Return on equity before tax 14.2% 16.3% (2.1) PP 16.2% 10.3% 8.5%
Return on equity after tax 11.0% 12.7% (1.7) PP 12.5% 6.7% 5.2%
Return on assets before tax 1.18% 1.33% (0.15) PP 1.23% 0.79% 0.60%
Net interest margin (average interest-bearing assets) 2.44% 2.50% (0.07) PP 2.48% 2.78% 3.00%
Provisioning ratio (average loans to customers) 0.26% 0.21% 0.06 PP 0.41% 1.05% 1.64%
Tier 1 ratio (fully loaded) 15.4% 14.9% 0.5 PP 13.6% 13.6% 11.5%
Number of shares in million (31/12) 328.94 328.94 0.0% 328.94 292.98 292.98
In this report, Raiffeisen Bank International (RBI) refers to RBI Group. RBI AG is used wherever statements refer solely to Raiffeisen Bank International AG. Head office refers to Raiffeisen Bank International AG excluding branches. As of January 2017, Raiffeisen Zentralbank AG contributed business is fully included.
The figures for previous periods are only to a limited extent comparable due to the adoption of IFRS 9.
Aside from this, where do you see the biggest challenges going forward? As we would like to increase our digital product and service offering and to digitalize the underlying end-to-end processes as much as possible, we will need to make the necessary investments while ensuring that our prices remain competitive. It will require a balancing act. Despite the low interest rate environment, I am confident that we will achieve this. On the cost side, we expect a positive effect of around 130 million euros both from the optimization program we began in 2019 in Austria and additional measures in the subsidiary banks.
But you have made no acquisitions in 2019. What does that mean for the dividend? We will propose a dividend of 1 euro per share to the Annual General Meeting for the 2019 financial year. That is 7 cents higher than in the previous year. We defined our dividend policy with a payout ratio of 20 to 50 per cent of consolidated profit in order to remain flexible for in the event of an acquisition or very strong organic growth. Therefore, there are no plans to alter our dividend policy at present.
In several CEE markets, the banking sector is currently undergoing consolidation. What role will RBI play in this process? We have always emphasized that we would like to make use of opportunities to grow selectively. Our preference is for organic growth, which we have already demonstrated over the last couple of years. Due to our good earnings development and solid capital position, we are also able to respond to appropriate opportunities should an attractive acquisition prospect arise. At the moment, there are several banks on the market and we are thoroughly examining all potential acquisition targets, but we will certainly not make bids everywhere.
What are your strategic goals? We will place our focus fully on our customers. Efficient and fast processes are material elements of superior customer service. New technology enables us to make substantial improvements in these areas. In a time characterized by ever shorter innovation cycles, we want to continue to further transform RBI into an agile organization. This will enable us to be in a position in which we are able to react more flexibly to technological change, to new customer needs as well as to new competitors, as nobody can seriously predict future trends. We are already working on a cultural change at the bank and will continue to drive it forward this year. We have set ourselves a clear goal for 2025: to be the most recommended financial services group. In 2020, we intend to make significant progress towards this ambitious goal.
RBI ended the 2019 financial year on a very good note with a consolidated profit of 1,227 million euros and therefore was able to continue the successful path of recent years. This result is also especially encouraging as core revenues increased on the back of stronger loan growth. Adjusted for the sale of the Polish core banking operations in 2018, net interest income and net fee and commission income were up by 8 per cent and 7 per cent respectively year-on-year, with the net interest margin remaining stable. This revenue growth is particularly striking given the current low interest rate environment and level of competition. The results also strengthened RBI’s capital position. The CET1 ratio of 13.9 per cent lays the groundwork for further sustainable growth. The risk situation also continued to improve; the NPE ratio fell to 2.1 per cent, and the NPE coverage ratio improved to 61.0 per cent. Aside from a better result at head office, the subsidiary banks have also consistently contributed towards consolidated profit. Overall, the emerging picture resulting from these developments is that RBI’s on a solid trajectory in terms of revenues, as well as in the areas of capital and risk.
Legal disputes relating to consumer protection rights were also being followed by capital market participants with great interest. Concerning the currently pending legal cases in Poland relating to FX-loans, it should be noted that the European Court of Justice’s ruling did not qualify individual contractual clauses as invalid. The guidance is more so provided for questions from the Polish judiciary on the interpretation of civil rights. In addition, pending legal proceedings in Croatia relating to consumer protection right issues and their potential impact where also discussed in principle in the Supervisory Board. The Management Board and Supervisory Board continually monitored the development of potential legal risks and their impact on the Group, in order to appropriately address the basis of joint discussions as part of group-wide risk management and business policy.
Responsible business, to deliver sustainable added value, forms one of the core values of Raiffeisen Banking Group Austria. Consistent with the values and founding principles of Raiffeisen, RBI became a leader in the area of sustainable finance in Austria and was the largest issuer of green bonds in 2019. Following in the Raiffeisen tradition, RBI positioned itself as a responsible and active sustainably operating company through its initiatives for financing ecological projects with climate relevance. Through the issuance of green bonds, RBI will not only provide an important contribution towards an environmentally friendly future, but also will gain a new group of investors at the same time. Ultimately, it will also provide a positive contribution towards RBI’s economic future.
In context of special reports, compliance matters relating to anti-money laundering (AML) were discussed extensively with the Management Board and responsible experts from Compliance and Legal, as were the measures to be taken. The Austrian Financial Market Authority’s proceedings against RBI relating to the fulfilment of formal KYC documentation requirements was closely followed by the Supervisory Board and its progress and details were extensively reported on in Supervisory Board and committee meetings. At the end of 2019, RBI won its appeal at the Austrian Supreme Administrative Court which led to the fine being annulled. The Management Board and Supervisory Board placed great emphasis on the continuous advancement of RBI’s Group Compliance division. Therefore, RBI invested in a lot of resources in the continual further development of Compliance, employed more expert staff and implemented modern Compliance systems groupwide.
With regard to geopolitical developments, this year the Supervisory Board again held discussions on detailed country-specific reports. A focus of these discussions was on the consequences of and risk-specific precautions and measures relating to the US sanctions on Russia, as well as Brexit. In coordination with RBI’s Risk Committee, the Management Board implemented a comprehensive set of measures in the areas of Compliance and Risk Management designed to ensure adherence to existing sanctions and to adequately address sanction risk. The appropriate balance of Russia risk appetite was managed at Group level through the introduction of risk thresholds and early warning indicators. On the customer side, business and limits with companies at risk of potential sanctions were either restricted or reduced. The Supervisory Board intensively monitors RBI’s measures to ensure that all the different sanction requirements are followed and to gain a comprehensive picture of the adequateness of RBI’s internal procedures and resources.
In order to gain direct insight into the work of individual subsidiary banks, the Chairman of the Supervisory Board, together with the Chairman of the Management Board, visited RBI’s subsidiary banks in Slovakia, Hungary and Ukraine in 2019. During these on-site visits, as in the previous year, the banks current issues as well as business and risk developments are discussed with the local Management Board. The Chairman of the Supervisory Board regularly reported on the respective visits during the Supervisory Board meetings, which generally depicted a very positive development at the subsidiary banks.
To achieve the targeted cost/income ratio of around 55 per cent by 2021, the Supervisory Board also concentrated on the sustainable optimization of the cost structure in 2019. Aside from active cost management measures, there was an optimization program launched at head office to support the transformation into an adaptive and agile organization, as well as to further measures to increase transparency and efficiency and sustainably reduce costs. The details of the analyses and measures presented by the Management Board were regularly discussed and assessed accordingly.
The Supervisory Board also addressed further development in the area of Corporate Governance, commissioned corresponding policies and monitored their implementation. In the course of its monitoring and advisory activities, the Supervisory Board maintained direct contact with the responsible Management Board members, the auditor and the heads of the internal control functions. It also maintained a continuous exchange of information and views with representatives of the banking supervisory authorities on topical issues. Between meetings, the Supervisory Board also maintained a regular exchange of information on current developments and business issues with the Management Board. The Management Board was available where required for bilateral or multilateral discussions with members of the Supervisory Board, when applicable with the involvement of experts on the matters addressed.
The Members of the Supervisory Board and Management Board also maintained constant contact between Supervisory Board meetings. There is a frequent exchange of information between the Chairman of the Management Board and Chairman of the Supervisory Board and his deputy. The work undertaken together with the Management Board was based on a relationship of mutual trust and conducted in a spirit of efficient and constructive collaboration, whereby discussions are open and critical and opposing viewpoints are considered within the decision-making processes. The Chairman of the Supervisory Board safeguards an effective flow of information between the Management Board and Supervisory Board as well as within the Supervisory Board.
The members of the Supervisory Board undertook independent training and professional development measures required for their Supervisory Board roles and for which adequate support from RBI was received. In addition, the members of the Supervisory Board were able to undertake regular professional development training in the form of Fit & Proper courses, two of which were offered during the year.
In September 2019, a new program on the evaluation and further development of the efficiency and effectiveness of the Supervisory Board was presented, which will be conducted together with the Vienna University of Economics and Business, and the areas of Compliance and AML measures primarily focused on. There was also a comprehensive update on current regulatory and legal issues at both meetings.
The annual financial statements and the management report of Raiffeisen Bank International AG for the 2019 financial year were audited by KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft Vienna (KPMG). According to the final results of the audit, the auditor had no reason for objections and issued an unqualified auditor’s report.
The consolidated financial statements, prepared by the Management Board pursuant to Section 245a of the Austrian Commercial Code (UGB) in accordance with the provisions of the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) mandatorily applicable on the reporting date, and the consolidated management report of RBI AG for the 2019 financial year were audited by KPMG and issued with an unqualified auditor’s report.
The reports of the auditor of the financial statements and of the auditor of the consolidated financial statements were submitted to the Supervisory Board. The Audit Committee reviewed the 2019 annual financial statements including the management report and the 2019 consolidated financial statements and the consolidated management report and undertook preparations for the adoption of the annual financial statements by the Supervisory Board. The Supervisory Board reviewed all documents and also the Audit Committee’s report. The Supervisory Board concurred with the 2019 annual financial statements and consolidated financial statements and approved the 2019 financial statements, which were thus adopted in accordance with Section 96 (4) of the Austrian Stock Corporation Act (AktG).
Building on RBI’s pleasing results of recent years, the already established approach is being consistently pursued in order to become the most recommended financial services group in our markets. This should secure the strategic aim of creating solid and sustainable added value for RBI’s shareholders.
Raiffeisen Bank International RBI regards Austria, where it is a leading corporate and investment bank, as well as Central and Eastern Europe (CEE) as its home market. Subsidiary banks cover 13 markets across the region. In addition, the Group includes numerous other financial service providers active in areas such as leasing, asset management and M&A.
In total, almost 47,000 RBI employees serve 16.7 million customers in more than 2,000 business outlets, the vast majority of which are in CEE. RBI AG shares have been listed on the Vienna Stock Exchange since 2005.
At year-end 2019, RBI’s total assets stood at € 152 billion. The regional Raiffeisen banks hold approximately 58.8 per cent of RBI shares, with the remaining approximately 41.2 per cent in free float.
1 Change in total assets compared to 31 December 2018 expressed in local currencies varies due to fluctuations in euro exchange rates.
The Raiffeisen Banking Group Austria (RBG) The 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. The RBG is organized into three tiers: the independent, local Raiffeisen banks (first tier), the eight independent regional Raiffeisen banks (second tier), and RBI AG (third tier).
The regional Raiffeisen banks (Raiffeisen Landesbanken and Raiffeisenverband) provide liquidity balancing and other central services for the Raiffeisen banks in their area of activity. In turn, the regional Raiffeisen banks are connected to RBI AG as the central institution of the RBG.
Austria has had a new sector-wide statutory deposit insurance system in place since 1 January 2019. All members of RBG have joined the new Einlagensicherung AUSTRIA Ges.m.b.H. Detailed information can be found under www.einlagensicherung.at.
 General public: We act in a socially responsible manner, fostering the long-term welfare of the people and businesses in our markets
 Adaptive organizational set-up: Transformation of culture, organization and processes enabling higher responsiveness, improved collaboration and new ways of working
Retail customer behavior is changing, demand for digital solutions has been increasing and customers expect fully optimized distribution channels for their needs. Therefore, the strategic focus of RBI’s retail banking area is on the further enhancement of digital banking capabilities to facilitate solid retail customer growth.
RBI services roughly 100,000 corporate clients across CEE (incl. medium-sized businesses, large local companies, international corporations and local authorities). Supported by deep local market expertise and strong advisory skills, RBI aims to build longterm business partnerships and to provide customers with the right financial services to meet their needs.
As part of the new strategic direction, several areas will be addressed in 2020-2021: developing new cross-border solutions for clients across the entire CEE region; improving Customer Experience across all processes by redesigning the most crucial customer touchpoints (e.g. KYC, account opening, online banking); expanding the convenient digital product and services offering, fast information flows and short decision-making processes; focusing on responsible customers and businesses while building on sustainability as an opportunity (including respective products and advisory services).
While implementing these strategic ambitions, RBI will further enhance the usage and analysis of data, transform the Markets & Investment Banking area following agile principles, focus on sustainable business growth and continue intense group-wide collaboration.
RBI provides services to over 16.5 million retail, private banking and small business customers in around 2000 branches in CEE, offering a full product range (e.g. account packages, clearing, settlement and payment services, consumer finance, as well as mortgage loans and investment products).
The strategic goal in this business segment is to become the best bank in the CEE region for institutional clients. RBI wants to achieve this by inspiring clients with excellent services and innovative products across all business areas.
Performance of RBI stock Following the sharp slump on the global stock markets in the fourth quarter of 2018, sentiment improved at the start of 2019, with markets recovering significantly in the first months of the year. Signs of a possible deal in the US-China trade dispute led to renewed confidence despite the risks of a weakening economy. Stock and bond prices were given further impetus as the US Federal Reserve System (Fed) announced that it planned to suspend further moves on interest rates. New tariffs imposed by the US and China later in the year, however, dampened optimism about an imminent resolution of the simmering trade dispute, repeatedly unsettled capital market participants and are increasingly affecting the economy.
Against this backdrop, the US Fed ended the cycle of interest rate increases that it had initiated in 2015, and lowered benchmark interest rates three times in quick succession, each time by a quarter of a percentage point, in the third and fourth quarter. The European Central Bank followed suit with its own form of quantitative easing. It left key lending rates unchanged at zero per cent but resumed net bond purchases after recently stopping them at the end of 2018. Bond markets responded to these actions by reducing yields significantly. At times, the yields on 10-year German government bonds reached around minus 0.8 per cent, a new historic low. This and the prospect of an imminent end to the Brexit impasse following pro-Brexit Boris Johnson’s clear election victory buoyed international stock markets again toward the end of the year, thereby offsetting the losses of the previous year.
RBI’s stock opened 2019 at € 22.20 and reached its highest price for the year of € 24.31 in January. It then moved sideways, fluctuating within a broad corridor in the further course of the year and closed at € 22.39 at year-end. The Austrian Traded Index (ATX) gained 16 per cent year-on-year, while Euro Stoxx Banks, the European banks index, rose 11 per cent.
At year-end 2019, the market capitalization was € 7.4 billion. At the editorial deadline, it stood at € 6.1 billion. The number of shares issued remained unchanged at 328,939,621.
Price performance since 1 January 2019 compared to ATX and Euro Stoxx Banks in €
Book value per share as at 31 December 2019 € 35.93
Annual General Meeting and dividend proposal RBI’s Annual General Meeting on 13 June 2019 approved all of the proposed resolutions relating to the individual agenda items. Among other things, the Annual General Meeting passed a resolution to distribute a dividend of € 0.93 per share for the 2018 financial year. Martin Schaller was re-elected to the Supervisory Board. His term of office now runs until the Annual General Meeting resolving on the release from liability for the 2023 financial year.
The next Annual General Meeting will take place on 18 June 2020. The Management Board has decided to propose a dividend of € 1.00 per share to the Annual General Meeting for the 2019 financial year. Based on the number of shares issued, this equates to a maximum distribution amount of around € 329 million. The dividend will be distributed to shareholders on 29 June 2020, provided that the Annual General Meeting approves the resolution.
Capital market communication RBI offered investors and analysts numerous opportunities to obtain first-hand information at over 60 capital market events in 2019. The number of activities therefore remained at the same high level as in the previous year.
On 6 February 2019, RBI announced its preliminary figures for the 2018 financial year. To mark the release of RBI’s final results for the 2018 financial year, RBI’s Management Board met with investors in Vienna on 13 March and also held a conference call with over 170 participants. On the following day, RBI invited institutional investors and analysts to its customary investor presentation in London. As in previous years, the event met with keen interest. A key focus of this year’s investor day was RBI’s digitalization strategy.
In addition to regular conference calls and webcasts accompanying the publication of the quarterly results, RBI once again offered analysts as well as interested equity and debt investors many opportunities to obtain information in person at road shows and conferences during the year. RBI visited the following destinations, some of them on more than one occasion: Amsterdam, Basel, Boston, Brussels, Budapest, Copenhagen, Frankfurt, Helsinki, Lausanne, London, Miami, Milan, Munich, New York, Nuremberg, Paris, Vienna and Zürs. The growing investor base in Asia was considered by holding road shows in Hong Kong, Singapore, Taiwan and Tokyo. The events at these locations included large international bank conferences in places such as London, Paris and Prague. The conference in Prague has a particularly strong CEE focus. The conferences were regularly followed by further individual and group discussions. In late September, meetings with debt analysts took place in London again, as did the annual meeting with equity analysts.
New issues RBI issued a tier 2 bond (10-year maturity) in an amount of € 500 million on 4 September 2019. Due to very strong demand, the spread was eventually reduced to 210 basis points over mid-swaps in the course of the issuance process. Even at this price, demand still exceeded the actual issue amount by a factor of five and a half and demonstrated investors’ strong interest in the bond. The first early call date is in 5 years.
By issuing the bond, RBI continues to execute the sustainable business strategy it has employed for many years. It has already become an important issuer in this steadily growing market. The proceeds from the green bond will be used to finance sustainable projects across the RBI network, with allocation of funds based on a clearly defined selection and evaluation process. Ongoing post-investment reporting will verify compliance with the stated criteria and track how much the investment contributes to sustainability improvements.
Contact for equity and debt investors E-mail: ir@rbinternational.com www.rbinternational.com → Investors Telephone: +43-1-71 707-2089
RBI attaches great importance to responsible and transparent business management in order to maintain the understanding and confidence of its various stakeholders – not least capital market participants. Hence, RBI is committed to adhering to the Austrian Corporate Governance Code (ACGC, or the Code) as laid out in the version dated January 2018. The ACGC is publicly available on the Austrian Working Group for Corporate Governance website (www.corporate-governance.at) and on the RBI website (www.rbinternational.com → Investors → Corporate Governance). In addition to RBI, Tatra banka, a.s., as a listed subsidiary bank, is obliged to publish a corporate governance report due to local statutory regulations. This report is published with the annual report and can be downloaded from the Tatra banka website (www.tatrabanka.sk → About bank → Economic results → Annual Reports). RBI has no further subsidiaries which are required to publish a corporate governance report.
As a listed bank, the governance of RBI is shaped by a multitude of legal regulations which apply equally to all market participants. Aside from complying with the ACGC, RBI also has a self-imposed Code of Conduct (www.rbinternational.com → About us → Code of Conduct), which obliges RBI to commit to sustainable corporate management and the corresponding social and environmental responsibility.
