Survey of key data Monetary values in € million 2009 Change 2008 2007 20061 2005
Return on equity after tax 4.5% (12.1) PP 16.6% 20.2% 21.0% 17.6%
Return on assets before tax 0.47% (1.30) PP 1.77% 1.98% 1.90% 1.68%
Core capital ratio (Tier 1), total 11.0% 2.9 PP 8.1% 10.5% 9.0% 8.0%
Resources 1 Excluding one-off effects due to the sales of Raiffeisenbank Ukraine and the minority interest in Bank TuranAlem. 2 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. 3 25 April 2005 (IPO) to 31 December 2005. 4 Proposal to the Annual General Meeting.
Business divisions 104 Corporate customers 105 Retail customers 107 Treasury 109 Participations and other 110
To cope successfully with a crisis, a company needs to have a sustainable business model and be flexible towards taking appropriate measures. Based on continuous analysis of the environment, we were able to take the necessary steps immediately. We met discernible risks with appropriate precautions.
We may have passed the worst point of the economic crisis, but 2010 will be another year of great challenges. We therefore consider it extremely important that we continue to focus fully on the agenda set in the crisis year of 2009.
We are firmly convinced that the CEE region will prove to be the driving economic force in Europe again after the crisis. The countries of Central and Eastern Europe suffered some setbacks last year, which were significantly more severe in some cases than those in Western European countries. But the convergence process that started more than two decades ago is still far from over. The continuing need to catch up after about five decades of communism will, according to practically all forecasts, ensure that the region again undergoes stronger growth than Western Europe in the years ahead. Added to that is its comparatively lower penetration rate with respect to banking products. All of this should be a solid basis of renewed successful development for banks operating in the region.
As in the past, open communication prevailed between the Managing Board and the Supervisory Board in the reporting period. The Managing Board of Raiffeisen International regularly informed the members of the Supervisory Board and its Committees. Reports were made in a timely and comprehensive manner about all relevant aspects of business development, including the risk management of the company and that of material Group entities.
The Managing Board also informed the Supervisory Board in a detailed, timely manner concerning all aspects of the company’s strategic orientation, so the Supervisory Board was able to fulfill its monitoring duty diligently and make sound decisions. That enabled the Supervisory Board to discuss the status of the strategy’s execution at regular intervals with the Managing Board.
In the meetings and in separate talks, the consequences of the financial and economic crisis, and particularly of the turbulent developments on the capital markets for the company and the Group, were discussed extensively. There were thus regular reports regarding the current earnings position as well as on the liquidity and risk situation of the Group.
The annual financial statements and management report as well as the consolidated financial reports and management report for 2008, were examined at the meeting on 25 March 2009. Pursuant to the Audit Committee’s recommendation, the annual financial statements were ratified, and the proposal regarding the use of profit was approved. The Supervisory Board was informed about the management letter. Note was taken of the corporate governance report together with the external examination.
In the meeting of 25 March 2009, Kurt Geiger was nominated as a new Supervisory Board member, and Patrick Butler and Stewart D. Gager were nominated for reappointment as Supervisory Board members by the Annual General Meeting. All nominees were elected at the Annual General Meeting of 9 June 2009. Their period in office will end at the Annual General Meeting which decides on the discharge of board members for 2013.
The Group’s lending policy and liquidity situation were also the subject of the meeting on 2 December 2009, and the Managing Board reported on measures in that regard. The planning for 2010, the 2010 budget, and the market positioning of Raiffeisen International were discussed. In addi-
Report of the Supervisory Board tion, a status report on the topic of compliance was given. In accordance with the provisions of the Austrian Corporate Governance Code as amended in 2009, the Supervisory Board had an external evaluation of its actions conducted. The results were discussed in detail at the meeting.
The Audit Committee monitored the accounting process, the effectiveness of the company’s internal controlling system, internal auditing system, and risk management. It furthermore monitored the audit of the annual financial statements and the audit of the consolidated financial statements. Moreover, determining and monitoring the independence of the auditor of the financial statements were also among the Audit Committee’s duties. It examined the annual financial statements and the consolidated financial statements and the preparation of their ratification. It dealt with the proposal concerning the use of profit, the management letter, and the corporate governance report. Furthermore, it made a proposal concerning the appointment of the auditor.
The Personnel Committee dealt with matters related to the remuneration of the Managing Board including the bonus arrangements and the directors and officers insurance.
The compliance audit performed on the Corporate Governance Report according to section 243b of the Austrian Commercial Code (Unternehmensgesetzbuch ) was performed by Univ. Prof. DDr. Waldemar Jud Corporate Governance Forschung CGF GmbH and the concluding results did not give any cause for significant claim.
Raiffeisen International is one of the leading banking groups in Central and Eastern Europe and operates one of that region’s largest bank networks with 3,018 business outlets. Its leading role is furthermore reflected in the good positioning of its network banks in their respective markets. At the end of 2009, 6 Raiffeisen International network banks ranked among the top three banks in their countries.
Awards in 2009 Raiffeisen International’s leading role is reflected in the many prizes that it received from the international financial press in 2009, including some that the banking group had already won in previous years. The most important awards in the reporting period came from Global Finance and Euromoney.
Global Finance selected Raiffeisen International together with RZB as “Best Bank in Central and Eastern Europe” in March 2009. Network banks were also acknowledged with numerous awards by Global Finance. The magazine gave the title of “Best Bank” to the units in Bosnia and Herzegovina, Bulgaria, the Czech Republic, Serbia, and Slovakia.
Emerging stronger from the crisis with a sustainable business model Interview with Chairman of the Managing Board, Herbert Stepic
The year 2009 was obviously the most difficult in Raiffeisen International’s history. What was special about the year for you? I have experienced a great deal in more than three decades as a banker, but nothing compares to the events that occurred after the collapse of Lehman Brothers and then shaped 2009. The international crisis of confidence caused an extreme scarcity of liquidity, which naturally had a disproportionate effect on emerging markets such as Central and Eastern Europe. The convergence process in the CEE region was suddenly interrupted by a crisis that for the first time proceeded from a developed national economy and was not regionally limited. This put entire government budgets under considerable pressure, as well as the businesses operating there – especially the banks. The risk premiums that had to be paid for CEE financing rapidly grew to many times of that which we had seen in previous years, before reaching roughly the level at which they had been before the collapse of Lehman Brothers in the fourth quarter of 2009. It was extremely positive in this connection that policy-makers and supranational institutions acted quickly and decisively. The European Union proved to be a strong source of backing and the International Monetary Fund left no doubt that it would substantially support countries in distress. This was extremely important because it allowed what was established after the fall of the Iron Curtain, a common Europe, to be preserved. A relapse into division of the continent was prevented.
Raiffeisen International has also had to form considerable provisioning for impairment risks. How do you think this situation will develop in the future? It is true that non-performing loans, that is, loans on which customers are more than 90 days in arrears, increased very sharply. We formed provisions in 2009 accordingly, which are around 123 per cent above the preceding year’s level. It is important to emphasize, however, that by no means will all these provisions convert into full write-offs. There are two reasons for that: the improving economic environment and the intrinsic value of our collateral. Moreover, the upward momentum of non-performing loans has been decreasing since the third quarter. That is at least an encouraging sign and suggests that the crisis is subsiding. Although non-performing loans are still rising overall, the strong rates of increase seen in the first half of 2009 appear to be over.
In which markets did economic conditions worsen the most? It has become very clear this year that Central and Eastern Europe is not a homogeneous region and individual countries have thus been affected quite differently by the crisis. With the exception of Hungary, Central Europe has proven to be relatively crisis-resistant. In Southeastern Europe, the problems have appeared at a significant delay and with characteristics that vary from country to country. Russia was hit relatively hard by the crisis, but has distinguished itself with good crisis management on the part of the government and central bank, quickly furnishing liquidity and thereby limiting the negative consequences for the economy. As a result, the Russian economy managed a comparatively rapid turnaround. Ukraine was one of the countries that suffered the most from the crisis. Among other things, heavy dependence on the commodity markets and domestic political rivalries contributed to that. Consequently, our need for provisioning for impairment losses was very strongly shaped by the development in Ukraine, but provisioning requirements in Hungary heavily burdened our earnings too.
Ukraine in particular is associated with the topic of “foreign currency loans.” Where are things headed there? In Ukraine, servicing of foreign currency loans has become a problem, especially for many private individuals because of the sharp decline of the local currency. But one should not make the mistake of condemning foreign currency loans in general for that reason. They were necessary in the past for putting together long-term financing, and will be justified in that business area in the future. However, banks will generally proceed much more restrictively, and we will limit ourselves to the euro and US dollar and only offer such loans to customers with relatively high incomes.
Looking back on 2009, is there anything that you judge positively? Despite this extraordinarily great burden, we managed to make a profit in 2009, which is by itself very positive in light of the economic environment. A crucial factor for our success in the crisis was that we were able to reduce total costs despite high capital investments in the previous years. For me, that is one of the most important accomplishments. Keep in mind that we have had growth rates of more than 20 per cent in the past years. In 2009, we reduced our costs by around 14 per cent. This considerable result was achieved in part by programs to enhance efficiency and reduce costs, for example, in the context of negotiating tenancy agreements and centralized procurement. Regrettably, it was not possible to avoid layoffs in the pursuit of efficiency enhancement. Despite acting in a socially responsible manner, this was a painful process for us. We have cut about 6,800 jobs since the beginning of the crisis, but are still at the level of the third quarter of 2007. I also consider it a success that we have slightly expanded our customer base. Customers perceive us as quality providers even more than before and entrust their money to us. This shows that the Raiffeisen brand continues to emanate strong appeal and our employees are doing an excellent job.
What will Raiffeisen International’s emphases be in 2010? We are in the fortunate position that we do not have to change our business model. As a universal bank, we provide our customers with “bread and butter” products, that is, transparent products geared to customer needs. The environment will be more buoyant, but the situation overall will continue to be strained. That means we will still face considerable need to provision for impairment losses and find ourselves in stiff competition for customers with good credit standing. We will therefore put special emphasis on risk and portfolio management in addition to a moderate adjustment of lending conditions. Continuing strict cost management will also be very important. We will therefore work with great determination on further enhancing our efficiency. I believe that we have become a better organization because of the enormous challenges we have faced, and we intend to continue working on that. It remains our goal to emerge from this crisis stronger with the help of our sustainable business model. If our corporate and retail customers notice this effort, then we have already achieved the most important thing.
What can one expect of Raiffeisen International ’s business development? It is still nearly impossible to give reasonable forecasts. However, I generally expect there to be a resurgence in demand, and thus our lending volume should also increase slightly. While we will continue to keep a close eye on costs, we intend to strengthen the income side by means of a targeted increase in cross-selling. Liquidity is no longer the determining factor, as the liquidity situation on the markets is now good again. We now know from experience, however, that this can change very quickly. We will therefore keep an eye on strengthening our primary deposits in any case.
And how did the CEE Charity you founded develop in 2009? Very well, considering the difficult environment. The goal of the initiative is to help children, youth, and young women in disadvantaged regions. There are now seven projects in Ukraine, Serbia, Bulgaria, and Bosnia and Herzegovina. I hope that we will soon manage to have at least one project running in every Central and Eastern European country in which Raiffeisen operates. Donations are gladly accepted!
That continued in the second quarter, when major US banks did unexpectedly well in stress tests and released surprisingly strong figures for the first quarter of 2009. Good economic data, especially from the United States and China, further contributed to the recovery. The lowering of key interest rates by the European Central Bank (ECB) in April and May by 25 basis points each to 1 per cent also had a positive influence on the stock markets. That the US central bank left its key interest rate at almost 0 per cent from the end of 2008 onward had a similar effect. However, the lack of better fundamental data in the United States dampened the mood, as did negative economic forecasts by the International Monetary Fund (IMF) and the World Bank.
Supported by the positive assessment of domestic banks regarding their capitalization by the Oesterreichische Nationalbank (Austrian National Bank) and returning confidence in banks with Central and Eastern European
Price performance since 1 January 2009 compared with the ATX and DJ EURO STOXX Banks
Price performance since 25 April 2005 compared with ATX and DJ EURO STOXX Banks
This upward trend of Raiffeisen International stock continued in the fourth quarter and led to an intraday high for the year of € 48.55 on 20 October. However, the stock fell below € 40 at the end of October. It did recover later, but only registered sideways movement in the course of the fourth quarter. When the Austrian stock market suffered in mid-December from the nationalization of Hypo Group Alpe Adria AG, Raiffeisen International stock dropped below the € 40 mark again, where it stayed for the remainder of the year.
The result was an increase of the stock price by 105 per cent from € 19.30 at the end of 2008 to € 39.50 on 31 December 2009. Raiffeisen International thus beat Austria’s most important stock index, the Austrian Traded Index (ATX), and the benchmark index for European banks, the Dow Jones EURO STOXX Banks, in 2009.
Raiffeisen International stock reached its high for the year on 19 October at € 47.86 (closing price). At the end of 2009, Raiffeisen International ’s market capitalization stood at € 6.1 billion with 154.7 million shares issued. As of the editorial deadline for this report on 1 March 2010, the stock stood at € 33.58 which represents a decrease of 15 per cent compared with the end of 2009.
In 2009, 97 million Raiffeisen International shares were traded. In the process, total turnover of € 2.9 billion and average daily trading volume of 391,312 shares were achieved.
In Austria, the company participated in an investor event in the resort town of Zürs in 2009. Investors and analysts were furthermore invited to a meeting with the Managing Board at the company’s Vienna headquarters in December 2009. The management talked with private shareholders after its presentation of the company at a trade fair held in Vienna in October by the Austrian business magazine Gewinn. The Managing Board also spoke at a roadshow for private investors at the Oesterreichische Kontrollbank in Vienna.
On the basis of that resolution, Raiffeisen International issued participation rights amounting to € 600 million in mid-July, in addition to € 650 million in hybrid Tier 1 capital. Both issues were completely subscribed by RZB. These issues were accompanied by a conference call like the ones Raiffeisen International usually conducts when publishing results. The presentations from the conference calls may be found online at www.ri.co.at → Investor Relations → Raiffeisen International Share → Financial Reports & Figures → Presentations.
Dividend proposal The shareholders of Raiffeisen International are cordially invited to the Annual General Meeting for 2009 which is expected to take place on 8 June 2010 in the Austria Center Vienna. The Managing Board will propose a dividend of € 0.20 per share at the event. If the Annual General Meeting approves this proposal, the total dividend payment will come to € 30.9 million. Raiffeisen International shows continuity regarding the relation between the dividend payout to profit, with a payout ratio that has remained unchanged at 14.6 per cent in comparison to the preceding year. The dividend is expected to be paid out on 16 June 2010, which will also be the ex-dividend date.
Share details ISIN AT0000606306 Ticker symbols RIBH (Vienna Stock Exchange) RIBH AV (Bloomberg) RIBH.VI (Reuters) Market segment Prime Market Issue price per share at IPO (25 April 2005) € 32.50 Issue price per share at capital increase (5 October 2007) € 104.00 Number of shares issued as of 31 December 2009 154,667,500 Average number of shares in 2009 153,673,832
Raiffeisen International places great value on responsible and transparent management to establish and maintain a trusting relationship with its various stakeholders, including especially capital market participants. It therefore agrees to comply with the Austrian Corporate Governance Code (ACGC) as amended in January 2009. The ACGC is publicly available at the websites of the Austrian Working Group for Corporate Governance (www.corporate-governance.at) and Raiffeisen International (www.ri.co.at → Investor Relations → Corporate Governance). Raiffeisen International’s corporate governance report is organized as prescribed by Section 243b of the Austrian Commercial Code (UGB) and is oriented to the structure set forth in Appendix 2 of the ACGC.
