Overview of RBI Interview with the Management Board 6 Management Board of RBI 9 Report of the Supervisory Board 10 Merger of RBI and RZB 12 Raiff eisen at a glance 15 RBI‘s strategy 17 RBI in the capital markets 18 Corporate Governance Report 21 Sustainability Management 35
Group management report Market development 38 Performance and fi nancials 42 Statement of fi nancial position 51 Research and development 54 Internal control and risk management system 54 Capital, share, voting and control rights 57 Risk management 59 Human Resources 60 Outlook 62 Events after the reporting date 63
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Net provisioning for impairment losses (754) (40.3)% (1,264) (1,750) (1,149) (1,009)
Return on equity before tax 10.3% 1.9 PP 8.5% – 7.8% 9.7%
Net interest margin (average interest-bearing assets) 2.78% (0.22) PP 3.00% 3.24% 3.11% 2.66%
Interview with the Management Board 6 Management Board of RBI 9 Report of the Supervisory Board 10 Merger of RBI and RZB 12 Raiffeisen at a glance 15 RBI‘s strategy 17 RBI in the capital markets 18 Corporate Governance Report 21 Sustainability Management 35
Can you explain the merger in detail? SEvELDA: RZB is merging into RBI. In order to compensate RZB shareholders for their shares, RBI will issue new shares and the total number of RBI shares will therefore increase. As a result, the shareholding of RBI’s current free float would fall from previously 39.3 per cent to around 35 per cent. However, as some former RZB shareholders are to be classified as part of the free float after the transaction, the free float will rise to 41.2 per cent. The regional Raiffeisen banks, which will be parties to a new syndicate agreement with respect to RBI, will hold 58.8 per cent in the merged entity after the transaction. The number of RBI shares that a RZB shareholder is entitled to is determined according to the exchange ratio, which is based on comparative valuations for RBI and RZB. These valuations were prepared by two well-established international accounting firms. The fairness of the exchange ratio, which the Management Boards of RZB and RBI passed a resolution on, was confirmed by international investment banks and an independent merger auditor.
STROBL: Of course, the Supervisory Boards of RBI and RZB have examined these valuations and confirmed the fairness of the exchange ratio. As far as the time frame for this project is concerned, I would like to point out that capital market regulations – here the listing of RBI is important – meant that we were required to announce the review of the merger very early on – in May 2016.
SEvELDA: I would also mention that Johann Strobl, as the long-standing Management Board member responsible for risk management at RBI and previously RZB, not only knows the two banks that are to be merged very well, but he is also very familiar with our markets in Central and Eastern Europe and Austria. With this background and his extensive banking experience, also as CFO, I am very pleased that he will be my successor.
One aspect I would also like to stress in connection with RBI’s future is that we will remain a traditional relationship bank in all the markets. In other words, our focus is very clearly on long-term, close relationships with our customers. While we use our network for our corporate customers for this purpose, for our retail customers we provide a multichannel offering. Moreover, we will continue to focus on comfortable capitalization levels and a high degree of efficiency.
Will RBI also merge with regional Raiffeisen banks or will the current merger with RZB be the last step? SEvELDA: Of course, a range of models were examined to determine how the Raiffeisen Banking Group can be made fit for the future in view of the difficult market environment for banks and growing regulation. However, further mergers between banks from within the Raiffeisen sector and RBI are currently not planned.
You implemented a transformation program in 2015. The goal was a CET1 ratio (fully loaded) of at least 12 per cent. What measures have you taken? SEvELDA: We have sold Raiffeisen-Leasing Polska to PKO, Poland’s largest bank, for about € 200 million. Besides the proceeds from the sale, we also reduced our risk-weighted assets (RWA) by about € 1.3 billion. Furthermore, we have reduced our RWA in Asia and the US by 85 and 65 per cent respectively so far – calculated from year-end 2014. In addition, we sold our Slovenian subsidiary bank in mid-2016. We have also optimized our branch network and scaled back business in Russia, Belarus and Ukraine, completely restructured the Raiffeisen bank in Hungary, as well as substantially reducing costs across the Group. With this, we have created a very good basis for the future. In Poland, the main focus is on rightsizing the business model and the IPO.
STROBL: For me, the key point is that we have already reached our overall target from February 2015, namely a CET1 ratio (fully loaded) of at least 12 per cent by the end of 2017, one year ahead of the deadline. At the end of September 2016, RBI’s CET1 ratio already stood at 12.3 per cent, and at year-end 2016 it was 13.6 per cent. Even for the combined bank we had reached this target at year-end, and were at 12.4 per cent.
RBI is therefore on the right track. What about dividends? STROBL: We are faced with the challenge of, on the one hand, meeting the regulatory capital requirements, and on the other, satisfying the justified wishes of our owners. While the regulators request an ever greater capital buffer from us and therefore also that we retain earnings, our shareholders naturally expect a dividend. There will be no dividends distributed for the 2016 financial year. In light of the optimistic economic forecast for Central and Eastern Europe, I am confident about the future.
Marketing & Event Management 1 Outsourced to RZB; reports to whole Management Board
At the Supervisory Board meetings, the Management Board was given specific assignments and asked to report on their implementation and results at subsequent meetings. The Supervisory Board also asked the Management Board to provide regular reports on significant political and legal developments, as well as on regulatory, macroeconomic and other possible risks. Key areas included, for example, the foreign currency issues in some CEE countries and the situation in Russia, especially the status of the continuing sanctions and their impact on the local network bank. The Management Board was also asked to provide regular reports on matters which were of priority for the Supervisory Board due to their importance for the company or their strategic significance. In addition to the implementation of the transformation program, the cost reduction program and the largest IT projects, this included in particular the merger of RBI with Raiffeisen Zentralbank Österreich Aktiengesellschaft (RZB). The Supervisory Board was provided with regular detailed reports on the valuation analyses and the project’s development. On 5 October 2016, following the evaluation phase, the Management Boards and Supervisory Boards of RBI and RZB decided, in principle, to merge RBI with RZB. Details on the merger of RBI and RZB are provided in the next chapter of this report. This form of regular reporting on particularly important matters enabled the Supervisory Board to form a comprehensive picture of developments within RBI throughout the entire financial year.
As in previous years, the members of the Supervisory Board also had the opportunity to hold expert discussions in advance of the meetings in order to obtain detailed information about the content of the items on the agenda for the forthcoming meeting. Overall, the members of the Supervisory Board were thereby able to diligently fulfill their supervisory duties and form a sound basis on which to take decisions.
The Audit and Risk Committees each appointed a new Chairman. The Chairmen of the Working, Audit, Remuneration, Personnel, Risk and Nomination Committees regularly reported to the Supervisory Board on the respective Committee’s work. A detailed breakdown of the type and composition of the Committees as well as their fields of activity is contained in the Corporate Governance Report.
Martin Prater, Chairman of the Staff Council and member of the Supervisory Board, entered into early retirement as of 1 February 2016. His delegation was therefore revoked by the Staff Council. On behalf of the Supervisory Board, I would like to thank Martin Prater for his longstanding service to RBI and his close cooperation at all times. The Staff Council delegated Natalie Egger-Grunicke to the Supervisory Board with eff ect from 18 February 2016. Rudolf Kortenhof is the new Chairman of the Staff Council.
The audit revealed no reason for objections. All legislative provisions were fully satisfi ed and the unqualifi ed auditor’s report was thus issued.
Strengths of the combined bank The key objectives of the transaction are, on the one hand, to retain the proven business model and, on the other, to optimally position the organization for the aforementioned challenges. The main focus is on three issues: ■ Firstly, it should improve the capitalization of the Group from a regulatory perspective. Capital planning and allocation are to be optimized as a result of the merger. In addition, the minority interest deduction for the combined bank is eliminated and conserves capital. The minority deduction has been applicable for RZB since the introduction of Basel III.
■ Thirdly, the merger has a positive impact on corporate governance policies: Leaner organizational and governance structures facilitate more focused and efficient decision-making processes throughout the organization. Previously overlapping functions between the two companies will be eliminated.
The strengths of the combined bank build on prior achievements. These include the geographic footprint in the attractive growth markets of CEE, with top-five market positions in 9 of a total of 14 markets, as well as a stable business in Austria. The focus will remain on long-term customer relationships in the respective local markets. As a customer-oriented universal bank, solutions to address corporate customer needs based on local market access and an extensive network, along with a comprehensive multichannel offering for retail customers in CEE, play an important role in the overall focus.
Progress of the merger On 10 May 2016, the Management Boards of RBI and RZB resolved to examine a merger of RBI and RZB. The objectives of a merger are the simplification of the corporate structure and adaptation of the Group to increased regulatory requirements.
Following an extensive evaluation phase, on 5 October 2016, the Management and Supervisory Boards of RBI and RZB passed in principle a resolution to merge RZB and RBI. In connection with this, preliminary valuation ranges were also defined for the merging entities. RZB, as the transferring company, is to merge with RBI, the acquiring company; through absorption by way of universal succession by transferring all of RZB’s assets as at 30 June 2016, and based on RZB’s closing balance at 30 June 2016, with a capital increase for RBI. The combined bank will operate under the name of Raiffeisen Bank International AG, as was previously the case for RBI, and RBI shares will continue to be listed on the vienna Stock Exchange.
Management Board and Supervisory Board The composition of the Management Board of the combined bank reflects a high degree of continuity in terms of personnel. Karl Sevelda will step down from his position on the Management Board once the merger of RBI and RZB takes effect, having reached retirement age. Johann Strobl has been appointed as the new CEO. The appointment will take effect with the entry of the merger into the commercial register. Johann Strobl joined RZB as Chief Risk Officer (CRO) in 2007. He has been a member of the Management Board of RBI (CRO) since 2010 and Deputy CEO since 2013.
After the merger of RBI and RZB, former RZB shareholders will become direct shareholders in RBI. The regional Raiff eisen banks will hold approximately 58.8 per cent of RBI‘s shares, with 41.2 per cent in free fl oat.
As a result of the merger of RBI and RZB, there will also be a change in the segmentation. RBI’s existing segments – Central Europe, Southeastern Europe, Eastern Europe and Corporate Center – are to be expanded as a result of the inclusion of parts of the RZB business. Group Corporates & Markets (GC&M) segment will be introduced for operating business booked in Austria. This will primarily comprise fi nancing business with Austrian and international corporate customers serviced from vienna, Group Markets, Financial Institutions & Sovereigns, as well as business with the institutions of the Raiff eisen Banking Group. Also included in the segment are small service units and specialized fi nancial institution subsidiaries, such as Raiff eisen Centrobank, Kathrein Privatbank, Raiff eisen Leasing, Raiff eisen Factorbank, Raiff eisen Bausparkasse, and Raiff eisen Capital Management.
Separately to the above, the Non-Core segment will be dissolved in the fi rst quarter of 2017, with the remaining business allocated to the regional segments, due to the conclusion of the transformation program.
Raiffeisen at a glance The Raiffeisen Banking Group Austria (RBG) RBG is the country‘s largest banking group and has the densest branch network in Austria. In financing, it primarily serves small and mid-sized retail, service, industrial and commercial enterprises as well as the tourism and agriculture sectors. RBG employs around 29,000 persons across Austria.
Together, the 434 autonomous Raiffeisen banks with their 1,500 branches, the regional Raiffeisen banks and the specialist companies make up a comprehensive and extensive banking network. The autonomous Raiffeisen banks are universal banks that provide a full range of banking services and are also the owners of their respective regional bank.
The regional Raiffeisen banks (Raiffeisen Landesbanken and Raiffeisenverband) provide liquidity balancing and other central services for the Raiffeisen banks in their area of activity. Although clearly identified in RBG’s organizational structure, their business operations are not restricted to specific geographic territories. The regional Raiffeisen banks are also independent universal banks and were shareholders of RZB AG as at 31 December 2016. Around 90 per cent of RZB AG’s share capital was held by the regional Raiffeisen banks at the end of 2016.
Raiffeisen Zentralbank Österreich AG Raiffeisen Zentralbank Österreich AG (RZB AG) was established in 1927 as “Girozentrale der österreichischen Genossenschaften” and at that time served as the liquidity balancing center for Austria’s agricultural cooperatives, as envisioned by social reformer Friedrich Wilhelm Raiffeisen.
RZB AG had one of the largest banking networks in CEE through its subsidiary, Raiffeisen Bank International AG (RBI AG), which has been listed on the stock exchange since 2005. At the end of 2016, RZB AG held approximately 60.7 per cent of RBI’s stock, with the remaining shares in free float. RZB AG was primarily owned by the eight Raiffeisen regional banks and served as their central institution pursuant to the Austrian Banking Act (BWG). Following the merger between RZB AG and RBI AG, effective retroactively as of 30 June 2016, RBI AG will assume the role of RBG’s central institution by way of universal succession.
RBI’s markets Assets 2016 in € million Change1 Business outlets Number of staff
1 Change of total assets versus figures from 31 December 2015 expressed in local currencies varies due to fluctuations in euro exchange rates. 2 Allocation of employees to Group Corporates, Group Markets and Corporate Center is not possible.
RBI’s strategy RBI is a leading universal banking group in the CEE region and Austria. Its business activities comprise the corporate customer business, financial services for retail customers in CEE, and business with banks and other institutional clients. Ongoing changes and challenges in the business environment in which financial institutions operate – particularly tighter regulatory requirements, bank-specific taxes and politically motivated market interventions, the persistently low interest rate environment, new technological challenges and competitors – demands flexibility in adjusting structures and business models. RBI responded to these developments with two key strategic measures: on the one hand, with the transformation program, which was launched in February 2015, and on the other, through the merger of RBI and RZB.
February 2015 saw the implementation of a transformation program designed to strengthen the capital base – it targeted a CET1 ratio (fully loaded) of at least 12 per cent – and reduce risk-weighted assets. With a CET1 ratio (fully loaded) of 13.6 per cent at 31 December 2016, RBI achieved its target ahead of schedule.
Institutional protection scheme Institutional protection schemes (IPS) approved by the Financial Market Authority have been established within the RBG since the end of 2014. Contractual or statutory liability arrangements were concluded as well. The schemes and liability arrangements protect the participating institutions and, in particular, ensure their liquidity and solvency when required. The IPS is based on uniform, joint risk monitoring pursuant to Article 49 CRR (Capital Requirements Regulation). The IPS was designed with two levels (federal and regional IPS) to reflect RBG’s organizational structure.
This is used as a basis by RBI in the provision of services to some 14 million retail and private banking customers as well as small enterprises, roughly 90,000 corporate clients (medium-sized businesses, major local companies and international corporations) and approximately 8,000 institutional clients (banks, insurance companies, asset managers, sovereigns and public-sector organizations). Customers’ needs are always a top priority, and RBI sees itself as their financial advisor. It aims to provide its customers with the right financial services to meet their needs as comprehensively as possible and in this way build longterm business partnerships. In the process, customers typically take advantage of entire product bundles. RBI successfully implements this strategy through the provision of top-quality advisory services and innovative solutions.
For corporate and institutional clients, key emphasis is placed on Group-wide sales and management tools with a focus on capital- and liquidity-efficient products (particularly trade finance, capital market products and hedging of currency, interest rate and credit risks, as well as payment transfer business). At the same time, Group-wide product competence centers not only enhance efficiency through the pooling of know-how but also facilitate customer access to complex financing products (e.g. in the areas of project, real estate and export financing).
Performance of RBI stock In 2016, RBI’s stock opened at € 13.61 and reached its lowest closing price of € 10.21 in February amid weak global stock market performance at the start of the year. European stock markets and bank shares in particular, declined following the surprising outcome of the UK’s referendum on leaving the European Union in late June. However, the markets quickly recovered from this setback in the second half of the year.
As plans for the merger of RBI and Raiffeisen Zentralbank Österreich AG (RZB) took shape in early October, the RBI share price began a strong rally that gained further momentum following publication of the financial results for the third quarter. The share price significantly outperformed the Euro Stoxx Banks from the middle of the year onwards and the ATX from early October. It peaked at € 18.29 in December. At the end of the year, the stock was trading at € 17.38, having gained 28 per cent over the year. RBI shares outperformed the ATX (up 9 per cent) and Euro Stoxx Banks (down 8 per cent) by a wide margin, and were the best performing by far in the Euro Stoxx Banks Index in 2016.
Shareholder structure after the merger Following the merger of RBI and RZB, the regional Raiff eisen banks will hold approximately 58.8 per cent of RBI‘s shares, with 41.2 per cent in free fl oat. The shareholder base is well diversifi ed due to the broad geographic spread and various investment strategies. The majority of institutional investors are from North America and Europe and increasingly from Asia and Australia. These include sovereign wealth funds and supranational organizations, which off ers stability as a result of their preferred longterm investing strategies. There are also a large number of Austrian retail investors.
Raiff eisenlandesbank NÖ-Wien 22.6% Raiff eisenlandesbank Steiermark 10.0% Raiff eisenlandesbank Oberösterreich 9.5% Raiff eisen-Landesbank Tirol 3.7% Raiff eisenverband Salzburg 3.6% Raiff eisenlandesbank Kärnten 3.5% Raiff eisenlandesbank Burgenland 3.0% Raiff eisenlandesbank vorarlberg 2.9% Total regional Raiff eisen banks 58.8%
On 1 February 2016, RBI announced preliminary figures for the 2015 financial year. Around 270 participants took part in the subsequent conference call. To mark the mid-March release of the final results for the 2015 financial year, RBI’s Management Board met with investors in vienna and also held a conference call with over 250 participants. On the following day, RBI invited institutional investors and analysts to its investor presentation in London. The event, which takes place – as it has for a number of years now – on the day following the publication of the full-year results, met with keen interest among the more than 100 participants.
On 10 May 2016, RBI announced that a merger of RBI and RZB was under evaluation, along with the first quarter results. Over 300 international analysts and investors participated in the conference call held the following day.
At the end of September, RBI invited analysts to its annual discussion in London, which was attended by nearly all equity analysts who regularly report on RBI. An international investor conference, also in London, was held at the same time, at which the Management Board presented the company to around 60 participants and answered questions from equity and debt investors. In addition, the Management Board and Group IR team took part in numerous group and one-on-one meetings with around another 50 high-profile investors.
An additional conference call and webcast, arranged at short notice, took place on 6 October 2016, in which RBI and RZB Management Board members reported on the resolution passed in principle to merge RZB and RBI, the preliminary valuation ranges for the entities to be merged, and on the next stages planned for the process. Attracting over 350 participants, this conference call reflected the high level of interest in the information provided by the Management Board about this step. On the following day, the same Management Board members presented details of the planned merger of RBI and RZB to around 50 participants at an investor meeting in London and again answered follow-up questions.
Financial Calendar 2017 15 March 2017 Annual Report 2016, Conference Call 16 March 2017 RBI Investor Presentation, London 03 May 2017 Start of Quiet Period 17 May 2017 First Quarter Report, Conference Call 12 June 2017 Record Date Annual General Meeting 22 June 2017 Annual General Meeting 27 July 2017 Start of Quiet Period 10 August 2017 Semi-Annual Report, Conference Call 31 October 2017 Start of Quiet Period 14 November 2017 Third Quarter Report, Conference Call
Corporate Governance Report This Corporate Governance Report combines the Corporate Governance Report of RBI AG and the consolidated Corporate Governance Report of RBI pursuant to § 267a of the Austrian Commercial Code (UGB) in conjunction with § 251 of the UGB.