Furthermore, in 2019, RBI completed a comprehensive Group-wide process to review its strategy and governance for the first time and determined a Group-wide applicable Vision & Mission and related values. With a goal to be the most recommended financial services group in 2025, the company has established a clear Vision. The Mission statement was developed in order to realize this: “We transform continuous innovation into superior customer experience”. The four central stakeholder groups for the Mission statement are customers, employees, shareholders of RBI, as well as the general public. The Vision & Mission and corporate values together form the central element of the corporate governance of the company.
C Rule 52a: The number of members on the Supervisory Board (without employees’ representatives) shall be ten at most The Supervisory Board currently consists of twelve members: nine core shareholder representatives for RBG and three free float representatives. This higher number of members was based on a resolution passed by the Annual General Meeting on 22 June 2017. It provides the Supervisory Board with additional industry knowledge, more diversity, and further strengthens its ability to exercise its control function.
Raiffeisen banka a.d., Serbia, Chairman Raiffeisen Bank Kosovo J.S.C., Kosovo, Chairman Raiffeisen Bank Sh.A., Albania, Chairman Raiffeisenbank a.s., Czech Republic, Deputy Chairman Raiffeisen Bank d.d., Bosnia and Herzegovina, Deputy Chairman (until 25 February 2019) AO Raiffeisenbank, Russia, Member Raiffeisen Bank S.A., Romania, Member Tatra banka, a.s., Slovakia, Member
Members of the Management Board held supervisory board seats or comparable functions in the following domestic and foreign companies that are not included in the consolidated financial statements: Andreas Gschwenter RSC Raiffeisen Service Center GmbH, Austria, Deputy Chairman Raiffeisen Informatik Geschäftsführungs GmbH, Deputy Chairman (since 26 September 2019) Peter Lennkh Oesterreichische Kontrollbank Aktiengesellschaft, Austria, Member Martin Grüll UNIQA Insurance Group AG, Austria, Member (since 26 June 2019)
Raiffeisenbank Austria d.d., Croatia, Chairman Raiffeisen Bank Zrt., Hungary, Chairman AO Raiffeisenbank, Russia, Member Raiffeisen Bank S.A., Romania, Member Raiffeisenbank a.s., Czech Republic, Member Tatra banka, a.s., Slovakia, Member
Raiffeisen Kapitalanlage-Gesellschaft mit beschränkter Haftung, Austria, Chairman Tatra banka, a.s., Slovakia, Chairman Kathrein Privatbank Aktiengesellschaft, Austria, Deputy Chairman AO Raiffeisenbank, Russia, Member Raiffeisenbank a.s., Czech Republic, Member Raiffeisen Bank Aval JSC, Ukraine, Member Raiffeisen Bank S.A., Romania, Member (from 7 February 2019) Raiffeisen Centrobank AG, Austria, Member
Composition of the Supervisory Board As at 31 December 2019, the Supervisory Board comprised: Supervisory Board member Year of birth Original appointment End of term Erwin Hameseder Chairman
 The exercise of functions within the company or merely exercising the function of a management board member or senior executive by a Supervisory Board member does not, as a rule, lead to the company concerned being regarded as a company in which a Supervisory Board member has a significant financial interest, to the extent that circumstances do not support the presumption that the Supervisory Board member derives a direct personal advantage from doing business with the company.
 The Supervisory Board member shall not be a member of the management board of another company in which a Management Board member of the company is a member of the supervisory board.
Rudolf Könighofer UNIQA Insurance Group AG, Austria, Member (until 26 June 2019) Birgit Noggler Semperit AG Holding, Austria, Member (since 4 September 2019)
Independence of the Supervisory Board In accordance with and taking into consideration C Rule 53 and Appendix 1 of the ACGC, the Supervisory Board of RBI AG specified the following criteria for the independence of the members of the company’s Supervisory Board:  The Supervisory Board member shall not have been a member of the Management Board or a senior executive of the company or one of its subsidiaries in the past five years.
Members of the Supervisory Board had the following additional supervisory board mandates or comparable functions in domestic and foreign stock exchange listed companies from 1 January to 31 December 2019: Erwin Hameseder AGRANA Beteiligungs-Aktiengesellschaft, Austria, Chairman; STRABAG SE, Austria, Deputy Chairman; UNIQA Insurance Group AG, Austria, 2nd Deputy Chairman; Südzucker AG, Germany, 2nd Deputy Chairman
Heinrich Schaller voestalpine AG, Austria, Deputy Chairman; AMAG Austria Metall AG, Austria, Deputy Chairman
Members of the Committees The procedural rules of the Supervisory Board govern its organization and allocate particular tasks to the Working, Risk, Audit, Remuneration, Nomination and Personnel Committees. These committees comprised the following members as of 31 December 2019: Working Committee
The following changes were made during the financial year: Birgit Noggler was elected Chairman of the Risk Committee from among the Supervisory Board/Risk Committee members at the inaugural Supervisory Board meeting on 13 June 2019. She succeeded Martin Schaller, who was elected to 1st Deputy Chairman after serving as Chairman. Erwin Hameseder was elected to 2nd Deputy Chairman after serving as 1st Deputy Chairman. Heinrich Schaller was elected a Member of the Risk Committee after serving as 2nd Deputy Chairman.
Birgit Noggler is Chairman of the Risk Committee within the meaning of § 39d of the BWG. She satisfies the legal standards, technical qualifications and independence requirements set out in § 39d (3) of the BWG. In addition to serving as the Chairman of the Risk Committee, her principal occupation is the provision of tax advisory services. She was the Chief Financial Officer of Immofinanz AG from 2011 to 2016 and held management positions at Immofinanz AG from 2007 to 2011. Birgit Noggler has worked in accounting from the start of her professional career and therefore has extensive expertise in this field. Birgit Noggler also holds supervisory board positions at B & C Industrieholding GmbH, Semperit Aktiengesellschaft Holding and NOE Immobilien Development GmbH.
The Audit Committee, Working Committee and Risk Committee all consist of one-third core shareholder representatives, one-third free float representatives and one-third employee representatives.
In addition to serving as Chairman of the Audit Committee, in her main role Eva Eberhartinger chairs the Tax Management division at the Institute for Accounting & Auditing at the Vienna University of Economics and Business and was Vice Rector for financial affairs at the Vienna University of Economics and Business from 2006 to 2011. On account of her high level of expertise and many years of experience in research and lecturing at both national and international universities, Eva Eberhartinger is a recognized expert in the areas of finance and accounting, as well as taxation. Her research focuses on accounting, taxation, financing and taxes, European/international accounting, and international tax law. Furthermore, Eva Eberhartinger has numerous publications in various specialist journals. She has been on the supervisory board of the Austrian Treasury since 2013, and served as the Vice Chair until 2017. She has also been a member of the supervisory board of maxingvest AG (Germany) since 2014.
 For the Deputy Chairman of the Advisory Council: € 20,000 (excluding VAT)
Management Board members’ areas of responsibility have been defined by the Supervisory Board, without prejudice to the general responsibility of the Management Board, as follows (as at 31 December 2019): In the 2019 financial year, the following significant organizational changes, among others, took place at Tier 2 management level (B-1): Management Board area of the Chief Executive Officer (CEO)
 The Group Regulatory Affairs division was renamed Group Regulatory Affairs & Data Governance to reflect the growing importance of data governance in the Group. Group Governmental and Public Affairs was also integrated into the division in order to ensure a stronger uniform approach, particularly in relation to regulatory issues.
 Group IT was dissolved, and its tasks distributed among three new B-1 units; Group IT Delivery, Group Core IT and Group Data. These units pursue objectives that are clearly linked to RBI’s strategic priorities. COO Strategy, Governance & Change was also dissolved and most of the tasks integrated into Group IT Delivery.
The Working Committee is responsible for all matters referred to it by the Supervisory Board. It handles general focus reports on individual industries in the corporate customer business and financial institutions area as part of reviewing loan and limit applications. It takes these opportunities to discuss selected customer groups and financial institutions, as well as material changes in customer creditworthiness. The Working Committee also looks at developments with respect to the 20 largest groups of connected customers in the corporate customer business in the course of the year and reviews special reports on certain customers or industries in response to current events. The Working Committee discusses and decides on limit applications for companies and financial institutions and confers on limit applications that fall within the Supervisory Board’s decision-making authority as well as reports written for the Supervisory Board, such as the annual report on all significant investments under § 28b of the BWG, before they are addressed by the Supervisory Board.
 The Group Business Management & Development division was renamed Group MIB Business Management & Institutional Clients Experience. Its responsibility includes the Group-wide Markets & Investment Banking (MIB) strategy, managing the MIB business and implementing compliance methods and measures for Institutional Clients.
 The Group Capital Markets division was renamed Group Capital Markets Trading & Institutional Sales in consideration of its Group function.
In addition, the Working Committee considers requests and reports on the formation, closure and liquidation of subsidiaries and the acquisition and disposal of equity participations up to the ceiling amount for Supervisory Board responsibility. The Working Committee also discusses and decides on the assumption of new board-level functions by Management Board members and the allocation of duties among the individual members of the Management Board.
The Audit Committee also engages in regular discussions with Internal Audit about general audit issues, defined audit areas, findings made during audits and steps taken to make improvements in response to audit findings. Group Compliance also reports regularly to the Audit Committee and discusses the status and effectiveness of the internal control system with the Audit Committee. In particular, the parties discuss the findings from reviews of key controls in financial reporting and non-financial reporting areas as well as additional required improvements. The Audit Committee also devotes attention to the accounting framework and discusses the implementation of necessary projects.
One important issue that the Audit Committee addressed in 2019 was the selection of a new external auditor/bank auditor for the business years from 2021. The associated tender criteria were coordinated and defined, the audit tender conducted, and the proposals reviewed and evaluated. The Audit Committee prepared a shortlist from these proposals and submitted it to the Supervisory Board for a decision.
The diversity report was addressed and the resolution to extend Martin Schaller’s term of office on the Supervisory Board was recommended in the past financial year. The Nomination Committee evaluated various options and discussed aspects of succession planning in detail in connection with the expiration of Martin Grüll’s term of office on the Management Board.
It sets targets for the Management Board based on applicable rules and regulations and makes any required changes. The Personnel Committee also discusses whether the Management Board has attained its targets and approves bonus allocations on that basis. In addition, it discusses, and reviews submitted information that appears to require a clawback of past bonuses or nonpayment of bonuses from existing provisions (penalty). The Personnel Committee then decides whether to pay amounts from bonus payments that were deferred as required by law.
The Supervisory Board (SB) held seven 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 issues.
The Working Committee (WC) held eight meetings in the 2019 financial year. The Risk Committee (RiC) met four times, the Audit Committee (AC) four times, the Remuneration Committee (ReC) twice, the Nomination Committee (NC) four times, and the Personnel Committee (PC) twice.
In addition, the Supervisory Board as well as the Working and Remuneration Committees also passed resolutions by circulation.
As required by C Rule 36 of the ACGC, the Supervisory Board of RBI AG conducted a self-evaluation and efficiency review for the 2019 financial year. This evaluation was performed in cooperation with the Vienna University of Economics and Business and is designed to ensure that the Supervisory Board’s work consistently improves in terms of efficiency and effectiveness.
In addition to the conventional questionnaire-based evaluation, experts conducted individual interviews with each Supervisory Board member. The Supervisory Board members were asked in particular for their assessment of the organizational structure, working methods of the Supervisory Board, the work done by the Committees, access to information, and the composition and independence of the Supervisory Board. Based on the granularity of the evaluation, the Supervisory Board’s work will be analyzed to see in what way it can be optimized and how a positive contribution can be made to strategic business development. Following the evaluation, appropriate measures are to be developed in Q1 2020.
Remuneration disclosure Principles of remuneration policy and practices in accordance with § 39 (2) in conjunction with § 39b of the BWG
Total remuneration consists of both fixed and variable components, with an appropriate ratio between the two. Employees’ fixed income is set at a level that allows them to maintain an adequate standard of living. This aims to provide maximum flexibility in the choice and implementation of the variable remuneration components, including the ability to forgo the granting of variable remuneration entirely. In addition, the total amount of the variable remuneration does not restrict RBI’s ability to improve its capitalization. The basis for all variable remuneration programs is performance, which is measured at the Group, company and also individual level.
Management Board members’ contracts specify a maximum bonus. A maximum limit is thus in place for all variable compensation components. The total of all variable compensation components is capped at 100 per cent of the fixed remuneration. This cap applies to the Chairman of the Management Board as well as to all the members and includes all forms of variable remuneration. Fixed remuneration includes regular salaries and benefits in kind. Other remuneration consists of compensation for board-level functions in affiliated companies (supervisory board remuneration), payments to pension funds, employee retirement funds and insurance companies, subsidies, fringe benefits (accommodation allowance, tuition allowance, company car, company parking spaces and most of the benefits that employees receive) as well as non-cash benefits.
The Management Board’s remuneration paid in 2019 is shown in detail as follows: in € thousand
In addition to the amounts listed above, Herbert Stepic, Klemens Breuer, Aris Bogdaneris, and Karl Sevelda were paid deferred bonus amounts totaling € 1,346 thousand on account of their previous work on the Management Board. No other additional payments or exceptional one-off payments were made.
In the event of a function or contract termination, one member of the Management Board is entitled to severance payments in accordance with a contractual agreement. The amount of the assessment base is determined with reference to the provisions of § 23 and § 23a of the Salaried Employees Act, especially in relation to the term compensation. Six members are entitled to severance payments in accordance with the Company Retirement Plan Act. In principle, the severance payment claims under contractual agreements expire if the Management Board member resigns.
 For the Chairman of the Audit Committee and Risk Committee: an additional € 10,000 each
The annual remuneration for the financial year is allocated and paid on a pro rata basis or in its entirety depending on how long the Supervisory Board member has served on the Supervisory Board or committee, and whether he or she chairs the Supervisory Board or committee. In addition, the Annual General Meeting resolved on 21 June 2018 to pay each elected member of the Supervisory Board an additional attendance fee of € 1,000 for each meeting they attend.
The total remuneration for the Supervisory Board members in 2019 corresponds to 66 per cent of the average compensation of an RBI Management Board member for 2019.
Syndicate agreement concerning RBI Due to a syndicate agreement relating to RBI, the regional Raiffeisen banks and direct and indirect subsidiaries of the regional Raiffeisen banks are parties acting in concert as defined in § 1 6 of the Austrian Takeover Act (see notification of voting rights most recently published on 20 August 2019). The terms of the syndicate agreement include a block voting agreement for all matters that require a resolution from the General Meeting of RBI, rights to nominate members of the RBI Supervisory Board and preemption rights among the syndicate partners. The terms also include a contractual restriction on sales of the RBI shares held by the regional Raiffeisen banks (with a few exceptions) for a period of three years from the effective date of the merger between Raiffeisen Zentralbank (RZB) and RBI in March 2017 if the sale would directly and/or indirectly reduce the regional Raiffeisen banks’ aggregate shareholding in RBI to less than 50 per cent of the share capital plus one share (at the end of the three-year period, the threshold drops to 40 per cent of the share capital).
The RBI Management Board did not change in 2019. One Management Board member’s term was extended. Of the seven Management Board members, currently five are from Austria, one from Poland, and one from Ukraine. Members of non-Austrian origin therefore constituted 29 per cent of the Management Board at the end of 2019. One Supervisory Board position was again filled by a woman in 2019. All the Supervisory Board members are of Austrian origin. Ages of members range between 45 to 65 years for the Supervisory Board (2018: between 44 to 64 years), and between 41 to 60 years for the Management Board (2018: between 40 to 59 years).
Report on measures taken by the company to promote women to the Management Board, the Supervisory Board and into executive positions and a description of the diversity strategy (§ 80 of the Austrian Stock Corporation Act (AktG)) as laid down in § 243c (2) 2 and 2a of the UGB Description of the diversity strategy
Prejudice and discrimination have no place in RBI. This is also clearly stated in the Code of Conduct which is valid across the entire Group. RBI instead advocates equality, and in keeping with its corporate identity, it offers equal opportunities for equal performance within the company, regardless of gender or other factors. This begins with staff selection, which must be done without prejudice and where the same standards must always be applied.
The key components of this policy include RBI’s diversity vision and mission statement, which were drawn up in 2017, and the daily implementation guidelines. In them, RBI presents its stance on this issue: “RBI believes that diversity adds value. Capitalizing on the opportunities of diversity provides long-term benefits to the company and its employees, as well as to the economy and society as a whole. RBI is continuing Raiffeisen’s 130-year success story as it embraces diversity. RBI actively and professionally harnesses the potential of diversity to give clients the best possible service as a strong partner and to position itself as an attractive employer.”
To further improve the framework conditions for work and career, RBI continuously endeavors to reconcile family responsibilities and day-to-day work schedules as far as possible. Working arrangements such as flexible working hours, part-time and homeoffice working are offered and actively supported in accordance with statutory provisions. Likewise, some locations have 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 as well and considers it an important means of ensuring equality.
The Diversity 2020 initiative continued in Austria in 2019 with a number of programs that had launched in previous years. One of the current core issues targeted by this diversity initiative is the empowerment of women. In particular, it aims to increase the number of women in top management positions. RBI is convinced that a lasting impact can only be achieved by directly addressing personnel processes. For this reason, management positions are advertised but not filled until there is at least one qualified female candidate. Potentially suitable candidates are actively invited to apply if needed to meet this goal. If no women apply for the position, it can be filled with male applicants after a waiting period of one month. External HR consultants are encouraged to always present female candidates. Documents needed for interviews or hearings are anonymized in order to guarantee objectivity in the selection process. At least one female assessor must be involved in the talent selection process; self-nomination is now an option as well. Subconscious prejudices are a key factor currently preventing the increased appointment of women to management positions. To counter this, RBI executives (since 2018) and employees have been offered a specific e-microlearning program to help them identify prejudices that they may hold and learn how to consciously deal with them. In addition, RBI supports arrangements such as part-time management in order to overcome structural barriers. It also sees gender-specific mentoring as an important tool for increasing the representation of women in management positions. In 2019, two female employees completed Lead F, a corporate innovation program for future female leaders.
For RBI AG, the Nomination Committee has set a target of filling 30 per cent of the positions on the Supervisory Board, Management Board and in upper management (Tier 2 and Tier 3 management) with women by 2024. Women held the following proportions of Tier 3 management positions and higher (positions with staff responsibility) at RBI AG as at 31 December 2019: Supervisory Board, 28 per cent (2018: 28 per cent); Management Board, 0 per cent (2018: 0 per cent); Tier 2 management, 20 per cent (2018: 19 per cent); and Tier 3 management, 24 per cent (2018: 20 per cent). Female employees make up 47 per cent (2018: 46 per cent) of the total workforce. RBI AG therefore meets the legal requirement, which took effect in Austria on 1 January 2018, for the share of women on its Supervisory Board. The percentage of women in top management increased marginally in the year under review. RBI AG is currently undergoing an extensive realignment and transformation intended to capitalize on the opportunities arising from changes in the banking business environment. The current figures on the percentage of women are thus only a snapshot of this process. The staffing structure and recruitment and promotion practices in connection with the proportion of women in top management were analyzed in detail with an external organization. The analysis identified potential for development in the RBI corporate culture. An extensive change management project will therefore be launched in 2020, which will also address aspects of diversity, link them to other key cultural elements and reflect current changes.
