Group management report Market development 34 Performance and fi nancials 38 Statement of fi nancial position 46 Research and development 49 Internal control and risk management system 50 Capital, share, voting and control rights 52 Funding 54 Risk management 55 Human resources 56 Outlook 57 Events after the reporting date 59
Consolidated fi nancial statements Statement of comprehensive income 92 Statement of fi nancial position 95 Statement of changes in equity 96 Statement of cash fl ows 97 Segment reporting 99 Notes 106 Risk report 153 Auditor’s report 233
In CEE, approximately 52,000 employees in around 2,900 business outlets serve some 14.8 million customers. In Austria, RBI is one of the top corporate and investment banks.
All in all, RBI employs about 55,000 staff and has total assets of approximately € 122 billion.
Profit/loss before tax 23 (97.3)% 835 1,037 Profit/loss after tax (463) – 603 752 Consolidated profit/loss (493) – 557 730 Statement of financial position 31/12 31/12 31/12 Loans and advances to banks 15,573 (30.0)% 22,243 22,323 Loans and advances to customers 77,925 (3.4)% 80,635 83,343
Key ratios 1/1–31/12 1/1–31/12 1/1–31/12 Return on equity before tax 0.2% (7.6) PP 7.8% 9.7% Cost/income ratio 56.5% (1.8) PP 58.3% 61.5% Return on assets before tax 0.02% (0.61) PP 0.63% 0.73% Net interest margin (average interest-bearing assets) 3.24% 0.13 PP 3.11% 2.66% Provisioning ratio (average loans and advances to customers) 2.13% 0.73 PP 1.39% 1.21% Bank-specific information 31/12 31/12 31/12
Common equity tier 1 ratio (transitional) 10.9% 0.2 PP 10.7% 10.7% Common equity tier 1 ratio (fully loaded) 10.0% – – – Total capital ratio (transitional) 16.0% 0.1 PP 15.9% 15.6% Total capital ratio (fully loaded) 15.2% – – – Stock data 1/1–31/12 1/1–31/12 1/1–31/12 Earnings per share in € (1.73) – 1.83 2.72
Dividend per share in € – – 1.02 1.17 Resources 31/12 31/12 31/12 Employees as at reporting date (full-time equivalents) 54,730 (5.5)% 57,901 60,084
Interview with the Chairman of the Management Board 6 Management Board of RBI 9 Report of the Supervisory Board 10 RBI at a glance 12 RBI‘s strategy 13 RBI in the capital markets 16 Corporate governance report 20 Sustainability management at RBI 30
RBI posted a net loss in 2014. What were the reasons? The 493 million euro loss was the first negative consolidated result in RBI’s history. On the one hand, this was owing to loan loss provisions of more than 1.7 billion euros, which were considerably higher than the previous year’s level due to the geopolitical crisis in Ukraine and defaults of individual large corporate customers in Asia. On the other, we had to book significant one-off effects amounting to approximately 750 million euros. The largest item among these was goodwill impairments totaling 306 million euros in Russia, Poland and Albania. Moreover, the hostile banking legislation in Hungary lowered our result by 251 million euros. The write-down of deferred tax assets cost us around 200 million euros. In this connection, I want to emphasize that, apart from the costs resulting from the Hungarian legislation, these write-downs have not had a negative impact on our regulatory capital. Without the aforementioned one-off charges, we would have reported a significantly positive net profit.
“Well on the way to becoming a more focused universal bank”
Despite the planned exit from single markets, do you still support the expansion into Central and Eastern Europe? Absolutely! Diversification across a good dozen markets enables us to offset temporary weaknesses in one country with the strengths in another and forms part of our formula for success. Despite the huge challenges in individual markets, I am firmly convinced that, overall, we are operating in the right markets. One only has to consider the following success story: RBI reported the largest profit among Austrian banks for four years in a row. Even in the crisis years from 2009 to 2013, we posted profit before tax amounting to approximately 5.3 billion euros. Our shareholders also profited from that performance. Therefore, I firmly believe that our expansion into Central and Eastern Europe made sense. After all, these are markets in which – in contrast to Western Europe with its high banking density – good profits can be earned with conventional services.
2014 was a rather difficult year for banks, especially for those with links to Central and Eastern Europe. Looking back, does anything positive come to mind? Last year, we were indeed confronted with challenges, but of course we were also able to report some successes. At the start of the year, we received a vote of confidence from the capital market in the form of an around 2.72 billion euro net capital increase. This enabled us to bolster our capital base and repay participation capital totaling 2.5 billion euros held by state and private investors in the course of the year. In this context, I would like to express my sincere thanks to all our owners – RZB as core shareholder, our institutional investors and private shareholders – for the trust they have placed in RBI. A further considerable achievement was that RZB, whose results are significantly influenced by RBI as its largest strategic investment, clearly passed the ECB stress test. Although the scenarios for our domestic market Central and Eastern Europe were especially strict compared to other European regions, we clearly surpassed the required capital ratios. At the end of 2014, we had a total capital ratio of 16 per cent and a CET1 ratio (fully loaded) of 10 per cent, which was far higher than the regulatory requirements. At this point, however, I would like to emphasize the personnel resources that the review tied up in our bank. Numerous employees spent a great deal of time and energy on the project over a long period. Overall, the ECB review cost us about 18,000 man days. I would like to express my thanks, also on behalf of my colleagues on the Management Board, for the exceptional hard work of those involved. Similarly, we also want to express our sincerest gratitude to all our other employees for their unfailing commitment!
Report of the Supervisory Board in the 2014 financial year, RBI carried out a capital increase with gross proceeds of € 2.78 billion. RZB participated in the capital increase, in addition to numerous institutional and private investors, and remained the majority shareholder of RBI. The capital increase was a very important milestone for RBI, as it enabled it to fully repay the participation capital and significantly improve its tier 1 ratio (according to Basel III).
The second half of the year was mainly impacted by political and financial events in Ukraine and Russia, with the geopolitical crisis in Ukraine resulting in a sharp increase in RBI‘s risk costs. Furthermore, the hostile banking legislation in Hungary gave rise to higher costs. The development of some currencies, notably the depreciation of the rouble and of the Ukrainian hryvnia, as well as the appreciation of the US dollar, had a detrimental effect on the company‘s capital ratios.
In fiscal year 2014, members of the Supervisory Board and its committees were fully informed by the Management Board about all relevant business developments of the bank and subsidiaries during regular meetings in a timely and comprehensive manner. Information was provided verbally as well as in writing. At the Supervisory Board meetings, the Management Board were given tasks and asked to report on the results at subsequent meetings. The Supervisory Board made several requests to the Management Board for up-to-date reports on various matters that had already been decided on and dealt with. These included regular status reports on the Group‘s own funds or on the developments in Ukraine and in Russia. The Management Board also provided several reports on the development of Raiffeisenbank Ungarn Zrt., especially with regard to the effects of Hungarian foreign currency legislation on the subsidiary bank. The Management Board reported to the Supervisory Board on developments in the various business areas and explained risk developments at the meetings. In addition to the regular meetings, the Chairman of the Supervisory Board also held numerous discussions with the Management Board. The decision-making and informal dialog of the Supervisory Board and Management Board were based on open discussions conducted in a spirit of mutual trust. At the meetings, as well as at other times, Supervisory Board members were able to discuss topics directly with the responsible area managers and experts. The members of the Supervisory Board made considerable use of this opportunity. Overall, the members of the Supervisory Board thus conscientiously fulfilled their supervisory duties and took all decisions in a reasoned manner.
Two Supervisory Board committees commenced their work in 2014: The Nomination Committee handled the tasks and matters as specified in its rules of procedure and according to Section 29 of the Austrian Banking Act (BWG), such as the evaluation of the knowledge, skills and experience of both the members of the Management Board and of the individual members of the Supervisory Board (fit and proper review). Furthermore, the Nomination Committee set a target ratio for the under-represented sex.
The Risk Committee dealt with risk strategy, risk drivers and risk orientation in detail. This committee also reported on the Comprehensive Assessment (Asset Quality Review and stress test) which were conducted by the European Central Bank and the European Banking Authority. Moreover, it reviewed the implementation of the risk strategy.
Further information on the committees’ composition and type, as well as on the contents of their fields of activity can be found in the corporate governance report. At its meeting on 21 January 2014, the Supervisory Board established a temporary Project Committee to take further decisions on matters relating to RBI‘s capital increase. It comprised of Walter Rothensteiner, Erwin Hameseder, Heinrich Schaller, Johannes Schuster, Martin Prater and Rudolf Kortenhof. The Project Committee was authorized, in particular, to decide on the final extent of the capital increase, the subscription ratio, as well as the subscription and offer price, and to decide on corresponding adjustments to the Articles of Association. The committee‘s work ended on 10 February 2014 after the corresponding decisions had been taken.
Martin Schaller, CEO of Raiff eisen-Landesbank Steiermark AG, and Bettina Selden, former member of the management board of OeKB EH Beteiligungs- und Management AG and PRISMA Kreditversicherungs-AG, were elected to the Supervisory Board for the fi rst time at the Annual General Meeting on 4 June 2014. They succeeded Markus Mair, who resigned with eff ect from 4 June 2014, and Stewart Gager, whose period of offi ce ended on the same day. Kurt Geiger, whose term in offi ce ended on 4 June 2014, was reelected to RBI‘s Supervisory Board by the Annual General Meeting. The term of offi ce ends at the Annual General Meeting that decides on the discharge from liability for the 2018 fi scal year. Christian Teufl resigned from his position as Supervisory Board member with eff ect from 31 December 2014. On behalf of the Supervisory Board, I would like to thank the aforementioned gentlemen for their valuable contribution and commitment to the company over the past years.
Annual fi nancial statements and consolidated fi nancial statements The consolidated fi nancial statements (income statement, statement of fi nancial position, statement of changes in equity, cash fl ow statement and notes) as well as the annual fi nancial statements of RBI AG have been audited by KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft. Representatives of the auditing company presented the results of their audit at the respective meeting of the Audit Committee and Supervisory Board which dealt with the fi nancial statements.
The consistency check of the corporate governance report according to Section 243b of the Austrian Commercial Code (UGB) was performed by KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft. Its fi nal report gave no reason for objections.
In conclusion, on behalf of the Supervisory Board, I would like to express our gratitude to the Management Board, the Works Council and all employees for their high level of commitment during this past challenging year.
In Austria, RBI is one of the top corporate and investment banks. It primarily serves Austrian customers, but also international customers and major multinational clients operating in CEE. All in all, RBI employs about 55,000 staff and has total assets of approximately € 122 billion.
RBI’s markets Total assets 2014 in € million Change1 Business outlets Number of staff
RBI has been listed on the Vienna stock exchange since 25 April 2005 (as Raiffeisen International up until 12 October 2010). RZB, which functions as the central institution of the Austrian Raiffeisen Banking Group (RBG), remained the majority shareholder following the merger. As at year-end 2014, RZB held approximately 60.7 per cent of RBI’s stock, with the remaining shares in free float.
Creating long-term value as primary objective RBI‘s primary strategic objective is the creation of long-term value for its shareholders, who include Raiffeisen Zentralbank Österreich AG (RZB) as strong core shareholder and central institution of the Austrian Raiffeisen Banking Group, in addition to free float shareholders. RBI sees itself as an international bank for corporate customers, a leading financial services provider for retail customers as well as a business partner for select institutional clients. Proprietary trading activities serve to support its customer business. RBI provides comprehensive services to customers and strives to build sustainable customer relationships. Its customers mainly have a direct link to the CEE region (incl. Austria). A well-balanced portfolio and risk spread avoids concentration risks (e.g. customers, countries) while protecting owners and creditors.
■ RBI maintains and develops a strong and reliable brand that serves as the basis for its business model.
■ RBI distinguishes itself by its strong local anchoring and customer-centric focus.
■ An around 20 per cent reduction in risk-weighted assets (total RWA) of the Russian unit by the end of 2017: In Russia, RBI has a profitable bank with an outstanding reputation, as well as customers with excellent credit standing. However, the macroeconomic environment and Group-wide risk management aspects make it necessary to reduce business volumes and risk accordingly.
■ Further short- to medium-term optimization measures: Restructuring of the Hungarian unit, sale or scale back of the Slovenian unit, sale of the ZUNO direct bank, adjustments to leasing units and enhanced risk transfer (e.g. by means of securitization transactions).
Freed-up capital and risk-bearing capacity are allocated to those markets that sustainably contribute to RBI‘s value enhancement. Factors such as country-specific risk, size and potential of the market, as well as the local market position, are additionaly taken into account. Capital efficiency measures are accompanied by Group-wide cost management. The coordination and collaboration among individual Group units has become increasingly important and will continue to be a focal point for cost management.
Technological developments are influencing customer requirements to an increasing degree and are permanently changing the traditional banking business. These requirements are being actively addressed and the business model adapted accordingly. Group-wide initiatives help to focus on these challenges and to further build on existing strengths: ■ Continuous cost management and enhanced efficiency through standardization
■ Integration of Lean Management into the corporate culture to enhance efficiency and customer satisfaction
Particular attention is paid to the Group-wide further development of sales planning and controlling tools (account planning) with a focus on capital and liquidity-light products (e.g. trade financing, payment transactions, capital market transactions). These tools are specifically and successfully implemented in markets that are of particular importance to earnings (Austria, Czech Republic, Romania, Russia, and Slovakia). Furthermore, Group-wide product competence centers facilitate access to complex financing products (e.g. in the project, real estate and export financing areas), and internal efficiency can be enhanced through the transfer of know-how and bundling.
RBI currently provides services to over 14.7 million retail customers in roughly 2,800 branch offices. In the retail banking business, a balanced product and service portfolio is offered that comprises inter alia credit services (mortgages, credit cards and personal loans), as well as payment transaction and higher-quality current account package services. Convenience and simplicity are key elements of RBI‘s range of services. In doing so, RBI improves its efficiency and cost/income structure.
Around 884,000 small businesses (companies with revenues of up to € 6 million) are serviced by roughly 2,500 customer advisors. The key aspects of the services are simplicity (payment transaction and account maintenance services), high quality service and fast processing of business loans for small companies. Through collaborations with various supranational financial institutions, that are active in the area of SME (small and medium-sized enterprises) financing, SME customers enjoy noticeable benefits (e.g. easier access to loans).
This area bundles support services for institutional customers, as well as Group-wide trading activities. Institutional customers (particularly banks and insurance companies, sovereigns and public sector organizations) are supported by specialists in Vienna, the network banks and international financial centers (e.g. London).
Capital increase On 21 January 2014, RBI announced that it intended to strengthen its capital base by issuing new shares. The first stage of this capital increase was an offering of new shares to selected qualified institutional investors by way of an accelerated bookbuilding process (pre-placement), in which all 97,473,914 new shares were placed on 22 January. RZB participated in the capital increase via its wholly owned subsidiary Raiffeisen International Beteiligungs GmbH with a commitment of € 750 million in the course of the pre-placement. 21.3 per cent of the new shares from the pre-placement were subject to clawback with deferred settlement. This was to be applied to the extent that shareholders exercised their subscription rights in the second stage of the capital increase, namely a rights offering during the period from 24 January to 7 February 2014.
Whereas RZB waived all of its subscription rights through its subsidiary, Raiffeisen International Beteiligungs GmbH, the remaining shareholders exercised 35.7 per cent of the subscription rights. Consequently, 90,074,789 new shares were allocated to qualified institutional investors from the pre-placement. This corresponds to 92.4 per cent of the total 97,473,914 shares issued by way of the capital increase. The remaining 7,399,125 new shares were issued to existing shareholders. At a subscription and offer price of € 28.50 per new share, the transaction brought a total of € 2,725 million in net new capital.
Financial markets swayed by monetary and global policy The geopolitical situation in Ukraine and Russia dominated global financial markets throughout 2014. The threat of spiraling sanctions against Russia, as well as uncertainty over the future course of the Russian administration, greatly unsettled international investors and led repeatedly to corresponding stock price losses. As a result, the Russian rouble and the Ukrainian hryvnia lost considerable ground against the US dollar and the euro.
Over the course of the year, conflicts intensified not only between Ukraine and the separatists, but also between Russia and the West, which led to economic sanctions on both sides. As a result of the sanctions, ongoing structural and economic problems in several EU countries, as well as growing caution among businesses, the eurozone economy did not perform as well as expected in the second half of the year. The ECB took the opportunity to cut its base rate again from 0.15 to 0.05 per cent in early September. At the same time, the ECB Council decided to impose an even higher penalty rate on bank deposits held at the ECB – from minus 0.1 per cent to minus 0.2 per cent – and started a bond purchase program. These steps led to a further devaluation of the euro against the US dollar.
Performance of RBI stock After starting 2014 at € 25.62, RBI’s stock hit its peak in January at € 31.27 before entering a downward trend till the end of the year. On 16 December, it closed at its low for the year at € 11.51. The decline was caused mainly by the situation in Ukraine and in Russia as well as the oil price drop, which affected the Russian economy and the rouble’s valuation. The Russian central bank tried and failed to stem the currency’s decline. RBI’s stock was trading at € 12.54 at the end of the year. Over the full year this amounts to a share price loss of 51 per cent. It therefore underperformed compared to both the ATX (down 15 per cent) and the EURO STOXX Banks (down 5 per cent).
RBI’s market capitalization at the end of 2013, with the number of outstanding shares at 195.5 million, stood at € 5.0 billion. At year-end 2014, the number of outstanding shares stood at 293.0 million and the market capitalization at € 3.7 billion. At the editorial deadline, the market capitalization stood at € 3.9 billion.
Shareholder structure As at the end of 2014, Raiffeisen Zentralbank Österreich AG (RZB) held approximately 60.7 per cent of RBI’s shares, with the remaining balance in free float. RZB’s share, which was roughly 78.5 per cent at year-end 2013, was reduced in the course of the capital increase at the beginning of 2014 in benefit of the free float, which increased from around 21.5 per cent to about 39.3 per cent. The broad geographical spread of investors as well as their diverse investment objectives resulted in a balanced shareholder structure at the end of the year. Thus, RBI’s owners included institutional investors, mainly from the US and UK, as well as a large number of Austrian private investors. Sovereign wealth funds and supranational organizations, which promise stability by virtue of their preferred long-term investment strategies, were amongst those institutional investors.
As a result of the capital increase, existing authorized capital was largely utilized. In order to be able to also respond flexibly to future capital requirements, the Annual General Meeting again gave the Management Board anticipatory authorization to increase the company’s share capital up to 50 per cent within the next five years, with approval from the Supervisory Board. Additionally, the Management Board was authorized to acquire own shares of up to 10 per cent of share capital, and if necessary to redeem them, as well as to acquire own shares of up to 5 per cent of the share capital for the purpose of securities trading.
Capital market communications RBI offered international investors numerous opportunities to obtain first-hand information at 38 road shows and conferences in 2014 (18 events for equity investors, 11 for debt investors and the remainder for both groups). The year kicked off with a road show in advance of the capital increase at which members of the Management Board and the Investor Relations team met with over 200 investors. Over the course of the year, representatives of RBI and, in some cases, members of the Management Board also traveled to Frankfurt, Geneva, Hamburg, London, Milan, New York, Paris, Prague, Warsaw, Zurich, as well as to the Austrian towns of Stegersbach and Zürs.
RBI continued the previous year’s practice of holding several debt investor calls a year in order to satisfy the unique information needs of debt investors.
A total of 28 equity analysts and 23 bond analysts regularly report their investment recommendations on RBI, making RBI the Austrian company with the greatest number of regular reports by analyst firms. In 2014, 603 analyst reports on RBI were published.
