I am convinced that joie de vivre and the ability to savor the finer things in life are key characteristics of good managers. For this reason, we have decided that this review should not only report on events in 2006, but also inspire you with a culinary tour of the highlights of Central and Eastern European cuisine.
As someone who regularly has the opportunity and privilege to try the culinary delights of the region, I hope that this annual report whets your appetite both for the potential of Central and Eastern Europe and for the cuisine of this, Europe’s fastest growing zone.
Income Statement Net interest income after provisioning 1,455 1,455 40.6% 1,035 666 476 344
Loans and advances to customers 35,043 35,043 41.8% 24,714 16,242 11,707 8,240
Return on assets (ROA) before tax 3.15% 1.90% 0.22 PP 1.68% 1.40% 1.61% 1.36%
Net provisioning ratio (risk weighted assets) 0.97% 0.97% 0.16 PP 0.81% 0.98% 0.86% 0.69%
Core capital ratio (Tier 1), banking book 9.8% 9.8% 0.8 PP 9.0% 11.8% 10.0% 10.8%
Stock data Earnings per share in € 8.29 4.17 1.38 2.79 1.93 1.79 1.04
Number of shares outstanding (31 Dec. in mn) 142.77 142.77 - 142.77
Resources Number of staff on balance-sheet date 52,732 52,732 20.9% 43,614 22,851 18,386 13,478 1 One-off effect due to the sale of Raiffeisenbank Ukraine and the stake in Bank TuranAlem. 2 The shift from trading to commission income has been made retroactively for 2002-2005, see page 127. 3 Calculated according to the Austrian Banking Act (Bankwesengesetz, BWG). Raiffeisen International as part of the RZB-Group is not subject to the Austrian Banking Act. 4 25 April (IPO) until 31 December
Preface by the Chairman of the Managing Board 44 The Managing Board of Raiffeisen International 46 Preface and report of the Supervisory Board 48 Overview of Raiffeisen International 50 Interview with Herbert Stepic, Chairman of the Managing Board 52 Stock of Raiffeisen International & Corporate Governance 55
Group Management Report General economic environment 62 Banking sector development in CEE 64 Highlights of financial year 2006 65 Summary of consolidated performance 67 Detailed review of items in the income statement 71 Balance sheet development 76 Development of equity 78 Risk Management 80 Operations and IT 83 Human Resources 85 Outlook for 2007 88
Throughout the world, the tastes and consistencies of the local foods convey an idea of the way the people approach life. That is why we have created this presentation of selected culinary delicacies from the markets we serve. You are certain to be astonished by the wealth of ideas and the culinary diversity.
”If you want to get to know a country well, you first have to become acquainted with its cuisine. “
Grilled scampi with a lemon and olive oil sauce Ingredients for 4 portions: 20 scampi (king prawns), 3 lemons, olive oil, salt and pepper.
Chefs in coastal areas can draw on an extremely wide range of ingredients. They can choose, for example, from sardines, sea wolf, sea bream and spiny lobster, all of which were still in the water only hours earlier. Other sea-dwellers, such as clams, head straight for the soup kettle. Brudet is the name of the local version of the fish soup prepared along the Mediterranean coast of France as bouillabaisse. The addition of vinegar, however, lends brudet a sour note unknown in its southern French relative. Once again, the preparation varies greatly by region. If you’ve first tasted brudet in Split, you won’t recognize it in Zadar or Šibenik, where the vegetables, spices and fish varieties are different.
The best fish come from the Gulf of Kvarner, where they have an optimal habitat, and this good life leaves a wonderful taste behind, even after they’ve landed on your plate. Gourmets generally agree: the scampi and sole from the Gulf of Kvarner are so delicious that it would be worth traveling much farther than Croatia to enjoy the taste.
The recipes found at this crossroads of European culture are well-suited to the international palate. Here, for example, is a strudel recipe from the year 1860: “Take a sunny day on which the wind is silent, a quiet hour in which the children are silent, a contented housewife whose husband is silent, two sensitive hands, lots of love, a bucket of patience and a dash of happiness.”
This is the very strudel that Slovenes love to eat, boiled or baked, filled with salty or sweet ingredients. Slovenian strudel culture reaches its apogee with the gibanica, a creation with four different layers: poppy seeds, apples, curd cheese and nuts. Traditionalists, by the way, insist on struklji. It is made of buckwheat flour, the way grandma used to.
Hungary: The Sine Qua Non is Paprika. Goulash is a classic example of a dish that serves as a satisfying main course or a snack between meals. But it is also responsible for an almost Babylonian confusion of tongues: Austrians who travel to Hungary for the first time and order goulash are surprised to be served soup instead of the dish they would expect at home: cubed meat in a thick sauce with lots of stewed onion.
What most non-Hungarians mean when they say goulash has a different name in Hungary itself: pörkölt or paprikás. But the latter does, at least, lead us to one of the most important ingredients in Hungarian cuisine: paprika. The spiciness and color of this red powder made from ripe red peppers by drying and grinding them provide the taste and hue of a classic goulash sauce.
The Polish, Hungarians, (eastern) Austrians and their neighbors agree that there can be no agreement on the proper production manner or subsequent taste of a pickled cucumber. Some may describe them as having a fruity vegetable taste, but there are decisive differences in the final product, depending on which cucumber varieties were chosen, when they were picked, the type of water and spices used, the length of pickling and the quantity of the salt. The secrets of making pickled cucumbers are often handed down in a strictly oral tradition as though one were dealing with the ultimate in state secrets. Some people allow their cucumbers to pickle in the sun, while others insist that they remain in the cellar. There is also an old tradition of adding a slice of bread to the barrel to get things started.
Spices such as garlic, pepper, bay-leaf and sugar are popular. Pickles take on a special flair if certain leaves are added, with cherry leaves allegedly having an especially beneficial effect. The Poles are considered the true specialists. There the aroma of pickled cucumbers wafts from many rural homes, where they are prepared according to very special recipes. And every producer is convinced that his or hers results in the finest pickles the world has ever known.
For those less familiar with stuffed cabbage, here is a quick rundown of the steps required for its preparation. First, entire heads of white cabbage are marinated in the same manner as sauerkraut. The stem is cut crossways with a knife to allow the marinade to penetrate it. The subsequent fermentation produces lactic acid. The cabbage is then separated into individual leaves, stuffed with ground meat, and cooked until tender with more cabbage, bacon and spices. As with all the hearty dishes of good plain cooking, there’s an important rule that should be observed: the bigger the pot, the better the taste.
It is self-evident that there are as many ways of preparing stuffed cabbage as there are different regional, ethnic and religious backgrounds among the population. Because the country’s cuisine has been subject to the influence of both Turkish and Greek traditions, sarma is not the only dish to offer a wide range of variations. Other popular dishes are one-pot meals of meat and vegetables as well as Turkish honey and halva, ground nuts in honey.
Sarma (cabbage roulade) Ingredients for 4-6 portions: 600g of minced meat, 200g of rice, 200g of smoked bacon, 15 leaves of fermented cabbage, 1 large onion, 1 tbsp. of lard, 1 tbsp. of sweet paprika, 2 bay leaves, cumin, salt, pepper, a little stock and sour cream.
Filling: peel and finely chop the onion. Heat the lard in a frying pan and brown the onion. Add salt and pepper to the mince and fry for several minutes. Remove the frying pan from the heat and add the paprika and rice before stirring thoroughly. Place 3 or 4 of the cabbage leaves in the bottom of a coated dish. Place 1-2 tbsp. of the filling in the middle of each of the remaining cabbage leaves and fold the ends over and roll before placing neatly in the dish. Add a little of the smoked bacon and the bay leaves between the cabbage roulades. Fill the dish in this manner to ensure that the roulades remain closed while cooking. Add 2 cups of lukewarm water and sprinkle with black cumin before steaming in at a high temperature in the oven to taste. Depending on the consistency of the sauce, add a little sour cream or stock before serving. Serve with salted or mashed potatoes.
Roast leg of lamb with lemon Ingredients for 4 portions: 1 leg of lamb (bone in), several cloves of garlic, the juice of 2 or 3 lemons, salt, pepper, thyme, oregano, rosemary and olive oil.
Cut narrow slits in the lamb and stick slivers of garlic in the slits. Rub the leg of lamb with the lemon juice, herbs, salt and pepper and place on a baking tray. Roast for one hour in a pre-heated oven at 180°C. Spoon off the fat and pour one cup of hot water onto the baking tray. Baste the leg of lamb with olive oil and roast for a further 60 – 90 minutes. Turn regularly and baste with the meat juices to ensure even browning. Allow the leg of lamb to stand in a warm place for 15 minutes before carving. Spoon off any excess fat from the meat juices and boil down the gravy if necessary.
Albania: Where ”Organic“ Is Simply That. In Western Europe, expensive advertising campaigns have been designed around the concept, but here it is simply a fact of life: the foodstuffs produced by Albanian farmers in this barren-looking, mountainous landscape are completely organic.
If you wander through the olive groves or try the tasty fruit of the orange trees, you may have the feeling you’ve been transported to sunny Greece or southern Italy. There’s no question about it: Albanian cuisine is heavily influenced by the Mediterranean. Aromatic lamb plays just as important a role as fresh fish direct from the sea, which within a few short hours makes the journey from its saltwater home to the grill or oven before landing on your plate. Does that make Albania an undiscovered paradise for gourmets? For the most part you can expect a tasty cuisine that produces often astonishing results from only a few ingredients and fresh vegetables.
For the dough: add the sugar to the fresh yeast and stir into around 150ml of lukewarm water. Cover and allow to stand for around 20 minutes. Melt the butter and allow to cool. Mix 150g of lukewarm water, 1 tsp. of salt, 3 tbsp. of olive oil, the sesame seeds and the flour to form a consistent dough. Cover and leave to stand for around 45 minutes. Suitable fillings include spinach, onion, white cabbage and sour cream. Roll the dough out into a square and add some filling along the longest side. Brush the remainder of the dough with a mixture of butter and oil and then roll up the dough to form a strudel. Wind the strudel into a spiral and place on the middle of a baking tray. Finally, brush the entire spiral thoroughly with the butter and oil mixture and bake in a pre-heated oven at 200°C until the pite is golden brown. To finish, sprinkle with a little water and cover with a clean cloth so that the dough softens a little.
Central and Eastern Europe à la carte – Europe’s Sour Pots
They turned a necessity into a virtue, adopting the culture of fermentation and of marination. Many one-pot meals, soups and some traditional dishes for festive occasions as well have mild, well-rounded aromas that are the result of lactic acid-fermentation.
Sauerkraut originally comes from northern China, where people discovered ages ago that finely sliced white cabbage becomes a wonderful dish when it is allowed to ferment in a vat with a bit of salt. Full of vitamin C and lactic-acid bacteria, it is not only the pride of peasants who make it at home but also extremely popular with chefs and with doctors, who praise its healthy properties to the skies. There is an old (and true) saying about the best cabbage-eater living the longest.
Peel one onion and chop into very small pieces. Mix the chopped onion with the peeled and crushed garlic, the spices, the eggs and the mince and knead thoroughly. Form small rolls of the mince mixture about as thick as a thumb. Heat some olive oil in a non-stick frying pan and fry the cevapcici on all sides. Serve garnished with red onion rings and serve.
And if a Serbian carnivore does not feel like eating ćevapčići, he or she can always order šiš ćevap (́cevapčići on a skewer), pljeskavica (the same meat patted into thin “burgers” and fried), or ražnjići, the classic Serbian skewered meat.
Bulgaria: The Secret of the Centenarians. Is there a word in Bulgarian for anti-aging? Perhaps it’s simply “yoghurt.” In any case there are a conspicuously large number of people more than 100 years old in the Rhodope Mountains of southern Bulgaria.
– all they can say is: “We invented it!” And they do so with a smile.
The researchers at multinational food corporations may spend a lot of time worrying about further developing their high-tech product, but the Methuselahs of Bulgaria couldn’t care less. The fact of the matter is: real yoghurt is made in Bulgaria, where people have been making it since the time of the ancient Thracians. As the story goes, shepherds wore a sack of lambskin on their belts and filled it with milk. Their body temperature and the microflora of the lambskin did the rest, fermenting the milk. Unfortunately, no food chemist was there to watch.
Central and Eastern Europe à la carte – The ”Little Water“
The traditional way of serving it is 100 grams at a time, and drinking it properly requires some practice. First: hold your breath. Next: down all 100 grams in a single go. Then: exhale in relief. Another tradition is to follow a shot of vodka with a pickled cucumber.
In Russia, vodka is mostly drunk with friends and acquaintances over a meal. Whether it is served ice-cold or warm is not just a matter of taste, but sometimes the result of simple coincidence. Tasting sessions for vodka are similar to those for wine. The tasters check the aroma and the powerful, sometimes even sweet taste. They also watch to see whether the distillate runs down the side of the glass like oil or water. Tasting is done with the tongue, palate and cheeks. High-quality vodka leaves a mild taste in the mouth, while cheap vodka creates a burning sensation. The aroma can be creamy, spicy or neutral. In addition to expensive vintage vodkas, others that are en vogue have extravagant flavors: Polish Zubrówka, for example, to which buffalo grass is added, giving it a yellow color and mild aroma, and Starka, which is aged in oak casks.
To arrange to meet someone in Russia to drink vodka, you need do no more than gesture towards your throat, a ritual that has been traditional since the time of Peter the Great. A round of vodka drinking also requires a toast: over the course of the evening everyone at the table is expected to come up with a more or less profound saying. By the way, drinking vodka alone, without family or friends, is frowned upon in Russia, where it is considered a sign of alcoholism.
Poland: The Land of Pierogi. It is remarkably varied: the cuisine of the Polish people, who love their fine food and drink. Given the great variety of possible fillings, pierogi are an unrivalled Polish favorite, but they are only one example among many fine dishes in the national cuisine.