Transparency of corporate governance is of special importance to Raiffeisen International. The ACGC is organized into L rules and C rules. L rules are based on compulsory legal requirements. C rules are to be complied with, and any divergence must be explained and justified to achieve conduct in conformity with the Code.
In the period under review, all L rules and – with two exceptions – all C rules of the ACGC were fulfilled. Raiffeisen International diverges from C Rule 31 of the ACGC, which provides for individual publication of the fixed and performance-based remuneration granted to Managing Board members in 2009. Disclosure of the remuneration is made for the entire Managing Board. Individual amounts of remuneration are not published for reason of data privacy law and out of consideration for the individual Managing Board members’ right to privacy. Raiffeisen International also diverges, from a formal point of view, from the C Rule 45, which stipulates that members of the supervisory board are not to assume duties in the corporate bodies of other enterprises which are in competition with the Company. The Supervisory Board member, Kurt Geiger, has been holding a seat in the Board of Directors of TBIF Financial Services B.V. since the autumn of 2009. This company provides financial services in Romania, Bulgaria, Ukraine, and Russia. Since TBIF’s market share in these countries is very marginal, no competitive relationship in fact exists. Due to this economic irrelevance, the Supervisory and Management Boards of Raiffeisen International decided to make an exception to the prohibition of the C Rule 45 in this singular case.
The Managing Board currently consists of 6 members: The members of the Managing Board have seats on the supervisory boards or comparable functions in the following domestic and foreign companies not included in the consolidated financial statements: ■ Herbert Stepic: OMV AG Oesterreichische Kontrollbank AG Raiffeisen Centrobank AG
Supervisory Board Year of birth Date first End of term appointed
Patrick Butler 1957 28 September 2004 Regular Annual Gen- eral Meeting 2013
Karl Sevelda 1950 11 May 2001 Regular Annual Gen- eral Meeting 2011
■ The supervisory board member shall not maintain or have maintained in the past year any business relations with the company or one of its subsidiaries to an extent of significance for the member of the supervisory board. This shall also apply to relationships with companies in which a member of the supervisory board has considerable economic interest. The approval of individual transactions by the supervisory board pursuant to L Rule 48 of the ACGC does not automatically mean the person qualifies as not independent.
All members of the Supervisory Board of Raiffeisen International meet the criteria applying to the independence of supervisory board members.
As members of the Supervisory Board, Stewart D. Gager and Kurt Geiger are neither shareholders with a stake of more than 10 per cent nor represent such shareholders and are therefore “free float representatives” in the meaning of C Rule 54 of the ACGC 2009.
The bylaws of the Supervisory Board regulate its organization and assign certain tasks to the Working, Audit, and Personnel Committees, respectively. The Committees are composed as follows: Meeting participation
The Personnel Committee concerns itself with the matters of remuneration of the Managing Board members and the employment contracts of the Managing Board members. It is specifically responsible for approving the bonus allotment and the allocation of shares from the share incentive program to the Managing Board members.
The Supervisory Board convened for 5 meeting in the reporting period. In addition, the Managing Board regularly informed the Supervisory Board in a timely and comprehensive manner about all issues relevant to business development, including the risk situation and risk management of the Company and material Group entities, and particularly about events of major significance.
The Audit Committee met twice. As a rule, the Working and Personnel Committees made their decisions in writing on a circulating basis, with important decisions being dealt with orally in advance.
The remuneration of the Managing Board is reported according to fixed and performance-based components including remuneration for membership in corporate bodies of subsidiaries, bonuses, and payments in kind.
Furthermore, there is protection against the risk of occupational disability, likewise arranged by means of a pension fund or based on an individual pension commitment secured by pension liability insurance.
These figures contain fixed and performance-based amounts, including remuneration for service in the corporate bodies of associated enterprises, bonuses, and payments in kind. In the year under review, the share of performance-based remuneration components amounted to 5.5 per cent (2008: 60.7 per cent).
In 2006, bonus commitments were made in connection with acquisitions to the Managing Board in the amount of € 4,750 thousand. Although the objectives set as conditions for payment were achieved by the subsidiaries in the years from 2006 to 2008 and hence bonus payments became payable in 2009, the Managing Board has waived any payment on this account.
The second tranche of the remuneration program matured in 2009 (the 2006 SIP tranche). In accordance with the terms of the program (published in the Amtsblatt zur Wiener Zeitung on 28 July 2006), the number of shares shown in the following table was actually transferred.
Group of persons Number of Value at share Number shares due price of € 15.70 on of shares allotment day actually (4 March 2009) in € transferred
Annual General Meeting The Annual General Meeting for 2008 was held on 9 June 2009 at the Austria Center in Vienna. The next Annual General Meeting for the past year is expected to take place on 8 June 2010. Its convening will be made known at the latest on the 28th day before the Regular Annual General Meeting in electronic form and in the Amtsblatt zur Wiener Zeitung.
Managing Board members must disclose material personal interests in transactions of the Company and Group enterprises and other conflicts of interest to the Supervisory Board. Moreover, the obligation exists to inform the other Managing Board members. Managing Board members who perform management functions for other enterprises are obligated to work towards achieving a fair balance of the interests of the enterprises involved.
Supervisory Board members must inform the Chairman of the Supervisory Board of any conflicts of interest without delay. If the Chairman himself gets into a conflict of interest, he must disclose that to the Deputy Chairman without delay. The Supervisory Board’s approval is required for
Member of the Supervisory Board1 50,000 1 As a member of the Supervisory Board, Johann Strobl was paid remuneration of € 25,000 instead of € 50,000 because he was a member of the Supervisory Board for only half a year in 2008.
Corporate responsibility in a difficult environment Corporate responsibility, the commitment to social responsibility and environmental sustainability is an integral part of Raiffeisen International’s corporate identity. In its implementation, this means a mindset and a management method that focus on harmonizing economic, social, and environmental demands. The goal at Raiffeisen International is therefore responsible corporate conduct that transcends individual measures.
This principle is dedicated to the origin, tradition, and history of Raiffeisen. Strategies and business activity derive directly from it.
■ Our clients’ success defines our own success. Economic success is Raiffeisen International’s primary corporate goal and the basis for dealing responsibly with customers.
■ A strong cultural mix. Raiffeisen International’s commitment to diversity aims at a strong cultural mix. The development into a multicultural banking group with extensive presence in Central and Eastern Europe entails economic and social opportunities and advantages.
One of the first measures taken to implement the sustainability program was the creation of an office dedicated exclusively to the area of corporate responsibility.
Means of enhancing energy efficiency The Raiffeisen Bank in Hungary finances the improvement of the local infrastructure’s energy efficiency with support from the European Bank for Reconstruction and Development (EBRD). With a credit line in the amount of € 25 million, funds are made available for modernization with a view to energy efficiency, achieved for example by renewing heat and energy distribution systems or building insulation. The capital investments made possible by the credit line will result in savings of up to 150 gigawatt-hours annually. That is equivalent to the consumption of Györ, the sixthlargest city in Hungary with a population of 128,000.
Financial inclusion The Raiffeisen Bank in Albania created a custom-tailored credit product for teachers who would not pass a standardized credit check due to the very low salary levels in the public service sector. Recognizing support of the educational system as part of its social responsibility, the Albanian Raiffeisen Bank grants teachers loans at special conditions and extended terms in the framework of financial inclusion.
Financial education Tatra banka in Slovakia is working together with INTEGRA, a non-profit organization, to improve the population’s knowledge about how to deal with money and bank products. In particular, population groups threatened by poverty are to receive support in managing their household income better and avoiding ill-considered credit commitments.
Microfinance The Bulgarian Raiffeisenbank and RZB support Landhill Financial Ltd., whose business purpose is granting microloans to the Roma people. With group loans in amounts of up to € 300 per group member, funds are made available to start up micro and small businesses. Beginning in the second quarter of 2009, the effects of the economic crisis also became visible in the Bulgarian microcredit segment in respect to both raising funds and repaying existing loans. The emphasis from that time onward has therefore been on repayment of outstanding loans in a socially responsible manner. Solutions have been sought jointly with borrowers, such as deferral or lengthening of terms. At the end of 2009, 10 groups with a total of 55 borrowers were being serviced in Sofia and the surrounding area.
The H. Stepic CEE Charity – Association to support charity projects in Central and Eastern Europe was founded in 2006 by Herbert Stepic, CEO of Raiffeisen International. The goal of the initiative is to support children, teenagers, and young women in disadvantaged regions of Central and Eastern Europe. Seven projects were realized by the end of 2009 in Serbia, Bulgaria, Ukraine, and Bosnia and Herzegovina.
One of the charity’s many initiatives is an orphanage in Charkov, the second largest city in Ukraine. It accommodates 10 children from the age of 3 to 18, as well as 2 carers. Alongside running its own elementary school, the orphanage also has – in cooperation with Caritas and the local social support services – facilities for a carpenter’s workshop which provides young people with an opportunity to have vocational training. Cooking and tailoring courses are also offered. As a result, the general circumstances of the children who would otherwise have to live in poorly equipped, state-run orphanages, has been greatly improved.
Corporate volunteering In the framework of corporate volunteering, Raiffeisen International also supports the volunteer activities of its employees. The Raiffeisenbank in the Czech Republic, for example, organizes “volunteer days” for employees to engage in charitable projects. In 2009, more than 700 hours of volunteer work was done in this way.
Dealing responsibly with employees Raiffeisen International strives to deal fairly with its employees in times of economic crisis as well. A key aspect in that regard is an extensive range of training and continuing education opportunities for the entire staff. In the period under review, that contributed to arranging personnel adjustments resulting from the economic crisis in the most socially responsible manner possible. Details regarding this may be found in the human resources chapter beginning on page 69.
Because of their close economic and financial ties to Western Europe, the countries of Central and Eastern Europe (CEE) were also affected by the global economic crisis in 2009. Besides being heavily oriented to exporting to the European market, the CEE economies are especially dependent on capital flows from Western Europe. This concerns both foreign direct investments and the financing flows of the local financial sector. Since domestic savings are not sufficient as economic capital stock for these countries, they mostly depend on importing foreign capital. This
The rapid economic catch-up process in the transition countries in Southeastern European (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania, and Serbia) led to rising and in some cases very high current account deficits in past years. Before the outbreak of the crisis, financing of those deficits was ensured both by foreign direct investments and by the financing flows of the flourishing financial sector. Because of the crisis, however, financing flows decreased considerably, with the result that current account deficits also had to be reduced rapidly. Some countries, e.g., Romania, Serbia, and Bosnia and Herzegovina, were only able to do that with financial assistance from the International Monetary Fund (IMF). The adjustments in the Southeastern European economies needed to substantially reduce current account deficits caused a sharp decline of GDP growth in 2009 by about 5.6 per cent year-on-year.
The Commonwealth of Independent States (CIS), which had achieved the strongest economic growth of Raiffeisen International markets in past years, was hit hardest among all Central and Eastern European regions by the global economic crisis. In Ukraine, the continuing political crisis hindered not only reform efforts, but also effective measures to combat the economic crisis. That led to a huge loss of the population’s confidence in the local currency. Its devaluation as well as a sharp decline of demand for steel, which subsequently affected its world-market price, caused Ukraine’s economic output to drop in 2009 by around 15 per cent year-on-year. Despite a comparatively favorable starting position, the Russian economy was also unable to escape the effects of the global economic crisis. The sharp decline of commodity prices and a crisis of the domestic financial sector due to excessive speculation on the stock market are likely to have resulted in a contraction of the country’s economic output by 7.9 per cent in 2009. Altogether, the GDP of the CIS probably declined by 8.3 per cent on average in 2009.
After the outbreak of the global financial crisis, Ukraine and Hungary were the first CEE countries to receive financial assistance from the IMF in November 2008, followed by Latvia in December 2008 and other CEE countries in the first half of 2009. The EU made additional funds available for the member states that required IMF money (Hungary, Latvia, and Romania). Both the rapid and pragmatic support by the IMF and the willingness of the EU to support member states in financial distress had a calming effect on the financial markets.
At the summit meeting of the 20 most important industrialized and emerging market countries (G-20) in the beginning of April 2009, it was decided that the IMF’s financial assistance would be tripled to USD 750 billion. The EU also raised the amount of funds it can make available to its member states in an emergency to € 50 billion. Moreover, the World Bank, together with the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB), assembled a € 24.5 billion package to strengthen the financial industry in the CEE region and lending to the private sector.
Banking sector development in Central and Eastern Europe After credit growth in Central and Eastern Europe already slowed greatly in the second half of 2008, it came to a nearly complete standstill in the first half of 2009. A massive rise in the cost and decline in the supply of external financing, tightened conditions for bank loans, and lower demand for credit were responsible for that. In addition to the economic recession, the devaluation of some CEE currencies due to the global economic crisis accelerated the increase of nonperforming loans. The situation in the banking sector stabilized in the second half of 2009, but remained generally tense. The reasons for that were a further rise of unemployment rates due to the recession on the one hand, and uncertainty about the extent, speed, and sustainability of the general economic recovery on the other.
Performance and financials Introduction The consolidated financial statements of Raiffeisen International are prepared in accordance with the International Financial Reporting Standards (IFRS), as applicable in the EU. Raiffeisen Inter national Bank-Holding AG also prepares individual financial statements conforming to the Austrian Commercial Code (UGB), which provide the formal basis of assessment for calculating dividend payments and taxes. For more information on the disclosures required by the UGB, please see the relevant sections of this report and the notes.
The majority of Raiffeisen International is held by Raiffeisen Zentralbank Österreich Aktiengesellschaft (RZB), which makes it part of the RZB Group. The stake held by RZB amounted to 72.8 per cent at the end of the year; the rest of the shares were free float.
As of 31 December 2009, Raiffeisen International’s scope of consolidation comprised 135 Group units, including network banks and leasing companies in 17 markets and a number of financial companies and bank-related service providers. For more information on changes in the scope of consolidation, please see the relevant section of the notes from page 218 onwards. Neither in the year under review nor in the preceding year were there any material additions or disposals in the scope of consolidation that impair the comparability of the two periods.
Profit from operating activities down 9 per cent on preceding year’s level
Net fee and commission income fell due to volume effects by 18 per cent on the preceding year, and net interest income by 9 per cent. General administrative expenses decreased by 14 per cent compared with the preceding year thanks to immediately implemented cost-saving measures.
Demand for credit and bank services declined significantly due to the sharp decline in growth triggered by the financial crisis. That was also partly due to a change in risk policy that mainly concerned foreign currency loans. Consequently, net interest income decreased by 9 per cent on the preceding year to € 2,937 million. In particular, declines were registered by the corporate customer division (minus 14 per cent), the retail customer division (minus 9 per cent), and the treasury division (minus 58 per cent), while positive effects came from the participations and other division because of computational results from the investment of equity. At the segment level, Russia (minus 15 per cent) and CIS Other (minus 8 per cent) bore particular responsibility for the decline. In comparison, the other segments showed smaller reductions. The Group’s interest margin overall fell significantly year-on-year, by 26 basis points to 3.73 per cent. That decline was caused by Russia (minus 67 basis points), by Central Europe (minus 24 basis points), and by Southeastern Europe (minus 26 basis points). Nevertheless, at 68 per cent, the share of operating income attributable to net interest income was 2 percentage points above the previous year’s level.