Financial calendar 2015 25 March 2015 Annual Report 2014, Conference Call 26 March 2015 RBI Investor Presentation, London 7 May 2015 Start of Quiet Period 21 May 2015 First Quarter Report, Conference Call 17 June 2015 Annual General Meeting 24 June 2015 Ex-Dividend and Dividend Payment Date 5 August 2015 Start of Quiet Period 19 August 2015 Semi-Annual Report, Conference Call 29 October 2015 Start of Quiet Period 12 November 2015 Third Quarter Report, Conference Call
Contact for equity and debt investors E-mail: ir@rbinternational.com Internet: www.rbinternational.com → Investor Relations Telephone: +43-1-71 707-2089 Fax: +43-1-71 707-2138
RBI attaches great importance to responsible and transparent business management, in order to maintain understanding and trust with its various stakeholders – not least the capital market participants. Hence, RBI is committed to complying with the Austrian Code of Corporate Governance (ACGC, or “the Code”), as in the version dated July 2012. The ACGC is publicly available on the Austrian Working Group for Corporate Governance website (www.corporate-governance.at) and on the RBI website (www.rbinternational.com → Investor Relations → Corporate Governance).
Transparency is a key issue of corporate governance and thus of particular importance to RBI. This corporate governance report is structured following the legal guidelines of Section 243b of the Austrian Commercial Code (UGB) and is based on the structure set forth in Appendix 2 of the ACGC.
Composition of the Management Board In the 2014 financial year, the Management Board consisted of the following members: Management Board member Year of birth Original appointment End of term
Peter Lennkh 1963 1 October 2004 31 December 2015 Member 1 Effective as of 10 October 2010.
Markus Mair 1964 8 July 2010 1 Annual General Meeting 2014 3rd Deputy Chairman (until 4 June 2014)
Martin Schaller 1965 4 June 2014 Annual General Meeting 2019 3rd Deputy Chairman (since 17 September 2014)
■ The Supervisory Board member shall not be part of the Supervisory Board for longer than 15 years. This does not apply to Supervisory Board members who are shareholders with business interests in the company, or who represent the interests of such shareholders.
■ The Supervisory Board member shall not be a close family relation (direct descendant, spouse, partner, father, mother, uncle, aunt, brother, sister, nephew, niece) of a member of the Management Board, or of persons who fill one of the positions described in the preceding points.
Members of the Supervisory Board had the following additional supervisory board mandates or comparable functions in domestic and foreign companies listed on the stock exchange: ■ Walter Rothensteiner UNIQA Insurance Group AG (Chairman)
The RBI Management Board leads 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. The Management Board’s areas of responsibility have been defined by the Supervisory Board, without prejudice to the general responsibility of the Management Board, as follows (as at 1 January 2015): Supervisory Board member
Heinrich Schaller 2nd Deputy Chairman 2nd Deputy Chairman 2nd Deputy Chairman 2nd Deputy Chairman 2nd Deputy Chairman 2nd Deputy Chairman
Effective as of 1 January 2015, RBI‘s Compliance division, part of the Legal & Compliance division until 31 December 2014, was transferred to RZB as a stand-alone division. This division also performs the compliance duties for RBI and is regulated through a Service Level Agreement.
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 ensure mutual information gathering and decision-making for all matters requiring the board’s approval. The internal regulations of the Supervisory Board and the Management Board contain information and reporting duties of the Management Board, as well as a catalog of measures that require the approval of the Supervisory Board.
The Working Committee was responsible for all matters that were referred to it by the Supervisory Board. These included, in particular, the approval of the creation, closure and liquidation of subsidiaries, as well as the acquisition or disposal of participations, where the change in the capitalized book value of the company holding exceeded a certain amount (up to the ceiling amount for overall Supervisory Board responsibility). Moreover, the Working Committee deals with the execution of functions in the management bodies of other companies by members of the Management Board and the appointment of persons to the management boards and supervisory bodies of banks within the Group. Furthermore, the Working Committee approved the assumption of operational banking risk above a certain level up to the ceiling amount for overall Supervisory Board responsibility.
The Audit Committee monitors the accounting process and the effectiveness of the company’s internal control, audit and risk management systems. Its tasks include the supervision of the annual audit of the financial statements and consolidated financial statements, as well as checking and supervising the independence of the Group’s 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 of its approval. It also audits the proposal for earnings appropriation and the corporate governance report. The Audit Committee presented a report on the results of its audits to the Supervisory Board. The committee is also responsible for preparing the Supervisory Board recommendation for the selection of the external auditor and bank auditor. Moreover, the Audit Committee discusses the content of the management letter as well as the report on the effectiveness of the risk management system and the internal control system.
The Remuneration Committee’s responsibilities include establishing guidelines for the company’s general remuneration policies and practices, particularly on the basis of the Austrian Banking Act (BWG), as well as relevant sections of the Austrian Code of Corporate Governance. The Remuneration Committee supervises and regularly reviews the remuneration policies, remuneration practices, and relevant incentive structures to ensure that all related risks were controlled, monitored and limited in accordance with the BWG, as well as the company’s capitalization and liquidity. In doing so, the long-term interests of shareholders, investors and employees of the company are also taken into account, as are the economic interests of maintaining a functioning banking system and the stability of the financial market. The Remuneration Committee directly reviews the remuneration of executives responsible for risk management and compliance.
The Nomination Committee also met for the first time during the financial year. It concerns itself with the filling of any posts on the Management Board and the Supervisory Board that have become vacant. Consideration is given to the balance and diversity of knowledge, skills and experience of all members of the governing body in question. The Nomination Committee also sets a target ratio for the under-represented sex on the Management Board and the Supervisory Board, as well as a strategy for achieving the defined target. In its decision-making process, it ensures that the Management Board and the Supervisory Board are not dominated by one individual person, or a small group of persons, in a way which is contrary to the company’s interests. The Nomination Committee’s other responsibilities include: ■ regularly evaluating, and in all cases where events indicate a need for a revaluation, the structure, size, composition and performance of the Management Board and Supervisory Board, as well as suggesting changes to the Supervisory Board where necessary; ■ regularly conducting, but at least once a year, an evaluation of the knowledge, skills and experience of the individual members of both the Management Board and Supervisory Board, and also of the respective governing body as a whole, and informing the Supervisory Board of the results; and
In addition, the Supervisory Board and the Working, Project, and Nomination Committees also passed circular resolutions.
Further information on the activities of the Supervisory Board can be found in the Report of the Supervisory Board.
Management Board members’ contracts specify a maximum bonus. Similarly, SIP includes a cap amounting to three times the allocation value. A maximum limit is thus in place for all variable compensation components. Other remuneration consists of compensation for board-level functions in associated companies, payments to pension funds and reinsurance policies, as well as to other insurance and benefits.
The Management Board’s remuneration paid in 2014 is shown in detail as follows: In addition to the amounts listed above, Herbert Stepic received an amount of € 803 thousand in fixed remuneration on the basis of contractual obligations. Furthermore, deferred bonus amounts totaling € 203 thousand were paid to Herbert Stepic and Patrick Butler on account of their previous work on the Management Board.
No tranche of the Share Incentive Program matured in 2014, as no SIP tranche was issued in 2010 and the maturity of the program was extended to five years in 2011, in accordance with legal regulations. Consequently, the next SIP tranche will not mature until 2016.
The same rules essentially apply for the members of the Management Board as for employees. They provide for a basic contribution to a pension fund on the part of the company and an additional contribution when the employee makes their own contributions in the same amount. Additional individual pension benefits, which are financed by a reinsurance policy, apply to three members of the Management Board.
In the 2014 financial year, a D&O (directors and officers) financial loss and liability insurance was signed with UNIQA Sachversicherung AG for the Supervisory Board, the Management Board and key executives, the cost of which is borne by the company.
Annual General Meeting The Annual General Meeting for financial year 2013 was held on 4 June 2014 in Vienna. The Annual General Meeting for financial year 2014 will take place on 17 June 2015. The convening notice will be published in the Wiener Zeitung’s official register and in electronic form a minimum of 28 days before the Annual General Meeting.
At the Annual General Meeting the shareholders, as owners of the company, can exercise their rights by voting. The fundamental principle of “one share one vote” applies. Accordingly, there are no restrictions on voting rights and all shareholders have equal rights. Every share confers one vote; registered shares have not been issued. Shareholders may exercise their voting rights themselves or by means of an authorized agent. RZB has not exercised its right to nominate up to one third of the Supervisory Board members to be elected by the Annual General Meeting, as per the Articles of Association, so that the share structure complies with the principle of “one share, one vote”.
A corresponding framework to promote the advancement of women must be established and continually developed. Improving the family-work balance is a very important element of this. Appropriate measures include flexible working hours, part-time models and home office. These models are implemented in nearly all countries the Group is active in, and in accordance with the local statutory provisions. The measures are supplemented with further national initiatives, such as the company’s kindergarten with employee-friendly operating hours at the Vienna site.
In order to build on management skills, RBI offers targeted training and continuing education programs, which also proved popular among female employees. For example, approximately 38 per cent of the participants in the Group-wide top-management program “Execute” were women. In 2014, female employees accounted for 15 per cent of participants in the restructured Advanced Leadership Training program for middle management.
Transparency The internet, particularly the company website, plays an important role for RBI with regard to open communication with shareholders, their representatives, customers, analysts, employees, and the interested public. Therefore, the website offers regularly updated information and services on the following topics: annual and interim reports, company presentations, conference call webcasts, ad-hoc releases, press releases, investor relations releases, share price information and stock data, information for debt investors, financial calendar with advanced notice of important dates, information on securities transactions of Management Board and Supervisory Board that are subject to reporting requirements (directors’ dealings), RBI’s Articles of Association, the corporate governance report, analysts’ research and recommendations, as well as an ordering service for written information and registration for the automatic receipt of investor relations news by e-mail.
Members of the Supervisory Board must immediately report any potential conflicts of interest to the Chairman of the Supervisory Board. In the event that the Chairman himself should encounter a conflict of interest, he must report this immediately to the Deputy Chairman. Company agreements with members of the Supervisory Board that require members to perform a service for the company or for a subsidiary outside their duty on the Supervisory Board (Section 228 (3) UGB) in exchange for not-insignificant compensation require the approval of the Supervisory Board. This also applies to agreements with companies in which a member of the Supervisory Board has a significant financial interest. Furthermore, related party transactions as defined by Section 28 of the Austrian Banking Act (BWG) require the approval of the Supervisory Board.
Accounting and audit of financial statements RBI’s consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as applied in the EU. They also comply with the regulations of the Austrian Banking Act (BWG) in conjunction with the Austrian Commercial Code to the extent that these are applicable to the consolidated financial statements. The consolidated annual financial statements are published within the first four months of the financial year following the year under review. Interim reports are published no later than two months after the end of the respective period under review pursuant to IFRS.
According to the cornerstones of the sustainability strategy, the role of the responsible banker is of particular importance with regard to lending and investment activities. The involvement of the International Finance Corporation (IFC) in RBI’s capital increase at the start of 2014 – and the associated agreement with the network banks in Russia, Poland, Bosnia and Herzegovina, as well as Kosovo – led to additional requirements including the introduction of an environmental and social management system which entails, among other things, compliance with the IFC’s Performance Standards and the IFC Exclusion List. The eight IFC Performance Standards relate to the following: social and ecological assessment and management systems; labor and working conditions; prevention and reduction of environmental pollution; public health, safety and security; land acquisition and involuntary resettlement; biodiversity conservation and sustainable management of resources; indigenous peoples; as well as cultural heritage. They serve as a benchmark for identifying and managing environmental and social risks.
In 2014, RBI was again listed in the Austrian sustainability index (VBV Österreichischer Nachhaltigkeitsindex – VÖNIX). This index contains listed Austrian companies which are leaders in terms of social and ecological performance.
In preparation for the Stakeholder Council 2014, a focus group of internal and external experts was organized on the subject of “RZB Group 2025 – Sustainable Future Scenarios and Strategies”. The three rounds of dialog focused on man and his changing requirements, market trends, new business models and technologies, as well as changes in framework conditions, policy and governance. The numerous suggestions and proposals put forward by the participants are being analyzed in order to derive concrete steps for the current sustainability program.
In order to identify new, innovative ideas and projects in the field of sustainability and to get employees more involved in the subject of sustainability and climate protection, RBI participated in the “Raiffeisen Sustainability Challenge” organized by the Raiffeisen Climate Protection Initiative (RKI) in fall 2014. Three category choices were available: Sustainable financial products and services, sustainable construction, renovation and mobility as well as internal measures. RBI employees submitted a total of 30 projects. The three best projects were awarded prizes and took part in the national final.
The Carbon Disclosure Project (CDP) is a non-profit organization aimed at reducing CO2 emissions. The CDP collects data and information annually using standardized questionnaires. The CDP now manages the world‘s largest database on environmental data of listed companies. Investors access the data more than 8.8 million times a year.
Weak economic growth in Europe – recovery in the US The eurozone economy developed weaker than expected in 2014, and the outlook for 2015 is also subdued. It posted a modest 0.9 per cent year-on-year GDP growth in 2014, following minus 0.4 per cent in the prior year. On the one hand, this was driven by solid growth figures in Germany and by a recovery in a number of countries (Spain, Ireland and Portugal) that had previously posted weaker growth. On the other, economic growth in major countries such as Italy and France disappointed. The weak economic trend contributed to a significant decline in inflation. As falling commodity prices further exacerbated this trend, inflation averaged only 0.4 per cent in 2014, after 1.4 per cent in 2013. A decline in consumer goods prices can be expected for at least the beginning of 2015. In a bid to bolster economic growth and prevent deflationary risks, the ECB took additional expansionary and unconventional measures in 2014 as well as in early 2015. The weaker external value of the euro is expected to be supportive for an economic recovery for the euro area in 2015. The major risk factors to economic growth and the financial markets in the euro area remain to be the tense geopolitical situation in addition to deflationary tendencies and delayed reforms in a number of eurozone countries.
The formative economic recovery in CEE in 2012 and 2013 weakened in 2014. The CEE region as a whole posted 1.0 per cent economic growth in 2014, only marginally outpacing the eurozone. This trend was primarily driven by the situation in Russia and Ukraine, where geopolitical risks coupled with structural weaknesses resulted in stagnation (Russia) or a deep adjustment recession (Ukraine). In 2014, Ukraine received extensive financial help from the International Monetary Fund (IMF) and the EU in order to facilitate necessary structural and institutional restructuring measures and to protect against financial market risks. This financial aid was increased in 2015.
In a number of SEE countries, the restructuring efforts of recent years are already showing first results. In 2013 and 2014, GDP growth in SEE was primarily driven by Romania, while other economies remained in stagnation or recession. In light of the natural disasters that heavily impacted a number of SEE countries, economic growth in the region weakened to 1.4 per cent in 2014, following 2.1 per cent in 2013. The weaker-than-expected recovery in the eurozone is also dampening growth in SEE – first and foremost in Italy and France, countries of greater importance to SEE. The strongest growth – at 2.9 per cent – was recorded in Romania, which is benefitting from successful structural reforms, but still suffering from weak domestic demand; Albania followed with 2.0 per cent. Economic growth in Bulgaria reached 1.1 per cent despite a short-term bank run in the summer of 2014. Croatia, suffering from deep structural problems, remained in the grip of recession in 2014, marking its sixth consecutive year without growth. While Bosnia-Herzegovina got off lightly with a stagnating economy, Serbia suffered another sharp decline in 2014. In particular, Serbia had to contend with the consequences of the flood disaster, as well as from delays to policy reforms, and suffered a drop in economic output of 1.8 per cent in 2014. In an effort to stabilize its macroeconomic and budgetary situation, Serbia signed a precautionary arrangement with the IMF in the fourth quarter. The agreement set out targets for fiscal consolidation and privatization. Romania has shown by example that cooperation with the IMF can result in sustained structural reform. In this respect, the step can be seen as positive. A moderate, accelerated growth trend is expected in the SEE region in 2015, with GDP set to increase 1.9 per cent and to be led once again by Romania.
Over the whole of 2014, the Swiss franc fluctuated between nearly 1.20 and 1.24 against the euro, with the average exchange rate at 1.22. At the beginning of the year, the Swiss franc was more or less on the back foot but in the wake of geopolitical uncertainties, returned to its safe haven status in the spring and has been steadily appreciating since. The ECB’s expansionary monetary policy and the shrinking interest rate differential between the eurozone and Switzerland have also contributed to the Swiss franc’s appreciation. Towards the end of the year, appreciation pressure on the Swiss franc against the euro increased to such an extent that the SNB (Swiss National Bank) introduced negative key interest rates. On 15 January 2015, the SNB surprisingly withdrew its minimum exchange rate peg for the EUR/CHF at 1.20; however, it stressed that it would take due account of the exchange rate situation in formulating its monetary policy in future and thus remain active in the foreign exchange market if necessary.
Moderate growth and increasing divergence in CEE Supported by slightly better economic indicators in the second half of 2014, as well as expansionary monetary policy measures and improved growth expectations in CE and SEE, credit growth in both of these regions moderately increased in 2014. This trend should continue in 2015. As a result, non-performing loans (NPLs) also stabilized – or in some cases already peaked – in many CE and SEE countries in 2014. Romania held its first notable NPL portfolio auctions in 2014. However, NPLs remained at high levels, notably in banking markets in SEE, which will weigh on the performance of banking sectors for a continued period. The banking environment in Russia and Ukraine sharply deteriorated in 2014, and the outlook for 2015 remains difficult. Credit growth weakened significantly in both markets, due in part to increasingly difficult local refinancing conditions (lower deposit growth, higher refinancing costs). Nevertheless, credit growth in the Russian banking sector remained in the upper double-digit range in 2014, the liquidity situation continues to be solid, and profitability (return on equity) was also still in the solid double-digit percentage range in 2014. As a result, barring a material deterioration of the geopolitical situation and financing conditions, the Russian banking sector should also remain profitable in 2015. In contrast, the Ukrainian banking sector posted a loss in 2014, and 2015 could also turn out to be another loss-producing year. The earnings situation of Western European banks operating in the region is also negatively impacted by ongoing currency weaknesses in Russia, Ukraine and Belarus.
The highly different regional trends in CEE with respect to asset quality and credit growth are also clearly reflected in divergent profitability ratios of the regional banking sectors. For example, profitability indicators of the CE banking sector remained at encouragingly robust levels, i.e. the average return on equity was in the lower double-digit percentage range in 2014. One exception was Hungary, where the earnings power of the banking sector was negative once again as a result of regulatory measures, however conditions should improve here. Although the Russian bank market suffered somewhat of a decline in profitability in 2014 compared to the previous year, it still boasted one of the highest returns on equity in the CEE region at roughly 13 per cent in 2014. In SEE, profitability was low again in 2014, partly attributable to weak credit demand in new business and, in some cases, still slightly increasing NPLs. The average return on equity in this region was in the low single-digit percentage range, roughly on a par with the eurozone level. Despite the positive trends in a number of CEE markets, overall, the average return on equity in the banking sector for the region remains below past levels. This trend is primarily driven by rising regulatory costs, increased equity ratios and costs, a higher degree of local refinancing, and limited opportunities to transform the risk and yield curve owing to the low interest rate environment. The outlook for a prolonged continuation of the current low interest rate environment in major CE and SEE markets, as well as the deterioration of earnings prospects in the Russian banking sector, suggests that the return on equity for the CEE banking sector will not significantly improve in 2015.
Events in the financial year Capital increase and repayment of participation capital The capital increase carried out at the beginning of 2014, in which 97,473,914 new shares were issued, resulted in net capital growth of € 2,725 million. The participation capital of € 1,750 million subscribed by the Republic of Austria was repaid in June, and the participation capital of € 750 million subscribed by private investors was repaid in September.