Members of the Management Board held seats on the supervisory board or comparable functions in the following domestic and foreign companies that are not included in the consolidated financial statements: Karl Sevelda Oesterreichische Kontrollbank AG, Siemens AG Austria Klemens Breuer FMS Wertmanagement AöR (until 5 January 2017) Peter Lennkh Raiffeisen-Leasing Management GmbH (until 9 April 2016)
Composition of the Management Board In the 2016 financial year, the Management Board consisted of the following members: Management Board member Year of birth Original appointment End of term
Martin Grüll 1959 3 January 2005 28 February 20203 1 Effective as of 10 October 2010 2 As a result of the merger of RZB AG into RBI AG, Karl Sevelda will resign his mandate as member of the Management Board member once the merger is effective. 3 The mandates as Management Board members of Johann Strobl and Martin Grüll will be extended once the merger of RZB AG into RBI AG is effective.
Raiffeisen CEE Region Holding GmbH, Austria, Managing Director Raiffeisen CIS Region Holding GmbH, Austria, Managing Director Raiffeisen RS Beteiligungs GmbH, Austria, Managing Director Raiffeisen SEE Region Holding GmbH, Austria, Managing Director
Raiffeisen Bank Zrt., Hungary, Chairman DAv Holding Kft., Hungary, Chairman AO Raiffeisenbank, Russia, Deputy Chairman Raiffeisen Bank Polska S.A., Poland, member Raiffeisen Bank S.A., Romania, member Tatra banka, a.s., Solvakia, member Raiffeisenbank a.s., Czech Republic, member
Raiffeisen Centrobank AG, Austria, Chairman Kathrein Privatbank Aktiengesellschaft, Austria, Deputy Chairman Raiffeisen Bank Polska S.A., Poland, member Raiffeisen Bank S.A., Romania, member AO Raiffeisenbank, Russia, member Tatra banka, a.s., Slovakia, member Raiffeisenbank a.s., Czech Republic, member
Raiffeisen Bank Polska S.A., Poland, Deputy Chairman Raiffeisen Bank S.A., Romania, Deputy Chairman AO Raiffeisenbank, Russia, member Tatra banka, a.s., Slovakia, member Raiffeisenbank a.s., Czech Republic, member
Raiffeisen Bank d.d., Bosnia and Herzegovina, Deputy Chairman Raiffeisenbank Austria d.d., Croatia, Deputy Chairman Raiffeisen banka a.d., Serbia, Deputy Chairman Raiffeisenbank a.s., Czech Republic, Deputy Chairman Raiffeisen Bank Aval JSC, Ukraine, Deputy Chairman Raiffeisen Bank Polska S.A., Poland, member Raiffeisen Bank S.A., Romania, member AO Raiffeisenbank, Russia, member Tatra banka, a.s., Slovakia, member
Composition of the Supervisory Board During the 2016 financial year, the Supervisory Board comprised: Supervisory Board member Year of birth Original appointment End of term
Erwin Hameseder 1956 8 July 20101 Annual General Meeting 1st Deputy Chairman 2020
Martin Schaller 1965 4 June 2014 Annual General Meeting 3rd Deputy Chairman 2019
Michael Höllerer 1978 17 June 2015 With entry of merger of RZB AG into RBI AG (expected on 18 March 2017)4
■ The Supervisory Board member shall not have been an auditor of the company, nor a partner or employee of the auditing company in the previous three years.
Bettina Selden and Kurt Geiger, as members of the Supervisory Board, are neither shareholders with a shareholding of greater than 10 per cent, nor do they represent the interests of such shareholders. They are therefore “free float representatives” according to C Rule 54 of the ACCG.
Südzucker AG, Flughafen Wien AG Heinrich Schaller voestalpine AG, AMAG Austria Metall AG Klaus Buchleitner BayWa AG, AGRANA Beteiligungs-AG Kurt Geiger Demir Bank OJSC Johannes Schuster UNIQA Insurance Group AG
Members of the Committees The procedural rules of the Supervisory Board govern its organization and allocate particular tasks to the Working, Audit, Remuneration, Risk, Nomination and Personnel Committees. These committees comprise the following members: 3rd Deputy Chairman 4th Deputy Chairman
■ Management Board division Chief Operation Officer/Chief Information Officer (COO/CIO): The dissolution of the “Lean” area and the reorganization of the responsibilities of the “Operations” area resulted in the establishment of two new areas: “Group Efficiency Management” and “Head Office Operations”. “Procurement & Cost Management” was combined with “Real Estate Management” to form “Group Procurement, Cost & Real Estate Management”.
■ Management Board division Markets and Retail: Following the dissolution of the “Consumer Banking” and “Small Businesses & Premium Banking” areas, three new areas were created: “Retail Strategy & Products”, “Consumer & Small Business Banking” and “Private & Premium Banking”.
The Personnel Committee deals with the remuneration of Management Board members as well as their employment contracts. In particular, it is responsible for approving bonus allocations and share allotments through the Share Incentive Program to members of the Management Board. Furthermore, it also gives its approval in the event of an acceptance of secondary employment by members of the Management Board.
The Remuneration Committee’s responsibilities include, first and foremost, establishing guidelines for the company’s remuneration policies and practices, particularly on the basis of the BWG, as well as relevant sections of the ACCG. In addition, the Remuneration Committee supervises and regularly reviews the remuneration policies, remuneration practices and relevant incentive structures to ensure that all related risks are controlled, monitored and limited in accordance with the BWG, as well as with respect to 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 also directly reviews the remuneration of executives responsible for risk management and compliance.
The Nomination Committee attends to 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 specifies a target ratio for the under-represented gender 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: ■ regular evaluation, and in all cases where events indicate a need for re-evaluation, of the structure, size, composition and performance of the Management Board and Supervisory Board, as well as submission to the Supervisory Board of proposals for changes 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
The Supervisory Board held nine meetings during the reporting period. In addition, the Management Board fully informed the Supervisory Board on a prompt and regular basis of all relevant matters pertaining to the company’s performance, including the risk position and risk management of the company and material Group companies, particularly in relation to important matters.
The Working Committee held eight meetings in the 2016 financial year. The Audit Committee met three times, the Personnel Committee three times, the Remuneration Committee three times, the Risk Committee five times, and the Nomination Committee five times.
In addition, the Supervisory Board and the Working and Remuneration Committees also passed resolutions by circulation.
The following total amounts were paid to the Management Board of RBI AG: Fixed remuneration 5,017 5,007
Fixed remuneration, as shown in the above table, includes salaries and benefits in kind. Performance-based components of the Management Board’s remuneration basically consist of bonus payments and the share-based remuneration under the Share Incentive Program (SIP).
In 2016, deferred bonus amounts from 2013 and previous years as well as immediately payable bonus amounts for 2015 were paid out. No bonus was paid for 2014. In 2016 there was an allocation of share-based payments from the 2011 SIP tranche (see below for details).
The payment of a bonus is linked to the achievement of annually agreed goals from four or five areas based on a balanced scorecard approach. These are weighted financial goals (adjusted to the respective function, e.g. return on risk-adjusted capital, total costs, risk-weighted assets), customer and employee goals, as well as process/efficiency/infrastructure goals and, where necessary, additional goals. The amount of the bonus is determined based on consolidated profit and the cost/income ratio; the targets to be achieved are based on the RBI‘s medium-term return on equity target and thus consider a period spanning several years. Payment of bonuses is deferred as set forth in the BWG and implemented according to internal regulations.
The Management Board’s remuneration paid in 2016 is shown in detail as follows: In addition to the amounts listed above, deferred bonus amounts totaling € 382 thousand and € 111 thousand were paid to Herbert Stepic, Aris Bogdaneris and Patrick Butler within the context of the payment of the 2011 SIP tranche on account of their previous work on the Management Board.
As a result of this amendment, the variable component may fall away completely for positions with minimal or only indirect influence on the business results. Role-based fixed compensation was implemented in various forms according to respective local conditions. When determining the bonus for specific business and management functions, more weight was placed on RBI’s and the respective organizational units’ results and less on the functional area in order to promote teamwork.
Within the overall remuneration, the relationship between fixed and variable components is made appropriate to enable employees to maintain an adequate standard of living based on their fixed income. This aims to facilitate a flexible policy and should allow for unrestricted choice and implemenentation of the variable remuneration components, and it should also be possible to forgo the granting of variable remuneration. The total amount of the variable remuneration does not restrict the RBI’s ability to improve its capitalization. The basis for all variable remuneration programs is performance, which is measured at Group, company and also individual level.
Executives of RBI AG and other affiliated companies 19,839 € 276,159 11,384
To avoid legal uncertainties and in accordance with the program’s terms and conditions, eligible employees in three countries were given a cash settlement instead of an allocation of shares. In Austria, eligible parties were granted the option of accepting a cash settlement in lieu of half of the shares due in order to cover the income tax payable at the time of transfer. Therefore, fewer shares were actually transferred than the number that was due. The portfolio of own shares was subsequently reduced by the lower number of shares actually transferred.
Executives of RBI AG and other affiliated companies 187,461 56,238 281,192
In the event of a function or contract termination, one member of the Management Board is entitled to severance payments in accordance with the Salaried Employees Act and the Banking Sector Collective Agreement, one member in accordance with a contractual agreement and four members in accordance with the Company Retirement Plan Act. In principle, the severance payment claims under the Salaried Employees Act or contractual agreements expire if the Management Board member resigns.
Furthermore, protection against occupational disability risk is provided by a pension fund and/or on the basis of an individual pension benefit, which is secured by a reinsurance policy. Contracts for Management Board members are limited to the duration of their respective term in office or a maximum of five years. Regulations regarding severance payments, in the event of the early termination of Management Board mandates, are based on the principles stipulated by the ACCG, as well as on the stipulated maximum limits (a maximum of two years’ total annual remuneration for early termination without serious cause and in any case no longer than the remaining term. No remuneration is paid for premature terminations for serious reasons attributable to the Management Board member).
For the 2015 financial year, the members of the Supervisory Board received total remuneration of € 525,000 in accordance with the resolution of the Annual General Meeting. This amount included € 70,000 for the Chairman of the Supervisory Board, € 60,000 each for the Deputy Chairmen of the Supervisory Board and € 50,000 each for the other members of the Supervisory Board. Depending on the duration of the respective Supervisory Board member’s term, the remuneration for 2015 was paid on a pro rata basis or in its entirety.
Supervisory Board remuneration for the 2016 financial year was apportioned to individual Supervisory Board members as follows. The amounts stated are provisional amounts from the statement of financial position, subject to the approval of the Annual General Meeting 2017. Attendance fees were not paid. Depending on the duration of the respective Supervisory Board mandate, the provision for the 2016 financial year was booked on a pro rata basis or in its entirety.
At 31 December 2016, the proportion of women in the top three tiers of management (positions with staff responsibility) at RBI AG was as follows: Supervisory Board, 13 per cent; Management Board, 0 per cent; Tier 2 management, 12 per cent; and Tier 3 management, 29 per cent. This is with a total proportion of female employees of 45 per cent.
In RBI, the total proportion of women among employees is 67 per cent. The proportion of women in Management Board positions is 16 per cent, 36 per cent in Tier 2 management and 47 per cent in Tier 3 management positions. The proportion of women who are Supervisory Board members is 8 per cent. These figures include RBI AG and the 14 network banks in CEE, as well as Kathrein Privatbank Aktiengesellschaft and Raiffeisen Centrobank AG.
To further improve the framework conditions for work and career, RBI continuously endeavors to reconcile family and working life as far as possible. Working arrangements such as flexible working hours, part-time and home-office working are offered in almost all countries in accordance with the local statutory provisions, as are company kindergartens with employee-friendly opening hours. Among other things, these aim to facilitate effective management of maternity leave, which should encourage women to return to work. RBI adopts a positive stance towards paternity leave and considers it an important means of strengthening equality at both the personal and professional level.
In 2016, RBI AG launched the initiative “Diversity 2020”. This diversity initiative firstly focuses on the empowerment of women. In particular, it aims to increase the number of women in top management positions. Extensive communication measures were implemented to further raise awareness and highlight the importance of this issue as well as to ensure maximum transparency for the initiative. Accordingly, a waiting period is applied to the process when recruiting internally and, in addition, qualified female candidates are approached by HR employees. Subconscious prejudices are a material factor preventing the appointment of women to management positions, among other things. This issue formed the focus for two “managers’ breakfasts” and for keynote presentations to employees. For RBI AG, mentoring of women is an important tool for increasing the percentage of women in management positions. We will therefore continue our efforts in this field. Another key focus involves strengthening the skill sets of female managers. Initial measures for training in this area have already taken place.
Members of the Management Board must therefore disclose to the Supervisory Board any significant personal interests in transactions involving the company and Group companies, as well as any other conflicts of interest. They must also inform the other members of the Management Board. Members of the Management Board who occupy management positions within other companies must ensure a fair balance between the interests of the companies in question.
Since being founded by Friedrich Wilhelm Raiffeisen, sustainable action and corporate responsibility have been part of the policy and identity of all Raiffeisen companies and also form integral components of their business activities. Sustainability management promotes added value resulting from the combination of economic, ecological and social factors. In this process, RBI focuses on adherence to the ten principles of the United Nations Global Compact. These principles address the key areas of human rights, labor standards, environmental protection and anti-corruption. In this respect, RBI expects a corresponding approach not only from its employees but also from its partners and suppliers. Detailed information about developments in Sustainability Management and the current Sustainability Report are available on RBI’s website under www.rbinternational.com → About Us → Sustainability Management.
Furthermore, RBI was included in the Austrian sustainability index, vBv Österreichischer Nachhaltigkeitsindex (vÖNIX), for the eleventh time in succession in 2016. This index contains listed Austrian companies which are leaders in social and ecological performance. RBI also continues to be included in the STOXX® Global ESG Leaders Indices.
The annual Sustainability Report is an important communication tool for open and transparent dialog with stakeholders. The 2015 Sustainability Report received the Austrian ASRA (Austrian Sustainability Reporting Award) gold award as the best sustainability report in the “large companies” category. This award is conferred annually by the Austrian Chamber of Public Accountants for the best sustainability reports published by Austrian companies.
Market development 38 Performance and financials 42 Significant events 42 Events in the financial year 43 Detailed review of income statement items 44 Comparison of results with the previous quarter 49 Statement of financial position 51 Equity 53 Research and development 54 Internal control and risk management system 54 Capital, share, voting and control rights 57 Risk management 59 Corporate Governance 59 Human Resources 60 Outlook 62 Events after the reporting date 63
Austria’s economy experienced a moderate upturn in 2016, with real GDP growing 1.5 per cent. Domestic demand was the main pillar of economic growth. Private consumption benefited from the tax reform that went into effect at the beginning of 2016, and equipment investment was comparatively dynamic. Construction investment expanded for the first time in a number of years. In contrast, net exports did not support real GDP growth.
The US economy had a weak start to 2016. This was primarily the result of unusually low inventory investment, as well as declining investment in mining and oil & gas exploration due to sharply lower commodity prices. These negative effects subsequently subsided in the second half of the year, and the economy resumed its dynamic growth. In particular, private consumption grew at an encouraging pace. Nevertheless, real gross domestic product increased only 1.6 per cent in 2016, due to the weak start to the year.
Solid growth in CE and SEE, recession flattening out in Russia The low and in some cases negative inflation rates in Central and Southeastern Europe (CE and SEE) and the ECB’s low interest rate policy enabled key rates in the region to be kept at a low level last year. In a number of countries further monetary policy easing measures were even taken or continued to be implemented. In Poland and Romania, moreover, fiscal growth stimuli supported private consumption.
The CE region registered a somewhat weaker economic trend in 2016, with GDP growth at 2.7 per cent. Although CE continued to benefit from solid economic growth in Germany, as well as from the recovery in the euro area and from expansionary monetary policies in some CE countries, economic growth in CE came in below the previous year’s level. One contributory factor was the drop in investment activity owing to temporarily lower EU transfer payments into the region. Poland, the region’s growth engine, lost considerable momentum and recorded 2.8 per cent year-on-year growth. Overall, however, the economic data indicates balanced growth with solid export and dynamic domestic economic activity.
Development of the banking sector in CEE In 2016, many indicators exhibited a substantial recovery of the banking sector from the subdued levels of the previous year. Positive trends in new lending or in asset growth continued in several CE and SEE countries in 2016 (e.g. in the Czech Republic, Slovakia and Romania). The banking sector in Russia also recovered significantly. Nearly all banking markets in CEE now show a comfortable loan/deposit ratio (well below 100 per cent for the most part), which represents a solid foundation for future growth. In addition, many challenging banking markets of recent years started posting considerable profits again at sector level in 2016 (e.g. Hungary, Romania, Croatia and Russia). In particular, leading foreign banks also significantly outperformed general market trends in the challenging Eastern European banking markets (Russia, Ukraine, and Belarus). The positive profitability trend was additionally supported by the sustained stabilization, or even a sharp drop, in non-performing loans (NPLs) in CE and SEE (with significant differences at country level). Overall, the NPL ratio in CE and SEE fell from previously 8.3 per cent to 7.4 per cent in 2016 as a result. In view of the positive developments in CE and SEE, as well as the stabilization of NPLs and profitability in Russia, return on equity in the CEE banking sector significantly increased above the comparable figure in the euro area again in 2016.
Banking sector in Austria In 2016, the banking sector in Austria continued to perform below average when compared to the euro area in terms of credit growth (notably in corporate banking). Lending focused on retail customer and real estate financing transactions in particular. However, the profitability of Austria’s banking sector markedly increased at a consolidated level, mainly supported by CEE business. As a result, the Austrian banking sector also significantly improved its capitalization relative to major Western European countries. However, the reported regulatory capital ratios continue to be below average by international standards. If the leverage ratio is included as benchmark, Austrian banks performed remarkably better. Capital requirements will gradually increase following the introduction of the Systemic Risk Buffer as well as of the buffer for Other Systemically Important Institutions (O-SIIs), which the Financial Market Stability Board (FMSB) has recommended. The reduction in the bank tax from 2016 should also have a positive impact in the following years.
In the first half of 2016, the Austrian banks generated a positive consolidated net income of roughly € 2.9 billion, or € 0.3 billion more than in the same period of the previous year. The positive result was mainly driven by the sharp reduction in loan loss provisions, which not only more than offset significant declines in net interest income as the most important income component, but also lower income from commissions and net trading income. The profitability of Austrian subsidiary banks in CEE significantly improved in the first quarter of 2016. Profit contributions from Austrian subsidiary banks were positive in all CEE countries. The highest profits were made in the Czech Republic, Romania and Russia, albeit with profits down in Russia in comparison with the previous year’s quarter.
The Group focused intensively on current and forthcoming regulatory developments again in the year under review.
The Austrian Bank Recovery and Resolution Act (Bankenabwicklungs- und Sanierungsgesetz (BaSAG)) went into force in 2015 and ensures the national implementation of the EU’s Bank Recovery and Resolution Directive from 2014. With regard to recovery planning under the Single Supervisory Mechanism (SSM), the Group is subject to direct supervision by the ECB while, with regard to resolution planning under the SRM, it is subject to direct supervision by the SRB.