There’s really no telling how the Czechs, despite the richness of their cuisine, keep from resembling their dumplings, which are variously made of potatoes, diced white bread, semolina, wheat flour or curd cheese. With their delicious fillings of bacon, meat or various types of fruit, these dumplings are an object of special devotion on the part of Czech chefs. Any leftover devotion is used in the preparation of roast pork – the national dish is called vepro-knedlo-zélo, “pork-dumpling-cabbage” – or svickova, beef fillet in a creamy vegetable sauce, which is accompanied, of course, by the popular knedliky (German: knödel – a dumpling, what else?).
Did you know that if you make dumpling dough of diced bread you should first fry the dice in butter? That gives the dish an especially smooth taste. And there is, indeed, truth to the story about the major contribution that 19th-century Bohemian cooks made to Viennese cuisine: Bohemia, today in the Czech Republic, is a real paradise for mehlspeisen (desserts with flour as the main ingredient), which now have such Czech-derived Viennese names as palatschinken (crêpes), kolatschen (yeast pastry with a cheese or sweet filling), buchteln (baked yeast dumplings) and liwanzen (gâteaux bohémiens). The original recipes fill entire volumes of cookbooks in Czech libraries.
Oshtjepka, a semi-hard cheese made from cow’s and sheep’s milk and traditionally dried beneath the ceiling of mountain huts, is another type of cheese found only in Slovakia.
Central and Eastern Europe à la carte – Caviar: Only the Best is Good Enough
Caviar has a purist touch with a whiff of extravagance. It likes to be spooned into the mouth with utensils made of mother-of-pearl or horn, because the sensitive aroma is irritated by any contact with metal. Caviar prefers to be burst open between tongue and palate without further additions, although it does tolerate blini, potatoes with butter or sour cream. Champagne and vodka are also more than welcome as liquid accompaniments.
However, anyone who wants to enjoy caviar and a clear conscience at the same time should ask whether the caviar has been produced in a sustainable manner taking into account the needs of the species. If in doubt, it is better not to buy. This also adds to the awareness of restaurateurs and gourmet shop-owners, and will, eventually, have an impact on producers as well. That will help the sturgeon to survive and thus continue contributing to the pleasure of caviar fans in years to come.
Russia: Babushka’s Favorite Recipes. It is said that the foundations for the multi-course meals now typical of French grande cuisine were laid by the feasts consumed by the Russian tsars and their entourages during frequent visits to Paris. But that was a long time ago: with the arrival of the October Revolution, such gourmet extravaganzas disappeared for quite some time.
Draniki (potato fritters) Ingredients for 4 portions: 750g of potatoes (high starch content), 2 medium-sized onions, 2 eggs, salt, vegetable oil for frying.
Ukraine: Who Would Ever Have Thought. Who should rightfully take credit for borsch, that hearty beet soup that warms the body and soul on cold winter evenings? The Russians have long since adopted it as part of their culinary heritage, and the Lithuanians and Poles are equally fond of it.
Boil the boiling beef for around 1 hour until soft and then remove from the saucepan. Peel the potatoes, cut into cubes and add to the soup. Chop the cabbage into medium-sized pieces and add to the potatoes after 5 minutes. Simmer on low heat for around 15 minutes. Peel the onions and dice these and the pepper. Cut the soup vegetables and the beetroot into narrow strips. Slowly cook the onion, soup vegetables and the pepper in a little oil before adding the tomato puree. Steam the beetroot separately. Add the vegetables after around 15 minutes to the cabbage before it becomes overcooked. Bring everything to the boil again and add the salt, parsley, dill and the bay leaf before allowing to simmer for a short while. Round off with a little sour cream. The boiling beef can also be added (diced).
Raiffeisen International has consistently remained on course toward becoming the leading banking group in Central and Eastern Europe. Two goals were at the forefront last year. The first was expanding our business volume first and foremost in the Commonwealth of Independent States (CIS) and Southeastern Europe. The second was growing strongly again in the retail customer segment. We had great successes in respect to both. The main event at the year’s outset was our acquisition of Impexbank in Russia. This addition to Raiffeisenbank has put us in top position among foreign banks in Russia. Together with Raiffeisen Bank Aval in Ukraine and Priorbank in Belarus, it now makes us the leading foreign-owned banking group in the entire CIS. That regional segment already contributed 33 per cent to profit before tax in 2006 in contrast to 27 per cent in 2005. On the other hand, our purchase of eBanka in the Czech Republic shows that we are not focusing exclusively on the CIS and Southeastern Europe, but are also utilizing market opportunities in Central Europe.
Two measurements document our success in the retail segment most clearly. First, we expanded our customer base last year by 2.4 million to 12.1 million. Organic growth is responsible for about 70 per cent and hence the majority of the increase. Second, the contribution of retail business to profit before tax without one-off effect rose to 30 per cent in 2006 from 21 per cent the year before. This trend is even more gratifying inasmuch as our original base, corporate customer business, gained in strength again at the same time. As that customer segment is already more developed, its growth momentum is less pronounced. In business with private individuals and small enterprises, a market that is in a significantly earlier phase of development, we expect considerable growth potential for Raiffeisen International for many years to come.
The year 2006 also remains noteworthy because we sold one of our subsidiaries in Central and Eastern Europe for the first time, Raiffeisenbank Ukraine. A very attractive sale price was not the only reason we took that decision. This transaction also enables us to accelerate considerably the transformation and integration of our subsidiary bank now operating as Raiffeisen Bank Aval into the Group and to reduce related costs significantly.
On behalf of my fellow Managing Board members and myself, I wish to thank our customers and business associates for their confidence in us. I would also like to express our thanks to our core shareholder, Raiffeisen Zentralbank Österreich AG, for its support. Of course, the year 2006 would not have been so successful without the diligence and dedication of our staff, whose members now number 52,732. I am especially grateful to them. I look forward to the challenges of 2007 with hope of continued success together.
We can look back at a very gratifying year on the stock exchange. The development of our stock’s market value and the associated rise of Raiffeisen International to become one of the world’s 500 largest companies by market capitalization show that our IPO in April 2005 was the right step for our fast-growing enterprise.
The Managing Board of Raiffeisen International regularly informed the members of the Supervisory Board or its committees in a timely, comprehensive manner concerning all issues relevant to business development including the company’s risk situation and risk management and that of major group enterprises. Furthermore, the Managing Board consulted the Supervisory Board about the company’s strategic orientation and discussed the state of strategy implementation at regular intervals. By providing information in a timely manner, the Managing Board enabled the Supervisory Board to make sound decisions and fulfill its monitoring duties. The company was governed in the framework of an open dialogue between the Managing Board and the Supervisory Board and within the Supervisory Board both at and outside its meetings. The Chairman of the Working Committee, the Audit Committee, and the Personnel Committee reported regularly to the Supervisory Board about their work. The Working Committee dealt mainly with the appointment of persons to the managing boards and supervisory bodies
Supervisory Board‘s Report of the Group’s lending institutions, founding Group companies at home and abroad, and capital measures involving Group companies. The Personnel Committee focused on the remuneration of Managing Board members and arranging manager liability insurance. The Audit Committee prepared the ratification of the annual financial statements, the management report, the consolidated financial accounts, and the consolidated management report as well as a proposal concerning the distribution of profit. It furthermore prepared a proposal for the selection of the auditor of the financial statements.
The Supervisory Board’s controlling function requires transparency and independence. The Supervisory Board has therefore adopted independence criteria that comply with the Austrian Corporate Governance Code and has published them on our website. All members of the Supervisory Board have declared themselves independent in the meaning of the independence criteria.
Raiffeisen International is today one of the leading banking groups in Central and Eastern Europe. The focus of company activities is on retail and corporate business. The largest acquisition in company history to date was the purchase of Bank Aval in Ukraine in 2005. At the beginning of 2006, Raiffeisen International acquired 100 per cent of the shares in Impexbank, a Russian firm. In July 2006, we acquired eBanka in the Czech Republic.
Altogether, Raiffeisen International’s network comprises 17 banks and numerous leasing companies in 16 markets. We furthermore have representative offices in Moldavia and Lithuania. Our network banks are among the top three of the banks in eight markets and are even the market leaders in Albania and Serbia. Raiffeisen International is the leading Western-owned banking group in the entire CIS. Altogether, as of 31 December 2006, more than 52.000 Raiffeisen International employees were serving about 12.1 million customers in more than 2.800 business outlets.
The exceptional position of Raiffeisen International in the Central and Eastern European countries was again confirmed in 2006 by numerous international awards from renowned institutions. Those included: – “Best Bank” in Albania, Belarus, Bosnia and Herzegovina, Bulgaria, and Serbia from Global Finance in
April 2006 – For the second consecutive time, “Best Bank in Central and Eastern Europe” from Euromoney in July
– “Bank of the Year 2006” for RZB jointly with Raiffeisen International in Central and Eastern Europe from
The Gable Cross is the trademark used by every member of the Raiffeisen Banking Group. It consists of two stylized horse’s heads crossed and attached to the gable of a house. It is a symbol of protection rooted in old European traditions. A gable cross on the roof was believed to protect a house and its occupants from outside dangers and to ward off evil. It stands for the protection and security that the members of the Raiffeisen banks enjoy through their self-determined collaboration. The Gable Cross is one of Austria’s best-known trademarks, and it is in use around the world, particularly within the scope of RZB’s branding activity in Central and Eastern Europe.
Balance sheet total Business Number of As of 31 December 2006 in  mn Change* outlets staff
Overview * Growth in local currencies dissers due to the euro exchange rates.
There were also two sales in 2006 that were somewhat surprising. How did that come about? We sold the Raiffeisenbank that we opened in Ukraine in 1998, although at the time of the Bank Aval acquisition we intended to combine the two banks. However, after we had been approached by several interested parties and the offered prices were very attractive, we weighed the advantages and disadvantages and ultimately decided to sell. That was something new in the development of Raiffeisen International and not easy for us. As a result, however, we have not only significantly reduced transformation costs, but have also considerably accelerated the integration of today’s Raiffeisen Bank Aval into the Group. Our valuable brand name was of course not part of the transaction. In Kazakhstan, where we sold a minority stake in Bank TuranAlem, the situation was quite different. We would not have done that if a majority holding in the bank had been a realistic option. The prospect of that had been presented to us before, but ultimately did not materialize. That does not mean, however, that we are no longer interested in Kazakhstan. After all, we are operating very successfully there in the leasing segment. The sale of this holding also yielded a handsome profit.
The CIS was not the only market in which an acquisition occurred last year. You also invested in Central Europe. We intend to solidify our position in all target markets. The Czech institute eBanka has given us access to a high-income, urban clientele. With about 310,000 customers now, we have reached the necessary critical mass in the Czech Republic and are confident we can expand our market share further.
How satisfied are you with the year 2006 apart from the acquisitions? It was an absolute record year, and we can only be completely satisfied. Our balance-sheet total grew again very dynamically by 37 per cent, with a large part attributable to organic business development. Leaving one-off effects out of account, we exceeded our previous year’s result by a considerable 55 per cent with earnings of € 594 million. Our return on equity and productivity also fit this picture. The ROE and cost-income ratio are moving in the planned direction at 27.3 and 59.1 per cent, respectively. On the other hand, impairment losses on loans and advances increased disproportionately. But that is a logical consequence of applying our Group risk standards to the operations in the CIS region that have been newly integrated into the consolidated financial statements.
As a result of the sharply higher stock price, Raiffeisen International’s market capitalization passed the threshold of  10 billion on 21 February 2006. Viewed on the year, market capitalization increased from  7.9 billion to  16.5 billion on 31 December 2006. The number of shares outstanding remained constant at 142.77 million. In 2006, almost 65,000,000 shares were traded, with turnover amounting to  4.7 billion. The average daily volume was over 260,000 shares.
Price performance of Raiffeisen International stock versus the ATX and DJ EURO STOXX Banks Issuance price of  32.50 = index base
Although both indices developed positively, Raiffeisen International considerably outperformed them. While the ATX gained 22 per cent and the Dow Jones Euro STOXX Banks 23 per cent, Raiffeisen International registered a plus of 108 per cent. Besides the ATX and the Dow Jones Euro STOXX Banks, our stock is also included in the ATX Five, which covers the five largest ATX stocks, and in the ATX Prime, which covers the companies of the Prime Market segment.
Furthermore, as one of over 300 Western European blue chips, our stock is in the Dow Jones STOXX and in the Dow Jones STOXX 600, which contains the 600 largest Western European stock corporations as measured by market capitalization. Compared with the preceding year, the weighting of Raiffeisen International stock in the indices likewise increased as a result of the price advances. On 4 December 2006, Raiffeisen International was listed among Bloomberg’s “Global 500” for the first time at 492. This list includes the publicly traded companies with the largest market capitalization worldwide and is prepared daily after the close of trading on a US dollar basis.
On the other hand, Raiffeisen International was able to close the sale of Raiffeisenbank Ukraine, which focuses on corporate customers, at a high extraordinary profit on 21 November 2006. Our interest in JSC Bank TuranAlem in Kazakhstan was likewise successfully sold, after it became apparent that increasing the holding as we originally intended, was not possible. This action in line with our strategy was positively received by the market, as shown by significant share price advances both after the purchase of Impexbank and eBanka and after the sale of Raiffeisenbank Ukraine and the stake in Bank TuranAlem.
ATX Five 5 19% ATX Prime 48 10% Dow Jones Euro STOXX 318 <0.2% Dow Jones Euro STOXX Banks 46 <1% Dow Jones STOXX 600 600 <0,1% MSCI World 1,904 <0.03%
Our second Capital Markets Day also clearly demonstrated that Raiffeisen International is committed to communication that goes beyond required disclosures. On 13 October 2006, more than 110 investors and analysts took up our invitation to come to Kiev, the capital city of Ukraine, and be informed in detail by Managing Board members about current development in the market and in the Raiffeisen International Group. The local management from Ukraine and from Russia added respectively to that information detailed insights into the progress so far made in transforming Raiffeisen Bank Aval and integrating Impexbank. Raiffeisen International offered interested parties
58 www.ri.co.at who could not attend the Capital Markets Day in Kiev the opportunity online to read the investor’s handbook prepared for the event at www.ri.co.at ➞ Investor Relations ➞ Events ➞ Capital Markets Day.
