description of the grouping of assets by probability of default:  Excellent are exposures which demonstrate a strong capacity to meet financial commitments, with negligible or no probability of default (PD range 0.0000 - 0.0300 per cent).
 Strong are exposures which demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default (PD range 0.0300 - 0.1878 per cent).
 Credit-impaired are exposures which have been assessed as impaired (PD range 100.0 per cent).
Financial assets as well as contingent liabilities and commitments not subject to impairment
The following table contains details of the maximum exposure from financial assets not subject to impairment and the financial assets subject to impairment and reconciles these to the loans and advances non-trading which is the basis of the collateral disclosures below: 2018 Maximum exposure to credit risk in € thousand
Hereof loans and advances non-trading as well as contingent liabilities and commitments
Non-trading financial assets - mandatorily fair value through profit/loss 559,782 0 270,279
Financial assets - designated fair value through profit/loss 3,192,115 0 0
It should be noted that the collateral values shown in the tables are capped at the maximum value of the gross carrying amount of the financial asset. The following table shows financial assets at amortized cost and at fair value through other comprehensive income (non-trading loans and advances and contingent liabilities) subject to impairment: Maximum exposure to credit risk
Approximately two thirds of collateral which can be considered by RBI relate to loans collateralized by immovable property and of this more than 70 per cent is residential immovable property. Other sources of collateral include guarantees (14 per cent) and collateral from reverse repos and securities borrowing (14 per cent).
The following table contains details of the maximum exposure from financial assets in Stage 3 and the corresponding collateral: Maximum exposure to credit risk (Stage 3)
RBI uses quantitative criteria as the primary indicator of significant increase in credit risk for all material portfolios plus additionally qualitative criteria like 30 days past due or forbearance measures for a particular facility as backstop. For quantitative staging RBI compares the lifetime PD curve at reporting date with the forward lifetime PD curve at the date of initial recognition. Given the different nature of products between non-retail and retail, the methods for assessing potential significant increases also slightly differ.
For RBI, credit risk comes from the risk of suffering financial loss should any of RBI’s customers, clients or market counterparties fail to fulfil their contractual obligations. Credit risk arises mainly from interbank, commercial and personal loans, and loan commitments arising from such lending activities, but can also arise from financial guarantees given, such as, credit guarantees, letters of credit, and acceptances.
With regard to the threshold at which a financial instrument must be transferred to Stage 2, RBI has decided on the aforementioned thresholds based on the current market practice.
The assessment of a significant increase in credit risk incorporates forward-looking information and is performed on a quarterly basis at an individual transaction level for all non-retail portfolios held by RBI.
The borrower is more than 90 days past due on a material credit obligation. No attempt is made to rebut the presumption that financial assets which are more than 90 days past due are to be shown in Stage 3.
The borrower meets unlikeliness to pay criteria, which indicate that the borrower is in significant financial difficulty and unlikely to repay any credit obligation in full. The indications of unlikeliness to pay include:  A credit obligation is put to a non-accrual status due to its deteriorated credit quality  A credit obligation is sold at a material economic loss  A credit obligation is subject to a distressed restructuring  An obligor is bankrupt/insolvent  An obligor committed credit fraud  An obligor is deceased  A credit contract was prematurely terminated due to obligor’s non-compliance with contractual obligations.
 Retail mortgages and other retail lending: The default profile is generated using parametric survival regression in competing risk frameworks. Forward-looking information is incorporated into the probability of default using satellite models.
Exposure at default is based on the amounts RBI expects to be owed at the time of default, over the next twelve months or over the remaining lifetime. The twelve-month and lifetime EADs are determined based on the expected payment profile, which varies by product type. For amortizing products and bullet repayment loans, this is based on the contractual repayments owed by the borrower over a twelve-month or lifetime basis. Where relevant, early repayment/refinance assumptions are also considered in the calculation.
In general for on balance sheet exposure which is not leasing or POCI the discount rate used in the expected credit loss calculation is the effective interest rate or an approximation thereof.
Different models have been used to estimate the provisions of outstanding lending amounts and these can be grouped into the following categories:  Sovereign, corporate customers, project finance, financial institutions, local and regional governments, insurance companies and collective investment undertakings: Stage 3 provisions are calculated by workout managers who discount expected cash flows by the appropriate effective interest rate
 Other retail lending: Stage 3 provision is generated by calculating the statistically derived best estimate of expected loss which has been adjusted for indirect costs
The assessment of significant increase in credit risk and the calculation of expected credit losses both incorporate forward-looking information. RBI has performed historical analysis and identified the key economic variables impacting credit risk and expected credit losses for each portfolio.