On the other hand, net trading income increased significantly, by 11 per cent, or € 19 million, to € 186 million. Its share of operating income thus rose to 4 per cent. The individual income components developed very differently and contrary to the preceding year. The result from interest-based transactions increased by € 205 million to € 117 million. That was due to write-ups in the securities portfolio, after valuation losses had occurred there in the preceding year as a result of strong interest rate movements triggered by the global financial market crisis. In contrast, profit from currencybased transactions declined by € 187 million. That was almost solely attributable to currency forwards in Russia, which arose because of changed interest rate and exchange rate differences between the Russian rouble and the US dollar. Valuation gains occurred in the preceding year for the same reason.
The decline of general administrative expenses by 14 per cent in the reporting period was greater than that of operating income by 11 per cent. That resulted in another improvement in the cost/income ratio, a key measure of bank efficiency representing the ratio of operating expenses to operating income, by 1.5 percentage points from 54.0 to 52.5 per cent.
Due to the recession, which caused an increase of non-performing loans for both retail and corporate customers, net allocations to provisioning for impairment losses rose by 123 per cent, or € 958 million, to € 1,738 million. That reduced profit before tax by 74 per cent, or € 1,061 million, to € 368 million.
In 2009, as in the preceding year, net allocations to provisioning for impairment losses were higher in the case of retail customers
The decline of income taxes in 2009 by 77 per cent to € 81 million was proportional to that of profit before tax. The effective tax rate fell from 24.6 to 21.9 per cent. That was due to differences in the distribution of profits and in local tax laws. The effective tax rate was highest in Central Europe at 21.8 per cent, and the lowest rate was registered in Southeastern Europe at 13.3 per cent
Profit after tax fell by 73 per cent in the reporting year to € 287 million (2008: € 1,078 million). This decline was largely due to an increase of net allocations to provisioning for impairment losses (plus € 958 million) and a 9 per cent lower profit from operating activities (minus € 191 million). Other profit/loss improved to € 50 million (2008: minus € 38 million). That was primarily due to the appreciation of the securities portfolio at fair value through profit and loss (increase of € 67 million) and of derivative financial instruments (increase of € 28 million).
Earnings per share before servicing of participation rights capital fell from € 5.40 to € 1.38. After deduction of compensation for participation rights capital amounting to € 60 million, profit allocable to shares decreased to € 152 million, and earnings per share (EPS) to € 0.99. The average number of outstanding shares relevant for calculating earnings per share was 153.7 million in 2009 (2008: 153.6 million). The Managing Board will propose to the Annual General Meeting 2010 that a dividend of € 0.20 per share be paid for 2009.
Equity was decreased in the reporting period by € 200 million due to dividend payments. Of that, € 143 million went to Raiffeisen International shareholders, corresponding to an unchanged dividend relative to the preceding year of € 0.93 per share, and € 57 million went to outside shareholders of Group companies.
Regulatory own funds rose by 19 per cent on the preceding year to € 8,328 million. Besides the described changes in equity, an additional € 650 million flowed into the company in September 2009 as a result of the issuance of hybrid capital, which had a positive effect on core capital (Tier 1). This issue, like the participation rights, was entirely subscribed by RZB. The core capital ratio based on total risk increased significantly as a result, by 2.9 percentage points to 11.0 per cent, and the own funds ratio grew somewhat more strongly, by 3.3 percentage points to 13.0 per cent.
Balance sheet total amounts to € 76 billion For the first time after many years of growth, Raiffeisen International Group’s balance sheet total declined in the year under review. It fell year-on-year from € 85.4 billion to € 76.3 billion, which means a reduction of 11 per cent, or € 9.1 billion. That includes currency effects of about € 1.4 billion, resulting from devaluation of some CEE currencies and the US dollar. Adjusting for currency effects yielded an organic decline of about 9 per cent, or € 7.7 billion.
Lending business was the main reason for that. Including the increase in provisions for impairment losses, loans and advances to customers fell by 16 per cent, or € 8.8 billion. About half of that reduction occurred in business with large corporates, while loans to private individuals only contributed about one fifth. At the segment level, the largest declines were registered in Russia at more than 30 per cent and in the CIS Other segment at 18 per cent.
Net interest income Net interest income decreased by 9 per cent, or € 296 million, in the reporting year to € 2,937 million. Its fall was thus greater than that of the average balance sheet total, which declined by 3 per cent. Besides currency effects and lower business volume, higher funding costs were particularly responsible for that. For reasons of liquidity management, use was made in some cases of longer-term, and hence more expensive, funding instruments. Viewed in absolute terms, net interest income was down the most in Russia (minus € 115 million) and in Ukraine (minus € 58 million). The Czech Republic occupies a special position with an increase of € 34 million, as both lending volume and margins increased there contrary to the trend.
The decline of net interest income is explained not only by falling business volume, but also by
Net interest income in the retail customer division decreased primarily due to volume effects by 10 per cent to € 1,669 million. Its share of total net interest income remained constant at 57 per cent, while that of the corporate customer division fell slightly to 33 per cent. However, the greatest decline of net interest income was in the treasury division (minus 58 per cent), which had lower net interest income in the area of maturity transformation and on securities investments. On the other hand, income from the investment of equity, booked in the participations and other division, more than doubled because of the different interest rate levels between the euro and CEE currencies.
Interest income declined by 10 per cent to € 5,589 million. More than 80 per cent of that derived from the most important item on the statement of financial position, loans and advances to customers, from which income decreased by 8 per cent for the reasons described above. Significant declines were registered by interest income from loans and advances to banks (minus 60 per cent) due to the general reduction of the interest rate level and from credit balances with central banks (minus 47 per cent) due to volume effects. On the other hand, the net contribution of interest income from derivatives stood at a € 168 million and hence 21 per cent above the preceding year’s level.
Interest expenses amounted to € 2,655 million and thus also fell by 10 per cent. Although the total amount of customer deposits decreased by 4 per cent, interest expenses increased by just under 1 per cent. The reason for that was stiff competition for customer deposits in many markets and associated higher expenses. Low-
Set against non-performing loans for non-banks, which rose by 150 per cent in the reporting year to € 4,442 million, was increased provisioning for impairment losses of € 3,080 million. Consequently, the ratio of provisioning for impairment losses to non-performing loans declined significantly. While it still stood at 92.2 per cent (excluding collateral) in 2008, it fell to 69.3 per cent in 2009.
The result from foreign currency and precious metals business amounted to € 333 million in 2009 and was thus € 172 million, or 34 per cent, below the preceding year’s level. The Central Europe segment registered the largest decline at € 117 million. The main factors involved were the launch of the euro in Slovakia, a reduction of new business in foreign currency loans in Hungary, and lower foreign exchange transaction volumes in Poland. With a share of 27 per cent, the foreign currency and precious metals business made the second-largest contribution to net fee and commission income.
Amounting to € 200 million, the result from loan administration and guarantee business remained at the preceding year’s level, with development varying among the individual countries. In the Russia segment, for example, the result achieved from loan administration and guarantee business was better than in the preceding year thanks to higher margins.
The result from agency services for own and third party products rose by € 15 million and thus contributed € 46 million to net fee and commission income. One reason for that was that in Central Europe, and particularly in Hungary, greater use was made of own branches instead of external distribution partners, which led to a decline of fee and commission expenses.
Lower revenues from securities business due to the market situation led to a decline of income by 6 per cent to € 43 million. At € 7 million, the largest decline was registered in the Central Europe segment, and mainly in Hungary.
The result from managing investment and pension funds fell by almost one third from € 38 million in the preceding year to € 26 million due to the crisis-driven decline of demand. Management fees dependent on fund volume shrank due to devaluation of portfolios in 2008. That mainly affected the fund companies in Slovakia and Croatia.
Net trading income Net trading income improved by 11 per cent, or € 19 million, to € 186 million thanks to positive valuation results. It includes both realized and unrealized gains and losses of all positions in the trading portfolio, refinancing costs for the assets in the trading portfolio, and the valuation results of all foreign currency positions.
Net income from derivatives Net income from derivatives improved in the year under review from minus € 20 million in 2008 to € 8 million. It consisted of an effect on income from hedge accounting (€ 2 million), the result from other derivatives (€ 9 million), and the result from credit derivatives (minus € 3 million). Because of a volume reduction and lower margins on credit default swaps, the result from credit derivatives declined by € 6 million to minus € 3 million. The result from hedge accounting and from other derivatives grew by € 34 million, since improvement of the interest rate situation led to a recovery of market values.
Net income from securities at fair value through profit and loss, which consists of net valuations and net proceeds from sales, amounted to € 39 million, after minus € 47 million in the preceding year. Valuation gains, resulting predominantly from appreciation of fixed-rate securities, accounted for € 23 million of that. In some Group units, fixed-rate and variable-rate securities were sold and yielded a profit of € 17 million. The majority of that came from the Hungarian network bank, and the rest primarily from Romania and Ukraine.
Net income from equity participations declined from € 21 million in the preceding year to € 3 million. Various relatively small participations in the leasing and fund management areas were written down by € 5 million in 2009 (2008: minus € 3 million). The net proceeds from the sale of equity participations, especially from leasing, resulted in a profit of € 9 million (2008: € 24 million).
Net income from securities held to maturity amounted to minus € 2 million, which resulted from a write-down of exposure to a non-performing issuer.
General administrative expenses fell significantly in the reporting year, by 14 per cent, or € 363 million, to € 2,270 million. The main reasons for that were strict cost management in the Group and currency devaluation in the CEE countries.
As a result of this sharp reduction, which was noticeably larger than the decline of operating income by 11 per cent, the cost/income ratio improved by 1.5 percentage points to 52.5 per cent (2008: 54.0 per cent). Ukraine, Russia, and Poland registered the largest declines in general administrative expenses.
Staff costs were again the largest item among general administrative expenses in 2009, accounting for 46 per cent. However, they fell by 17 per cent, or € 222 million, on the preceding year
to € 1,054 million. The effects of cost-cutting measures such as personnel reduction and not filling vacant positions as well as bonus cuts, began to appear.
Viewed by segments, staff costs decreased the most in the CIS Other segment (minus 30 per cent), which was due both to personnel reduction and to devaluation of the local currencies. In Russia, the reduction of staff costs amounted to 25 per cent, to which devaluation of the local currency against the euro also contributed. Central Europe registered a minus of 17 per cent, which in Hungary and Poland was mainly due to currency developments but also to targeted personnel reductions. In Southeastern Europe, the decrease of staff costs by 6 per cent was largely a result of currency devaluation.
The personnel measures are reflected more clearly in the number of employees on the balance sheet date than in the average number of employees. The number of employees on 31 December 2009 stood at 56,530 in contrast to 63,376 employees at the end of 2008. That means a reduction by 6,846 employees, or 11 per cent. As for development in the individual segments, the number fell by 11 per cent, or 2,183 in the CIS Other segment, by 9 per cent, or 1,700, in Southeastern Europe, by 16 per cent, or 1,668, in Russia, and by 9 per cent, or 1,319, in Central Europe.
The largest expense items were premises at € 308 million (minus 2 per cent), IT costs at € 143 million (minus 7 per cent), legal, advisory and consulting expenses at € 100 million (minus 8 per cent), communications expenses at € 81 million (minus 7 per cent), and advertising, PR, and promotional expenses at € 80 million (minus 40 per cent). In Southeastern Europe, office space expenses increased by 7 per cent due to the opening of new business outlets. Office space expenses decreased by 18 per cent in the CIS Other segment, by 7 per cent in Russia, and by 2 per cent in Central Europe.
On the other hand, net income from operating leasing grew by 10 per cent, or € 3 million, to € 35 million. While this increase was caused mainly by growth of operating leasing business in Serbia, the majority of the result came from Croatia (€ 31 million). Other taxes not dependent on income decreased by 11 per cent from
€ 58 million to € 52 million, for which Hungary and Slovakia were mainly responsible. In the reporting year, no income from the release of negative goodwill arose on initial consolidation (2008: € 4 million). The result from allocation and release of other provisions changed from € 5 million to minus € 4 million. The preceding year’s positive result had been based on the settlement of litigation in Slovakia and Poland.
Net income from disposal of Group assets had amounted to € 8 million in the preceding year. Of that, € 7 million had been generated by the sale of Hungarian project companies, and € 1 million by the disposal of two Czech project companies.
Raiffeisen International’s balance sheet total amounted to € 76.3 billion as of 31 December 2009 and thus stood € 9.1 billion, or 11 per cent, below the preceding year’s value. Measures to reduce and stabilize the loan portfolio and increased provisions for impairment losses were largely responsible for that. Changes in the scope of consolidation, on the other hand, had no appreciable effects. The strong devaluation of currencies which began in the fourth quarter of 2008 slowed to some extent in the course of 2009. Some currencies even gained in value again. As a result, exchange rate movements had a significantly smaller influence on the development of the balance sheet total than in the preceding year. The Russian rouble, the Romanian leu, and the Ukrainian hryvnia devalued by 5 per cent each in the course of the year, but the Czech koruna and the Polish zloty gained slightly in strength. Only the Belarusian rouble showed a sharp devaluation of 33 per cent. About 2 per cent of the balance sheet total ’s decline is attributable to currency effects.
Other assets declined by more than one third compared with the end of 2008, primarily due to the reduction of the cash reserve (minus € 3.0 billion). At the end of 2008, free liquidity of some Group units had been deposited with the local central banks. The situation normalized in 2009, which led again to reallocations. Market values of derivative financial instruments fell by € 0.5 billion, partly due to the termination and partly due to the maturing of the instruments, particularly in the case of currencybased transactions of a short-term nature
Liabilities Deposits from customers fell by 4 per cent compared with the balance sheet date of 2008, but their share of total liabilities nevertheless rose by 4 percentage points to 56 per cent. They continued to dominate the liabilities side of the statement of financial position. The share of deposits from banks declined by 4 percentage points to 27 per cent. As a result of capital measures, the share of equity and subordinated capital in total liabilities rose by 3 percentage points to 12 per cent in the reporting year. The ratio of other liabilities to total liabilities came to 5 per cent (minus 3 percentage points).
Other liabilities decreased by € 2.7 billion and amounted to € 4.1 billion at the end of the year. Debt securities issued accounted for € 2.5 billion of that. This means that this kind of capital market funding fell by € 0.9 billion. Furthermore, there were declines of € 0.9 billion in trading liabilities and of € 0.6 billion in derivative financial instruments.
Paid-in capital consists of subscribed capital, participation rights capital, and capital reserves. It changed in the reporting period only due to the disposal of own shares and to amounts from the share incentive program booked directly to equity, thus increasing by € 1.3 million. Furthermore, participation rights were issued in the reporting year in the amount of € 600 million, which was entirely subscribed by the core shareholder RZB.
Minority interests rose by 8 per cent, or € 75 million, to € 998 million. Capital contributions of € 27 million in various Group units and the share of profit allocable to outside shareholders in the amount of € 75 million helped to increase this figure. Dividend payments had the opposite effect and reduced minority interests by € 57 million. Currency effects amounted to minus € 5 million.
Additional own funds rose by 5 per cent, or € 56 million, to € 1,102 million. Maturing Tier 2 issues led to a reduction in this item, while changes in maturity of subordinated capital in Ukraine and newly issued subordinate capital in Ukraine and Hungary had an increasing effect.
The core capital ratio based on credit risk increased from 9.7 per cent in the preceding year to 14.1 per cent. Likewise, the core capital ratio based on total risk rose to 11.0 per cent (plus 2.9 percentage points). The own funds ratio also improved by 3.3 percentage points to 13.0 per cent.