Further highlights of Raiffeisen International’s IR activities included several roadshows in Europe, in the United States, and for the first time in Asia.
All shareholders are invited to attend the next annual meeting on 5 June 2007 in the Austria Center in Vienna. A dividend for 2006 of  0.71 per share will be proposed at the annual meeting. If this proposal is accepted by the shareholders entitled to participate in Raiffeisen International’s profits, the payout will amount to a maximum of  101.4 million.
The dividend will be paid out on 13 June 2007 on the basis of holdings as of 12 June 2007 via the banks that maintain the securities accounts of our shareholders.
ISIN AT0000606306 Ticker symbols RIBH (Vienna Stock Exchange) RIBH AV (Bloomberg) RIBH.VI (Reuters) Market segment Prime Market Issue price per share (25 April 2005)  32.50 Number of shares outstanding 142,770,000
The full text of the Code is available on our website: www.ri.co.at ➞ Investor Relations ➞ Corporate Governance.
Retail Risk Management * „Executive Development & Training“ report to Rainer Franz. ** Outsourced to RZB.
62 www.ri.co.at Pre face Managing Board Super v isor y Board‘s Repor t Over v iew In t e r v iew S tock
Apart from country specific developments, economic expansion was driven by strong investment growth, robust private consumption as well as healthy demand from the export side. Given that the “old” EU countries are by far the most important trading partners for the CE and SEE countries (accounting for 2/3 to 3/4 of total exports) the 2.7 per cent real GDP growth in the Eurozone clearly has been a major supportive factor for the economic development in CEE in 2006. In addition, the business environment in the new EU member countries, the candidate countries, and the countries seeking candidate status has continuously improved, due to the EU integration process. This has also boosted foreign direct investment (FDI) in the region, which has remained strong and increased particularly in the SEE countries in the run-up to Romania’s and Bulgaria’s 2007 entry into the EU.
Despite the strong GDP growth in CEE in 2006 inflation rates were slightly down to 2.3 per cent on average in CE (2.4 per cent in 2005). The disinflation process also continued in SEE and CIS, with average inflation falling to 6.7 per cent (8.0 per cent in 2005) and 9.6 per cent (12.5 per cent in 2005) respectively. Apart from the decline of oil prices in the course of the second half of 2006, the strong real, and in part nominal, appreciation of the currencies of the region against the Euro – and even more so against the weakening US-Dollar – helped to dampen import prices and overall inflation. Among the countries Raiffeisen International is active in, Serbia remained the only one with double digit average inflation in 2006 (12.7 per cent yoy) and there, inflation came down sharply in the second half of the year (6.6 per cent yoy in December 2006) due to the appreciation of the Dinar.
The international trend for interest rates and yields was clearly up in 2006, with both the US-Federal Reserve Bank and the European Central Bank (ECB) raising their key interest rates further in the course of the year. However, the yield differential of long-term government bonds against Eurozone benchmarks continued to converge in 2006, despite rising key interest rates backed by lower inflation and the appreciation trend of most of the currencies. Even in Hungary, where a temporary depreciation of the Forint triggered more substantial interest rate hikes, this yield spread declined compared with the previous year. In the Czech Republic the negative interest rate differential compared to the Eurozone increased to a full percentage point by the end of 2006, with a negative yield spread over the full yield curve. The most substantial convergence of yields was recorded in Romania in the run-up to the 2007 EU-entry, where yields for 10-year government bonds dropped from 7.5 per cent in December 2005 to 5.8 per cent by the end of 2006.
Strong real and nominal appreciation raises some concerns over current accounts
Despite the buoyant real GDP growth, some concerns have been raised that the strong real and nominal appreciation of virtually all CEE currencies, with the exception of Hungary, was based more on the overly strong liquidity position and the historic low risk-aversion of international investors than on economic fundamentals. Indeed current account deficits, as a percentage of GDP, increased on average in CE (3.3 per cent of GDP) and SEE (10.5 per cent of GDP) in 2006. In Bulgaria the preliminary current account deficit has reached 14.5 per cent of GDP and in Romania almost 11 per cent of GDP in 2006. Most of the blame has been put on the credit boom that is thought to have fueled demand for imported consumption goods. However, a closer analysis shows that trade balances are even more affected by the increase in imports of capital goods. Given the strong investment growth and the low domestic propensity to save, a high utilisation of foreign savings (i.e. high current account deficits) are the logical economic consequence – something that is generally to be expected in strongly growing emerging economies. Hence, a large part of the current account deficit can be financed by foreign direct investment (FDI) inflows. With Romania and Bulgaria’s entry into the EU the situation of relatively high current account deficits that are largely covered by FDI inflows are most likely to continue over the next years without threatening economic stability, although the Romanian Leu appears to have less room for real appreciation now, than a year ago. From a long term perspective the construction of new as well as the modernisation and expansion of existing export oriented production facilities should lead to more balanced current accounts, similar to developments the CE countries had experienced over the past years.
Personal Loans in per cent of GDP vs. GDP per capita (at purchasing power parities), in 
Note: Data as of end 2005, Source: Local central banks, wiiw, Raiffeisen RESEARCH
Raiffeisen International acquired 100 per cent of OAO Impexbank in Russia at the end of January 2006 and began consolidating it after the transaction closed at the end of April. The Group has thus reinforced its position as the largest international banking group in Russia. Impexbank was founded in 1993. It is geared primarily to serving personal banking customers and small and medium-sized enterprises with a nationwide network of 203 branches and offices together with a further
Raiffeisen International furthermore acquired a majority stake in eBanka, a.s. in the Czech Republic in the reporting year. At the time of its initial consolidation at the end of October, eBanka’s equity stood at  54 million. The purchase price amounted to  130 million. With this acquisition, Raiffeisen International has increased its customer base in the Czech Republic by more than 70 per cent to about 310,000 at the end of the reporting year. eBanka is a pure retail bank and has been operating since 1998.
A contract to sell 100 per cent of the shares in JSCB Raiffeisenbank Ukraine to OTP Bank Zrt., Budapest, Hungary, was signed on 1 June 2006. After all approvals were obtained, the transaction closed in November 2006. The deconsolidation also occurred at that time. Raiffeisenbank Ukraine has been operating since 1998 and had a balance sheet total of over  1.6 billion and 42 business outlets at the end of October 2006. The bank had equity of  164 million at the time of closing and was sold for  650 million. The Raiffeisen brand name was not a part of the deal, but became a valuable part of the name of the former Bank Aval, now operating as Raiffeisen Bank Aval.
A contract to sell Raiffeisen International’s minority stake of 7.7 per cent in JSC Bank TuranAlem (BTA), Almaty, Kazakhstan, was signed on 23 August 2006. The stake in BTA’s capital stock was sold at a price of  136.5 million to a group of investors based in Stockholm. The sale of this holding was a consequence of unsuccessful negotiations with other BTA shareholders concerning the acquisition of a majority holding.
Expansion of our network is advancing rapidly. On balance, 178 new business outlets were opened (excluding newly added Impexbank and eBanka). Including the described changes, Raiffeisen International has 2,849 business units in 16 markets throughout Central and Eastern Europe.
Summary of consolidated performance Since 2001, the consolidated financial statements of Raiffeisen International have been prepared on the basis of the International Financial Reporting Standards (IFRS). Furthermore, Raiffeisen International Bank-Holding AG prepares individual financial statements in conformity with the Austrian Commercial Code (UGB) because they provide the formal basis for calculating distributions and taxes. Please see the declarations which are required by the UGB on the corresponding pages in the Notes.
The majority of Raiffeisen International is held by Raiffeisen Zentralbank Österreich AG, which makes it a part of the RZB Group. The stake held by RZB amounts to 70 per cent with the rest of the shares held as free float.
Raiffeisen International Group consists of 17 network banks, 46 finance leasing companies, and a number of other financial institutions and bank-related service providers. For changes in the scope of consolidation, please see the relevant section of the Notes on page 114 ff.
Consolidated profit rose by 209 per cent, or  800 million, to  1,182 million. Excluding one-off effects, it grew by 55 per cent, or  211 million, to  594 million. Including capital consolidation effects, newly consolidated enterprises account for 17 per cent, or  36 million, of the earnings increase. Development of currencies in the CEE region was mixed in 2006. Altogether there was a relatively small positive effect on earnings of about  5 million. Less the above-mentioned influences, the group therefore achieved an organic increase of 45 per cent, or  170 million.
Raiffeisen International also grew significantly faster than the sector average in 2006. Its balance sheet total surpassed  50 billion in September 2006 and reached  55.9 billion at year end, thus growing by 37 per cent, or  15.2 billion, on the preceding year. The largest part of this increase was attributable to credit growth. Including provisioning, the growth amounted to 42 per cent, or  10.1 billion. Retail customers accounted for about 40 per cent of the increase.
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The table below reviews the development of key items in the consolidated income statement: Raiffeisen International’s profit from operating activities in annual comparison
Once again, profit from operating activities grew strongly. Operating income rose by 52 per cent, or  980 million, to  2,868 million. All profit components contributed to this increase. The share attributable to the biggest component, net interest income, is just under 60 per cent. The influence of the newly consolidated enterprises on growth comes to 14 per cent, or  137 million.
The composition of operating income changed only slightly. Because of higher growth rates, the shares of net commission income and of trading profit rose by 1 percentage point each at the expense of net interest income, whose share is now 61 per cent.
General administrative expenses grew in the reporting period by 46 per cent, or  531 million, to  1,694 million, of which newly consolidated enterprises accounted for  104 million. Staff expenses rose by 49 per cent and hence more strongly than other administrative expenses at 43 per cent. That may be explained by the higher average number of staff (plus 72 per cent), which is primarily attributable to the integration of Raiffeisen Bank Aval and Impexbank.
Profit after tax accordingly rose by 177 per cent from  460 million to  1,274 million. Excluding one-off effects, the increase comes to 49 per cent, which brings profit after tax to  686 million. Due to higher provisioning for impairment losses, the increase is thus lower than that of profit from operating activities, which grew by 62 per cent to  1,174 million.
Net interest income Net commission income Trading profit Other operating profit/loss
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The resulting earnings per share (EPS) improved by  5.50 from  2.79 to  8.29. Excluding one-off effects, earnings per share amount to  4.16, which represents an increase of  1.37. No new shares were issued in 2006. The average number of shares outstanding, excluding treasury shares, came to 142.6 million.
With the earnings increase of 160 per cent, the return on equity (ROE) before tax also rose significantly from 21.8 per cent to 45.4 per cent. The average equity underlying that calculation increased by about 25 per cent to  3,259 million. Excluding one-off effects, the increase of ROE before tax is up 5.5 percentage points to 27.3 per cent.
As expected, the retail customer segment reports the strongest growth of profit before tax of all segments in the reporting year with a plus of 124 per cent, or  146 million. This increase to  264 million clearly reflects the return on investments made in new business outlets and products in recent years. However,
In the treasury segment, Raiffeisen International achieved a satisfying increase of profit before tax by 31 per cent, or  57 million, to  241 million. The most significant plus was in trading profit (78 per cent), where the Group benefited from a favorable currency environment as well as from a valuation gain arising from an open position connected with the Impexbank acquisition. Risk assets in the treasury segment rose by 12 per cent to  5.4 billion. General administrative expenses grew by a more than proportionate 74 percent due to the newly consolidated enterprises. The return on equity improved slightly, by 0.9 percentage points on the preceding year, and now stands at 44.7 per cent.
The described one-off effects (divestments of Raiffeisenbank Ukraine and the stake in Bank TuranAlem) are to be found in the participations and other segment, which shows a profit of  507 million (preceding year: loss of  70 million). Besides net income from equity participations and non-banking activities, this segment mainly includes the computational surpluses from the investment of equity and the expenses of central Group management. These remain in the segment and are not distributed to other segments.
Net interest income grew in the year under review by 47 per cent, or  562 million, to  1,764 million. This is significantly greater than the 37 per cent increase of the balance sheet total, allowing for a clear improvement of the interest margin (based on the average balance sheet total) by 21 basis points from 3.55 per cent in 2005 to 3.76 per cent. While the interest margin stayed the same in Central Europe (minus 1 basis point), it rose in Southeastern Europe and in the CIS by 4 basis points each. The newly consolidated enterprises (Impexbank, eBanka, and Raiffeisen Bank Aval) accounted for about 45 per cent, or  250 million, of the increase.
Interest income rose by 54 per cent to  3,248 million; three-quarters of that deriving from loans and advances to customers. The corresponding balance sheet item shows an average increase of 46 per cent. Development of interest income from the securities portfolio worsened due to falling interest rates in some markets and volume declined by about one quarter.
With a plus of 65 per cent to  1,484 million, interest expenses rose somewhat more strongly than interest income. Despite the growth of average deposits by 35 per cent, interest expenses increased by 48 per cent due to more deposit business in markets with higher interest rate levels. Interest expenses for subordinated liabilities, necessary mainly for regulatory reasons, increased from  22 million to  52 million.
Raiffeisen International 2006 region are from Romania, Croatia, and Serbia. Few relatively large specific provisions ( 5 million to  8 million) were made for cases in both Ukraine and Slovakia.
Net commission income improved significantly in all areas in the reporting year. It rose by 54 per cent, or  327 million, to  933 million. Newly consolidated enterprises account for 46 per cent, or about  150 million, of that growth. The increase of net commission income is attributable to the higher number of completed transactions, especially in personal banking business. In more developed markets, demand is also growing for products and types of investment that involve more intensive advisory service. Consequently, development of investment fund sales is very satisfying.