In addition to the base economic scenario, Raiffeisen Research also estimates an optimistic and a pessimistic scenario to ensure non-linearities are captured. RBI has concluded that three or fewer scenarios appropriately captured non-linearity. Expert judgment on idiosyncratic risks has also been applied in this process on the level of Raiffeisen Research in coordination with RBI Group risk management, resulting in selective adjustments to the to the optimistic and pessimistic scenarios. In case of a potential negative or positive forecast bias of selected macroeconomic indicators a potential bias correction might be performed on a single country level. In this respect the range of possible outcomes which is representative for each chosen scenario is taken into account. The probability-weighted expected credit losses are determined by running each scenario through the relevant expected credit loss (ECL) model and multiplying it by the appropriate scenario weighting.
For the exposure of companies in gone concern cases, loans are written down to the value of the collateral if the company no longer generates cash flows from its operating business. The retail business takes into account qualitative factors. In cases where no payment has been made for one year, the outstanding amounts are written off here.
The following breakdown of financial assets – amortized cost by segment shows the high level of diversification of RBI’s credit business in the European markets: 2018 Gross carrying amount Accumulated impairment ECL Coverage Ratio in € thousand Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 1 Austria mainly includes the business of the head office and Raiffeisen Bausparkasse. Other also includes any consolidation effects.
Stage 1 amounts include assets in the amount of € 9,789,961 thousand, for which the low credit risk exemption has been used. Furthermore, Stage 3 contains purchased or originated credit-impaired assets (POCI) in the amount of € 305,197 thousand, which includes non-performing loans in the amount of € 276,259 thousand and living loans in the amount of € 28,938 thousand. RBI has financial instruments in the amount of € 3,521,864 thousand with no expected credit losses due to collateral.
The following table shows the contingent liabilities and other off-balance-sheet commitments by counterparties and stages. This reveals RBI’s focus on non-financial corporations customers.
The following table shows the gross carrying amount and impairment of the financial assets – amortized cost and financial assets – fair value through other comprehensive income that have moved from measurement on the basis of expected twelve-month losses to measurement on the basis of expected lifetime losses or vice versa: 2018 Gross carrying amount Impairment ECL Coverage Ratio in € thousand 12 month ECL Lifetime ECL 12 month ECL Lifetime ECL 12 month ECL Lifetime ECL
The following table shows the development of impairments on loans and bonds in the measurement categories of financial assets – amortized cost and financial assets – fair value through other comprehensive income.
Decrease in allowance account due to write-offs (7,372) (6,412) (622,944) (636,728)
Changes due to modifications without derecognition (net) 0 0 0 0
Decrease in allowance account due to write-offs 0 0 0 0
The following table shows the breakdown by asset class of impairments and provisions in accordance with IFRS 9 stages of impairment: 2018 Stage 1 Stage 2 Stage 3 Total in € thousand 12 month ECL Lifetime ECL Lifetime ECL
Portfolio-based loan loss provisions 380,954 22,651 164,275 (188,438) (123) (23,599) 355,720 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 by asset class as at the reporting date of the previous year: Individual loan loss provisions 2,865,350
Past due assets with significant increase in credit risk since initial recognition but not credit-impaired (Stage 2)
RBI uses the 30-day past due status and other qualitative indicators as criteria for determining a material increase in credit risk for less than one-fifth of loans to households.
If the modifications are substantial, the existing asset is derecognized and a new financial instrument is recognized (including new classification and new stage allocation for impairment purposes). Non-substantial modifications do not lead to derecognition, but to an adjustment to the gross carrying amount through profit and loss.
Gross carrying amount before modification of financial assets 754,975 163,687 918,662
At RBI, gains or losses from non-substantial modifications to contractual terms due to economic reasons amounted to minus € 4,815 thousand. Of that amount, minus € 2,080 thousand was from financial assets whose impairment was measured for lifetime expected credit losses.
In the reporting year, there was no movement of modified financial assets from Stage 2 or Stage 3 to Stage 1.
Repurchase, securities lending & similar agreements (legally enforceable) 7,827,285 0 7,827,285 7,786,627 0 40,658 2018 Gross amount Net amount
Repurchase, securities lending and similar agreements (legally enforceable) 8,163,649 0 8,163,649 7,816,104 0 347,545 2017 Gross amount Net amount
Reverse repos, securitized borrowing (enforceable) 297,678 0 297,678 291,291 0 6,387
Securitization represents a particular form of refinancing and credit risk enhancement under which risks from loans or lease agreements are packaged into portfolios and placed with capital market investors. The objective of the Group’s securitization transactions is to relieve Group regulatory total capital and to use additional refinancing sources.