The consolidated financial statements are prepared on the basis of the applicable Austrian laws, including principally the Austrian Commercial Code (UGB), which governs the composition of such statements. The accounting standards for the consolidated financial statements are the International Financial Reporting Standards (IFRS) as adopted by the EU, which the RZB Group and hence Raiffeisen International have been using since 2000, initially on a voluntary basis.
Control environment An internal control system has already existed at Raiffeisen International for years in the form of directives and instructions for strategically important subject areas. It comprises: ■ The assignment of authority for the approval of Group and company directives and department and division instructions. ■ Process descriptions for the preparation, quality control, approval, publication, implementation, and monitoring of directives and instructions. ■ Rules for the revision and suspension of directives and instructions.
The financial statement data, which are examined by an external auditor, are transmitted in most cases by direct input into the Cognos Controller consolidation system by the end of January each year. The system is protected in regard to IT security by restrictive granting of authorization.
The consolidated financial statements together with the management report are dealt with in the Audit Committee of the Supervisory Board. The consolidated financial statements are furthermore submitted to the Supervisory Board for its information. In the framework of the annual report, it is published on the Company’s website and in the official gazette of the Wiener Zeitung and lastly is submitted to the commercial register.
Internal auditing is also involved in the monitoring process. The internal auditing function is performed by the Group audit division of RZB based on an annually updated service level agreement. There are rules valid Group-wide and specific to internal auditing (Group audit standards) that apply to all internal auditing activities related to Raiffeisen International, which are based on the Austrian Financial Market Authority’s minimum standards for internal auditing and on international best practices. In addition, the internal rules of the audit department apply (particularly the audit charter).
The Group audit division independently and regularly checks for compliance with internal rules both in Group units and in the head office’s accounting division. The head of the audit division reports directly to the Managing Board.
Pursuant to Section 159 (2) 1 of the Austrian Stock Corporation Act, the capital stock is increased contingently by up to € 47,173,587.50 through the issue of up to 15,466,750 common bearer shares (contingent capital). The contingent capital increase would only be carried out to the extent that holders of convertible bonds issued under the resolution of the Annual General Meeting of 10 June 2008 make use of the right to convert such bonds into shares of the Company. No convertible bonds have been issued to date, however.
The Annual General Meeting of 9 June 2009 authorized the Managing Board of Raiffeisen International Bank-Holding AG to issue, in one or more tranches, participation rights having equity characteristics pursuant to Section 174 of the Austrian Stock Corporation Act in a total nominal amount of up to € 2,000 million within five years from the date of the authorizing resolution with approval of the Supervisory Board after closer specification of the terms of the participation rights to be set by the Managing Board and excluding shareholders’ subscription rights. Under the provisions of the relevant laws, participation rights confer no voting rights or other membership rights. Issuing participation rights therefore entails no change of ownership structure from the standpoint of stock corporation law and shareholders’ voting rights. Raiffeisen International decided on 15 July 2009 to strengthen its capital by issuing participation rights in the amount of € 600 million based on the authorizing resolution of June 2009. No further participation rights have been issued to date. Please consult the notes to this report (p. 166) for more information.
Due to continuing erosion of confidence among banks and the resulting scarcity of liquidity, the cost of wholesale funding increased further in the first quarter of 2009, and spreads of unsecured senior bank bonds reached on average 200 basis points relative to the Euribor during the first three quarters. By March 2009, the average prices of senior credit default swaps (CDS) used to buy protection against the unsecured risk of international banks with operations in the CEE region similarly reached a peak of around 300 basis points.
In view of the difficult market conditions, the focus of the network units with respect to wholesale funding in 2009 was on loans from RZB, which were partly refinanced by the Oesterreichische Kontrollbank (OeKB), borrowing from supranational and local institutions, as well as local securities placements. In the first half of 2009, RZB issued three benchmark bonds guaranteed by the Republic of Austria worth a total of € 4.25 billion as well as a considerable volume of private placements, a substantial part of which served to fund Raiffeisen International. Furthermore, RZB made available to Raiffeisen International and its network banks a total of € 1.25 billion in the form of hybrid capital and participation rights to strengthen their capital base.
Solid funding sources Raiffeisen International’s funding has been based on several pillars for some years now. At the end of 2009, customer deposits represented the largest share of that at 63 per cent, or € 42.6 billion. Wholesale funding accounted for the remaining 37 per cent, or € 25.1 billion, of which in turn 60 per cent came from RZB.
The effects of measures taken to counter the evaporation of wholesale funding markets in 2008 became visible in the first half of 2009, and the ratio of customer deposits to total funding increased.
A large part of the funding volume for network units falling due in 2009 was renewed by means of mostly medium- and long-term funding agreements. This primarily concerns loans from RZB, which partly derived from OeKB funds.
Risk management Active risk management is a core area of expertise for Raiffeisen International as a bank holding company and demands highest attention in times of crisis. To recognize, assess, and manage risks effectively, Raiffeisen International established a comprehensive risk management system in the past and constantly continues to develop it further.
Raiffeisen International’s business is subject to currency fluctuations due to numerous activities outside the euro area. This concerns income and expenses incurred in foreign currencies, the own funds requirement of asset positions in foreign currencies, and the equity of material participations. Rate changes therefore lead not only to fluctuations of Raiffeisen International’s consolidated capital, but also to changes of the own funds requirement for credit risk. You will find information about the hedging of Raiffeisen International’s currency risk from page 200 onwards.
The two areas of risk management – retail and corporate risk management – are presented below particularly with regard to their achievements in 2009. Following that, progress made in implementing Basel II and in optimizing processes is highlighted with emphasis on data quality. A detailed report on risk management is included in the notes to the consolidated financial statements, beginning on page 176.
Retail risk management Risk management of business with retail customers (private individuals and small enterprises) in the previous year focused on collections, loan restructuring, and conducting stress tests. Since comprehensive activities aimed at standardizing risk management criteria, processes, and products for private individuals within the Group – a central theme in previous years – were basically already completed, only regular adjustments and additions on behalf of constant further development had to be made in the year under review.
Group lending criteria were basically maintained as they were after adjustment in the previous year due to changes resulting from the economic crisis. That also includes keeping a very tight rein on granting foreign currency loans. In some countries, lending criteria were adjusted to country-specific conditions in 2009.
Country specific credit policies were enhanced for private individuals in 2009. This includes, among other things, general lending rules, credit fraud prevention rules, and clear criteria regarding target customers in the individual divisions.
The program is divided into three phases: assessment, intensive care, and standard care. In the first phase, the current status of collections is determined, and a list is made of measures to be taken, prioritized according to their urgency and short-term bottom line impact. Typical measures include, for example, improving a collections strategy, capacity planning, employee motivation, and monitoring. In the second phase, the measures adopted in the first phase are implemented in the respective country with ongoing comprehensive support from a team of experts on site. The greatest effect is typically achieved in this three-month phase. Further improvements are generated in the third phase, standard care. Support from the head office is given in this phase as needed, while the resources required for restructuring successes tend to be increasing.
Overall, significant successes in recovering past due receivables were registered in countries where the program was already implemented. It thus decisively improved the efficiency of collections.
Portfolio management was significantly intensified against the background of market development in the reporting period. The goal was an in-depth analysis of trends and causes. For that purpose, a system was developed to investigate how portfolio quality is influenced by macroeconomic factors such as changes in GDP growth rates. From the results obtained, inferences can be drawn for general business strategy regarding, for example, which customer divisions will be especially volatile, or which products especially risky.
Parallel to that, the focus in the reporting year was on establishing an early warning system, expanding and further developing workout, conducting and refining stress tests, and actively managing portfolios.
The new workout process is based on a clear definition of the risk status of each customer. The assignment of a certain risk status results from a recently developed early warning system, which consists of a partially automated and IT-supported cause-and-effect analysis based on numerous signals. Most signals are standardized at the Group level, but can be adapted and supplemented with further factors to meet specific local conditions. Early detection of potential problem cases follows a structured process by means of which customers are supported as early as possible and, if necessary, countermeasures can be taken.
The existing stress tests continued to be applied in the reporting year. On the one hand, stress tests were conducted at the portfolio level (top down), in which the effects of changes in individual parameters on the entire portfolio are simulated. On the other hand, those were supplemented by stress tests based on individual exposures (bottom up). Amongst others, these tests are used to simulate how the customer credit standing and repayment ability is affected by changes of exchange rates in a country relative to a certain reference currency or by a non-renewal of financing by other banks. Their results allow potential risks to be detected and then countered proactively at a very early stage.
The focus of activities in portfolio management was on real estate loans. That was the case particularly in countries with a high proportion of such loans in relation to the overall portfolio. Both concentration risks at the portfolio level and individual real estate financing projects were analyzed in detail (bottom up), and appropriate measures were initiated. Special importance was placed on working with customers to identify possible risks early and actively counteract them, for example, by lengthening leases early, making adjustments in the rent level, and changing the extent of collateral or the tenor of the loans. Furthermore, the fundamental long-term development prospects in the real estate markets of individual countries are analyzed on an ongoing basis with a team of experts in order to take strategic anticipatory measures early in respect to future credit exposure.
Basel II and risk process optimization Uniform and harmonized processes and valuation methods are the declared goal of all Raiffeisen International activities in the areas of Basel II and risk process optimization.
To that end, the concept of consistent and Group-wide implementation of Basel II was again systematically pursued in 2009. The goals involved go far beyond implementing methods of measuring credit risk for regulatory purposes. Development of the key pillars of the credit management process, i.e. risk measurement and management, continued steadily.
Basel II preparations in Russia and Ukraine made very good progress in 2009, with the focus on implementing the data warehouse. Starting in 2010, Belarus will also be included in the extensive IRB preparations.
It is the aim of the Basel II center of excellence in Vienna to maintain the high level achieved in credit risk management. Optimization of the risk process with special attention to data quality and comprehensive collateral management will be consistently continued in all of the network’s banks and leasing units in the years ahead.
This rapid change of goals from strong growth to cost-reduction was made possible in part by measures already taken in the past years, investments in process optimization and the establishment of centralized procurement departments. Many of those measures proved extremely successful in 2009 and led to notable improvement of the cost-income ratio from 54.0 per cent to 52.5 per cent despite unchanged income.
The 6 Sigma initiative that has successfully been running at Raiffeisen International for several years was expanded in 2009 by some pilot projects in the area of lean management, aimed at increasing organizational efficiency. For example, a new operations back office was set up in Slovakia and all established settlement processes there were revamped with a view to lean management. The successful realization of these pilot projects is expected to lead to a Group-wide introduction of lean management in the Raiffeisen International Group in the years to come.
IT and shared service centers Midas, a universal banking system for handling core processes (e.g., account administration) that is used in seven network banks, was expanded in 2009 in cooperation with the manufacturer, Misys PLC. The Midas Plus 1.4 version was successfully introduced in Russia. This version offers substantial optimization of capacity, but also of functionality, especially at interfaces
with other applications. At Tatra banka, a.s. in Slovakia, the migration to Midas Plus 1.4 was also carried out. At Raiffeisen Bank Aval JSC in Ukraine, Midas Plus 1.4 was implemented in a first phase for treasury operations.
Moreover, new Group-wide solutions were defined in customer relationship management (CRM). A pilot version was successfully introduced for the area of corporate customers in Serbia.
Workforce reductions occurred particularly in Ukraine (2,143), in Russia (1,668), Romania (664), and Bulgaria (426). These personnel measures were implemented in every country in a socially responsible manner and only after exhausting all other alternatives.
The average age of employees remains relatively low at 34.6 years and thus corresponds to Raiffeisen International’s image as a young and dynamic company. With 76 per cent of the employees being university graduates, the workforce exhibits a very high level of qualification. 67 per cent of the employees are women.
To optimize management of its personnel, Raiffeisen International began to develop an internal human resources controlling system in 2008. This system was successfully implemented in all countries in 2009.
Commitment to performance enjoys an especially important status in times of crisis-driven cost reductions. The well-established performance management system that has existed in Raiffeisen International’s entire network for some years forms an efficient basis for that. In line with its purpose, all management personnel as well as all employees in most network units were integrated into the performance management process in 2009. Further standardization of performance evaluation and hence better comparability across all markets of the Group will be sought in 2010. Moreover, the goal agreement system is to be improved at the management level in order to harmonize company and employee goals effectively.
Another emphasis in 2009 was on needs-based and efficient continuing education of management personnel at the local and international levels. The offerings for top managers in that connection were particularly concerned with the topic of leading people through times of crisis.
A new leadership training architecture was introduced at the Group level in the reporting period. It is based on competence profiles for different target groups and forms the framework for all local, regional, and international management training measures. That ensures optimal coordination of all centralized and local programs and contributes substantially to harmonizing management talent development and hence management culture and standards.
The strategy established in the previous years of training a large number of employees flexibly and efficiently by way of eLearning was successfully continued in the reporting period. The basis for that is the Group-wide learning management system. The shared infrastructure furthermore enables the network banks to realize local eLearning activities as well.
At present, eLearning is already being used intensively in 10 network banks to train large groups of employees. That applies particularly to Belarus, Slovakia, Romania, Russia, and Ukraine.
Outlook Economic prospects After the deep recession in the first half of 2009, a significant recovery of the world economy started in the second half of the year. Major factors for the trend reversal in Europe included the support measures taken by various governments, the injection of liquidity by the ECB, the revival of exports, and the restocking of inventories. On the other hand, consumer demand is likely to recover slowly due to rising unemployment rates trailing the cyclical curve. Moreover, credit growth will probably continue to stagnate due to necessary further consolidation of the financial sector. Since some of the supporting effects will fade this year, real GDP growth of only 1.4 per cent in the euro area is expected for the full year 2010. That would put it just under the estimate for 2011 which is at 1.5 per cent, but it is nonetheless significantly above the minus 3.9 per cent reported for 2009.
The real economic environment should remain disinflationary in 2010 given that the CEE national economies are likely to lag considerably behind their growth potential, and unemployment rates are likely to show a further upwards trend. The sharpest inflation decline is expected in the CIS, where average inflation rates will probably not only fall significantly below the 10 per cent mark, but might hit their lowest level since the beginning of the transformation at about 7.0 per cent (2009: 12.9 per cent). The same applies to the transition states of Southeastern Europe, whose average inflation rate in 2010 should come to only about 4.0 per cent (2009: 4.7 per cent). Regarding the relatively new EU member states of Central Europe, an average inflation rate of about 2.6 per cent is forecast for 2010 (2009: 2.8 per cent).
Outlook for Raiffeisen International The financial and economic crisis again had a big hand in shaping the past business year. The recession continued to dominate in the first few months, causing severe fluctuations of currency exchange rates in some of our target markets and affecting our business trend and actions in the entire year through higher provisioning for impairment losses and cost-cutting programs. Fortunately, however, economic development turned appreciably upward in the course of the year. Our business model, geared to universal bank services with a transparent product range strictly
oriented to customer needs, consistently proved itself. As the financial crisis ebbed, the problems of procuring liquidity in the banking sector were also overcome. Nevertheless, the consequences of the economic crisis will continue to be felt for some time.
The broad diversification of our bank network in 15 countries again proved very advantageous in the crisis, because individual countries were affected quite differently. We remain committed to that and will expand our presence and business where we see appropriate growth potential. We hope to gain impetus from the expected economic recovery in the CEE region. That is likely to be stronger in Central Europe, Southeastern Europe, and Russia than in the CIS Other segment, where the recovery will probably start later due to continuing problems in Ukraine.