The Management Board is aware of the need to continue to pursue the existing initiatives as well as to maintain its openness to new initiatives in order to further increase the percentage of women in highly qualified positions. To achieve this end, it encourages women to take advantage of the opportunities in this respect and to actively participate in further development.
Transparency The internet, particularly the company website, plays an important role for RBI with regard to open communication with shareholders, their representatives, customers, analysts, employees, and the interested public. Therefore, the website offers regularly updated information and services, including the following: annual and interim reports, company presentations, telephone conference webcasts, ad-hoc releases, press releases, investor relations releases, share price information and stock data, information for debt investors, financial calendar with advance notice of important dates, information on securities transactions of the Management Board and Supervisory Board that are subject to reporting requirements (directors’ dealings), RBI AG’s Articles of Association, the corporate governance report, analysts’ recommendations, as well as an ordering service for written information and registration for the automatic delivery of investor relations news by e-mail.
Conflicts of interest Both the Management Board and the Supervisory Board of RBI AG are required to disclose any potential conflicts of interest.
Members of the Supervisory Board must immediately report any potential conflicts of interest to the Chairman of the Supervisory Board, who is supported by Compliance when carrying out his evaluation. In the event that the Chairman himself should encounter a conflict of interest, he must report this immediately to the Deputy Chairman. Company agreements with members of the Supervisory Board that require members to perform a service for the company or for a subsidiary outside of their duty on the Supervisory Board (§ 189 a 7 of the UGB) in exchange for not-insignificant compensation require the approval of the Supervisory Board. This also applies to agreements with companies in which a member of the Supervisory Board has a significant financial interest. Furthermore, related party transactions as defined by § 28 of the BWG require the approval of the Supervisory Board.
Independent consolidated non-financial report (§ 267a of the UGB) as well as disclosures for the parent company according to § 243b of the UGB The company prepared an independent consolidated non-financial report according to § 267a of the UGB for the 2019 financial year for RBI, which also contains the disclosures for the parent company according to § 243b of the UGB. The report was reviewed by the Supervisory Board according to § 96 (1) of the AktG. In addition, KPMG was appointed by the Management Board to audit the consolidated non-financial report and will report its findings to the Supervisory Board at its March 2020 meeting. The Supervisory Board will report on the results of the audit at the Annual General Meeting.
A whistleblower hotline was established at the RBI in keeping with regulatory and statutory guidelines. Employees can use the hotline to anonymously report possible violations throughout the Group in their local language to an independent company. All reports are investigated by RBI’s Compliance department. The investigation findings must be reported back before the case can be closed.
Accounting and audit of financial statements RBI’s consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as applied in the EU. They also comply with the regulations of the BWG in conjunction with the UGB to the extent that these are applicable to the consolidated financial statements. The consolidated annual financial statements are published within the first four months of the financial year following the reporting period. Interim reports are published no later than two months after the end of the respective reporting period pursuant to IFRS.
The Annual General Meeting on 21 June 2018 selected KPMG as external Group auditor and bank auditor for the 2019 financial year. KPMG has confirmed to RBI AG that it has the certification of a quality auditing system. It has also declared that there are no reasons for disqualification or prejudice. The Supervisory Board is informed of the result of the audit by a statutory report regarding the audit of the consolidated financial statements by the auditor, as well as by the report of the Audit Committee. Furthermore, the auditor assesses the effectiveness of the company’s risk management in accordance with the ACGC, based on the documents submitted to the auditor and otherwise available. The resulting report is presented to the Chairman of the Supervisory Board, who is responsible for ensuring the report is addressed in the Audit Committee and presented to the Supervisory Board.
Industrial development dampens the euro area economy while interest rates remain low At 1.2 per cent in 2019, gross domestic product (GDP) growth in the euro area came in lower than in the previous year (1.9 per cent). The economic slowdown was driven by very diverse developments in individual sectors. While the output of the industrial sector experienced a noticeable decline, economic output in the services and construction sectors developed solidly. The unemployment rate declined over the course of the year. At 1.2 per cent, the inflation rate was well below the European Central Bank (ECB) target of 2 per cent.
The Austrian economy also lost considerable momentum over the year. As a result of the good winter half-year 2018/19, real GDP growth for the whole of 2019 amounted to 1.6 per cent (2018: 2.4 per cent), thus remaining above the euro area average. Industrial production slowed markedly from spring 2019, after having previously seen a notable decoupling from the weak industrial production trends in Germany. Against this challenging external environment backdrop, foreign trade momentum also declined steadily over the course of the year, but nevertheless provided a positive impetus. Capital expenditures weakened noticeably as well. Consumer spending however provided support to the economy, benefiting from continued favorable labor market conditions and the growth in real disposable household incomes.
Growth in the US economy slowed in 2019, albeit remained robust. Real GDP grew 2.3 per cent, after 2.9 per cent growth in 2018. The US also suffered from a period of notable weakness in the industrial sector, although this had little impact on other parts of the economy. On the demand side, consumer spending supported the economy, benefiting from the continuation of the positive trend in the labor market. Job creation continued in tandem with a decline in the unemployment rate.
In China, economic growth momentum eased off in 2019: real GDP growth of 6.1 per cent was recorded for the entire 2019 year, around 0.6 percentage points less than the previous year. Credit growth continued to decline year-on-year, while growth rates for capital expenditures and industrial production reached new record lows. While the trade conflict with the US had initially only made itself felt in the sentiment surveys, it increasingly left its mark on exports and consequently also on real economic data.
Economic growth in the CE region slowed comparatively moderately in 2019, reaching 3.6 per cent for the year compared to 4.5 per cent in the previous year. At 4.9 per cent, Hungary achieved the highest growth rate on an individual country level.
GDP growth in Eastern Europe (EE) declined considerably to 1.4 per cent in 2019, after positive one-off growth effects in Russia (e.g. investment projects which had been completed in 2018), had led to a rate of 2.4 per cent in the previous year. Russia, which continued its restrictive fiscal policy while running federal budget surpluses, achieved only 1.2 per cent growth. Domestic demand remained weak. At the same time, inflation developed more moderately than expected despite an increase in VAT, which allowed the central bank to start significantly lowering key interest rates again from mid-2019. In addition, the absence of additional burdens from sanctions allowed the Russian ruble to appreciate. In Ukraine, 2019 was marked primarily by political events, i.e. presidential and parliamentary elections. The new leadership now faces the task of implementing ambitious reform plans. The economy performed well despite the political uncertainties, and the upswing continued with growth of 3.3 per cent year-on-year. The currency appreciated significantly with strong investment inflows. The inflation rate also fell in Ukraine, giving the central bank scope for stronger interest rate cuts in the second half of the year. In contrast, the pace of GDP growth in Belarus declined significantly to 1.2 per cent in 2019, which was partly related to the economic slowdown in Russia.
Euro area 1.9 1.2 0.8 1.2 Source: Raiffeisen Research on 26 February 2020 (e: estimate, f: forecast). Subsequent revisions to data for prior years are possible.
Development of the banking sector in CEE The development of the CEE banking sector was again promising in 2019. New lending and asset growth increased even further in some CE and SEE countries, such as in the Czech Republic, Slovakia and Romania. In addition, more banking markets (e.g. Hungary, Serbia and Bosnia and Herzegovina) participated in the overall positive trend, with asset growth recorded in almost all markets. In a few markets with identifiable sectoral overheating risks (e.g. real estate lending in the Czech Republic and Slovakia, with anticyclical capital buffers at bank level in the Czech Republic and Slovakia, or the retail segment in Russia), the respective central banks have responded with micro- and/or macro-prudential regulatory measures. In Russia, established western foreign banks benefited from a general improvement in the market environment (e.g. market shakeout, temporarily subsiding sanction risks, increasing local investment), with continuing attractive interest rate margin. Western foreign banks acting as niche players were even able to slightly increase their market share in Russia in 2019. Almost all CEE banking markets (except for Ukraine and Belarus ) currently have a comfortable loan-to-deposit ratio (near to or well below 100 per cent), providing a solid basis for future growth. In addition, significant progress was made in the reduction of NPLs. In CE and SEE, the NPL ratio declined to just under 5 per cent and 7 per cent respectively in 2019, the lowest levels since 2008. In the three particularly important CE markets for western foreign banks – the Czech Republic, Slovakia and Hungary – the NPL ratio even approached 3 per cent at the end of 2019. Against a backdrop of positive overall market developments, the CEE banking sector’s return on equity solidified in the double-digit range in 2019. Banking markets in Southeastern Europe as well as Ukraine, were particularly characterized by a significant recovery in 2018 and 2019. All three regions (CE, SEE and EE) recorded double-digit returns on equity in 2019 as well. As a result, the major Western European banks active in CEE were also able to generate a double-digit return on equity in CEE business in 2019.
Regulatory environment Changes to prudential requirements (CRD IV/CRR) and the recovery and resolution framework (BRRD, SRMR)
At the end of 2017, the Basel Committee on Banking Supervision finalized the new international rules for calculating capital requirements under Pillar 1 (Basel IV). The primary objective of the new rules is to make banks’ risk calculations more comparable. To accomplish this, not only were large parts of the standard models changed, but the scope of application of internal models was also restricted and the requirements for these models were revised. In addition, an output floor will be phased in by 2027, which sets a floor for capital requirements calculated using internal models at 72.5 per cent of the values calculated using the standard models.
The Basel Committee on Banking Supervision issued 14 principles for risk data aggregation and risk reporting of credit institutions (BCBS 239). They reflect the Basel Committee’s conclusions that data quality and governance play a fundamental role in bank management and efficiency of banking operations.
Due to its classification as a systemically important institution, RBI will comply with these principles. It has developed a comprehensive Group-wide action and implementation plan that ensures compliance with the BCBS 239 principles which is currently being implemented in consultation with the relevant supervisory authorities.
In Austria, the Bank Recovery and Resolution Directive (BRRD) was transposed into Austrian law by the Bank Recovery and Resolution Act (BaSAG). The review of the BRRD was negotiated up until the end of 2018 as part of the trilogue process. It must be implemented within two years of its publication by an amendment to the BaSAG.
RBI has a Group recovery plan as required by law. It sets out measures for restoring financial stability in the event that this becomes necessary. The BaSAG also requires resolution authorities, in close collaboration with RBI, to draw up resolution plans based on the underlying resolution strategy (multiple point of entry or single point of entry). RBI has adopted a multiple point of entry (MPE) approach. The responsible authorities define resolution groups for those units identified as relevant to the resolution process. The resolution plan has to facilitate the effective application of the resolution tools and describe the resolution strategy and its implementation. The resolution authority decides which resolution tools (sale of business, bridge institution, asset separation and bail-in) should be used. Official targets for minimum requirements for own funds and eligible liabilities (MREL targets) are being set for each resolution group and are expected for the first quarter of 2020.
The new Payment Services Directive (PSD 2), which came into force on 13 January 2018, strengthens consumer protection and security requirements for online payments and has brought far-reaching changes with respect to an open banking system. The directive enables other market participants known as third party providers (TPPs) - such as other banks, payment service providers and fintechs - to offer payment services to banking customers. PSD 2 also includes a technical standard that governs the terms for granting access to client accounts and data when clients have given their consent to offer such access. These rules took effect on 14 September 2019 together with more stringent security provisions regarding access to payment accounts and the authorization of payments (Strong Customer Authentication – SCA). The details of the implementation of these requirements at the European level had previously been discussed up to the summer of 2019 and a transition period was instituted for the introduction of some of the new requirements. RBI has implemented the new provisions within the framework of various projects at Group head office and in the affected network banks.
The European Banking Authority’s (EBA) Guidelines on Internal Governance were transposed into Austrian law in 2018. The process added new provisions to the Austrian Banking Act (§ 39 (6) BWG) which came into effect on 1 January 2019, thereby extending the regulatory compliance requirements for monitoring and ensuring the bank’s adherence to applicable Austrian law. The implementation of these activities at RBI builds on existing methods and tools, which were extended with further approaches.
In 2019, the EBA focused its attention on the following areas: 1. Credit risk, with an emphasis on lending criteria and credit quality in general; 2. Risk management in connection with internal models (completion of the Targeted Review of Internal Models, TRIM) and internal bank processes to ensure adequate capital and liquidity (ICAAP, ILAAP); and 3. Risk management in the areas of IT and cyber risks. Furthermore, during 2019 RBI participated in the ECB’s EU-wide liquidity stress test, in which the supervisory authority conducted a sensitivity analysis of liquidity risk in order to assess the resilience of banks to hypothetical liquidity shocks. The liquidity reserves of the 103 banks tested were deemed adequate to cover the simulated net outflows. The results of the individual banks were not published but were taken into account in the banks’ annual Supervisory Review and Evaluation Process (SREP).
The legal provisions stipulate, among other things, that all credit institutions must establish in writing appropriate policies and procedures, which take into account the nature, scope and complexity of their business activities, and update them regularly while complying with them on an ongoing basis. These policies and procedures are designed to detect and minimize the risks of noncompliance with the provisions listed under § 69 (1) of the BWG by management, supervisory board members and employees, as well as any associated risks that may ensue from such non-compliance.
In the course of this program, at its meeting in September 2019, RBI’s Supervisory Board decided that the Management Board would be reduced from seven to six members when Martin Grüll’s term of office expires at the end of February 2020.
In 2016, the EBA published its guidelines on the application of the definition of default, which are required to be adopted by the end of 2020. Risk management follows the new default definition, which also has an impact on the regulatory calculation parameters: probability of default (PD) and loss given default (LGD). Since these serve as the basis for the parameter calculations in the context of the calculation of expected credit loss (ECL) for the consolidated financial statements, changes in the default definition have an effect on the impairments that influence consolidated profit/loss.
RBI implemented the new guidelines in its risk management activities ahead of time in 2019. This resulted in an increase of € 74 million in impairment losses on financial assets in the financial year.
Earnings and financial performance RBI’s growth story continued in 2019 despite a slightly weakening economy in some markets: The 13 per cent increase in customer loans enabled core revenues – net interest income and net fee and commission income, adjusted for the 2018 sale of the Polish banking business – to rise significantly, by 8 and 7 per cent respectively.
Operating income was up 2 per cent, or € 98 million, year-onyear to € 5,475 million. Adjusted for the sale of the Polish core banking operations, operating income grew 8 per cent. Net interest income rose 1 per cent to € 3,412 million and was driven by lending growth, with Group average interest-bearing assets up 4 per cent. Net interest income rose in nearly all markets, with the largest increases coming from Russia, the Czech Republic, Romania and Ukraine. The net interest margin fell 7 basis points to 2.44 per cent, mainly due to lower margins in new business in Russia as a result of increased competition, a higher proportion of low-margin head office business, as well as the sale of the core banking operations in Poland. In the period under review, current income from investments in associates rose € 91 million to € 171 million. The increase stemmed primarily from Raiffeisen Informatik GmbH & Co KG due to a valuation gain on a listed equity interest. Despite the sale of the Polish core banking operations, net fee and commission income also increased € 5 million year-on-year to € 1,797 million. This was primarily attributable to increases in Russia, at head office and in Hungary. The net trading income and fair value result fell to minus € 17 million, driven by interest rate-related valuation changes for certificates issued (down € 57 million), as well as valuation results from derivatives held for economic hedging purposes, including for a building society portfolio, leading to an effect of minus € 29 million. As these are certificates that are repayable once they reach maturity and hedging transactions, the valuation results are neutralized over the portfolios’ lifetime. In contrast, predominantly gains on the sale and valuation of debt securities held for trading purposes combined with one-off income from the sale of equity instruments in Slovakia (€ 27 million) led to a positive change of € 44 million at head office.
The other result was minus € 219 million, compared to minus € 241 million in the previous year. Net income from the disposal of Group assets increased € 236 million. This was principally due to a loss of € 120 million recognized in the previous year in connection with the sale of the Polish core banking operations and an effect of minus € 64 million from recycling the accumulated foreign currency differences previously recognized in other comprehensive income. In the reporting period, net income from the disposal of Group assets amounted to € 52 million, which came mainly from the sale of a property in Slovakia.
Impairment losses on financial assets amounted to € 234 million in the reporting period, compared to € 166 million in the previous year. The main driver of the increase was the Group Corporates & Markets segment, which reported impairments of € 64 million in the reporting period as a result of individual cases involving large corporate customers; in the comparable period of the previous year, a € 62 million net release of loan loss provisions was booked which was mainly attributable to inflows and recoveries. The sale of the Polish core banking operations led to a € 62 million decline in provisioning for impairment losses in Poland to € 27 million, which was recognized in the reporting period for the remaining retail customer portfolio and was mainly driven by the application of the revised default definition and retail model parameter adjustments. Impairment losses on financial assets in the Czech Republic fell € 17 million to € 16 million due to a significant improvement in the corporate customer business and parameter adjustments in retail models. This was offset by a € 30 million negative effect from the application of the revised EBA default definition. In Croatia, impairment losses fell € 16 million to € 3 million due to positive developments in the corporate customer business, sales of non-performing loans and parameter adjustments in retail models. In contrast, an € 11 million increase in impairment losses to € 68 million was reported in Russia due to strong credit growth in both the retail and the corporate customer business. In Ukraine, net releases halved to € 10 million, mainly due to lower loan sales.
Application of the revised default definition resulted in negative effects of € 74 million in the retail portfolio during the reporting period, primarily in the Czech Republic, Romania, and Poland.
Income taxes rose € 47 million to € 402 million. The main reason for the increase was a € 25 million impairment of deferred tax assets in Poland due to the anticipated inability to utilize them based on the updated medium-term tax planning. Other drivers included € 27 million higher income taxes in Russia due to earnings and tax payments for previous periods. The tax rate rose 2 percentage points to 23 per cent, partly as a result of the lower profit contribution from head office.
Profit attributable to non-controlling interests increased from € 128 million in the previous year to € 138 million, while consolidated profit fell € 43 million to € 1,227 million.
Comparison of results with the previous quarter Quarterly results in € million Q4/2018 Q1/2019 Q2/2019 Q3/2019 Q4/2019
Net trading income and fair value result (3) (52) (27) (8) 70
RBI’s net interest income rose 2 per cent quarter-on-quarter, or € 15 million, to € 881 million, mainly due to a € 13 million volumerelated rise in Russia. At head office, net interest income rose € 10 million as a result of lower interest expenses on customer deposits, whereas there were declines of € 8 million in the Czech Republic and of € 2 million in the Raiffeisen Leasing Group due to one-off effects in the third quarter of 2019. The net interest margin continues to stabilize with a slight increase of 1 basis point to 2.47 per cent.
Current income from investments in associates rose € 106 million and stemmed mainly from Raiffeisen Informatik GmbH & Co KG due to a valuation gain on a listed equity interest.
Net fee and commission income increased 5 per cent compared to the third quarter, or € 21 million, to € 489 million. The main driver of the increase was higher revenues from clearing, settlement and payment services and the loan and guarantee business in the fourth quarter, especially in Russia and at head office.
The net trading income and fair value result rose € 78 million quarter-on-quarter to € 70 million. This included a € 42 million improvement in net trading income, mainly due to interest rate-related valuation gains on certificates measured at fair value and to one-time income from the sale of equity instruments (€ 27 million) in Slovakia.