Resolution plans are drafted by the resolution authority, which also grants powers to remove any barriers to resolution. Resolution strategies for banks are likewise laid down in the resolution plans. As part of the framework for the resolution of banks, specific resolution tools are made available to the resolution authorities. For example, the Group – already prior to the introduction of the Austrian Bank Intervention and Restructuring Act (Banken Interventions- und Restrukturierungsgesetz (BIRG)) and the BaSAG –set limits on intra-Group relationships in order to reduce cluster risk and unrestricted residual risk both to itself and to its owners.
In addition to preparing resolution plans, the obligation to comply with an MREL (Minimum Requirement for Own Funds and Eligible Liabilities) is also determined and individually specified for each bank/resolution entity. The Group is currently working in close cooperation with the SRB and national resolution authorities to draw up a resolution plan that meets the statutory requirements. The participation of creditors (bail-in tool) represents one possible tool in a resolution concept. As a result, the resolution authorities will set the MREL. On the basis of the resolution strategy, an MREL is set for each bank/resolution entity or the entire banking group. The calibration of MREL targets is to be carried out by the supervisory authorities and is based on relevant statutory regulations, resolution plans, as well as individual aspects of the respective bank (e.g. size, business model and risk profile). Not only a bank’s regulatory capital but also its long-term unsecured debt that is not subject to a deposit protection scheme or similar restrictions are basically considered to be eligible for MREL.
Earnings and financial performance The consolidated financial statements of RBI are prepared in accordance with the International Financial Reporting Standards (IFRS) as applied in the EU. RBI AG also prepares individual financial statements in accordance with the Austrian Commercial Code (UGB) in conjunction with the Austrian Banking Act (BWG), which provide the formal basis of assessment for calculating dividend distributions and taxes. For more information on disclosures required by the UGB and BWG, please see note (46) other disclosures according to BWG in the consolidated financial statements.
As part of the planned reduction in RWA, significant progress has been made in Asia since the end of 2014, with RWA scaled back by approximately 84 per cent to € 395 million. The winding down of the US operations is also making good headway, with a decrease in RWA of circa 66 per cent to € 347 million since the end of 2014. The remaining business is now being run down; branches in Asia and business outlet in the US are being reduced to a minimum, and no longer conduct active business.
Operating income was down 5 per cent year-on-year, or € 237 million, to € 4,692 million. A portion of the decline was attributable to currency devaluations in Eastern Europe. Net interest income fell 12 per cent, or € 391 million, to € 2,935 million. This was primarily attributable to continuing low market interest rates in many of the Group’s countries, existing excess liquidity, and a reduction of € 215 million, particularly in Russia, in interest income from derivatives entered into for hedging purposes. Despite the currency devaluations in Eastern Europe and lower sales in Central Europe, net fee and commission income declined only 1 per cent, or € 22 million, to € 1,497 million. Net trading income rose € 198 million year-on-year to € 215 million. Net income from currency-based transactions improved by € 176 million to € 116 million, primarily as a result of a more limited devaluation of the Ukrainian hryvnia than in the previous year (€ 81 million increase).
General administrative expenses were down 2 per cent year-on-year, or € 66 million, to € 2,848 million. On the one hand, this decline was attributable to currency devaluations in Eastern Europe; on the other, deposit insurance fees were lower (€ 34 million) mainly in Poland, the Czech Republic, Romania and Bulgaria. In addition, office space expenses fell € 26 million because of branch closures. Expenses were increased by expenditures for the bank resolution fund (up € 10 million) and for IT (up € 6 million). Staff expenses rose 1 per cent, or € 20 million, to € 1,410 million. Cost savings from the workforce reduction of 7 per cent were set against increases from the purchase of Citibank’s retail business in the Czech Republic and from growth in Slovakia. Furthermore, no bonuses for the year 2014 were paid in 2015, which resulted in a release of provisions totaling approximately € 76 million. This effect was absent in the 2016 financial year.
In the course of the year, total assets fell 2 per cent, or € 2,563 million, to € 111,864 million. Changes in the scope of consolidation were responsible for around € 2,400 million decline in consolidated total assets, which resulted primarily from the sale of the Polish leasing business and of the Slovenian subsidiary bank. Currency developments – predominantly the appreciation of the Russian rouble (up 25 per cent) and the US dollar against the euro (up 3 per cent) – resulted in an increase of around € 1,700 million.
In terms of regulatory capital, the key metrics changed as follows: Common equity tier 1 (after deductions) was € 8,339 million at the end of the year, a € 668 million increase over the 2015 comparable figure. Total capital pursuant to the CRR came to € 11,537 million, which corresponds to an increase of € 550 million compared to the 2015 year-end figure. Total risk-weighted assets were down € 3,212 million to € 60,061 million, as a result of the sale of the Slovenian subsidiary bank and the Polish leasing business, as well as due to rating improvements in Ukraine and Belarus. Based on total risk, the common equity tier 1 ratio (transitional) was 13.9 per cent while the total capital ratio (transitional) was 19.2 per cent. Excluding the transitional provisions as defined in the CRR, the common equity tier 1 ratio (fully loaded) stood at 13.6 per cent, and the total capital ratio (fully loaded) was 18.9 per cent.
No dividend will be distributed for the 2016 financial year, to continue to sustainably strengthen the capital ratio.
In the Central Europe segment, net interest income fell 4 per cent, or € 25 million, to € 629 million. Lower interest rates reduced net interest income by € 23 million in Slovakia, and by € 14 million in Hungary. In contrast, the Czech Republic reported a volume-related rise of € 12 million. In the Southeastern Europe segment, net interest income fell 5 per cent, or € 42 million, to € 738 million. All countries in this segment – with the exception of Bosnia and Herzegovina – reported declines, which were also mainly attributable to the continuing low level of interest rates. The Eastern Europe segment reported a 9 per cent, or € 82 million, decline in net interest income to € 866 million. This primarily resulted from a 12 per cent, or € 80 million, drop in net interest income to € 567 million in Russia, due to a € 175 million reduction in interest income from derivatives. In contrast, margins from the core business improved significantly, especially on the liabilities side. In Ukraine, the 3 per cent, or € 5 million, decline in net interest income to € 171 million was currency related, whereas in local currency terms, net interest income rose 14 per cent. In Belarus, net interest income increased € 3 million to € 128 million. In the
Non-Core segment, however, net interest income fell 14 per cent, or € 54 million, to € 331 million, with Asia reporting the largest decline of 56 per cent, or € 47 million, to € 37 million due to reduced volumes. In the USA, net interest income fell € 11 million to € 14 million, due to the reduction in business volumes. In contrast, in Poland, repricing measures in the deposit business increased net interest income by 4 per cent, or € 9 million, to € 262 million.
The Group’s net interest margin declined 22 basis points year-on-year to 2.78 per cent, of which a reduction of 6 basis points was due to exchange rate effects in the Eastern Europe segment. The decline in the net interest margin was attributable to the aforementioned low market interest rates, especially in the Central Europe and Southeastern Europe segments. In addition, the business volume (average interest-bearing assets) was down 5 per cent.
Net fee and commission income declined year-on-year, despite the currency devaluations in Eastern Europe and lower sales in Central Europe, by just 1 per cent, or € 22 million, to € 1,497 million. Net income from the loan and guarantee business fell € 28 million to € 170 million; aside from currency effects, this was also due to volume reductions in Asia and Slovenia, the legal restriction on fees for early loan repayments in Slovakia, lower guarantee income at Group head office and in Croatia, and lower fee and commission income in Hungary. Net income from the management of investment and pension funds also fell, € 5 million to € 38 million, mainly in Slovakia. In contrast, net income from the foreign currency, notes/coins and precious metals business grew 3 per cent, or € 11 million, to € 392 million, predominantly due to higher income in the Czech Republic and at Group head office. Net income from the sale of own and third party products grew 15 per cent, or € 8 million, to € 60 million, most notably in Poland and Romania. Net income from the payment transfer business rose € 7 million to € 651 million due to margins and volumes, primarily at Group head office and in Russia.
Staff expenses, which constituted the largest item within general administrative expenses (50 per cent), increased 1 per cent, or € 20 million, to € 1,410 million. Following the decision not to pay a bonus for 2014, bonus provisions of € 76 million were released in the previous year. The Czech Republic reported an increase of € 27 million, primarily driven by higher staffing levels following the purchase of Citibank’s retail business. In Slovakia, staff expenses rose € 9 million and was also due to increased staffing levels. At Group head office, staff expenses grew € 7 million as a result of an increase in staffing levels and salary adjustments. Staff expenses fell in Russia (down € 14 million) due to a reduction in staffing levels and to currency effects. In Asia, staff expenses were down € 5 million due to reduced staffing levels.
Other administrative expenses decreased 6 per cent, or € 66 million, to € 1,107 million. The decline was largely driven by lower deposit insurance fees (down € 34 million), primarily in Poland, in the Czech Republic, in Romania, and in Bulgaria. Office space expenses also fell (down € 26 million) due to branch closures. The number of business outlets was down 199 to 2,506 compared to year-end 2015. The most significant declines occurred in Ukraine (down 80), Poland (down 58), Romania (down 32), and in Slovenia due to the sale of the subsidiary bank (down 13). Communication and car expenses also declined, whereas contributions to the bank resolution fund increased € 10 million and IT expenses grew € 6 million.
The Group invested € 384 million in fixed assets in the reporting period. Of that amount, 36 per cent (€ 137 million) was invested in own tangible assets. Investments in intangible fixed assets – mainly related to software projects – accounted for 42 per cent. The remainder was invested in assets in the operating leasing business.
The largest decline in net provisioning for impairment losses was recorded in Ukraine, which reported a net release of € 2 million compared to a net provisioning requirement of € 212 million in the previous year. This was because higher allocations for retail and corporate customers were still necessary in the previous year, due to the economic situation in the Donbass region, and because currency effects had a reduced influence in the reporting period. In Asia, net provisioning for corporate customers amounted to € 179 million, € 118 million less than in the previous year. In the Group Corporates segment, net provisioning for impairment losses for large corporate customers also fell € 66 million to € 74 million. Hungary reported a net release of € 7 million, compared to net provisioning for impairment losses of € 56 million for corporate and retail customers in the previous year. The decline was due in particular to sales of non-performing loans collateralized with real estate and to rating improvements of corporate customers. The credit risk situation for corporate and retail customers also improved in Russia, where net provisioning for impairment losses amounted to € 145 million, € 36 million less than in the previous year. In Bulgaria, the settlement of several corporate customer non-performing loans resulted in a decline of € 32 million, with no net provisioning requirement in the reporting year. Albania was the only country where the situation was different, with the default of several large corporate customers resulting in a € 34 million increase to € 65 million.
Net income from derivatives and liabilities declined € 184 million to minus € 189 million. This reduction was primarily due to net income from changes in credit spreads for own liabilities, which fell € 116 million to minus € 119 million due to lower risk premiums for RBI. Net income from the valuation of derivatives entered into for hedging purposes fell € 68 million.
The disposal of 16 subsidiaries resulted in net income of € 19 million in the reporting year, mainly from the sale of the Polish leasing company. Net income of € 41 million was recorded in the previous year as a result of the exclusion of 28 subsidiaries from the consolidation group. Proceeds of € 86 million from the sale of the 75 per cent stake in the Russian pension fund business ZAO NPF Raiffeisen, Moscow, were offset by an impairment of € 52 million in respect of assets available for sale in connection with the sale of the Slovenian subsidiary bank Raiffeisen Banka d.d., Maribor. Of the 16 subsidiaries excluded in the reporting year, nine companies were excluded due to immateriality, six as a result of their sale and a further one due to a change in control. The companies were predominantly active in leasing, financing and banking business, and as suppliers of ancillary services.
Income taxes increased € 36 million, or 13 per cent, year-on-year to € 312 million. The increase was predominantly the result of the write-off of tax receivables from prior periods in Poland and the return to positive results from a tax perspective in Ukraine and in Croatia. At 35 per cent, the effective tax rate in the reporting year was significantly above the Austrian income tax rate of 25 per cent. This was largely attributable to expenses which are non-deductible for tax purposes mainly in Russia, in the Czech Republic, at Group head office and in Ukraine, as well as to loss carryforwards which cannot be capitalized for tax purposes at Group head office and in Hungary.
At € 749 million, general administrative expenses in the fourth quarter were up 9 per cent, or € 62 million, from € 687 million in the previous quarter.
Other administrative expenses increased € 48 million to € 293 million. This was in large part due to a seasonally-driven rise in advertising, legal and advisory and consulting expenses in nearly all countries.
Compared to the third quarter, net provisioning for impairment losses rose € 151 million to € 251 million. The increase was mainly attributable to Russia, Asia, Croatia, and the Group Corporates segment. In Russia, net provisioning for impairment losses was up € 60 million from the previous quarter due to a large individual case and to the implementation of a PD/LGD-based calculation of portfolio-based loan loss provisions for retail customers. In Asia, loan loss provisions for corporate customers were up € 39 million. In Croatia, higher loan loss provisions both for corporate and for retail customers were responsible for the € 29 million increase. In the Group Corporates segment, the provisioning requirement was € 24 million higher than in the previous quarter.
The portfolio of non-performing loans to customers declined € 663 million from the previous quarter to € 6,486 million, primarily due to sales of non-performing loans. On a currency-adjusted basis, the decline was € 778 million. There were reductions in nearly all countries, most notably in Hungary (down € 215 million), Russia (down € 144 million), Asia (down € 112 million), Poland (down € 70 million), and Ukraine (down € 55 million). The NPL ratio decreased quarter-on-quarter, from 10.2 per cent to 9.2 per cent, and the NPL coverage ratio was up 3.6 percentage points to 75.6 per cent.
Net income from derivatives improved € 16 million in the fourth quarter to minus € 55 million. This was mainly due to net income from the valuation of derivatives entered into for hedging purposes; whereas net income from the change in credit spreads on own issues came to minus € 12 million.
Net income from financial investments fell € 7 million in the fourth quarter to minus € 13 million, largely attributable to higher impairment charges on equity participations.
The item securities registered a decrease of € 1,253 million to € 16,972 million, notably at Group head office and in Poland. The € 2,065 million decline in other assets was mainly the result of the € 970 million reduction in the cash reserve (primarily at Group head office), of the € 745 million reduction in assets available for sale pursuant to IFRS 5 (sale of the Slovenian subsidiary bank, reclassification of Zuno), and of the € 324 million reduction in trading and banking book derivatives.
The volume of Group financing from banks (mainly commercial banks) decreased 22 per cent, or € 3,553 million, to € 12,816 million. Long-term and short-term deposits declined, notably at Group head office and in Asia.
Deposits from customers increased 4 per cent, or € 2,547 million, to € 71,538 million in the course of the year. In particular, deposits from retail customers increased € 4,885 million to € 38,529 million, while deposits from corporate customers declined € 2,089 million to € 31,554 million. The € 4,032 million increase in deposits from retail customers was attributable to private individuals mainly in the Czech Republic (organic growth and purchase of a business unit), Russia, Slovakia and Romania. Deposits from small and medium-sized entities also rose, by € 853 million to € 5,949 million, notably in the Czech Republic and Slovakia. The decline in deposits from corporate customers was mainly recorded at Group head office (repayments) as well as in Poland and Slovakia due to the reduction of excess liquidity. In particular, deposits from large corporate customers reduced by € 2,083 million to € 28,561 million.
Other liabilities fell € 2,328 million to € 14,073 million. Debt securities issued decreased € 856 million, primarily due to the reduced refinancing required, while liabilities available for sale pursuant to IFRS 5 declined € 1,294 million (sale of the Slovenian subsidiary bank, reclassification of Zuno).
Equity on the statement of financial position Equity on the statement of financial position – consisting of consolidated equity, consolidated profit/loss and non-controlling interests – increased 9 per cent compared to year-end 2015, or € 731 million, to € 9,232 million. This increase was mainly attributable to total comprehensive income (€ 763 million), whereas dividend payments to non-controlling interests resulted in a € 40 million reduction in capital. No dividends were paid out to RBI’s shareholders for the financial year 2015.
Total comprehensive income attributable to the Group of € 667 million comprises consolidated profit of € 463 million and other comprehensive income of € 204 million. Exchange rate differences represented the largest item in other comprehensive income and amounted to € 299 million in the reporting year (2015: minus € 185 million). Key drivers were the appreciation of the Russian rouble, which resulted in an increase of € 348 million, and the devaluation of the Polish zloty, which reduced equity by € 49 million. Since part of the equity in these currencies was hedged (capital hedge), the movement in the exchange rate also resulted in a loss of € 43 million. The sale of Visa Europe Ltd. shares to Visa Inc. realized € 122 million, resulting in a net loss of € 70 million under the item net gains (losses) on financial assets available-for-sale.
The following consolidated figures have been calculated in accordance with the provisions of the Capital Requirements Regulation (CRR). Pursuant to Article 11 of the CRR, RBI is supervised by the ECB on a subconsolidated basis and is subject to the CRR provisions not only as an individual credit institution but also as a subgroup. RBI is also part of the RZB Group for regulatory purposes. In addition to the minimum capital requirements defined by the CRR, RBI must also comply with the capital requirements set by the ECB under the SREP process. With respect to this, please refer to note (47) Capital management and total capital according to CRR/CRD IV and the Austrian Banking Act (BWG).
Total capital compared to a total capital requirement of € 4,805 million. The total capital requirement for credit risk amounted to € 3,907 million. The decline of € 209 million was based on the sale of Raiffeisen-Leasing Polska, Raiffeisen Banka d.d., Maribor, the rating improvement in Belarus and Ukraine, and also on the reduction in exposures in the Non-Core segment. The total capital requirement for position risk in bonds, equities, commodities and currencies came to € 214 million, a decline of € 27 million. The decline of € 21 million in the total capital requirement for operational risk to € 684 million was attributable to the conversion of larger units to the advanced approach.
The plausibility of each Group unit’s financial statements is initially checked by the responsible key account manager within Accounting & Reporting. Group-level control activities comprise the analysis and, where necessary, modification of the financial statements submitted by Group units. In this process, the reports submitted by the auditor and the results of meetings with the representatives of the individual companies where the financial statements are discussed are taken into account. The discussions cover the plausibility of the individual financial statements as well as critical matters pertaining to the Group unit.
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 as part of the Annual Report on the company’s website and in the Wiener Zeitung’s official journal and are then filed in the commercial register.
Throughout the year, consolidated monthly reports are produced for the Group’s senior management. Statutory interim reports are produced that conform to the provisions of IAS 34 and are also published quarterly in accordance with the Austrian Stock Exchange Act. Before publication, the consolidated financial statements are presented to senior managers and the Chief Financial Officer for final approval and then submitted to the Supervisory Board’s Audit Committee. Analyses pertaining to the consolidated financial statements are also provided for management, as are forecast Group figures at regular intervals. The financial and capital planning process, undertaken by Planning & Finance, includes a three-year Group budget.
The first line of defense is formed by individual departments, where department heads are responsible for monitoring their business areas. The departments conduct control activities and plausibility checks on a regular basis, in accordance with the documented processes.