We further developed and considerably expanded our risk management in the past year and took extensive precautions for possible risks. We expect the rise of non-performing loans to continue in 2010, but their upward momentum appears to have broken with the onset of the economic recovery. The strict cost management introduced in the period under review will continue in 2010. Expansion of the business outlet network will move forward only selectively. Existing outlets may be closed or relocated, so the total number is likely to remain about the same in 2010.
In the retail customer division, we are striving for an increase in lending in 2010. The focus will initially be on cross-selling with selected loan offers such as consumer loans and credit cards. We also aim to increase customer deposits, for which we hope to gain positive impetus from the direct bank that is to begin operations in 2010. Another goal is to expand business with affluent private individuals, especially involving commission-related products.
Regional segments Individual Central and Eastern European countries constitute Raiffeisen International’s smallest cash generating units (CGUs). Countries that hold the prospect of similar long-term economic development and exhibit a similar economic profile are grouped together as regional segments. In view of the threshold values required by IFRS 8, four regional segments have been defined by means of which transparent and comprehensible reporting is achieved. The threshold values as defined by IFRS 8 are equivalent to 10 per cent, respectively, of operating income, profit after tax, and segment assets.
As of 31 December 2009, the following Group segments existed. The location of the respective business outlets served as the criterion for segment assignment: ■ Central Europe This segment contains the five countries that joined the EU on 1 May 2004 – the Czech
Republic, Hungary, Poland, Slovakia, and Slovenia. They represent not only the most fully developed banking markets in Central and Eastern Europe, but also the markets in which Raiffeisen International was present the earliest.
The regional segment of Southeastern Europe achieved the highest profit before tax in 2009, which amounted to € 260 million. That was based on a relatively satisfactory income from operating activities, whose decline by only 6 per cent year-on-year was the lowest of all the segments, and on a solid increase of net trading income. The segment’s balance sheet assets fell by 7 per cent on the preceding year.
In the Russia segment, profit before tax amounted to € 153 million. That represents a sharp decline on the preceding year, which resulted from significantly increased net allocations to provisioning for impairment losses and negative net trading income. The segment’s balance sheet assets fell by 22 per cent year-on-year.
The CIS Other segment registered a loss before tax of € 126 million. Extensive net allocations to provisioning for impairment losses of € 514 million, with emphasis in Ukraine, and a decline of operating income gave rise to significantly negative influences. The segment’s balance sheet assets were down sharply, by 22 per cent compared with 2008.
The regional structure of Group assets remained almost unchanged on the preceding year. The Central Europe segment continued to dominate with a share of 45 per cent. Southeastern Europe accounted for 31 per cent of Group assets, the second-largest share, followed by Russia with 16 per cent and CIS Other with 8 per cent.
In Central Europe, profit before tax amounted to € 234 million in 2009 and was thus 47 per cent, or € 208 million, below the preceding year’s level. Increased net allocations to provisioning for impairment losses and a sharp decline of net fee and commission income by € 133 million to € 435 million were mainly responsible for that. The return on equity before tax fell by 7.9 percentage points to 9.1 per cent.
The segment’s net interest income was down by 4 per cent to € 985 million. The Group unit in Poland registered the largest earnings decline, caused by increased interest expense for customer deposits due to intensified money market competition. Exchange rate effects had a decreasing influence on earnings in Hungary, although net interest income grew in local currency. The Group unit in the Czech Republic showed a considerable increase of net interest income, mainly due to improved margins on mortgage loans. The Group’s assets fell by 7 per cent, and the net interest margin decreased by 24 basis points on the preceding year to 2.90 per cent. Credit riskweighted assets declined 9 per cent year-on-year from € 23.5 billion to € 21.5 billion. That was brought about primarily by volume reductions in almost all countries of the region, while stronger collateral, particularly in new business, positively influenced credit risk-weighted assets.
The segment’s net allocations to provisioning for impairment losses amounted to € 487 million in the year under review, after € 265 million in the preceding year. That represents an increase of 84 per cent, or € 222 million, which resulted mainly from sharply higher net allocations to individual provisions. Because of especially difficult economic conditions in Hungary, net allocations were necessary there in the amount of € 179 million, which made up almost half of the net allocations for the entire region. The remaining net allocations to individual provisions were to a large extent evenly distributed among the other countries of Central Europe. Net allocations to portfolio-based provisions roughly doubled in the year under review, for which again the Hungarian units were primarily responsible at € 88 million. This provisioning was mainly connected with loans to private individuals. The share of non-performing loans in the portfolio rose by 3.9 percentage points to 7.0 per cent.
General administrative expenses declined by 14 per cent, or € 128 million, year-on-year to € 802 million. This change was mainly based on a reduction of staff costs by 17 per cent to € 378 million, achieved primarily by means of bonus payment cuts. The average number of employees
Income taxes fell by 44 per cent on the comparable year to € 51 million. The tax rate in the region increased slightly, by 1 percentage point to 22 per cent. Profit after minorities amounted to € 127 million.
Czech Republic The global slump in demand had significant effects on the Czech economy in 2009, since it has extensive external ties and focuses on the automotive sector, which was hit especially hard by the crisis. Although the Czech Republic already registered a turnaround in the second quarter of 2009 with positive growth in quarterly comparison, real GDP nevertheless shrank by 4.3 per cent for the year 2009. Besides the “cash-for-clunkers” programs that some Western European countries offered and a noticeable easing of fiscal policy, the robust Czech banking sector also played an important role in overcoming the recession. Total lending thus showed a slight increase in 2009. While loans to private individuals rose, those to corporate customers declined. The Czech koruna which was weak at over 29 Czech koruna per euro in February 2009, was among the currencies with the strongest rate increases in 2009 overall. The koruna rose by 1.75 per cent in the course of 2009, and increased by 11 per cent from its low in February to the end of 2009.
Founded in 1993, Raiffeisenbank a.s. has become the country’s fifth-largest bank since its merger with eBanka a.s., completed in 2008. The bank’s product range extends from traditional banking business to building society plans and insurance to leasing. For many years, its focus has been on serving affluent customers and small and medium-sized enterprises.
In the year under review, Raiffeisenbank began to implement a new core banking system and simultaneously was one of the first Group units to employ an early warning system in risk management. It is the only bank on the Czech market that offers its customers a current account with no maintenance fee, which it calls the “ekonto”.
Raiffeisen Bank mainly focused in the year under review on active customer relationship management based on an innovative and extensive product range. At the same time, risk management was improved, and efficiency was enhanced by means of active cost management.
thereof foreign currency loans in per cent 7.5% 8.6% (1.1) PP
Raiffeisen has been present in the Polish market since the founding of Raiffeisen Bank Polska S.A. in 1991. The number of customers came to about 275,000 at the end of the year, and the number of employees to about 3,000. The balance sheet total reached € 6.2 billion. In addition to serving corporate customers and small and medium-sized enterprises, Raiffeisen Bank Polska has also focused attention as a universal bank on affluent customers in the past years. It has a consulting and service range tailored to their specific needs.
In the year under review, Raiffeisen International’s total lending in Poland amounted to € 4.8 billion, and deposits increased by 0.2 per cent year-on-year to a total of € 3.5 billion. The loandeposit ratio also improved because of the company’s focus on acquiring and retaining customer deposits.
Thanks to the relatively good development of the Polish economy, the rise of provisioning for impairment losses was kept to a manageable extent in the year under review, particularly in the case of loans to private individuals. Considerable expense reductions were achieved by means of efficient cost management. The number of employees declined by 8.1 per cent year-on-year to 3,007, with targeted increases of personnel capacities in risk management including early warning systems.
thereof foreign currency loans in per cent 38.4% 36.8% 1.6 PP
At the beginning of 2009, Tatra banka successfully coped with the introduction of the euro, which had posed a great challenge in the run-up for all banks in Slovakia.
Moody’s gave the bank a foreign currency deposit rating in 2009 of A2 with a negative outlook. Tatra banka was honored as the country’s “Best Bank” and “Best Consumer Internet Bank” by Global Finance in 2009.
After a capital increase in mid-2009, Raiffeisen International owned 66 per cent of Tatra banka as of year’s end. The rest of the shares were held indirectly by Raiffeisenlandesbank Niederösterreich -Wien AG and employees of the bank or were in free float.
Raiffeisen Banka stepped up its affluent banking strategy in 2009 after a successful pilot program in 2008. In addition, it gave increased attention in 2009 to serving small and medium-sized enterprises.
As of 31 December 2009, Raiffeisen International in Slovenia had 352 employees, serving around 67,000 customers in 17 business outlets. Loans to customers amounted to € 1.2 billion at year’s end. Set against that were deposits from customers of € 528 million. The balance sheet total came to € 1.6 billion.
In Southeastern Europe, profit before tax fell in 2009 by 51 per cent, or € 274 million, on the preceding year and amounted to € 260 million. Net allocations to provisioning for impairment losses were sharply increased from the preceding year’s level due to the GDP slump in some countries of the region, which burdened earnings significantly. Consequently, the return on equity before tax declined by 13.0 percentage points to 12.8 per cent.
The segment’s net interest income fell by 5 per cent, or € 51 million, to € 896 million. Increased funding costs in Romania, especially for customer deposits but also for loans from banks, were primarily responsible for that. In Serbia, a sharp decline of loans and advances to customers in € million 2009 2008 Change
combined with higher funding costs likewise led to a reduction of interest income by 12 per cent. The net interest margin narrowed by 25 basis points to 3.70 per cent. Credit risk-weighted assets fell by 13 per cent from € 18.9 billion to € 16.4 billion, while the balance sheet total decreased by only 7 per cent. The disproportionate decline of credit risk-weighted assets was mainly a consequence of the reduction of off-balance sheet items in the region’s Group units. The Basel II internal ratings-based approach (IRB) was applied for the first time to certain asset classes in Romania as of July 2009 and in Croatia as of October 2009. However, that did not result in a reduction of risk-weighted assets.
Income taxes fell by 59 per cent on the preceding year to € 35 million. At 13 per cent, the tax rate in the region remained 3 percentage points below the preceding year’s level. Profit after minorities amounted to € 209 million.
Albania Because of low external economic ties, robust domestic demand, and a stable banking sector, Albania was, along with Poland, the second European national economy to achieve positive real GDP growth in 2009. According to most recent data available at this report’s editorial deadline, the local banking sector achieved slight growth of total lending, especially in business with corporate customers, as of 30 September 2009. Nevertheless, Albania still shows the lowest GDP per capita among the national economies of Central and Eastern Europe. By officially submitting its application for accession in May 2009, the country took the next important step toward EU membership.
Raiffeisen has been represented in Bosnia and Herzegovina since acquiring Market Banka in 2000. Raiffeisen Bank d.d. Bosna i Hercegovina emerged from that and quickly advanced to become the country’s leading bank. Measured in terms of balance sheet total, it occupied first place among local banks in the past year. Raiffeisen International owns 97 per cent of the bank, and 3 per cent is held indirectly by Raiffeisen-Landesbank Steiermark AG.
The year 2009 was shaped for Raiffeisen International in Bosnia and Herzegovina by reorganization of business with private individuals, to which services for affluent customers were added. Furthermore, the successful strategy in the area of small and medium-sized enterprises was continued.
In the past year, Raiffeisen International was represented countrywide in Bosnia and Herzegovina with 101 business outlets, and it had 1,655 employees serving 716,000 customers. The balance sheet total stood at about € 2.3 billion on 31 December 2009. Total loans to customers came to € 1.4 billion on the balance sheet date.
thereof foreign currency loans in per cent 56.7% 66.1% (9.4) PP
Raiffeisen International reinforced its status as a successful all-finance institution with subsidiaries Raiffeisen Leasing d.o.o. and Raiffeisen Brokers d.o.o.
In the year under review, Raiffeisen Bank was honored by Euromoney as the “Best Bank” in Bosnia and Herzegovina. It also received that title for the sixth consecutive time from Global Finance. It was named “Bank of the Year 2009” by The Banker.
Bulgaria Like Romania, Bulgaria acceded to the EU at the beginning of 2007. The Bulgarian lev has been firmly pegged to the euro (originally to the Deutsche Mark) since 1997, which caused Bulgaria to be spared currency devaluation due to the economic crisis. Nevertheless, the Bulgarian economy was not able to decouple from the global slump in demand because of its extensive foreign trade relationships. The country consequently registered a decline of real GDP by 5.1 per cent in 2009 and was forced by the recession to report a budget deficit for the first time in six years. As of 30 September 2009, the combined total of outstanding loans to private individuals and corporate customers was practically unchanged in comparison with the end of 2008.
Raiffeisenbank (Bulgaria) EAD was founded in 1994 and is owned 100 per cent by Raiffeisen International. It operates in a very competitive market, where it ranks fourth in terms of balance sheet total. As a universal bank focusing on large customers and on small and medium-sized enterprises, it rounds out its product range with subsidiary Raiffeisen Asset Management (Bulgaria) EAD, which successfully defended its position in the reporting period as market leader in terms of assets under management.
Raiffeisen International in Bulgaria improved its cost-income ratio in the reporting period from the previous level of 47.4 per cent to 43.7 per cent. Profit after tax amounted to € 41 million.
Croatia Now that EU accession negotiations have resumed, Croatia has realistic chances of becoming an EU member state in 2012. Although the tourist season went satisfactorily in 2009, the country was not spared the consequences of the economic crisis, and it registered a decline of real GDP by 5.8 per cent in the same year. Despite high foreign debt, however, Croatia did not have to draw assistance from the IMF. As of 30 September 2009, the local banking sector registered a slight decline of total lending. Set against a slight rise of loans to corporate customers was a slight decline of loans to private individuals. After a weak phase in the first quarter of 2009, the Croatian kuna recovered significantly in the course of the year.
Raiffeisenbank Austria’s branch network was further expanded in 2009 and comprised 85 branches at year’s end. That represents a plus of 6 locations in comparison with the end of 2008. The number of employees countrywide stood at 2,225, while customers came to almost 602,000.
Lending to customers amounted to € 3.7 billion at the end of the year. Set against that were customer deposits of € 3.0 billion.
Raiffeisen International in Croatia offers its customers a wide range of services by way of several successful subsidiaries, including Raiffeisen Leasing d.o.o., pension fund Raiffeisen mirovinsko društvo d.d., and asset management company Raiffeisen Invest d.o.o. Associated Group companies like Raiffeisen Bausparkasse also contributed substantially to the success of Raiffeisen International in Croatia.
According to data from local banking authorities, Raiffeisen Bank Kosovo was the country’s second -largest bank in 2009. With a balance sheet total of € 672 million, it had 51 banking outlets and 668 employees at the end of the reporting period. Mobile bankers have supplemented that broad presence in the country since 2008. The number of customers increased by 20.8 per cent in the reporting period to around 277,000.
The Kosovo network bank focused in 2009 on expanding business with affluent customers. At the same time, with a market share of about 28 per cent, it successfully defended its leading position in the segment of small and medium-sized enterprises.
thereof foreign currency loans in per cent 0.0% 0.0% 0.0 PP
Raiffeisen opened up the Romanian market in 1998 with the founding of Raiffeisen Bank S.A. At the end of 2009, Raiffeisen International in Romania had a balance sheet total of € 6.2 billion and 6,235 employees. Merged with Banca Agricola S.A. in 2002, Raiffeisen Bank now ranks fifth among local banks. As a universal bank, it provides high-quality financial services and products to almost 2 million customers by way of a countrywide branch network, which was expanded slightly in 2009.