Tensions in eastern Ukraine The onset of geopolitical tensions in Ukraine, which culminated in the secession of Crimea as well as in military conflict in the Donbass region, had a negative impact on the Ukrainian network bank. This resulted in higher net provisioning for impairment losses in the amount of € 254 million, as well as additional other administrative expenses of € 15 million in the stated regions. This was further accompanied by the closure of a large number of branches and corresponding staff reductions in these regions.
Depreciation of intangible fixed assets Goodwill of € 306 million was impaired in the fourth quarter, particularly for Group units in Russia (€ 148 million), Poland (€ 101 million) and Albania (€ 51 million). In the third quarter, Ukraine recorded an impairment of € 29 million on the brand, and € 1 million on the customer base.
Overview After a challenging year, the Group ended the reporting year with positive profit before tax of € 23 million. Despite the currency turmoil and geopolitical tensions, the operating result in the amount of € 2.332 million was marginally below the previous year’s level, with a decline of 2 per cent year-on-year. The decline in profit before tax of € 812 million to € 23 million was primarily attributable to a number of one-off effects: A legislative change in Hungary entailed a one-off effect with a negative impact of € 251 million on the Group's results. At the same time, € 533 million in net provisioning for impairment losses was required in Ukraine, which was thus € 412 million above the previous year's level. Goodwill impairments totaling € 306 million were required for Group units in Russia and Poland as a result of lower medium-term earnings expectations, and in Albania due to a change in the discounting factor. The Group's loss after tax was € 463 million – not least due to impairments recognized on deferred tax assets in the amount of € 196 million owing to a tax planning revision at Group head office and in Asia. Taking profit attributable to non-controlling interests into account, which decreased € 16 million to minus € 30 million, the Group had a consolidated loss of € 493 million for the year.
Operating income fell 7 per cent, or € 373 million, to € 5,355 million year-on-year, while the net interest margin improved 13 basis points to 3.24 per cent due to lower refinancing costs at Group head office. Net interest income increased 2 per cent, or € 60 million, to € 3,789 million. In contrast, net fee and commission income fell 2 per cent, or € 40 million, to € 1,586 million, primarily due to currency movements. Net trading income declined € 351 million to minus € 30 million, driven by valuation losses on derivatives and by exchange rate-related valuation losses on foreign currency positions in Ukraine and Russia.
General administrative expenses were down 9 per cent, or € 316 million, to € 3,024 million year-on-year, with positive effects stemming from ongoing cost reduction programs, notably in the Czech Republic and in Poland. Ukraine and Russia recorded declines, primarily caused by currency devaluations. The average number of staff was further reduced, with a 2,671 decrease from the previous year to 56,396. The number of business outlets was down 159 to 2,866 year-on-year.
Net income from derivatives and liabilities reversed from minus € 257 million in the previous year to plus € 88 million, mainly due to the € 292 million change in the credit spread for own liabilities.
Net interest income increased 2 per cent, or € 60 million, to € 3,789 million in 2014. This was primarily attributable to a positive development in Russia and at Group head office. In Russia, higher interest income from derivatives and, in particular, successful positioning in the retail and corporate customer business, led to an increase of € 112 million. At Group head office, lower refinancing costs relating primarily to debt securities led to growth of net interest income of € 145 million.
Net fee and commission income fell 2 per cent, or € 40 million, to € 1,586 million year-on-year, mainly as a result of currencyrelated effects. Net income from the loan and guarantee business declined 16 per cent, or € 40 million, to € 210 million, primarily due to currency effects in Russia and lower guarantee commissions in Romania. Net income from the securities business decreased 14 per cent, or € 21 million, to € 127 million – predominantly at Group head office – due to lower capital market transaction fees. Net income from the payment transfer business was down 3 per cent, or € 20 million, to € 712 million, due to currency effects. The most significant declines were recorded in Ukraine and in Russia, whereas Slovakia, Hungary and Croatia achieved increases. In contrast, in Russia and in Ukraine, net income from the foreign currency, notes/coins and precious metals business was up 11 percent, or € 38 million, to € 393 million, mainly driven by higher volumes and margins.
Sundry net operating income fell € 42 million to € 10 million, in the reporting year. In particular, net allocations to other provisions rose € 29 million. On the one hand, the positive result in the previous year was due to the release of a provision for VAT liabilities in Poland; on the other, allocations to provisions in Hungary (for litigation) and Russia had a negative impact in the reporting year. Other tax expense increased € 16 million due to a newly introduced tax on foreign exchange purchases in Ukraine, as well as to a higher tax expense related to the financial transaction tax in Hungary. This contrasted with improvements in net proceeds from the disposal of tangible fixed assets (sale of buildings) in Russia, Ukraine and Albania. In Albania, the result was lower in the previous year due to business outlet closures. In addition, income from the release of negative goodwill from the purchase of Raiffeisen Bausparkasse in Croatia had a positive impact of € 5 million.
The Group's general administrative expenses fell 9 per cent, or € 316 million, to € 3,024 million during the reporting period, largely attributable to the currency development of the Russian rouble and Ukrainian hryvnia. In addition, ongoing cost reduction programs in the Czech Republic and Poland, as well as lower depreciation in the Czech Republic, led to a reduction in general administrative expenses. The cost/income ratio improved 1.8 percentage points to 56.5 per cent.
Staff expenses, which made up the largest item under general administrative expenses at 48 per cent, declined 11 per cent, or € 182 million, to € 1,450 million in the reporting year. In Ukraine and the Czech Republic, the sharp decline in staff expenses was mainly due to cost reduction programs and currency effects. Ongoing cost reduction programs in Poland and Hungary likewise led to a decrease, while significant currency devaluation in Russia reduced expenses.
The average number of staff (full-time equivalents) fell 2,671 to 56,396 year-on-year. The biggest declines occurred in Ukraine (down 1,117), Poland (down 557) and Hungary (down 335).
Net interest income Net fee and commission income Net trading income Sundry net operating income
Depreciation of tangible and intangible fixed assets fell 12 per cent, or € 50 million, to € 381 million year-on-year. This was primarily attributable to lower depreciation on software at Group head office, as well as to impairment of a software project in the Czech Republic (€ 57 million) undertaken in the previous year. Ukraine posted an increase of € 13 million due to a brand and customer base impairment totaling € 30 million and to impairment on a building of € 4 million, whereas the change in useful life resulted in lower depreciation of tangible fixed assets. Romania also recorded an increase (€ 8 million) due to an impairment of land.
The provisioning ratio – net provisioning for impairment losses in relation to the average volume of loans and advances to customers – increased 0.73 percentage point to 2.13 per cent.
Net income from derivatives and liabilities came to € 88 million, compared to minus € 257 million in the previous year. This was due to net income from liabilities designated at fair value, where the changed credit spreads for own liabilities – increase of € 292 million to plus € 166 million – had a positive effect. Net income from the valuation of derivatives entered into for hedging purposes improved € 53 million.
Net income from equity participations declined from plus € 29 million in the previous year to minus € 33 million in the reporting year. On the one hand, this was mainly due to € 46 million lower net income from the sale of equity participations after disposal gains of € 51 million in the previous year, predominantly from the sale of VISA and MasterCard shares in Russia and Ukraine. On the other, impairment for equity participations was € 16 million higher, largely booked at Group head office.
In addition, goodwill impairments totaled € 306 million, € 148 million of which were recorded in Russia, € 101 million in Poland and € 51 million in Albania. In Russia, goodwill was impaired due to currency effects and resulting lower earnings expectations. In Poland, a reduction in the goodwill calculation resulted from a lower medium-term earnings expectation and a decrease in the perpetual return. In Albania, the calculation was subject to a higher underlying discount rate due to the increased cost of equity. Furthermore, the perpetual return decreased.
Net fee and commission income rose € 14 million from the third quarter to € 417 million. The biggest increase in net fee and commission income came from the foreign currency business (€ 17 million), driven by higher sales in Russia. Net income from the management of investment and pension funds also grew € 5 million, whereas net income from the securities business improved € 4 million and net income from other banking services increased € 3 million. In contrast, net income from the payment transfer business decreased € 8 million, while net income from the loan and guarantee business was down € 6 million.
Net provisioning for impairment losses rose 23 per cent from the third quarter, or € 118 million, to € 633 million. This was mainly attributable to developments, with net provisioning for impairment losses totaling € 207 million in Ukraine and € 87 million in Hungary. Net provisioning for individual loan loss provisions increased € 276 million overall, while net releases of portfolio-based loan loss provisions came to € 94 million. The sale of non-performing and impaired loans in Poland, with a nominal amount of € 294 million, led to a positive result of € 61 million in the fourth quarter.
Income tax expense rose € 147 million to € 243 million quarter-on-quarter. This disproportional change was mainly due to impairments recognized on deferred tax assets at Group head office and in Asia, the bulk of which was related to capitalized tax loss carry-forwards at Group head office (€ 152 million).
Statement of financial position The Group’s total assets declined 7 per cent, or € 9.0 billion, to € 121.6 billion during 2014. Currency effects – predominantly due to the depreciation of the Ukrainian hryvnia (down 41 per cent) and of the Russian rouble (down 38 per cent) and mitigated by the appreciation of the US dollar (up 14 per cent) – amounted to minus € 4.2 billion.
Interbank business declined 30 per cent, or € 6.7 billion, to € 15.6 billion during the year. Money market business – primarily at Group head office – declined € 5.7 billion due to a change in liquidity investment; of this amount, the decline in receivables from repurchase and securities lending transactions amounted to € 2.1 billion. Long-term receivables and receivables from the giro and clearing business each declined € 0.5 billion.
Impairment losses on loans and advances rose € 0.5 billion to € 6.1 billion during the year. Of this, € 6.0 billion related to loans and advances to customers and € 0.1 billion to loans and advances to banks.
The securities item slightly rose by € 0.1 billion to € 17.9 billion. While it rose € 1.1 billion at Group head office (primarily due to the purchase of highly liquid government bonds) and € 0.5 billion in Poland, it fell – mainly as a result of currency effects – in Russia (down € 1.1 billion) and Hungary (down € 0.5 billion). The € 0.8 billion rise in other assets was mainly the result of a € 1.9 billion rise in positive fair values of derivatives; while intangible fixed assets, tangible fixed assets, and other assets de-
Despite the currency devaluations, loans and advances to customers only slightly declined by € 0.3 billion to € 66.1 billion yearon -year. Deposits from large corporate customers declined € 0.7 billion in total, with Russia and Ukraine recording reductions, while Group head office and Poland reported increases. Deposits from private individuals fell € 0.3 billion, also primarily attribut-
Other liabilities – excluding subordinated capital – increased € 1.0 billion to € 20.6 billion. The rise was primarily attributable to the negative fair values of trading and banking book derivatives – mainly at Group head office – which rose € 2.1 billion in total. In contrast, debt securities issued fell € 0.9 billion to € 10.6 billion, mainly due to the reduced refinancing requirement.
The Group's total comprehensive income of minus € 1,767 million comprises loss after tax of € 493 million and other comprehensive income of minus € 1,274 million. Exchange -rate differences represented the largest item in other comprehensive income and amounted to minus € 1,314 million in the reporting year (2013: minus € 440 million). A key driver here was the devaluation of the Russian rouble (minus € 839 million) and the Ukrainian hryvnia (minus € 371 million). In contrast, the application of hyperinflation accounting in Belarus generated a positive effect of € 34 million, and valuation changes in assets available-for-sale had a positive impact of € 22 million.
Capital of non-controlling interests rose € 10 million to € 495 million. On the one hand, this was due to the profit attributable to non-controlling interests of € 30 million and some smaller capital movements. On the other, dividends of € 41 million were paid to minority shareholders in Group units.
The following consolidated figures have been calculated in accordance with the provisions of the Capital Requirements Regulation (CRR) and the BWG. The conversion to the CRR/CRD IV (Basel III) rules took place on 1 January 2014. The previous year's figures as shown are based on the CRD III (Basel II) rules applicable at the time. Pursuant to Article 11 of the CRR, new regulatory requirements on a subconsolidated basis were imposed on RBI in the reporting year, whereby RBI is subject to the CRR provisions not only as an individual credit institution but also a subgroup. Previously, RBI – as part of the RZB credit institution group – did not constitute an independent credit institution group as defined by the BWG and therefore was not subject to the regulatory provisions for banking groups.
CET1 before deductions stood at € 7,902 million at the end of the year, and CET1 after deductions amounted to € 7,477 million. The decline from the 2013 comparable level totaled € 1,037 million. In addition to Basel III effects, the reduction was mainly caused by the aforementioned negative currency developments, in particular the devaluations of the Russian rouble and the Ukrainian hryvnia. The capital increase at the beginning of 2014 resulted in paid-in capital growth whereas repayment of the participation capital had a negative impact on regulatory capital. This resulted in a net increase of approximately € 225 million. Tier 1 capital declined € 1,478 million, to € 7,477 million. The relevant factors responsible for the decline were the effects noted above and the amended regulatory provisions. Tier 2 capital amounted to € 3,527 million, which was € 153 million above the comparative figure under Basel II as a result of higher hidden reserves. This was largely due to the first-time allowance of portfoliobased loan loss provisions. RBI’s total capital under Basel III amounted to € 11,003 million. This corresponds to a decline of € 1,682 million compared to the 2013 year-end figure calculated under Basel II.
Total capital stood against a total capital requirement of € 5,498 million. This decline is mainly based on currency devaluations, a reduction in credit exposure and an adjustment of the calculation parameters. The total capital requirement for credit risk amounted to € 4,564 million, the total capital requirement for position risk in bonds, equities, commodities and open currency came to € 254 million, and the total capital requirement for operational risk stood at € 680 million.
The excess cover ratio was 100.2 per cent compared to 98.5 per cent as at the end of 2013, which was attributable to the decrease in the total capital requirement. Based on total risk, the common equity tier 1 ratio (transitional) was 10.9 per cent, with an total capital ratio (transitional) of 16.0 per cent.
Excluding the transitional provisions as defined in the CRR, the common equity tier 1 ratio (fully loaded) stood at 10.0 per cent. The total capital ratio (fully loaded) reached 15.2 per cent.
The Group concerned itself intensively with the current and upcoming regulatory developments in the reporting year. One of the main subjects, for which preparations have been made in the past, involved the legislative amendments that are associated with the EU directives under Basel III (CRD IV/CRR) and that came into effect at the beginning of the financial year. With the conversion to the new Basel III rules, in 2014 risk management continued to focus on the ongoing implementation of advanced calculation approaches. These activities comprised the implementation of the internal ratings-based (IRB) approach in the retail and nonretail business division of CEE subsidiaries, as well as further development of the internal market risk model and Group-wide further development of the standard approach for operational risk.
In October 2014, the Austrian Financial Market Authority notified RBI of the regulatory subconsolidation of RBI as subgroup of RZB. Pursuant to Article 11 para 5 of the CRR, RBI is thus separately regulated on a subconsolidated basis and constitutes a superordinate credit institution for the subgroup within the meaning of Section 30 of the Austrian Banking Act (BWG). Accordingly, the Group is required to maintain a minimum total capital ratio of 13.76 per cent as of 30 November 2014.
The new Austrian Banking Intervention and Restructuring Act also came into force – simultaneousely with Basel III – at the beginning of 2014. As a consequence, RBI as a material member of the RZB Group was required to submit a contingent recovery plan
to the Austrian Financial Market Authority in June 2014. Plans for a potential resolution were submitted at the end of the 2014 financial year.
The Austrian Federal Act on the Recovery and Resolution of Banks (BaSAG) came into force on 1 January 2015. Payments under this legislation, are based on European rules for carrying out the EU Bank Recovery and Resolution Directive (BRRD), but not yet adopted (expected for 2015), and providing for a mechanism of banks' contributions to resolution funds starting as, or in the course, of 2015. As of 2016, the Austrian resolution financing mechanism will, along with all other resolution financing mechanisms in the eurozone, be transferred to a Single Resolution Fund, which is currently being established for all EU-eurozone member states (and for other EU member states on a coluntary basis). It is not yet possible at this stage to quantify the related expense for RBI. For 2015, RBI expects an expense of roughly € 38 million in Austria.
Internal control and risk management system in regard to the Group accounting process Balanced and comprehensive financial reporting is a priority for RBI and its governing bodies. Naturally, these reports must comply with all relevant statutory requirements. The Management Board is responsible for establishing and defining a suitable internal control and risk management system that encompasses the entire accounting process. The internal control system is intended to provide the management with the information needed to ensure effective internal controls for accounting, which are constantly being improved. The control system is designed to comply with all relevant guidelines and regulations and to optimize the conditions for specific control measures.
The preparation of individual financial statements is decentralized and carried out by each Group unit in accordance with the RZB guidelines. The Group unit employees and managers responsible for accounting are required to provide a full presentation and accurate valuation of all transactions. Differences in reporting dates and local accounting standards can result in inconsistencies between the individual financial statements and the figures submitted to RBI. The local management is responsible for ensuring compliance with mandatory internal control measures, such as the separation of functions and the principle of dual control.
The financial statement data, which are examined by an external auditor or have an audit review are mostly entered directly in, or automatically transferred to, the IBM Cognos Controller consolidation system by the end of January of the subsequent year. The IT system is kept secure by limiting access rights.
The consolidated financial statements and management report are reviewed by the Audit Committee of the Supervisory Board and are also presented to the Supervisory Board for information. The consolidated financial statements are published on the company’s website, in the Wiener Zeitung’s official register, and are filed with the commercial register as part of the Annual Report.
Internal audits also constitute an integral part of the monitoring process. Group Audit at RZB is responsible for auditing. All internal auditing activities are subject to the Group Audit standards, which are based on the Austrian Financial Market Authority’s minimum internal auditing requirements and international best practices. Group Audit’s internal rules also apply (notably the audit charter).
Capital, share, voting and control rights The following disclosures cover the provisions of Section 243a (1) of the Austrian Commercial Code (UGB): (1) As at 31 December 2014, the company’s capital stock amounts to € 893,586,065.90 and is divided into 292,979,038 voting common bearer shares. As at 31 December 2014, 604,517 of those were own shares which means that 292,374,521 were outstanding at the reporting date. During the reporting year, a capital increase of 97,473,914 shares was carried out with an offer price of € 28.50. The capital stock thereby increased by €297,295,437.70. Please consult the note on equity (34) for more information.
The ultimate parent company is Raiffeisen-Landesbanken-Holding GmbH, holding around 82.4 per cent of the shares of RZB AG, directly and indirectly. The direct share amounts to around 3.9 per cent and the indirect share is approximately 78.5 per cent and held by the wholly owned subsidiary R-Landesbanken-Beteiligung GmbH.
(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 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 become 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 to, or chairman positions in, supervisory boards in publicly traded companies must disclose this to the Annual General Meeting. Beyond that, there are no regulations regarding the appointment or dismissal of members of the Management Board and the Supervisory Board beyond the provisions of the relevant laws (with regard to RZB AG's right to delegate members, please see (4) above). The articles of association stipulate that the resolutions of the Annual General Meeting are, notwithstanding any mandatory statutory provisions or Articles of Association 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 via 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.