Zagreb (HR) April 1 Junior tranche held in the Group 2 Due to full amortization of the senior tranche, the amount of the externally placed junior tranche corresponds to the amount of the securitized portfolio. 3 Outstanding portfolio (securitized and retained) SME: Small and Medium-sized Enterprises
As part of the JEREMIE initiative, the participating subsidiaries (Raiffeisenbank S.A., Bucharest, and Tatra banka a.s., Bratislava) have received guarantees from the European Investment Fund (EIF) to support lending to small and medium-sized enterprises.
Securities lending agreements are transactions in which the Group lends securities for a fee and receives cash as collateral. The Group continues to recognize the securities in their entirety in the statement of financial position because it retains substantially all of the risks and rewards of ownership. The cash received is recognized as a financial asset and a financial liability is recognized for the obligation to repay it. Because as part of the lending arrangement the Group sells the contractual rights to the cash flows of the securities, it does not have the ability to use the transferred assets during the term of the arrangement.
Non-trading financial assets - mandatorily fair value through profit/loss – – – – – –
Financial assets - fair value through other comprehensive income 23,586 0 23,586 20,708 0 20,708
The Group pledges assets mainly for repurchase agreements, securities lending agreements as well as other lending arrangements and for margining purposes in relation to derivative liabilities. The table below contains assets from repo business, securities lending business, securitizations, debentures transferred as collateral of liabilities or guarantees (this means collateralized deposits ): in € thousand Pledged Otherwise restricted with liabilities Pledged Otherwise restricted with liabilities
Non-trading financial assets - mandatorily fair value through profit/loss 753 0 – –
Financial assets - designated fair value through profit/loss 0 0 0 0
Statutory, contractual or regulatory requirements as well as protective rights of non-controlling interests might restrict the ability of the Group to access and transfer assets freely to or from other Group entities and settle liabilities. As at the reporting date, the Group has not granted any material protective rights associated with non-controlling interests and therefore these were not a source of significant restrictions.
For information on asset encumbrance we refer to the Group’s pillar 3 disclosures which are published pursuant to EU 575/2013 Capital Requirements Regulation (CRR) Part 8.
Cash, cash balances at central banks and other demand deposits 22,435,608 121,876 0 0 0
Financial assets - fair value through other comprehensive income 306,198 1,722,377 1,067,056 2,674,734 819,081
Financial assets - designated fair value through profit/loss 299,124 478,361 411,453 1,663,320 2,517,770
Financial assets - held for trading 873,787 374,953 526,980 1,776,603 1,069,713
Financial liabilities - held for trading 256,342 347,274 517,494 2,258,483 1,034,885
(46) Derivative financial instruments 2018 Nominal amount Fair values in € thousand Positive Negative
Under the rules of IAS 39, which in 2018 the Group decided to continue to apply, various financial instruments are used as underlying transactions for fair value and cash flow hedges. The majority of these instruments are loans and advances on the asset side and deposits on the liability side. Bonds and debt securities issued are further positions incorporated into hedge accounting relationships. Interest rate and exchange rate agreements are the main hedging instruments.
 Continuous planning: Risk strategies and risk capital are reviewed and approved in the course of the annual budgeting and planning process, whereby special attention is also paid to preventing risk concentrations.
The Group Risk Committee is the most senior decision-making body for all of the Group’s risk-related topic areas. It decides on the risk management methods and on the control concepts used for the overall Group and for key subdivisions, and is responsible for ongoing development and implementation of methods and parameters for risk quantification and for refining steering instruments. This also includes setting the risk appetite and the various risk budgets and limits at overall bank level as well as monitoring the current risk situation with respect to internal capital adequacy and the corresponding risk limits. It approves risk management and control activities (such as the allocation of risk capital) and advises the Management Board in these matters.
The Market Risk Committee controls market risks arising from trading and banking book transactions and establishes corresponding limits and processes. In particular, it relies on profit and loss reports, the risks calculated and the limit utilization, as well as the results of scenario analyses and stress tests with respect to market risks.
The Compliance Office is responsible for all issues concerning compliance with legal requirements in addition to and as an integral part of the internal control system. Thus compliance with existing regulations in daily operations is monitored.
The Risk Appetite Framework (RAF) limits the Group’s overall risk in accordance with the Group’s strategic business objectives and allocates the risk capital calculated to the different risk categories and business areas. The primary aim of the RAF is to limit risk, particularly in adverse scenarios and for major singular risks in such a way as to ensure compliance with regulatory minimum ratios. The RAF is therefore based on the ICAAP’s three pillars (target rating, going concern, sustainability perspective) and sets the concentration risk limits for the risk types identified as significant in the risk assessment. In addition, the risk appetite decided by the Management Board and the Group’s risk strategy and its implementation are reported regularly to the Supervisory Board’s Risk Committee.