Capital, share, voting, and control rights The following disclosures cover the provisions of § 243a (1) of the Austrian Commercial Code (UGB): (1) As at 31 December 2016, the company’s share capital amounted to € 893,586,065.90 and was divided into 292,979,038 voting common bearer shares. As at 31 December 2016, 509,977 of those were own shares, and consequently 292,469,061 shares were outstanding at the reporting date. In comparison with 31 December 2015 (557,295 shares), this results in a reduction of 47,318 shares and was based on the transferring of shares within the framework of the share-based remuneration program. Please see note (32) for further disclosures.
(2) The Articles of Association contain no restrictions concerning voting rights or the transfer of shares. As RZB’s shareholders, the regional Raiffeisen banks are parties to syndicate agreements regarding RZB AG. These syndicate agreements will be replaced by a new syndicate agreement concluded by the regional Raiffeisen banks for RBI AG. The new syndicate agreement will take effect on the effective date of the merger between RZB AG and RBI AG. The terms that the regional Raiffeisen banks intend to incorporate in the new syndicate agreement include a block voting agreement, preemption rights and a prohibition on the sale of RBI shares held by the regional Raiffeisen banks (with few exceptions) for a period of three years (lock-up period) from the effective date of the merger between RZB AG and RBI AG, if the sale would directly and/or indirectly reduce the regional Raiffeisen banks’ aggregate shareholding in RBI AG to less than 50 per cent of the share capital plus one share. After the lock-up period expires, the shareholding threshold would fall to 40 per cent of the share capital of RBI AG.
(3) As at 31 December 2016, RZB AG indirectly held around 60.7 per cent of the share capital of the company through its wholly owned subsidiary Raiffeisen International Beteiligungs GmbH. By virtue of a syndicate agreement, the voting rights attributable to RZB AG from the 177,847,115 shares in RBI AG are also assigned to the individual regional Raiffeisen banks as syndicate partners and to their holding companies who have acceded to the syndicate agreement (in each case pursuant to § 91 and § 92 7 of the Austrian Stock Exchange Act (BörseG)), which hold, in total, around 90.43 per cent of the share capital and voting rights in RZB AG as parties acting in concert (see notification on voting rights published on 19 July 2016). The remaining shares of RBI AG are held in free float, with no direct or indirect shareholdings amounting to 10 per cent or more known to the Management Board. Please see the “Merger of RBI and RZB” chapter of the Annual Report with regard to the merger approved at the Extraordinary General Meeting of RBI AG on 24 January 2017.
(4) Pursuant to the company’s Articles of Association, RZB AG is granted the right to delegate up to one third of the Supervisory Board members to be elected by the Annual General Meeting, as long as it holds an interest in the share capital. Beyond that, there are no special rights of control associated with holding shares. At the Extraordinary General Meeting of RBI AG on 24 January 2017, a decision was made to remove the right to delegate members in § 9 of RBI AG’s Articles of Association. The right to delegate members will therefore cease to exist when the amendment to the Articles of Association is registered with the commercial register. According to the syndicate agreement of the regional Raffieisen banks, the regional Raiffeisen banks will be able to nominate nine members of the RBI AG Supervisory Board once the merger between RZB AG and RBI AG takes effect. In addition to the members nominated by the regional Raiffeisen banks, the RBI AG Supervisory Board will in the future also include three (previously: two) independent representatives of free-float shareholders who are not attributable to the Austrian Raiffeisen Banking Group. This is to be implemented at the RBI AG Annual General Meeting in 2017.
(6) Pursuant to the Articles of Association, a person who is 68 years or older may not be appointed as a member of the Management Board or be reappointed for another term in office. The rule for the Supervisory Board is that a person who is aged 75 years or older may not be elected as a member of the Supervisory Board or be re-elected for another term in office. Moreover, no person who already holds eight supervisory board mandates in publicly traded companies may be a member of the Supervisory Board. Holding a position as chairman of the supervisory board of a publicly traded company would count twice for this purpose. The Annual General Meeting may choose to waive this restriction through a simple majority of votes if permitted by law. Any candidate who has more mandates for, or chairman positions on, supervisory boards in publicly traded companies must disclose this to the Annual General Meeting. There are no further regulations regarding the appointment or dismissal of members of the Management Board and the Supervisory Board beyond the provisions of the relevant laws (with regard to RZB AG’s right to delegate members, please see point (4) above). The Articles of Association stipulate that the resolutions of the Annual General Meeting are, provided that there are no 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
(7) Pursuant to § 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 share capital with the approval of the Supervisory Board – in one or more tranches – by up to € 446,793,032.95 through issuing up to 146,489,519 new common bearer shares with voting rights in exchange for contributions in cash and/or in kind (including by way of the right of indirect subscription by a bank pursuant to § 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 in exchange for contributions in kind or (ii) if the capital increase is carried out in exchange for contributions in cash and the shares issued under the exclusion of subscription rights do not exceed 10 per cent of the company’s share capital (exclusion of subscription rights).
The Annual General Meeting held on 16 June 2016 authorized the Management Board pursuant to § 65 (1) 8, § 65 (1a) and § 65 (1b) of the AktG to purchase own shares and to retire them if appropriate without requiring any further resolutions to be passed by the General Meeting. Own shares, whether already purchased or to be purchased, may not collectively exceed 10 per cent of the company’s share capital. The authorization to purchase own shares expires 30 months after the date of the General Meeting resolution, i.e. as of 15 December 2018. The acquisition price for repurchasing the shares may be no lower than € 1.00 per share and no higher than 10 per cent above the average unweighted closing price over the 10 trading days prior to exercising this authorization. The authorization may be exercised in full or in part or also in several partial amounts, for one or more purposes – with the exception of securities trading – by the company, by a subsidiary (§ 189a 7 of the UGB) or by third parties for the account of the company or a subsidiary.
(8) The following material agreements exist, to which the company is a party and which take effect, change or come to an end upon a change of control in the company as a result of a takeover bid:  As a subsidiary of RZB, RBI AG is insured under RZB’s group-wide D&O insurance. Insurance cover remains in place in the event of a merger with another legal entity of the RZB Group. In the event of a merger with a legal entity outside the RZB Group, RBI AG will no longer be covered under the group-wide insurance from the date of the merger. In such cases, insurance cover only exists for claims for damages arising from breaches of obligations that occurred before the merger, which are reported to the insurance carrier prior to any termination of RZB’s group-wide D&O insurance and thereafter within the agreed notification period of five years.
 The brand agreement concluded with RZB AG (which will cease to exist once the merger is in effect) on the unrestricted use of the name and logo of Raiffeisen Bank International for an indefinite period of time in all jurisdictions in which the brand is registered now or in the future includes a right of cancellation upon a change of control.
Risk management For information on risk management, please refer to note (42) Risks arising from financial instruments, in the risk report section of the consolidated financial statements.
Human Resources Human Resources (HR) deals with the key corporate processes for managing personnel resources within the Group, taking both the needs of employees and corporate interests into account. As at 31 December 2016, RBI had 48,556 employees (full-time equivalents), 2,936 or 6 per cent fewer than at the end of 2015. The majority of this reduction is attributable to developments in Ukraine, Poland and Slovenia. The average age of employees remained relatively low at 37 years, and women accounted for 67 per cent of the workforce. Graduates make up 76 per cent of employees, indicating a highly skilled workforce.
The main focus for management development was on strengthening management expertise in the areas of change management, staff leadership, motivation, and communication. The use of reflective learning methods, such as 360° feedback, coaching and mentoring, as well as experience-based measures such as job rotation, was also further expanded.
In Albania, for example, a development program covering a wide variety of areas, “Growth is a Marathon, not a Sprint”, was initiated within the subsidiary bank to equip managers for the challenges faced in an increasingly complex operating environment and to facilitate growth.
The subsidiary bank in Russia increased efforts to foster a positive culture of communication and cooperation among managers and employees, for example, by implementing ad-hoc feedback and round-table discussions on topical business issues.
The results are now being used as a basis to develop further improvement measures. For example, the Management Board in Hungary has defined four issues which will be given further attention. Each of the issues is being addressed by an interdisciplinary team led by a member of first-level management, with expert support from the change facilitator and with a Management Board member acting as sponsor.
In Austria, the moderate economic upturn in 2017 should continue and gain momentum. Domestic demand (private consumption, gross capital investment) should continue to be the main pillar of support. The growth rate for exports should be higher than in 2016. Notwithstanding continuing solid growth in imports resulting from domestic economic momentum, net exports are expected to continue to support GDP growth in 2017. This scenario implies a 1.7 per cent increase in real GDP, following 1.5 per cent in 2016.
Solid economic growth in CE and SEE – as well as the end of the recession in Russia and Ukraine – should have a markedly positive impact on the CEE banking sector in 2017. Favorable developments in the operating business in CE and SEE could also be supported by at least stable or even slightly improved interest margins and/or somewhat steeper yield curves in 2017. In addition, recent years have already seen necessary adjustments for foreign currency loans and NPL portfolios resulting from the earlier expansion in CE and SEE, as well as their negative income effects. Accordingly, return on equity in the CEE banking sector should continue to recover in 2017.
RBI reached the 12 per cent CET1 ratio target one year ahead of schedule with a fully loaded CET1 ratio of 13.6 per cent at 31 December 2016 (12.4 per cent for the pro forma combined bank). In the medium term we strive to achieve a CET1 ratio (fully loaded) of around 13 per cent.
After stabilizing loan volumes, we look to resume growth with an average yearly percentage increase in the low single digit area.
We look to reach an NPL ratio of around 8 per cent by the end of 2017, and over the medium term we expect this to reduce further.
The merged company will operate under the name of Raiffeisen Bank International AG, as previously the case for RBI, and RBI shares will continue to be listed on the Vienna Stock Exchange.
This results in the following segments:  Central Europe (Czech Republic, Hungary and Slovakia)  Southeastern Europe (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Romania and Serbia)  Eastern Europe (Belarus, Russia and Ukraine)  Group Corporates (business with large Austrian and multinational corporate customers managed from Vienna)  Group Markets (customer and proprietary capital markets related business managed from Vienna)  Corporate Center (central management functions at Group head office and other Group units)  Non-Core (business areas that are being discontinued or reduced: Asia, Poland, Slovenia, USA, and direct bank Zuno)
The segment reporting section in the consolidated financial statements contains details on segment classification.
Details on the segmentation following the merger of RBI and RZB are provided in the merger chapter.
Central Europe in € million 2016 2015 Change Q4/2016 Q3/2016 Change
Recurring other net operating income (24) (25) (4.6)% (20) (6) 240.9%
Return on equity before tax 19.1% 18.3% 0.8 PP 10.7% 20.8% (10.1) PP
In Central Europe, RBI increased total assets through greater new business generation, especially in the Czech Republic and Slovakia. An additional increase resulted from the acquisition of Citibank’s retail and credit card business in the Czech Republic (€ 669 million), which included a retail loan portfolio of € 201 million. The low level of interest rates, however, continued to negatively impact operating income. Lower net provisioning for impairment losses in all countries in the segment, as well as income from the sale of Visa Europe Ltd. shares to Visa Inc., led however to a significant improvement in profit before tax, which rose € 44 million year-on-year to € 354 million.
Net interest income decreased 4 per cent year-on-year, or € 25 million, to € 629 million due to persistently low market interest rates. In Slovakia, net interest income declined € 23 million. Half of the € 14 million decline in Hungary was attributable to higher interest-like expenses in connection with the termination of an intra-Group mezzanine financing arrangement. In the Czech Republic, in contrast, net interest income increased € 12 million as a result of higher volumes. The net interest margin fell 36 basis points year-on-year to 2.31 per cent due to interest rate adjustments relating to assets.
Recurring other net operating income improved slightly from minus € 25 million to minus € 24 million. Allocations to other provisions increased in Slovakia, but were almost completely offset by a decrease in sundry operating expenses in all countries in the segment.
The segment’s general administrative expenses rose 1 per cent year-on-year, or € 7 million, to € 643 million. Staff expenses increased 13 per cent, or € 36 million, to € 318 million, due to the purchase of Citibank’s retail and credit card business in the Czech Republic as well as the expansion of a call center in Slovakia. Other administrative expenses decreased 6 per cent, or € 15 million, to € 250 million. The decline was largely the result of lower office space expenses – especially in Hungary, where provisions were recognized in the previous year in connection with the closure of bank branches – and lower deposit insurance fees, whereas communication and IT expenses increased. Contributions to bank resolution funds in the Czech Republic (€ 7 million), Slovakia (€ 6 million) and Hungary (€ 3 million) were up € 5 million year-on-year. Depreciation of tangible and intangible fixed assets decreased 15 per cent, or € 14 million, to € 75 million, due to an impairment charge in the previous year’s period in connection with branch closures and an impairment charge for software in Hungary. The segment’s number of business outlets rose by 15 year-on-year to 410, with most of the increase taking place in the Czech Republic. The cost/income ratio increased 2.6 percentage points to 63.3 per cent.
The portfolio of non-performing customer loans fell € 254 million to € 1,077 million, primarily due to a reduction of € 249 million in Hungary following sales of loans. The proportion of non-bank non-performing loans in the Central Europe segment’s loan portfolio decreased 1.6 percentage points year-on-year to 5.5 per cent. The NPL coverage ratio declined 4.3 percentage points to 71.0 per cent.
The Central Europe segment’s other results decreased € 11 million year-on-year to € 19 million.
In the previous year, a provision of € 67 million was released in connection with the implementation of the Settlement Act (unilateral interest rate changes on consumer loans) in Hungary. There was a release of € 7 million in the reporting period.
In the reporting period, net income from the disposal of Group assets amounted to € 7 million (2015: € 6 million). Most of the net income posted in 2016 stemmed from the sale of a property leasing project in the Czech Republic.
Net income from derivatives and liabilities remained unchanged year-on-year at minus € 3 million and resulted from hedging to adjust the currency and interest rate structure.
The segment’s income taxes declined slightly year-on-year to € 64 million. The effective tax rate was 18 per cent in the reporting period compared to 21 per cent in the previous year. The decrease is predominantly attributable to the utilization of tax loss carryforwards in Hungary.
Southeastern Europe in € million 2016 2015 Change Q4/2016 Q3/2016 Change
Net fee and commission income 390 380 2.7% 100 102 (2.5)%
Net provisioning for impairment losses (175) (191) (8.4)% (77) (26) 203.0%
Net interest income decreased 5 per cent year-on-year, or € 42 million, to € 738 million. All of the segment’s countries – with the exception of Bosnia and Herzegovina – reported lower net interest income, which was primarily attributable to the persistently low interest rate level. The largest reduction (minus € 14 million) was reported in Albania, where declining lending volumes had an additional dampening effect. The € 10 million drop in net interest income in Croatia also reflected a reduction in interestbearing assets. The lower market interest rate level led to declines in net interest income of € 5 million in Romania and € 8 million in Serbia. The segment’s net interest margin ultimately fell 29 basis points to 3.55 per cent.
Recurring other net operating income improved € 17 million to € 21 million, primarily as a result of a € 20 million increase in net income from the allocation to and release of other provisions (up € 13 million in Romania due to provisions for litigation in 2015).
General administrative expenses fell 1 per cent year-on-year, or € 7 million, to € 674 million. Staff expenses remained virtually unchanged at € 301 million. Increases in Bulgaria and Albania were offset by a decline in Bosnia and Herzegovina. The segment ’s other administrative expenses fell € 6 million to € 299 million. The decline was largely due to lower deposit insurance fees in Romania and Bulgaria. In contrast, advertising, PR and promotional expenses, legal, advisory and consulting expenses and the contributions to the bank resolution fund increased. Depreciation of tangible and intangible fixed assets decreased € 1 million, mainly as a result of a reduction in depreciation of tangible fixed assets in Serbia. The cost/income ratio remained almost unchanged at 56.0 per cent.
The largest declines were reported in Bulgaria, Croatia and Serbia: In Bulgaria, net releases of loan loss provisions totaled € 1 million, after net provisioning for loan losses amounted to € 32 million in the previous year. The reduction was mainly due to loan sales and lower portfolio-based loan loss provisions for retail customers due to the implementation of default probabilities in the previous year. In Croatia, net provisioning for impairment losses was down € 14 million to € 22 million. The decrease was the result of loan sales and releases of provisions for mortgage loans that had been recognized in connection with the conversion of Swiss franc loans. In contrast, the implementation of a PD-/LGD-based calculation of the portfolio-based loan loss provisions for retail customers had a negative effect of € 15 million. In Serbia, net releases totaled € 6 million, compared to net provisioning for impairment losses of € 8 million in the previous year. This was due to the improved risk situation in the corporate customer business, while the introduction of new default probabilities had a negative impact of € 6 million in the reporting year. In Romania, net provisioning for impairment losses amounted to € 77 million, which was € 4 million more than in the previous year. The improved risk profile of corporate and retail customers had a positive effect, while the implementation of a PD-/LGD-based calculation of portfolio-based loan loss provisions for retail customers resulted in an increase of € 18 million in net provisioning. In Albania, net provisioning for impairment losses rose € 34 million to € 65 million, which mainly reflected defaults of several large corporate customers, the revaluation of collateral (negative effect of € 7 million) and the PD/LGD-based calculation of portfolio-based loan loss provisions for retail customers (negative effect of € 6 million).
Non-performing loans fell € 166 million to € 1,421 million, compared to year-end 2015. The biggest reductions were reported in Bulgaria (down € 77 million) and Croatia (down € 72 million). The proportion of non-bank non-performing loans in the segment’s loan portfolio fell 1.6 percentage points to 10.5 per cent, while the NPL coverage ratio was up 8.1 percentage points to 79.7 per cent.
In Croatia, expenses of € 77 million for governmental measures were recognized in the comparable period of 2015; while in the reporting period, an expense of only € 10 million was incurred in connection with the conversion of Swiss franc loans. In this case as well, an objection was filed against the law under the bilateral investment protection treaties. A decision is still being awaited.
The tax expense increased € 29 million year-on-year to € 62 million, while the effective tax rate was up 5 percentage points to 17 per cent. The rise was largely due to the use of loss carry-forwards in Croatia, where the tax expense increased € 21 million to € 19 million and the effective tax rate was 24 per cent. In Bulgaria, the tax expense doubled to € 7 million for income-related reasons, while the effective tax rate remained nearly unchanged at 9 per cent.
Eastern Europe in € million 2016 2015 Change Q4/2016 Q3/2016 Change
Net fee and commission income 391 404 (3.1)% 113 99 13.8%
Recurring other net operating income (7) (22) (67.4)% (2) (1) 45.4%
Net provisioning for impairment losses (163) (422) (61.2)% (71) (13) 442.1%
As in 2015, the Eastern Europe segment was again affected by a high level of currency volatility in the reporting period. The average exchange rate of the Russian rouble was 7 per cent lower year-on-year, while the Ukrainian hryvnia and Belarusian rouble were down 15 and 20 per cent respectively. On 1 July 2016, a currency reform came into effect in Belarus; the new Belarusian rouble (BYN) replaced the old Belarusian rouble (BYR) at a rate of 1 to 10,000. In Ukraine, net trading income increased € 85 million due to the more limited depreciation of the Ukrainian hryvnia, compared to the prior year, and an improved result from foreign currency positioning. There were releases of provisions for impairment losses as a result of the improvement in the risk situation, after very high provisioning was still necessary in the comparable period in 2015 due to the political situation in the Donbass region. Profit before tax in Ukraine therefore increased € 241 million to € 150 million. In contrast, Russia reported a 16 per cent drop in profit before tax. A volume- and margin-related decline in net interest income was almost entirely offset by lower general administrative expenses and net provisioning for impairment losses; however in 2015, net income from the disposal of group assets of € 86 million was also recognized as a result of the sale of the Russian pension fund business, ZAO NPF Raiffeisen. In Belarus, profit fell year-on-year due to a valuation result from a foreign currency position recognized in the previous year and lower net income from proprietary trading.