The balance sheet total declined in 2009 by 6.0 per cent mainly because of measures to consolidate the loan portfolio. Loans to customers fell by 9.6 per cent in the reporting period to about € 4.2 billion. Set against that at the end of 2009 were customer deposits of € 3.3 billion.
Besides banking business, Raiffeisen International in Romania is one of the leading providers in the areas of asset management, leasing, insurance, and building society plans. Raiffeisen Bank’s foreign currency deposit rating published by Moody’s was Baa3 with a stable outlook. Apart from a small free float, Raiffeisen Bank was owned by Raiffeisen International as of 31 December 2009.
In the eighth year since its founding, Raiffeisen banka a.d. was again one of Serbia’s leading commercial banks. Its leading role was supported by a wide range of banking products and services and not least by subsidiary Raiffeisen Leasing d.o.o., pension fund Raiffeisen Future a.d., and asset management company Raiffeisen Invest a.d.
thereof foreign currency loans in per cent 83.7% 42.9% 40.8 PP
The Russia segment was also unable to escape the effects of the economic crisis. Profit before tax fell by 65 per cent, or € 285 million, to € 153 million. As in the other segments, high net allocations to provisioning for impairment losses were the main reason for that. In addition, net trading income declined sharply. The average devaluation of the Russian rouble year-on-year also weighed heavily on earnings in this segment. The return on equity before tax consequently fell by 21.7 percentage points to 14.6 per cent.
Net allocations to provisioning for impairment losses increased from € 175 million in the preceding year to € 322 million. Individual provisions of € 345 million net, which predominantly concerned corporate customers, were substantially responsible. On the other hand, portfoliorelated provisions made a positive contribution, since a release of existing provisioning for impairment losses occurred in the year under review. The main reasons for that were a reduction of the corporate customer portfolio, which is the basis for portfolio-related provisions, and shifts from portfolio-related to individual provisions. Because of the sharp rise of non-performing loans, whose share in the portfolio increased by 8.2 percentage points to 10.1 per cent, correspondingly higher net allocations to individual provisions were necessary.
Net fee and commission income fell by 7 per cent, or € 16 million, to € 207 million. That decline was primarily due to income from foreign exchange and notes/coins business, which was down by 23 per cent on the preceding year at € 60 million. Payment transfers contributed the largest part to net fee and commission income at € 84 million despite a decline of 14 per cent. The result from lending and guarantee business increased due to higher margins by 29 per cent to € 30 million, and income from securities business grew to € 13 million in the year under review.
Net trading income turned in the year under review from € 102 million to minus € 13 million. A loss from currency-based transactions in the amount of € 73 million resulted primarily from the valuation of foreign exchange contracts due to changed forward prices. Interest-based transactions, which had been strongly negative in the preceding year, were characterized by strong appreciation in the year under review and yielded income of € 59 million. That arose from the downward trend of interest rates on mostly fixed-income bonds and notes of non-public issuers.
General administrative expenses fell by 20 per cent, or € 91 million, to € 365 million mainly due to currency devaluation. The largest reduction was in staff costs, which declined by 25 per cent, or € 55 million, to € 162 million. The average number of employees was down by 3 per cent on the preceding year at 9,351. Other administrative expenses decreased by 20 per cent, or € 42 million, to € 170 million, while depreciation on intangible and tangible fixed assets rose in line with new additions to fixed assets by € 6 million to € 33 million. The region’s cost/income ratio increased slightly by 1.6 percentage points to 44.2 per cent.
Income taxes fell by 77 per cent on the comparable period to € 28 million, and the tax rate declined by 10 percentage points to 19 per cent. Profit after minorities decreased by 62 per cent to € 124 million.
The Russian economy was severely affected by the economic crisis in 2009. That led to a decline of real GDP by 7.9 per cent, which was even worse than during the 1998 Russian crisis. Against this background, in the first quarter of 2009, the Russian central bank continued the gradual devaluation of the rouble begun at the end of 2008 against the basket of currencies consisting of the US dollar and the euro. In the further course of the year, however, the rouble became significantly stronger again due to rising oil prices and the recovering economy. By 30 September 2009, the time up to which data available before this report’s editorial deadline extended, total lending declined slightly both for private individuals and for corporate customers compared with the end of 2008.
In the past year, Raiffeisenbank devoted its attention mainly to financing corporate customers and to customer retention strategies. Business with private individuals was further strengthened by means of cross-selling activities. Providing services to affluent customers within the framework of an affluent customer concept was another emphasis in 2009. At the end of the reporting period, customers numbered 1.8 million, and employees over 8,600.
With a network of 215 business outlets, Raiffeisen International is represented in 45 regions of the Russian Federation. To optimize customer service further, Raiffeisenbank started a transformation program in 2009 for the purpose of bundling and centralizing services in all regions.
thereof foreign currency loans in per cent 47.5% 48.1% (0.6) PP
thereof depreciation on intangible and tangible fixed assets (36) (39) (6.6)%
Net allocations to provisioning for impairment losses rose from € 181 million to € 514 million and thus showed the most significant increase of all the regions. That reflects, above all, the generally weak credit environment in Ukraine, which was affected most strongly of all Raiffeisen International ’s markets by the economic crisis. Net allocations to individual provisions accounted for € 490 million of that, which primarily concerned mortgage loans to private individuals in Ukraine. With a net allocation of € 25 million, portfolio-based provisions were significantly less important than they had been in the preceding year, and they mainly concerned loans to corporate customers in Ukraine. The share of non-performing loans in the loan portfolio rose by 13.8 percentage points to 19.9 per cent. It came to 23.6 per cent in Ukraine and to 3.2 per cent in Belarus.
Net trading income fell from € 59 million to € 17 million and resulted almost entirely from currency -based transactions. Valuation gains from a strategic currency position used to hedge equity in Belarus contributed € 26 million. Because of a change in the IFRS rules, such valuation results are to be reported in the income statement, effective from the beginning of 2009. Set against the valuation gains were currency-related losses in Ukraine and Kazakhstan, which also derived from currency positions and were caused mainly by the strong change of currency structure in the statement of financial position in Ukraine. Interest-based transactions yielded income of € 5 million, which was achieved entirely in Ukraine.
Due to the formation of deferred tax assets, income taxes came out positive in the amount of € 21 million, after minus € 67 million in the preceding year. Profit after minorities decreased to minus € 103 million.
The “Branch Service Excellence Project” helped in 2009 to modernize and harmonize the range of financial services for private individuals and corporate customers.
Once again, Priorbank was awarded the title of “Best Bank” by Euromoney magazine in 2009, and “Bank of the Year 2009” by The Banker.
Founded as a universal bank in 1992, Bank Aval was acquired in 2005 by Raiffeisen International, which held a stake of 95.9 per cent at the end of 2009. As the country’s fourth-largest bank, Raiffeisen Bank Aval JSC is today one of the leading major banks in the local market. With its tightly woven distribution network, it is present countrywide and offers its customers a full range of financial services and products. That is rounded out by products from subsidiaries LLC Raiffeisen Leasing Aval and Asset Management Company Raiffeisen Aval.
thereof foreign currency loans in per cent 62.6% 63.6% (1.0) PP
Business divisions Besides its regional segmentation, Raiffeisen International is structured into business divisions that reflect its internal organization and reporting structure. The Group’s business is broken down into the following divisions: ■ Corporate customers ■ Retail customers ■ Treasury ■ Participations and other
Corporate Retail Treasury Participations Total in € million customers customers and other
Operating income fell from € 1,678 million to € 1,391 million and thus remained 17 per cent below the preceding year’s level. Net interest income decreased by 14 per cent on the comparable period to € 958 million. That was caused, on the one hand, by the sharp decline of net interest income from business with mid-market companies and, on the other, by a reduction of business with the public sector in Russia and Hungary. Net fee and commission income registered a decrease by 24 per cent to € 403 million, which was predominantly due to the cyclically induced contraction of business volume, especially in the case of large corporate customers in Russia and Poland.
General administrative expenses fell by 16 per cent to € 439 million, and the cost-income ratio therefore remained almost unchanged at 31.6 per cent.
Credit risk-weighted assets amounted to € 26.1 billion. That means a sharp decline of 16 per cent on the preceding year, caused by both volume and currency influences.
The return on equity before tax in the corporate customer division shrank by 19.6 percentage points to 6.8 per cent due to the decline of net income.
The effects of the economic crisis that emerged at the end of 2008 were also visible last year in the corporate customer division. Raiffeisen International’s core markets – Central Europe, Southeastern Europe, Russia, and CIS Other – were hit hard by that after the above-average growth rates of the previous years.
Raiffeisen International’s corporate customers also faced new challenges. Many businesses registered all-time declines in new orders and were forced to cut costs, restructure, and lay off employees. Moreover, they were often confronted with liquidity shortages and increased default risks with respect to their own customers.
In reaction to changed customer needs, Raiffeisen International’s focus therefore shifted in 2009 to products such as factoring, letters of credit, guarantees, cash management, and management of interest rate and currency risks of customers.
To position itself in competition for the best corporate customers, Raiffeisen International continued to move forward with implementation of the “Formula Uno” sales management program. In that project, individual acquisition and cross-selling goals are set for each corporate customer adviser based on trend forecasts regarding the potential and risk of individual industrial sectors and an internal analysis of the customer portfolio. Furthermore, a customer relationship management tool that supports corporate customer advisers with customer analysis and activity planning was installed at Raiffeisen banka a.d. in Serbia. This instrument will be implemented at other subsidiary banks in the coming years.
The environment for corporate customer business in Central and Eastern Europe will again be shaped by the effects of the economic crisis in 2010 despite first positive signals. Raiffeisen International therefore relies especially in the corporate customer division on intensifying customer relationships with its house bank customers. Proceeding from a detailed analysis of the credit portfolio, business relationships are expanded in the sectors and countries that are especially attractive because of their return and risk prospects.
Retail customers The loss before tax for the retail customers division – which includes private individuals and small and medium-sized enterprises – amounted to € 134 million in the year under review. This earnings decline was caused primarily by the heightened risk situation, which necessitated much greater net allocations to provisioning for impairment losses of € 1,010 million. At € 288 million, provisioning for impairment losses was increased greatly in Ukraine, where business with private individuals makes up a large part of the overall business. Considerable net allocations to provisioning for impairment losses were also registered in Hungary, in the amount of € 157 million.
In the year under review, the division’s general administrative expenses fell by 14 per cent to € 1,606 million. The main reasons for that were cost-cutting measures to optimize the branch network, on the one hand, and currency effects, on the other. Consequently, the cost/income ratio improved further by 1.9 percentage points to 64.7 per cent.
Other net operating income came to € 12 million and thus remained at the preceding year’s level. The operating leasing business in Croatia made the largest contribution to that in the amount of € 8 million.
The retail customer division’s credit risk-weighted assets fell by 17 per cent year-on-year to € 15.9 billion.
To step up acquisition of customer deposits in the retail customer division further, a direct bank using the internet as its primary sales and service platform is to be introduced in selected markets in 2010.
Notwithstanding the increased efforts to acquire customer deposits, net interest income dominated the retail customers division’s operating income again in 2009 with a share of about 68 per cent. Mounting unemployment rates in the entire region and significant currency devaluations, particularly in Russia, Ukraine, and Hungary, led to a significant rise in non-performing loans and an increase of provisioning for impairment losses by 100 per cent year-on-year. Because of the changed risk situation and the slump in demand, especially for mortgage loans, lending to private individuals declined in 2009 by 62 per cent on the preceding year. The collection processes were strengthened while the number of employees in risk management was increased sharply. These actions helped stabilize and subsequently reduce both the volume and flow of non-performing loans.
The slowdown in revenues from shrinking deposit margins and declining loan volumes was partially offset by higher productivity from initiatives designed to improve the overall cost efficiency in the branch network. Altogether, 213 business outlets were closed in 2009, of which Ukraine accounted for 181, and Hungary for 19. In the process, great importance was placed on being able to continue serving affected customers in nearby branches. Thanks to the measures taken, the retail customers division’s cost-income ratio improved by 1.9 percentage points year-on-year to 64.7 per cent. At the same time, the number of customers per business outlet and the ratio of branch employees to customers increased. Despite the targeted branch closures, Raiffeisen International is still present in all large cities of Central and Eastern Europe.
Small businesses account for about 90 per cent of legal entities in Central and Eastern Europe and thus represent an important growth market for Raiffeisen International. Unlike business with private individuals, the deposit business in the small business segment experienced a significant net deposit outflow in 2009 as companies deployed their savings to manage through the crisis. Nevertheless, Raiffeisen International continued developing its small business operating model in a number of important areas such as standardizing and simplifying the lending product set, refining customer segmentation, developing current account bundles, building application scorecards and strengthening collections.
Treasury The treasury division achieved a profit before tax of € 230 million in 2009 and thus registered an increase of 38 per cent on the preceding year despite a sharp decline of net interest income. This result was brought about by positive net income from financial investments and a 10 per cent improvement of net trading income.
Net interest income decreased from € 172 million in the preceding year to € 73 million. The main causes of that were higher funding costs, increased costs for the minimum reserve, and a negative margin from invested liquidity surpluses.
Net income from derivatives came to € 8 million and was predominantly based on valuation gains from interest rate swaps in Russia and Hungary.
Credit risk-weighted assets fell by 20 per cent to € 5.5 billion due to lower investments.
The division’s return on equity before tax rose by 7.1 percentage points to 32.7 per cent.
Items recognized directly in retained earnings developed as follows: Earnings per share
Earnings per share are obtained by dividing consolidated profit less the compensation for participation rights by the average number of common shares outstanding. As of 31 December 2009, the number of common shares outstanding was 153,674 thousand compared with 153,599 thousand as of 31 December 2008.
Net income from disposal of group assets 73 1 1 1
Loans and advances to banks (15, 35, 36) 10,310,101 9,038,096 14.1%
Loans and advances to customers (16, 35, 36) 50,514,971 57,902,304 (12.8)%
Further details to the above mentioned changes are reported under note (34) equity and minorities.
Non-cash positions in profit and transition to net cash from operating activities: Write-downs/write-ups of tangible fixed assets and financial investments 251,825 216,302
Net provisioning for liabilities and charges and impairment losses 1,664,212 948,903
Payments for purchase of: Financial investments and equity participations (2,885,558) (1,544,858)
Individual Central and Eastern European countries constitute the smallest cash generating units – CGU. Countries that expect a similar long-term economic development and exhibit a similar economic profile are grouped together as regional segments. In view of the threshold values required by IFRS 8, four regional segments have been defined by means of which transparent and clearly represented reporting is achieved. The threshold values as defined by IFRS 8 are equivalent to 10 per cent, respectively, of operating income, profit after tax, and segment assets.
• Russia This segment includes the assets and performance for those companies active in the Russian Federation on behalf of Raiffeisen International. The Group is represented in Russia by a bank, a leasing company and a capital management company, amongst others.
The reconciliation implies mainly the amounts resulting from the elimination of intra-group results, the consolidation between the segments and head office’s results. It also includes the refinancing of the participations in the holding company. Finally, financial ratios – usual in the line of business – are added to evaluate the results.