This included a € 37 million quarter-on-quarter rise in staff expenses to € 429 million. The principal causes were the recognition of a restructuring provision at head office as well as higher bonuses and salary adjustments, mainly in Russia and Slovakia. Other administrative expenses increased € 50 million quarter-on-quarter to € 310 million, primarily due to seasonally higher advertising expenses, especially in Romania and Russia, and higher legal, advisory and consultancy expenses, notably at head office. Depreciation of tangible and intangible fixed assets increased by € 13 million to € 109 million in the fourth quarter, mainly in Russia and at head office.
Other net operating income increased € 73 million quarter-on-quarter. This was primarily attributable to releases of provisions in Romania and Russia. In Romania, provisions for litigation in connection with state subsidies for building society savings were reduced by € 27 million; in Russia, a € 9 million provision for litigation was released, whereas a provision of € 6 million was formed in the preceding quarter. Additional drivers of the increase included proceeds from residential construction in the Raiffeisen Leasing Group amounting to € 9 million, sales of loans and bonds in Romania amounting to € 6 million, and higher other operating income mainly at head office.
Income taxes fell € 36 million compared to the previous quarter to € 88 million. The main driver was impairment charges of € 25 million on deferred tax assets in Poland in the third quarter, which are not expected to be utilized in the future based on the updated medium-term tax planning. In Croatia, tax expenses fell € 12 million due to the utilization of tax loss carryforwards. The overall tax rate therefore fell 8 percentage points to 19 per cent.
The 6 per cent, or € 563 million, decline in loans to banks to € 9,435 million, mainly resulted from reduced short-term investments at commercial banks.
Loans to customers were up 13 per cent, or € 10,339 million, to € 91,204 million. Households accounted for € 3,621 million of the increase, non-financial corporations for € 3,234 million, and other financial corporations for € 3,206 million; the remainder was attributable to loans to governments. There was growth in the customer business in almost all markets: The strong growth at head office (up € 3,607 million or 17 per cent) stemmed from € 2,135 million in loans to other financial corporations – of which € 1,105 million was repo business – and € 1,471 million in loans to corporate customers, primarily project finance, export finance and standard loans. The increase in Russia (up € 2,826 million, or 33 per cent, around half of which was attributable to currency movements), was mainly in loans to non-financial corporations (up € 1,584 million) and households (up € 1,073 million), in particular mortgage loans, personal loans and credit card lending. There was also significant growth in Slovakia (up € 881 million or 9 per cent) and in the Czech Republic (up € 741 million or 7 per cent) – primarily in loans to households, in particular mortgage loans, and to a lesser extent loans to non-financial corporations – as well as in Hungary (up € 468 million or 14 per cent) and in Bulgaria (up € 421 million or 16 per cent).
Dividends totaling € 428 million were distributed for the 2018 financial year. The distribution of a dividend of € 0.93 per share to RBI’s shareholders accounted for € 306 million. A total of € 60 million was also paid out to holders of non-controlling interests in Group companies. Dividend payments of € 62 million were made on AT1 capital.
As at 31 December 2019, RBI’s common equity tier 1 (CET1) after deductions amounted to € 10,862 million, representing an increase of € 1,160 million compared to the 2018 year-end figure. Material factors behind the improvement were the inclusion of eligible profit, foreign exchange effects directly recognized in equity and changes to qualifying minority interests. Tier 1 capital after deductions increased € 1,164 million to € 12,092 million primarily as a result of the increase in CET1. There was a € 418 million reduction in tier 2 capital to € 1,940 million, mainly due to early repayments and the regulatory amortization of outstanding issues. RBI’s total capital amounted to € 14,032 million, representing an increase of € 746 million compared to the 2018 year-end figure.
The rise in debt securities issued and other liabilities related to head office (up € 1,232 million, mainly as a result of new debt security issues) and Raiffeisen Centrobank AG (up € 565 million) due to own issues.
RBI’s equity including capital attributable to non-controlling interests rose € 1,352 million from the start of the year to € 13,765 million. The increase was primarily the result of total comprehensive income for the period of € 1,771 million and the distribution of dividends totaling € 428 million for the 2018 financial year.
Risk-weighted assets (total RWA) totaled € 77,966 million as at 31 December 2019. The major factors behind the € 5,294 million increase were new lending business as well as general business developments at head office, in Russia and in Bulgaria.
As a result, the CET1 ratio (fully loaded) was up 0.6 percentage points at 13.9 per cent, the tier 1 ratio (fully loaded) was 15.4 per cent (up 0.5 percentage points), and the total capital ratio (fully loaded) was 17.9 per cent (down 0.3 percentage points).
Mobile banking is a central theme in the advancing digitalization for banks. While penetration was at 22 per cent for RBI in 2018, it had reached 32 per cent by the end of the reporting period. By the end of 2021, it should rise to 55 per cent. There is also growing acceptance of online loans: At the end of 2018, 20 per cent of loans were granted through digital channels, and this had increased to 25 per cent by year-end 2019. For 2021, it is expected that a 35 per cent share of loans will be sold digitally.
RBI successfully completed the second round of its Elevator Lab fintech partnership program at the start of 2019. This program tests innovative solutions with selected fintech start-ups and works toward establishing long-term business relationships. The Groupwide and regional Elevator Lab programs have given rise to numerous fintech partnerships. Examples include the use of Pisano customer experience management software in Bulgaria and Kosovo as well as the Symmetric mobile payment solution in Albania.
RBI also worked extensively on blockchain technology in 2019. The focus was on specific applications in trade finance, capital market transactions and in clearing, settlement and payment services. To further develop blockchain solutions, RBI entered into a cooperation agreement with the Austrian Blockchain Center at the Vienna University of Economics and Business. It has been a member of the international blockchain consortium R3 since the end of 2017 and has participated as a member in worldwide feasibility studies.
An internal control system pertaining to financial reporting has been in place for several years in the Group, which includes directives and instructions on key strategic issues. It incorporates:  The hierarchical decision-making process for approving Group and company directives, as well as departmental and divisional instructions,
Significant risks relating to the Group accounting process are evaluated and monitored by the Management Board. Complex accounting standards can increase the risk of errors, as can the use of differing valuation standards, particularly in relation to the Group’s principal financial instruments. A difficult business environment can also increase the risk of significant financial reporting errors. For the purpose of preparing the consolidated financial statements, estimates have to be made for asset and liability items for which no market value can be reliably determined. This is particularly relevant for the lending business, equity participations and goodwill. Social capital, provisions for legal risks and the valuation of securities, are also based on estimates.
(2) The Articles of Association contain no restrictions concerning voting rights or the transfer of shares. The regional Raiffeisen banks and direct and indirect subsidiaries of the regional Raiffeisen banks are parties to a syndicate contract (syndicate agreement ) regarding RBI AG. The terms of this syndicate agreement include not only a block voting agreement and preemption rights, but also a prohibition on sales of the 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, i.e. from 18 March 2017, if the sale would reduce the regional Raiffeisen banks’ aggregate shareholding in RBI AG (direct and/or indirect) to less than 50 per cent of the share capital plus one share. After the lock-up period expires, the shareholding threshold falls to 40 per cent of the share capital of RBI AG.
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).
No own shares have been purchased or sold since the authorization was granted in June 2018.
(8) The following material agreements exist, to which the company is a party and which take effect, change or come to an end upon a change of control in the company as a result of a takeover bid:  RBI AG is insured under a Group-wide D&O policy. Insurance cover would remain in place following a merger with another legal entity belonging to the RBI Group. In the event of a merger with a legal entity outside the RBI Group, the insurance policy would automatically cease at the end of the insurance period in which the merger took effect. In such cases, insurance cover only exists for claims for damages arising from breaches of obligations that occurred before the merger, which are reported to the insurer prior to any termination of RBI’s Group-wide D&O insurance cover and thereafter within the agreed notification period of five years.
Human Resources Human Resources (HR) plays a pivotal role in the implementation of RBI’s strategy and achievement of its corporate goals. A principal function of HR, while planning, organizing and managing personnel resources within the Group, lies in taking both employee needs and corporate interests into consideration. Alongside core HR processes, such as recruitment and talent management, this also involves preparing employees as best possible to meet existing and future challenges in the banking sector. A key focus is on the implementation of the new corporate Vision & Mission and the company values, which sees employees as a key stakeholder in the future development of the Group.
As at 31 December 2019, RBI had 46,873 employees (fulltime equivalents), which was 206 persons fewer than at the end of 2018. The largest declines occurred in Russia (down 179), in Ukraine (down 132), and in Romania (down 128); whereas, the largest increases were reported in Hungary (up 148), and at head office (up 120).
In Southeastern Europe (SEE), economic growth of 2.9 per cent is forecast for 2020. This represents a slowdown of just over half a percentage point versus 2019. Domestic demand is expected to be the main growth driver. The economic slowdown anticipated in the euro area is expected to also curb economic growth in SEE, affecting almost all countries in the region. In both Romania and Bulgaria, which together make up around two-thirds of SEE’s regional GDP, a decline of around one percentage point is anticipated. Countries such as Croatia or Bosnia and Herzegovina are expected to show only a slight weakening in growth rates.
After a somewhat weaker year in 2019, the Russian economy is likely to show a slightly stronger growth rate of around 1.6 per cent in 2020. This should continue the moderate growth trajectory of recent years. While monetary and fiscal policy had a more restrictive effect in 2019, lower key interest rates, government infrastructure projects, and higher social security expenses, are expected to provide a slight boost to growth in 2020. Sanctions risks remain and could have a negative impact on currency and economic developments. In Ukraine, the new government is about to implement ambitious reform projects (e.g. land reform), while the expected revival of cooperation with the International Monetary Fund should have a stabilizing effect. Economic growth of 3.1 per cent is forecast for Ukraine in 2020. The Belarusian economy is expected to grow by 1.8 per cent in 2020, following a dip in 2019.
The provisioning ratio for FY 2020 is expected to be around 50 basis points.
In the coming years we target a consolidated return on equity of approximately 11 per cent.
Based on this target, we intend to distribute between 20 and 50 per cent of the consolidated profit.
Central Europe 67 Southeastern Europe 72 Eastern Europe 77 Group Corporates & Markets 80 Corporate Center 83
Central Europe in € million 2019 2018 Change Q4/2019 Q3/2019 Change
Net trading income and fair value result 26 41 (37.6)% 36 (10) –
Net gains/losses from hedge accounting 0 (10) – 0 0 –
Levies and special governmental measures (60) (85) (29.7)% (8) (7) 3.0%
NPE coverage ratio 58.6% 56.0% 2.6 PP 58.6% 59.1% (0.5) PP
Customers in million 2.7 2.6 6.2% 2.7 2.6 4.9% 1 1 The current income from investments in associates previously reported in other result is now shown in a separate item.
The average number of employees fell by 3,159 as a result of the sale of the Polish core banking operations but increased by 292 in the other countries to reach 9,853. During the reporting period, the average number of employees grew above all in Hungary, due to insourcing and growth in the business, as well as in Slovakia. The number of business outlets in the segment declined from 396 to 391. The cost/income ratio rose 0.6 percentage points to 56.7 per cent.
The Central Europe segment’s other result amounted to minus € 57 million, compared to minus € 13 million in the same period of the previous year. The change was mainly driven by the allocation of € 49 million in loan-related litigation provisions on a portfolio basis related to mortgage loans to consumers that are denominated in or indexed to a foreign currency in Poland. In contrast, impairments relating to investments in subsidiaries were lower (€ 4 million).
The net trading income and fair value result fell € 16 million year-on-year. In Poland, net trading income decreased € 19 million due to the sale of the Polish core banking operations. In Hungary, the result declined € 11 million as a consequence of lower long-term interest rates, which resulted in negative valuation results from derivatives held for economic hedging purposes. A decline of € 9 million was recorded in the Czech Republic, also due to lower valuation results from derivatives. In Slovakia, in contrast, an increase of € 24 million was recorded as a result of one-time income from the sale of equity instruments.
General administrative expenses in the segment decreased € 124 million year-on-year to € 730 million; without the sale of the Polish core banking operations, there would have been an increase of € 55 million. Staff expenses increased primarily due to salary adjustments in Slovakia (€ 14 million) and the Czech Republic (€ 13 million). In other administrative expenses adjusted for the sale of the Polish core banking operations, there were increases in particular in advertising, legal and IT expenses. Furthermore, the application of IFRS 16 led to a shift of expenses from other administrative expenses to depreciation.
Levies and expenses from special governmental measures fell € 25 million year-on-year to € 60 million, primarily as the result of the sale of the Polish core banking operations (down € 27 million). Bank levies were down € 16 million year-on-year to € 43 million. Contributions to resolution funds also decreased € 9 million to € 17 million: In addition to the decrease resulting from the sale of the Polish core banking operations, contributions were also lower in the Czech Republic, while contributions in Hungary increased.
The NPE ratio of the Central Europe segment was 2.4 per cent as of 31 December 2019 (down 0.5 percentage points year-onyear ). The NPE coverage ratio improved 2.6 percentage points year-on-year to 58.6 per cent.
The segment's income taxes increased € 11 million year-on-year to € 112 million. The tax rate increased 5 percentage points to 28 per cent. In Poland, an impairment of deferred tax assets of € 25 million was recognized, as based on the updated mediumterm tax planning they are not utilizable in the future. As a result, the tax expense in Poland was € 8 million higher than in the previous year.
Net trading income and fair value result 1 21 32 8
Net trading income and fair value result (7) 2 0 11
Employees as at reporting date (full-time equivalents) 3,413 3,402 2,237 2,089
Provisioning ratio (average loans to customers) 0.46% 0.45% 0.01 PP 0.63% 0.88% (0.25) PP
Southeastern Europe in € million 2019 2018 Change Q4/2019 Q3/2019 Change
Net trading income and fair value result 39 31 25.9% 16 9 76.6%
NPE coverage ratio 69.9% 63.5% 6.4 PP 69.9% 67.8% 2.1 PP
Net fee and commission income decreased € 4 million year-on-year to € 417 million. Net fee and commission income in Romania was down € 21 million, primarily in clearing, settlement and payment services, asset management and custody. In contrast, Bulgaria, Serbia and Croatia reported increases of € 6 million, € 5 million and € 4 million, respectively, mainly due to higher fee and commission income from the sale of own and third-party products, clearing, settlement and payment services, as well as from foreign exchange business.
The other result was minus € 40 million compared to minus € 1 million in the previous year. The reduction was mainly due to the recognition of loan-related provisions for litigation on a portfolio basis in connection with loan contract clauses in Croatia (€ 20 million) and proceedings with the consumer protection authority in Romania (€ 14 million), as well as impairment losses on non-financial assets (up € 6 million) above all in Romania (land and tangible fixed assets).
Levies and expenses for special governmental measures rose € 14 million year-on-year to € 25 million. The increase resulted primarily from the bank levy in Romania (€ 10 million), which was newly implemented in 2019. In addition, the loss from banking business due to governmental measures rose € 3 million as a result of the conversion of Swiss franc loans in Serbia.
In the reporting period, impairment losses on financial assets amounted to € 70 million, compared to € 61 million in the same period of the previous year. The application of the revised EBA default definition in risk management for retail customers resulted in an overall increase of € 33 million in the segment in the reporting period. In Bosnia and Herzegovina, impairment losses were up € 9 million to € 14 million. Albania reported impairment losses of € 4 million; in the previous year, it had posted a net release of € 5 million in loan loss provisions as a result of recoveries from corporate customers. In Romania, impairment losses on financial assets of € 39 million were only slightly above the level of the previous year. In contrast, impairment losses in Croatia were significantly lower, decreasing € 16 million to € 3 million on the back of positive developments in the corporate customer business and parameter adjustments to retail models.
Net fee and commission income 16 17 42 40 55 49
Net trading income and fair value result 3 (2) 2 0 3 4
Impairment losses on financial assets (4) 5 (14) (5) (2) 0
Return on equity after tax 10.6% 12.9% 11.2% 16.0% 15.3% 15.1%
Net fee and commission income 75 71 168 189 51 45
Levies and special governmental measures (2) (3) (14) (3) (3) 0
Impairment losses on financial assets (3) (19) (39) (38) (3) (2)
Return on equity before tax 9.3% 9.1% 23.2% 30.1% 12.2% 13.8%
Net trading income and fair value result 6 (1) 18 22 8 8
Eastern Europe in € million 2019 2018 Change Q4/2019 Q3/2019 Change
Return on equity before tax 41.3% 44.1% (2.8) PP 41.2% 43.4% (2.2) PP
NPE coverage ratio 60.0% 61.8% (1.8) PP 60.0% 58.6% 1.4 PP
Net interest income in Eastern Europe increased 12 per cent year-on-year, or € 121 million, to € 1,142 million. The largest rise was reported in Russia (up € 77 million), reflecting higher lending volumes to non-financial corporations and households. Ukraine also posted an increase of € 31 million in net interest income as a result of higher lending volumes to non-financial corporations and households as well as currency movements. In Belarus, net interest income was up € 13 million due to volume effects. The segment’s net interest margin fell 66 basis points year-on-year to 5.84 per cent, reflecting margin declines in all the segment’s countries. In Russia, the net interest margin decreased due to lower margins in the customer business. In Belarus, restrictions on lending imposed by the central bank led to a decrease in the margin, while the net interest margin in Ukraine declined as a result of sharply decreasing key interest rates.
Net fee and commission income was also up 20 per cent, or € 92 million, to € 557 million. Russia reported growth of € 70 million to € 394 million, primarily due to higher volumes in clearing, settlement and payment services, the credit card business and foreign exchange. Driven largely by currency effects, net fee and commission income was also up in Ukraine, by € 14 million to € 106 million, while Belarus reported a volume-based increase of € 8 million.
Net trading income and the fair value result decreased year-on-year from € 34 million to € 32 million in the reporting period. Russia and Belarus reported declines of € 6 million and € 3 million respectively – primarily as a result of lower net income from short positions and currency translation. Whereas, net trading income and the fair value result was up € 7 million in Ukraine, due to lower valuation results from debt securities in the comparable period of the previous year, and an improvement in net income from foreign currency-related transactions.
In contrast, other net operating income declined € 3 million to € 3 million as a result of provisions and lower income from real estate leasing in Belarus.
The other result was minus € 17 million in the reporting period compared to minus € 11 million in the previous year. The decline was largely attributable to the increase of € 6 million in impairment losses on non-financial assets, notably on real estate in Russia.
In the reporting period, impairment losses of € 59 million were recognized, compared to € 32 million in the corresponding period of the previous year. Russia reported an increase in impairment losses of € 11 million to € 68 million as a result of strong growth in lending to retail and corporate customers. In Ukraine, the net release of loan loss provisions fell from € 20 million to € 10 million. In Belarus, impairment losses were below € 1 million in the reporting period, compared to a net release of € 5 million in the previous year. Higher sales of non-performing loans in the corresponding period of 2018 were mainly responsible for the decreases.
As at 31 December 2019, the segment’s NPE ratio was 2.0 per cent (down 0.9 percentage points year-on-year), while the NPE coverage ratio was 60.0 per cent (down 1.8 percentage points year-on-year).
The segment’s tax expense was up € 34 million to € 205 million. This was mainly attributable to the € 27 million increase in the tax expense in Russia to € 145 million, reflecting both a higher profit and tax payments relating to previous periods. The € 5 million rise in the tax expense in Belarus to € 22 million resulted from higher tax-exempt income in the previous year. The segment’s tax rate was up 2 percentage points to 22 per cent.