Pursuant to Section 159 (2) 1 of AktG, the capital stock has been increased contingently by up to € 119,258,123.20 through the issue of up to 39,101,024 common bearer shares (contingent capital). The contingent capital increase will only be performed if and when use is made of an irrevocable right of exchange or subscription granted on shares by the company to creditors holding convertible bonds issued on the basis of the resolution of the Annual General Meeting on 26 June 2013 and the Management Board does not decide to issue own shares. Pursuant to Section 174 (2) of AktG, the Annual General Meeting of 26 June 2013 authorized the Management Board to issue, in one or more tranches, convertible bonds in a total nominal amount of up to € 2,000,000,000, which grant holders conversion or subscription rights for up to 39,101,024 common bearer shares of the company with a pro rata amount of the capital stock of up to € 119,258,123.20, within five years from the date of resolution adopted by the Annual General Meeting, with the approval of the Supervisory Board. Shareholders’ subscription rights to the convertible bonds are excluded. No convertible bonds have been issued to date.
(9) There are no indemnification agreements between the company and its Management Board and Supervisory Board members or employees for the case of a public takeover bid.
The Group's refinancing is based on two key elements. Firstly, there are customer deposits, which at the end of 2014 accounted for € 66.1 billion or 64 per cent of refinancing. Secondly, there is wholesale funding, which contributed the remaining 36 per cent or € 37.1 billion. The high share of customer deposits creates a stable refinancing basis, making the Group less vulnerable to turbulence on the financial markets.
Moreover, the Group's units are becoming increasingly involved in issuing local bonds, especially issuances in local currencies. This not only boosts the financing structure in local currencies, but also makes a positive contribution to developing the local capital markets. The unsecured bonds of the Russian subsidiary bank (RUB), Raiffeisen bank Romania (RON), Raiffeisen Polbank (PLN) and a secured bond issue from the Czech Raiffeisenbank (EUR) are worth highlighting.
For medium- to long-term refinancing, RBI AG used instruments such as the "EUR 25,000,000,000 Debt Issuance Programme" which enables bonds to be issued in different currencies and structures. The total volume of outstanding bonds under this program may not exceed € 25 billion. At the end of 2014, a total of € 10 billion had been drawn on.
RBI swiftly implemented its funding plan again in 2014, primarily with low-volume private placements.
Risk management For information on risk management, please refer to note (44) Risks arising from financial instruments, in the risk report section of the consolidated financial statements.
Human resources Human Resources (HR) manages personnel resources within the Group in order to harmonize corporate interests and the needs of employees. As at 31 December 2014, RBI had 54,730 employees (full-time equivalents), 3,171 people or 5 per cent fewer than at the end of 2013. The majority of this reduction is attributable to the developments in Ukraine. The average age of employees remained relatively low at 37 years, while women accounted for 67 per cent of the workforce. Graduates make up 72 per cent of employees, indicating a highly skilled workforce.
Talent management and management development Once again, a number of initiatives to optimize talent management were continued across all Group units in 2014. Key areas included ensuring high standards in the identification of talent and an improvement in the quality of individual development plans.
Alongside the existing cross-functional development programs for executives, a Group-wide program “Go IT”, which is aimed at the customized strengthening of IT executives’ specialist and management expertise, was launched within IT. Local management development programs were continued, including temporary job rotations (e.g. branch managers who switch to head office, or executives from central retail functions who work in a branch on a temporary basis). Qualification initiatives also focused on change management, in particular to provide support for managers in ensuring reorganizations are implemented successfully.
Professional development In 2014, professional development placed special attention on using budgetary and time resources as precisely as possible for strategic objectives and initiatives. While the scope of standard training courses and the number of participants fell slightly, investment in business-critical areas was increased. Key areas included measures to increase sales success in affluent retail business, further training initiatives on customer satisfaction and customer loyalty, and also training courses to increase efficiency and optimize processes based on the “Lean” method. In addition, a Group-wide training initiative for branch managers, “Branch Management Academy”, was launched and is aimed at increasing both professional and personal skills for this key sales role.
Focus on the employee survey Regular employee surveys have been conducted both at Group head office and in most network banks for a number of years. In the past, RBI used several survey companies with different survey methods. In order to ensure data comparability within the Group and reduce costs, a Group-wide survey was conducted for the first time in 2014.
The average response rate was 81 per cent (around 29,000 employees participated in total). On average, the 22 participating Group units achieved an engagement score of 61 per cent and an enablement score of 64 per cent.
Other local initiatives in the network banks In 2014, many HR measures focused again on cutting personnel costs. Job vacancies were increasingly filled internally, with external recruitments only made in exceptional cases and for specialist expert functions.
In view of the particularly difficult geopolitical situation in Ukraine, especially in the Donbass region, the management of Raiffeisen Bank Aval implemented numerous support measures for employees and their families in the regions affected by the military conflict. As part of the aid program “The Arm of Help to Donbass”, temporary accommodation was organized in other regions for more than 75 families. The costs of which were carried by Raiffeisen Bank Aval.
Positive growth trends from the second half of 2014 should continue in the CE region in 2015 and 2016. The economic turnaround seems to have taken hold, and the 2015 increase in eurozone growth should support exports. Domestic demand is also expected to continue developing, which would further underpin the sustainability of the economic recovery. Following GDP growth of 2.9 per cent in 2014, the CE forecast for the years to come is currently at 3.0 per cent. Poland is likely to remain the top performing country in 2015, followed by other CE countries such as Hungary, Slovakia and the Czech Republic. In terms of monetary policy, the reins will likely continue to be kept loose in CE due to record-low inflation rates. Restrictive monetary policy measures are not expected before 2016.
The growth outlook is subdued – partly because exports and investments are unlikely to generate much momentum, and partly because the consequences of the Ukraine conflict still pose significant downside risks. After experiencing a deep recession in 2015 and a tentative recovery in 2016, the Russian economy is expected to weakly expand at 0.5 per cent. Its potential growth will likely stay below 2.0 per cent if the government does not enact reforms and diversify the economy as it planned, but failed to do in the previous cycle. Should economic sanctions against Russia continue, macrofinancial risks will rise sharply despite ample fiscal and foreign currency reserves.
Faced with high economic and political uncertainty, Ukraine will have to carry out difficult structural reforms in 2015 and 2016, supervised by the IMF, in order to adjust current economic imbalances and obtain urgently needed financing. Economic performance should therefore continue to decline, at least in 2015, while prospects of an economic recovery remain unclear. Belarus, also facing a stagnation or recession in 2015, will remain dependent on financial support from Russia making its macrofinancial situation likely to remain strained for the years to come.
The eurozone should see accelerated economic growth in the course of 2015 and continue this course in 2016. Exports are poised to benefit from the weak euro and robust economic momentum of important trading partners (USA, UK). Headwinds from fiscal policy will die down, while low oil prices should bolster consumer purchasing power and reduce companies’ costs. Monetary policy, likely to stay very loose for a long time, will produce highly favorable financing terms that should clear the investment backlog. Private-sector investment will probably recover slowly, and so growth is expected to remain modest at 1.2 per cent in 2015. The 2016 estimate is at 1.9 per cent, which is even above the eurozone’s potential growth. Despite the increase in economic momentum, weak wage pressures should keep inflation below the ECB target rate of slightly less than 2.0 per cent until 2016.
We expect net provisioning for impairment losses to remain elevated in 2015; however, we anticipate that the requirement will be below the level of the previous year (2014: € 1,716 million).
We target a CET1 ratio (fully loaded) of 12 per cent and a total capital ratio (fully loaded) of 16 per cent by the end of 2017.
Events after the reporting date Strategic measures to strengthen capital ratios
At the beginning of 2015, Belarus devalued the Belarusian rouble (BYR) by around 20 per cent. This was a result of the currency turbulence in Russia at the end of 2014. The Belarusian economy is strongly linked to the Russian’s. As Priorbank’s capital is partly secured through an economic hedge this has little impact on the capital position.
Segment overview In Central Europe, a decrease of € 131 million resulted in a loss before tax of € 66 million. This was primarily due to higher losses caused by a one-off effect (Settlement Act) in Hungary. This contrasted with an improvement in net income in Poland, the Czech Republic and Slovakia and a lower loss in Slovenia.
In the CEE Other segment, geopolitical tensions in Ukraine led to higher net provisioning for impairment losses. In the reporting year a loss before tax of € 253 million was posted after a profit before tax of € 217 million in the previous year.
In the Group Corporates segment, a € 174 million decrease from the previous year resulted in a loss before tax of € 60 million. This was primarily attributable to the higher net provisioning for impairment losses on loans to large corporate customers in Asia.
Net provisioning for impairment losses (272) (403) (32.6)% (96) (48) 100.5%
The number of business outlets fell by 18 to 784 year-on-year, due primarily to the optimization of the local presence in Poland and Hungary. The cost/income ratio improved 1.3 percentage points to 65.0 per cent.
At € 272 million net provisioning for impairment losses in the Central Europe segment was € 132 million lower than in the previous year. Net allocations to individual loan loss provisions fell € 79 million to € 350 million, while net releases of portfolio-based loan loss provisions declined slightly to € 15 million. In addition, the sale of non-performing loans generated income of € 63 million in the reporting period, a year-on-year increase of € 54 million. Apart from Slovakia, all countries in the segment reported lower net provisioning for impairment losses: in Poland, net provisioning for impairment losses declined € 61 million and was mainly due to the sale of non-performing loans with a nominal value of € 294 million; in Slovenia, net provisioning for impairment losses declined € 42 million after being particularly high in the previous year because of a sharp rise in the volume of non-performing loans in the corporate business, and due to the revaluation of collateral. Declines were reported in Hungary and the Czech Republic of € 24 million and € 11 million respectively. In contrast, various defaults of large corporate customers resulted in a € 6 million increase in Slovakia.
The share of non-bank non-performing loans in the Central Europe segment’s loan portfolio fell 2.0 percentage points to 10.3 per cent. The NPL coverage ratio improved 3.6 percentage points to 68.0 per cent.
Net fee and commission income 105 125 (15.9)% 26 26 0.5%
Net provisioning for impairment losses (41) (52) (21.3)% (10) (9) 11.6%
hereof foreign currency % 12.8% 11.7% 1.1 PP 12.8% 12.5% 0.3 PP
Loan/deposit ratio (net) 95.4% 100.2% (4.8) PP 95.4% 97.2% (1.8) PP
Employees as at reporting date 2,720 2,773 (1.9)% 2,720 2,727 (0.3)%
hereof foreign currency % 58.0% 60.5% (2.5) PP 58.0% 62.4% (4.3) PP
Loan/deposit ratio (net) 88.3% 97.2% (8.9) PP 88.3% 94.6% (6.3) PP
Return on equity before tax 7.5% 3.7% 3.8 PP 13.5% 8.4% 5.1 PP
Loans and advances to customers 7,504 6,879 9.1% 7,504 7,355 2.0%
Loan/deposit ratio (net) 94.9% 91.0% 3.9 PP 94.9% 96.2% (1.3) PP
Return on equity before tax 15.2% 14.1% 1.0 PP 10.7% 19.1% (8.4) PP
Employees as at reporting date 3,816 3,853 (1.0)% 3,816 3,843 (0.7)%
Loan/deposit ratio (net) 144.5% 215.2% (70.7) PP 144.5% 157.3% (12.7) PP
Employees as at reporting date 230 245 (6.1)% 230 231 (0.4)%
Net provisioning for impairment losses (254) (326) (22.0)% (77) (43) 78.6%
Return on equity before tax 16.7% 13.7% 2.9 PP 9.1% 21.3% (12.2) PP
The Southeastern Europe segment’s net interest income fell 3 per cent, or € 26 million, to € 835 million year-on-year. In Romania, lower market interest rates and declining interest income from securities were responsible for a reduction in net interest income (down € 7 million). In Serbia, lower margins and reduced lending volumes in the retail customer business led to a decrease (down € 11 million). Bosnia and Herzegovina (down € 5 million) also reported a drop in net interest income due to lower volumes in the the corporate customer business. Lower market interest rates also resulted in a fall in net interest income in Bulgaria (down € 5 million). In contrast, Albania reported a rise of € 2 million, while net interest income in Croatia and Kosovo was largely stable. The segment’s net interest margin declined 9 basis points to 4.27 per cent. Total assets increased 1 per cent to € 21.4 billion year-on-year, while risk-weighted assets (total RWA) fell 9 per cent to € 13.7 billion.
Sundry net operating income improved € 11 million to € 33 million year-on-year, mainly as a result of a € 4 million increase in net income from non-banking activities and a gain of € 5 million on the first-time consolidation of Raiffeisen Bausparkasse in Croatia.
Net provisioning for impairment losses in the Southeastern Europe segment fell 22 per cent, or € 72 million, to € 254 million yearon -year. Net allocations to individual loan loss provisions declined € 48 million to € 287 million, while net releases of portfoliobased loan loss provisions increased € 25 million to € 32 million. The largest declines were reported in Bulgaria, Romania and Croatia: In Bulgaria, the € 39 million decline was due to a lower volume of non-performing loans and a greater provisioning requirement in the previous year as a result of the impairment of collateral. In Romania, sales of receivables and a year-on-year reduction in the portfolio of non-performing loans, led to a € 21 million decrease in net provisioning for impairment losses. In Croatia, where collection activities and restructuring were stepped up for both corporate and retail customers, the decline amounted to € 8 million.
Other results in the segment halved to € 8 million year-on-year.
Net income from financial investments amounted to € 8 million and was more or less at the previous year’s level. In Croatia, lower valuation losses from securities of the fair value portfolio were recognized and higher net proceeds from securities were reported, which were entirely offset by lower valuation gains and net proceeds from the sale of securities in Romania.
Loans and advances to customers 899 916 (1.8)% 899 911 (1.2)%
hereof foreign currency % 67.4% 68.5% (1.1) PP 67.4% 69.6% (2.1) PP
Loan/deposit ratio (net) 48.0% 47.2% 0.8 PP 48.0% 49.0% (1.0) PP
Return on equity before tax 19.8% 18.3% 1.5 PP 14.4% 18.9% (4.4) PP
Bosnia and Herzegovina in € million 2014 2013 Change Q4/2014 Q3/2014 Change
Net fee and commission income 35 33 5.9% 9 9 6.9%
hereof foreign currency % 74.0% 73.4% 0.6 PP 74.0% 71.8% 2.2 PP
Return on equity before tax 9.5% 12.0% (2.5) PP – 20.2% –
Employees as at reporting date 1,434 1,491 (3.8)% 1,434 1,462 (1.9)%
Net provisioning for impairment losses (52) (91) (43.1)% (9) (13) (30.9)%
hereof foreign currency % 61.5% 67.2% (5.7) PP 61.5% 64.2% (2.7) PP
Loan/deposit ratio (net) 91.3% 106.0% (14.7) PP 91.3% 89.3% 2.0 PP
Employees as at reporting date 2,751 2,965 (7.2)% 2,751 2,767 (0.6)%
hereof foreign currency % 64.9% 68.8% (3.9) PP 64.9% 64.1% 0.8 PP
Loan/deposit ratio (net) 92.3% 109.1% (16.8) PP 92.3% 95.8% (3.5) PP
Return on equity before tax 10.8% 7.9% 2.9 PP 3.5% 19.7% (16.2) PP
Return on equity after tax 9.2% 6.3% 2.9 PP 4.1% 16.6% (12.5) PP
Employees as at reporting date 2,127 2,036 4.5% 2,127 2,104 1.1%
Net fee and commission income 8 8 0.2% 2 2 (4.1)%
Loan/deposit ratio (net) 76.7% 77.7% (1.0) PP 76.7% 74.9% 1.8 PP
Net provisioning for impairment losses (85) (106) (19.9)% (24) (15) 56.2%
Loans and advances to customers 4,313 4,266 1.1% 4,313 4,445 (3.0)%
Return on equity after tax 15.1% 18.4% (3.3) PP 10.1% 21.4% (11.2) PP
Net fee and commission income 36 36 0.7% 9 9 2.6%
Loans and advances to customers 1,129 1,105 2.1% 1,129 1,112 1.5%
Return on equity after tax 9.0% 10.2% (1.3) PP 4.9% 9.8% (4.9) PP
Net provisioning for impairment losses (152) (48) 216.1% (35) (47) (25.8)%
Net interest income in Russia increased 16 per cent, or € 112 million, to € 835 million year-on-year. Interest income from derivative financial instruments rose € 84 million. Increased interest income from loans also had a positive effect, which largely reflected higher volumes in the retail business. The segment’s net interest margin was up 112 basis points to 5.92 per cent year-on-year. Total assets declined 20 per cent to € 12.5 billion year-on-year, while risk-weighted assets (total RWA) were down 27 per cent to € 8.4 billion.
Net fee and commission income fell 1 per cent, or € 4 million, to € 304 million year-on-year, due to currency effects. While net income from the loan and guarantee business was down € 17 million to € 77 million, net income from foreign currency, notes/coins and precious-metal business rose € 26 million to € 88 million, largely due to higher volumes. Net income from the payment transfer business fell € 11 million to € 102 million.
Net trading income fell € 221 million to minus € 65 million, which was considerably below the previous year’s level. Net income from currency-based transactions decreased € 183 million to minus € 36 million as a result of lower valuation results from foreign currency derivatives carried out for hedging purposes. Besides currency developments, this was also due to the classification of new foreign currency transactions carried out to hedge banking book positions, which resulted in interest income from such transactions being reported under net interest income. Net income from interest-based transactions declined € 38 million to minus € 30 million due to valuation losses on securities and derivatives, as well as lower interest income from securities.
Sundry net operating income reversed from being slightly negative in the previous year to plus € 8 million, due to the sale of a building.
General administrative expenses fell 14 per cent, or € 76 million, to € 477 million. The decline was mainly attributable to the development of the Russian rouble. Staff expenses therefore had a currency-related decline of € 45 million, while wages and salaries increased in local currency due to higher bonus payments. Other administrative expenses fell € 16 million and were similarly currency related, while lower advertising and IT expenses also contributed. The € 14 million decline in depreciation was also predominantly currency related. In addition, depreciation of tangible fixed assets fell. The number of business outlets rose by 17 to 212 year-on-year. The cost/income ratio improved 2.5 percentage points to 44.1 per cent.
In the reporting year, net provisioning for impairment losses increased € 104 million in Russia. This was due to increases of € 53 million both in net allocations to individual loan loss provisions and portfolio-based loan loss provisions. These stood against a € 2 million increase in gains from the sale of impaired loans. This development was mainly the result of increased lending volumes to retail and corporate customers, developments in the retail business due to the economic situation in Russia (the development of the US dollar and euro against the Russian rouble, as well as inflation, led to the deterioration of customers’ credit standing), and individual defaults of corporate customers. The share of non-performing loans in the segment’s loan portfolio rose 1.1 percentage points to 5.9 per cent, while the NPL coverage ratio declined to 70.5 per cent (2013: 77.8 per cent).
The Russian segment’s other results declined € 46 million to minus € 17 million. Net income from financial investments fell from plus € 25 million in the previous year to minus € 44 million in the reporting year. On the one hand, the decrease resulted from valuation losses on securities in the fair value portfolio, which were € 28 million higher than in the previous year; and on the other, from losses of € 15 million on the sale of securities in the fair value portfolio which were recognized in the reporting year – whereas a gain of € 1 million was reported in the previous year. Furthermore, gains of € 24 million in net proceeds from the sale of equity participations were achieved in the comprarable period of the previous year from the sale of VISA shares. Net income from derivative financial instruments increased € 22 million to € 26 million as a result of valuation gains from interest-rate swaps carried out to mitigate interest rate structure risk, as well as changes in the market values of banking book derivatives.
hereof foreign currency % 47.8% 33.5% 14.4 PP 47.8% 39.7% 8.1 PP
Return on equity before tax 23.6% 31.7% (8.1) PP 21.9% 21.5% 0.4 PP
Return on equity after tax 18.4% 24.2% (5.7) PP 16.0% 16.7% (0.7) PP
Return on equity before tax – 26.1% – – – –
Net interest income in the CEE Other segment fell 9 per cent, or € 36 million, to € 386 million year-on-year. This was mainly attributable to a currency-related decline in net interest income of 18 per cent, or € 61 million, to € 272 million in Ukraine (in local currency net interest income increased 20 per cent). In contrast, net interest income in Belarus increased 28 per cent, or € 24 million, to € 112 million, due to higher lending volumes and improved margins. The segment’s net interest margin rose from 7.60 per cent to 8.92 per cent year-on-year. Total assets decreased 30 per cent to € 4.0 billion year-on-year, and risk-weighted assets (total RWA) also declined 25 per cent to € 4.6 billion.