Net income from disposal of group assets 76 0 0 0 – 76
Share of profit after tax 42.8% 52.6% 29.0% (24.3)% – 100.0%
Consolidated return on equity (after minorities) 6.7% 11.6% 11.9% – – 3.9%
Reconciliation Total thereof urrent income from associates 919 (316) 0 0 – 603
Raiffeisen International Bank-Holding AG is a financial holding company domiciled at Am Stadtpark 3, A-1030 Vienna and registered at the Vienna Commercial Court (Handelsgericht Wien) under Companies Register number FN 122.119m. The shares have been listed on the Prime Market of the Vienna Stock Exchange since 25 April 2005. Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna, indirectly holds indirectly the majority stake in the company, totaling 72.8 per cent of its issued share capital as of the balance sheet date. The company belongs to the Group of Raiffeisen-Landesbanken-Holding GmbH, Vienna, which is the supreme parent company, and it is fully consolidated into the parent company. This financial holding owns the majority stake in Raiffeisen Zentralbank Österreich Aktiengesellschaft. Moreover, Raiffeisen International is also included in the consolidated financial statements of Raiffeisen Zentralbank Österreich Aktiengesellschaft.
The consolidated financial statements for the financial year 2009 and the comparative figures for the financial year 2008 were prepared by applying Section 245a UGB in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) and the international accounting standards adopted by the EU on the basis of IAS Regulation (EC) 1606/2002 including the interpretations of the International Financial Reporting Interpretations Committee (IFRIC/SIC). All standards published by the IASB to be applied to financial statements for 2009 and adopted by the EU, have been applied as far as they were obligatory for the business year. IAS 20, IAS 31, IAS 41, IFRS 4 and IFRS 6 were not applied as there were no relevant business transactions in the Group.
New application of amended standards and interpretations, which have been mandatory since 2009, i.e. IAS 1 (Presentation of Financial Statements, effective as of 1 January 2009), IAS 23 (Borrowing Costs; effective as of 1 January 2009), IAS 32 (Callable Financial Instruments and Obligations Arising from Liquidation, effective as of January 1, 2009), IFRS 2 (Terms and Conditions and Cancellations, effective as of 1 January 2009), IFRIC 9 (Reassessment of Embedded Derivatives; effective as of 30 June 2009), IFRIC 13 (Customer Loyalty Programmes; effective as of 1 July 2008), IFRIC 15 (Agreements for the Construction of Real Estate), IFRIC 16 (Hedges of a Net Investment in a Foreign Operation) and changes in the so-called "Improvements Project" had no material effect on the recognition and measurement methods of the bank.
In March 2009 the IASB adopted a revised IFRS 7 (Improvements to Information on Fair Value and Liquidity Risk, effective as of 1 January 2009), which contains additional information on the fair value and the liquidity risk of financial instruments. For the calculation of fair value a tabular breakdown of each class of financial instruments, a three-level fair value hierarchy, has been specified and the scope of the disclosure requirements has been expanded. In addition, the information on liquidity risk has been clarified and expanded. These changes have resulted in additional notes to the consolidated financial statements.
IFRS 8 (Operating Segments) was adopted early for the fiscal year 2008 and has been mandatory since 1 January 2009.
Other relevant standards and interpretations that have been published, but whose application is not yet compulsory, have not yet been adopted. This applies to the amended IFRS 2 (Share-base Payment within the Group which are Settled in Cash, effective as of 1 July 2009), IFRS 3 and IAS 27 (Business Combinations, effective as of 1 July 2009), IAS 24 (Related Party Disclosures, effective as of 1 January 2011), IAS 32 (Classification of Warrants; effective as of 1 February 2010), IAS 39 (Eligible Hedged Items, effective as of 1 July 2009), IFRIC 17 (Distributions of Non-cash Assets to Owners, effective as of 1 July 2009), IFRIC 19 (Extinguishing Financial Liabilities with Equity Instruments, effective as of 1 July 2010), IFRIC 14 (The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, effective as of 1 January 2011) as well as changes in the so-called "Improvements Project. "
Raiffeisen International consolidates all material subsidiaries, in which Raiffeisen International Bank-Holding AG directly or indirectly, holds either more than 50 per cent of the voting rights or otherwise has control over the financial and operating policies. In principle, these subsidiaries are firstly integrated on the date when the group obtains control of the company and are excluded when the group no longer has control of the company. The Group reviews the adequacy of the decision on which companies were consolidated at least every quarter. Accordingly, changes in ownership but also changes due to existing or newly signed contractual obligations by a unit of the Group are taken into account. The results from subsidiaries that were acquired or disposed of during the year are recorded, in the consolidated income statement, either from the actual date of acquisition or up to the actual date of disposal.
In the event that further shares are acquired under existing control or shares are sold without loss of control, such transactions are recognized resulting in neither profit nor loss in equity during the course of continuing consolidation.
Minority interests are shown in the consolidated statement of financial position as part of equity, but separately from Raiffeisen International's shareholders' equity. The net profit attributable to minority interests is shown separately in the consolidated income statement.
On each balance-sheet date, goodwill is examined with a view to their future economic utility on the basis of cash generating units. A cash generating unit is defined by the management and represents the smallest identifiable group of assets of a company that generates cash inflows from operations. Within Raiffeisen International, all segments according to segment reporting are determined as cash generating units and within the segments, the legal entities themselves form the cash generating unit intended for impairment testing of goodwill. The carrying value of the cash generating unit (including any allocated goodwill) is compared with its recoverable value. The recoverable value represents the higher value of an item’s value in use and the fair value less cost to sell. It is based on the expected cash flows in accordance with the business plan of the units. They are discounted at an interest rate reflecting the risk involved. The estimation of future earnings requires judgment of the past and actual performance and the expected development in the respective markets and overall macro-economic environment.
Companies of Raiffeisen International Group use brands to differentiate their services from the competition. According to IFRS 3, brands of acquired companies have been recognized separately under the item intangible fixed assets. Brands have an undeterminable useful life and are therefore not subject to scheduled amortization. Brands have to be tested annually for impairment and additionally whenever indications of impairment arise.
Intra-group results are eliminated insofar as they had a material effect on the items of the income statement. Bank business transactions between Group members are usually executed at arm's length terms.
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 recognized in the income statement.
In the case of one 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. Roof Russia S.A., Luxembourg, carries out its business transactions and refinancing in USD, therefore the functional currency is the USD. The following exchange rates were used for currency translation: Rates in units per € As of 31/12 Average As of 31/12 Average
According to IAS 39, financial assets, financial liabilities and derivative financial instruments are to be recognized on the statement of financial position. A financial instrument is defined as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Measurement of financial instruments is effected according to the measurement categories to which they belong. They are defined as follows: 1. Financial assets or liabilities at fair value through profit and loss a. Trading assets/liabilities b. Designated financial instruments at fair value 2. Financial assets held-to-maturity 3. Loans and advances 4. Financial assets available-for-sale 5. Financial liabilities 1. Financial assets or liabilities at fair value through profit and loss a. Trading assets/liabilities 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 recognized 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 recognized in net trading income. Derivatives that are used neither for trading purposes nor for hedging purposes are recorded under the item derivative financial instruments. Furthermore, any liabilities from the short selling of securities are shown in trading liabilities.
In the Group equity instruments classified available-for-sale are written-off when the fair value over the last six months before the reporting date was more than 20 per cent below carrying value, or in the last twelve months, on average, more than 10 per cent below carrying value. In addition to these quantitative indications (trigger events), qualitative indications from IAS 39.59 are considered. It is not permitted to include the appreciation in value in the income statement for equity instruments classified as available for sale, but rather this should be recognized in other comprehensive income under the item fair value reserve (available -for-sale financial assets). This means that only impairments or disposals are to be shown in the income statement.
For unquoted equity instruments, for which reliable fair values cannot be assessed regularly and are therefore valued at cost less impairment losses, it is not possible to show an appreciation in value.
In accordance with IAS 39.50, in exceptional circumstances, non-derivative financial instruments classified as trading assets and available-for-sale financial instruments can be reclassified to financial assets held-to-maturity and loans and advances. In contrast to the previous year, no use was made of the possibility to reclassify in 2009. Further details can be found in the notes position (20) financial investments.
Loans and advances to customers X Loans and advances thereof finance lease business X n/a
The Group uses derivates including swaps, standardized forward contracts, futures, credit derivatives, options and similar contracts. Within the operating activity, the Group carries out different transactions with derivative financial instruments for trading and hedging purposes. The Group applies derivatives, in order to meet the requirements of the clients concerning the risk management, to manage and secure the risks and to generate profit in proprietary trading. Derivatives are initially recognized at the time of the transaction at fair value and subsequently revalued to fair value. The resulting valuation gain or loss is recognized immediately in net income from derivatives, unless the derivative is designated as a hedging instrument for hedge accounting purposes and the hedge is effective. Here the timing of the recognition will depend on the type of hedging relationship.
Derivatives, which are used for hedging against market risk (excluding trading assets/liabilities) for a non-homogeneous portfolio, do not meet the conditions for IAS 39 hedge accounting. These are recognized as follows: the dirty price is booked under derivatives in the statement of financial position (positive fair values on the asset side and negative fair values on the liability side). The change in value of these derivatives, on the basis of the clean price, is shown in net income from derivatives and interest is shown in net interest income.
If derivates are held for the purpose of risk management and if the respective transactions meet specific criteria, the Group uses hedge accounting. The Group designates hedging instruments, primarily derivatives, as either fair value hedges, cash-flow hedges or hedge of a net investment in a foreign operation (capital hedge). At the beginning of the hedging relationship, the relationship between underlying and hedging instrument, including the risk management objectives, is documented. Furthermore, it is necessary to document from the beginning and during the hedging relationship that the fair value or cash flow hedge is effective to a large degree.
a) Fair value hedge Hedge Accounting according to IAS 39 applies for those derivatives that are used to hedge the fair values of financial assets and liabilities. Especially the credit business is subject to such fair value risks if it deals with fixed-interest loans. Interest-rate swaps that satisfy the prerequisites for hedge accounting are contracted to hedge against the interest-rate risks arising from 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.
At each balance sheet date it is assessed whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred, if: • there is objective evidence of impairment as a result of a loss event that occurred after the initial recognition of the asset until the balance sheet date (a ‘loss event’), • that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets and • the amount can be reliably estimated.
Derecognition of financial liabilities The Group derecognizes a financial liability if the obligations of the Group have been paid, expired or revoked.
Operating leases An operating lease occurs when the risks and rewards of ownership remain with the lessor. The leased assets are allocated to the Group under tangible fixed assets and depreciated in accordance with the principles applicable to the type of fixed assets. Rental income from the corresponding lease object is amortized on a straight-line basis over the term of the leasing contract and reported in other net operating income. Operating expenses for leases are generally amortized on a straight-line basis over the term of the leasing contract and reported as administrative expenses.
Internally developed intangible fixed assets comprise without exemption software. Software is capitalized if it is probable that the future economic benefits attributable to the asset will accrue to the enterprise and the cost of the asset can be measured reliably. The useful life of software is between four and six years and may be longer for major software projects. The useful life of the acquired customer base was set at seven years for corporate customers and for the acquired customer base in the retail segment of Raiffeisen Bank Aval JSC at 20 years and for OAO Impexbank (meanwhile merged with ZAO Raiffeisenbank) and eBanka a. s. (meanwhile merged with Raiffeisenbank a.s.) at five years.
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
Expected useful lives, residual values and depreciation methods are reviewed annually and any necessary future change of estimates are taken into account. If a permanent impairment was to be expected, extraordinary write-downs were carried out. In the event that the reason for the write-down no longer applies, a write-up will take place up to the amount of the amortized cost of the asset.
Provisions are recognized when the Group has a present obligation from a past event, where it is likely that it will be obliged to settle, and a reliable estimate of the amount is possible. The level of provisions is the best possible estimate of expected outflow of economic benefits at the balance sheet date while taking into account the risks and uncertainties underlying the commitment to fulfill the obligation. These provisions are not discounted because the resulting interest effect is immaterial.
All defined benefit plans relating to so-called social capital (provisions for pensions, provisions for severance payments, provisions for anniversary bonuses) are measured using the Projected Unit Credit Method in accordance with IAS 19 – Employee Benefits.
The number of common shares in Raiffeisen International Bank-Holding AG to be actually transferred will depend on meeting two performance criteria: the targeted average return on equity (ROE) and the total shareholder return (TSR) for Raiffeisen International Bank-Holding AG shares in relation to TSRs of shares in the Dow Jones EURO STOXX Banks index after a threeyear holding period. Moreover, beneficiaries have to be in active service for Raiffeisen International. SIP participation is voluntary.
All share-based remunerations are recognized according to IFRS 2 (Share-based payment) as staff expenses and booked directly against equity.
General administrative expenses include staff and other administrative expenses as well as amortization/depreciation and impairment losses for tangible and intangible fixed assets.
Other comprehensive income comprises all income and expenses directly recognized in equity according to IFRS standards. Other comprehensive income contains currency differences resulting from the translation of equity held in foreign currency, changes resulting from the hedging of a net investment in a foreign entity (capital hedge), the effective part of a cash flow hedge, changes resulting from valuation of available-for-sale financial assets as well as deferred taxes on the mentioned items.
The following table shows income statement according to IAS 39 measurement categories: Net gains (losses) on financial assets and liabilities held-for-trading 348,485 46,058
Financial assets and liabilities at fair value through profit or loss 253,136 51,960
Net gains (losses) on financial assets and liabilities at fair value through profit or loss 39,491 (46,600)
The interest margin on the respective averages of the stated base is as follows: Interest income includes interest income (unwinding) from impaired loans to customers and impaired loans to banks in the amount of € 304,849 thousand (2008: € 178,525 thousand). Interest of impaired loans and advances to customers and banks is recognized with the rate of interest used to discount the future cash flows for the purpose of measuring impairment loss. Interest income was already considered by calculating the amount of impairment losses on loans and advances and their disclosure was made according to IAS 38.
(3) Provisioning for impairment losses Provisioning for impairment losses on items reported on and off the statement of financial position is made as follows: Details on risk provisions are shown under note (17) impairment losses on loans and advances.
Net income from financial investments comprises valuation results and net proceeds from disposal of financial investment portfolio (held-to-maturity), from securities at fair value through profit and loss, and equity participations which include shares in affiliated companies, companies valued at equity, and other companies.
Net income from securities at fair value through profit and loss 39,491 (46,599)
Net proceeds from sales of securities at fair value through profit and loss 16,903 (1,602)
General administrative expenses contain staff expenses, other administrative expenses and depreciation on tangible and intangible fixed assets. They break down as follows: Legal, advisory and consulting expenses include audit fees of the Group companies which comprise expenses paid for the audit of financial statements amounting to € 5,315 thousand (2008: € 6,774 thousand) and tax advisory as well as other additional consulting services provided by the auditors amounting to € 1,954 thousand (2008: € 2,305 thousand). Thereof, € 300 thousand (2008: € 317 thousand) are accounted for by the group auditor for the audit of the consolidated financial statement and the individual financial statement of Raiffeisen International Bank-Holding AG and € 130 thousand (2008: € 126 thousand) is accounted for by other consulting services.
Income from disposal of group assets amounting to € 76 thousand resulted from additional proceeds for a subsidiary already sold in the previous year. In 2008, the income from disposal of group assets totaled € 7,860 thousand resulting from the disposal of project companies in Hungary and the Czech Republic.
Net income from investment property incl. operating lease (real estate) 9,167 8,9721
Theoretical income tax expense in the financial year based on the domestic income tax rate of 25 per cent (91,899) (357,284)
Average number of ordinary shares outstanding (in 1,000 units) 153,674 153,599
Financial assets at fair value through profit or loss 3,233,527 2,042,089
(15) Loans and advances to banks 1 Adaptation of previous year figures due to different mapping.
Loans and advances to banks classified regionally (counterparty’s seat) are as follows: Loans and advances to banks break down into the following bank segments: (16) Loans and advances to customers 1 Adaptaton of previous year figures due to different mapping.