Risk of not being able to satisfy claims from the Group’s senior debt holders
95 per cent, reflecting the owners’ willingness to inject additional own funds
Capital and earnings projection for a three-year planning period based on assumptions of a significant downturn in the economy 85–90 per cent, based on potential management decisions to reduce risk temporarily or raise additional equity capital
The Group’s economic capital increased slightly in 2018 to € 6,012,231 thousand (up 1.4 per cent). The concurrent increase in market risk was caused by a methodological adjustment to the calculation of risk in the banking book. As at the reporting date, credit risk accounted for a total of 54 per cent (2017: 57 per cent) of economic capital. A general buffer for other risks, unchanged at 5 per cent of calculated economic capital, is also added to this. In the risk capital allocation as at 31 December 2018, the largest share of economic capital, at 32 per cent (2017: 28 per cent) was consumed by Group units located in Austria. The decline seen in Central Europe resulted from the sale of the Group’s core banking operations in Poland.
Risk-adjusted performance measurement is also based on the indicator for economic capital . The profitability of a business unit is examined in relation to the amount of economic capital attributed to the unit in question (risk-adjusted profit in relation to riskadjusted capital, RORAC), which yields a comparable performance indicator for all business units in the Group. That indicator is used in turn as a key figure in overall bank management and for future capital allocations to business units, and influences the remuneration paid to the Group’s executive management.
The sustainability perspective is intended to ensure that the Group has a sufficiently high tier 1 ratio at the end of the multi-year planning period, even in a severe macroeconomic downturn scenario. The analysis is based on a multi-year macroeconomic stress test where hypothetical market developments in a severe but realistic economic downturn scenario are simulated. The risk parameters considered include: interest rates, foreign exchange rates and securities prices, as well as changes in default probabilities and rating migrations in the credit portfolio.
Parallel to the target rating perspective, internal capital adequacy is assessed with a focus on the uninterrupted operation of the Group on a going concern basis. Under this perspective, risk is again compared to risk taking capacity – with a focus on regulatory capital and total capital requirements.
The integrated stress test focuses primarily on the tier 1 ratio at the end of the multi-year observation period. It should not fall below a sustainable level, meaning that is should not require the bank to substantially increase capital or to significantly reduce its business activities. The current minimum amount of tier 1 capital is therefore determined by the size of a potential economic downturn. The downturn scenario assumed incorporates recognition of the necessary loan loss provisions and potential pro-cyclical effects (which increase the minimum regulatory capital requirement) along with the impact of foreign exchange rate fluctuations and other valuation and earnings effects.
The sustainability perspective thus also complements traditional risk measurement methods based on the value-at-risk concept (which is in general based on historical data). Therefore, it can account for exceptional market situations that have not been observed in the past, and also permits estimation of the potential impact of such developments. The stress test also allows for analyzing risk concentrations (e.g. individual positions, industries, or geographical regions) and gives insight into profitability, liquidity situation, and solvency under extreme situations. Building on these analyses, risk management in the Group actively contributes to
Cash, cash balances at central banks and other demand deposits 18,425,583 13,305,032
The comparative figures for the previous period have been adjusted to reflect the changed structure of the statement of financial position.
The detailed credit portfolio analysis shows the breakdown by rating category. Customer rating assessments are performed separately for different asset classes using internal risk classification models (rating and scoring models), which are validated by a central organizational unit. The default probabilities assigned to individual rating grades are calculated separately for each asset class. As a consequence, the default probabilities relating to the same ordinal rating grade (e.g. good credit standing: corporates 4, banks A3, and sovereigns A3) are not directly comparable between asset classes.
The following table shows total credit exposure by asset classes (rating models): The asset classes are presented by internal rating and risk region, among other things, in the following tables. The internal rating and the risk region were presented considering the guarantor at year-end 2018, for which reason the previous year comparatives have been adjusted. The most significant changes resulting from the adjustment are in the asset classes of corporates and sovereigns.