Other results increased € 89 million to € 133 million year-on-year. This was mainly due to gains from the valuation and sale of securities from the fair value portfolio (up € 105 million). This resulted exclusively from the valuation and partial repayment of fixedincome government bonds in Ukraine. In contrast net proceeds from the sale of equity participations were € 18 million lower after net proceeds of € 20 million were posted from the sale of VISA and MasterCard shares in the previous year.
Detailed results of individual countries: Belarus in € million 2014 2013 Change Q4/2014 Q3/2014 Change
Net provisioning for impairment losses (9) 13 – (5) (1) 254.7%
Loans and advances to customers 1,047 910 15.0% 1,047 1,047 0.0%
hereof foreign currency % 68.5% 72.4% (3.9) PP 68.5% 73.3% (4.8) PP
Loan/deposit ratio (net) 117.6% 105.7% 11.9 PP 117.6% 103.5% 14.0 PP
Return on equity before tax 34.2% 44.7% (10.5) PP 35.6% 36.5% (1.0) PP
Return on equity after tax 23.7% 34.3% (10.6) PP 19.6% 28.0% (8.4) PP
Net fee and commission income 127 148 (13.9)% 30 32 (3.6)%
Net provisioning for impairment losses (533) (121) 339.8% (207) (143) 44.6%
Group Corporates in € million 2014 2013 Change Q4/2014 Q3/2014 Change
The segment’s net trading income reversed from minus € 16 million in the comparable period of the previous year to plus € 6 million in the reporting period. This was, above all, due to an increase in net income from interest-based derivatives at Group head office.
The segment’s general administrative expenses declined 6 per cent, or € 11 million, to € 180 million year-on-year, largely as a result of lower staff and depreciation expenses. The segment consisted of 8 business outlets at the reporting date. The cost/income ratio improved 1.4 percentage points to 29.3 per cent.
Net interest income in the Group Markets segment declined 8 per cent, or € 12 million, to € 136 million year-on-year, because of a partial reclassification of new business from the banking book to the trading book. The 24 basis points increase in the net interest margin to 0.98 per cent was the result of a reduction in average interest-bearing assets. Total assets decreased 13 per cent to € 17.6 billion year-on-year. Risk-weighted assets (total RWA) declined 30 per cent to € 3.9 billion.
Net trading income in the segment increased 15 per cent, or € 12 million, to € 96 million. The decline in equity and index-based transactions was more than offset by an improvement in interest-based transactions.
Sundry net operating income, which consists of various smaller income and expense items, improved 13 per cent, or € 3 million, to € 25 million.
There was a net release of impairment losses of € 1 million in the reporting period; whereas in the previous year, there was a net € 15 million allocation to provisions at Group head office’s Financial Institutions & Sovereigns profit center. The ratio of nonperforming loans to total credit exposure in the segment was 2.2 per cent.
The segment’s other results fell € 32 million year-on-year from € 18 million to minus € 13 million. This was mainly attributable to valuation results of securities and derivative financial instruments, which declined € 27 million due to interest rate developments. Group head office's bank levy had a negative effect of € 6 million on net income (2013: € 1 million) as this was allocated to the individual segments for the first time in the reporting year. The tax expense declined € 10 million to € 13 million.
Net provisioning for impairment losses (10) 6 – (6) 2 –
Net fee and commission income significantly improved from minus € 40 million to minus € 9 million year-on-year. This was largely attributable to higher net fee and commission income from intra-Group securitization transactions and the acceptance of guarantees.
The segment’s net trading income declined € 64 million to minus € 54 million year-on-year, mainly as a result of valuation losses from open foreign currency positions.
Sundry net operating income fell € 4 million to € 136 million. The majority of this income came from intra-Group service charges.
General administrative expenses fell 18 per cent, or € 58 million, to € 271 million year-on-year. Staff expenses declined € 12 million at Group head office. Other administrative expenses fell € 38 million due to lower intra-Group charges. Depreciation expenses were down € 8 million to € 17 million, mainly at Group head office.
Other results increased € 52 million to minus € 337 million year-on-year. Included net income from derivatives and liabilities developed positively, improving € 353 million to € 89 million. This was mainly attributable to net income from liabilities designated at fair value. The included valuations for the credit spread increased € 292 million to € 166 million. In contrast, goodwill impairment of € 306 million was recognized for Group units mainly in Russia (€ 148 million), Poland (€ 101 million) and Albania (€ 51 million ). Net income from financial investments amounted to minus € 31 million in the reporting year, following minus € 18 million in the comparable period of the previous year.
Statement of comprehensive income 92 Statement of financial position 95 Statement of changes in equity 96 Statement of cash flows 97 Segment reporting 99 Notes 106 Risk report 153 Auditor‘s report 233 Statement of all legal representatives 235
There are no conversion rights or options outstanding, so undiluted earnings per share is equal to diluted earnings per share.
Total Group equity Non-controlling interests in € thousand 2014 2013 2014 2013 2014 2013
Items which are not reclassified to profit and loss (9,774) 2,862 (9,774) 2,862 0 0
Deferred taxes on items which are not reclassified to profit and loss 3,258 (958) 3,258 (958) 0 0
Changes in equity of companies valued at equity 0 224 0 224 0 0
Net gains (losses) on financial assets available-for-sale 21,411 (34,552) 21,577 (35,324) (166) 772
Exchange differences are derived primarily from changes of the Russian rouble and Ukrainian hryvnia to Euro. In the current reporting and previous year, no profit or loss was reclassified to income statement.
In 2014, € 39,162 thousand (2013: € 31,158 thousand) was recognized directly in other comprehensive income through the application of IAS 29 (hyperinflation accounting) in Belarus.
Cash flow hedging has been applied in two Group units to hedge the changes in interest rate risk. In the current reporting year and previous year, no profit or loss was reclassified to income statement.
The item, net gains (losses) on financial assets available-for-sale, contains net valuations of financial investments. In the current reporting year, minus € 10 thousand (2013: € 41,752 thousand) was reclassified to income statement.
Unrealized net gains (losses) of the period 3,820 (439,938) 4,656 27,338 (16,364) 6,429 118 hereof net gains (losses) reclassified to income statement 0 0 0 0 0 (41,752) 5,550
Net income from disposal of group assets (10,675) (234) 1,186 (32)
Loans and advances to banks [15, 35, 52] 15,573,241 22,243,221 (30.0)%
In the current reporting year, a capital increase was carried out and participation capital was fully repaid.
The other changes in equity are mainly due to differences between average currency rate and currency rate as at reporting date in the course of translating the income statement. In the previous year, other changes in equity were mainly due to the purchase of a 25 per cent interest in Raiffeisenbank Austria d.d., Zagreb.
Further details about the above mentioned changes are reported under note (34) Equity.
Non-cash positions in profit/loss and transition to net cash from operating activities: Write-downs/write-ups of tangible fixed assets and financial investments 681,632 484,022
Payments for purchase of: Tangible and intangible fixed assets (415,279) (450,457)
in € thousand 2014 2013 Cash and cash equivalents at the end of previous period 6,674,226 6,556,723
Raiffeisenbank is one of the leading foreign banks in Russia and services both corporate and retail customers. The national branch network also offers products tailored for affluent private individuals and small and medium-sized entities. RBI takes a strong position in the underwriting business. The product range in Russia is rounded off by leasing business. In view of the size of the banking market and its high natural and industrial potential, the Russia segment is of great importance for RBI.
The Group Markets segment covers RBI AG’s customer and proprietary business related to the capital market. Income from currency, interest and securities trading as well as from trading in structured products for financial institutions is also allocated to this segment, as is proprietary business. The same applies to proprietary trading and market maker activities in Vienna, and to the branches in Singapore, China and London. This segment includes net income from customer business, sales of all banking products and business relationships with banks, institutional customers, governments and local authorities too. Furthermore, income from Raiffeisen Centrobank (equity trading and capital market financing) and from Kathrein Privatbank is also booked under this segment.
The governance of the separate segments is based on key indicators, which are assembled of several parameters like profitability, growth, efficiency, constraints and the business mix. The target values of the separate key indicators are determined according to the specific market environment and adapted on demand.
The following key performance indicators are relevant for a reasonable and effective business structure, whereby the composition of the results and the indicators are significant. The structure of the prime funding basis for loans and advances to customers are measured using the loan/deposit ratio which is the proportion of loans and advances to customer 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 relevant as well. The net interest margin is calculated on average interest-bearing assets. The proportion of the net fee and commission income to the operating income is also a key performance indicator, which is included in the target setting for the business mix.
The presentation of segment performance is based on the income statement and geared to the reporting structure internally used. Income and expenses are attributed to the country and/or business division in which they are generated. Operating income positions are the net interest income, net fee and commission income, net trading income and the other net operating income. The other results include the net income from financial investments, the net income from derivatives (hedging) and liabilities, the net income from disposal of group assets, the bank levies, the impairment of goodwill and charges resulting from the Settlement Act in Hungary are shown in sundry operating expenses. The segment result is shown up until the profit/loss after deduction of noncontrolling interests. The segment assets are represented by the total assets and the risk-weighted assets. The item liabilities includes all positions of the liabilities side except the equity. The reconciliation implies mainly the amounts resulting from the elimination of intra-group results and consolidation between the segments. Finally, financial ratios – usual in the line of business – are added to evaluate the results. The values shown in the segment reporting are retrieved from the IFRS individual financial statements which are also used for the compilation of the consolidated financial statements. In some units profit center results are taken from the internal management income statement.
Profit/loss after deduction of non-controlling interests (201,273) 295,747 347,693 (221,135) (147,499)
As of fourth quarter 2014, disclosure of investments in cash generating units was changed. On the one hand goodwill and impairment of goodwill is assigned to the segment in which the investment is recognized, on the other hand, changes in carrying amount of investments in subsidiaries are eliminated in order to represent the Group relevant effects in the respective segment. Til that time they were shown under reconciliation. The previous year figures were adequately adapted.
Significant changes in profit/loss are described below: In Central Europe, a decrease of € 131,858 thousand resulted in a loss before tax of € 65,581 thousand. This was primarily due to higher losses caused by a one-off effect (Settlement Act) in Hungary. This contrasted with an improvement in net income in Poland, the Czech Republic and Slovakia and a lower loss in Slovenia.
Financial year 2014 in € thousand Group Markets Corporate Center Reconciliation Total
In the Group Corporates segment, a € 173,761 thousand decrease from the previous year resulted in a loss before tax of € 60,217 thousand. This was primarily attributable to the higher need for loan loss provisions in relation to loans to large corporate customers in Asia.
The Group Markets segment’s profit before taxes fell 12 per cent, or € 14,776 thousand, to € 110,510 thousand year-on-year, mainly due to the negative valuation result from securities and derivative financial instruments attributable to the interest rate development.
The Corporate Center segment’s profit before tax increased € 445,517 thousand to € 507,449 thousand from € 61,932 thousand in in the prior year’s period. This was mainly due to higher net interest and dividend income, lower general administrative expenses and a higher net income from liabilities designated at fair value. By contrast, Group units reported goodwill impairments of € 305,663 thousand, € 148,482 thousand thereof in Russia, € 101,354 thousand in Poland, and € 50,726 thousand in Albania.
Profit/loss after deduction of non-controlling interests (21,065) 247,536 467,118 157,974 137,912
Business outlets 4 1 – 3,025 1 Adaption of previous year figures due to different allocation.
Raiffeisen Bank International (RBI) is a universal bank focusing on corporate and retail customers in Central and Eastern Europe (CEE) and exclusively on corporate customers in Austria. In CEE, RBI consists of a closely-knit network of banks, leasing companies and numerous specialized financial service providers with 2,866 business outlets. In Austria, RBI concentrates on the top 1,000 corporate customers and is one of Austria's most prominent corporate finance and export and trade finance banks. Cash and asset management, treasury operations and investment banking are further fields of activity. RBI's focus as a highly specialized financial engineer is on serving Austrian and foreign key accounts, multinationals and providers of financial services. RBI has branches, subsidiaries and representative offices in the world's major financial centers and in Asia, which have selective business with corporate customers and financial institutions.
The consolidated financial statements were signed by the Management Board on March 9, 2015 and subsequently submitted to the Supervisory Board for review and notice.
The consolidated financial statements are based on the reporting packages of all fully consolidated Group members, which are prepared according to IFRS rules and uniform Group standards. All fully consolidated companies prepare their annual financial statements as of and for the year ended December 31. Figures in these financial statements are stated in € thousand. The following tables may include rounding differences.
The consolidated financial statements are based on the going concern principle. A financial asset is recognized when it is probable that the future economic benefits will flow to the company and the acquisition or conversion costs or another value can be reliably measured. A financial liability is recognized when it is probable that an outflow of resources embodying economic benefits will result from the settlement of the obligation and the amount at which the settlement will take place can be measured reliably. Revenue is recognized if the conditions of IAS 18 are met and if it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably.
The consolidated financial statements of RBI are prepared in Euro which is the functional currency of RBI AG. The functional currency is the currency of the principal economic environment in which the company operates. Each entity within the Group determines its own functional currency taking all factors listed in IAS 21 into account.
The following exchange rates were used for currency translation: 2014 2013 As at Average As at Average Rates in units per € 31/12 1/1 – 31/12 31/12 1/1 – 31/12
The average inflation rate in Belarus was 16.2 per cent in the reporting period (2013: 16.5 per cent).
The individual financial statements of subsidiaries in Belarus are adjusted before translation into the Group currency and before consolidation, so that all assets and liabilties are stated with the same level of purchasing power. Amounts in the statement of financial position which are not stated in the valid measuring unit as of the reporting date, are adjusted according to a general price index. All non-monetary items in the statement of financial position carried at cost of acquisition or cost of acquisition less depreciation are adjusted by changes in the index between the transaction date and the reporting date. Monetary items are not adjusted. All components of equity are adjusted at the time of inflow according to a general price index. The gain or loss on the net monetary position is shown in the income statement under item net trading income, subitem currency-based transactions.
At each reporting date, all financial assets, not measured at fair value through profit or loss, are subject to an impairment test to determine whether an impairment loss is to be recognized through profit or loss. In particular, it is required to determine whether there is objective evidence of impairment as a result of a loss event occurring after initial recognition and to estimate the amount and timing of future cash flows when determining an impairment loss. Risk provisions are described in detail in note (44) Risks arising from financial instruments, in the section on credit risk.
Deferred taxes are not reported separately in the income statement and statement of financial position. Details are provided in the statement of comprehensive income and in notes (11) Income taxes, (25) Other assets, and (29) Provisions for liabilities and charges.
Financial assets and liabilities at fair value through profit or loss 305,518 402,012
Net gains (losses) on financial assets and liabilities at fair value through profit or loss 72,578 47,200
Impairment on financial assets not measured at fair value through profit and loss (1,783,853) (1,163,343)
(2) Net interest income The net interest income position includes interest income and expenses from items of banking business, dividend income, and fees and commissions with interest-like characteristics.
Interest income 5,566,419 6,047,891 from balances at central banks 38,992 38,364 from loans and advances to banks 204,055 244,302 from loans and advances to customers 4,325,780 4,632,765 from financial investments 394,608 537,367 from leasing claims 180,583 192,416 from derivative financial instruments - economic hedge 313,285 329,566 from derivative financial instruments - hedge accounting 109,116 73,111
Current income 21,530 14,102 from shares and other variable-yield securities 1,274 1,248 from shares in affiliated companies 17,077 8,860 from other interests 3,179 3,994
Currency-based transactions mainly contained valuation losses from deriviative financial instruments and open currency positions due to currency devaluations in Russia and Ukraine. Moreover, it included an effect due to the application of hyperinflation in Belarus amounting to minus € 29,139 thousand (2013: minus € 22,024 thousand).
Net income from hedge accounting includes on the one hand, a valuation result from derivatives in fair value hedges of plus € 399,401 thousand (2013: minus € 129,138 thousand) and on the other hand, changes in the carrying amount of the fair value hedged items of minus € 374,195 thousand (2013: plus € 125,946 thousand).
Net proceeds from sales of securities held-to-maturity resulted exclusively from sales of bonds which are shortly before maturity.
Legal, advisory and consulting expenses include audit fees of the RBI AG and its subsidiaries which comprise expenses for the audit of financial statements amounting to € 6,742 thousand (2013: € 8,801 thousand) and tax advisory as well as other additional consulting services provided by the auditors amounting to € 4,462 thousand (2013: € 4,840 thousand). Thereof, € 1,914 thousand (2013: € 2,556 thousand) relates to the Group auditor for the audit of the financial statements and € 792 thousand (2013: € 1,222 thousand) account for the other consulting services.
Moreover, protection against the risk of occupational invalidity exists which is covered by a pension fund and/or by individual pension agreements secured through reinsurance. The contracts of the members of the Management Board are concluded for the functional duration or limited to a maximum of five years. The severance payments in case of premature termination of function without good cause amounts to a maximum of two years total remuneration.
Rental income from investment property incl. operating lease (real estate) 35,684 34,086
The other net operating income includes impairment of goodwill amounting to € 305,663 thousand which were made by Group units in Russia, Poland and Albania. In the previous year, impairment of goodwill totaling € 2,948 thousand for Group units from the Czech Republic, Hungary and Belarus were included.
(10) Net income from disposal of group assets In the reporting period, eleven subsidiaries were excluded from the consolidated group due to materiality reasons. Moreover, five subsidiaries were excluded due to sale, and respectively one due to end of operations and one due to liquidiation. Net income from this disposal of group assets amounted to minus € 9,755 thousand (2013: minus € 6,465 thousand).
Theoretical income tax expense in the financial year based on the domestic income tax rate of 25 per cent (5,721) (208,664)
Tax decrease because of tax-exempted income from equity participations and other income 42,095 45,391
Other tax deductions and tax increases mainly result from tax losses which are not recognized as deferred tax assets. Moreover, impairment on deferred tax assets from tax loss carryforwards amounting to € 196,370 thousand was carried out because the tax losses cannot be used based on the current medium-term tax planning.
Financial assets at fair value through profit or loss 3,853,910 8,439,503
The purchased loans amounting to € 290,807 thousand are fully assigned to the measurement category loans and advances (2013: € 192,588 thousand).
Loans and advances to banks classified regionally (counterparty’s seat) are as follows:
Loans and advances and loan loss provisions according asset classes are shown in the following table: 2014 in € thousand Fair value
Impairments and collateral according asset classes are shown in the following table: Individually impaired assets
Retail customers – small and medium-sized entities 335,537 224,830 110,704 149,203 9,811
Pledged securities ready to be sold or repledged by transferee shown under trading assets amounted to € 679,017 thousand.