Impairment losses on financial assets 0 5 (68) (57) 10 20
Return on equity after tax 17.1% 20.8% 25.3% 29.2% 47.5% 66.3%
Provisioning ratio (average loans to customers) (0.07)% (0.72)% 0.67% 0.72% (0.64)% (1.47)%
Group Corporates & Markets in € million 2019 2018 Change Q4/2019 Q3/2019 Change
Return on equity before tax 9.4% 14.1% (4.7) PP 6.0% 13.0% (7.0) PP
Return on equity after tax 7.4% 11.4% (4.0) PP 4.9% 9.9% (5.0) PP
Provisioning ratio (average loans to customers) 0.57% (1.53)% 2.10 PP 0.47% 0.09% 0.38 PP
NPE coverage ratio 55.9% 54.1% 1.8 PP 55.9% 55.4% 0.5 PP
Levies and special governmental measures (21) (22) (5.4)% (5) (5) 10.6%
Impairment losses on financial assets (64) 62 – (38) (5) >500.0%
The € 110 million decrease in profit after tax in the Group Corporates & Markets segment mainly related to material one-off effects in the comparable period, including net releases of loan loss provisions in the Corporates Vienna sub-segment totaling € 37 million as a result of inflows and successful recoveries. The Markets Vienna sub-segment benefited in the previous year from € 50 million in releases of provisions following a positive court ruling for RBI in Iceland and from € 11 million in proceeds from the sale of registered bonds. Impairments in the amount of € 64 million were booked in the reporting period.
Dividend income decreased € 8 million, mainly due to the dividend payment from an unconsolidated leasing company in the previous year’s period.
The net trading income and fair value result increased € 12 million year-on-year, reflecting better results from bond and banknote trading, as well as from currency translation. Bond trading generated a record result in 2019. This was due to increased eurobond trading activity in Austria and Eastern Europe. Despite historically low FX volatility, currency trading delivered satisfactory performance for the year and further increased the proportion of business accounted for by electronic trading.
Net trading income and fair value result (80) (95) (16.5)% (9) (7) 31.0%
Impairment losses on financial assets (2) (5) (59.1)% (3) 5 –
The net trading income and fair value result improved € 16 million year-on-year to minus € 80 million, mostly driven by higher valuation results on derivatives.
Other net operating income increased € 8 million to € 95 million, primarily as a result of the sale of debt securities at head office.
The segment’s general administrative expenses rose 3 per cent, or € 9 million, to € 353 million, mainly due to higher IT expense and the allocation of a restructuring provision at head office.
The other result came to minus € 66 million, compared to minus € 221 million in the comparable period of the previous year. This substantial improvement year-on-year primarily related to the loss of € 120 million recognized in the previous year from the sale of the Polish core banking operations and of € 64 million from the recycling of accumulated exchange rate differences, and to the profit of € 50 million realized in the reporting period from the sale of a property in Slovakia.
Tax income of € 66 million was posted in the reporting period, compared to income of € 85 million in the same period of the previous year.
Statement of comprehensive income 89 Statement of financial position 91 Statement of changes in equity 92 Statement of cash flows 93 Segment reporting 95 Notes 102 Notes to the financial instruments 142 Risk report 178 Other disclosures 211 Regulatory information 244 Recognition and measurement principles 248 Key figures 272 Events after the reporting date 274 Statement of all legal representatives 275 Auditor’s report 276
Raiffeisen Bank International AG (RBI AG) is registered in the commercial register of the Commercial Court of Vienna under FN 122119m. Its address is Am Stadtpark 9, 1030 Vienna.
As a credit institution within the meaning of Section 1 of the Austrian Banking Act, RBI AG is subject to regulatory supervision by the Financial Market Authority located at Otto-Wagner-Platz 5, A-1090 Vienna (www.fma.gv.at) and the European Central Bank located at Sonnemannstraße 22, D-60314 Frankfurt am Main (www.bankingsupervision.europa.eu).
Consolidated profit/loss 1,227,035 1,269,838 1 The current income from investments in associates previously reported in other result is now shown in a separate item.
Items that may be reclassified subsequently to profit or loss 330,358 (199,796)
Share of other comprehensive income from companies valued at equity [20] 1,328 (7,163)
IAS 19 requires remeasurements of defined benefit plans to be shown in other comprehensive income. This resulted in other comprehensive income of minus € 19,367 thousand in the reporting year (2018: minus, € 27,047 thousand), which was primarily attributable to a change in the discount rate while the previous year’s rise was the result of adjustments made to the mortality tables.
The changes in the fair value of equity instruments recognized in other comprehensive income resulted in a positive contribution of € 97,447 thousand (2018: € 30,243 thousand) and was principally attributable to participations in the real estate sector. The changes in value of financial assets led to an additional result of € 49,388 thousand (2018: minus € 30,601 thousand). Changes in equity of companies valued at equity totaling € 29,306 thousand (2018: minus € 19,413 thousand) mainly relate to UNIQA Insurance Group AG, Vienna. They largely consist of valuation changes in the securities portfolio used for liquidity management.
The capital hedge for foreign activities comprises hedges for investments in economically independent sub-units. A negative result of € 51,089 thousand resulting from the appreciation of the Russian ruble was posted in the financial year. The previous year had a positive result of € 56,858 thousand driven in part by the reclassification through profit or loss of the hedge attributable to the sale of the Polish core banking operations. Cash flow hedging has been applied in addition to fair value hedging at four Group units to hedge against interest rate risk. In the financial year, this led to a positive result of € 3,324 thousand (2018: € 9,435 thousand ). The sale of the Polish core banking operations in the previous reporting period resulted in the termination of the existing portfolio cash flow hedges. These hedged cash flow fluctuations from foreign currency loans and deposits in local currency by means of foreign currency interest rate swaps. The termination had a neutral effect on capital but resulted in the reclassification through profit and loss of the cash flow hedge reserve of minus € 13,417 thousand recognized in other comprehensive income in previous periods.
Financial assets - fair value through other comprehensive income [15, 32, 44] 4,781,356 6,489,016
Non-trading financial assets - mandatorily fair value through profit/loss [16, 32, 44] 775,937 559,782
Financial liabilities - designated fair value through profit/loss [25, 32, 44] 1,842,725 1,931,076
Financial liabilities - held for trading [26, 32, 44] 5,788,811 5,101,835
Changes in equity in € thousand Subscribed capital Capital reserves Retained earnings
Unrealized net gains/losses of the period (19,318) 0 0 0 92,360
Development of cumulative other comprehensive income The following table contains the cumulative other comprehensive income of the consolidated equity; non-controlling interests are not included: in € thousand Remeasurements reserve acc. to IAS 19 Exchange differences Net investment hedge Cash flow hedge At fair value
Items that may be reclassified subsequently to profit or loss 0 1,328 (3,558) 310,530
Adjustments for the reconciliation of profit/loss after tax to the cash flow from operating activities: Depreciation, amortization, impairment and reversal of impairment of non-financial assets [8, 9, 11] 448,191 310,816
Gains/losses from the measurement and derecognition of assets and liabilities [9] 272,443 443,056
Changes in assets and liabilities arising from operating activities after corrections for non-cash positions: Financial assets - amortized cost [14] (7,695,175) (7,810,946)
Cash, cash balances at central banks and other demand deposits as at 31/12 [13] 24,289,265 22,557,484 1 Other (net) adjustments mainly include the deduction of net interest income and dividend income; the corresponding cash flows are shown under the items interest received, interest paid and dividends received.
Net cash from investing activities shows inflows and outflows from financial investments, tangible and intangible fixed assets, proceeds from disposal of Group assets, and payments for acquisition of subsidiaries.
The following table shows the cash and non-cash effects according to IAS 7: Subordinated financial liabilities in € thousand
This segment encompasses the most advanced banking markets in Central and Eastern Europe, namely the EU members, Czech Republic, Hungary, Poland, Slovakia and Slovenia. In Poland, RBI operated lending business with corporate customers as well as small and medium-sized enterprises (including factoring) and also retail banking and business with high net worth private customers until the sale of the Polish core banking operations in the fourth quarter of 2018. RBI is still present with a portfolio of retail foreign currency mortgage loans, but no longer runs new business. In Slovakia, RBI is active in the corporate and retail customer business, leasing, asset management and building society business. In retail business, Tatra banka is pursuing a multibrand strategy. In Slovenia, the Group has one leasing company. The business volume of the Slovenian leasing company has been reduced as scheduled. In the Czech Republic, RBI is engaged in the real estate leasing and building society business in addition to offering traditional banking services to corporate and retail customers. The focus is on broadening relationships with affluent customers. In Hungary, the Group provides services to retail and corporate customers via the bank's countrywide network. The focus is based on corporate customers and affluent retail customers.
The Southeastern Europe segment comprises Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Romania and Serbia. In these markets, RBI is represented by banks and leasing companies, as well as own capital management and asset management companies and pension funds in some markets. In Albania and Bulgaria, financial services are offered across all business areas. In Kosovo, RBI also offers a comprehensive product range. In Bosnia and Herzegovina, the emphasis is on small and medium -sized enterprises, while also including a wide range of products for retail customers. In Croatia, the focus is on large and medium-sized corporate customers and on retail customers (including pension funds business). In Romania, a broad range of financial services is offered via a tightly knit branch network. In Serbia, the market is serviced by a universal bank and leasing companies.
The cost/income ratio represents the cost efficiency of the segment. The cost/income ratio shows general administrative expenses in relation to operating income, which is the sum of net interest income, dividend income, current income from investments in associates, net fee and commission income, net trading income and fair value result, net gains/losses from hedge accounting and other net operating income.
The governance of each segment is based on key indicators relating to profitability, efficiency, constraints and business mix parameters. The target values of these key indicators are determined according to the specific market environment and adapted when necessary.
The segment assets are represented by the total assets and the risk-weighted assets. The reconciliation includes mainly the amounts resulting from the elimination of intra-group results and consolidation between the segments. The income statement is supplemented with financial ratios conventionally used within the industry to evaluate performance. The values shown in the segment reporting are for the most part taken from the IFRS individual financial statements which are also used for the compilation of the consolidated financial statements. At head office, profit center results are taken from the internal management income statement.
In Eastern Europe, the segment’s profit after tax was up € 51 million, or 7 per cent, year-on-year to € 735 million, mainly as a result of a further improvement in profit in Russia. The considerable 30 per cent growth in lending, which was partly due to currency movements, led to a 12 per cent increase in net interest income. The segment also reported a marked 20 per cent rise in net fee and commission income.
Group Corporates & Markets: The € 110 million decrease in profit after tax in the Group Corporates & Markets segment mainly related to material one-off effects in the comparable period, including net releases of loan loss provisions in the Corporates Vienna sub-segment totaling € 37 million as a result of inflows and successful recoveries. The Markets Vienna sub-segment benefited in the previous year from € 50 million in releases of provisions following a positive court ruling for RBI in Iceland and from € 11 million in proceeds from the sale of registered bonds. Impairments amounting to € 64 million were booked in the reporting period.
Customers in million 2.6 5.3 6.1 2.1 1 The current income from investments in associates previously reported in other result is now shown in a separate item.
As of 1 January 2019, the provisions of the new accounting standard for leases (IFRS 16) became effective. Details regarding the first-time adoption of IFRS 16 are available in the section Application of new and revised standards. The changes and impacts of the new provisions on the consolidated financial statements are presented in the section IFRS 16 transition. In accordance with IFRS 16.C5 (b), the comparative information was not adjusted and has consequently been prepared in accordance with the provisions of IAS 17.
The application of RBI's accounting policies requires accounting judgments of the management. RBI assesses on a forward-looking basis the expected credit losses associated with its debt instrument assets carried at amortized cost and FVOCI and with the exposure arising from loan commitments, leasing receivables and financial guarantee contracts. The calculation of expected credit losses (ECL) requires the use of accounting estimates that by definition rarely match actual results. The amount of impairment to be allocated depends on the change in the default risk of a financial instrument after it was added. In order to determine the amount of the impairment, significant credit risk parameters such as PD (Probability of Default), LGD (Loss Given Default) and EAD
(Exposure at Default) as well as future-oriented information (economic forecasts) are to be estimated by management. The provision for credit risks is adjusted for this expected loss at each reporting date. The methods for determining the amount of the impairment are explained in the section Impairment general (IFRS 9).
Fair value is the price received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This applies regardless of whether the price can be directly observed or has been estimated on the basis of a measurement method. In determining the fair value of an asset or liability, the Group considers certain features of the asset or liability (e.g. condition and location of the asset, or restrictions in the sale and use of an asset) if market participants would also consider such features in determining the price for the acquisition of the respective asset or for the transfer of the liability at the measurement date. Where the market for a financial instrument is not active, fair value is established using a valuation technique or pricing model. For valuation methods and models, estimates are generally used depending on the complexity of the instrument and the availability of market-based data. The inputs to these models are derived from observable market data where possible. Under certain circumstances, valuation adjustments are necessary to account for other factors such as model risk, liquidity risk or credit risk. The valuation models are described in the notes in the section on financial instruments – recognition and measurement. In addition, the fair values of financial instruments are disclosed in the notes under (32) Fair value of financial instruments.
Deferred taxes are not reported separately in the income statement and are disclosed under comprehensive income and in the notes under (12) Income taxes. By contrast, deferred taxes are shown separately in the statement of financial position in the notes under (22) Tax assets and (29) Tax liabilities.
Except for the changes below, RBI has consistently applied the accounting policies to all periods presented in these consolidated financial statements.
Under IAS 17 RBI previously classified leases as operating or finance leases based on its assessment whether the lease transferred significantly all the risk and rewards incidental to ownership of the underlying asset to RBI. The new standard requires lessees to recognize assets and liabilities arising from all leases with terms of more than twelve months in the statement of financial position, unless the underlying asset has a low value. For leases previously classified as operating leases under IAS 17, a lessee recognizes a lease liability measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial application. For leases that were previously accounted for as operating leases in accordance with IAS 17, the exemptions apply if the underlying assets are low-value assets or short-term leases (less than twelve months).
For leases that were classified as finance leases under IAS 17, the carrying amount of the right-of-use asset and lease liability as at 1 January 2019 are determined at the carrying amount of the lease asset and lease liability under IAS 17 immediately before the date. RBI makes use of the exceptions for the recognition of short-term leases and leases of low value. RBI does not apply IFRS 16 for intangible assets.
IFRIC 23 (Uncertainty over Income Tax Treatments; entry into force 1 January 2019)
This interpretation clarifies the accounting for uncertainties in income taxes. The first-time application of the interpretation is not expected to have any impact on the consolidated financial statements of RBI. Additional information can be found in the notes under (12) Income taxes.
Annual improvements to the IFRS Cycle 2015-2017 (effective date: 1 January 2019)
The application of these amendments had no effect on the consolidated financial statements of RBI.
Amendment to IAS 28 (Investments in Associates and Joint Ventures; effective date: 1 January 2019)
The consolidated financial statements of RBI were prepared in euro which is the functional currency of RBI AG. The functional currency is the currency of the principal economic environment in which the company operates. Each entity within the Group determines its own functional currency taking all factors listed in IAS 21 into account.
The decline in the net interest margin was primarily due to negative margin development in Russia, an increase in low-margin business at head office, and the sale of the core banking operations in Poland. In Russia, the net interest margin declined due to lower margins in customer business. A significant share of the 4 per cent increase in average interest-bearing assets is attributable to the increase at head office. This growth stems from low-risk lending origination at lower margins.
Financial assets - fair value through other comprehensive income 14,896 14,398
Net fee and commission income improved € 5,213 thousand year-on-year to € 1,796,503 thousand. Thereby the decrease due to the sale of the Polish core banking operations (down: € 113,339 thousand) was more than offset by growth at head office and in nearly all countries. Excluding the disposal of the Polish core banking operations, the increase would be 7 per cent or € 118,551 thousand.
Excluding the Polish core banking operations, the year-on-year changes were as follows: The largest growth was reported in net income from clearing, settlement and payment services, which increased 11 per cent or € 76,611 thousand to € 756,579 thousand as a result of volume, margin and currency effects. Russia, Hungary and Ukraine reported the largest increases. Net income from loan and guarantee business was also up € 50,406 thousand to € 217,565 thousand, mainly at head office, due to early loan repayments. Net income from foreign exchange business rose € 36,062 thousand to € 374,973 thousand, which mostly reflected margin-related growth in Russia, Hungary and Serbia. Other net fee and commission income was down € 38,034 thousand, largely as a result of a change in disclosure in net fee and commission income in connection with income from insurance
Net gains/losses on financial assets and liabilities - held for trading (331,130) (247,758)
Net trading income was down € 34,055 thousand year-on-year. This was due to negative valuation effects in the item derivatives as a result of the decline in long-term interest rates, which led to interest-rate-induced changes in the valuation of issued certificates (decrease of € 56,540 thousand) and net negative changes in the valuation of derivatives held for economic hedge purposes, among other things for a building society portfolio (decrease of € 28,500 thousand). As these are hedges on the one hand and certificates repayable at maturity on the other, the valuations are neutralized over the portfolio’s term. In the meantime, the building society portfolio was embedded into a hedge accounting relationship whereby the valuation results were largely neutralized from May 2019 onwards. As of September 2019, a reverse economic hedge was concluded regarding the issued certificates.
The deposits held for trading were primarily affected by losses on spot transactions in Russia. The losses were incurred in connection with the hedging of foreign currency transactions with customers; corresponding commission income is included in net fee and commission income. Opposite valuations or realized net gains/losses of the foreign exchange derivatives that are used in this connection and held for economic hedge purposes are included in the derivatives position.
Net gains/losses from hedge accounting increased year-on-year from minus € 11,182 thousand to € 3,166 thousand, mainly as a result of the reclassification through profit and loss relating to the termination of the cash flow hedge reserve in Poland in the previous year. Despite the dynamic interest rate environment, hedging efficiency remains high.
The higher gross positions in fair value changes of the hedging instruments and in fair value changes of the hedged items were attributable to an increased volume of hedging relationships, primarily resulting from the introduction of a portfolio hedge at Raiffeisen Bausparkasse Gesellschaft m.b.H.
Fair value changes of the hedged items attributable to the hedged risk 51,314 11,478
Ineffectiveness of cash flow hedge recognized in profit or loss (11) (13,411)
Gains/losses on derecognition of financial assets and liabilities - not measured at fair value through profit/loss 36,221 25,544
Net rental income from investment property incl. operating lease (real estate) 61,014 57,092
Net expense from allocation and release of other provisions (20,803) 17,784
Legal, advisory and consulting expenses include audit fees in relation to RBI AG and its subsidiaries which comprise expenses for the audit of financial statements amounting to € 5,737 thousand (2018: € 5,928 thousand) and tax advisory as well as other additional consulting services amounting to € 1,631 thousand (2018: € 2,095 thousand). Thereof, € 2,667 thousand (2018: € 2,392 thousand) relates to the Group auditor for the audit of the financial statements and € 767 thousand (2018: € 921 thousand ) relates to the other consulting services.
For property transfer tax in Germany, a provision of € 26,958 thousand was created. This resulted from changes in the ownership structures in previous years. These are related to the merger between Raiffeisen Zentralbank and Raiffeisen Bank International in 2017 and purchases of shares in Raiffeisen Leasing Group in 2012 and 2013.