In the year under review, we changed our method of presenting income from foreign exchange transactions involving customers. The trading margins achieved are split into a trader margin and a customer margin. The customer margins from such transactions are now shown in net commission income, while the trader margins are still recognized in trading profit. The reclassification has also been applied retrospectively to preceding years.
With an increase of 80 per cent, the earnings contribution from transfer payments was expanded significantly to  412 million. With a 44 per cent share of net commission income, this continues to be the most important base of earnings. In foreign currency and precious metals business, the Group earned  291 million net, which is an increase of 29 per cent.
There was a significant increase in the case of commissions from securities business of 75 per cent to  40 million, particularly in the case of other banking services, whose earnings grew by 72 per cent to  81 million.
With a plus of 73 per cent, or  74 million, to  175 million, development of trading profit is very satisfactory. Only  5 million of that is from the newly consolidated units. Both figures already take into account the previously described reclassification of customer margins from foreign exchange transactions into net commission income. Trading profit consists of both realized and unrealized gains and losses from all positions in the trading portfolio net of refinancing expenses for such positions.
Because of the effects described, almost 47 per cent of trading profit in 2006 derives from the CIS (2005: 20 per cent), 29 per cent from Southeastern Europe (2005: 42 per cent), and 24 per cent from Central Europe (2005: 38 per cent).
Net income from financial investments and current financial assets amounted to  103 million in 2006 after  11 million in the preceding year. This item comprises of 1) net income from financial investments, which in turn consists of net re-valuation of securities held to maturity and net proceeds from sales of securities held to maturity, and 2) net income from other current financial assets, which in turn consists of net re-valuation of current financial assets and net proceeds from sales of current financial assets at fair value through profit and loss.
Despite increased total expenses, general administrative expenses grew less than operating income, allowing further improvement in operating efficiency. The cost/income ratio fell below 60 per cent by end 2006. At 59.1 per cent, it is 2.5 percentage points below the preceding year’s figure of 61.6 per cent. In the medium term, i.e. by 2009, Raiffeisen International intends to reduce the ratio to below 58 per cent.
The increase in other administrative expenses by  208 million (43 per cent) to  688 million was somewhat less than that of staff expenses. Newly consolidated units contributed just under  100 million, or almost half of the increase. Since expansion of the branch network is not complete yet, the higher expenses primarily involved rents for buildings, implementation of settlement systems, and security expenses. Moreover, advertising expenses rose by 46 per cent to  86 million, and legal and consulting expenses by 87 per cent to  60 million.
Depreciation/amortization/write-downs of tangible and intangible fixed assets increased on the preceding year by 39 per cent, or  51 million, to  181 million. Intangible assets, including
Balance sheet development Raiffeisen International’s strong growth continued in 2006. The consolidated balance sheet total rose on the preceding year by 37 per cent, or  15.1 billion, to  55.9 billion.
Changes in the scope of consolidation, mainly the inclusion of Impexbank in the second quarter and of eBanka in the fourth quarter, account for about  2.6 billion. The increase due to changes in the scope
The largest item on the liabilities side of the balance sheet, deposits from customers, grew by 33 per cent, or  8.3 billion, to  33.2 billion. Its share of the liabilities arises at 59 per cent. Impexbank and eBanka contributed  1.8 billion to that increase; customer deposits declined by  0.6 billion with the sale of Raiffeisenbank Ukraine. Sight deposits rose by 36 per cent to  14.5 billion, and time and savings deposits by 31 per cent to  18.6 billion. The coverage of customer deposits to loans and advances to customers decreased from 101 per cent to 95 per cent.
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The share of funding by banks remained unchanged in the reporting period at 25 per cent. Deposits from banks rose by 35 per cent, or  3.6 billion, to  13.8 billion. The relatively long-term funding arrangements through banks and supranational institutions likewise increased by 30 per cent to  7.3 billion. Money market business totals  5.6 billion (plus 28 per cent) as at the balance sheet date.
Earned capital grew by 123 per cent, or  1,195 million, to  2,162 million. This includes consolidated profit for the year under review in the amount of
Minority interests in equity increased by 27 per cent from  128 million to  604 million. The main reasons for the change were minority interests in profit of  92 million, capital contributions from third parties to various Group units amounting to  67 million, exchange rate effects on the equity owned by minority shareholders ( 14 million), and dividend payments ( 46 million) as well as share changes in the scope of consolidation ( 6 million).
Core capital rose by 55 per cent, or  1,313 million, on the preceding year and now stands at  3,705 million. It was positively influenced by the reporting year’s profits, by capital increases of third parties, and by the slightly positive effects of rising CEE exchange rates on equity, which amounted to about  13 million. Set against those positive influences is the direct deduction of goodwill arising from the acquisitions of Impexbank and eBanka in the amount of about  389 million, which was required by the consolidation method prescribed by the Austrian Banking Act. Raiffeisen International’s first hybrid Tier 1 issue, which occurred in May 2006, brought an increase in core capital of  500 million.
Additional own funds show an increase of 50 per cent, or  270 million, to  807 million, including  91 million in the form of supplementary capital (upper Tier 2). The greater part of this subordinated capital, needed primarily because of local supervisory regulations, is financed by RZB.
Set against own funds is an own funds requirement pursuant to the Austrian Banking Act of  3,284 million, which is steadily growing due to strong expansion. That corresponds to an increase of 37 per cent, or  891 million. Excess cover at year’s end comes to 37.4 per cent, or  1,229 million. In particular, the own funds requirement consists of requirements for the banking book ( 3,040 million), for the securities trading book ( 137 million) and for open foreign exchange positions ( 107 million).
Risk Management As a Group function, active risk management is a core competence for Raiffeisen International.
The risks of the individual network banks and specialist companies are controlled and managed by means of a comprehensive system of risk principles, risk measurement and monitoring processes, and appropriate organizational structures. The policy and the principles of risk management are determined in the framework of rules prescribed by the Group’s Head Office: – The management of credit, country, market, liquidity, and operational risks is coordinated at every level of the Group
– To guarantee a consistent and coherent approach to risk management, it is coordinated with Group parent RZB
Please see page 161 ff. for a detailed overview concerning the definition of the individual types of risk (market, credit, liquidity, and operational risk) and the organization of Raiffeisen International’s risk management.
The emphasis of risk management in retail business with personal banking customers and small enterprises are: – Development of infrastructure – Support of profitable growth – Portfolio management
Further improving portfolio management was an emphasis of retail risk management. In order to identify and contain the main risks, dozens of new and existing products were examined. At the same time, the profitability of those products and the underlying processes were thoroughly investigated. In the personal banking and micro areas, more than 40 application and behavior scoring models were developed or examined. For the small enterprise valuation model, two verification analyses were conducted.
Portfolio control and management was made mandatory at the segment and product levels. Reporting granularity for relatively large network units was increased significantly and the SME portfolio reports were standardized. Key performance indices based on the budget or on historical or expectable development were introduced. The actual-value deviations of the forecast models are now being analyzed. The goal is to make comprehensive instructions available to the individual network units. A general risk evaluation was conducted for the personal banking area. It uses the same scaling as the risk evaluation system for the corporate segment, but the probability of default is determined with specific reference to personal banking customers. Existing Basel II concept papers were examined and significantly expanded with a view to personal banking credit risk.
A clear functional and organizational separation between business and risk units is provided in all network banks. Based on a Group-wide standardized job profile, highly qualified chief risk officers (CROs) are appointed in the network banks step by step. In the future, the CRO function will be performed either by a member of the managing board of the respective network bank or by a member of the second management level. Due to the high responsibility of the position, the appointment as CRO requires in all cases prior approval by the central bodies of Raiffeisen International. That measure has strengthened the position of the local CRO in terms of both content and hierarchy.
In addition, we created a new function called “credit examination and quality control” at the level of central risk management. Its function is to check the quality of credit processes and the proper application of risk management tools and standards in the network banks. Likewise, credit decisions taken by network units under local approval authority are evaluated by this examination unit in the framework of individual on-the-spot examinations. Based on the evaluation results, best-practice examples are developed and processes are optimized.
In integrating Bank Aval, we continued to implement as planned the Group risk standards, processes, and risk evaluation tools. Following that example, we developed integration plans for Impexbank and for eBanka and are successively implementing them. The rating of the entire corporate portfolio according to the Raiffeisen International rating model was completed in all three banks.
The centralized implementation project coordinates and supports the local implementation efforts in close cooperation with the various supervisory authorities to ensure full compliance with both the Austrian and the various local legal requirements. We continue to place major emphasis on ensuring high data quality throughout the Group. We have successfully adapted existing IT systems in accordance with data requirements to fulfill Basel II requirements. All Basel II activities are producing uniform standards, harmonized methods and credit evaluation tools and will consequently ensure sophisticated, state-of-the-art regulatory risk management throughout the Group.
An internationally proven retail lending module was selected and will be rolled out to the majority of large retail network banks by the end of 2008. Along with the sales force effectiveness program, an initiative was launched to further centralize and automate back office functions, such as payments, collections, loan processing and routing incoming calls to country wide call centers. These efforts went hand in hand with rigorous process improvement initiatives.
84 www.ri.co.at Pre face Managing Board Super v isor y Board‘s Repor t Over v iew In t e r v iew S tock integration of Impexbank in Russia and eBanka in Czech Republic has commenced with the set-up of transformation teams and project management structures. The projects are well under way. In both countries new combined management teams have been appointed in order to avoid uncertainty among staff and being able to thus concentrate on the business and the required internal efforts for a successful merger.
The central procurement project which had been launched in 2005, already showed good results in the reporting year and will generate significant cost savings going forward, by aggregating internal demand across the group, electronic auction programs and improved demand control. A leading procurement software was chosen which will be implemented throughout 2007.
Start groupwide 6 Sigma rollout 26 projects completed; realized benefit  6.7 Mio.
63 projects currently ongoing, 68 completed in 2006, realized benefit  33 Mio.
Preparations for the introduction of Basel II progressed according to plan. A specific roll-out team gave guidance and support to all units, helping them to sort out remaining issues.
The definition, implementation and tracking of group-wide security minimum standards led to reduced IT and business risks. The RZB Group Security organization was enhanced by introducing group-wide forums for Information and Physical Security. A standardized risk assessment was conducted in all banks of the Raiffeisen International network. The results of the assessments have been documented in detailed risk reports stating local and central measures to be taken.
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We have evaluated the need to develop management capacity, among other things, in the framework of the integration project. Building on the results of that evaluation, we have developed a modular training program in cooperation with the renowned Kyiv-Mohyla Business School (KMBS) to convey the corporate culture and management principles of the Raiffeisen Group to local management. Taking into account Group-wide standards, members of local management have deepened and widened their personal management qualifications in the framework of the program. About 80 employees in key positions rounded off their personal training programs by attending intensive language courses in English.
To achieve the acknowledged high quality of service and advice that characterizes Raiffeisen International network banks, we have restructured the training and development department of Raiffeisen Bank Aval. The learning and development strategy for the years 2006 to 2008 focuses on implementing e-learning and training employees with an emphasis on the retail segment. In a newly equipped training center, a large number of employees have taken advantage of extensive course offerings on products and customer service.
Performance management simultaneously is the foundation for many personnel decisions. In addition to the design of compensation systems, identification and engagement of talented individuals, development of management capacities, and career planning. Coordinated succession planning is also based on performance management.
The Managing Board of Raiffeisen International started a Group-wide initiative in 2006 to expand performance management and to standardize the entire process to a greater extent throughout the company. This expansion concerned the following core activities: – Integration of uniform, cultural key competencies into the local performance management systems of the network banks. Group awareness and cohesion of all staff members can be established by that means on the basis of Raiffeisen International’s Group-wide corporate vision.
In the framework of our Group-wide sales force effectiveness program, we started an extensive qualification initiative especially geared to employees in the areas of personal banking customers and small and mediumsized enterprises. The continuing education programs have been developed in cooperation with wellknown international consulting firms. The measures have already been successfully implemented in Poland, Romania, Czech Republic, Croatia, Serbia, and Albania with the support of specialists from central Group units.
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The economies of Central and Eastern European (CEE) have entered the year 2007 with great momentum given the exceptionally strong economic growth in the second half of 2006. Robust real GDP growth is expected again for 2007, albeit somewhat lower than the levels reached in 2006. One of the key reasons for this is the international economic environment our CEE growth scenario is based on, which assumes a marked slowdown of the US real GDP growth to 1.9 per cent in 2007 (3.4 per cent in 2006) and a more moderate weakening in the Eurozone to 2.2 per cent (2.7 per cent in 2006). Despite the foreseen slowdown of the Hungarian economy to around 2.5 per cent yoy, which is a result of the overdue budget consolidation, the Central European new EU member countries should still reach an average real GDP growth of around 4.8 per cent, after a record 5.4 per cent in 2006. For the most part for the latest EU entrants Bulgaria and Romania the positive impacts from EU membership should balance out possible initial difficulties. Altogether the Southeastern European transition countries should see an average real GDP growth of around 5.8 per cent in 2007, after 6.6 per cent in 2006. The European CIS economies should remain the region with the highest economic growth in 2007, at around 5.9 per cent, after 7.0 per cent in 2006.
As in recent years, consumer demand and capital investment should remain the most important drivers of growth. Both are benefiting from the continuing credit boom in the CEE countries, which was made possible by the extensive restructuring and privatisation of the banking sectors, and deep reforms of the legal and institutional framework, which result from the EU integration process. Moreover, the attractiveness of the CEE countries as locations for foreign direct investment remains undiminished. The build-up of modern export oriented production facilities clearly bodes well for the future development of exports and economic growth. The ongoing economic catch-up process should also enable a continuation of real and in part nominal appreciation of the CEE currencies in a medium term perspective, although the exceptionally strong development in the last quarter of 2006 increased the likelihood for a temporary correction in the course of the first half of 2007.