Positive fair values of derivatives in fair value hedges (IAS 39) 941,453 543,598
Positive fair values of derivatives in net investment hedge (IAS 39) 0 23,101
As long as the conditions for hedge accounting, according to IAS 39, are fulfilled, derivative financial instruments are measured at their fair values (dirty prices) in their function as hedging instruments. The hedged items in connection with fair value hedges are loans and advances to customers, loans and advances to banks and debt securities issued which are to be hedged against
interest rate risks. The changes in carrying amount of the hedged underlying transactions in IAS 39 fair value hedges are included in the respective items of the statement of financial position.
Treasury bills and bills of public authorities eligible for refinancing 7,192,257 7,453,473
The carrying amount of the securities reclassified into the category loans and advances amounted to € 1,559,682 thousand at the date of reclassification in 2008. As of 31 December 2014, the carrying amount amounted to € 17,928 (2013: € 89,006 thousand).
The entity valued at-equity in the previous years was disclosed under the category available-for-sale assets and valued according to IAS 39 as it became immaterial.
At the end of each financial year, goodwill is revieved by comparing the recoverable value of each cash generating unit showing goodwill with the carrying value. The carrying value is equal to net assets considering goodwill and other intangible assets which are recognized within the framework of business combinations. In line with IAS 36, impairment tests for goodwill are carried out during the year in case a reason for impairment occurs.
The calculation of the recoverable amount is based on a five -year detailed planning period. The sustainable future growth is shown by the use of the terminal value, in the majority of cases country nominal growth rates of earnings are assumed, which are based on the long-term expected rate of inflation. For companies that have a significant overcapitalization an interim period of five years is defined, but without extending the detailed planning phase. Within this period, it is possible for these CGUs to make full payments without violating the capital adequacy requirements. In the future growth period related profit retention to comply with the capital requirements is imperative. If, however, zero growth is adopted in the future phase no profit retention is required.
RBPL Poland is an important market for the Group. After the merger with Polbank EFG S. A. (Polbank), establishment as a strong universal bank on the Polish market. Strict cost management to make the merged bank more efficient.
The assumptions are based on internal as well as external sources. Macroeconomic assumptions of the research department were compared with external data sources and the 5-year plans were presented to the Management Board. Moreover, the detail planning phase was approved by the Supervisory Board.
Reduction of the growth rates in phase III n.a. n.a. 1 The respective maximum sensitivity refers to the change of the perpetuity. RBCZ: Raiffeisenbank a.s., Prague (CZ) RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL)
Increase in discount rate 0.3 PP 2.2 PP 0.8 PP 7.9 PP
Reduction of the growth rates in phase III 1.3 PP 3.8 PP 1.2 PP 17.0 PP 1 The respective maximum sensitivity refers to the change of the perpetuity. RBAL: Raiffeisen Bank Sh.a., Tirana (AL) RBCZ: Raiffeisenbank a.s., Prague (CZ) RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL) RBRU: AO Raiffeisenbank, Moscow (RU)
The recoverable values of all other units have been either higher than the respective book values or are immaterial.
Brand rights are only recognized for Raiffeisen Bank Polska S.A., Warsaw (RBPL) and for Raiffeisen Bank Aval JSC, Kiev (AVAL). The carrying values of the brands as well as gross amounts and cumulative impairment losses have developed as shown below: 2014 in € thousand AVAL RBPL Total
The brand value of the Raiffeisen Bank Aval JSC, Kiev (AVAL), was determined using the comparable historical cost approach, because neither immediately comparable transctions nor a market with observable prices was available at the time of purchase price allocation. Documentation of brand-related marketing expenses in the previous years was taken as the data base for the historical cost approach.
The value of the Polbank brand was determined using the relief from royalty method, because neither immediately comparable transactions nor a market with observable prices was available at the time of purchase price allocation. Underlying premise of this method is that the brand has a fair value equal to the present value of the royalty income attributable to it. In 2014, impairment tests showed no impairment of the brand.
Cumulative impairment2 (14,394) (4,393) (18,787) 1 Calculated with average exchange rate 2 Calculated with period-end exchange rate RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL) AVAL: Raiffeisen Bank Aval JSC, Kiev (UA)
Cumulative impairment2 (21,011) (2,624) (23,636) 1 Calculated with average exchange rate 2 Calculated with period-end exchange rate RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL) AVAL: Raiffeisen Bank Aval JSC, Kiev (UA)
The impairment test of customer relationships of Raiffeisenbank Aval JSC, Kiev (AVAL), recognized for the business division retail customers at the date of initial consolidation, identified an impairment loss of € 1,092 thousand in 2014.
The impairment test of customer relationships of Raiffeisen Bank Polska S.A., Warsaw (RBPL), identified no impairment need in 2014.
Cost of acquisition or conversion in € thousand As at 1/1/2014
Change in consolidated group Exchange differences Additions Disposals Transfers As at 31/12/2014
Office furniture, equipment and other tangible fixed assets 1,274,129 (3,197) (185,361) 92,287 (90,389) (574) 1,086,895
Other land and buildings (34,970) 0 (19,445) 275,245 of which land value of developed land (3) 0 0 12,349
Cost of acquisition or conversion in € thousand As at 1/1/2013
Change in consolidated group Exchange differences Additions Disposals Transfers As at 31/12/2013
Office furniture, equipment and other tangible fixed assets (875,450) 9,828 (132,687) 398,679
In the previous year, additions to intangible and tangible assets include single investments exceeding € 10,000 thousand in Russia and in Group head office.
Assets held for sale derived from the scheduled sale of trading subsidiaries of Raiffeisen Centrobank AG, Vienna, amounting to € 40,915 thousand.
In the consolidated financial statements, deferred tax assets are recognized for unused tax loss carry-forwards which amounted to € 35,947 thousand (2013: € 189,493 thousand). The reduction is driven by impairment of deferred tax assets of €196,370 Thousand, because the tax loss carryforwards cannot be used based on the current medium-term tax planning. The tax loss carry-forwards are mainly without any time limit. The Group did not recognize deferred tax assets of € 379,427 thousand (2013: € 155,766 thousand) because from a current point of view there is no prospect of realizing them within a reasonable period of time.
The Group refinances itself periodically with international commercial banks and multinational development banks. These credit contracts contain ownership clauses normally used in business. These clauses give permission to an exceptional termination in the case of change in direct or indirect control over RBI AG, e.g. if Raiffeisen Zentralbank Österreich Aktiengesellschaft loses the majority shareholding in RBI AG. This can lead to increased refinancing costs for the Group in the future.
 These defined benefit plans and other post-employment benefits expose RBI to actuarial risks, such as longevity risk, currency risk, interest rate risk and market (investment) risk.
RBI expects to pay € 408 thousand in contributions to its defined benefit plans in 2015 (2014: € 452 thousand).
The defined benefit obligations developed as follows: DBO as at 1/1 38,206 40,876
Plan assets developed as follows: Plan assets at fair value as at 1/1 12,904 13,314
The pension provider Valida established an asset/risk management process (ARM process). According to this process, the riskbearing capacity of each fund is evaluated once a year based on the liability structure of investment and risk associations. Based on this risk-bearing capacity, the investment structure of the fund is derived. When defining the investment tolerance of the customer, defined and documented requirements are also taken into account.
Longevity at age 65 for current pensioners - males 20.8 20.7
Longevity at age 65 for current members aged 45 - females 26.6 26.4
Changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below: 2014 in € thousand Addition Decrease
For details of employee benefit expenses (expenses for defined benefit pension plans, other benefits due to termination of employment ) are stated under note (8) General administrative expenses.
Net losses of € 10,241 thousand (2013: loss € 16,364 thousand) relating to the effective portion of cash flow hedges were recognized in other comprehensive income.
The Group’s insurance business consists of pension products in Russia. Due to the existence of mortality risk and discretionary participation features in these products it is necessary to apply IFRS 4 for the accounting of the resulting liabilities. All assets related to the provision of pensions products are accounted for under IAS 39.
Mortality risks – The pension products expose RBI Group to insurance risk through the risk of unpredictable losses resulting from longevity of the policyholder. A stable improvement of medical services and social conditions, which increase longevity, is the most important factor for increasing longevity in Russia.
Other risks – Based on federal demography statistics data annuity rates are determined by Russian legislation and therefore subject to a degree of uncertainty. Market risk, liquidity risk and credit risk are not material in relation to insurance contracts.
In the reporting period, expenses on subordinated capital totaled € 209,135 thousand (2013: € 194,914 thousand).
The Management Board has been authorized pursuant to Section 169 of the Austrian Joint Stock Companies Act (AktG) by the Annual General Meeting held on 26 June 2013, within 5 years after registration of the respective change in the articles of incorporation in the Company Register, to increase the share capital up to € 298,145 thousand – also in several tranches – against contribution in cash and/or in kind by issuing 97,752,562 new common bearer shares with voting rights while preserving the subscription rights of the shareholders, including the indirect subscription by way of a bank pursuant to Section 153 (6) of the Austrian Joint Stock Companies Act (AktG), and to determine the offering price and terms of the issue with the approval of the Supervisory Board. The Supervisory Board or a committee is authorized for this purpose to adopt amendments to the articles of association that arise upon issuing shares from the authorized capital. The Management Board made use of the authorization after approval of the Supervisory Board. The capital increase by issuing 97,473,914 new shares was carried out in two tranches on 25 January and 11 February 2014 and subscription rights were preserved. The unused part of the authorization given in the Annual General Meeting on 26 June 2013 was revoked in the Annual General Meeting on 4 June 2014.
At the same time, pursuant to Section 169 of the Austrian Stock Corporation Act (AktG), the Management Board has been authorized since the Annual General Meeting of 4 June 2014 to increase the capital stock – in one or more tranches – by up to € 446,793,032.95 by issuing up to 146,489,519 new common bearer shares with voting rights against contributions in cash and/or in kind (including by way of the right of indirect subscription by a bank pursuant to Section 153 (6) of AktG) by 25 August 2019 at the latest and to fix the offering price and terms of the issue with the approval of the Supervisory Board. The Management Board is further authorized to exclude shareholders’ subscription rights, with the approval of the Supervisory Board, (i) if the capital increase is carried out by contributions in kind or (ii) if the capital increase is carried out by contributions in cash and the shares issued under the exclusion of subscription rights do not exceed 10 per cent of the company’s capital stock (exclusion of subscription rights).
In the Annual General Meeting held on 26 June 2013, the Management Board was given the authorization pursuant to Section 174 (2) of the Austrian Joint Stock Companies Act (AktG) to issue – with the approval of the Supervisory Board – convertible bonds, also in several tranches, within 5 years as of the date of the resolution, for a maximum total nominal amount of € 2,000,000 thousand, to which attaches a conversion or subscription right to obtain a maximum of 39,101,024 ordinary bearer shares of the company with a corresponding pro-rata share in the subscribed capital of a maximum of € 119,258 thousand. The subscription right of shareholders is excluded. No convertible bonds have been issued to date, however.
Dividends paid to non-controlling interests during the year 1 3,008 8,363 26,821 1 Included in net cash from investing activites
In the course of the approval process for the acquisition of Polbank shares, it was promised – besides other consent efforts – to the Polish Financial Market Authority that 15 per cent of the shares of the Polish banking unit is to be quoted on the Warsaw stock exchange in June 2016 at the latest. Furthermore, it was promised that shares of RBI are to be listed on the Warsaw stock exchange (in addition to the listing at the Vienna stock exchange) from June 2018 at the latest or that the amount of quoted shares of the Polish banking unit is to be increased to 25 per cent.
The management board decided to assess the benefit and purpose of the share-based remuneration due to increasing complexity of regulations concerning variable remuneration. Originally, the SIP was set up as variable long-term remuneration element with reference to the market and the company’s success. It became less important because the annual bonus for the same target group of top management is deferred over three to five years and one half is paid in instruments (e.g. shares). Therefore, it was decided that there will be no SIP issues in the future. In 2014, no tranche of the share incentive program matured because no tranche of the SIP program was issued in 2010. Moreover, in 2011 the maturity of the SIP program was extended to five years in accordance with legal regulations. Therefore the next tranche will not mature before 2016.
Under the SIP program new tranches have been issued in 2011, in 2012 and in 2013. On the reporting date, contingent shares for three allotments were assigned. As at 31 December 2014, the contingent allotment of shares amounted to 975,955 (of which 212,796 shares were attributable to the 2011 allotment, 402,209 shares to the 2012 allotment and 360,950 shares to the 2013 allotment). The originally announced number of contingently allotted shares changed due to various personnel changes within Group units. This is shown on an aggregated level in the following table: Share incentive program (SIP) 2011 – 2013 Group of persons
Executives of the company and other affiliated companies 234,709 70,413 352,064
(35) Breakdown of remaining terms to maturity 2014 Short-term assets/liabilities Long-term assets/liabilities in € thousand Due at call or without maturity Up to 3 months
More than 1 year, up to 5 years More than 5 years
More than 3 months, up to 1 year More than 1 year, up to 5 years More than 5 years
The following transactions executed with external contractual partners, or at least individual tranches, are active in 2014. The stated amounts represent the usable volumes and the junior tranche at the transaction closing date: in € thousand
Synthetic transaction ROOF WESTERN EUROPE CLO – 2012 – 1 Raiffeisen Bank International AG, Vienna July 2012 July 2025 996,076
True sale transaction ROOF Poland 2008 – 1 Raiffeisen-Leasing Polska S.A., Warsaw (PL)
In the financial year 2014, some new securitization programs with external investors were made. They are described briefly as follows: A synthetic securitization of loans and advances to corporate customers, primarily originated by head office, was concluded in December 2014. The equity tranche was externally placed and comprises a portfolio guarantee amount of up to € 88,100 thousand.
In the financial year a new securitization was placed by a leasing subsidiary in Poland in relation to a portfolio of car leasing contracts with a volume of € 222,250 thousand. The SPV founded for this transaction is fully consolidated because the leasing subsidiary in Poland possesses decision rights which significantly influence the financial assets and liabilities of the SPV. It has the ability to influence the earnings of the SPV and hence, according to IFRS 10, effective control exists. The senior tranche of the notes is externally held by the European Investment Bank, the junior notes amounting to 33 per cent are held internally by the leasing subsidiary in Poland as originator.
The true sale transactions ROOF Poland 2008-1, consisting of car leasing contracts, was closed in May 2014, which was six months before maturity. The loans and advances in this SPV amounted to € 3,373 thousand at year-end 2013.
Besides the above-mentioned refinancing and packaging of designated portfolios of loans or leasing claims, RBI also acts as an investor in ABS-structures. Essentially, this is about investments in Structured Credit Products, Asset Based Financing and partly also Diviersified Payment Rights. During the financial year 2014 market value changes led to a positive valuation result of about € 28 thousand (2013: minus € 286 thousand) and to a realized result from sale of € 126 thousand (2013: € 2,180 thousand).
The Group currently has no securitization transactions in which financial assets are entirely derecognized.
(39) Assets pledged as collateral and received financial assets The Group pledges assets mainly for repurchase agreements, securities lending agreements as well as other lending arrangements and for margining purposes on derivative liabilities. The table below contains assets from repo business, securities lending business, securitizations and debentures transferred as collateral of liabilities, or guarantees (this means collateralized deposits).
The following table shows securities and other financial assets accepted as collateral: Securities and other financial assets accepted as collateral which can be sold or repledged 6,538,220 7,339,178 hereof which have been sold or repledged 1,744,451 3,277,196
(40) Offsetting of financial assets and liabilities The disclosures set out in the tables below include financial assets and financial liabilities that are offset in the Group’s statement of financial position or are subject to an enforceable/unenforceable master netting arrangement or similar agreement that covers similar financial instruments, irrespective of whether they are offset in the statement of financial position.
Related amounts not setoff in the statement of financial position Net amount in € thousand of recognized assets set-off in the statement of financial position of recognized liabilities set-off in the statement of financial position of recognized assets set-off in the statement of financial position
Reverse repurchase, securities lending & similar agreements (legally enforceable) 6,270,951 0 6,270,951 6,253,237 0 17,714
Related amounts not set-off in the statement of financial position Net amount in € thousand of recognized liabilities set-off in the statement of financial position of recognized assets set-off in the statement of financial position of recognized liabilities set-off in the statement of financial position
Related amounts not set-off in the statement of financial position Net amount in € thousand of recognized assets set-off in the statement of financial position of recognized liabilities set-off in the statement of financial position of recognized assets set-off in the statement of financial position
Repurchase, securities lending & similar agreements (legally enforceable) 1,862,597 0 1,862,597 1,862,758 0 (161)
The gross amounts of financial assets and financial liabilities and their net amounts disclosed in the above tables have been measured at either fair value (derivatives, other financial instruments) or amortized cost (loans and advances, deposits and other financial instruments). All amounts have been reconciled to the line item in the statement of financial position.
Foreign exchange rate and gold contracts 48,205,734 11,277,116 2,950,853 62,433,703 1,496,375 (1,813,068)
1 Other similar equity/index contracts and other similar currency contracts traded on stock exchange are separately reported in 2014.
2013 Nominal amount by maturity Fair values in € thousand Up to 1 year More than 1 year, up to 5 years More than 5 years Total Positive Negative
(42) Fair Value of Financial Instruments In the Group fair value is primarily measured based on external data sources (mainly stock exchange prices or broker quotations in highly liquid markets). Financial instruments which are measured using quoted market prices are mainly listed securities and derivatives and also liquid bonds which are traded on OTC markets. These financial instruments are assigned to Level I of the fair value hierarchy.
If fair value cannot be measured using either insufficiently regularly quoted market prices (Level I) or using valuation models which are entirely based on observable market prices (Level II), then individual input parameters which are not observable on the market are estimated using appropriate assumptions. If parameters which are not observable on the market have a significant impact on the measurement of the underlying financial instrument, it is assigned to Level III of the fair value hierarchy. These measurement parameters which are not regularly observable are mainly credit spreads derived from internal estimates.
For OTC derivatives, credit value adjustments (CVA) and debit value adjustments (DVA) are used to cover expected losses from lending business. The CVA will depend on the expected future exposure (expected positive exposure) and the probability of default of the contractual partner. The DVA is determined based on the expected negative exposure and on RBI's credit quality. The expected positive exposure is calculated by simulating a large number of scenarios for future points in time, taking into account all available risk factors (e.g. currency and yield curves). OTC derivatives are measured at market values taking into account these scenarios at the respective future points in time and are aggregated at counterparty level in order to then ascertain the expected positive exposure for all points in time. Counterparties with CSA contracts (credit support annex contracts) are included in the calculation for the first time from 31 December 2014. Here, the expected exposures are not calculated directly from simulated market values, but from a future expected change in market values based on a "margin period of risk" of 10 days.
A further element of the CVA involves determining a probability of default for each counterparty. Where direct credit default swap (CDS) quotations are available, the Group calculates the market-based probability of default and, implicitly, the loss-given-default (LGD) for the respective counterparty. The probability of default for counterparties which are not actively traded on the market is calculated by assigning a counterparty's internal rating to a sector and rating-specific CDS curve. The valuation result due to changed credit risk of the counterparty is disclosed under note (5) Net trading income, interest-based transactions.
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 expected debt which we have to the counterparty at the respective future points in time. Values implied by the market are also used to calculate the own probability
In the following tables, the financial instruments reported at fair value in the statement of financial position are grouped according to items in the statement of financial position and classified according to measurement category. A distinction is made as to whether the measurement is based on quoted market prices (Level I), or whether the valuation models are based on observable market data (Level II) or on parameters which are not observable on the market (Level III). Items are assigned to levels at the end of the reporting period.