Net fee and commission income fell 3 per cent year-on-year, or € 12 million, to € 391 million. Net income from foreign currency, notes/coins and precious metals business dropped 7 per cent, or € 8 million, to € 108 million – mainly as a result of currency movements as well as lower volumes and margins in Belarus and Russia. Net income from the loan and guarantee business was also down € 2 million to € 56 million – primarily as a result of exchange rate effects in Ukraine and Belarus.
Net trading income increased from € 31 million in the comparable period of 2015 to € 64 million. Net income from currencybased business improved € 30 million to € 52 million. Ukraine reported a significant increase of € 81 million due to the more limited depreciation of the Ukrainian hryvnia and foreign currency positions. Net trading income in Russia was also up on the back of valuation gains on derivative financial instruments and foreign currency positions. In contrast, net trading income in Belarus declined due to the closure of a strategic currency position that had led to a valuation gain of € 34 million in the previous year, and a valuation- and volume-related fall in net income from open foreign exchange positions. Net income from interest-based transactions increased € 3 million to € 12 million due to valuation gains on securities positions in Ukraine.
Other results were down € 156 million to € 17 million year-on-year. The decrease was mainly due to net income from the disposal of Group assets and from financial investments, which fell € 85 million and € 79 million respectively. In the previous year, net income from the disposal of group assets of € 86 million was reported as a result of the sale of the Russian pension fund business; in the reporting year, the result was € 1 million. The decrease in net income from financial investments to € 11 million resulted primarily from lower valuation gains on securities in the fair value portfolio, mainly from fixed income government bonds in Ukraine and bonds in Russia. In contrast, net income from financial derivatives rose € 7 million to € 4 million in the reporting year, as a result of the valuation of interest rate swaps used to mitigate interest rate structure risk and changes in market values of banking book derivatives, above all in Russia.
Detailed results of individual countries: 2016 in € million Belarus Russia Ukraine
Group Corporates in € million 2016 2015 Change Q4/2016 Q3/2016 Change
Net fee and commission income 60 74 (19.1)% 17 14 25.8%
Recurring other net operating income 2 1 82.4% 0 0 0.4%
Net interest income declined 4 per cent, or € 13 million, to € 313 million. This was mainly due to lower loan volumes and declining margins in the corporate customer business (Austrian and multinational corporate customers serviced from Vienna). In addition, interest-like extraordinary income declined after exceptionally high interest-like income, especially from real estate financing, was reported in the previous year. The segment’s net interest margin increased 8 basis points to 2.16 per cent.
Net fee and commission income declined 19 per cent, or € 14 million, to € 60 million. Lower fee and commission income from export and investment financing, liquidity management services and bond trading, as well as a reclassification of net fee and commission income items as net trading income was partly offset by higher net fee and commission income from bond issues.
General administrative expenses increased 7 per cent, or € 10 million, to € 153 million. The increase was due mainly to other administrative expenses, which rose because of the pro rata allocation of the contribution to the bank resolution fund to the segment. The cost/income ratio increased 4.5 percentage points to 40.0 per cent.
Other results improved € 11 million to minus € 4 million, mainly due to a € 16 million rise in income from financial investments, which predominantly came from a real estate transaction. This was offset by a € 5 million increase in expenses for bank levies (€ 20 million).
Group Markets in € million 2016 2015 Change Q4/2016 Q3/2016 Change
Recurring other net operating income 9 14 (34.1)% 2 2 (0.7)%
Profit before tax in the Group Markets segment declined 29 per cent. This was mainly due to higher net provisioning for impairment losses. In contrast, the operating result increased 32 per cent due to improved net trading income resulting from higher business volumes.
Net fee and commission income was down € 9 million year-on-year to € 113 million. Higher income from cash management was offset by a decline in investment banking resulting from lower bond issuance volumes, reduced income from the securities business due to lower volumes and margins, as well as the reclassification of income items from the securities business with institutional customers as net trading income. In addition, income generated by Kathrein Privatbank AG in the securities business decreased € 1 million.
Recurring other net operating income declined € 5 million to € 9 million due to lower sundry operating income.
General administrative expenses declined 2 per cent, or € 4 million, to € 211 million. The cost/income ratio decreased 5.9 percentage points year-on-year to 69.0 per cent.
Other results declined € 10 million year-on-year to € 6 million due to a lower valuation result for bonds. This contrasted with increased net income from derivative financial instruments resulting from the interest rate development. The expenses for bank levies reported in the segment amounted to € 21 million, a year-on-year increase of € 3 million.
Income tax expense posted an income-related decline of 32 per cent, or € 7 million, to € 15 million. The effective tax rate in the reporting period was 23 per cent.
Corporate Center in € million 2016 2015 Change Q4/2016 Q3/2016 Change
Net fee and commission income 42 17 138.7% 20 13 47.1%
This segment principally comprises net income from Group head office governance functions and from other Group units. As a result, its net income is generally more volatile. Profit before tax significantly declined – by € 657 million – in 2016. Operating income mainly decreased due to lower dividend income. Net income from derivatives and liabilities declined, while there was an increase in net income from financial investments and net income from the disposal of Group assets.
Recurring other net operating income fell 26 per cent, or € 40 million, to € 114 million. This decline primarily resulted from lower income from intra-Group service charges.
Net provisioning for impairment losses amounted to € 9 million in the reporting period, after a provisioning requirement of € 23 million for corporate customers at Group head office in the previous year.
Other results improved € 6 million to minus € 221 million.
The segment reported expenses for bank levies of € 42 million, which was € 7 million lower than in the comparable period in the previous year.
Net fee and commission income 154 172 (10.3)% 35 38 (7.5)%
Net provisioning for impairment losses (255) (375) (31.9)% (68) (38) 76.5%
The Non-Core segment encompasses those business areas which are to be sold or reduced in line with RBI’s strategic review, as laid out in 2015. The sale of the Raiffeisen bank in Slovenia closed in June 2016, while the sale of Raiffeisen-Leasing Polska closed in December 2016. When RBI acquired Raiffeisen Bank Polska S.A. (Raiffeisen Polbank) in 2012, it made a commitment to the Polish regulatory authority (KNF) to list the shares of Raiffeisen Polbank on the Warsaw Stock Exchange with a free float of at least 15 per cent by 30 June 2016. In May 2016, the KNF agreed that RBI could satisfy this commitment by selling Raiffeisen Polbank to a listed Polish bank by the end of 2016. On 7 December 2016, the negotiations with Alior Bank S.A. regarding the sale of Raiffeisen Polbank’s core banking business were terminated. RBI will now prepare the listing of 15 percent of Raiffeisen Polbank, as agreed with the KNF, while also working on rightsizing the business model.
The segment’s profit before tax improved 23 percent to minus € 203 million. This mainly resulted from lower net provisioning for impairment losses on loans and advances, predominantly in Asia, and reduced general administrative expenses. Operating income declined as a result of the planned reduction in volumes.
the sale of the Slovenian Raiffeisen bank. Net interest income in the US declined € 11 million to € 14 million due to the planned reduction in business volumes. In contrast, in Poland, repricing measures in the deposit business increased net interest income by 4 per cent, or € 9 million, to € 262 million. The net interest margin improved 11 basis points to 2.12 per cent.
Net fee and commission income declined 10 per cent year-on-year, or € 18 million, to € 154 million. Net income from the loan and guarantee business decreased € 12 million to € 22 million as a result of lower volumes, primarily in Asia, Slovenia and Poland. Net income from the foreign currency, notes/coins, and precious metals business fell € 5 million to € 68 million due to a reduction of income in Poland. Net income from the payment transfer business dropped € 4 million, primarily in Asia and Slovenia. In contrast, net income from the sale of own and third party products increased € 4 million to € 27 million, mainly in Poland.
The portfolio of non-performing loans decreased € 268 million since the start of the year to € 1,634 million, with a decline of € 222 million on a currency-adjusted basis. The largest reduction was recorded in Slovenia (decline of € 121 million) due to the sale of the Slovenian subsidiary bank. In Poland, the decline was € 38 million, € 37 million in the US, and € 29 million in Asia. The proportion of non-bank non-performing loans in the segment’s loan portfolio increased 2.3 percentage points year-on-year to 17.7 per cent. The NPL coverage ratio rose 4.2 percentage points to 66.6 per cent.
Customers 60 816,413 34 Asia: Some Asian entities are operated as branches; therefore no equity available.
Net income from disposal of group assets [10] 18,914 41,111 (54.0)%
Earnings per share are obtained by dividing consolidated profit/loss by the average number of common shares outstanding.
There were no conversion rights or options outstanding, hence a dilution of earnings per share did not take place.
Total Group equity Non-controlling interests in € thousand 2016 2015 2016 2015 2016 2015
Items which are not reclassified to profit and loss 2,028 2,205 2,028 2,205 0 0
Remeasurements of defined benefit plans 2,704 2,941 2,704 2,941 0 0
Deferred taxes on items which are not reclassified to profit and loss (676) (735) (676) (735) 0 0
Items that may be reclassified subsequently to profit or loss 187,598 (55,474) 201,682 (49,740) (14,085) (5,734)
Deferred taxes on income and expenses directly recognized in equity 11,536 (33,708) 9,849 (32,103) 1,687 (1,606)
1 Adjustment of the previous year’s figures due to a capital neutral shift between Group equity and non-controlling interests
Positive exchange rate differences are derived primarily from the upward revaluation of the Russian rouble, generating a gain of € 347,933 thousand, whereas the devaluation of the Polish zloty led to a reduction of € 48,582 thousand. Due to disposals of Group assets, losses of € 10,860 thousand (2015: losses of € 4,018 thousand) were reclassified to the income statement in the reporting year.
The capital hedge comprises hedges for investments in economically independent operations. The negative result of € 43,445 thousand posted in the 2016 financial year is attributable to the partial hedging of the net investments in Russia and Poland and the corresponding currency developments in these countries.
The item net gains (losses) on financial assets available-for-sale directly shown in equity contains net valuation results from financial investments. The decrease in this item mainly resulted from the sale of shares in Visa Europe to Visa Inc. and the corresponding reclassification of cumulative gains of € 133,623 thousand to the income statement, following an upward revaluation of € 47,789 in the first half of 2016. In the previous year, losses of € 15 thousand were reclassified to the income statement.
Unrealized net gains (losses) of the period 2,704 284,008 (43,445) 0 6,449 51,858 (8,370)
Net gains (losses) reclassified to income statement 0 15,249 0 0 0 (122,286) 17,543 1 Adjustment of the previous year’s figures due to a capital neutral shift between Group equity and non-controlling interests
Loans and advances to customers [15, 33, 49] 70,514,116 69,921,365 0.8%
Impairment losses on loans and advances [16, 33] (4,955,132) (6,055,134) (18.2)%
Provisions for liabilities and charges [27, 33, 49] 756,252 813,823 (7.1)%
The item “Own shares/share incentive program” shows adjustments arising from the transfer of 47,318 own shares from a SIP tranche and other results related to the SIP program. The premium of the own shares has been deducted from retained earnings.
Further details about the changes shown above are reported in the notes under (32) Equity.
Net provisioning for liabilities and charges and impairment losses [3, 9, 27, 42] 1,109,023 1,515,939
Payments for purchase of: Tangible and intangible fixed assets [22] (363,380) (328,070)
Cash and cash equivalents at the end of period [12, 13] 12,242,415 13,482,547 1 Cash and cash equivalents deviates from the item cash reserve due to the disclosure of Raiffeisen Banka d.d., Maribor, and ZUNO BANK AG, Vienna, pursuant to IFRS 5.
Markets in Central and Eastern Europe are thereby grouped together into regional segments comprising countries with comparable economic profiles and similar long-term economic growth expectations. Business activities outside the CEE region are divided according to business area.
This segment encompasses the most advanced banking markets in Central and Eastern Europe, namely the EU members Czech Republic, Hungary and Slovakia. They are also the markets in which RBI has been operating the longest. In each of the countries, RBI is represented by a bank, leasing companies and other specialized financial institutions. In Slovakia, RBI is active in Corporate and Retail Customers business, including leasing. In retail business Tatra Banka is pursuing a multibrand strategy; besides the existing business outlets, outlets carrying the Raiffeisen brand are being further rolled out, with a focus on particular retail client groups. In the Czech Republic, RBI offers real estate leasing in addition to traditional banking services to corporate and retail customers. The focus is on broadening relationships with existing affluent customers. In Hungary, the Group provides services to private and corporate customers via the bank's countrywide network and also through leasing companies. The focus rests on corporate customers and affluent retail customers.
In Poland, in addition to the credit business with corporate customers and small and medium-sized enterprises (including leasing and factoring), the focus is also on retail banking and on business with affluent customers. On 7 December 2016, negotiations with Alior Bank over the sale of the core banking business of Raiffeisen Bank Polska S.A. Warsaw, were terminated. RBI will now prepare the stock exchange listing of 15 per cent of the shares of Raiffeisen Polbank agreed with the regulatory authority and is at the same time working on optimization of the business model. The successful sale of Raiffeisen Leasing Polska S.A., Warsaw, resulted in the deconsolidation of the corresponding units at the start of December 2016. In Slovenia, the Group now has one leasing company following closure of the sale of the Slovenian bank in June 2016. The business volume of the Slovenian leasing company is being reduced as scheduled. Corporate customer business in Asia is operated via the outlets in Singapore and China (including Hong Kong); here too, a complete winding down of business activities is in progress. In the USA, the business activities will also be wound down in the course of 2017. Following the unsuccessful sales process for ZUNO BANK AG, Vienna, parts of the existing business in the Czech Republic and Slovakia will be integrated into the subsidiary banks in those countries. Conclusion of this integration process is planned for mid-2017.
The governance of the separate segments is based on key indicators relating to profitability, growth, efficiency, constraints and business mix parameters. The target values of the separate key indicators are determined according to the specific market environment and adapted when necessary.
Profitability is measured by the return on equity (ROE) and return on risk-adjusted capital (RORAC) based on the internal management systems. The return on equity shows the profitability of a CGU and is calculated as the ratio of profit/loss after deduction of non-controlling interests to average consolidated equity employed. The return on equity reflects the yield of the capital of each segment. The calculation of the RORAC incorporates risk-adjusted capital, which reflects the capital necessary in case of possible unexpected losses. In RBI this capital requirement is calculated within the economic capital model for credit, market and operational risk. This ratio shows the yield on the risk-adjusted equity (economic capital), but is not an indicator pursuant to IFRS. Within the different countries and business lines the actual RORAC generated is compared with the respective predetermined minimal value (RORAC hurdle), which reflects appropriate market yield expectations.
The cost/income ratio represents the cost efficiency of the segment. The cost/income ratio shows general administrative expenses in relation to operating income, which is the sum of net interest income, net fee and commission income, net trading income and other net operating income (less bank levies, impairment of goodwill, profit/loss from the release of negative goodwill and profit/loss from banking business due to governmental measures).
Significant changes in profit/loss are described below: In Central Europe, RBI increased total assets through greater new business generation, especially in the Czech Republic and Slovakia. An additional increase resulted from the acquisition of Citibank’s retail and credit card business in the Czech Republic (€ 669 million), which included a retail loan portfolio of € 201 million. The low level of interest rates, however, continued to negatively impact operating income. Lower net provisioning for impairment losses in all countries in the segment as well as income from the sale of Visa Europe Ltd. shares to Visa Inc. led to a significant improvement in profit before tax, which rose € 44 million yearon -year to € 354 million.
As in 2015, the Eastern Europe segment was again affected by a high level of currency volatility in the reporting period. The average exchange rate of the Russian rouble was 7 per cent lower year-on-year, while the Ukrainian hryvnia and Belarusian rouble were down 15 and 20 per cent respectively. In Ukraine, net trading income increased € 85 million due to the more limited depreciation of the Ukrainian hryvnia compared to the prior year, and an improved result from foreign currency positioning. There were releases of provisions for impairment losses as a result of the improvement in the risk situation, after very high provisioning was still necessary in the comparable period in 2015 due to the political situation in the Donbass region. Profit before tax in Ukraine therefore increased € 241 million to € 150 million. In contrast, Russia reported a 16 per cent drop in profit before tax. A volume- and margin-related decline in net interest income was almost entirely offset by lower general administrative expenses and net provisioning for impairment losses; though in 2015, net income from the disposal of group assets of € 86 million was also recognized as a result of the sale of the Russian pension fund business, ZAO NPF Raiffeisen. In Belarus, profit fell year-on-year due to a valuation result from a foreign currency position recognized in the previous year and lower net income from proprietary trading.
The improvement in profit before tax in the Group Corporates segment was due mainly to lower net provisioning for impairment losses, after high provisions for impairment losses on loans and advances to large corporate customers – above all from the Donbass region in Ukraine – were required in the previous year. This was set against declining operating income and higher general administrative expenses.
Provisioning ratio (average loans and advances to customers) – 2.31% – 1.05%
Corporate Center principally comprises net income from Group head office governance functions and from other Group units. As a result, its net income is generally more volatile. In 2016 profit before tax declined € 657 million. Operating income decreased mainly due to lower dividend income. Net income from derivatives and liabilities declined compared to an increase in net income from financial investments and net income from the disposal of Group assets.
The consolidated financial statements for the 2016 financial year and the comparative figures for the 2015 financial year were prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) insofar as they were adopted by the EU on the basis of IAS Regulation (EC) 1606/2002. The interpretations of the International Financial Reporting Interpretations Committee (IFRIC/SIC) that are already applicable have been considered. All standards published by the IASB as International Accounting Standards and adopted by the EU have been applied to the financial statements for 2016. The consolidated financial statements also satisfy the requirements of Section 245a of the Austrian Commercial Code (UGB) and Section 59a of the Austrian Banking Act (BWG) regarding exempting consolidated financial statements that comply with internationally accepted accounting principles. IAS 20, IAS 41 and IFRS 6 have not been applied as there were no relevant business transactions in the Group.
Accumulated exchange differences are reclassified from the item “exchange differences” shown in other comprehensive income to the income statement under net income from disposal of group assets, in the event of a disposal of a foreign business operation which leads to loss of control, joint management or significant influence over this business operation.
In the case of one subsidiary headquartered outside the euro area, the US dollar was the reporting currency for measurement purposes given the economic substance of the underlying transactions, as both the transactions and the financing were undertaken in US dollars. In the case of one subsidiary headquartered in the euro area, the Russian rouble was the reporting currency for measurement purposes given the economic substance of the underlying transactions.
US-Dollar (USD) 1.054 1.102 1.089 1.113 1 Due to the disposal of Group assets, the Malaysian ringgit and the Turkish lira were no longer in use in the 2016 financial year.