Thanks to our extensive network, which currently has 2,848 business outlets in 16 markets and 2 representative offices, we are one of the leading banking groups in Central and Eastern Europe. The resulting strong market position will enable us to achieve impressive organic growth in the years to come.
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Our secondary classification of segments for reporting is made according to regional aspects. The location of the respective business outlets is the criterion of segment assignment: • Central Europe (CE) Poland, Slovakia, Slovenia, Czech Republic, and Hungary
• Southeastern Europe (SEE) Albania, Bosnia and Herzegovina, Bulgaria, Kosovo, Croatia, Romania, and Serbia
You will find a detailed description of the individual segments beginning on page 128. The figures stated are derived from the financial statements prepared according to the International Financial Reporting Standards (IFRS) that underlie the consolidated financial statements. Divergences from locally published data are possible.
Earnings also increased significantly in the other regions. Profit before tax from Group units in Central Europe grew by 37 per cent, or  86 million, to  316 million. Group units operating in Southeastern Europe improved by 52 per cent, or  97 million, and achieved profit before tax of  285 million in the year under review.
Excluding the above-mentioned one-off effects, the contributions of the three segments would be nearly equal. The largest part of consolidated profit before tax would still come from Group units in Central Europe with a share of 35 per cent (minus 5 percentage points versus 2005). The CIS would now be the second-largest supplier of earnings at 33 per cent (plus 6 percentage points), and 32 per cent of earnings would derive from Southeastern Europe.
Central Europe continues to show the largest share of consolidated assets at 41 per cent, followed by Southeastern Europe at 34 per cent. The share attributable to the CIS region rose 2 percentage points on the preceding year to 25 per cent.
Segment shares of profit before tax (compared with 1/1 – 31/12/2005)*
* excluding one-off effects (sale of Raiffeisenbank Ukraine and the stake in Bank TuranAlem)
Earnings continued to develop satisfactorily in Central Europe. Profit before tax rose by 37 per cent to  316 million, which means that the region contributed 35 per cent to total earnings (preceding year: 40 per cent) without one-off items (with one-off items: 21 per cent). The return on equity increased by 5.9 percentage points to 23.4 per cent. That was accomplished mainly through increases of operating earnings components.
Share of profit before tax (excluding one-off effects) 35.4% 40.4% (5.0 PP)
Provisioning for impairment losses rose by  45 million to  93 million. This increase is largely due to higher provisioning requirements in Slovakia, Slovenia, and Poland. Moreover, the overall level of provisioning for impairment losses in the preceding year was low. In addition to higher business volume in the retail customers segment, which resulted in an increase of portfolio-based loan loss provisions, some specific cases were registered in the corporate customers segment. The risk/earnings ratio thus climbed from 9.4 per cent to 15.5 per cent.
General administrative expenses rose by 13 per cent and thus by less than income increases. The moderate increase is due to more efficient utilization of resources. Compared with the preceding year, the cost/income ratio fell by 5.2 percentage points to 61.0 per cent. The number of business outlets grew by 94 to 516, with eBanka accounting for 62 business outlets. Consequently, the average number of staff climbed by 23 per cent to 11,223 (eBanka accounts for 975 employees).
Other operating profit (loss) rose on the preceding year from minus  17 million to plus  3 million. Net proceeds from the sale of two Hungarian real estate projects are responsible for a gain on deconsolidations of  20 million.
Raiffeisenbank a.s. has been operational on the Czech market since 1993. It quickly developed into an important banking institution providing a full range of financial services to local private and corporate customers. Raiffeisenbank is the country’s sixth largest bank with a balance sheet total of  3.3 billion (up 25 per cent), offering its services to around 190,000 clients through 53 business outlets (three more than in 2005). The merger with eBanka, which will bring an additional impetus for the bank’s growth, is scheduled to be finalized by 2008 (see below).
eBanka, a.s. is a universal bank focused on affluent individuals as well as small and medium-sized enterprises. After it was established in October 1997 as Expandia Banka, it was the first to introduce complex direct banking services to the Czech market. Originally it was predominantly an internet bank, but it transformed into a universal bank with a full portfolio of services and products and its own sales network in the years 2003 through 2005. The bank has been operating under its current name since 2001. In October 2006, Raiffeisen International’s acquisition of eBanka became legally effective, and the Group consolidated the bank as at November 2006.
By the end of 2006, eBanka was providing services to nearly 120,000 clients through a network of 62 branches for private individuals and ten business centers for small and medium-sized enterprises. eBanka reported a growth in all key financial figures in the reporting year. Its balance sheet total grew by 24 per cent to  800 million, deposits increased by 19 per cent to  211 million and loans by 18 per cent to  392 million.
The bank currently services nearly 245,000 private individuals, over 5,000 of which are affluent customers. Customers are served through 86 business outlets, three more than in the preceding year. With more than
Raiffeisen International 2006 170,000 cards issued in total (plus 15 per cent compared with 2005), Raiffeisen Bank Polska maintained its strong position on the local credit card market. It has also become an important distributor of foreign investment funds in Poland as a result of commencing to sell Raiffeisen Capital Management funds at all branch offices. The funds are proving particularly popular among affluent private investors.
Tatra banka’s activities have traditionally been highly praised by industry periodicals and institutions. In 2006, Global Finance once again awarded Tatra banka “Best Consumer Internet Bank” and “Best Foreign Exchange Bank”. Euromoney confirmed Tatra banka’s leading position in project finance by awarding it the title of “Best Real Estate Bank” and the Finance New Europe institute awarded it “Best Bank” in Slovakia.
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In some countries of Southeastern Europe, banks remain subject to strict regulatory measures to limit credit growth. In 2006, that primarily concerned Bulgaria, Croatia, and Serbia and had the consequence that growth was somewhat below target. Irrespective of these restrictions, profit before tax was raised by 52 per cent to  285 million.
Provisioning for impairment losses went up by  25 million to  88 million. Apart from the strong expansion of the credit portfolio across the whole region, higher provisioning for impairment losses in Romania and Serbia are largely responsible for this increase. The additional allocations were primarily due to an increased need of provisioning for retail customers and the formation of new portfolio-based provisions for corporate customers. Nevertheless, the risk/earnings ratio only edged up from 15.0 per cent in the preceding year to 15.8 per cent.
General administrative expenses rose by 24 per cent to  519 million. That is due to higher capital expenditures for modernizing existing banking outlets and further expansion of distribution channels. The number of business outlets grew very dynamically. The branch network was expanded by onefourth from 566 to 708 business outlets. The average number of staff rose to 12,636. The largest staff additions were in Bulgaria (plus 48 per cent) and Serbia (plus 43 per cent). The cost/income ratio in Southeastern Europe improved significantly from 62.8 to 58.2 per cent.
Founded in 1992 and acquired by Raiffeisen International in 2004, Raiffeisen Bank Sh.a. continues to be Albania’s number one bank by balance sheet total ( 1.8 billion, plus 8 per cent) with a market share of 17 per cent in loans across all customer segments. The bank’s total loan portfolio increased by  146 million or 103 per cent to reach  287 million by year-end 2006.
In business with private individuals, the lending volume nearly tripled compared with 2005, totaling  137 million. Lending to the corporate sector increased by 61 per cent from 2005 to  155 million.
Altogether, the number of Raiffeisen Bank’s customers rose by 13 per cent to 485,000 serviced via 94 business outlets (plus seven). The bank’s ATM network consisted of 122 machines throughout Albania at the end of 2006 (up 22 within one year).
Raiffeisen Bank d.d. Bosna i Hercegovina was founded in 1992 and taken over by Raiffeisen International in 2000. It is the country’s first bank with a balance sheet total exceeding  1.6 billion, representing an increase of almost 25 per cent year on year. It has a market share of more than 21 per cent in a highly competitive local banking environment. At the balance sheet date, the bank operated a country-wide network of 75 banking outlets (an increase of seven over 2005).
Raiffeisen Bank has further strengthened its market presence in all business segments. The loan portfolio for corporate customers increased by 36 per cent over the past year, amounting to  326 million at year-end 2006. Corporate deposits increased by 31 per cent to  183 million. Likewise, business with private individuals as well as with small and medium-sized enterprises grew significantly.
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The loan portfolio grew by 35 per cent to  622 million, and the customer base advanced by 13 per cent to more than 600,000. The number of debit and credit cards issued across all customer segments increased to more than 140,000.
Raiffeisenbank continued its dynamic growth, especially in the Retail Banking segment. As one of the country’s foremost banks, its full range of innovative products provided the basis for a 48 per cent increase to 342,000 private customers.
The bank also further strengthened its position as a market leader in the issuance of corporate bonds and for foreign currency transactions. It lead-managed 17 bonds totaling  283 million, achieving a market share of 70 per cent. The bank’s subsidiary Raiffeisen Asset Management became a leader on the local market after only nine months of operation with a market share of nearly 15 per cent and  28.6 million of funds under management.
The Banker, a Financial Times publication, awarded Raiffeisenbank “Best Bank” in Croatia.
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Raiffeisen banka remained the country’s key bank for local and multinational corporate customers. The bank’s leading position was also underpinned by an increase in deposits of 63 per cent to  415 million. The Banker selected Raiffeisen banka as “Bank of the Year” in Serbia for the third year running, and Euromoney chose it as the country’s “Best Bank” for the fifth consecutive year.
* one-off effects (sale of Raiffeisenbank Ukraine and the stake in Bank TuranAlem)
Excluding one-off effects, the share of Raiffeisen International’s earnings attributable to the CIS rose by 6 percentage points to 33 per cent. The strong increase in balance sheet assets from 47 per cent to  13.9 billion as of the balance sheet date and the increase of risk-weighted assets by 48 per cent to  11.2 billion are reflected in a striking rise of earnings by 93 per cent to  291 million. Excluding divestments, the return on equity before tax would be 32.3 per cent as in the preceding year.
The growth rates of earnings components are all in the triple-digit range. Net interest income increased in 2006 by 127 per cent on the preceding year. That is attributable to the rise of loans and advances to customers in existing Group units in addition to the initial consolidation of new ones. The interest margin improved slightly, by four basis points, on the preceding year.
The proceeds from the sale of a minority stake in Bank TuranAlem in the amount of  102 million is reported under net income (loss) from financial investments.
The year under review was also characterized by substantial growth in the number of private customers increasing by 26,000 to over 571,000. Among other factors, this increase was due to new products such as mortgage loans, retail sales financing and credit cards. Consequently, business volumes in the retail segment increased significantly on both sides of the balance sheet (loans by 158 per cent to  247 million, deposits by 130 per cent to  211 million).
With its complex small and medium-sized enterprise financing program Priorbank introduced the first standard product in the country for this customer group. Furthermore, it continued to extend the micro financing program provided by the European Bank for Reconstruction and Development (EBRD) to small enterprises.
Raiffeisen Leasing Kazakhstan LLP was founded in January 2005. It is one of the country’s top 3-leasing companies. Strategic partnerships with international suppliers further strengthened its market position.
The bank forecasts especially high growth opportunities in the retail business and intends to further strengthen its leading role in this particular segment. Loans to retail customers advanced by no less than 41 per cent to  809 million.
OAO Impexbank was established in 1993 and acquired by Raiffeisen International at the beginning of 2006. It is a universal bank with a balance sheet total of  1.8 billion. The bank’s customers are serviced through 203 business outlets and some 400 sales outlets. The bank’s primary focus is on retail banking. In 2006, this segment’s loan portfolio grew by some 75 per cent to more than  637 million. At the same time, deposits advanced by 17 per cent to  967 million. The number of customers grew by 23 per cent to 758,000.
VAT Raiffeisen Bank Aval was founded in 1992 as Joint Stock Post-Pension Bank Aval and quickly developed into one of the leading banks. In October 2005, Raiffeisen International acquired 93.5 per cent of the bank’s shares and one year later, the bank launched its nation-wide re-branding campaign. In 2006, the bank’s total assets grew by 27 per cent on a consolidated level and by 28 per cent on a stand-alone basis to  4.3 billion, thereby maintaining its position as the country’s number two. It is the country’s leading bank in terms of equity ( 579 Million on a consolidated level/ 315 million on a stand-alone basis).
At year-end, the bank serviced 3.9 million private individuals, more than 233,000 small and mediumsized enterprise customers (plus 11,000) and more than 1,150 corporate clients from 1,312 business outlets. The bank continued to expand its lending to private individuals as well as small and mediumsized enterprises, more than doubling its loan portfolio in that segment to exceed  2.1 billion. Deposits from households advanced by 13 per cent to more than  1.7 billion. In business with corporate customers, the total loan volume grew by 18 per cent to  1.2 billion.
The bank’s achievements were again recognized with international and local awards: Among others, Euromoney magazine awarded Raiffeisen Bank Aval “Best Bank”.
Due to changes in presentation, a reclassification between trading profit and net commission income amounting to € 199,805 thousand was made in 2005. Details see on page 127.
Net interest income (2) 1,763,881 1,202,098 46.7% Provisioning for impairment losses (3) (308,877) (167,260) 84.7%
Profit after tax 1,274,372 459,593 177.3% Minority interests in profit (92,246) (77,259) 19.4%
Net income from financial investments and current financial assets (1,934) 231 100,818 4,071
Profit before tax 193,884 227,158 331,538 727,032 Income taxes (42,419) (45,079) (53,737) (64,006)
Profit before tax 133,315 140,003 143,120 152,119 Income taxes (24,020) (28,195) (29,280) (27,468)
The annual general meeting held on 7 June 2006 authorised the Managing Board to purchase own shares pursuant to Section 65 (1) 4 of the Austrian Stock Corporation Act (AktG) for a period of 18 months from the decision date on up to an extent of 10 per cent of the subscribed capital. The Managing Board was authorised with the approval of the Supervisory Board to decide another method for the sale of own shares than through the stock exchange or another public offer excluding the subscription rights of the shareholders. This authorisation substitutes the authorisation passed in the annual general meeting held on 8 March 2005.