The allocation to credit-linked provisions for litigation on a portfolio-based calculation amounted to € 83,009 thousand in the reporting year. In Poland, credit-linked and portfolio-based provisions for pending legal issues relating to mortgage loans denominated or linked to foreign currencies of € 48,827 thousand were built. In Croatia, credit-linked and portfolio-based provisions for litigation of € 19,904 thousand related to credit terms (interest rate, foreign currency conversion) were allocated. In Romania, credit-linked and portfolio-based provisions for litigation of € 14,278 thousand regarding proceedings with Consumer Protection Authority related to an alleged misuse of credit terms (interest adjustments) were allocated.
Net income from the disposal of group assets consisted of the following: in € thousand MPREAL BBCNS RFHK KHDKAS Other Total
Net assets after non-controlling interests 20,610 3,063 20,106 (2,006) 9,548 51,321
Usage of provision for assets held for sale 0 0 0 0 (7,128) (7,128)
MPREAL: MP Real Invest a.s., Bratislava (SK) BBCNS: BUILDING BUSINESS CENTER DDO NOVI SAD, Novi Sad (RS) RFHK: RB International Finance (Hong Kong) Ltd, Hong Kong (HK) KHDKAS: KHD a.s., Prague (CZ)
In the reporting period, twelve subsidiaries mainly operating in leasing and real estate business were excluded from the consolidated group due to immateriality; four subsidiaries were sold, one financial institution was shut down.
In the previous year, the result of deconsolidations included the loss resulting from the sale of the Polish core banking operations end of October 2018 amounting to € 119,848 thousand and the related impact of minus € 63,650 thousand derived from the recycling of cumulative currency differences formerly recognized in other comprehensive income. In the reporting period, a remaining receivable related to the sale of the Polish core banking operations of € 5,375 thousand was impaired.
Bank levies affected Austria with a one-off payment of € 40,750 thousand as well as current payments of € 16,330 thousand (2018: € 56,561 thousand in total), Hungary with € 12,708 thousand (2018: € 12,551 thousand), Slovakia with € 23,881 thousand (2018: € 22,268 thousand), Romania with € 9,908 thousand and Poland with € 6,200 thousand (2018: € 24,139 thousand ). In Romania, the bank levy was introduced for the first time in 2019. The sale of the core banking operations was responsible for the reduction in Poland.
Loan commitments, financial guarantees and other commitments given (41,891) 3,571 hereof financial assets - fair value through other comprehensive income 397 (1,727)
Impairment losses on financial assets rose year-on-year a total of 41 per cent, or € 68,297 thousand, to € 233,974 thousand. The largest increases were registered in loans to non-financial corporations (up € 54,439 thousand) and in loan commitments, financial guarantees and other commitments (up € 45,463 thousand). On the other hand, a decline of € 28,622 thousand in loans to households was reported.
The effective tax rate increased 2.5 percentage points to 22.8 per cent. This was due on the one hand to the lower profit contribution from head office and on the other hand to the impairment of deferred taxes in Poland.
The following reconciliation shows the relationship between profit/loss before tax and the effective tax burden: Profit/loss before tax 1,766,786 1,753,331
Theoretical income tax expense in the financial year based on the domestic income tax rate of 25 per cent (441,697) (438,333)
(14) Financial assets – amortized cost 2019 2018 in € thousand Gross carrying amount Accumulated impairment Carrying amount Carrying amount
The carrying amount of financial assets – amortized cost increased € 11,529,285 thousand compared to year-end 2018. The increase was largely the result of higher loans and advances to households (up € 3,546,308 thousand) and non-financial corporations (up € 3,295,456 thousand). Short-term lending in the form of repurchase agreements with other financial corporations and other short-term financing business increased € 4,687,522 thousand year-on-year.
The growth was distributed across nearly all the markets. In Russia, lending business increased € 3,351,675 thousand, particularly with non-financial corporations and households. Roughly half of this was currency-driven. Debt securities issued by the Russia central bank increased € 1,442,951 thousand. The increase of € 1,475,616 thousand at head office for non-financial corporations was primarily driven by project finance, export finance and standard loans. Slovakia recorded an increase of € 1,246,902 thousand that was largely fueled by organic growth in the lending business.
(15) Financial assets – fair value through other comprehensive income 2019 2018 in € thousand Gross carrying amount1 Accumulated impairment Carrying amount Carrying amount 1 Gross carrying amount is defined according to FINREP Annex V 1.34(b).
The item equity instruments in financial assets – fair value through other comprehensive income comprised the following items: Visa Inc., San Francisco (US), Class C Common Stock and Series C Preferred Shares 71,061 36,797
Medicur - Holding Gesellschaft m.b.H., Vienna (AT), company shares 21,590 19,977
Valida Pension AG, Vienna (AT) Investment fund - VANL7 (AT0000A1G4LG) − 19,777
DZ BANK AG, Frankfurt am Main (DE), Deutsche Zentral-Genossenschaftsbank ordinary shares 12,816 12,953
PSA Payment Services Austria GmbH, Vienna (AT), company shares 9,260 10,933
The change resulted mainly from the sale of the investment funds of Valida Pension AG. The dividends paid on equity instruments – fair value through other comprehensive income amounted to € 14,974 thousand (2018: € 14,398 thousand).
Non-financial corporations 83,048 145,096 1 Previous-year figures adjusted due to change in classification
The decline in the item financial assets – designated fair value through profit/loss resulted from reducing holdings at head office in favour of deposit funds with the European Central Bank.
The largest change in the item households relates to a government-subsidized lending program in Hungary for young families. There were also bond purchases in Russia and at Raiffeisen Bausparkasse GmbH. Some assets in this item were reclassified between debt securities and equity instruments.
Positive fair values of derivatives in micro fair value hedge decreased € 79,683 thousand to € 278,154 thousand (2018: € 357,837 thousand). The decrease is largely due to interest rate contracts at head office.
The carrying amount of the item fair value adjustments of the hedged items in portfolio hedge of interest rate risk changed by € 38,576 thousand, from minus € 43,485 thousand at year-end 2018 to minus € 4,909 thousand. The development mainly resulted from the implementation of a portfolio fair value hedge at Raiffeisen Bausparkasse Gesellschaft m.b.H.
Österreichische Hotel- und Tourismusbank Gesellschaft m.b.H., Vienna (AT) 31.3% 10,980 10,278
Financial information on associates valued at equity is as follows: 2019 in € thousand CCSB EMCOM LLI1 NTB OeKB OEHT
Group's interest in net assets of investee as at 31/12 13,631 7,289 149,750 10,756 64,237 10,980 1 Consolidated financial statements: Profit and equity is after deduction of non-controlling interests. CCSB: card complete Service Bank AG, Vienna (AT) EMCOM: EMCOM Beteiligungs GmbH, Vienna (AT) LLI: LEIPNIK-LUNDENBURGER INVEST Beteiligungs Aktiengesellschaft, Vienna (AT) NTB: NOTARTREUHANDBANK AG, Vienna (AT) OeKB: Oesterreichische Kontrollbank Aktiengesellschaft, Vienna (AT) OEHT: Österreichische Hotel- und Tourismusbank Gesellschaft m.b.H., Vienna (AT)
Group's interest in net assets of investee as at 31/12 25,043 83,933 183,272 13,236 374,607 1 Consolidated financial statements: Profit and equity is after deduction of non-controlling interests. 2 Figures as at 30 September 2019 because UNIQA is a listed company and has not yet published its full 2019 consolidated financial statements. Fair value of the shares held and based on stock exchange price as at 31 December 2019 amounted to € 305,557 thousand (2018: € 264,065 thousand). POSO: Posojilnica Bank eGen, Klagenfurt (AT) PSS: Prva stavebna sporitelna a.s., Bratislava (SK) RIZ: Raiffeisen Informatik GmbH & Co KG, Vienna (AT) R-Leasing: Raiffeisen-Leasing Management GmbH, Vienna (AT) UNIQA: UNIQA Insurance Group AG, Vienna (AT)
Raiffeisen Bank International | Annual Report 2019 2019 UNIQA1, 2 in € thousand POSO PSS RIZ1 R-Leasing 30/9/2019
Group's interest in net assets of investee as at 1/1 25,712 79,099 51,609 13,123 332,524
Land and buildings used by the group for own purpose 609,291 571,227
Change in consolidated group Exchange differences Additions Disposals Transfers As at 31/12/2019
Office furniture, equipment and other tangible fixed assets 919,157 (3,917) 38,611 137,196 (88,307) 10,140 1,012,881
Other leased assets (operating lease) 278,764 0 (1,199) 43,068 (33,986) (57,894) 228,752
Other leased assets (operating lease) 315,235 (18,694) 391 41,252 (101,713) 42,294 278,764
Office furniture, equipment and other tangible fixed assets (643,940) 0 (72,202) 275,217
The following overview shows the development of the carrying amount of goodwill, gross amounts and cumulative impairments of goodwill by cash generating units.
Accumulated impairment1 0 0 (379,324) (379,324) 1 Calculated with average exchange rates RBCZ: Raiffeisenbank a.s., Prague (CZ) RKAG: Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Vienna (AT)
The addition to the goodwill of Raiffeisen Kapitalanlage-Gesellschaft m.b.H. resulted from the acquisition of the fund management assets of Raiffeisen Salzburg Invest Kapitalanlage GmbH.
Accumulated impairment1 0 0 (343,013) (343,013) 1 Calculated with average exchange rates RBCZ: Raiffeisenbank a.s., Prague (CZ) RKAG: Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Vienna (AT)
The calculation of the recoverable amount is based on a five-year detailed planning period. The sustainable future growth (stabilization phase) is based on the premise of perpetuity (perpetual annuity); in the majority of cases country nominal growth rates of earnings are assumed, which are based on the long-term expected rate of inflation. For companies that have a significant overcapitalization an interim period of five years is defined, but without extending the detailed planning phase. Within this period, it is possible for these CGUs to make full payments without violating the capital adequacy requirements. In the stabilization phase,
profit retention relating to growth while ensuring compliance with capital requirements is imperative. If, however, zero growth is assumed in the stabilization phase, no profit retention is required.
RBCZ The Czech Republic is a core market for the Group where a selective growth strategy is pursued. An improvement in results is assumed due to higher volumes in deposits and consumer lending with costs remaining stable.
The assumptions are based on internal and external sources. Macroeconomic assumptions of the research department were compared with external data sources and the 5-year plan, presented to the Management Board and approved by the Supervisory Board.
The planning assumptions are based on internal and external sources. Macroeconomic assumptions were compared with external data sources and the five-year plan and then presented to the company’s managers. The plan was approved by the Supervisory Board.
An improvement in results is assumed due to projected increases in volume and asset allocation while taking account of income and risk expectations.
A sensitivity analysis was carried out based on the above-mentioned assumptions in order to evaluate the stability of the results of the impairment test for goodwill. From a number of options for this analysis, two relevant 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).
Key assumptions that have been made for the individual cash generating units: 2019 2018 Cash generating units RBCZ RKAG RBCZ RKAG
The risk premium is calculated as the market risk premium that varies according to the country in which the unit is registered multiplied by the beta factor for the indebted company. The values for the risk-free interest rate and the market risk premium are defined using accessible external market data sources. The risk measure beta factor is derived from a peer group of financial institutions operating in Western and Eastern Europe. The above-mentioned interest rate parameters represent market assessments; therefore they are not stable and could in the event of a change affect the discount rates.
Reduction of the growth rate in phase III − − − (0.5) PP RBCZ: Raiffeisenbank a.s., Prague (CZ) RKAG: Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Vienna (AT)
The brand value of Raiffeisen Bank Aval JSC, Kiev, was determined using the comparable historical cost approach, because neither directly 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 2019, the impairment test led to no impairment.
The Group capitalized customer relationship intangibles in relation to Raiffeisen Bank Aval JSC, Kiev, in an amount of € 2,720 thousand (2018: € 7,596 thousand). The customer relationships of Raiffeisenbank a.s., Prague, of € 4,555 thousand were still included in the previous year but were fully impaired in the reporting period due to inadequate cross-selling opportunities in the transferred customer base.
Financial assets - fair value through other comprehensive income 26,619 11,089
In the consolidated financial statements, deferred tax assets are recognized for unused tax loss carry forwards which amounted to € 16,664 thousand (2018: € 20,388 thousand). The tax loss carry forwards are mainly without any time limit. The Group did not recognize deferred tax assets from tax loss carry forwards of € 595,563 thousand (2018: € 519,281 thousand) because from a current point of view there is no prospect of realizing them within a reasonable period of time.
Net deferred taxes were derived from the following items: Financial assets - amortized cost 76,684 68,695
Non-current assets and disposal groups classified as held for sale mainly consisted of one property owned by Raiffeisen Immobilienfonds, Vienna, amounting to € 14,805 thousand (2018: € 49,602 thousand).
The following table provides a breakdown of deposits from banks and customers by product and a breakdown of debt securities issued: Deposits from banks 23,582,454 23,959,843
Other financial liabilities 491,814 524,268 hereof subordinated financial liabilities 2,725,517 2,765,225
The situation was more complex for deposits with agreed maturity from customers. In this case, large increases at head office (up € 1,942,093 thousand) and in Russia (up € 1,585,104 thousand) and the Czech Republic (up € 594,040 thousand) were offset by declines in Romania (down € 531,118 thousand), Bosnia and Herzegovina (down € 265,865 thousand), Hungary (down € 186,651 thousand) and Croatia (down € 243,128 thousand). The increase in Russia was driven by both volumes and exchange rate effects. Overall, other financial corporations in particular preferred this type of deposit. This reporting period marks the first time that deposits with agreed maturity from customers contain lease liabilities of € 451,743 thousand pursuant to IFRS 16.
Other debt securities issued 1,514,704 1,495,888 hereof convertible compound financial instruments 9,828 10,343 hereof non-convertible 1,504,876 1,485,545 hereof subordinated financial liabilities 405,206 385,576
The difference between the current fair value of these designated liabilities and the amount contractually required to be paid at maturity amounted to minus € 395,118 thousand (2018: minus € 405,643 thousand). There have been no significant transfers within equity or derecognition of liabilities designated at fair value in the reporting period.
Fair value adjustments of the hedged items in portfolio hedge of interest rate risk (35,616) (62,274)
Negative fair values of derivatives in portfolio hedge amounted to € 230,576 thousand (2018: € 127,018 thousand). The increase is largely due to the implementation of a portfolio hedge at Raiffeisen Bausparkasse Gesellschaft m.b.H.
A provision of € 26,958 thousand for pending legal issues and tax litigation was allocated for German property transfer tax, which resulted from corporate reorganizations in previous years. They related to the merger of Raiffeisen Zentralbank and Raiffeisen Bank International in 2017 and to purchases of shares in Raiffeisen Leasing Group in 2012 and 2013.
The Group is involved in litigation arising from the undertaking of banking business, but does not expect that these legal cases will have a material impact on the financial position of the Group. Group-wide provisions for pending legal issues amounted to € 222,115 thousand (2018: € 88,777 thousand). The change was mainly driven by credit-linked provisions on a portfolio basis related to consumer mortgage loans that are denominated in or indexed to a foreign currency. A provision of € 49,336 thousand was recognized in Poland. In addition, a provision of € 10,016 thousand was recognized in Romania in connection with state subsidies for building society savings. A provision of € 14,160 thousand was recognized for proceedings involving the consumer protection authority in Romania. Another provision of € 21,221 thousand was recognized for individual cases in Croatia.
Provisions for off-balance sheet items 176 0 431 (173) 0 (35) 399
Other commitments and guarantees according to IAS 37 176 0 431 (173) 0 (35) 399
The Group expects to pay € 394 thousand in contributions to its defined benefit plans in 2020. In the financial year 2019, the Group’s contribution to defined benefit plans was € 481 thousand.
Plan assets developed as follows: Plan assets as at 1/1 45,534 51,156
Plan assets comprised the following items: in per cent 2019 2018
The pension provider Valida Pension AG has established an asset/risk management process (ARM process). According to this process, the risk-bearing capacity of each fund is evaluated once a year based on the liability structure of investment and risk associations, which itself is derived from the statement of financial position. Based on this risk-bearing capacity, the investment structure of the fund is derived. When determining the investment structure, defined and documented customer requirements are taken into account.
The following table shows the actuarial assumptions used to calculate the net defined benefit obligation: in per cent 2019 2018
The weighted average duration of the net defined benefit obligation was 13.4 years (2018: 13.0 years).
Future pension increase (0.25 per cent change) 4,363 (4,213) 3,974 (3,824)
Deferred income and accrued expenses 439,778 335,059 hereof consolidated profit/loss 1,227,035 1,269,838
As at 31 December 2019, the subscribed capital of RBI AG as defined by the articles of incorporation amounted to € 1,003,266 thousand and the subscribed capital consisted of 328,939,621 non-par bearer shares. After deduction of own shares of 322,204, the stated subscribed capital totaled € 1,002,283 thousand.
The Annual General Meeting held on 21 June 2018 authorized the Management Board pursuant to Section 65 (1) item 8, Section 65 (1a) and Section 65 (1b) of the Austrian Stock Corporation Act (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 20 December 2020. 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.
The Management Board was further authorized, pursuant to Section 65 (1b) of the AktG, to decide, with the approval of the Supervisory Board, on the sale of own shares by means other than the stock exchange or a public tender, to the full or partial exclusion of shareholders' subscription rights, and to stipulate the terms of sale. Shareholders' subscription rights may only be excluded if the own shares are used to pay for a contribution in kind to acquire enterprises, businesses, operations or stakes in one or several companies in Austria or abroad. This authorization may be exercised in whole, in part or in several partial amounts for one or more purposes by the company, a subsidiary (Section 189a (7) UGB) or by third parties for the account of the company or a subsidiary and remains in force for five years from the date of this resolution i.e. until 20 June 2023.
Since the authorization in June 2018, no own shares have been purchased or sold.
On 5 July 2017, RBI AG issued perpetual additional tier 1 capital (AT1) with a nominal value of € 650,000 thousand. The interest rate is 6.125 per cent p.a. until December 2022 and will be reset thereafter. RBI placed another issue of perpetual additional tier 1 capital (AT1) with a volume of € 500,000 thousand on 24 January 2018. The discretionary coupon on this issue is 4.5 per cent p.a. until mid-June 2025, after which it will be reset. Due to the terms and conditions of issue, the additional tier 1 capital is classified as equity under IAS 32. Own shares, which have a carrying amount of € 4,371 thousand, were also deducted from the capital.
The Management Board of RBI AG will propose to the Annual General Meeting to pay a dividend of € 1.00 per share from the net profit shown in the 2019 annual financial statements. The total dividend paid based on shares issued would be no more than € 328,940 thousand.
In the Group, well-known conventional market valuation techniques are used to measure OTC derivatives. For example, interest rate swaps, cross currency swaps and forward rate agreements are measured using the customary discounted cash flow model for these products. OTC options, such as foreign exchange options or caps and floors, are based on valuation models which are in line with market standards. In the case of the examples listed, such models would be the Garman-Kohlhagen model, BlackScholes 1972 and Black 1976. Monte Carlo simulations are used to measure complex options.
Assigning certain financial instruments to the level categories requires regular assessment, especially if measurement is based on both observable parameters and also parameters which are not observable on the market. The classification of an instrument can also change over time to take account of changes in market liquidity and thus price transparency.