The rating model for project finance has five grades and takes both individual probabilities of default and available collateral into account. The breakdown of the bank’s project finance exposure is shown in the table below: in € thousand 2018 Share 2017 Share 6.1 Excellent project risk profile – very low risk 5,307,911 75.3% 4,922,405 59.4%
The table below provides a breakdown of the total credit exposure to corporates and project finance by industry: in € thousand 2018 Share 2017 Share
The following table provides a breakdown by country of risk of the total credit exposure for corporate customers and project finance structured by region, taking into account the guarantor: in € thousand 2018 Share 2017 Share
4.5 Very weak credit standing / doubtful 312,728 0.8% 320,696 0.8%
The total credit exposure to retail customers breaks down by segment as follows: 2018 Southeastern Group Corporates & in € thousand Central Europe Europe Eastern Europe Markets
The increase in retail resulted from Southeastern Europe and Eastern Europe, although the rise was partially offset by the sale of the core banking operations in Poland. Southeastern Europe reported a rise of € 807,707 thousand to € 9,407,747 thousand. Mortgage and personal loans as well as SME financing resulted in an increase in Bulgaria. In Romania, personal loans, credit cards and overdrafts increased. The € 314,876 thousand increase in Eastern Europe to € 4,768,990 thousand resulted from mortgage loans and personal loans in Russia, despite the depreciation of the Russian ruble. In addition, the appreciation of the Ukrainian hryvnia had a positive impact. Central Europe registered a decline compared to year-end 2017 due to the sale of the core banking operations in Poland. The decrease was partially offset by a rise in mortgage and personal loans in the Czech Republic and Slovakia. The decline of € 259,983 thousand in Group Corporates & Markets to € 5,125,463 thousand was mainly due to mortgage and personal loans.
The table below shows the total retail credit exposure by products: in € thousand 2018 Share 2017 Share
in € thousand 2018 Share 2017 Share 8 Weak credit standing / sub-standard 100,827 0.5% 121,341 0.6%
9 Very weak credit standing / doubtful 216 0.0% 4,183 0.0%
Group Corporates & Markets 2017 in € thousand Central Europe Southeastern Europe Eastern Europe
The total credit exposure came to € 19,207,251 thousand, an increase of € 21,646 thousand compared to year-end 2017.
Western Europe registered a decrease of € 357,578 thousand to € 8,235,134 thousand as a result of repo transactions in Germany and repo and swap transactions in Great Britain. In contrast, an increase was reported in deposits and money market transactions in Great Britain and in the bond portfolio in Luxembourg. The decrease of € 124,325 thousand to € 4,624,378 thousand in Austria was based on bank deposits and overdraft facilities. However, it was partially offset by an increase in credit financing. Credit exposure in Eastern Europe rose € 214,141 thousand to € 2,302,814 thousand as a result of bank deposits and money market transactions in Russia. The increase of € 296,140 thousand to € 1,115,708 thousand in Central Europe was the result of money market transactions in Hungary and an increase in the Hungarian and Polish bond portfolios. Foreign exchange transactions in Poland also increased. The overall increase in Central Europe was negatively impacted by a decline in the bond portfolio and overdraft facilities in the Czech Republic.
Another asset class is formed by central governments, central banks, and regional municipalities as well as other public sector entities. The table below provides a breakdown of the total credit exposure to sovereigns (including central banks) by internal rating: in € thousand 2018 Share 2017 Share
The € 4,886,236 thousand increase in loans and advances to € 16,445,411 thousand was mainly driven by deposits at the Austrian National Bank. The decline of € 2,172,389 thousand in bonds to € 14,874,640 thousand resulted from the sale of the core banking operations in Poland. However, the decrease was partially offset by an increase in Russia. The decline in repo products of € 417,518 thousand to € 3,905,064 thousand was based on a reduction in transactions with the Czech National Bank.
The table below shows non-investment grade credit exposure to sovereigns (rating B3 and below): in € thousand 2018 Share 2017 Share
The following table shows non-performing exposures pursuant to the applicable definition contained in the Implementing Technical Standard (ITS) on Supervisory Reporting (Forbearance and non-performing exposures) issued by the EBA. It includes both nondefaulted and defaulted exposures.
whether the definition of default has been triggered pursuant to Article 178 CRR. The decision on whether a loan is classified as forborne/NPE does not trigger an individual loan loss provision in respect of the customer; where applicable this is based on the default definition in CRD IV/CRR.
In accordance with IFRS 9, forborne exposures not in default in the retail business are automatically transferred to Stage 2 and hence lifetime ECL is applied to them. Transfer back to Stage 1 is possible only after all criteria for exiting the forborne status are met (including the minimum probation period).
The following table shows forborne exposure by asset classes: Refinancing Instruments with modified time and modified conditions NPE total in € thousand 2018 2017 2018 2017 2018 2017 1 Previous-year figures adjusted due to reclassification of small and medium-sized entities to non-financial corporations
The following table shows forborne exposures by segments: in € thousand 2018 Share 2017 Share
Provisions for impairment losses are formed on the basis of Group-wide standards according to IFRS accounting principles and cover all identifiable credit risks. In the non-retail business, problem loan committees from each Group unit decide on allocating individual loan loss provisions. In the retail area, provisioning is determined by the retail risk management departments in the individual Group units. They compute the required loan loss provisions according to defined calculation methods on a monthly basis. The provisioning amount is then approved by local accounting departments.