The purchase of own shares mainly serves as a coverage for the liabilities of the company in connection with the share incentive program granted to the Managing Board and other executives of the group. These bonus payments are carried out by receiving shares of the company. See also item 29 on page 153.
Net provisioning for liabilities and charges and impairment losses 387,312 181,749
Payments for purchase of: Financial investments and equity participations (1,996,884) (3,152,002)
Cash and cash equivalents at the end of previous period 2,908,161 1,895,356 Net cash from operating activities 382,669 1,519,373
Cash and cash equivalents at the end of period 4,063,633 2,908,161
Raiffeisen International specialises in providing banking and financial services in Central and Eastern Europe (CEE). The Group includes universal banks in 14 countries that operate a broad network of local business outlets. Raiffeisen International renders a comprehensive range of banking and financial services. These services range from account and cash management, deposit-taking, lending, trade finance, and credit card services to mortgages and leasing. The Group’s diversified client base comprises multinationals and large local groups, small and medium-sized enterprises, public sector institutions, and retail customers.
If estimates or assessments are necessary for accounting and measuring under IAS/IFRS rules, they are made in accordance with the respective standards. They are based on past experience and other factors such as planning and expectations or forecasts of future events that appear likely from our current perspective.
IFRS 7 amends the rules for disclosure of financial instruments and takes effect for annual periods beginning on or after 1 January 2007. IFRS 7 will result in changes in financial reporting because IFRS 7 supersedes IAS 30 and the disclosure requirements of IAS 32. IFRS 7 has not been applied yet in the consolidated financial statements. It is expected that IAS 1.124 A – C and IFRIC 10, also adopted by the EU, will have no material effects on future consolidated financial statements.
Intra-group balances between parent company and subsidiaries and intra-group balances between subsidiaries are eliminated in the consolidated accounts. Remaining temporary differences are recognised under other assets / other liabilities.
The number of fully consolidated companies and companies valued at-equity changed as follows: Because of their minor importance in giving a view of the Group’s assets, and financial and earnings position, 75 subsidiaries were not included in the consolidated financial statements. (2005: 85). They were recognised at amortised cost under financial investments as interests in affiliated companies. The balance sheet total of the companies not included in the Group came to less than 2 per cent of the Group’s aggregated balance sheet total.
A list of fully consolidated companies, associated companies and other equity participations may be found on page 184 f. In the financial year 2006, the following companies were included for the first time: Fully consolidated Equity method Number of units 2006 2005 2006 2005
Financial institutions: Raiffeisen Real Estate Management Zrt., Budapest (HU) and 21 project companies Several dates Materiality 8 project companies of Raiffeisen-Leasing Real Estate, s.r.o, Prague (CZ) Several dates Foundation 3 project companies of Raiffeisen-Leasing d.o.o., Sarajevo (BA) 1/6 Foundation
Net assets after minority interests 158,235 54,420 212,655 Acquisition costs (471,195) (130,000) (601,195)
In the context of allocating the purchase price pursuant to IFRS 3, the Impex brand and the existing customer base in the retail segment were identified as intangible fixed assets separately shown in the balance sheet. The value of the Impex brand amounted to € 5,286 thousand as of 1 May 2006. The future business strategy is geared to integrating the customer structure of Impexbank into that of the Raiffeisen International Group, which will lead to a corresponding change of the current customer base. The acquisition cost of the existing customer base in the retail segment totalled € 12,158 thousand as of 1 May 2006. The amortisation period was set at five years.
Management’s Report Segment Reports Financial Statements Glossary Contacts www.ri.co.at eBanka a.s. (EBANKA)
Raiffeisen Real Estate Management Zrt., Budapest, has been operating on the Hungarian market for several years in property development and exploitation. Because of its rising importance, the company together with its projects spun off as subsidiaries was consolidated for the first time in 2006. The business volume of this group amounts to € 124,248 thousand.
In the financial year, RLRE Zeus Property, s.r.o., Prague, was merged with RLRE Orion Property s.r.o., Prague, due to the strong economic involvements in a real estate project.
In December 2006, a 40.6 per cent shareholding in Premier Outlet Center Kft., Budapest, (POC) was sold to AVIVA Central European Property Fund (Morley Fund Management). The selling price totalled € 16,957 thousand for the 40.6 per cent shareholding in POC. The income from the disposal of group assets as of 31 December 2006 amounted to € 16,484 thousand. A real estate management subsidiary, POCM Kft., Budapest, was sold together with POC.
Net assets after minority interests (163,522) (473) (119) (164,113) Selling price 650,000 16,957 3,709 670,667
Cash flow from disposal of group assets 523,930 16,957 3,709 544,597 * Figures are on a consolidated level with POCM Kft.
Financial statements of fully consolidated companies prepared in foreign currencies were translated into euros employing the modified current rate method in accordance with IAS 21. Equity was translated at historical exchange rates while all other assets, liabilities and the notes were translated at the prevailing foreign exchange rates as of the balance sheet date.
Differences arising from the translation of equity (historical exchange rates) were offset against retained earnings and not recognised in income statement. The items of the income statement were translated at the average exchange rates during the year calculated on the basis of month-end rates. Differences arising between the exchange rate as of the balance sheet date and the average exchange rate applied in the income statement were offset against equity and not recognised in the income statement.
Because of changes in economic conditions, IAS 29 (financial reporting in hyperinflationary economies) has no longer been applied in Priorbank OAO, Minsk, since 1 January 2006. In the case of a subsidiary not headquartered in the Euro-area (GSI Group Software Investment AG, Zug), the euro was the reporting currency for measurement purposes given the economic substance of the underlying transactions. Raiffeisen Leasing SRL, Bucharest, changed from functional currency (euro) to local currency (Romanian Lei) as reporting currency because leasing contracts are mainly made in the local currency.
The following exchanges rates were used for currency translation: Capital hedge
A financial instrument is defined as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. In IFRS balance sheets, the following five categories are distinguished: 1. Financial assets or liabilities recognised at fair value via the income statement a. Trading assets/ liabilities b. Designated financial instruments at fair value 2. Financial instruments held to maturity 2006 2005 Rates in units per € As of 31/12 Average As of 31/12 Average
Trading assets/liabilities are acquired or incurred principally for the purpose of generating profit from short-term fluctuations in market prices. Securities (including short selling of securities) and derivative financial instruments held for trading are recognised at their fair values. If securities are listed, the fair value is based on stock exchange prices. Where such prices are not available, internal prices based on present value calculations for originated financial instruments and futures or option pricing models for options are applied. Present value calculations are based on the zero-coupon curve. As option price formulas Black-Scholes 1972, Black 1976 or Garman-Kohlhagen are applied depending on the kind of option.
Derivative financial instruments held for trading are also shown under trading assets or trading liabilities. Positive fair values including accrued interest (dirty price) are shown under trading assets. Negative fair values are recorded under trading liabilities. Positive and negative fair values are not netted. Changes in dirty prices are recognised in the income statement under trading profit/loss.
This category comprises mainly all those financial instruments which are irrevocable designated at fair value (so called fair value option) upon initial recognition in the balance sheet independent of the intention to trade. An entity may use this designation only when doing so results in more relevant information, because a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis. These instruments are debt securities and other fixed-interest securities or equities and other variable-yield securities.
Loans and advances are recognised at their nominal value without deduction of impairment losses. Accrued interest is recognised in the income statement if there is a high probability that it would be received. Moreover, debt instruments are also stated there if there is no active market.
www.ri.co.at Preface Managing Board Supervisory Board‘s Report Overview Interview Stock 4. Available-for-sale financial assets
Derivative instruments not held for trading because acquired for hedging purposes are subdivided into the following categories reflecting differing modes of recognition on the IFRS-compliant balance sheet: a) Fair value hedge according to IAS 39
Interest-rate swaps that satisfy the prerequisites for hedge accounting are contracted to hedge against the interest-rate risks arising from loans. Hedges are formally documented, continuously assessed, and rated to be highly effective. In other words, throughout the term of a hedge, one can assume that changes in the fair value of a hedged item will be nearly completely offset by a change in the fair value of the hedging instrument and that the actual outcome will lie within a band of 80 to 125 per cent.
Derivative instruments held to hedge against market risks (except trading assets/liabilities) that are based on an inhomogeneous portfolio do not satisfy the requirements for hedge accounting according to IAS 39. They are captured as follows: Positive dirty prices are recognised under other assets, and negative dirty prices are recorded under other liabilities. The effect of remeasuring those derivative instruments on a clean-price basis is recognised under other operating profit/loss (net income from other derivative instruments); interest is recorded under net interest income.
The cash reserve includes cash on hand and balances at central banks that are due on call. They are shown with their nominal value.
For credit risks related to loans and advances to customers and banks, provisions are made in the amount of expected loss according to homogeneous Group-wide standards. Risk of loss is deemed to exist if the discounted projected repayment amounts and interest payments are below the carrying value of the loans, taking collateral into account. Portfoliobased impairments are calculated according to valuation models that estimate expected future cash flow for the loans in the respective loan portfolio based on loss experience history. For retail portfolios without a documented loss history of their own, peer group benchmark figures serve as a comparative base.
A finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset to the lessee. Pursuant to IAS 17, the present value of all future lease payments and any residual values are shown as loans and advances to banks or customers in the balance sheet of the lessor. The lessee recognises the assets as tangible fixed assets to which refer a corresponding leasing liability.
Shareholdings in subsidiaries not included in the consolidated financial statements because of their minor significance and shareholdings in companies that are not valued at-equity are shown under financial investments and are measured at amortised cost if no shares prices are available.
Tangible fixed assets are measured at cost of acquisition or conversion less scheduled depreciation. The straight-line method is used for depreciation and is based on the following useful life figures: Useful life years
Inventories are measured at the lower of cost or net realisable value. Write-downs are made if the acquisition cost is above the net realisable value as of the balance sheet date or if limited usage or longer periods for storage has impaired the value of the inventory.
The biometrical basis for the calculation of provisions for pensions, severance payments and anniversary bonuses is provided by AVÖ 1999-P-Rechnungsgrundlagen für die Pensionsversicherung (Computational Framework for Pension Insurance) – Pagler & Pagler, using the variant for salaried employees.
Under defined contribution plans, the company pays fixed contributions into a separate entity (a fund). These payments are recognised as staff expense in the income statement.
Own shares held by Raiffeisen International Bank-Holding AG as of the balance sheet date are deducted from equity. No gain or loss may be recognised in profit or loss on the purchase, sale, issue or cancellation of an entity’s own equity instruments.
The Managing Board of Raiffeisen International Bank-Holding AG obtained Supervisory Board approval to institute a share incentive program (SIP) offering performance-based allotments of company shares for eligible employees at home and abroad for a given period of time. All Managing Board members of Raiffeisen International Bank-Holding AG managing board members of associated bank subsidiaries, and selected upper management personnel of Raiffeisen International Bank-Holding AG and its affiliated enterprises are eligible to participate.
All share-based remunerations are recognised according to IFRS 2 (Share-based payment) as staff expenses and booked directly via equity.
Interest and similar income mainly includes interest income on loans and advances to banks and customers and from fixed-interest securities. In addition current income from shares and other variable-yield securities (especially dividends), income from equity participations and from investments accounted for at-equity, and similar income calculated as interest are also reported under interest and similar income. Interest paid and similar charges mainly include interest paid on deposits from banks and customers and on liabilities evidenced by paper and subordinated capital. Interest income and interest expenses are accrued.
As of 1 January 2006, trading margins achieved in foreign exchange business with customers have been split into a trader margin and a customer margin in order to increase transparency, with the customer margins from these transactions being stated in net commission income, and the trader margin continuing to be shown in trading profit. Until 31 December 2005, these customer margins are disclosed in trading profit. The comparative figures for 2005 were adjusted.
General administrative expenses include staff and other administrative expenses as well as amortisation/depreciation and impairment losses for fixed and intangible fixed assets.
The corporate customers segment comprises business with large corporates and mid market companies from Central and Eastern Europe (CEE) as well as with companies from other countries that are operating in the CEE region – , including especially multinationals. The criteria are key ratios like revenues, profit and number of employees.
Moreover, business with banks, providers of financial services, and insurance companies is reported in this segment (financial institutions). This excludes transactions which are connected to the proprietary trading with financial instruments resp. invested within the asset and liability management as those are allocated to the segment treasury. The banks subsegment encompasses national and international commercial, retail and private banks. Banks also include supranational institutions like the World Bank, the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the International Monetary Fund (IMF). Financial service providers include brokers and asset managers such as investment banks, investment fund companies, leasing companies as well as companies operating in businesses related to the credit industry. Insurance companies consist of all kind of insurers and reinsurers. They include property, health, life and pension insurers.
Besides non-banking activities, the participations and other segment encompasses the management of participations. Moreover, other general activities are involved, including especially those carried out by the parent company Raiffeisen International Bank-Holding AG.
• The cost/income ratio represents the cost efficiency of business segments. The cost/income ratio is calculated as quotient of general administrative expenses and the sum of net interest income, net commission income, trading profit/loss and other operating income/loss (adjusted for the net result from hedge accounting and other derivative financial instruments).
Income from disposal of group assets - - - 506,553 506,553
Profit before tax 467,201 263,540 241,469 507,402 1,479,612 Basis of assessment (incl. market risk) 19,067,850 14,143,395 5,407,497 2,433,068 41,051,810
This segment contains the five countries in which Raiffeisen International operates that joined the EU on 1 May 2004. They are the Czech Republic, Hungary, Poland, Slovakia, and Slovenia.
Income items and head office costs in Austria, most of which accrue within the holding company, are apportioned between the above segments according to the causation principle. If a direct allocation is impossible, allocation is based on other criteria such as risk-weighted assets (this is the basis of assessment including market risk).