If estimates or assessments are necessary for accounting and measuring under IAS/IFRS rules, they are made in accordance with the respective standards. They are based on past experience and other factors such as planning and expectations or forecasts of future events that appear likely. The estimates and underlying assumptions are reviewed on an ongoing basis. Alterations to estimates that affect only one period will be taken into account only in that period. If the following reporting periods are also affected, the alterations will be taken into consideration in the current and following periods. The critical assumptions, estimates and accounting judgments are as follows:
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 (11) Income taxes, (23) Other assets, and (27) Provisions for liabilities and charges.
According to IFRS 10, a Group controls an investee if it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. IFRS 10 also provides specific information on the acknowledgement or assessment of potential voting rights, codecision rights or protective rights of third parties and constellations that are characterized by delegated or retained decision-making rights or de-facto control. Whether control exists requires a comprehensive assessment (i.e. requiring discretion) of the economic influence of the parent company over the investee. Details are provided in (52) Group composition.
Financial assets and liabilities at fair value through profit or loss 57,777 370,614
Net gains (losses) on financial assets and liabilities at fair value through profit or loss (91,226) 208,506
Interest income includes interest income (unwinding) from impaired loans to customers and banks in the amount of € 185,018 thousand (2015: € 183,804 thousand). Interest income from impaired loans and advances to customers and banks is recognized based on the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
The improvement in currency-based transactions was primarily the result of a more limited Ukranian hryvnia devaluation than in the previous year (€ 80,987 thousand increase). Another positive effect was attributable to the discontinuation of a hedging transaction for Russian rouble denominated dividend income, which had resulted in a € 70,032 thousand reduction in the previous year. Belarus, in contrast, reported a decline of € 61,299 thousand from ending a strategic currency position.
Net income from hedge accounting includes a valuation result from derivatives used in fair value hedges of € 9,200 thousand (2015: minus € 112,615 thousand) and changes in the carrying amount of the fair value hedged items of minus € 15,778 thousand (2015: € 118,812 thousand). This item also includes the ineffective portions of the cash flow hedge amounting to € 211 thousand (2015: minus € 208 thousand).
Net income from liabilities designated at fair value includes a loss from changes in own credit risk amounting to € 119,064 thousand (2015: loss of € 2,572 thousand) and a positive effect from changes in market interest rates totaling € 13,986 thousand (2015: positive effect of € 114,215 thousand).
(7) Net income from financial investments Net income from financial investments comprises valuation results and net proceeds from sales of securities from the financial investment portfolio (held-to-maturity), from securities measured at fair value through profit and loss, and equity participations which include shares in affiliated companies and other companies.
The depreciation of tangible and intangible fixed assets includes impairments of € 34,300 thousand (2015: € 50,246 thousand). The impairments comprise impairment losses for buildings and land of € 5,080 thousand (2015: € 17,850 thousand) and impairment losses for intangible assets of € 28,540 thousand (2015: 31,993 thousand), mainly for the brand Polbank.
Rental income from investment property incl. operating lease (real estate) 40,427 47,498
The item “Other taxes” includes the financial transactions tax in Hungary in addition to property taxes.
Other net operating income includes no impairments of goodwill for the financial year. In the previous year, impairments of goodwill totaling € 6,954 thousand for Group units in Ukraine and Serbia were included.
The bank levies primarily consist of the levies required under the Austrian Stability Act (StabG) amounting to € 85,440 thousand (2015: € 84,175 thousand) as well as bank levies in Poland (€ 34,077 thousand, 2015: € 0 thousand), Slovakia (€ 19,365 thousand, 2015: € 17,553 thousand) and Hungary (€ 18,964 thousand, 2015: € 17,372 thousand).
The “Walkaway Law” came into force in Romania in the second quarter of 2016. Expected utilization resulted in a provisioning requirement of € 26,741 thousand for the reporting period. This new mortgage loan law stipulates that borrowers can sign their properties over to banks and thereby settle their debts, even if the outstanding volume of the loan exceeds the value of the property. The law relates to certain mortgage loans taken out by private individuals in any currency and applies retroactively. Since the Group is of the opinion that this contravenes the Romanian constitution, relevant proceedings were initiated. In October 2016, the Romanian Constitutional Court repealed sections of the law connected with its retroactive application. In the previous year, this item contained expenditures of € 81,987 thousand in Croatia and € 3,951 thousand in Serbia, which were offset by a partial release of provisions of € 66,689 thousand in Hungary.
Net income from the disposal of group assets consisted of the following: in € thousand RLPL Group RBSI Others Total
Fair value reserve reclassified to income statement 0 1,212 0 1,212
In the reporting period, nine subsidiaries were excluded from the consolidated group due to materiality reasons. Moreover, six subsidiaries were excluded due to sale and one due to a change in control. Net income from the disposal of these group assets amounted to € 18,914 thousand.
The following reconciliation shows the relationship between profit before tax and the effective tax burden: Profit/loss before tax 885,598 710,946
Financial assets at fair value through profit or loss 3,962,757 5,363,032
Equity and liabilities according to measurement categories in € thousand 2016 2015
Total equity and liabilities 111,863,845 114,426,583 1 Adaptation of previous year figures
Loans and advances to banks classified regionally (counterparty domicile) are as follows: Loans and advances to banks break down into the following segments: Multilateral development banks 4,003 6,790
Purchased loans amounting to € 2,222,508 thousand (2015: € 1,774,747 thousand) are exclusively assigned to the measurement category “loans and advances”. The drop in leasing claims is primarily due to the sale of the leasing company in Poland. Details on leasing claims are shown under (44) Finance leases.
(16) Impairment losses on loans and advances Provisions for impairment losses were formed in accordance with uniform Group standards and cover all recognizable credit risks. A table showing the development of the impairment losses on loans and advances can be found in the risk report. Provisions for impairment losses were allocated to the following asset classes: Corporate customers – large corporates 2,929,930 3,778,315
Retail customers – small and medium-sized entities 2,062,307 2,185,471 321,337 213,247 25,327 1,946,897 in € thousand Fair value
Retail customers – small and medium-sized entities 2,613,887 2,756,567 378,288 250,229 28,218 2,478,120
Pledged securities which are permitted to be sold or repledged by the transferee shown under the item “trading assets” amounted to € 63,540 thousand (2015: € 1,079,590 thousand).
Positive fair values of derivatives in cash flow hedges (IAS 39) 2,842 1,021
The table below shows the expected hedged cash flows from assets and the effect on the statement of comprehensive income by period: More than 1 year, up to 5 years 708,454 1,577,255
(19) Financial investments This position consists of securities available-for-sale, financial assets at fair value through profit or loss, and securities held-tomaturity as well as strategic equity participations held on a long-term basis.
Treasury bills and bills of public authorities eligible for refinancing 7,804,483 9,026,174
Other intangible fixed assets 27,688 50,162 hereof customer relationships 17,199 12,643
The following overview shows the development of the carrying amount of goodwill, gross amounts and cumulative impairments of goodwill, by cash generating units. The main goodwill position relates to Raiffeisenbank a.s., Prague (RBCZ).
Key assumptions that have been made for the individual cash generating units: 2016 Cash generating units RBCZ
A sensitivity analysis was carried out based on the above-mentioned assumptions in order to evaluate the stability of the impairment test for goodwill. From a number of options for this analysis, two parameters were selected, namely the cost of equity and the reduction of the growth rate. The following overview demonstrates to what extent an increase in the cost of equity or a reduction in the long-term growth rate could occur without the value in use of cash generating units declining below the respective carrying value (equity capital plus goodwill).
1 The respective maximum sensitivity refers to the change of the perpetuity. RBCZ: Raiffeisenbank a.s., Prague (CZ)
The brand value of the Raiffeisen Bank Aval JSC, Kiev (AVAL), was determined using the comparable historical cost approach, because neither immediately comparable transactions 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 basis for the historical cost approach. In 2016, the impairment test led to no impairment.
Land and buildings used by the Group for own purpose 480,713 486,684
The fair value of investment property totaled € 454,745 thousand (2015: € 474,098 thousand).
Land and buildings used by the Group for own purpose 834,146 0 (71,936) 24,540 (33,525) 553 753,778 of which land value of developed land 12,352 (3) (907) 495 (488) 0 11,449
Office furniture, equipment and other tangible fixed assets (736,743) 3,637 (88,792) 230,832
In the reporting year and the previous year, there were no single investments exceeding € 10,000 thousand.
Deposits from customers break down as follows: Corporate customers – large corporates 28,560,874 30,643,854
(27) Provisions for liabilities and charges in € thousand As at 1/1/2016
 Legal steps were taken against Raiffeisen Bank International AG, Vienna, in connection with the early repayment of an Icelandic liability. The amount in dispute is € 25,000 thousand.
 Another closely related legal action in relation to a disputed amount of € 127,063 thousand was brought by a Cypriot plaintiff who had purchased the underlying claim from a shareholder of the above Slovakian customer’s holding company.
The Group expects to pay € 287 thousand in contributions to its defined benefit plans in 2017. In the financial year 2016, the Group’s contribution to defined benefit plans was € 278 thousand.
Plan assets broke down as follows: hereof own financial instruments 0 1
The defined investment structure is implemented in the two funds named “VRG 60” and “VRG 7”, in which the accrued amounts for RZB/RBI are invested, with an investment concept. The weighting of predefined asset classes moves within a range according to objective criteria, which can be derived from market trends. In times of stress, hedges of the equity component are put in place.
The following table shows the actuarial assumptions used to calculate the net defined benefit obligation: Future pension basis increase 2.7 3.0
The following table shows the longevity assumptions used to calculate the net defined benefit obligation: Longevity at age 65 for current pensioners - males 21.1 20.9
Longevity at age 65 for current pensioners - females 23.6 23.5
Longevity at age 65 for current members aged 45 - males 24.6 24.5
The weighted average duration of the net defined benefit obligation was 15.1 years (2015: 16.0 years).
Future pension increase (0.25 per cent change) 1,380 (1,320) 1,464 (1,398)
The following table shows the actuarial assumptions used to calculate the other termination benefits: Additional future salary increase for employees 2.7 3.0
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: 2016 2015 in € thousand Addition Decrease Addition Decrease
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.
The decline in equity-/index-based transactions is attributable to a change in the presentation of certificates issued.
Negative fair values of derivatives in cash flow hedges (IAS 39) 275,102 239,858
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, deposits from banks and debt securities issued, which are hedged against interest rate risk.
The decline in the item “Liabilities held for sale” was caused by the sale of Raiffeisen Banka d.d., Maribor, as at 30 June 2016 and the reclassification of ZUNO BANK AG, Vienna, following inconclusive sales negotiations.
The following table contains subordinated borrowings that exceed 10 per cent of the total subordinated capital: Issuer ISIN Type Currency Nominal value in € thousand Coupon1 Due
RBI AG XS1034950672 Subordinated capital EUR 500,000 4,500% 21/2/2025 1 Current interest rate, interest clauses are agreed.
In the reporting period, expenses on subordinated capital totaled € 160,549 thousand (2015: € 186,615 thousand).
The Annual General Meeting held on 16 June 2016 authorized the Management Board to acquire own shares, pursuant to Section 65 (1), item 8 and Sections (1a) and (1b) of the Austrian Stock Corporation Act (AktG), during a period of 30 months as of the date of the resolution (i.e. by 15 December 2018), up to 10 per cent of the subscribed capital of the company and to withdraw them if applicable. This authorization may be exercised in full or in part or also in several installments and for one or more purposes – with the exception of securities trading – by the company, by a subsidiary (Section 189a, item 7 of the Austrian Commercial Code (UGB)) or, for their account, by third parties. The acquisition price for repurchasing the shares may be no lower than € 1.00 per share and no higher than 10 per cent above the average unweighted closing price over the ten trading days prior to exercising this authorization.
In addition, if convertible bonds are issued in accordance with the Annual General Meeting resolution of 26 June 2013, shareholders ’ subscription rights may also be excluded in order to issue (own) shares to the holders of these convertible bonds who exercise the conversion or subscription rights granted them under the terms of the convertible bonds to shares of the company. This authorization replaces the authorization granted at the Annual General Meeting of 4 June 2014 pursuant to Section 65 (1), item 4 and 8 of the Austrian Stock Corporation Act (AktG) to purchase and use own shares and, with regard to their use, extends to the own shares already purchased by the company. No own shares have been bought since the authorization was issued in June 2016. This authorization applies for a period of five years from the date of the resolution (i.e. until 15 June 2021).
Dividends paid to non-controlling interests during the year 1 0 12,711 23,970 3,346 1 Included in net cash from financing activites
The European Bank for Reconstruction and Development (EBRD) participated in the capital increase of Raiffeisen Bank Aval JSC, Kiev, which took place in December 2015. Within the course of this transaction, RBI agreed with EBRD to offer RBI shares to EBRD in exchange for the AVAL shares held by EBRD after six years of its participation in a so-called share swap. The execution of this transaction is subject to approvals from regulatory authorities, the Annual General Meeting and other committees.
As at end of 2014, the Ukrainian National Bank launched foreign currency transfer controls. A foreign investor is currently not able to execute dividend payments in a foreign currency. This restriction was extended indefinitely in the 2016 financial year.
In 2014, the share incentive program (SIP) was terminated due to regulatory complexities. The last tranches of the SIP were issued in 2011, in 2012 and in 2013. The respective duration periods are five years. Therefore, the 2011 tranche matured in 2016. In accordance with the terms and conditions of the program (published by “euro adhoc” on 14 September 2011), the number of shares actually transferred was as follows: Share incentive program (SIP) 2011 Group of persons Number of shares due
Members of the management boards of bank subsidiaries affiliated with the company 30,050 418,296 23,125
Members of the management board of the company 214,091 64,227 321,137
Members of the management boards of bank subsidiaries affiliated with the company 291,910 87,573 437,865
In the financial year 2016, no shares were bought back for the share incentive program.
Impairment losses on loans and advances (6,055,134) 0 0 0 0
Securitization represents a particular form of refinancing and credit risk enhancement under which risks from loans or lease agreements are packaged into portfolios and placed with capital market investors.The objective of the Group’s securitization transactions is to relieve Group regulatory total capital and to use additional refinancing sources.
The following transactions for all or at least individual tranches were executed with external contractual partners, were still active in the reporting year and resulted in a reduction in risk-weighted assets. The stated amounts represent the securitized portfolio and the underlying receivables as well as the junior tranche at the transaction closing date.
A synthetic securitization of loans and advances to corporate customers principally originated by RBI AG has been active since 2014 under “ROOF Infrastructure 2014”. The junior tranche is externally placed and amounted to € 101,497 thousand as at 31 December 2016 (2015: € 98,963 thousand).
A securitization transaction placed by the leasing subsidiary in Poland under “ROOF Poland Leasing 2014” comprised a portfolio of car leasing contracts with an underlying transaction volume of PLN 1,500,000 thousand. The SPV established for this transaction was consolidated within the Group until November 30, 2016. Following the sale of the originating Raiffeisen-Leasing Polska S.A., Warsaw, and ROOF Poland Leasing 2014 Ltd, Dublin (IE), which was closed in December 2016, the securitization transaction was eliminated from the Group.
Besides the above-mentioned refinancing and placing of risk arising from loans or leasing claims, the Group also acts as an investor in ABS structures. Essentially, this relates to investments in Structured Credit Products, Asset Based Financing and partly also Diversified Payment Rights. During the financial year, market value changes led to a negative valuation result of € 89 thousand (2015: negative valuation result of € 12 thousand) and to a realized result from sales of € 679 thousand (2015: € 811 thousand).
Total exposure to structured products (excluding CDS): in € thousand Outstanding nominal amount Carrying amount Outstanding nominal amount Carrying amount
Loans and advances1 6,729,870 6,732,916 1 Without loans and advances from reverse repo and securities lending business 2 Without derivatives
The table below shows the liabilities corresponding to the assets pledged as collateral and contains liabilities from repo business, securities lending business, securitizations and debentures: Deposits from banks 2,579,979 3,370,649
Reverse repurchase, securities lending & similar agreements (legally enforceable) 3,681,162 0 3,681,162 3,681,162 0 0
Other financial instruments (legally enforceable) 212,652 14,427 198,224 0 0 198,224 2015 Gross amount Net amount
2015 Nominal amount by maturity Fair values in € thousand Up to 1 year More than 1 year, up to 5 years More than 5 years Total Positive Negative
Foreign exchange rate and gold contracts 47,617,072 10,253,473 2,230,651 60,101,197 1,154,426 (1,382,843)
Equity/index futures - forward pricing 436,540 0 0 436,540 24,803 (22,172)
The previous year’s surplus of negative market values for equity/index contracts was offset by shares purchased for hedging purposes. These shares are recorded under trading assets and are not shown in the above table.
No Funding Value Adjustment (FVA) was considered to measure OTC derivatives. RBI is observing market developments and will develop a method to calculate the FVA where appropriate.
2016 2015 in € thousand Level I Level II Level III Level I Level II Level III
Positive fair values of derivatives1 93,900 3,342,774 852 64,453 3,630,168 2,320
Bonds, notes and other fixed-interest securities 1,772,637 324,368 71,303 2,497,378 259,210 21,657
Financial assets at fair value through profit or loss 1,937,532 1,972,735 52,490 2,224,975 3,072,102 65,955
Shares and other variable-yield securities 2,502 23 1,168 2,560 0 1,191
Positive fair values of derivatives from hedge accounting 0 644,693 0 0 709,272 0 1 Including other derivatives 2 Includes securities traded on the stock exchange and also shares measured according to income approach
Negative fair values of derivative financial instruments1 135,334 2,826,443 91 161,769 4,309,317 21,614
Negative fair values of derivatives from hedge accounting 0 425,415 0 0 434,791 0 1 Including other derivatives 2 Adaptation of previous year figures
Compared to year-end, the share of financial assets classified as Level II decreased. The decrease resulted mainly from divestitures from the category “financial assets at fair value through profit and loss”, particularly the category “Bonds, notes and other fixed-interest securities”. Moreover, there was a slight shift from Level I to Level II. This was due to the fact that no directly quoted market prices for these financial instruments were available at the reporting date.
in € thousand As at 1/1/2016 Change in consolidated group Exchange differences Purchases Sales, repayment
Financial assets at fair value through profit or loss 65,955 0 4,667 18,586 (45,287)
In the reporting year, gains resulting from financial instruments of the Level III fair value hierarchy amounted to € 135,817 thou-
Negative fair value of banking book derivatives without hedge accounting OTC options 91
Fair values which are different from the carrying amount are calculated for fixed-interest loans and advances to and deposits from banks or customers, if the remaining maturity is more than one year. Variable-interest loans and advances and deposits are taken into account if they have an interest rollover period of more than one year. The fair value of loans and advances is calculated by discounting future cash flows using interest rates at which similar loans and advances with the same maturities could have been granted to customers with similar creditworthiness. Moreover, the specific credit risk and collaterals are considered for the calculation of fair values for loans and advances.
2016 in € thousand Level I Level II Level III Fair value Carrying amount Difference
The following table contains revocable credit lines: Revocable credit lines 16,890,479 15,775,452
RBI AG is a member of Raiffeisen-Kundengarantiegemeinschaft Austria. The members of this association have a contractual obligation to guarantee jointly the punctual fulfillment of the entirety of an insolvent association member’s commitments arising from customer deposits and its own issues up to the limit of the sum of the individual capacities of the remaining association members. The individual capacity of an association member is measured on the basis of its freely available reserves subject to the pertinent provisions of the Austrian Banking Act (BWG).