NPLs to non-financial corporations decreased € 1,197,525 thousand to € 2,025,991 thousand in 2018, mainly due to the sale of the core banking operations of Raiffeisen Bank Polska S.A. as well as write-offs. The ratio of non-performing loans to total credit exposure decreased 2.7 percentage points to 4.9 per cent, and the NPL coverage ratio increased 8.1 percentage points to 65.5 per cent. In the households portfolio, non-performing loans declined 20.2 per cent, or € 272,213 thousand, to € 1,075,178 thousand, mainly due to the sale of the core banking operations of Raiffeisen Bank Polska S.A. The decline was counteracted by interest accruals on existing non-performing household loans. However, most of the interest accruals were offset by impairment losses. The ratio of non-performing loans in the non-bank portfolio to total credit exposure decreased 1.9 percentage point to 3.8 per cent, and the NPL coverage ratio increased 10.6 percentage points to 77.6 per cent. With regard to banks, non-performing loans were down 15.8 percentage points to € 8,445 thousand at the end of the fourth quarter compared to yearend 2017, and the NPL coverage ratio stood at 100 per cent.
In Southeastern Europe, non-performing loans decreased € 263,902 thousand compared to the start of the year to € 783,917 thousand, driven by factors including declines in Croatia, Romania, Bulgaria, and Serbia amounting to € 233,496 thousand in total. The NPL ratio fell 0.7 percentage points to 3.9 per cent, and the coverage ratio increased 7.6 percentage points to 88.6 per cent.
Based on the new IFRS 9 definition, the EBA guidelines (FINREP ANNEX III REV1/FINREP ANNEX V) now also include deposits at central banks and demand deposits in the calculation of the NPE ratio. The previous-year figures were adjusted accordingly.
In Central Europe, non-performing loans declined € 521,098 thousand to € 1,038,267 thousand. The decrease of € 363,098 thousand in Poland was due to the sale of the core banking operations. The reduction of € 57,840 thousand in the Czech Republic and € 55,984 thousand in Hungary was based on sales, recoveries and write-offs. The NPL ratio decreased 0.9 percentage points to 2.9 per cent, and the NPL coverage ratio increased 10.8 percentage points to 78.6 per cent.
Non-performing loans in the Group Corporates & Markets segment fell € 465,750 thousand in 2018 to € 845,482 thousand. The decline in non-performing loans was € 407,670 thousand at RBI AG and € 974 thousand at Raiffeisen Leasing Group. The NPL ratio declined 1.3 percentage points to 2.1 per cent, and the NPL coverage ratio increased 17.9 percentage points year-onyear to 66.4 per cent.
Country risk also is reflected in product pricing and in risk-adjusted performance measurement via the internal funds transfer pricing system. In this manner, the Group provides the business units with incentive to mitigate country risk by taking out insurance (e.g. from export credit insurance organizations) or seeking guarantors in third countries. The insights gained from the country risk analysis are not only used for limiting the total cross-border exposure, but also for limiting the total credit exposure in each individual country (i.e. including the exposure funded by local deposits). The Group thus gears its business activities to the expected macroeconomic trend within different markets, which promotes broad diversification of its credit portfolio.
The following table shows credit exposure across all asset classes by currencies: in € thousand 2018 Share 2017 Share
The following table shows the Group’s total credit exposure based on customer industry classification: in € thousand 2018 Share 2017 Share
Public administration and defense and social insurance institutions 14,168,307 8.1% 16,593,524 9.8%
The Group uses a comprehensive risk management approach for both the trading and the banking book (total-return approach). Market risk is therefore managed consistently in all trading and banking books. The following indicators are measured and limited on a daily basis in the market risk management system:
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 following tables show the VaR (99 per cent, one day) for the individual market risk categories in the trading book and the banking book. The Group’s VaR mainly results from structural equity positions, structural interest rate risk, and credit spread risks of bonds, which are held as liquidity buffer.
The following tables show the largest present value changes for the trading book of the Group given a one-basis-point interest rate increase for the whole yield curve in € thousand for the reporting dates 31 December 2018 and 31 December 2017.
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 2018 and 31 December 2017.