Net interest income after provisioning 465,131 360,964 208,742 1,034,838 Net commission income 268,090 200,829 137,720 606,639
Provisioning for impairment losses on balance sheet and off-balance sheet items are made as follows: Details on risk provisions are shown under item 14 impairment losses on loans and advances.
(4) Net commission income * Reclassification from trading profit (see note on page 127)
Portfolio-based loan loss provisions (119,490) (72,949) Allocation to provisions for impairment losses (174,810) (102,419)
Net provisioning ratio (Ø risk-weighted assets of the banking book) 0.97% 0.81%
The position net income from financial investments comprises valuation results and net proceeds from disposal of financial investment portfolio and equity participations which include shares in affiliated companies, companies valued at-equity, and other equity investments.
The significant increase in net proceeds from sales of equity investments is mainly due to the sale of a minority share in JSC Bank TuranAlem, Almaty.
Net income from financial investments 102,589 4,828 Net valuations of financial investments held-to-maturity 11 (57)
General administrative expenses contain staff expenses, other administrative expenses and depreciation on tangible and intangible assets. They break down as follows: Amortisation of intangible fixed assets capitalised in the course of initial consolidation was € 10,531 thousand (2005: € 1,192 thousand). This is due to scheduled amortisation of the acquired customer base and an impairment loss on the Impex brand of € 5,286 thousand because of the decision taken in 2006 to merge Impexbank.
Depreciation on intangible and tangible fixed assets (181,059) (130,208) Tangible fixed assets (118,823) (84,978)
The position other operating profit/loss captures, among other things, sales revenues and expenses from non-banking activities, income and expenses from disposal as well as income from the revaluation of tangible and intangible fixed assets. The net result of hedge-accounting, also included in this position, derives from valuation of hedging instruments and of hedged items.
Income from disposal of group assets amounting to € 506,553 thousand is shown in details on page 117.
Net expense from allocation and release of other provisions (12,043) (11,318)
The following transition shows the relation between profit before tax and the effective tax burden: (10) Earnings per share
Average number of ordinary shares outstanding (in 1,000 units) 142,585 137,094
Loans and advances to customers break down into business segments as follows: Loans and advances to customers classified regionally (counterparty’s seat) are as follows: (14) Impairment losses on loans and advances
Provisions for impairment losses classified regionally are as follows: A table with the development of the impairment losses for loans and advances can be found in the risk report on page 167.
The trading assets consist of the following securities and derivative instruments held for trading: Central Europe (CE) 303,791 246,258
Bonds, notes and other fixed-interest securities 2,284,556 1,442,440 Treasury bills and bills of public authorities eligible for refinancing 701,667 213,251
Positive fair values of derivative financial instruments 313,470 181,935 Interest-based transactions 75,855 44,663
Financial investments comprise securities held-to-maturity and strategic equity participations held on a long-term basis: Equity participations valued at amortized cost for which fair values could not be reliably measured amounted to € 8,424 thousand (2005: € 36,007 thousand).
Debt securities and other fixed-interest securities 2,719,133 2,724,423 Treasury bills and bills of public authorities eligible for refinancing 1,405,625 1,504,805
Raiffeisen International concluded syndicate contracts with the respective shareholders of the following subsidiaries: Raiffeisenbank a.s. (Czech Republic), Tatra banka a.s. (Slovakia), Raiffeisen-RBHU Holding GmbH (Austria), Raiffeisen Krekova banka d.d. (Slovenia), Raiffeisenbank Austria d.d. (Croatia). Especially, mutual options are regulated in these syndicate contracts.
Financial information on associated companies is shown in the following table: Further information regarding associated companies is stated on page 185.
The increase in goodwill is mainly due to the acquisition of „Impexbank” and eBanka. In 2006, goodwill has been adjusted according to IFRS 3 for VAT Raiffeisen Bank Aval in the amount of € 40,089 thousand. In the item of other intangible assets, € 5,286 thousand were capitalised for the Impex brand and € 4,191 thousand for the eBanka brand. The decision to merge ZAO Raiffeisenbank Austria with OAO “Impexbank” was made in December 2006 and therefore the Impex brand will cease to exist. It is therefore completely impaired in 2006. Moreover, the acquired customer base was capitalised for Impexbank in the amount of € 12,158 thousand and for eBanka in the amount of € 4,683 thousand.
Raiffeisen stavebni sporitelna, a.s., Prague (CZ) 1,515,559 30,153 4,903 48,281 9,390
Land and buildings used by the Group for own purposes 375,388 168,841 (5,071) 64,775 (17,539) 13,675 600,069 of which land value of developed land 853 6,696 (48) 8 - - 7,510
Office furniture and equipment as well as other tangible fixed assets 693,474 45,953 12,897 223,944 (105,618) (2,024) 868,626
Land and buildings used by the Group for own purposes (112,812) 49 (17,512) 487,257 of which land value of developed land - - - 7,510
Intangible and tangible fixed assets developed in the financial year 2005 as follows: Cost of acquisition or conversion €000 As of 1/1/2005
Change in consolidated group Exchange differences Additions Disposals Transfers As of 31/12/2005
Land and buildings used by the Group for own purposes 236,458 105,015 22,688 36,673 (18,898) (6,548) 375,388 of which land value of developed land 9 430 31 384 - - 853
Office furniture and equipment as well as other tangible fixed assets 510,618 54,638 27,566 153,412 (50,482) (2,278) 693,474
Write-ups, amortisation, depreciation, impairment Book value €000 Cumulative Write-ups Depreciation As of 31/12/2005
Land and buildings used by the Group for own purposes (80,927) - (9,565) 294,461 of which land value of developed land - - - 853
Deposits from banks classified regionally (counterparty’s seat) break down as follows: The deposits break down into the following bank segments: (23) Deposits from customers
Due to minor importance, details to provisions for severance payments and retirement benefits are not reported.
Negative fair values of derivatives in fair value hedges (IAS 39) 827 244
Raiffeisen Zentralbank Österreich AG: Debt capital hybrid instrument with Raiffeisenbank (Bulgaria) EAD, Sofia 91,000 EUR
The subscribed capital of Raiffeisen International Bank-Holding AG amounted to € 434,517 thousand as at 31 December 2006. It is divided into 142,770 thousand no-par (bearer) shares. After deduction of own shares totalling 262,260 the stated subscribed capital is € 433,719 thousand.
The statement of changes in equity and other disclosures are shown on page 107.
Members of the managing boards of bank subsidiaries affiliated with Raiffeisen International Bank-Holding AG 43,797 10,949 65,696
Executives of Raiffeisen International Bank-Holding AG and other affiliated companies 17,821 4,455 26,732
Companies can carry out business with related parties that may affect the entity’s asset, financial and earnings position. The following related companies have been identified mainly as related parties: Parent companies are Raiffeisen-Landesbanken-Holding GmbH and Raiffeisen Zentralbank Österreich Aktiengesellschaft. Companies with a significant influence are mainly Raiffeisen-Holding Niederösterreich-Wien registrierte Genossenschaft mit beschränkter Haftung and Raiffeisenlandesbank Niederösterreich - Wien AG.
In the financial year 2005, the following transactions with related parties are shown: (32) Foreign currency volumes
Assets and liabilities with counterparties outside Austria are as follows: Parent companies
Commitments 9,360,834 6,800,736 Irrevocable credit lines and stand-by facilities 7,561,316 5,094,374
The following liabilities are secured by assets shown in the balance sheet: The following balance sheet assets are provided as collateral for the above mentioned obligations: Loans and advances to banks 58,191 207,868
Fiduciary business not recognised in the balance sheet was concluded with the following volumes: Moreover, Raiffeisen International managed funds of € 800,883 thousand (2005: € 542,000 thousand) as of the balance sheet date.
Gross investment value 2,651,603 2,047,111 Up to 3 months 265,438 281,741
To guarantee coherent and consistent risk management and conformity with all legal and regulatory standards within Raiffeisen International Group, the Managing Board of Raiffeisen International Bank-Holding AG decides risk management guidelines within the framework laid down by the RZB Group. The Managing Board of Raiffeisen International Bank-Holding AG approves general risk control and risk management principles, limits for the risks in question and the procedures to be used to capture and manage risk. In addition, it initiates measures to optimize the loan portfolio and to relieve strain on the Group’s available equity, defines lending policy and loan portfolio management standards and lays down procedures for measuring credit risk.
Risk policy is an integral part of Group controlling. In other words, profit and risk management in all business segments are systematically linked. Risk policy encompasses plans for the development of the bank’s business as a whole, among other things according to industry focus, geographical distribution, and segmental subdivision as well as according to exposure size class. In particular, the Managing Board and Supervisory Board lay down limits for all pertinent risks, and they limit cluster risks by setting limits for major exposures.
Economic capital When estimating unexpected losses on an annual basis (so-called economic capital), the Group employs a confidence level of 99.95 per cent. That figure is based on the probability of default implied by the Group’s target rating.
The purpose of calculating economic capital is to ascertain the amount of capital required for the Group’s continued existence on a going-concern basis even when extreme loss scenarios are applied (economic capital adequacy). Based on that level of risk, a risk-adjusted performance measurement (RAPM) can then be carried out. That in turn is used as a parameter in overall Group management and for the purposes of the associated capital allocations. Economic capital is currently calculated by risk category and Group unit. Further extension of this management instrument is in progress.
Credit risk management is handled by risk management departments on behalf of the Managing Board of Raiffeisen International Bank-Holding AG. The risk managers regularly report to the Managing Board and RZB concerning the risk arising from respective loan portfolios.
The internal system for controlling credit risks encompasses every form of monitoring measure that is directly or indirectly integrated into the processes that require monitoring. Against the background of the new capital adequacy framework for banks (Basel II), seamless management, monitoring, and control of credit risks at Raiffeisen International are thus assured.
The following table provides a breakdown of the credit exposure to corporate customers according to IRB in thousands of euros: If one considers the portfolio weighting according to rating categories, one finds a slight shift compared with 2005 in favour of the middle of the rating category range. However, the economic rating in this table presents a purely borrowerspecific view and does not take into account transaction-specific provisions of security.
Internal Rating 2006 Proportion 2005 Proportion 4.0 Weak credit standing/sub-standard 5,130,617 15.6% 4,872,191 19.7%
The loan portfolio and borrowers are constantly monitored. Corporate customers, financial institutions, and sovereigns undergo review at least once a year with a particular focus on detecting any early-warning signs. Troubled loans are normally handled by specially trained and experienced staff. Those staff members play a decisive part in charting, analyzing, and allocating any impairment losses on loans and advances (write-downs, value adjustments, or provisioning). By becoming involved at an early stage, they reduce the losses caused by troubled loans. Cases in which restructuring or settlements take place are analyzed to ascertain their causes. Lending processes are then adapted as necessary on the basis of such an analysis.
The following table provides an exposure breakdown by asset classes from the balance sheet items loans and advances to banks and loans and advances to customers (thus excluding off-balance sheet items) as well as the relevant shares of non-performing loans (excluding ceded collateral) and impairment loss provisions by region without Austria and in total: Internal Rating 2006 Proportion 2005 Proportion
www.ri.co.at Preface Managing Board Supervisory Board‘s Report Overview Interview Stock €000 CE SEE CIS Total 2006 €000 CE SEE CIS Total 2005
Provisioning for impairment losses is formed by applying uniform Group-wide standards and covers all recognizable credit risks. The following breakdown of impairment losses on loans and advances shows their development during the financial year and that of the underlying balance sheet items: * Allocations including direct write-downs and income on written-down claims.
Country risks include transfer and convertibility risks and political risk. The measurement of risks associated with sovereign institutions is based on a ten-class rating model that captures both macroeconomic factors and qualitative indicators. Each country limit takes into account transfer risks arising from transactions net of any third-country collateral. Country risk is of secondary importance to Raiffeisen International because the network banks mainly do business within their own countries.
Loans and advances to customers 167,786 21,282 168,003 (54,353) - (4,872) 297,846
Loans and advances to banks and customers as well as off-balance sheet transactions break down by regions as follows: * EU-25 excluding separately stated member states.
Market risk at Raiffeisen International is monitored and managed by RZB within the scope of a service level agreement (SLA). The rules and procedures for the management of market risks are defined by RZB on a Group-wide basis and endorsed by the Managing Board of Raiffeisen International Bank-Holding AG. Each Raiffeisen International network bank has a market risk management department. Those departments are responsible for day-to-day limit monitoring and weekly reporting to RZB.
Raiffeisen International Bank-Holding AG approves, measures, monitors and manages all market risks by setting a variety of limits in coordination with RZB Group. The market risk limit for each Group unit is set according to its risk-bearing capacity and income budgeting. The individual limits set at book level will vary according to the different risk factors. Besides value-at-risk (VaR) limits, those limits may include volume and position limits as well as sensitivity limits (basis-point value, delta, gamma, and vega) and stop-loss limits. Option positions may only be opened by appropriately trained traders.
Raiffeisen International uses the standard method as defined by the capital adequacy directive to calculate its own funds requirement for the trading book.
Maturity gap 2006 6-12 months 1-2 years 2-5 years >5 years
Maturity gap 2005 6-12 months 1-2 years 2-5 years >5 years
The total volume of unsettled financial instruments as of 31 December 2005 breaks down as follows: Nominal amount by maturity Fair values €000 Up to 1 year
All other financial instruments are valued using internally accepted calculation models, especially discounted cash flow analysis and option pricing models. Fair values different from the carrying amount are calculated for fixed-interest loans and advances to and deposits from banks or customers, if the remaining maturity is more than one year. Variableinterest loans and advances and deposits are taken into account if they have an interest rollover period of more than one year. The effect of discounting by using a computational interest rate that reflects the market rates is only material in those cases.