For OTC derivatives, credit value adjustments (CVA) and debit value adjustments (DVA) are used to cover expected credit losses. The CVA will depend on the expected future exposure (expected positive exposure) and the probability of default of the contractual partner. The DVA is determined on the basis of the expected negative exposure and on RBI's credit quality. The expected positive exposure is calculated by simulating a large number of scenarios for future points in time, taking into account all available risk factors (e.g. currency and yield curves). OTC derivatives are measured at market values taking into account these scenarios at the respective future points in time and are aggregated at counterparty level in order to then ascertain the expected positive exposure for all points in time. Counterparties with CSA contracts (credit support annex contracts) are taken into account in the calculation. The expected exposures are not calculated directly from simulated market values, but from a future expected change in market values based on a margin period of risk of ten days.
Financial assets - held for trading 1,910,478 2,271,806 88 1,614,690 2,278,821 98
Hedge accounting 0 402,064 0 0 500,687 0 1 Previous-year figures adjusted due to change in classification
An examination is carried out for each financial instrument to determine whether quoted market prices are available on an active market (Level I). For financial instruments with unquoted market prices, observable market data such as yield curves are used to calculate fair value (Level II). A reclassification takes place if this assessment changes.
Assets 2019 2018 in € thousand Level I Level II Level III Level I1 Level II Level III
Financial assets - designated fair value through profit/loss 2,231,152 44,675 6 3,135,148 56,915 53
Financial liabilities - held for trading 404,913 5,376,631 7,268 344,090 4,756,829 916
Financial assets - held for trading 98 0 2 64,516 (64,533)
Financial assets - fair value through other comprehensive income 210,003 0 2,656 5,495 (37,138)
Financial assets - held for trading 5 0 0 0 88
Financial assets - designated fair value through profit/loss (8) 0 0 0 6
Financial assets - fair value through other comprehensive income 4,493 2,264 0 (262) 187,512
Financial liabilities - held for trading 916 0 4 3,518 (700)
Mortgage bonds/fixed coupon bonds and floating rate notes 42,396 Discounted cash flow method
Financial assets 2019 Carrying amount Fair value changes in € thousand Level III Positive Negative
2019 Carrying amount Fair value changes in € thousand Level III Positive Negative
2019 in € thousand Level I Level II Level III Fair value Carrying amount Difference
Raiffeisen Bank International | Annual Report 2019 2019 in € thousand Level I Level II Level III Fair value Carrying amount Difference
Cash, cash balances at central banks and other demand deposits 0 22,557,484 0 22,557,484 22,557,484 0
Other financial liabilities 0 0 510,743 510,743 524,268 (12,243) 1 Previous-year figures adjusted (Fair value – Level III) Level I Quoted market prices Level II Valuation techniques based on market data Level III Valuation techniques not based on market data
The following table shows the gross carrying amount of financial assets – fair value through other comprehensive income, excluding equity instruments, by rating category and stages: 2019 Stage 1 Stage 2 Stage 3 Total in € thousand 12 month ECL Lifetime ECL Lifetime ECL
The following table shows the nominal values of off-balance-sheet commitments by rating category and stages: 2019 Stage 1 Stage 2 Stage 3 Total in € thousand 12 month ECL Lifetime ECL Lifetime ECL
Provisions for off-balance sheet items according to IFRS 9 (36,638) (32,253) (56,860) (125,750)
Financial assets - fair value through other comprehensive income2 0 6,216,922 0
Loan commitments, financial guarantees and other commitments 0 41,145,004 41,145,004 1 Previous-year figures adjusted due to changed allocation 2 The gross carrying amount follows the definition under FINREP in Annex V 1.34(b).
RBI Group’s policies regarding obtaining collateral have not been significantly changed during the reporting period; however, they are updated on a yearly basis.
IFRS 9 prescribes a three-stage model for impairment based on changes in credit quality from the point of initial recognition. Under this model, a financial instrument that is not credit-impaired on initial recognition is classified in Stage 1 and has its credit risk continuously monitored. If a significant increase in credit risk since initial recognition is identified, the financial instrument is moved to Stage 2 but is not yet deemed to be credit-impaired. If the financial instrument is deemed credit-impaired, it is then moved to Stage 3.
For non-retail risk to make the two curves comparable the PDs are scaled down to annualized PDs. A significant increase in credit risk is considered to have occurred if the PD increase was 250 per cent or greater. For longer maturities the threshold of 250 per cent is reduced to account for a maturity effect.
The assessment of a significant increase in credit risk incorporates forward-looking information and is performed on a quarterly basis at an individual transaction level for all sovereign, bank, corporate customer and project finance portfolios held by RBI.
In 2016, the European Banking Authority published guidelines on the definition of default (EBA/GL/2016/07), which include a long list of clarifications and changes to indications of default, materiality thresholds and related topics such as criteria regarding the past due status, indications of insolvency, and criteria regarding cure rates and restructuring. The new definition of default leads to material changes to the IRB approach, which forces banks to adjust their models. These adjustments must be approved by the competent regulators prior to implementation (Delegated Regulation EU 529/2014).
The definition of default used to calculate expected credit losses is the same definition of default used for internal credit risk management practices. Default is assessed by referring to quantitative and qualitative triggers. Firstly, a borrower is considered to be defaulted if they are assessed to be more than 90 days past due on a material credit obligation. No attempt is made to rebut the presumption that financial assets which are more than 90 days past due are to be shown in Stage 3. Secondly, a borrower is considered to be defaulted if they meet the unlikeliness to pay criteria, which indicate that the borrower is in significant financial difficulty and unlikely to repay any credit obligation in full. The default definition has been applied consistently to model the Probability of Default (PD), Exposure at Default (EAD) and Loss given Default (LGD) throughout RBI’s expected loss calculations. A credit obligation is considered to no longer be in default after a probation period of minimum three months (six months after a distressed restructuring in retail), where during the probation period the customer demonstrated good payment discipline and no other indication of unlikeliness to pay was observed. Two effects which arise as a result of the new default definition will be seen in profit and loss. The first is an increase or decrease in ECL provisions coming from the stage redistribution, in particular the change in Stage 3 volumes. The second is a decrease or increase in ECL provisions coming from the adjustments of the Stage 1 and 2 models as a result of the new default rates. Due to the nature of the changes there will not be full counterbalancing of the first effect with the second effect. Increased ECL provision effects occur as a result of a stricter days past due count, the pulling effect leading to cross default, and longer probation periods. Decreased ECL provisions will mainly come about as a result of the abolition of the absorption status, as the previously applied regime of absorption status prevented the accounts from exiting default status if they have ever reached more than 180 days past due. As the new models are at varying stages of adjustment and authorization by regulators the effects of the change will be seen over the next several quarters in the consolidated profit/loss. In the reporting period the effect from the harmonization of the default definitions amounted to expenses of € 73,538 thousand especially in the Czech Republic and Romania. In accordance with IAS 8, this represents a change of estimate which must be applied in the future and thus fully recognized in profit or loss.
The probability of default represents the likelihood of a borrower defaulting on its financial obligation either over the next twelve months or over the remaining lifetime of the obligation. In general the lifetime probability of default is calculated using the regulatory twelve-month probability of default, stripped of any margin of conservatism, as a starting point. Thereafter various statistical methods are used to generate an estimate of how the default profile will develop from the point of initial recognition throughout the lifetime of the loan or portfolio of loans. The profile is based on historical observed data and parametric functions.
 Retail mortgages: Stage 3 provision is generated for the majority of group units by calculating the statistically derived best estimate of expected loss which has been adjusted for indirect costs.
In addition to the base economic scenario, Raiffeisen Research also estimates an optimistic and a pessimistic scenario to ensure non-linearities are captured. RBI has concluded that three or fewer scenarios appropriately capture non-linearity. Expert judgment on idiosyncratic risks has also been applied in this process on the level of Raiffeisen Research in coordination with RBI Group risk management, resulting in selective adjustments to the to the optimistic and pessimistic scenarios. In case of a potential negative or positive forecast bias of selected macroeconomic indicators a potential bias correction might be performed on a single country level. In this respect the range of possible outcomes which is representative for each chosen scenario is taken into account. The probability-weighted expected credit losses are determined by running each scenario through the relevant expected credit loss (ECL) model and multiplying it by the appropriate scenario weighting.
As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected. RBI considers these forecasts to represent its best estimate of the future outcomes and cover any potential non-linearities and asymmetries within RBI’s different portfolios.
The weightings assigned to each scenario at the end of the reporting year end are as follows: 25 per cent optimistic, 50 per cent base and 25 per cent pessimistic scenarios.
The table below shows the impact of staging on RBI's accumulated impairment for financial assets by comparing the reported amounts accumulated for all performing assets subject to impairment with the special case where all accumulated impairment is measured based on lifetime expected losses (Stage 2). As no complete historical data on stage transfers during credit cycles is available, it is currently not possible to estimate what a reasonable increase would be. However we do not expect the percentage of Stage 2 assets to ever reach 100 per cent. This information is provided for illustrative purposes.
100% Performing loans in Stage 2 Impact of Staging 31/12/2018 (25/50/25%)
2018 Gross carrying amount Accumulated impairment ECL Coverage Ratio in € thousand Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 1 Austria mainly includes the business of the head office and Raiffeisen Bausparkasse. Other also includes any consolidation effects.
Provisions for off-balance sheet items according to IFRS 9 ECL Coverage Ratio in € thousand Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 2018 Nominal amount
Stage 1 amounts include assets in the amount of € 10,034,042 thousand (2018: € 9,789,961 thousand), for which the low credit risk exemption has been used. Furthermore, Stage 2 and Stage 3 contain purchased or originated credit-impaired assets (POCI) in the amount of € 347,010 thousand (2018: € 305,197 thousand). RBI has financial instruments in the amount of € 1,229,826 thousand (2018: € 3,521,864 thousand) with no expected credit losses due to collateral.
For further information on the concentration risk by industry classification and foreign currency position, reference is made to the risk report.
Provisions for off-balance sheet items according to IFRS 9 ECL Coverage Ratio in € thousand Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Movement from lifetime ECL to 12 month ECL 1,782,336 (1,782,336) 46,138 (98,205) 2.6% 5.5%
The following table shows the development of provisions for loan commitments, financial guarantees and other commitments given: 2019 Stage 1 Stage 2 Stage 3 Total in € thousand 12 month ECL Lifetime ECL Lifetime ECL
The similar agreements include derivative clearing agreements, global master repurchase agreements, and global master securities lending agreements. Similar financial instruments include derivatives, sales and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and lending agreements.
2019 in € thousand Stage 1 Stage 2 Stage 3 Total
Gross carrying amount of modified assets as at 31/12, which moved to Stage 1 during the year − 0 0 0
Amounts from global netting agreements Net amount in € thousand recognized financial assets recognized financial liabilities set-off recognized financial assets Financial instruments Cash collateral received
Repurchase, securities lending and similar agreements (legally enforceable) 7,827,285 0 7,827,285 7,786,627 0 40,658 2018 Gross amount Net amount
Amounts from global netting agreements Net amount in € thousand recognized financial liabilities recognized financial assets set-off recognized financial liabilities Financial instruments Cash collateral received
Reverse repurchase, securities lending and similar agreements (legally enforceable) 822,991 0 822,991 799,464 0 23,527
The table below shows the carrying amounts of financial assets transferred: 2019 Transferred assets Associated liabilities in € thousand Carrying amount hereof securitizations hereof repurchase agreements Carrying amount hereof securitizations hereof repurchase agreements
Financial assets - designated fair value through profit/loss 0 0 0 0 0 0
Non-trading financial assets - mandatorily fair value through profit/loss 1,572 0 753 0
(46) Derivative financial instruments 2019 Nominal amount Fair values in € thousand Positive Negative
RBI applies various types of hedge accounting with the aim of reducing interest rate risk and volatility in the income statement. Depending on the risk to be hedged, both fair value and cash flow hedge accounting are used. Both types may be modeled at the micro level and in portfolios. A further type of hedge accounting hedges the net investment risk against fluctuations in the rate of the Russian ruble and Romanian Leu.
Under the rules of IAS 39, which the Group decided to continue to apply, various financial instruments are used as underlying transactions for fair value and cash flow hedges. The majority of these instruments are loans and advances on the asset side and deposits on the liability side. Bonds and debt securities issued are further positions incorporated into hedge accounting relationships. Interest rate and exchange rate agreements are the main hedging instruments.
The following table shows details of the underlying transactions for fair value hedges: 2019 Carrying amount of the hedged items
The following table shows details of the cash flow hedges: Change in the value of the hedging instruments recognized in other comprehensive income
In the second quarter of 2018, the sale of the Polish core banking operations resulted in the termination of the existing portfolio cash flow hedges, which had hedged foreign currency loans and local currency deposits against cash flow fluctuations by means of foreign currency interest rate swaps. This one-off effect of minus € 13,417 thousand is included in the ineffectiveness of hedging instruments recognized in profit or loss.
All these aspects are coordinated by the Group Compliance division, which analyzes the internal control system on an ongoing basis and – if actions are necessary to address any deficiencies – is also responsible for tracking their implementation.
The Risk Appetite Framework (RAF) limits the Group’s overall risk in accordance with the Group’s strategic business objectives and allocates the risk capital calculated to the different risk categories and business areas. The primary aim of the RAF is to limit risk, particularly in adverse scenarios and for major singular risks in such a way as to ensure compliance with regulatory minimum ratios.
The Group Operational Risk Management & Controls 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 managing the Group’s operational risk (including conduct risk). It derives and sets the operational risk strategy based on the risk profile and the business strategy and makes decisions regarding actions, controls and risk acceptance.
Two very important functions in assuring independent oversight are performed by the divisions Audit and Compliance. Independent internal auditing is a legal requirement and a central pillar of the internal control system. Internal Audit periodically assesses all business processes and contributes considerably to securing and improving them. It sends its reports directly to the Management Board, which discusses them on a regular basis in its board meetings.
Moreover, an independent and objective audit, free of potential conflicts of interest, is carried out during the audit of the annual financial statements by the independent auditors. Finally, the Group is continuously supervised by the European Central Bank, the Austrian Financial Market Authority and by the local supervisor in those countries where the Group is represented by branches or subsidiaries.
The Risk Appetite Framework is, therefore, closely linked with the ICAAP and the ILAAP (Internal Liquidity Adequacy Assessment Process) and sets the concentration risk limits for the risk types identified as significant in the risk assessment. There is also a connection to the recovery plan as the risk capacity and risk tolerance limits in the RAF are aligned with the corresponding trigger monitoring limits. 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.
95 per cent, reflecting the owners’ willingness to inject additional equity
Around 95 per cent, based on potential management decisions to reduce risk temporarily or raise additional equity capital
In this approach, risks are measured based on economic capital, which represents a comparable risk indicator across all risk types. Economic capital is calculated as the sum of unexpected losses stemming from different Group units and different risk categories .In addition, a general buffer is held to cover other risk types not explicitly quantified.
Parallel to the economic capital approach, internal capital adequacy is assessed with a focus on the risk taking capacity with regard to regulatory capital and total capital requirements.
The integrated stress test focuses primarily on the tier 1 ratio at the end of the multi-year observation period. It should not fall below a sustainable level, meaning that is should not require the bank to substantially increase capital or to significantly reduce its business activities. The current minimum amount of tier 1 capital is therefore determined by the size of a potential economic downturn. The downturn scenario assumed incorporates recognition of the necessary loan loss provisions and potential pro-cyclical effects (which increase the minimum regulatory capital requirement) along with the impact of foreign exchange rate fluctuations and other valuation and earnings effects. Regulatory changes that are already known are considered for the planning period.
Credit risk is the largest risk for the Group’s business. Credit risk means the risk of suffering financial loss should any of the Group’s customers or counterparties fail to fulfil their contractual obligations to the Group. Credit risk arises mainly from loans and advances to banks, loans and advances to customers, lending commitments and financial guarantees given. The Group is also exposed to other credit risks arising from investments in debt securities and other exposures associated with trading activities, derivatives, settlement agreements and reverse repo transactions.
The detailed credit portfolio analysis shows the breakdown by rating category. Customer rating assessments are performed separately for different asset classes using internal risk classification models (rating and scoring models), which are validated by a central organizational unit. The default probabilities assigned to individual rating grades are calculated separately for each asset class. As a consequence, the default probabilities relating to the same ordinal rating grade are not directly comparable between asset classes.
Non-trading financial assets - mandatorily at fair value through profit / loss 775,937 559,782
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. Tools are used to produce and validate ratings (e.g. business valuation tools, rating and default databases).
The following table shows credit exposure by asset classes (rating models): Credit portfolio – Corporate customers
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 2019 Share 2018 Share 8 Weak credit standing/sub-standard 765,700 0.9% 1,133,628 1.5%
The credit exposure for corporate customers rose compared to year-end 2018 by € 8,469,857 thousand to € 81,951,994 thousand.
6.3 Acceptable project risk profile – average risk 91,268 1.3% 113,598 1.6%
6.4 Poor project risk profile – high risk 82,351 1.1% 102,630 1.5%
At € 89,164,152 thousand, the credit exposure rose € 8,631,720 thousand compared to year-end 2018. The increase in Western Europe of € 4,459,342 thousand to € 21,641,577 thousand resulted from credit and facility financing, swap and repo transactions and documentary credits. Central Europe registered an increase of € 870,127 thousand to € 19,361,427 thousand, which was attributable to facility and credit financing. Rising credit financing and guarantees issued and the appreciation of the Russian ruble and Ukrainian hryvnia were responsible for the increase of € 2,773,245 thousand in Eastern Europe to € 15,626,365 thousand.
The table below provides a breakdown of the credit exposure to corporates and project finance by industry of the original customer: in € thousand 2019 Share 20181 Share
Electricity, gas, steam and hot water supply 3,440,651 3.9% 3,393,234 4.2%
The following table shows the credit exposure to retail customers by internal rating: in € thousand 2019 Share 2018 Share 4.0 Weak credit standing/sub-standard 428,331 1.0% 413,993 1.1%
The credit exposure to retail customers increased € 4,134,903 thousand compared to year-end 2018 to € 42,184,670 thousand. The rating shift between rating grades 0.5 and 1.0 resulted mainly from rating adjustments in the course of the IRB implementation planned at Raiffeisen Bausparkasse, Vienna. In addition, an increase was registered for rating grade 0.5, which was due to an increase in the credit exposure in Romania and Russia (partly due to the appreciation of the Russian ruble). The increase in rating grades 1.5, 2.0 and 2.5 was mainly due to an increase in credit exposure in the Czech Republic, Croatia, Austria, Russia (partly due to the appreciation of the Russian ruble) and Slovakia. The increase in not rated was due to Hungary and to mortgage -backed loans in the Czech Republic.
The total credit exposure to retail customers breaks down by segment as follows: 2019 in € thousand Central Europe Southeastern Europe Eastern Europe Group Corporates & Markets
Retail customers – small and medium-sized entities 1,498,808 798,598 490,513 406,409 2018 in € thousand Central Europe Southeastern Europe Eastern Europe Group Corporates & Markets
in € thousand 2019 Share 2018 Share 8 Weak credit standing/sub-standard 9,019 0.0% 100,827 0.5%
The rating improvement of Belarus and Ukraine was responsible for the decline in rating grade C of € 538,862 thousand to € 2,816 thousand.