The Risk Management Committee is responsible for ongoing development and implementation of methods and parameters for risk quantification and for refining steering instruments. The committee also analyzes the current risk situation with respect to internal capital adequacy and the corresponding risk limits. It approves risk management and controlling activities (such as the allocation of risk capital) and advises the Management Board in these matters.
Credit Management (Corporate customers, Banks and Sovereigns, Retail) Credit Portfolio Management
agement Board. In addition, the Securitization Committee is a platform for exchanging information regarding securitization positions and market developments.
The Operational Risk Management Committee comprises representatives of the business areas (retail, market and corporate customers) and representatives from Compliance (including financial crime), Internal Control System, Operations, Security and Risk Controlling, under chairmanship of the CRO. This committee is responsible for controlling the operational risk (including conduct risk) of the Group. It derives and sets the operational risk strategy based on the risk profile and the business strategy and also makes decisions regarding measures, controls and risk acceptance.
The Risk Appetite Framework (RAF) limits the Group’s overall risk in accordance with the strategic business objectives and allocates these to the different risk categories and business areas. The primary aim of the RAF is to limit risk, particularly in adverse scenarios and for major singular risks in such a way as to ensure compliance with regulatory minimum ratios. The RAF is therefore based on the ICAAP’s three pillars (target rating, going-concern, sustainability perspective) and sets the concentration risk limits for the risk types identified as significant in the risk assessment. In addition, the risk appetite decided by the Management Board and the Group’s risk strategy and its implementation are reported regularly to the Supervisory Board’s Risk Committee.
Risk distribution of individual risk types to economic capital: in € thousand 2016 Share 20151 Share 1 Adaptation of previous year figures
The decline in Central Europe was mainly attributable to the sale of Raiffeisen Banka d.d., Maribor, and Raiffeisen-Leasing Polska S.A. The sales were primarily reflected in the credit and macroeconomic risk. The increase in Eastern Europe was due to market risk.
This perspective thus also complements traditional risk measurement based on the value-at-risk concept (which is in general based on historical 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 solvency under extreme situations. Based on these analyses risk management in the Group enhances portfolio diversification, for example via limits for the total exposure to individual industry segments and countries and through ongoing updates to lending standards.
Revocable credit lines 16,890,479 15,775,452 1 Items on the statement of financial position containing only credit risk parts 2 Adaptation of previous year figures
Rating models in the main non-retail asset classes – corporates, banks, and sovereigns – are uniform in all Group units and rank creditworthiness in 27 grades for corporate customers and banks and ten grades for sovereigns. For retail asset classes, country specific scorecards are developed based on uniform Group standards. Customer rating, as well as validation is supported by specific software tools (e.g. business valuation tools, rating and default database).
The internal rating models for corporate customers take into account qualitative parameters, various ratios from the statement of financial position and profit ratios covering different aspects of customer creditworthiness for various industries and countries. In addition, the model for smaller corporates also includes an account behavior component.
in € thousand 2016 Share 20151 Share 8 Weak credit standing / sub-standard 1,498,401 2.3% 2,242,753 3.3%
9 Very weak credit standing / doubtful 683,561 1.0% 972,003 1.4%
The total credit exposure to corporates amounted to € 65,759,242 thousand (2015: € 68,749,895 thousand) at year-end 2016. The increase in rating grade 1 resulted from a rating upgrade of individual financial service providers and customers in the Group Markets and Group Corporates segments. Rating grade 5 recorded a € 1,212,203 thousand increase to € 13,149,526 thousand, due to an increase in credit financing and swap transactions. The € 1,372,006 thousand decline in rating grade 7 resulted from a reduction in facility and credit financing, guarantees issued, and from a reduction in deposits in the Group Corporates, Non-Core and Southeastern Europe segments. Rating grade 10 recorded a € 1,596,471 thousand decline to € 4,025,766 thousand. The decline was attributable to the reduction in exposure and the sales of non-performing loans in several countries, notably in Group Corporates, Asia, Russia and Hungary, and to the sales of Raiffeisen Banka d.d., Maribor, and Raiffeisen -Leasing Polska S.A., Warsaw.
6.3 Acceptable project risk profile – average risk 843,661 10.4% 676,171 8.4%
6.4 Poor project risk profile – high risk 246,584 3.0% 414,076 5.1%
The credit exposure in project finance amounted to € 8,087,334 thousand (2015: € 8,084,011 thousand) at year-end 2016. At 78.9 per cent (2015: 75.3 per cent), projects rated in the two best rating grades, excellent project risk profile – very low risk (rating 6.1) or good project risk profile – low risk (rating 6.2), accounted for the highest share of the portfolio. This reflects mainly the high level of collateralization in specialized lending transactions. The increase in rating grade 6.1 excellent project risk profile – very low risk was attributable to a rating upgrade of individual customers in Austria, Hungary and Slovakia.
The following table provides a breakdown by country of risk of the total credit exposure for corporate customers and project finance structured by regions: in € thousand 2016 Share 20151 Share 1 Adaptation of previous year figures
The credit exposure for corporate customers and project financing declined € 2,987,329 thousand to € 73,846,576 thousand. Central Europe recorded a € 1,958,675 thousand decline, which was attributable to project and facility financing and to a reduction in the bond portfolio. The decrease of € 1,510,201 thousand in the Austrian region resulted mainly from facility financing. Western Europe recorded an increase of € 1,587,873 thousand due to an increase in repo and swap transactions and to money market business. As a result of the decision to downscale business operations in Asia as part of the transformation program, Asia recorded a decline of € 1,606,799 thousand.
The table below provides a breakdown of the total credit exposure for corporates and project finance by industries: in € thousand 2016 Share 20151 Share
Electricity, gas, steam and hot water supply 3,046,017 4.1% 3,734,447 4.9%
The total credit exposure to retail customers breaks down by Group segments as follows: in € thousand Central Europe Southeastern
Retail customers – small and medium-sized entities 1,095,471 902,940 446,912 778,107 1,736 hereof individual loan loss provision 268,798 319,446 805,949 232,657 60 hereof portfolio-based loan loss provision 79,524 51,134 48,359 23,328 0
Compared to year-end 2015, the retail credit portfolio with a volume of € 29,165,795 thousand showed an increase of € 1,321,683 thousand. The highest volume of € 10,956,414 thousand (2015: € 9,457,623 thousand) was shown in the segment Central Europe. Compared to year-end 2015, this was an increase of € 1,498,791 thousand, mainly caused by a rise in loans to private individuals in the Czech Republic and Slovakia and by the purchase of a loan portfolio in the Czech Republic. The second largest segment was Southeastern Europe at € 8,073,694 thousand (2015: € 7,795,433 thousand). Compared to the previous year, the exposure increased € 278,261 thousand. This was mainly due to Bulgaria and Romania. Compared to year-end 2015, the segment Non-Core reported a decrease of € 1,003,130 thousand mainly resulting from the sale of Raiffeisen-Leasing Polska S.A., Warsaw, and Raiffeisen Banka d.d., Maribor. The segment Eastern Europe showed an increase of € 548,426 thousand to € 4,406,793 thousand. This was mainly attributable to Russia and Ukraine. The increase was primarily due to the appreciation of the Russian rouble.
The following table shows the credit exposure in foreign currencies to this asset class by segments: 2016 in € thousand Central Europe Southeastern Europe Eastern Europe Non-Core Group Markets 2015 in € thousand Central Europe Southeastern Europe Eastern Europe Non-Core Group Markets
The structure of the revised rating model for banks is based on the procedure used by external rating agencies. The rating is arrived at in three steps: 1. Viability rating
Quantitative factors (statement of financial position ratios), qualitative factors and the financial sector risk are combined to create a viability rating using a statistically developed risk function. The viability rating represents the risk assessment without considering support from an owner and/or by a government.
 Profitability  Market position Risk in the financial sector is assessed in a separate module based on macroeconomic indicators. The main focus is on the assessment of risk liability and the stability of the economic environment in which the bank operates.
The revised rating model for banks permits better differentiation of risk and offers improved forecasting quality.
The following table shows the credit exposure for banks in the nine principal grades of the new master scale: in € thousand 2016 Share 3 Very good credit standing 9,934,631 53.3%
The following table shows the credit exposure for banks based on the previously used rating scale: in € thousand 2015 Share
The following table provides a breakdown of the total credit exposure by country of risk grouped into regions: in € thousand 2016 Share 2015 Share
The Group continues to reduce the unsecured credit exposure in this asset class according to its strategy. New business in this asset class thus mainly stems from counterparty credit exposure from derivatives and short-term money market deposits. Credit business with other banks in the Austrian Raiffeisen Banking Group which are participating in a joint risk monitoring system is not restricted.
The table below shows the total credit exposure to banks (excluding central banks) by products: in € thousand 2016 Share 2015 Share
The credit exposure to sovereigns amounted to € 24,933,234 thousand (2015: € 29,294,291 thousand) at year-end 2016. It accounted for 17.0 per cent (2015: 19.4 per cent) of the total credit exposure.
The table below shows the credit exposure to sovereigns in non-investment grade (rating B3 and below): in € thousand 2016 Share 2015 Share
Retail customers – small and medium-sized entities 1,946,897 508,747 1,312,405 2015 Maximum credit exposure Fair value of collateral in € thousand Net exposure Commitments/guarantees issued
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-downs, value adjustments or provisioning). Their early involvement can help reduce losses resulting from problem loans.
This section refers exclusively to exposures without grounds for default pursuant to Article 178 CRR. In the corporate business, when loan terms or conditions are altered in favor of the customer, the Group distinguishes between modified loans and forborne loans according to the applicable definition of the EBA document "Implementing Technical Standard (ITS) on Supervisory Reporting (Forbearance and non-performing exposures)".
The critical aspect in deciding whether a loan is forborne in the non-retail business is the financial situation of a customer at the time the terms or loan conditions are altered. If based on the customer's creditworthiness (taking the internal early warning system into account) it can be assumed, at the point when the loan terms or conditions are altered, that the customer is in financial difficulties and if the modification is assessed as a concession, such loans are designated as forborne. If such a modification for a loan previously considered as non-performing is carried out, then the loan is assessed as non-performing exposure (NPE) irrespective of whether a reason for default pursuant to Article 178 CRR exists. The decision on whether a loan is classified as forborne/NPE does not trigger an individual loan loss provision in respect of the customer; this is based on the default definition of CRD IV/CRR.
The following table shows the non-performing exposure according to segments: in € thousand 2016 Share 2015 Share
According to Article 178 CRR, a default and thus a non-performing loan (NPL) applies if it can be assumed that a customer is unlikely to fulfill all of its credit obligations to the bank, or if the debtor is overdue at least 90 days on any material credit obligation to the bank. For non-retail customers, the Group has defined twelve indicators which are used to identify a default event. For example, a default event applies if a customer is involved in insolvency or similar proceedings, if it has been necessary to apply an impairment or direct write-down of a customer loan, if credit risk management has judged a customer loan to be not wholly recoverable or if the workout unit is considering a restructuring.
Provisions for impairment losses are formed on the basis of Group-wide standards according to IFRS accounting principles and cover all identifiable credit risks. In the non-retail business, problem loan committees from each Group unit decide on allocating individual loan loss provisions. In the retail area, provisioning is determined by retail risk management departments in the individual Group units. They compute the required loan loss provisions according to defined calculation methods on a monthly basis. The provisioning amount is then approved by local accounting departments.
The following tables show the development of non-performing loans in the defined asset classes loans and advances to customers and loans and advances to banks (excluding items off the statement of financial position): in € thousand As at 1/1/2016 Change in consolidated group/
The volume of non-performing loans to non-banks fell € 1,842,557 thousand, in particular due to the sale of non-performing loans with a nominal value of € 1,186,945 thousand and the derecognition of uncollectible loans. The NPL ratio based on loans to nonbanks declined 2.7 percentage points to 9.2 per cent.
The declines in non-performing loans in the segment Group Corporates were particularly significant, falling 45.7 per cent, or € 580,231 thousand, to € 688,202 thousand (2015: € 1,268,433 thousand). This was primarily caused by the sale and the derecognition of uncollectible loans. The ratio of non-performing loans to credit exposure fell 4.6 percentage points to 4.5 per cent; the NPL coverage ratio increased 9.2 percentage points to 65.9 per cent.
The segment Eastern Europe posted a decline in non-performing loans of 17.1 per cent, or € 326,245 thousand, to € 1,576,113 thousand (2015: € 1,902,359 thousand), largely due to the sale of non-performing loans in the amount of € 235,304 thousand in Russia and € 144,527 thousand in Ukraine. The ratio of non-performing loans to credit exposure fell 3.1 percentage points to 12.0 per cent and the NPL coverage ratio fell 0.5 percentage points to 85.9 per cent.
In Central Europe, non-performing loans fell € 252,810 thousand to € 1,078,207 thousand (2015: € 1,331,017 thousand), mainly due to sales of non-performing loans of € 261,196 thousand in Hungary. The NPL ratio fell 1.4 percentage points to 5.0 per cent; the NPL coverage ratio fell 4.3 percentage points to 71.0 per cent.
In Southeastern Europe, non-performing loans decreased 10.4 per cent, or € 165,857 thousand, to € 1,421,322 thousand (2015: € 1,587,178 thousand). Whereas declines totaling € 190,783 thousand were recorded in Bulgaria, Croatia, Serbia and Bosnia and Herzegovina, non-performing loans increased in Albania. The NPL ratio fell 0.8 percentage points to 9.9 per cent and the NPL coverage ratio increased 8.1 percentage points to 79.7 per cent.
The following table shows the development of impairment losses on loans and provisions for liabilities off the statement of financial position during the financial year and the corresponding asset classes: in € thousand As at 1/1/2016
The regional breakdown of the loans reflects the broad diversification of credit business in the Group’s markets. The following table shows the distribution of the total credit exposure by the borrower’s home country grouped by regions: in € thousand 2016 Share 20151 Share 1 Adaptation of previous year figures
At € 6,794,262 thousand, the largest decline, in Austria, was attributable to the reduction in deposits at the Austrian National Bank and in Austrian government bonds. Overall, Central Europe showed a fall of € 1,001,853 thousand, with the decline in Poland due to the sale of Raiffeisen-Leasing-Polska S.A., Warsaw, offset by new business in Slovakia and in the Czech Republic and by the purchase of a loan portfolio in the Czech Republic. As a result of the decision, taken within the framework of the transformation program, to downscale operations, Asia showed a fall of € 1,782,804 thousand.
Risk policies and credit assessments in the Group take into account the industry class of customers as well. Banking represents the largest industry class. The second largest class is private households, primarily consisting of loans and advances to retail customers in Central and Southeastern European countries.
The following table shows the total credit exposure of the Group by the customers’ industry classification: in € thousand 2016 Share 2015 Share
Retail trade except repair of motor vehicles 3,674,826 2.5% 3,671,634 2.4%
Electricity, gas, steam and hot water supply 3,055,623 2.1% 3,740,070 2.5%
Extraction of crude petroleum and natural gas 776,215 0.5% 686,746 0.5%
Trading book VaR 99% 1d VaR as at Average VaR Minimum VaR Maximum VaR VaR as at in € thousand 31/12/2016 31/12/2015
The risk measurement approaches employed are verified – besides analyzing returns qualitatively – on an ongoing basis through backtesting and statistical validation techniques. If model weaknesses are identified, then they are improved accordingly.
In the previous year, no backtesting exceedings arose. The following graph compares the VaR to the theoretical gains and losses on a daily basis. The VaR represents the maximum loss which will not be exceeded within one day, with a confidence level of 99 per cent. It is compared to the respective theoretical gain or loss which would arise on the following day due to the actual market conditions at the time.
The following tables show the largest present value changes for the trading book of the Group given a one-basis-point interest rate increase for the whole yield curve in € thousand for the reporting dates 31 December 2016 and 31 December 2015. Currencies where the total interest rate sensitivity exceeds € 1 thousand are shown separately.
The increase in the RUB interest rate sensitivities was based on two factors:  The strategic investment position in the Russian subsidiary bank was expanded.  The measurement method was adapted to the Group standard under which all interest rate cash flows are considered in the measurement.
The regulatory component is addressed by compliance with the reporting requirements under Basel III (Liquidity Coverage Ratio, Net Stable Funding Ratio and additional liquidity monitoring metrics) and also by compliance with the regulatory limits. Also, additional liquidity and reporting requirements established by local regulatory authorities apply to some Group units.
The mainstays of the economic liquidity risk framework are the going concern and the time to wall scenario (TTW). The going concern report shows the structural liquidity position and covers all main risk drivers which could detrimentally affect the Group in a normal business environment (“business as usual”). The going concern models are also the main input factors for the cost contribution for the funds transfer pricing model. The time to wall report, on the other hand, shows the survival horizon for defined adverse scenarios and stress models (market, reputational and combined crisis) and determines the minimum level of the liquidity buffer (and/or the counter-balancing capacity) of the Group and its individual units.
The liquidity scenarios are modelled using a Group-wide approach which considers local specifics where warranted due to factors such as the market or the legal environment or certain business characteristics; the calculation is performed at Group head office. When modelling cash inflows and outflows a distinction is at minimum made between products, customer segments and individual currencies (where applicable). For products without a contractual maturity, the distribution of cash inflows and outflows is calculated using a geometric Brownian motion which derives statistical forecasts for future daily balances from the observed, exponentially weighted historical volatility of the corresponding products.
The liquidity position is monitored at Group level and at the level of the individual units and is restricted by means of a comprehensive limit system. The limits are determined both for a normal business environment and also for stress scenarios. In accordance with the defined risk appetite, each Group unit must demonstrate a survival horizon of up to 90 days (TTW) in a severe, combined stress scenario (reputational and market stress). This can be ensured either by a structurally positive liquidity profile or by a sufficiently high liquidity buffer. In a normal going concern environment, maturity transformation must be fully covered by the available liquidity buffer in the medium term. This means that the cumulative liquidity position over a period of up to one year must be positive. In the long term (one year or more), maturity transformation is permitted up to a certain level. For internal models, these limits are supplemented by limits for compliance with regulatory liquidity ratios, such as the liquidity coverage ratio (LCR). All limits must be complied with on a daily basis.
The bank uses a series of customized measuring instruments and early warning indicators which provide the Management Board and executives with timely and forward-looking information. Compliance with the liquidity risk framework ensures that the bank can continue its business activities even under a high degree of pressure.
A conservative approach is adopted when establishing outflow ratios based on historical data and expert opinions. The simulation assumes a lack of access to the money or capital market and simultaneous significant outflows of customer deposits. In this respect, the deposit concentration risk is considered by assigning higher outflow ratios to large customers. Furthermore, stress assumptions are formulated for the drawdown of guarantees and credit obligations. In addition, the liquidity buffer positions are adapted by haircuts in order to cover the risk of disadvantageous market movements, and the potential outflows resulting from collateralized derivative transactions are estimated. The bank continuously monitors whether the stress assumptions are still appropriate or whether new risks need to be considered. The time to wall concept has established itself as the main control instrument for day-to-day liquidity management and is therefore a central component of funding planning and budgeting. It is also fundamental to determining performance ratios relating to liquidity.