Bonds, notes and other fixed-interest securities 2,634,264 424,350 41,677 3,607,941 269,800 76,569
Financial assets at fair value through profit or loss 3,434,961 332,688 86,261 4,788,178 3,639,195 12,131
Shares and other variable-yield securities 4,042 0 3,702 42,584 102,595 4,889
Bonds, notes and other fixed-interest securities 1,853,178 0 82,242 341,409 0 11,627
Shares and other variable-yield securities 607 0 1 0 0 0
Negative fair values of derivative financial instruments1 128,449 6,116,587 19,088 128,849 4,133,186 16,640
Negative fair values of derivatives from hedge accountin 0 200,549 0 0 132,536 0 1 Including other derivatives.
in € thousand Gains/loss in P/L Gains/loss in other comprehensive income Transfer to level III Transfer from level III As at 31/12/2014
Financial assets available-for-sale (8,904) (4) 54,770 0 82,243 in € thousand As at 1/1/2014 Change in consolidated group Exchange differences Purchases Sales, repayment
In 2014, gains and losses resulting from financial instruments of the level III fair value hierarchy amounted to minus € 7,938 thou-
2014 in € thousand Level I Level II Level III Fair value Carrying amount Difference
(44) Risks arising from financial instruments Active risk management is a core competency of the Group. In order to effectively identify, measure, and manage risks the Group continues to develop its comprehensive risk management system. Risk management is an integral part of overall bank management. In particular, in addition to legal and regulatory requirements, it takes into account the nature, scale, and complexity of the business activities and the resulting risks. The risk report describes the principles and organization of risk management and explains the current risk exposures in all material risk categories.
The Group has a system of risk principles and procedures in place for measuring and monitoring risk, which is aimed at controlling and managing material risks at all banks and specialist companies in the Group. The risk policies and risk management principles are laid out by the Management Board. The principles include the following risk policies:  Integrated risk management: Credit, country, market, liquidity, and operational risks are managed as main risks on a Groupwide basis. For this purpose, these risks are measured, limited, aggregated, and compared to available risk coverage capital.
The Management Board of the Group ensures the proper organization and ongoing development of risk management. It decides which procedures are to be employed for identifying, measuring, and monitoring risks, and makes steering decisions according to the created risk reports and analyses. The Management Board is supported in implementing these tasks by independent risk management units and special committees.
The Market Risk Committee controls market risks of trading and banking book transactions and establishes corresponding limits and processes. In particular, it relies on profit and loss reports, the amount of risks taken and the limit utilization, as well as the results of scenario analyses and stress tests with respect to market risks for controlling.
The Problem Loan Committee is the most important committee in the judgment and decision-making process concerning problem loans. It comprises primarily decision making bodies (members of the Management Board of RBI and RZB) and its chairman is the Chief Risk Officer (CRO) of RBI. Further members with voting rights are those members of the Management Board responsible for
The Securitization Committee is the decision-making body for limit requests regarding securitization positions within the framework of concrete entitlement for decisions and works out suggestions for modifications to the securitization strategy for the Management Board. In addition, the Securitization Committee is a platform for exchanging information regarding securitization positions and market developments.
Maintaining an adequate level of capital is a core objective of the Group. Capital requirements are monitored regularly based on the actual risk level as measured by internal models, and in choosing appropriate models the materiality of risks is taken into account. This concept of overall bank risk management provides for capital requirements from a regulatory point of view (sustainability and going concern perspective) and from an economic point of view (target rating perspective). Thus it covers the quantitative aspects of the internal capital adequacy assessment process (ICAAP) as legally required. The full ICAAP process of the Group is audited during the supervisory review process for RZB credit institution group (RZB-Kreditinstitutsgruppe) on an annual basis.
Capital and loss projection for a three-year planning period based on a severe macroeconomic downturn scenario 70-90 per cent based on the management decision that the Group might be required to temporarily reduce risks or raise additional capital
The objective of calculating economic capital is to determine the amount of capital that would be required for servicing all of the claims of customers and creditors even in the case of such an extremely rare loss event. The Group uses a confidence level of 99.92 per cent for calculating economic capital. This confidence level is derived from the probability of default implied by the target rating. Based on the empirical analysis of rating agencies, the selected confidence level corresponds to a rating of plain A. Compared to the previous year, the confidence level was reduced from 99.95 per cent to 99.92 per cent representing an adaption of the implicit target rating to the general development of ratings in the banking industry over the last years.
During the year, the economic capital of the Group decreased to € 7,375,631 thousand. The key drivers of the decrease were the change of the confidence level and a decline in credit exposure due to the devaluation of the Russian rouble and the Ukrainian hryvnia. The devaluation effect was however due to the high volatility of the Russian rouble in December partly offset by the increased market risk as at end of reporting date. At 18.5 per cent, the share of market risk to total economic capital more than doubled year-on-year. As at end of reporting date, credit risk accounted for 55 per cent (2013: 67 per cent) of economic capital. CVA risk firstly added in 2014 to the calculation of economic capital amounted to less than 1 per cent of economic capital. Moreover, a general buffer for other risks of unchanged 5 per cent of calculated economic capital is added. In the regional breakdown of economic capital as at 31 December 2014, the largest share of economic capital, at around 30 per cent (2013: 38 per cent), is allocated to Group units located in Central Europe.
The economic capital is compared to internal capital, which mainly denotes equity and subordinated capital of the Group. This capital form serves as a primary provision for risk coverage for servicing claims of senior debtors if the bank should incur losses. Total utilization of available risk capital (the ratio of economic capital to internal capital) was 70.2 per cent at year-end (2013: 64.3 per cent).
Economic capital is an important instrument in overall bank risk management. Economic capital limits are allocated to individual business segments during the annual budgeting process and are complemented for day-to-day management by volume, sensitivity, or value-at-risk limits. In the Group this planning is done on a revolving basis for the upcoming three years and incorporates the future development of economic capital as well as available internal capital. Economic capital thus substantially influences the plans for future lending activities and the overall limit for taking market risks.
Risk-adjusted performance measurement also is based on this risk measure. The profitability of business units is set in relation to the amount of economic capital attributed to these units (risk-adjusted return on risk-adjusted capital, RORAC), which yields a comparable performance measure for all business units of the Group. This measure is used in turn as a key figure for overall bank management, for future capital allocations to business units, and influences the remuneration of the Group’s executive management.
Risk distribution of individual risk types to economic capital in € thousand 2014 Share 2013 Share
In line with this target, risk taking capacity is calculated as the amount of expected profits, expected impairment losses, and the excess of own funds (taking into account various limits on eligible capital). This capital amount is compared to the overall value-atrisk (including expected losses). Quantitative models used in the calculation thereof are mostly comparable to the target rating perspective, (albeit on a lower 95 per cent confidence level). Using this perspective the Group ensures adequate regulatory capitalization (going concern) with the given probability.
The main goal of the sustainability perspective is to ensure that the Group can maintain a sufficiently high tier 1 ratio at the end of the multi-year planning period also in a severe macroeconomic downturn scenario. This 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 are amongst others: interest rates, foreign exchange rates and securities prices, as well as changes in default probabilities and rating migrations in the credit portfolio.
The main focus of this integrated stress test is the resulting tier 1 ratio at the end of the multi-year period. It should not fall below a sustainable level and thus neither requires the bank to substantially increase capital nor to significantly reduce business activities. The current minimum amount of tier 1 capital thus is determined by the size of the potential economic downturn. In this downturn scenario the need for allocating loan loss provisions, potential pro-cyclical effects that increase minimum regulatory capital requirements, the impact of foreign exchange fluctuations as well as other valuation and earnings effects are incorporated.
This perspective thus also complements traditional risk measurement based on the value-at-risk concept (which is in general based on historic data). Therefore it can incorporate exceptional market situations that have not been observed in the past and it is possible to estimate the potential impact of such developments. The stress test also allows for analyzing risk concentrations (e.g., individual positions, industries, or geographical regions) and gives insight into the profitability, liquidity situation, and solvability under extreme situations. Based on these analyses risk management in the Group enhances portfolio diversification, for example via limits for the total exposure of individual industry segments and countries and through ongoing updates to its lending standards.
Credit portfolio management in the Group is, amongst others, based on the credit portfolio strategy. This strategy limits the exposure amount in different countries, industries or product types and thus prevents undesired risk concentrations. On top of that, analyzing the long-term potential of different markets is a routine activity. This allows for an early strategic repositioning of future lending activities.
Revocable credit lines 18,268,598 16,726,791 1 Items on the statement of financial position containing only credit risk parts.
9 Very weak credit standing / doubtful 1,566,013 2.1% 1,973,152 2.5%
The rating model for project finance has five different grades which provide both individual default probabilities and collateral. The project finance volume is composed as shown in the table below: in € thousand 2014 Share 2013 Share 6.1 Excellent project risk profile – very low risk 3,570,635 41.5% 3,388,198 38.7%
6.2 Good project risk profile – low risk 3,100,039 36.0% 2,970,514 34.0%
6.3 Acceptable project risk profile – average risk 734,303 8.5% 1,225,163 14.0%
The following table provides a breakdown by country of risk of the maximum credit exposure for corporate customers and project finance structured by regions: in € thousand 2014 Share 20131 Share 1 Adaption of previous year figures due to different mapping.
The table below provides a breakdown of the maximum credit exposure for corporates and project finance selected by industries: in € thousand 2014 Share 2013 Share
Electricity, gas, steam and hot water supply 3,236,002 3.9% 4,124,123 4.7%
Retail customers are subdivided into private individuals and small and medium-sized entities (SME). For retail customers a two-fold scoring system is used – consisting of the initial and ad-hoc scoring based on customer data and of the behavioral scoring based on account data. The table below provides a breakdown of the maximum retail credit exposure of the Group: in € thousand 2014 Share 2013 Share
Retail customers – small and medium-sized entities 3,347,157 11.7% 3,207,994 10.9%
In the table below the retail exposure selected by products is shown: in € thousand 2014 Share 2013 Share 2014 in € thousand Central Europe Southeastern Europe Russia CEE Other Group Markets 2013 in € thousand Central Europe
Compared to year-end 2013, loans denominated in Swiss francs and US-Dollar decreased, while loan denominated in Euro increased.
Southeastern Europe Russia CEE Other Group Markets 2013 in € thousand Central Europe
The financial institutions asset class mainly contains banks and securities firms. The internal rating model for these financial institutions is based on a peer-group approach that takes both qualitative and quantitative information into account. The final rating for financial institutions is capped by the country rating of the respective home country.
The maximum credit exposure of these customers amounted to € 21,414,009 thousand (2013: € 27,369,523 thousand) at yearend 2014. At € 7,927,599 thousand or 37.0 per cent, the bulk of this customer group was in the rating grade A3, which decreased € 5,440,492 thousand compared to year-end 2013. This resulted mainly from a decline of loans to banks and money market business (minus € 5.676.586 thousand).
The decrease of € 244,612 thousand in rating grade A1 is due to repayment of bonds, open framework credits and swap business as well as internal rating downgrade of the European Investment Bank from A1 to A2.
The share of not rated financial institutions amounted to 2.1 per cent at year-end 2014 and concerned mainly short-term loans to small banks, where the rating process had not yet been completed.
The table below shows the maximum credit exposure to financial institutions (excluding central banks) selected by products: in € thousand 2014 Share 20131 Share 1 Adaption of previous year figures due to different mapping.
The credit exposure mainly resulted from deposits of Group units with the local central banks in Central and Southeastern Europe. They are used for meeting the respective minimum reserve requirements and for managing the short-term investment of excess liquidity, and are therefore inextricably linked to the business activities in these countries.
Collateral is divided into pledges (e.g. guarantees) and physical collateral. Mortgages dominate the types of collateral considered by the Group. Essentially, these relate to residential or commerical properties.
Problem loans (where debtors might run into material financial difficulties or a delayed payment is expected) need special treatment. In non-retail divisions, problem loan committees in individual Group units make decisions on problematic exposures. If the need for intensified treatment and workout is identified, then problem loans are assigned either to a designated specialist or to a restructuring unit (workout department). Employees of the workout units are specially trained and have extensive experience. They typically handle medium-sized to large cases and are assisted by in-house legal departments or by external specialists as well. Workout units play a decisive role in accounting and analyzing as well as booking provisions for impairment losses (write-offs, value adjustments or provisioning). Their early involvement can help reduce losses resulting from problem loans.
Within the Group a Group-wide default database has been created for collecting and documenting customer defaults. The database tracks defaults and the reasons for defaults, which enables the calculation and validation of own default probabilities.
The following table shows the exposure of non-performing loans failed in the defined asset classes loans and advances to banks and loans and advances to customers as reported in the statement of financial position (excluding items off the statement of financial position): in € thousand As at 1/1/2014 Change in consolidated group/
Exchange differences Additions/disposals As at 31/12/2014 in € thousand As at 1/1/2013 Change in consolidated group/
The following table shows the share of non-performing loans (NPL) in the defined asset classes loans and advances to customers and loans and advances to banks as reported in the statement of financial position (excluding items off the statement of financial position): NPL NPL ratio NPL coverage ratio in € thousand 2014 2013 2014 2013 2014 2013
In 2014, in the asset class corporate customers, non-performing loans increased € 520,533 thousand to € 6,227,244 thousand (2013: € 5,706,711 thousand). The ratio of non-performing loans to credit exposure rose 1.2 percentage points to 12.1 per cent; the NPL coverage ratio also went up 3.4 percentage points to 62.4 per cent. In the retail portfolio, non-performing loans sank 10.6 per cent or € 310,818 thousand to € 2,610,770 thousand (2013: € 2,921,588 thousand). The ratio of nonperforming loans to credit exposure decreased 0.5 percentage points to 10.5 per cent, the NPL coverage ratio went up 6.8 percentage points to 79.1 per cent. The portfolio of non-performing loans in the division financial institutions decreased € 23,560 thousand to € 129,909 thousand (2013: € 153,469 thousand) at year-end, the NPL coverage ratio increased 15.6 percentage points to 88.2 per cent.
The following table shows the development of impairment losses on loans and provisions for liabilities off the statement of financial position and the corresponding items from the statement of financial position: in € thousand As at 1/1/2014
Loans and advances to banks 111,447 0 3,219 (1,910) (4,951) 3,962 111,768
Loans and advances to banks 145,805 (15,678) 168 (4,584) (11,464) (2,800) 111,447
Country risk also is reflected via the internal funds transfer pricing system in product pricing and in risk-adjusted performance measurement. Business units therefore can benefit from country risk mitigation by seeking insurance (e.g. from export credit insurance organizations) or 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 that is funded by local deposits). Thereby the Group realigns its business activities according to the macro-economic development within different markets and enhances the broad diversification of its credit portfolio.
The regional breakdown of the loans reflects the broad diversification of credit business in the Group’s markets. The following table shows the regional distribution of the credit exposure of all asset classes by the borrower’s home country grouped by regional segments.
The Group does not own any banking subsidiaries that are incorporated in the so-called European periphery countries. Nonetheless, some of the bank’s loans and advances are to customers domiciled in these countries and result from credit financing and capital market activities. All in all, the bank has almost no exposure to government bonds in these countries (except for the Republic of Italy).
Risk policies and credit portfolio management in the Group take into account the industry class of customers as well. Banking and insurance represents the largest industry class, which, however, is mostly attributed to exposures to members of the Austrian Raiffeisen Sector (central liquidity balancing function). The second largest industry class is private households, primarily consisting of loans to retail customers in Central and Eastern European countries. The following table shows the maximum credit exposure of the Group by the customers’ industry classification:
Electricity, gas, steam and hot water supply 3,158,525 2.0% 4,163,444 2.5%
The Group’s strategy for the structured credit portfolio is to reduce these investments step-by-step. This will be achieved either through repayment at maturity date or through assets sales depending on the market situation. The size of the structured credit portfolio is shown in note (37) securitization. Around 72.0 per cent of this portfolio is rated A or better by external rating agencies. The pools mainly contain exposures to European customers.
An important strategy for reducing counterparty credit risk is credit risk mitigation techniques such as netting agreements and collateralization. In general, the Group strives to establish standardized ISDA master agreements with all major counterparties for derivative transactions in order to be able to perform close-out netting and credit support annexes (CSA) for full risk coverage for positive fair values on a daily basis.
All products in which open positions can be held are listed in the product catalog. New products are added to this list only after completing the product approval process successfully. Product applications are investigated thoroughly for any risks. They are approved only if the new products can be implemented in the bank’s front- and back-office (and risk management) systems respectively.
The following tables show the VaR (99 per cent, one day) for individual markets risk categories of the trading and banking book. The Group’s VaR mainly results from long-termed equity positions, structural interest rate risks, and credit spread risks of bonds, which are held as liquidity buffer.
Banking book VaR 99% 1d VaR as at Average VaR Minimum VaR Maximum VaR VaR as at in € thousand 31/12/2014 31/12/2013
Total VaR 99% 1d VaR as at Average VaR Minimum VaR Maximum VaR VaR as at in € thousand 31/12/2014 31/12/2013
Total 134,630 82,475 51,483 216,773 56,961 1 Exchange rate risk on total bank level also includes equity positions of subsidiaries denominated in foreign currency.
The geopolitical crisis (occupation of Crimea, Ukrainian war, political sanctions to Russia) and other related market movements are the reason for the increased market risk, above all for the increase of the structural foreign currency risk (Ukrainian hryvnia and Russian rouble).
In a narrow sense, exchange rate risk denotes the risk that one suffers losses due to open foreign exchange positions. Exchange rate fluctuations also influence current revenues and expenses. However, they also influence regulatory capital requirements of assets denominated in foreign currencies, even if they are refinanced in the same currency and thus do not create an open foreign exchange position.
The Group holds several large participations located outside of the European Monetary Union with their equity denoted in the corresponding local currency. Also, a significant share of risk-weighted assets in the Group is denominated in foreign currencies. Changes in foreign exchange rates thus lead to a change of consolidated capital in the Group and to changes in the total capital requirement for credit risks as well.
Value-at-Risk and theoretical market price changes of trading book in € million
In 2014, the changes in present value of banking book positions after an interest rate shock of 200 basis points were always lower than the regulatory reporting threshold of 20 per cent of eligible total capital.
Liquidity management, i.e. ensuring that the Group maintain its ability to pay at all times, is performed both centrally by the Treasury division in Vienna and on a decentralized basis by local banking subsidiaries. Cash flows are calculated and analyzed by currency on a periodical basis in an internal monitoring system. Based on this data, the Group creates liquidity balances, and analyzes whether the Group conforms to legal regulations on liquidity positions and defined internal liquidity limits. Liquidity analyses also include simulations on defined market or name specific liquidity crises in scenario-based cash flow forecasts. All these analyses are discussed in the Group Asset/Liability Committee. The Group possesses all instruments for liquidity risk management required by the credit institutions risk management directive (amongst others a sufficiently large liquidity buffer, stress tests based on different scenarios, and liquidity contingency plans).
in € thousand 2014 2013 Maturity 1 week 1 month 1 year 1 week 1 month 1 year
In the Group’s funding plans, special attention is paid to a diversified structure of funding to mitigate funding liquidity risk. In the Group, funds are not only raised by RBI AG as the Group’s parent institution, but also individually by different banking subsidiaries. Those efforts are coordinated and optimized through a joint funding plan. Moreover, RBI AG arranges medium-term and longterm funding for its subsidiaries through syndicated loans, bilateral funding agreements with banks, and financing facilities of supranational institutions. These funding sources are based on long-term business relationships.
Operational risk is defined as the risk of unexpected losses resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. In this risk category internal risk drivers like unauthorized activities, fraud or theft, execution and process errors, or business disruption and system failures are managed. External factors such as damage to physical assets or consciously conducted human fraud are managed and controlled as well.