The table below shows the credit exposure to banks (excluding central banks) by products: in € thousand 2019 Share 2018 Share
Another asset class is formed by central governments, central banks, and regional municipalities as well as other public sector entities. The table below provides a breakdown of the credit exposure to sovereigns (including central banks) by internal rating: in € thousand 2019 Share 2018 Share
The table below shows the credit exposure to sovereigns (including central banks) by products: in € thousand 2019 Share 2018 Share
The € 356,632 thousand decrease in loans and advances to € 16,088,779 thousand was mainly driven by Austria, Hungary and Romania. The decline was offset by an increase in Russia (partly due to the appreciation of the Russian ruble). The decline of € 525,026 thousand in the bond product group to € 14,349,614 thousand resulted from France, Austria and Germany. The decrease was offset by an increase in Romania and Russia (partly due to an appreciation of the Russian ruble). The decline in the repo products group of € 277,464 thousand to € 3,627,600 thousand was attributable to the Czech Republic. The decrease in the credit exposure to the sovereign sector was compensated for by the increase in money market business in Belarus, the Czech Republic, Hungary and Ukraine (partly due to an appreciation of the Ukrainian hryvna).
The non-investment grade credit exposure to sovereigns mainly comprised deposits of Group units at central banks in Central, Eastern, and Southeastern Europe. The deposits serve to fulfil the respective minimum reserve requirements and act as a vehicle for short-term investment of excess liquidity and are therefore inextricably linked with business activity in these countries.
In 2016, the European Banking Authority published guidelines on the definition of default (EBA/GL/2016/07), which contain a long list of clarifications of and amendments to default indicators, materiality limits and related topics such as criteria on the status of overdue assets, indicators of insolvency, criteria for recovery and restructuring. The new default definition leads to material changes in the IRB approach, forcing banks to adapt their models. These adjustments must be approved by the competent supervisory authorities before implementation (Delegated Regulation EU 529/2014).
RBI implemented the new guidelines in its risk management in 2019. The effects on the total non-performing exposure were insignificant.
The following table shows non-performing exposures pursuant to the applicable definition contained in the Implementing Technical Standard (ITS) on Supervisory Reporting (Forbearance and non-performing exposures) issued by the EBA. It includes the defaulted exposures.
The following table shows the share of non-performing exposure (NPE) by segments (excluding items off the statement of financial position): NPE NPE ratio NPE coverage ratio in € thousand 2019 2018 2019 2018 2019 2018
Starting with the first quarter of 2019, the following table shows the non-performing exposure with restructuring measures. The previous year's values which included the forborne exposures have therefore been adjusted.
The portfolio with accompanying restructuring measures reduced further in 2019, notably due to the continuing recovery of the relevant customers.
Country risk includes transfer and convertibility risk as well as political risk. It arises from cross-border transactions and direct investments in foreign countries. The Group is exposed to country risk due to its business activities in the Central and Eastern European markets, where political and economic risks continue to be seen as relatively significant in some cases. Active country risk management in the Group is based on the country risk policy set by the Management Board. This policy is part of the credit portfolio limit system and sets a strict limitation on cross-border risk exposure to individual countries in order to avoid risk concentrations. The Group’s business units must therefore submit limit applications for the respective countries with regard to all cross-border transactions as part of their day-to-day operations, in addition to complying with customer-specific limits.
The absolute limits for individual countries are set using a model that takes the internal rating for the sovereign, the size of the country, and the Group’s own capitalization into account.
Credit exposure across all asset classes increased € 14,785,329 thousand compared to year-end 2018 to € 189,083,851 thousand.
In Central Europe the increase of € 2,291,866 thousand to € 50,670,481 thousand was mainly attributable to the Czech Republic and Slovakia. In the Czech Republic, retail business, the Czech Republic bond portfolio, money market transactions and credit financing increased. The increase was offset by a decline in repo transactions. In Slovakia, there was an increase in the minimum reserve at the Slovakian National Bank, as well as guarantees issued and overdrafts. Austria registered a decline of € 1,302,616 thousand to € 38,380,850 thousand. This was due to a reduction of the Republic of Austria’s bond portfolio, deposits with the Austrian National Bank and repo transactions. On the other hand, facility financing in Austria increased. The largest increase of € 6,032,270 thousand to € 32,836,745 thousand in the rest of the European Union was due to facility financing in Germany and Spain, credit financing in Luxembourg, Great Britain and Germany, repo transactions in Germany, Spain and Great Britain and swap transactions in Great Britain. Rising mortgage loans, personal loans and facility financing in Bulgaria and Croatia and SME financing in Bulgaria were responsible for the increase of € 2,061,983 thousand in Southeastern Europe to € 30,496,962 thousand. There was also an increase in facility and credit financing and in the bond portfolio in Serbia. The increase of € 4,776,149 thousand to € 27,455,469 thousand in Eastern Europe was the result of the appreciation of the Russian ruble and the Ukrainian hryvnia. Credit financing, guarantees issued and retail business also increased in Russia.
Electricity, gas, steam and hot water supply 3,684,371 1.9% 3,621,589 2.1%
The following table shows the Group’s credit exposure based on original customer’s industry classification: in € thousand 2019 Share 20181 Share
Extraction of crude petroleum and natural gas 1,103,217 0.6% 493,571 0.3%
Market risks from the customer divisions are transferred to the Treasury division using the transfer price method. Treasury is responsible for managing structural market risks and for complying with the Group’s overall limit. The Capital Markets division is responsible for proprietary trading, market making, and customer business in money market and capital market products.
The Group uses a comprehensive risk management approach for both the trading and the banking book (total-return approach). Market risk is therefore managed consistently in all trading and banking books. The following indicators are measured and limited on a daily basis in the market risk management system:  Value-at-Risk (VaR) – confidence level 99 per cent, risk horizon one day Value-at-Risk is the main market risk steering instrument in liquid markets and normal market situations. VaR is measured based on a hybrid simulation approach in which 5,000 scenarios are calculated for the regulatory trading book and 1,000 scenarios for the banking book. The approach combines the advantages of a historical simulation and a Monte Carlo simulation and derives market parameters from 500 days of historical data. Distribution assumptions include modern features such as volatility declustering and random time changes, which helps in accurately reproducing fat-tailed and asymmetric distributions. The Austrian Financial Market Authority has approved the VaR model for use in calculating the total capital requirement for market risk. Value-at-risk results are not only used for limiting risk but also in the allocation of economic capital, for which longer time series of seven years are used for interest rate risk.
The following tables show the VaR (99 per cent, 1 day) for the individual market risk categories in the trading book and the banking book. The Group’s VaR mainly results from structural equity positions, structural interest rate risk, and credit spread risks of bonds, which are held as liquidity buffer.
 Sensitivities (to changes in exchange rates and interest rates, gamma, vega, equity and commodity prices) Sensitivity limits are to ensure that concentrations are avoided in normal market situations and are the main steering instrument under extreme market situations and in illiquid markets or in markets that are structurally difficult to measure.
Strategic hedge positions at head office led to a change in VaR and hypothetical profit and loss due to a forthcoming decision by the European Court of Justice regarding Swiss franc loans in Poland. These positions were closed within a few days.
January February March April May June July August September October November December hypothetical profi t and loss VaR
The Group holds material equity participations located outside of the euro area with equity denominated in the corresponding local currency. Also, a significant share of risk-weighted assets in the Group is denominated in foreign currencies. Changes in foreign exchange rates thus lead to changes in the consolidated capital of the Group and to changes in the total capital requirement for credit risk as well.
The following table shows all material open foreign exchange rate positions as at 31 December 2019 and the corresponding values for the previous year. The numbers include both trading positions as well as capital positions of the subsidiaries with foreign currency denominated statements of financial position.
The 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 2019 and 31 December 2018.
The following table shows the change in the present value of the Group’s banking book given a one-basis-point interest rate increase for the whole yield curve in € thousand for reporting dates 31 December 2019 and 31 December 2018.
The market risk management framework uses time-dependent bond and CDS spread curves as risk factors in order to measure credit spread risks. It captures all capital market instruments in the trading and banking book.
The Group’s funding structure is highly focused on retail business in Central and Eastern Europe. In addition, as a result of the Austrian Raiffeisen Banking Group’s strong local market presence, the Group also benefits from funding through the Raiffeisen Landesbanken. Different funding sources are utilized in accordance with the principle of diversification. These include the issue of international bonds by RBI AG, the issue of local bonds by the Group units and the use of third party financing loans (including supranationals). Partly due to tight country limits and partly due to beneficial pricing, the Group units also use interbank loans with third party banks.
Treasury units are committed to achieving KPIs and to complying with risk-based principles. The current set of KPIs includes general targets (e.g. for return on risk-adjusted capital (RORAC) or coverage ratios), as well as specific Treasury targets for liquidity such as a minimum survival period in defined stress scenarios or diversification of the funding structure. While generating an adequate structural income from maturity transformation which reflects the liquidity and market risk positions taken by the bank, Treasury has to follow a prudent and sustainable risk policy when steering the balance sheet. Strategic goals comprise a reduction of parent funding within the group, the sustainable management of the depositor base and credit growth as well as continuous compliance with regulatory requirements and the internal limit framework.
In the past year and to date, the Group’s excess liquidity was 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 several months even without applying contingency measures.
The NSFR is defined as the ratio of available stable funding to require stable funding. The new regulatory requirements come into force as of 28 June 2021 and the regulatory limit of 100 per cent must be complied with.. 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 and off-balance sheet positions. The RBI Group targets a balanced funding position.
Operational risk controlling units are responsible for reporting, implementing the framework, developing control measures and monitoring compliance with requirements. Within the framework of the annual risk management cycle, they also coordinate the participation of the relevant second line of defense departments (Financial Crime Management, Compliance, Vendor Management, Outsourcing Management, Insurance Management, Information Security, Physical Security, BCM, Internal Control System, IT Risk Management) and all first line of defense partners (Operational Risk Managers).
Operational risk assessment is executed in a structured and Group-wide uniform manner according to risk categories such as business processes and event types. Moreover, risk assessment applies to new products as well. All Group units grade the impact of high probability/low impact events and low probability/high impact incidents according to their estimation of the loss potential for the next year and in the next ten years. Low probability/high impact events are quantified by a Group-wide analytical tool (scenarios). The internal risk profile, losses arising and external changes determine which cases are dealt with in detail.
In Croatia, following litigation initiated by a Croatian consumer association against Raiffeisenbank Austria, d.d., Croatia (RBHR) and other Croatian banks, two contractual clauses used in consumer loan agreements between 2003/2004 and 2008 were declared null and void: an interest change clause and a CHF index clause. The decision on the interest adjustment clause cannot be challenged any more. The decision on the nullity of the CHF index clause was confirmed by the Croatian Supreme Court but was challenged by RBHR at the Croatian Constitutional Court. A final decision by this court may have an impact on the relevant CHF index clause. However, based on the decisions already rendered on the nullity of the interest change clause and/or the CHF index clause, borrowers – subject to the statute of limitations – are now already filing claims against RBHR. Given current legal uncertainties relating to the statute of limitations, the validity of the CHF index clause, the appropriate further procedures, the final outcome of the constitutional court challenge and the number of borrowers raising such claims, final quantification of the financial impact and the possible damage is not possible at this point of time as the final legal assessment of the loan agreement clauses has to be made in each individual case. As of the reporting date, 3,649 lawsuits had been filed against the bank. In this connection, the provision recognized on a portfolio basis was increased to € 21,221 thousand.
Legal action has been filed against Raiffeisen Zentralbank (prior to the merger with RBI in 2010) and Raiffeisen Investment AG (RIAG) in New York. The claimant alleged that RBI, in its capacity as universal successor to Raiffeisen Zentralbank, had unlawfully paid USD 150 thousand (€ 134 thousand) on a bid bond and that RIAG had been involved in a fraud committed by the Serbian privatization agency resulting in a damage in the range of USD 31 million to USD 52 million (€ 28 million to € 46 million). According to RBI’s assessment the claim is unfounded and very unlikely to succeed. In February 2014, the action was dismissed, and the plaintiff filed a motion for reconsideration with the court which has been pending for several years. The case was assigned to a new judge in 2018 and is now again pending in New York. RBI’s assessment of the claim remains unchanged.
In May 2017, a subsidiary of RBI was sued for an amount of approximately € 12 million in Austria for breach of warranties under a share purchase agreement relating to a real estate company. The claimant, i.e. the purchaser under the share purchase agreement, alleges the breach of a warranty. More precisely, it alleges the defendant warranted that the company sold under the share purchase agreement had not waived potential rental payment increases to which it may have been entitled.
In December 2016, a French company filed a lawsuit at the commercial court in Paris against Raiffeisen Bank Polska S.A. (RBPL), the former Polish subsidiary of RBI, and RBI. The French company claimed damages from both banks in the aggregate amount of € 15.3 million alleging that RBPL failed to comply with duties of care when opening an account for a certain customer and executing money transfers through this account, and that RBI acted as a correspondent bank in this context and failed to comply with duties of care when doing so. In the meantime, the lawsuit was withdrawn by the plaintiff for reasons of jurisdiction of court. In December 2017, a lawsuit of the same content as set out above was filed against RBPL and RBI at the commercial court in Warsaw. As regards the lawsuit against RBI, the commercial court in Warsaw declined jurisdiction in May 2019. The decision was appealed.
Following an assignment of Tatra banka’s receivable (approximately € 3.5 million) against a corporate customer to an assignee, two lawsuits in the total amount of approximately € 18.6 million were filed by the original shareholders of the corporate customer against Tatra banka. Their shares in the corporate customer had been pledged as security for a financing provided by Tatra banka to the corporate customer. The claims are claims for compensation of damages which were incurred by the original shareholders as a consequence of an alleged late notification of the assignment to the original shareholders, the fact that the assignee had realized the pledge over the shares and, thus, the original shareholders ceased to be the shareholders of the corporate customer as well as the fact that the assignee had realized a mortgage over real estates of the corporate customer (which had also been created as a security for the financing provided by Tatra banka to the corporate customer). The original shareholders claimed that the value of the corporate customer was € 18.6 million and that this amount would represent the damage incurred by them due to the assignment of Tatra banka’s claim against the corporate customer. Subsequently, the original shareholders assigned their claims under the lawsuits mentioned above to a Panamanian company which is now the plaintiff. The plaintiff claims that Tatra banka had acted in contradiction of good faith principles and that it had breached an obligation arising from the Slovak Civil Code. In June 2019, the court entirely rejected the claim. The plaintiff filed an appeal against the judgment of the first-instance court in August 2019.
In 2015, various plaintiffs launched two lawsuits against Raiffeisen Bank S.A., Bucharest, claiming damages in the amount of RON 45 million and RON 35 million (€ 9 million and € 7 million), respectively, based on the allegation that unfair terms in credit agreements had been used. According to the defendant’s assessment, the RON 45 million (€ 9 million) claim was filed outside legal deadlines. In late 2015, the RON 45 million (€ 9 million) claim was split into over 180 separate litigations and the RON 35 million (€ 7 million) claim was also split into over 160 individual cases. Raiffeisen Bank S.A. won a major part of the individual litigations on the merits and some of them have already been finally closed.
In 2015, a former client of the Raiffeisenbank a.s. (RBCZ), launched a lawsuit against RBCZ claiming damages in the amount of approximately CZK 371 million (€ 15 million) based on the allegation that RBCZ caused damage to him by refusing to provide further financing to him. Owing to the non-payment of court fees by the claimant, a court ruling on dismissal of the lawsuit was issued but has been appealed by the claimant. In the meantime, the court has united two proceedings launched by the claimant against RBCZ and therefore the sued amount has increased to approximately CZK 494 million (€ 19 million). After the first-instance court decision was revoked by the High Court and the claimant finally paid the court fee, the first-instance court was able to issue a verdict on the core matter of the dispute in which the court dismissed the claimant’s claims in September 2019. The claimant has appealed that decision.
RBI and its subsidiaries are subject to numerous national and international regulatory authorities. RBI does not currently have any significant open issues with regulatory authorities.
In February 2014, the commercial court in Zagreb issued a judgment by which the claim was declined. The plaintiff launched an appeal against this judgment which is not finally decided.
In April 2018, Raiffeisen Bank Polska S.A. (RBPL), the former Polish subsidiary of RBI, obtained the lawsuit filed by a former client claiming an amount of approximately PLN 203 million (€ 48 million). According to the plaintiff’s complaint, RBPL blocked the client ’s current overdraft credit account for six calendar days in 2014 without the formal justification. The plaintiff claimed that the blocking of the account resulted in losses and lost profits due to a periodic disruption of the client’s financial liquidity, the inability to replace loan-based funding sources with financing streams originating from other sources on the blocked account, a reduction in inventory and merchant credits being made available and generally a resulting deterioration of the client’s financial results and business reputation. RBPL contended that the blocking was legally justified and implemented upon the information obtained. In the course of the sale of the core banking operations of RBPL to Bank BGZ BNP Paribas S.A.), the lawsuit against RBPL was allocated to Bank BGZ BNP Paribas S.A. However, RBI remains commercially responsible for negative financial consequences in connection with said proceeding.
Following an audit review of the Romanian Court of Auditors regarding the activity of Raiffeisen Banca pentru Locuinte S.A. (RBL), a building society and subsidiary of Raiffeisen Bank S.A., Bucharest, the Romanian Court of Auditors claimed that several deficiencies were identified and that conditions for state premiums on savings had not been met. Such premiums may therefore have to be repaid.
Should RBL not succeed in reclaiming said amounts from its customers or providing satisfactory documentation, RBL may be held liable for the payment of such funds. RBL has initiated a contestation process against the position of the Romanian Court of Auditors. The case is in appeal at the High Court of Cassation and Justice. RBL may not be able to receive reimbursement of such funds from its customers due to legal and practical reasons. Given current uncertainties, an exact quantification of the negative financial impact is not possible, however, repayment of premiums and potential penalty payments are not expected to exceed € 48 million. In this connection, the provision was increased to € 10,016 thousand.
In March 2018, an administrative fine of € 2.7 million (which was calculated by reference to the annual consolidated turnover of RBI and constitutes 0.06 per cent of the last available annual consolidated turnover) was imposed on RBI in the course of administrative proceedings based on alleged non-compliance with formal documentation requirements relating to the know-your-customer principle. According to the interpretation of the Austrian Financial Market Authority (FMA), RBI had failed to comply with these administrative obligations in a few individual cases. FMA did not allege that any money laundering or other crime had occurred, or that there was any suspicion of, or any relation to, any criminal act. RBI took the view that it had duly complied with all due diligence obligations regarding know-your-customer requirements and appealed against the fining order in its entirety. The administrative court of first instance confirmed FMA’s decision and – again - RBI appealed against this decision in its entirety. In December 2019, the Austrian Supreme Administrative Court (Verwaltungsgerichtshof) revoked the decision of the lower administrative instances and referred the case back to the administrative court of first instance.
In Russia, the tax audit could result in an extraordinary tax burden in an aggregate amount of approximately € 10 million plus € 2 million late payment interest. Additionally, penalty payments may be imposed in an amount of up to approximately € 4 million.
In view of the change in the legal and regulatory framework and implementation of Institutional Protection Schemes, RKÖ and its members have decided to discontinue the scheme for new transactions. Accordingly, the supplementary protection by RKÖ will only be granted to transactions entered until 30 September 2019.