Loans and advances to customers 35,130,782 35,042,749 88,033 24,882,459 24,714,026 168,433
Risk-weighted basis of assessment according to Sec. 22 BWG 38,001,726 26,582,048 of which 8 per cent minimum own funds requirement 3,040,138 2,126,564
In the case of termination of function or employment contract, severance payments may occur. These severance payments are paid either according to the Salaried Employee Act (Angestelltengesetz) or to the Company Retirement Plan Act (Betriebliches Mitarbeitervorsorgegesetz) which is dependent on the agreement with the Board.
Key management refers to the Managing Board of Raiffeisen International Bank-Holding AG, the parent company, and Raiffeisen Zentralbank Österreich AG, the majority shareholder. Relations of key management to Raiffeisen International are as follows (respective fair values): The following table shows relations of close family members of key management to Raiffeisen International: Beyond that, there are no further relations of Raiffeisen International to key management. Moreover, there is no compensation agreed between the company and their members of the Managing Board and Supervisory Board in the case of a takeover bid.
In the financial year 2006, bonus payments totalling € 4,750 thousand in connection with the acquisitions made are agreed. The planned payments are due not before 2009. These payments are mainly dependent on achieving the targeted objectives of these acquired companies (Return on Standard Capital, Cost Income Ratio and profit after tax). In the previous year, there were no such commitments.
In the reporting period, a pension plan was granted by the personnel committee to the members of the Managing Board and a provision was therefore built in the amount of € 2,000 thousand.
The Chairman of the Managing Board is furthermore still working for the board of Raiffeisen Zentralbank. Remuneration stated in the above table also cover this position as well as his activities for Raiffeisen International. Raiffeisen International is reimbursing RZB for this on a proportional basis.
The annual general meeting decided an annual remuneration for the members of the Supervisory Board in the amount of € 195 thousand on 7 June, 2006 and transferred the distribution to the Board itself. The members of the Supervisory Board settled the distribution in their meeting of 7 June, 2006 as follows: Chairman € 40 thousand, Deputy-Chairman € 35 thousand, members of the Supervisory Board € 30 thousand. Session fees were not paid. In the previous year, the members of the Supervisory Board received a remuneration of € 304 thousand. Moreover, no contracts subject to approval in the meaning of Section 95 (5) 12 Austrian Stock Corporation Act (AktG) are concluded with members of the Supervisory Board in the financial year.
The members of the Managing Board have mandates in the Supervisory Board of quoted companies at home and abroad: • Herbert Stepic: OMV AG, VAT Raiffeisen Bank Aval, Tatra banka a.s. • Heinz Wiedner: VAT Raiffeisen Bank Aval • Aris Bogdaneris: VAT Raiffeisen Bank Aval • Martin Grüll: VAT Raiffeisen Bank Aval • Peter Lennkh: VAT Raiffeisen Bank Aval
Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with laws and regulations applicable in Austria and in accordance with International Standards on Auditing, issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
VAT Raiffeisen Bank Aval, Kiev (UA) 2,099,934,975 UAH 95.7% BA eBanka, a.s., Prague (CZ) 1,184,500,000 CZK 100.0% BA JV "Raiffeisen-leasing", Minsk (BY) 1,251,583,348 BYR 66.6% FI TOV "Raiffeisen Leasing Aval", Kiev (UA) 11,758,092 UAH 87.2% FI OAO Impexbank, Moscow (RU) 3,630,899,000 RUB 100.0% BA OOO "Vneshleasing", Moscow(RU) 131,770 RUB 100.0% FI OOO “Raiffeisen Capital” Asset-Management, Moscow (RU) 150,000,000 RUB 100.0% FI OOO Raiffeisen-Leasing, Moscow (RU) 146,000,000 RUB 87.5% FI Priorbank, OAO, Minsk (BY) 102,801,217,650 BYR 63.0% BA Raiffeisen Bank d.d. Bosna i Hercegovina, Sarajevo (BA) 104,391,250 BAM 97.0% BA Raiffeisen Bank Kosovo S.A., Prishtina (RS) 33,000,000 EUR 100.0% BA Raiffeisen Bank Polska S.A., Warsaw (PL) 572,988,150 PLN 100.0% BA Raiffeisen Bank S.A., Bucharest (RO) 1,196,258,639 RON 99.5% BA Raiffeisen Bank Sh.a., Tirana (AL) 34,592,965 EUR 100.0% BA Raiffeisen Bank Zrt., Budapest (HU) 29,769,140,000 HUF 70.3% BA Raiffeisen banka a.d., Belgrade (RS) 15,723,637,580 RSD 100.0% BA Raiffeisen Car Leasing Ltd., Budapest (HU) 20,000,000 HUF 72.7% FI Raiffeisen Financial Services Company Zrt., Budapest (HU) 20,000,000 HUF 70.3% 0.7% FI Raiffeisen International GROUP IT GmbH, Vienna (AT) 37,000 EUR 99.0% BR Raiffeisen Krekova banka d.d., Maribor (SI) 3,386,992,000 SIT 85.7% BA Raiffeisen Leasing Bulgaria OOD, Sofia (BG) 5,900,000 BGN 81.1% FI Raiffeisen Leasing d.o.o., Belgrade (RS) 226,544,550 RSD 87.5% FI Raiffeisen Leasing d.o.o., Ljubljana (SI) 895,800,000 SIT 87.5% FI Raiffeisen Leasing d.o.o., Sarajevo (BA) 3,008,000 BAM 86.0% FI Raiffeisen Leasing IFN S.A., Bucharest (RO) 14,935,400 RON 75.0% FI Raiffeisen Leasing Polska S.A., Warsaw (PL) 22,301,000 PLN 87.5% FI Raiffeisen Leasing sh.a., Tirana (AL) 123,000,000 ALL 93.8% FI Raiffeisen Lízing Zrt., Budapest (HU) 225,620,000 HUF 72.7% BA Raiffeisen Mandatory Pension Fund Management d.d., Zagreb (HR) 110,000,000 HRK 73.7% FI Raiffeisen Real Estate Management Zrt., Budapest (HU) 105,440,000 HUF 72.7% BR Raiffeisenbank (Bulgaria) EAD, Sofia (BG) 94,932,152 BGN 100.0% BA Raiffeisenbank a.s., Prague (CZ) 3,614,000,000 CZK 51.0% BA Raiffeisenbank Austria d.d., Zagreb (HR) 2,194,132,000 HRK 73.7% BA Raiffeisen-Leasing d.o.o., Zagreb (HR) 30,000,000 HRK 74.4% FI Raiffeisen-Leasing Real Estate, s.r.o., Prague (CZ) 10,000,000 CZK 69.0% FI Raiffeisen-Leasing, spolecnost s.r.o., Prague (CZ) 50,000,000 CZK 63.0% FI RI Eastern European Finance B.V., Amsterdam (NL) 400,000 EUR 100.0% FI RI FINANCE (JERSEY) LIMITED, St. Helier (JE) 500,000,002 EUR 0.0% FI SINESCO Kft., Budapest (HU) 3,000,000 HUF 72.7% OT Tatra banka, a.s., Bratislava (SK) 1,075,577,600 SKK 67.6% BA Tatra Leasing spol. s r.o., Bratislava (SK) 200,000,000 SKK 71.5% FI TOO Raiffeisen Leasing Kazakhstan, Almaty (KZ) 85,800,000 KZT 75.0% FI Ukrainian Processing Center, JSC, Kiev (UA) 180,000 UAH 100.0% BR ZAO Raiffeisenbank Austria, Moscow (RU) 9,846,560,000 RUB 100,0% BA
Legend: 1 Equity participations held via companies that are not included in the consolidated financial statements (pro-rata share) 2 Company type BA Bank BR Company rendering banking-related ancillary services FI Financial institution OT Other company
Company, domicile (country) Subscribed capital in local currency Share Indirectly held 1) Type
Associated companies – Entity over which the investor has significant influence.
Badwill – Any remaining excess of the acquirer‘s interest in the fair values of the identifiable assets and liabilities acquired over the cost of the acquisition as at the date of the exchange transac-tion.
Banking book – All positions that are not assigned to the trading book.
Clean price – Price of a financial instrument without accrued interest.
Core capital ratio – This ratio‘s numerator is core capital (tier 1) and its denominator is the basis of assessment (incl. market risk).
Cost/income ratio – Indicator of an enterprise‘s cost efficiency based on the ratio of expenses to earnings. It is calculated by comparing general administrative expenses (comprising staff expenses and other administrative expenses and depreciation/amortisation of tangible and intangi-ble fixed assets) with operating income (net interest income, net commission income, trading profit (loss) and other operating profit (loss) adjusted by the net result from hedge accounting and net income from other derivative instruments).
Deferred tax liabilities – The amounts of income taxes payable in future periods in respect of taxable temporary differences.
Earnings per share (EPS) – Profit attributable to ordinary equity holder (profit adjusted by divi-dends to preference share holders) divided by the weighted average number of ordinary shares outstanding during the period.
Fair value – The amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm‘s length transaction.
Finance lease – A lease that transfers substantially all the risks and rewards incidental to ownership of an asset.
Goodwill – Any excess of the cost of the acquisition over the acquirer‘s interest in the fair value of the identifiable assets and liabilities acquired as at the date of the exchange transaction.
Held-to-maturity investments – Financial assets with fixed or determinable payments and fixed maturity that an entity has the positive intention and ability to hold to maturity.
Loss rate – Usage of previously allocated loan loss provisions plus direct write-downs and Income received on written-down claims divided by total credit exposure.
Managemen t ‘s Repo r t S egmen t Repo r t s F inanc ia l S t a t emen t s G los sa r y Con tac t s
Own funds within the meaning of BWG – Consist of core capital (tier 1), additional and subordinated capital (tier 2) and short-term subordinated capital and rededicated tier 2 capital (tier 3).
Repurchase agreement – During a genuine repurchase transaction (repo), the enterprise sells assets to a counterparty and concurrently agrees to reacquire the assets at an agreed time and at an agreed price.
Risk/Earnings-Ratio – Risk valuation ratio. Is calculated by Provisioning for impairment losses divided by net interest income.
RZB-Kreditinstitutsgruppe – Pursuant to section 30 of the Austrian Banking Act (BWG), RZB-Kreditinstitutsgruppe is made up of all banks, financial institutions, securities companies and companies rendering banking-related services in which Raiffeisen Zentralbank holds direct or indirect interests or has control as a superordinate institution.
SEPA – Single European Payments Area. This is a project to create a European wide standardized payment area. In this payment area there is no distinction between crossborder and national payments for customers anymore.
Bosnia and Herzegovina Raiffeisen Bank d.d. Bosna i Hercegovina Danijela Ozme 3 71000 Sarajevo Tel. +387-33-287 100 Fax +387-33-213 851 SWIFT/BIC: RZBABA2S www.raiffeisenbank.ba
Croatia Raiffeisenbank Austria d.d. Petrinjska 59 10000 Zagreb Tel. +385-1-456 6466 Fax +385-1-481 1624 SWIFT/BIC: RZBHHR2X www.rba.hr
Romania Raiffeisen Bank S.A. Piaţa Charles de Gaulle 15 011857 Bucures̨ti 1 Tel.: +40-21-306 1000 Fax: +40-21-230 0700 SWIFT/BIC: RZBRROBU www.raiffeisen.ro
Russia ZAO Raiffeisenbank Austria Leninsky avenue, 15A 119071 Moskwa Tel. +7-095-721 9900 Fax +7-095-721 9901 SWIFT/BIC: RZBMRUMM www.raiffeisen.ru
OAO Impexbank 20/10 Build.1A Novopeschanaya St. Moskwa 125252 Tel. +7-495-258 3219 Fax +7-495-248 1370 SWIFT/BIC: IMPERUMM www.impexbank.ru
Ukraine VAT Raiffeisen Bank Aval 9, Leskova vul. 01011 Kyiv Tel.: +38-44-490 8801 SWIFT/BIC: AVALUAUK www.aval.ua
Albania Raiffeisen Leasing Sh.A. Rruga Kavajes 44 Tirana Tel. +355-4-274 920 Fax +355-4-232 524
Belarus SOOO Raiffeisen Leasing 31A, V. Khoruzhey, 3rd floor 220002 Minsk
Hungary Raiffeisen Lízing Zrt. Váci utca 81-85 1139 Budapest Tel. +36-1-298 8200 Fax +36-1-298 8010 www.raiffeisenlizing.hu
Kazakhstan Raiffeisen Leasing Kazakhstan LLP 146, Shevchenko str., office 12, 1st floor 050008 Almaty Tel. +7-3272-709 836
Slovakia Tatra Leasing s.r.o. Továrenská 10 81109 Bratislava Tel. +421-2-5919 3168 Fax +421-2-5919 3048 www.tatraleasing.sk
Slovenia Raiffeisen Leasing d.o.o. Tivolska 30 (Center Tivoli) 1000 Ljubljana Tel. +386-1-241 6250 Fax +386-1-241 6268 www.rl-sl.si
Consulting and support: BCA Mensalia Design: gantnerundenzi.at Printer: AV+Astoria Druckzentrum Place of production: Vienna
Some market participants are inclined to draw claims from statements about expected future development and then assert them in court. The occasionally considerable effects of such action on the company in question and its shareholders have caused many companies to limit their statements about expected future development to the legally required minimum. However, Raiffeisen International does not view its annual report only as an obligation, but would also like to use it as an opportunity for open communication. So that we can continue to do that, we emphasize: The forecasts, plans, and statements addressing the future are based on knowledge and estimates at the time at which they are drawn up. Like all statements addressing the future, they are exposed to risks and uncertainty factors that may lead to considerable deviations in the result. No guarantees can therefore be provided that the forecasts and targeted values, or the statements addressing the future, will actually materialise. We have exercised utmost diligence in the preparation of this annual report and checked the data contained therein. However, rounding, transmission, printing, and typographical errors cannot be ruled out. The present English version is a translation of the report that the company originally prepared in the German language. The company only recognises the German version as the authentic version.