A conservative approach is adopted when establishing outflow ratios based on historical data and expert opinions. The simulation assumes a lack of access to the money or capital market and simultaneously significant outflows of customer deposits. In this respect, the deposit concentration risk is considered by assigning higher outflow ratios to large customers. Furthermore, stress assumptions are formulated for the drawdown of guarantees and credit obligations. In addition, the liquidity buffer positions are adapted by haircuts in order to cover the risk of disadvantageous market movements, and the potential outflows resulting from collateralized derivative transactions are estimated. The bank continuously monitors whether the stress assumptions are still appropriate or whether new risks need to be considered. The time to wall concept has established itself as the main control instrument for day-to-day liquidity management and is therefore a central component of funding planning and budgeting. It is also fundamental to determining performance ratios relating to liquidity.
For managing and limiting liquidity risks, the targets for loan/deposit ratios (the ratio of customer loans to customer deposits) in the individual subsidiary banks take into account the planned future business volumes as well as the feasibility of increasing customer deposits in different countries. On the one hand, this initiative reduces external funding requirements. On the other hand, it also reduces the need for internal funding operations and the risk associated with such liquidity transfers.
Non-derivative financial liabilities 124,071,167 126,110,635 86,796,339 11,716,379 20,552,403 7,045,514 Deposits 111,018,249 111,691,805 85,124,697 10,057,451 12,430,671 4,078,987
Debt securities issued 12,211,931 13,577,758 853,686 1,640,812 8,121,732 2,961,528 Other financial liabilities 522,986 523,070 499,955 18,116 0 5,000
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, Raiffeisen Bausparkasse Gesellschaft m.b.H., Vienna, Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Vienna). The Standardized Approach (STA) is still used to calculate the operational risk of the remaining units in the CRR scope of consolidation.
Due to the change in the structure of the statement of financial position, the effort required to prepare comparative figures would be disproportionately high. The following table presents the main items as at year-end 2017.
Several Institutional Protection Schemes (IPS) have been set up at RBG since the end of 2013. To this end, contractual or statutory liability arrangements have been concluded which protect the participating institutions and, in particular, ensure their liquidity and solvency if required. These Institutional Protection Schemes are based on uniform and joint risk monitoring as part of an early warning system pursuant to Article 113 (7) of the Capital Requirements Regulation of the European Union (CRR). In line with RBG’s organizational structure, the IPS were also designed in two stages (currently one federal IPS and six regional IPS).
As RBG’s central institution, RBI AG is a member of the federal IPS whose members, in addition to the regional Raiffeisen banks, include: Raiffeisen-Holding Niederösterreich-Wien reg GmbH, Vienna, Posojilnica Bank eGen, Klagenfurt, Raiffeisen Wohnbaubank AG, Vienna, and Raiffeisen Bausparkasse Gesellschaft m.b.H., Vienna. A regional IPS was also set up in most federal states.
operational risk activities is taken on by Financial Crime Management. Financial Crime Management provides support for the prevention and identification of fraud. The Group also conducts an extensive staff training program and has different contingency plans and back-up systems in place.
The following information was prepared pursuant to Section 64 (1) 1 of the Austrian Banking Act (BWG).
Future minimum lease payments under non-cancelable operating leases are as follows: More than 1 year, up to 5 years 161,024 234,984 1 Adaptation of previous year’s figures in connection with the classification of rental contracts
Future minimum lease payments under non-cancelable operating leases are as follows: More than 1 year, up to 5 years 47,753 67,246
The main companies exercising a significant influence are Raiffeisenlandesbank Niederösterreich-Wien AG, Vienna, as the largest single shareholder, and its parent company, Raiffeisen-Holding Niederösterreich-Wien registrierte Genossenschaft mit beschränkter Haftung, Vienna. Under affiliated companies, affiliated companies that are not consolidated due to immateriality are shown.
The following table was prepared pursuant to Section 64 (1) 15 of the Austrian Banking Act (BWG).
The following table was prepared pursuant to Section 64 (1) 10 of the Austrian Banking Act (BWG).
Loan commitments, financial guarantees and other commitments given 24,785 85,935 274,624 23,340
Loan commitments, financial guarantees and other commitments received 10,978 0 32,671 51,989
The following table shows total remuneration of the members of the Management Board according to IAS 24.17. The expenses according to IAS 24 were recognized on an accrual basis and according to the rules of the underlying standards (IAS 19 and IFRS 2): Short-term employee benefits 9,054 8,324
Bonus calculation is linked to the achievement of annually agreed objectives. These comprise four or five categories covering specific targets and financial targets adapted to the respective function. These are, for example, profit after tax in a particular segment, return on risk adjusted capital (RORAC), total costs, risk-weighted assets, customer-oriented and employee-oriented targets, as well as process-based, efficiency-based, and infrastructure targets, and if necessary other additional targets. The bonus level is determined by the level of consolidated profit and the cost/income ratio, where the target values to be achieved are derived from the medium-term Group ROE objective. Payment is made according to the applicable regulations of the Austrian Banking Act (BWG) implemented in the bank’s internal regulations (see employee compensation plans under the section recognition and measurement principles).