As shown by the daily liquidity risk reports, each Group unit actively maintains and manages liquidity buffers, including high quality liquid assets (HQLA) which are always sufficient to cover the net outflows expected in crisis scenarios. The Group has sizeable, unencumbered and liquid securities portfolios and favors securities eligible for Central Bank tender transactions in order to ensure sufficient liquidity in various currencies. Each Group unit ensures the availability of liquidity buffers, tests its ability to utilize central bank funds, constantly evaluates its collateral positions as regards their market value and encumbrance and examines counterbalancing capacity, including the secured and unsecured funding potential and the liquidity of the assets.
In the past year and to date, the Group’s excess liquidity was significantly above all regulatory and internal limits. The result of the internal time to wall stress test demonstrates that the Group would survive throughout the modelled stress phase of 90 days even without applying contingency measures.
in € thousand 2016 2015 Maturity 1 month 1 year 1 month 1 year
The liquidity coverage ratio (LCR) supports the short-term resilience of banks by ensuring that they have an adequate stock of unencumbered high-quality liquid assets (HQLA) to meet potential liability run offs that might occur in a crisis, which can be converted into cash to meet liquidity needs for a minimum of 30 calendar days in a liquidity stress scenario.
In 2016, the regulatory minimum ratio for the LCR was 70 per cent, which will be raised to 100 per cent by 2018.
In 2016 the LCR rose slightly year-on-year, firstly as a result of the implementation of the objectives under the transformation program and secondly as a result of the strategy of maintaining a higher liquidity position during the Group’s planned restructuring. The HQLA portfolio was reduced by replacing ECB facilities with repos. Net outflows fell due to lower deposits from banks, unscheduled higher customer deposits and unscheduled reduced granting of loans.
The NSFR is defined as the ratio of available stable funding to required stable funding. This ratio should continuously be at least 100 per cent, although no regulatory limit has been set. Available stable funding is defined as the portion of equity and debt which is expected to be a reliable source of funds over the time horizon of one year covered by the NSFR. A bank’s required stable funding depends on the liquidity characteristics and residual maturities of the various assets held and of commitments off the statement of financial position.
The RBI Group targets a balanced funding position. The regulatory provisions are currently being revised by the regulatory authorities.
Funding liquidity risk is mainly driven by changes in the risk strategy of lenders or by a deterioration in the creditworthiness of a bank that needs external funding. Funding rates and supply rise and fall with credit spreads, which change due to the market- or bank-specific situation.
This risk category is analyzed and managed based on own historical loss data and the results of risk assessments.
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. In addition to the requirements for internal and external
reporting, information on loss events is exchanged with international data pools to further develop operational risk management tools as well as to track measures and control effectiveness. Since 2010, The Group has been a participant in the ORX data pool (Operational Risk Data Exchange Association), whose data are currently used for internal benchmark purposes and analyses and as part of the operational risk model. The ORX data consortium is an association of banks and insurance groups for statistical purposes. The results of the analyses as well as events resulting from operational risks are reported in a comprehensive manner to the relevant Operational Risk Management Committee on a regular basis.
The following table contains the funds managed by the Group: Retail investment funds 5,265,851 4,860,389
Assets under finance leases break down as follows: Real estate leasing 367,469 694,080
Future minimum lease payments under non-cancelable operating leases are as follows: More than 1 year, up to 5 years 51,568 65,200
Future minimum lease payments under non-cancelable operating leases are as follows: More than 1 year, up to 5 years 125,060 149,314
(46) Other disclosures according to BWG Geographical markets 2016 Monetary values in € thousand
Assets and liabilities with counterparties outside Austria are as follows: Volume of the securities trading book
Securities admitted for trading on a stock exchange 2016 2015 in € thousand listed unlisted listed unlisted
(47) Capital management and total capital according to CCR/CRD IV and Austrian Banking Act (BWG) Capital management
Capital continues to be an integral part of the Group’s control procedures. RBI as an international Group takes various control parameters into consideration. From a regulatory perspective, the RBI Group is supervised on a subgroup level according to Article 11 paragraph 5 CRR (Capital Requirement Regulation) based on the FMA (Austrian Financial Market Authority) notification from 24 October 2014, and is the superordinated credit institution for the subgroup in terms of Section 30 Austrian Banking Act (BWG). Moreover, the Group has to adhere to the legal capital regulations on an individual basis and is additionally part of the RZB credit institution group.
Regulatory values are defined on an individual and subgroup basis by the BWG and the applicable regulation of the European Parliament (CRR) based on corresponding EU guidelines. There are also – often deviating with regard to content – guidelines in individual countries in which the Group operates. Control on a Group level is undertaken by the Planning & Finance department, while compliance with the local capital requirements of the individual Group units is primarily the responsibility of the units themselves in coordination with the respective central departments.
For internal management purposes, targets which take account of a management buffer in addition to the regulatory requirements are defined for the Group.
Risk taking capacity is calculated within the framework of regulatory limits. It is defined as the maximum loss which the bank or the banking group may incur during the next twelve months without falling short of the regulatory minimum capital ratios.
In 2016, RBI continued to implement the planned measures aimed at stengthening the capital ratios, resulting in a steady and significant improvement.
The so-called SREP requirement represents an add-on to the minimum requirements of the CRR and CRD IV and the Austrian Banking Act (BWG). Moreover, additional buffer requirements must be complied with.
These are divided into the capital conservation buffer (up to 2.5 per cent), a systemic risk buffer (up to 5 per cent) determined by national supervisors as well as additional capital add-ons for systemic banks (up to 3.5 per cent). In the event that systemic risk buffers as well as add-ons for systemic banks are determined for a banking institution, only the higher of the two values is applicable. In September 2015, the responsible financial market stability committee of the FMA recommended the requirement of a systemic risk buffer for twelve large banks located in Austria, including RBI and RZB. This recommendation came into force as of the beginning of 2016 through the FMA. The systemic risk buffer was set at 0.25 per cent for RBI and RZB as of 1 January 2016 and progressively increases to 2 per cent by 2019. Moreover, a countercyclical buffer, can be implemented by member states in order to curb excessive lending growth. This countercyclical buffer was initially set at 0 per cent for Austria due to restrained lending growth and the stable macroeconomic environment. Within the framework of the Supervisory Review and Revaluation Process ECB implicitly sets CET 1 ratio to 8.5 per cent (SREP requirement), including capital conservation and systemic risk buffer.
Total capital requirement for position risk in bonds, equities, commodities and open currency positions 214,060 240,924
RBI Finance (USA) LLC, New York (USA) IRB n.a. STA STA
Provisions for liabilities and charges 0 53 0 0 2015 in € thousand Parent companies Affiliated companies
Key management refers to the members of the Management Board and the Supervisory Board of RBI AG and Raiffeisen Zentralbank Österreich Aktiengesellschaft, the major shareholder. Transactions between key management and RBI are as follows (respective fair values): The following table shows transactions with close family members of key management of RBI: There is no compensation agreed between the company and members of the Management Board and Supervisory Board or employees in the case of a takeover bid.
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 7,209 7,223
Other long-term benefits contains portions of the provision for bonus payments relating to deferred bonus portions in cash and retained portions payable in instruments. For the latter, valuation changes due to currency fluctuations are taken into account.
Peter Lennkh 1 October 2004 31 December 2020 1Effective as of 10 October 2010 2 As a result of the merger of RZB AG into RBI AG, Karl Sevelda will resign his mandate as member of the Management Board once the merger is effective. 3 The mandates as Management Board members of Johann Strobl and Martin Grüll will be extended once the merger of RZB AG into RBI AG is effective.
Michael Höllerer 17 June 2015 With entry of merger of RZB AG into RBI AG (expected on 18 March 2017)⁴
Natalie Egger-Grunicke² 18 February 2016 Until further notice 1 Effective as of 10 October 2010. 2 Delegated by the Staff Council 3 As a result of the merger between RZB AG and RBI AG, Walter Rothensteiner will resign his mandate as member of the Supervisory Board as of the end of the Annual
General Meeting on 22 June 2017. 4 Michael Höllerer and Johannes Schuster will withdraw from their functions on the Supervisory Board once the merger is effective.
Erwin Hameseder 2nd Deputy Heinrich Schaller Erwin Hameseder3 Heinrich Schaller Heinrich Schaller Erwin Hameseder3 Heinrich Schaller 3rd Deputy Chairman Martin Schaller Heinrich Schaller4 Martin Schaller Martin Schaller Heinrich Schaller4 Martin Schaller 4th Deputy Chairman – Martin Schaller5 – – Martin Schaller5 –
Member Rudolf Kortenhof Rudolf Kortenhof – Rudolf Kortenhof Rudolf Kortenhof Rudolf Kortenhof
Member Susanne Unger7 Susanne Unger7 – Susanne Unger7 Susanne Unger7 Susanne Unger7 1 As of15 March 2016; until 15 March 2016, Walter Rothensteiner 2 As of15 March 2016; until 15 March 2016, Erwin Hameseder 3 As of15 March 2016; until 15 March 2016, Heinrich Schaller 4 As of15 March 2016; until 15 March 2016, Martin Schaller 5 As of15 March 2016 6 Until 15 March 2016, 7 As of 1 February 2016; until 31 January 2016, Martin Prater
Of the 106 entities in the Group, 36 are domiciled in Austria (2015: 37) and 70 abroad (2015: 83). They comprise 19 banks, 50 financial institutions, 16 companies rendering bank-related ancillary services, nine financial holding companies and twelve other companies.
RSC Raiffeisen Service Center GmbH, Vienna (AT) 50.0% 31/12 Change in control
The Group controls the following types of entities, even though it holds less than half of the voting rights.
Subsidiaries not consolidated where RBI holds more than 50 per cent of the ordinary voting shares
RBI PE Handels- und Beteiligungs GmbH, Vienna (AT) 150,000 EUR 100.0% FI
RZB Finance (Jersey) III Ltd, St Helier (JE) 1,000 EUR 100.0% FI
RZB Finance (Jersey) IV Limited, St Helier (JE) 2,000 EUR 100.0% FI
Tatra Asset Management, správ. spol., a.s., Bratislava (SK) 1,659,700 EUR 78.8% FI
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, VV Insurance,
Assets 2016 in € thousand Loans and advances Equities Debt instruments Derivatives 2015 in € thousand Loans and advances Equities Debt instruments Derivatives
The maximum exposure to loss is determined by considering the nature of the interest in the non-consolidated structured entity. The maximum exposure for loans and trading instruments is reflected by their carrying amounts in the consolidated statement of financial position. The maximum exposure for derivatives and instruments off the statement of financial position such as guarantees, liquidity facilities and loan commitments under IFRS 12, as interpreted by the Group, is reflected by the notional amounts. Such amounts do not reflect the economic risks faced by the Group because they do not take into account the effects of collateral or hedges or the probability of such losses being incurred. At 31 December 2016, the notional values of derivatives and instruments off the statement of financial position were € 27,822 thousand (2015: € 29,064 thousand) and € 95,292 thousand (2015: € 104,682 thousand) respectively. Information on the size of structured entities is not always publicly available therefore the Group has determined that its exposure is an appropriate guide to size.
The Group provided financial support during the financial year to non-consolidated structured entities with a carrying value of € 3,420 thousand as at 31 December 2016 (2015: € 0 thousand).
No assets were transferred to sponsored non-consolidated structured entities in 2016 or 2015.
DAV Depo Projekt Korlátolt Felelősségű Társaság, Budapest (HU) 3,000,000 HUF 100.0% OT
Eastern European Invest Holding GmbH, Vienna (AT) 35,000 EUR 100.0% OT
Euro Green Energy Fejlesztő és Szolgáltató Kft., Budapest (HU) 14,490,000 HUF 100.0% OT
Eurolease RE Leasing, s. r. o., Bratislava (SK) 6,125,256 EUR 100.0% OT
INFRA MI 1 Immobilien Gesellschaft mbH, Vienna (AT) 1,000,000 EUR 100.0% OT
OOO Raiffeisen Capital Asset Management Company, Moscow (RU) 225,000,000 RUB 100.0% FI
Raiffeisen Investment Financial Advisory Services Ltd. Co., Istanbul (TR) 2,930,000 TRY 99.0% FI
RAIFFEISEN SPECIAL ASSETS COMPANY d.o.o. Sarajevo (in liquidation), Sarajevo (BA) 1,982,591 BAM 100.0% FI
Raiffeisen Towarzystwo Funduszy Inwestycyjnych S.A., Warsaw (PL) 4,000,000 PLN 100.0% OT
RLRE Ypsilon Property, s.r.o., Prague (CZ) 200,000 CZK 50.0% FI 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance; SC Securities firms
ZHS Office- & Facilitymanagement GmbH, Vienna (AT) 36,336 EUR 1.2% BR 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance; SC Securities firms
Accession Mezzanine Capital III L.P., St. Helier (BM) 134,125,000 EUR 3.7% OT
A-Trust Gesellschaft für Sicherheitssysteme im elektronischen Datenverkehr GmbH, Vienna (AT) 5,290,013 EUR <0.1% OT
Commodity Exchange of the Agroindustrial Complex of Central Regions of Ukraine, Cherkassy (UA) 90,000 UAH 11.1% OT
Private Joint Stock Company Sumy Enterprise Agrotechservice, Sumy (UA) 1,545,000 UAH 0.6% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance; SC Securities firms
Stemcor Global Holdings Limited, St Helier (JE) 100,000 USD 3.2% OT
Ziloti Holding S.A., Luxemburg (LU) 48,963 EUR 0.9% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance; SC Securities firms
According to IAS 39, all financial assets, financial liabilities and derivative financial instruments are to be recognized in the statement of financial position. A financial instrument is defined as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. On initial recognition, financial instruments are to be measured at fair value, which generally corresponds to the transaction price at the time of acquisition or issue. According to IFRS 13, the fair value is defined as the exit price. This is the price that would be received on sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For subsequent measurement, financial instruments are recognized in the statement of financial position according to the respective measurement category pursuant to IAS 39, either at (amortized ) cost or at fair value.
The measurement categories for financial instruments pursuant to IAS 39 do not equate to the principal line items in the statement of financial position. Relationships between the principal line items in the statement of financial position and the measurement standard applied are described in the table "Categories of financial instruments according to IFRS7" and in the notes under (1) Income statement according to measurement categories and (12) Statement of financial position according to measurement categories.
In 2016, as in 2015, observable market prices were used for the valuation of liabilities of subordinated issues measured at fair value. The financial liabilities are mostly structured bonds. The fair value of these financial liabilities is calculated by discounting the contractual cash flows with a credit-risk-adjusted yield curve, which reflects the level at which the Group could issue similar financial instruments at the reporting date. The market risk parameters are evaluated according to similar financial instruments that are held as financial assets. Valuation results for liabilities that are designated as a financial instrument at fair value are recognized in income from derivatives and liabilities.
Non-derivative financial assets (securities with fixed or determinable payments and a fixed maturity) purchased with the intention and ability to hold them to maturity are reported under the item "financial investments". They are recognized at amortized cost and differences are amortized over the term to maturity and recognized in the income statement under net interest income. If impairment occurs, it is taken into account when determining the amortized cost and shown in net income from financial investments. Coupon payments are recognized under net interest income. A sale of these financial instruments is only allowed in certain cases explicitly stated in IAS 39.
They are measured at amortized cost. If there is a difference between the amount paid and face value – and this has an interest character – the effective interest method is used and the amount is stated under net interest income. If impairment occurs it is taken account of when determining the amortized cost. Impairment provisions and provisions for losses that have occurred but have not yet been recognized are reported in the statement of financial position under the item "impairment losses on loans and advances ". Profits from the sale of impaired loans are recognized in the income statement in the item "net provisioning for impairment losses".
As the nature of the financial instruments is already shown by the classification of the items of the statement of financial position, the formation of categories was built in line with these items, which include financial instruments. Categories of financial instruments on the asset side of the statement of financial position are primarily cash reserve, loans and advances to banks, loans and advances to customers, trading assets, derivative financial instruments, derivatives for hedging, and financial investments (within this category are separately financial assets not traded on an active market and which are shown at cost of acquisition). Categories of financial instruments on the liability side are most notably trading liabilities, derivative financial instruments, derivatives for hedge accounting, deposits from banks, deposits from customers, debt securities issued and subordinated capital.
Individual and portfolio-based impairment provisions are not netted against corresponding receivables but are stated separately in the statement of financial position.
The total provision for impairment losses arising from loans reported in the statement of financial position comprising individual loan loss provisions and portfolio-based loan loss provisions is shown as a separate item "Impairment losses on loans and advances " under assets, below loans and advances to banks and customers.
Interest expense from sale and repurchase agreements and interest income from reverse sale and repurchase agreements is accrued in a straight line over their term to maturity and shown under net interest income.
The Group 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 is shown as a claim under the item "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.
When nearly all the risks and rewards of a leased asset are transferred to the lessee, the Group as lessor recognizes a loan to banks or a loan to customers. The loan amount is the amount of the net investment. The income from the finance lease is spread over periods in such a way as to represent a constant periodic rate of interest on the outstanding net investment in the leases. Interest income is reported under net interest income.
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 non-consolidated structured entities are to be found in the notes under (56) Group composition.
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 the item "other net operating income."
If the company loses control over a subsidiary, the income/loss from disposal of group assets is shown in the income statement. This is calculated as the difference between
All amounts related to these subsidiaries and shown in other comprehensive income are recognized in the same way as would be the case for the sale of assets. This means the amounts are reclassified to the income statement or directly transferred to retained earnings.
The acquisition cost of these investments including goodwill is determined at the time of their initial consolidation, applying by analogy the same rules as for subsidiaries (offsetting acquisition costs against proportional fair net asset value). If associated companies are material, appropriate adjustments are made to the carrying value in the accounts, in accordance with developments in the company’s equity. Profit or losses of companies valued at equity are netted and recognized in the item “current income from associates”. Losses attributable to companies accounted for using the equity method are only recognised up to the level of the carrying value. Losses in excess of this amount are not recognised, since there is no obligation to offset excess losses. Further, any amounts recognised by the associate through other comprehensive income will be recognised in the other comprehensive Income statement of RBI. This is especially relevant for valuation effects seen from financial assets available-for-sale.
Shares in subsidiaries not included in the consolidated financial statements because of their minor significance and shares in associated companies that have not been valued at equity are included under the item “financial investments” and assigned to the measurement category “financial assets available-for-sale”. They are measured at acquisition cost.
The acquisition of business operations is recognized according to the acquisition method. The consideration transferred in a business combination is measured at fair value. This is calculated as the aggregate of the acquisition-date fair value of all assets transferred, liabilities assumed from former owners of the acquired business combination and equity instruments issued by the Group in exchange for control of the business combination. Transaction costs related to business combinations are recognized in the income statement when incurred.
Goodwill is measured as the excess of the aggregate of the value of the consideration transferred, the amount of any noncontrolling interest and the acquisition-date fair value of the acquirer’s previously-held equity interest in the acquiree (if any), and the net of the acquisition-date amounts of the fair values of identifiable assets acquired and the liabilities assumed. In the event that the difference is negative after further review, the resulting gain is recognized immediately in the income statement.