This risk category is analyzed and managed on the basis of own historical loss data and the results of self-assessments. Another management tool is the incentive system implemented in internal capital allocation. This system rewards high data quality and active risk management. Generally speaking, the Group implements a centralized and also decentralized system for operational risk management. In this process, a central operational risk management function defines all basic principles and minimum requirements, which then are implemented risk type specific in the individual local units.
As with other risk types the principle of firewalling between risk management and risk controlling is also applied to operational risk in the Group. Operational risk controlling units are mainly responsible for the implementation and refinement of methods for operational risk management in different Group units (e.g. performing risk assessments, defining and monitoring key risk indicators, etc.) and for reporting to the central operational risk controlling function. Business line managers are responsible for controlling and mitigating operational risks. They decide on pro-active operational risk steering actions, such as buying insurance, and the use of further risk mitigating instruments.
Identifying and evaluating risky areas that might endanger the Group’s existence if a loss occurs (but where losses are highly unlikely to be realized) and also areas where losses are more likely to happen frequently (but cause only smaller losses) are important tasks for controlling operational risks.
Loss data is collected in a central database called ORCA (Operational Risk Controlling Application) in a structured manner and on a Group-wide basis according to the event type and the business line. Collecting losses stemming from operational risks is a prerequisite for implementing a statistical loss distribution model and a minimum requirement for implementing the regulatory Standardized Approach. Furthermore, loss data is used to create and validate operational risk scenarios and for exchange with international data pools to further develop advanced operational risk management tools as well as to track further on measures and control efficiency. Since 2010, The Group has been participant in the ORX data pool, whose data are currently used for internal benchmark purposes and analyses. The results of the analyses as well as events resulting from operational risks are reported in a comprehensive manner to the Group Risk Committees on a regular basis.
Assets under finance leases break down as follows: Real estate leasing 510,017 561,691
Future minimum lease payments under non-cancelable operating leases are as follows: More than 1 year, up to 5 years 159,783 172,254
(49) Other disclosures according to BWG Geographical markets 2014 Monetary values in € thousand
Regulatory values are defined on an individual and subgroup basis by the Austrian Banking Act (BWG) and the applicable regulation of the European Parliament (CRR) based on adequate guidelines of the EU. There are also – often deviating with regard to content – guidelines in the several countries in which the Group operates. Such guidelines have to be adhered to by the local Group units.
Basel III was implemented in the European Union via a regulation (CRR) and a directive (CRD IV). Both regulations were published on 27 June 2013 in the EU Official Journal and are therefore effective.
As of 1 January 2014, the CRR is directly applicable law for all EU member states. The CRD IV became effective on 17 July and had to be transferred into local law until 31 December 2013. As of beginning of 2014, the new regulations – CRR and CRD IV – have to be therefore applied under consideration of several transitional periods.
Moreover, the European Central Bank (ECB) took over supervision of large banks in the Eurozone, whose total assets exceed € 30 billion or 20 per cent of the country’s economic performance in November 2014. Both, RBI and RZB are defined as large banks.
The determination of eligible total capital in accordance with the applicable regulations is based on international accounting standards. Further details can be found in the regulatory Disclosure report according to Article 431 ff CRR.
Total capital requirement for position risk in bonds, equities, commodities and open currency positions 253,783
The own funds (calculated according to Austrian Banking Act (BWG) 1993/Amendment 2006 – Basel II) as of year-end 2013 break down as follows: in € thousand 2013
Tier 2 capital available to be redesignated as tier 3 capital 357,016
Risk-weighted assets according to section 22 BWG 65,334,163 of which 8 per cent minimum own funds for the credit risk according to sections 22a to 22 h BWG 5,226,733
Own funds requirement for position risk in bonds, equities and commodities 297,108
Risk-weighted assets for the credit risk according to asset classes break down as follows: Risk-weighted assets according to standardized approach 28,477,025
The following table provides an overview on the calculation methods that are applied to determine total capital requirements in the subsidiaries: Credit risk Market risk Operational Unit Non-Retail Retail risk
Other liabilities including derivatives 5 27,752 2 549 2013 in € thousand Parent companies
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 7,221 7,878
Short-term employee benefits shown in the above table contain salaries and benefits in kind and other benefits, remunerations for membership of board in affiliated companies and those parts of the bonuses which become due for the short term. Furthermore, changes possibly arising from the difference between the bonus provision and the later awarded bonus are also contained.
Bonus calculation is linked to the achievement of the Group objectives regarding profit after tax, return on risk adjusted capital (RORAC), cost/income ratio and to the achievement of personal objectives that are agreed upon annually. Payment is done according to the current regulations of the Austrian Banking Act (BWG), executed in the internal regulations (see employee compensation plans under the chapter recognition and measurement principles).
Share-based payments comprises adaptions for the SIP tranches launched in 2013 (see share-based remuneration in the notes under (34) Equity.
Thus, in the financial year, € 550 thousand (2013: € 550 thousand) was paid to the members of the Supervisory Board.
The Management Board of RBI AG is as follows: Members of the Management Board First assignment End of period
Markus Mair, 3rd Deputy Chairman 8 July 20101 4 June 2014
3rd Deputy Chairman 3rd Deputy Chairman 3rd Deputy Chairman 3rd Deputy Chairman 3rd Deputy Chairman 3rd Deputy Chairman
Project Committee: In the meeting held on 21 Janaury 2014, the Supervisory Board estabilshed a temporary Project Committee for further resolution in concerns regarding the capital increase of RBI AG. The members were the following: Walter Rothensteiner, Erwin Hameseder, Heinrich Schaller, Johannes Schuster, Martin Prater and Rudolf Kortenhof. The Project Committee was especially authorized to decide on the approval of determining the volume of the capital increase, the shareholder´s subscription rights and the subscription and offer price and work out the related adaptions to the articles of incorporation. After arranging the relevant decisions the activity of the Project Committee was finished as at 10 February 2014.
 Alfred Lejsek, State Commissioner (since 1 January 2011)  Anton Matzinger, Deputy State Commissioner (since 1 April 2011)
In February 2015, RBI resolved to take a number of steps to increase capital buffers. The measures are intended to facilitate an improvement in the CET1 ratio (fully loaded) to 12 per cent by the end of 2017, compared to 10 per cent at the end of 2014. The planned steps will affect a number of operations across RBI, in particular those areas which generate low returns, have high capital consumption or are of limited strategic fit.
The implementation of these measures will result in an aggregate gross RWA reduction in the selected markets of approximately € 16 billion by the end of 2017 (total RWA as at 31.12.2014: € 68.7 billion). The total gross reduction from the end of the third quarter 2014 to the end of 2017 will amount to approximately € 26 billion.
Of the 135 entities in the Group, 35 are domiciled in Austria (2013: 36) and 100 abroad (2013: 107). They comprise 20 banks, 66 financial institutions, 25 companies rendering bank-related ancillary services, 9 financial holding companies and 15 other companies.
Infrastruktur Heilbad Sauerbrunn RBI-Leasing GmbH & Co.KG., Bad Sauerbrunn (AT) 55.7% 1/9 Materiality
RZB Finance (Jersey) II Ltd, St. Helier (JE) 100.0% 31/8 End of operations
F.J. Elsner & Co. Gesellschaft mbH, Vienna (AT) 100.0% 31/3 Sale
P & C Beteiligungs Gesellschaft m.b.H., Vienna (AT) 60.8% 30/9 Immaterial
Income arising from disposal of Group assets: in € thousand ELSNER-Group RBMT Others Total
Centrotrade Commodities Malaysia Sdn Bhd, Kuala Lumpur (MY) 1,400,000 MYR 100.0% OT
Limited Liability Company Raiffeisen Leasing Aval, Kiev (UA) 180,208,527 UAH 93.5% FI
Raiffeisen Bank Zrt., Budapest (HU) 50,000,080,000 HUF 100.0% BA 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, SC Securities firms.
Raiffeisen Investment Romania LLC - in liquidation, Bucharest (RO) 159,130 RON 100.0% FI
SCTAI Angol Iskola Ingatlanfejlesztő és Ingatlanhasznosító Kft., Budapest (HU) 3,000,000 HUF 90.3% FI
SCTJ Ingatlanfejlesztő és Ingatlanhasznosító Kft., Budapest (HU) 3,100,000 HUF 100.0% FI
Tatra Residence, s. r. o., Bratislava (SK) 23,143,519 EUR 78.8% BR
ZUNO BANK AG, Vienna (AT) 5,000,000 EUR 100.0% BA 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, SC Securities firms.
The following tables show, by type of structured entity, the carrying amounts of the Group’s interests recognized in the consolidated statement of financial position as well as the maximum exposure to loss resulting from these interests. The carrying amounts presented below do not reflect the true variability of returns faced by the Group because they do not take into account the effects of collateral or hedges.
The Group provides funding to structured entities that hold a variety of assets. These entities may take the form of funding entities, trusts and private investment companies. The funding is collateralized by the asset in the structured entities. The group’s involvement involves predominantly lending.
The Group establishes securitization vehicles which purchase diversified pools of assets, including fixed income securities, corporate loans, and asset-backed securities (predominantly commercial and residential mortgage-backed securities and credit card receivables). The vehicles fund these purchases by issuing multiple tranches of debt and equity securities, the repayment of which is linked to the performance of the assets in the vehicles.
The Group did not provide non-contractual support during the year to non-consolidated structured entities.
As a sponsor, the Group is often involved in the legal set up and marketing of the entity and supports the entity in different ways such as providing operational support to ensure the entity’s continued operation
The Group is also deemed a sponsor for a structured entity if market participants would reasonably associate the entity with the Group. Additionally, the use of the Raiffeisen name for the structured entity often indicates that the Group has acted as a sponsor.
The gross revenues from sponsored entities for the year ending December 31, 2014 amounted to € 22,074 thousand.
No assets have been transferred to sponsored non-consolidated structured entities in 2014.
CP Linzerstraße 221-227 Projektentwicklungs GmbH, Vienna (AT) 37,000 EUR 99.0% OT
CP Projekte Muthgasse Entwicklungs GmbH, Vienna (AT) 40,000 EUR 99.0% OT
Euro Green Energy Fejlesztő és Szolgáltató Kft., Budapest (HU) 21,000,000 HUF 100.0% OT
Perun Capital GmbH & Co KG, CEE Value Creation, Vienna (AT) 20,000 EUR 100.0% OT
Pyrit Property, s.r.o. v likvidaci, Prague (CZ) 200,000 CZK 100.0% OT
Raiffeisen Capital a.d. Banja Luka, Banja Luka (BA) 355,000 BAM 100.0% BR
Raiffeisen Future AD Beograd drustvo za upravljanje dobrovoljnim penzijskim fondom, Belgrade (RS) 143,204,921 RSD 100.0% FI
Raiffeisen penzijni spolecnost a.s. - in liquidation, Prague (CZ) 325,000,000 CZK 100.0% SC
RBI Private Equity Holding GmbH, Vienna (AT) 100,000 EUR 100.0% FI
RI Inwestycje Sp. z o.o., Warszawa (PL) 50,000 PLN 100.0% OT
RL Flussschifffahrts GmbH & Co KG, Vienna (AT) 5,000 EUR 0.0% FI
RL Service Member of Raiffeisen Group d.o.o. Sarajevo, Sarajevo (BA) 2,000 BAM 100.0% OT
RLOL ESTATE 1 d.o.o. Belgrad (SCG), Belgrade (RS) 43,186 RSD 100.0% FI
SCT Beruházás Ingatlanfejlesztő és Ingatlanhasznosító Kft., Budapest (HU) 3,600,000 HUF 100.0% FI
SCT Zivatar utca Ingatlanfejlesztő Kft., Budapest (HU) 3,100,000 HUF 100.0% OT
Trojske vyhledy s.r.o., Prague (CZ) 200,000 CZK 100.0% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, SC Securities firms.
ZHS Office- & Facilitymanagement GmbH, Vienna (AT) 36,336 EUR 1.0% BR 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, SC Securities firms.
Accession Mezzanine Capital L.P. in liquidation, Bermuda (BM) 1,147 EUR 2.6% OT
Commodity Exchange Crimean Interbank Currency Exchange, Simferopol (UA) 440,000 UAH 4.5% SC
Ferrell Premier Investments Limited, Port Louis (MU) 111,089,074 SGD 18.0% OT
Kathrein & Co. Private Equity I AG, Vienna (AT) 190,000 EUR 36.8% OT
Open Joint Stock Company Volodymyr-Volynskyi Sugar Refinery, Volodymyr-Volynskyi (UA) 13,068,010 UAH 2.6% OT
Private Joint Stock Company Ukrainian Interbank Currency Exchange, Kiev (UA) 36,000,000 UAH 3.1% SC
Public Joint Stock Company Bird Farm Bershadskyi, Viytivka (UA) 6,691,141 UAH 0.5% OT
REPEF Holding GmbH in liquidation, Vienna (AT) 400,000 EUR 3.5% OT
The Zagreb Stock Exchange joint stock company, Zagreb (HR) 40,408,000 HRK 3.3% SC
Trimo inzeniring in proizvodnja montaznih objektov, d.d., Trebnje (SI) 5,077,295 EUR 5.0% OT
Ziloti Holding S.á.r.l., Luxembourg (LU) 4,896,313 EUR 0.6% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, SC Securities firms.
1. Financial assets or liabilities at fair value through profit and loss
Capital-guaranteed products (guarantee funds and pension plans) are shown as sold put options on the respective funds to be guaranteed. The valuation is based on a Monte-Carlo simulation. The Group has provided capital guarantee obligations as part of the government-funded state-sponsored pension plans according to Section 108h (1) item 3 EStG. The bank guarantees that the retirement annuity, available for the payment amount, is not less than the sum of the amounts paid by the taxpayer plus credits for such taxable premiums within the meaning of Section 108g EStG.
Moreover, debt instruments are also allocated to this category if there is no active market for them. Derecognition of financial assets within the framework of securitizations is – after checking if the securitized special purpose entity has to be integrated into the consolidated accounts – done on a risk and rewards or control test according to IAS 39 after identifying loss of control over the contractual rights arising from the financial asset.
Interest and dividend income from financial assets available-for-sale are recorded in the item "net interest income".
Liabilities are predominantly recognized at amortized cost. Discounted debt securities and similar obligations are measured at their present value. Financial liabilities are reported in the statement of financial position under the item "deposits from banks", deposits from customers", "debt securities issued" or "subordinated capital". Financial liabilities measured at fair value are shown in the category "liabilities at fair value through profit and loss". Interest expenses are stated under net interest income.
Within the operating activity, the Group carries out different transactions with derivative financial instruments for trading and hedging purposes. The Group uses derivatives including swaps, standardized forward contracts, futures, credit derivatives, options and similar contracts. The Group applies derivatives in order to meet the requirements of the clients concerning their risk management, to manage and secure risks and to generate profit in proprietary trading. Derivatives are initially recognized at the time of the transaction at fair value and subsequently revalued to fair value. The resulting valuation gain or loss is recognized immediately in net in-
come from derivatives, unless the derivative is designated as a hedging instrument for hedge accounting purposes and the hedge is effective. Here the allocation of the gain of loss on the hedging instrument will depend on the type of hedging relationship.
Credit derivatives, the value of which is dependent on future specified credit (non-)events are shown under "derivatives" (positive fair values on the asset side and negative fair values on the liability side). Changes in valuation are recognized under net income from derivatives.
Additional information on derivatives is provided in the notes under (41) derivative financial instruments.
Hedge accounting according to IAS 39 applies to those derivatives that are used to hedge the fair values of financial assets and liabilities. The credit business is especially subject to such fair value risks if it deals with fixed-interest loans. Interest-rate swaps that satisfy the prerequisites for hedge accounting are contracted to hedge against the interest-rate risks arising from individual loans or refinancing. Thus, hedges are formally documented, continuously assessed, and tested to be highly effective. In other words, throughout the term of a hedge, it can be assumed that changes in the fair value of a hedged item will be nearly completely offset by a change in the fair value of the hedging instrument and that the actual effectiveness outcome will lie within a band of 80 to 125 per cent.
Cash flow hedge accounting according to IAS 39 applies for those derivatives that are used to hedge against the risk of fluctuating future cash flows. Variable-interest liabilities, as well as expected transactions such as expected borrowing or investment, are especially subject to such cash flow risks. Interest rate swaps used to hedge against the risk of fluctuating cash flows arising from specific variable interest-rate items, are recognized as follows: The hedging instrument is recognized at fair value, changes in its clean price are recorded as a separate item in other comprehensive income. Any ineffective portion is recognized in profit or loss in the position net income from derivatives and liabilities.
c. Hedge of a net investment in a foreign operation (capital hedge)
Further information to measurement methods and quantitative information for determination of fair value is shown under Notes (42) Fair value of financial instruments.
Measurement Category according Assets/liabilities Fair Value Amortized Cost Others IAS 391 Asset classes
For credit risks related to loans and advances to customers and banks, provisions are made in the amount of expected loss according to homogeneous Group-wide standards. Risk of loss is deemed to exist if the discounted projected repayment amounts and interest payments are below the carrying value of the loans – taking collateral into account. Portfolio-based impairments are calculated according to valuation models that estimate expected future cash flows for the loans in the respective loan portfolio based on loss experience history.
RBI concludes securities lending transactions with banks or customers in order to meet delivery obligations or to conduct security sale and repurchase agreements. Securities lending transactions are shown in the same way as genuine sale and repurchase agreements. This means loaned securities continue to remain in the securities portfolio and are valued according to IAS 39. Borrowed securities are not recognized and not valued. Cash collateral provided by the Group for securities lending transactions are shown as a claim under "Loans and advances to banks" or "Loans and advances to customers" while collateral received is shown as deposits from banks or deposits from customers in the statement of financial position.
Similar to subsidiaries, consolidation of structured entities is necessary, if the Group has control over the entity. In the Group, the need to consolidate structured entities is reviewed as part of the securitization transaction process, where the structured entity is either formed by the Group with or without participation of third parties, or, in which the Group with or without participation of third parties enters into contractual relationships with already existing structured entities. Whether an entity should be consolidated or not is reviewed at least quarterly. All fully consolidated structured entities and interests in not-consolidated structured entities are to be seen in the notes (56) Group composition.
In order to determine when an entity has to be consolidated, a series of control factors have to be checked. These include an examination of
The Group assesses evidence of control in cases in which it does not hold the majority of voting rights but has the ability to unilaterally govern the relevant activities of the entity. This ability may occur in cases in which the Group has the ability to control the relevant activities due to its size and distribution of voting rights of the investees.
In principle, subsidiaries are firstly integrated in the consolidated group on the date when the Group obtains control of the company and are excluded from the date on when it no longer has control of the company. The results from subsidiaries acquired or disposed of during the year are recorded in the consolidated income statement, either from the actual date of acquisition or up to the actual date of disposal. The Group reviews the adequacy of previous decisions on which companies to consolidate at least every quarter. Accordingly, any organizational changes are immediately taken into account. Apart from changes in ownership, these also include the Group’s existing or new contractual arrangements with a unit.
Intra-group income and expenses are also eliminated and temporary differences resulting from bank business transactions are included partly in net interest income and partly in net trading income. Other differences are shown in "other net operating income."
If, in the case of existing control, further shares are acquired or sold without loss of control in subsequent consolidation, such transactions are recognized directly in equity. The carrying amount of the shares hold by the Group and the non-controlling interests are adjusted in the way that they reflect the changes of the participation quota of the existing subsidiaries. Any difference between the amount which is adjusted for the non-controlling interests and the fair value of the consideration paid or received is recognized directly in equity and is assigned to the shareholders of the parent company.
 the carrying amount of assets (including goodwill), liabilities of the subsidiary and all non-controlling interests