An amount of € 1,142 thousand (2017: € 1,277 thousand) was paid in pension benefits to former members of the Management Board and to their surviving dependants. In addition to these amounts, short-term benefits, deferred bonus components and prorata payments from a matured SIP tranche totaling € 3,258 thousand (2017: € 3,892 thousand) were paid to former members of the Management Board.
Andrii Stepanenko 1 March 2018 28 February 2021 1 Effective as of 10 October 2010
Andrea Gaal was appointed as a member of the Supervisory Board with effect from the end of the Annual General Meeting on 21 June 2018.
Consolidated subsidiaries where RBI holds less than 50 per cent of the ordinary voting shares The Group controls the following types of entities, even though it holds less than half of the voting rights.
Subsidiaries not fully consolidated where RBI holds more than 50 per cent of the ordinary voting shares Because of their minor importance in giving a view of the Group’s assets, financial and earnings position 312 subsidiaries were not included in the consolidated financial statements (2017: 345). They are recognized at cost as interests in affiliated companies, under investments in subsidiaries and associates. Total assets of the companies not included came to less than 1 per cent of the Group’s aggregate total assets.
Agamemnon Immobilienleasing GmbH & Co. Projekt Pflegeheim Freiberg KG, Eschborn (DE) 5,000 EUR 100.0% FI
CJSC Mortgage Agent Raiffeisen 01, Moscow (RU) 10,000 RUB <0.1% BR
Health Resort RBI Immobilien-Leasing GmbH, Vienna (AT) 35,000 EUR 75.0% FI
Kiinteistö Oy Seinäjoen Joupinkatu 1, Helsinki (FI) 100,000 EUR 100.0% FI
LYRA Raiffeisen Immobilien Leasing Gesellschaft m.b.H., Vienna (AT) 36,400 EUR 100.0% FI
R.P.I. Handels- und Beteiligungsgesellschaft m.b.H., Vienna (AT) 36,336 EUR 100.0% FI
Raiffeisen Banca pentru Locuinte S.A., Bucharest (RO) 131,074,560 RON 66.7% BA
Raiffeisen International Invest Holding GmbH, Vienna (AT) 35,000 EUR 100.0% FI
Raiffeisen-Leasing Lithuania UAB, Vilnius (LT) 100,000 EUR 92.3% 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, SC
RAN zehn Raiffeisen-Anlagenvermietung Gesellschaft m.b.H., Vienna (AT) 36,336 EUR 100.0% FI
RBI eins Leasing Holding GmbH, Vienna (AT) 35,000 EUR 75.0% FI
RIL VII Raiffeisen-Immobilien-Leasing Gesellschaft m.b.H., Vienna (AT) 36,400 EUR 100.0% FI
RL Hotel Palace Wien Besitz GmbH, Vienna (AT) 36,336 EUR 99.0% FI
RZB Versicherungsbeteiligung GmbH, Vienna (AT) 500,000 EUR 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, SC
SALVELINUS Handels- und Beteiligungsgesellschaft m.b.H, Vienna (AT) 40,000 EUR 100.0% FI
SOLAR II Raiffeisen-Immobilien-Leasing Gesellschaft m.b.H., Vienna (AT) 36,400 EUR 100.0% FI
Styria Immobilienleasing GmbH & Co. Projekt Ahlen KG, Eschborn (DE) 5,000 EUR 6.0% FI
Vindobona Immobilienleasing GmbH & Co. Projekt Autohaus KG, Eschborn (DE) 5,000 EUR 6.0% FI
ZHS Office- & Facilitymanagement GmbH, Vienna (AT) 36,336 EUR 98.6% BR 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, SC
The maximum exposure to loss is determined by considering the nature of the interest in the non-consolidated structured entity. The maximum exposure for loans and trading instruments is reflected by their carrying amounts in the consolidated statement of financial position. The maximum exposure for derivatives and instruments off the statement of financial position such as guarantees, liquidity facilities and loan commitments under IFRS 12, as interpreted by the Group, is reflected by the respective notional amount. Such amounts do not reflect the economic risks faced by the Group because they do not take into account the effects of collateral or hedges or the probability of such losses being incurred. As at 31 December 2018, the notional values of derivatives and instruments off the statement of financial position were € 23,218 thousand (2017: € 25,975 thousand) and € 49,023 thousand (2017: € 61,793 thousand) respectively. Since information on the size of structured entities is not always publicly available, the Group has determined that its exposure is an appropriate guide to size.