Purchased loans amounting to € 31,629 thousand (2008: € 41,340 thousand) are assigned to the measurement category held-to-maturity. Purchased loans classified as loans and advances totaled € 467,796 thousand (2008: € 682,293 thousand).
Loans and advances to customers break down into asset classes according to Basel II definition as follows: Loans and advances to customers classified regionally (counterparty’s seat) are as follows: (17) Impairment losses on loans and advances
The trading assets consist of the following securities and derivative instruments held for trading: Pledged securities ready to be sold or repledged by transferee are allocated to the appropriate securities category in the table above. Further details are shown under note (40) genuine sale and repurchase agreements.
Treasury bills and bills of public authorities eligible for refinancing 1,300,762 831,657
Positive fair values of derivatives in fair value hedges (IAS 39) 21,565 16,577
Insofar as the conditions for hedge accounting according to IAS 39 are fulfilled, derivative financial instruments are measured at their fair values (dirty prices) in their function as hedging instruments. The hedged items in connection with fair value hedges are loans and advances to customers. The hedged risks are interest rate risks. The changes in carrying amount of the hedged underlying transactions in IAS 39 fair value hedges are included in the respective items of the statement of financial position.
This item comprises securities available-for-sale, financial assets at fair value through profit or loss, and securities held-to-maturity as well as strategic equity participations held on a long-term basis.
Other interests valued at amortized cost for which fair values could not be reliably measured amounted to € 33,590 thousand (2008: € 39,840 thousand).
Treasury bills and bills of public authorities eligible for refinancing 3,345,967 2,181,732
Financial information on associated companies is shown in the following table: In the financial year, Raiffeisen Banca pentru Locuinte S.A. was merged with HVB Banca pentru Locuinte S.A. This led to an increase in equity of € 9,020 thousand.
The item software comprises acquired software amounting to € 274,244 thousand (2008: € 216,051 thousand) and developed software amounting to € 669 thousand (2008: € 586 thousand).
The fair value of investment property totaled € 26,864 thousand (2008: € 11,256 thousand).
Tangible and intangible fixed assets developed in the financial year 2009 as follows: Land and buildings used by the Group for own purpose 526,408 495,908
Office furniture and equipment as well as other tangible fixed assets 479,421 532,274
Land and buildings used by the Group for own purpose 620,278 1,714 (25,526) 61,616 (19,803) 35,432 673,711 thereof land value of developed land 6,304 0 (277) 2,799 0 0 8,826
Additions to intangible and tangible assets did not include any noteworthy individual investments.
Land and buildings used by the Group for own purpose (124,370) 0 (27,712) 495,908 thereof land value of developed land 0 0 0 6,304
Raiffeisen International refinances itself periodically with international commercial banks and multinational development banks. These credit contracts contain ownership clauses normally used in business. These clauses give permission to an exceptional termination if Raiffeisen Zentralbank Österreich Aktiengesellschaft loses the majority shareholding in Raiffeisen International Bank-Holding AG. This would lead to increased refinancing costs for Raiffeisen International in the future.
Deposits from customers break down in Line with the Basel II definition as follows: Multilateral development banks (MDB) 847,306 555,332
Severance payments also include provisions for anniversary payments amounting to € 2,047 thousand (2008: € 2,306 thousand ).
Raiffeisen International is involved in pending legal issues, which may occur in the banking business. Raiffeisen International does not expect that these legal cases will have a material impact on the financial position of the Group.
In the financial year, hybrid tier-1-capital amounting to € 650,000 thousand was issued and fully subscribed by Raiffeisen Zentralbank Österreich Aktiengesellschaft. The hybrid tier-1-capital has no maturity date and may be redeemed and repaid by the issuer for the first time after five years. The coupon amounts to 10 per cent p.a.
Of total subordinated capital, Raiffeisen Zentralbank Österreich Aktiengesellschaft and other subsidiaries of RZB provided € 2,116,569 thousand (2008: € 1,434,766 thousand). The following table contains borrowings that exceed 10 per cent of the subordinated capital: In 2009, expenses on subordinated liabilities totaled € 93,850 thousand (2008: € 93,444 thousand).
Participation rights The Annual General Meeting held on 9 June 2009 authorized the Managing Board to issue within five years from the date of the resolution – with the approval of the Supervisory Board – also in several tranches, participation rights pursuant to Section 174 of the Austrian Joint Stock Companies Act, with a maximum total nominal amount of € 2,000,000 thousand and to determine all further conditions of the issue. Shareholders are excluded from exercising their subscription rights.
Amount with share price of € 15,70 at the allotment day (4/3/2009)
Executives of Raiffeisen International Bank-Holding AG and other affiliated companies 11,234 176,374 7,379
Members of the Managing Board of Raiffeisen International Bank-Holding AG 164,849 47,371 247,274
Impairment losses for loans and advances (3,084,023) 0 0 0 0
Impairment losses for loans and advances (1,641,262) 0 0 0 0
Disclosures on Raiffeisen International’s relations to key management are reported under note (53) relations to key management. As of 31 December 2009, the transactions with related parties were as follows: As of 31 December 2008, the transactions with related parties were as follows: companies Affiliated companies Companies valued at equity Other interests
Provisions for liabilities and charges 3,834 (29) 0 0 companies Affiliated companies Companies valued at equity Other interests
Assets and liabilities with counterparties outside Austria are as follows: Securitization is the packaging of designated portfolios of loans or leasing claims with an appropriate level of credit enhancement and the redistribution of these portfolios to investors. The objective of Raiffeisen International’s securitization is to ease the strain relief on the Group’s regulatory own funds and to use additional refinancing sources.
In financial year 2009, no new securitizations were made. Both true sale transactions (Warehousing) ROOF Bulgaria 2008-1 and ROOF Romania 2008-1 already closed in 2008 were not yet transferred to final securitization. The reason for this is the recent developments on the international capital markets, and the resulting liquidity crunch. Nevertheless the warehousing has been prolonged and the current warehousing structures kept alive by the placement of notes to Group internal investors until further notice. Hence, the portfolio’s significant chances and risks remain within the Group as well. At year-end 2009 the nonderecognized loans of ROOF Bulgaria 2008-1 amount to € 149,588 thousand (2008: € 195,257 thousand), those of ROOF Romania 2008-1 came up to € 167,622 thousand (2008: € 173,102 thousand).
Regarding true sale transaction ROOF Poland 2008-1 consisting of car leasing contracts the total volume of the loans amounts to € 131,829 thousand as of 31 December 2009 (2008: € 240,820 thousand). The maturity of the portfolio led to the changed carrying amount.
Securities purchased in a genuine sale and repurchase agreement totaled € 1,294,129 thousand (2008: € 2,689,990 thousand ). Assets which were sold or repledged amounted to € 843,439 thousand (2008: € 33,896 thousand). Thereof € 831,632 thousand were bonds (2008: € 32,574 thousand) and € 11,248 thousand (2008: € 0) were shares and other variable-yield securities and € 559 thousand were loans and advances (2008: € 1,322 thousand).
€000 Seller of claims or secured party Date of contract End of maturity Volume Portfolio Junior tranche
The following liabilities are secured by assets shown in the statement of financial position: The following assets are provided as collateral for the above-mentioned obligations: (42) Finance leases
Banks are as active players in the world’s financial markets inherently exposed to their risks. For this reason, the ability of Raiffeisen International to identify and measure risks, to monitor and to manage them is decisive for the long-term success of the Group. Risk control in this process thus anticipates changing market environments in order to limit potential losses from banking activities and to optimize the risk/return profile. In particular, Raiffeisen International’s risk management controls the exposure to and ensures professional management of credit and country, market, liquidity, and operational risks.
As a subsidiary and major sub-group of RZB, Raiffeisen International is integrated into RZB-Kreditinstitutsgruppe’s risk management system. This ensures through different risk management units at several organizational levels of the Group that all material risks are measured and limited, and that business in general in due consideration of a risk/return perspective. For this purpose and in addition to legal and regulatory requirements, the risk management concept takes into account the particular nature, scale, and complexity of the business activities and the resulting risks.
The central risk management units are responsible for the adequate and appropriate implementation of the Group’s risk management process. In particular, they establish common risk management principles and set business-specific standards, tools, and practices for all Group entities. In addition, local risk management units are established in the different legal entities of Raiffeisen International. They implement the risk policies for specific risk types and take active steering decisions within the approved risk budgets in order to achieve the targets set in the business policy. For this purpose, they monitor resulting risks using standardized measurement tools and communicate them to central risk management units via defined reporting interfaces.
Committees bring together decision makers from RZB’s different units (and therefore also representatives of Raiffeisen International ) involved in risk management activities.
The Group Risk Committee is responsible for the ongoing development and implementation of methods and parameters for risk quantification models and for refining steering instruments. The committee also analyzes the current risk situation of the Group with respect to capital adequacy and corresponding risk limits. It approves risk management and controlling activities (like the allocation of risk capital) and advises the Managing Board in these matters.
The Asset Liability Management Committee (ALCO) assesses and manages balance sheet structure risks and liquidity risk. In this context it plays an important role for the Group’s long term funding planning and the hedging of structural risk positions.
Credit Portfolio Committees have been newly introduced to define credit portfolio strategies for different customer segments. In these committees, representatives from business and risk management units discuss the risks and opportunities of different customer segments (e.g. industries, countries, retail divisions) and develop limits for the Group's future credit portfolio orientation.
Maintaining an adequate level of capital is a core objective of risk management at Raiffeisen International. Capital adequacy is monitored on a quarterly basis based on the actual risk level measured by internal models, taking into account the materiality of risks for choosing appropriate models. This capital adequacy framework incorporates both capital requirements from a regulatory point of view (sustainability and going concern perspective) and from an economic point of view (target rating perspective).
Capital and earnings projection for the three-year planning period based on a severe macroeconomic downturn scenario 70-90 per cent based on the management decision that the Group might be required to temporarily reduce risks or raise additional equity
Risk taking capacity (projected earnings plus capital exceeding regulatory requirements) must not fall below the annualized value-atrisk of the Group (risk horizon: 1 year)
99 per cent reflecting the owners’ willingness to inject additional own funds
Risk of not being able to satisfy claims of the Group‘s senior debt holders
Unexpected losses on an annual basis (economic capital) must not exceed the present value of equity and subordinated liabilities 99.95 per cent as probability of the fault of the target rating
Target rating perspective Risks in the target rating perspective are measured as economic capital presenting a comparable measure across all types of risks. It is calculated as the sum of unexpected losses stemming from different Group members and different risk categories (credit incl. country risk, market, and operational risk). In addition, a separate buffer for other risks not explicitly quantified is held on overall Group level.
Raiffeisen International uses a confidence level of 99.95 per cent for calculating unexpected losses for a 1 year horizon. This confidence level is based on the probability of default implied by the target rating. The purpose of calculating economic capital is to determine the amount of capital, which would be required for servicing the claims of customers and creditors even in the case of such an extremely rare event.
The overall risk amount is compared to internal capital, which mainly denotes equity and subordinated capital and serves as a cushion for servicing claims of senior debtors if losses are incurred. Total utilization of available risk capital (the ratio of eco-
In this process, regulatory capital requirements are calculated on Group level according to Austrian regulations. Local regulatory capital requirements for individual Group members can be met by adequate structural balance sheet measures. Internal targets for regulatory capital ratios are intentionally set higher than the legal minimum, in order to be able to fulfill regulatory capital requirements at all times and to account for other risks which are not considered in the regulatory requirements.
Sustainability perspective The main goal of the sustainability perspective is to ensure that Raiffeisen International can also maintain a sufficient core capital ratio for the three-year planning period in a severe macroeconomic downturn scenario. This analysis of the sustainability perspective is based on a multi-year macroeconomic stress test where hypothetical market developments in a severe but realistic economic downturn scenario are simulated. The risk parameters considered are amongst others: interest rates, foreign exchange rates and securities prices as well as changes in default probabilities and rating migrations.
The main focus of this integrated stress test is the resulting core capital ratio in the RZB-Kreditinsitutsgruppe, with Raiffeisen International as a major subgroup, for a multi-year period. The minimum amount of core capital thus is determined by the size of the potential economic downturn. In this analysis the need for allocating loan loss provisions, potential procyclical effects that increase minimum regulatory capital requirements, the impact of foreign exchange fluctuations as well as other valuations and earnings effects resulting from the downturn scenario are incorporated.
Eventually, the results of these stress tests are analyzed in detail in order that adequate steering measures can be implemented in advance. If the results exceed valid trigger levels, predefined countermeasures are initiated and necessary additional actions are evaluated for Raiffeisen International. In the reporting period, for example, as part of these measures participation capital and hybrid tier-1 capital was issued and risks have been reduced selectively.
Credit risk within Raiffeisen International consists mainly of default risk that arises from business with retail and corporate customers, other banks and sovereign borrowers. Default risk is defined as the risk that a customer will not be able to fulfill contractually agreed financial obligations. Also migration risks (caused by deteriorations in customers’ creditworthiness), concentration risks of creditors or in credit risk mitigation techniques, and country risk are considered.
Credit risk is by far the most important risk category in Raiffeisen International as also indicated by internal and regulatory capital requirements. In the Group it is analyzed and monitored both on an individual loan and customer-by-customer basis, and on a portfolio basis. Credit risk management and lending decisions are based on the respective credit risk policies, credit risk manuals, and the corresponding tools and processes which have been developed for this purpose.
Credit decisions are made within the context of a hierarchical competence authority scheme depending on the type and size of a loan. It always requires the approval of the business and the credit risk management divisions for individual limit decisions or when performing regular rating renewals. If the individual decision-making parties disagree, the potential transaction will have to be considered by the next decision-making level.
The whole limit application process is based on defined uniform principles and rules. Account management, for example, where multinational customers do business simultaneously with more than one network unit of Raiffeisen International, is supported by the Global Account Management System (GAMS). The limit application process makes the dual control principle mandatory and allows for fast sharing of lending applications for decision making according to the defined competence schemes. All these applications benefit from unique customer identification in the non-retail division and the respective IT system for retail customers in the Group.
The rating models in the main non-retail asset classes – corporate customers, financial institutions, and sovereigns – rank creditworthiness in ten classes. The portfolio distribution shown is based on individual customer ratings. For the overall assessment of credit risk, guarantees and collateral must also be considered. Furthermore, it should be noted that the default probabilities of individual rating classes are calculated separately for each business segment. Thus the default probability of the same ordinal rating class (e.g. 1.5 for corporates, A3 for financial institutions, and A3 for sovereigns) in the different segments is not directly comparable.
The following table provides a breakdown of the credit exposure according to the internal rating of corporate customers in thousands of euros. These figures show the total exposure (including off-balance sheet exposure). Collateral must also be taken into account in the overall assessment of credit risk: The total credit exposure to corporate customers declined in comparison to year end 2008 by approximately 20 per cent. This reduction can be partly attributed to the implementation of selective portfolio reduction measures, but is also caused by foreign exchange effects. During the financial year 2009 the average credit quality of corporate customers declined. This negative change in overall credit quality is mainly caused by rating-downgrades for existing customers where the key business and performance figures used in rating models deteriorated due to the economic downturn. The portfolio share of the best rating categories (up to rating class 2.0) decreased most by 7.9 per cent to now 14.5 per cent. Also the proportion of exposures with acceptable credit standing (up to rating class 3.0) declined by 4.7 per cent and stands at 30.9 per cent. Consequently, the portfolio share of lower rated customers increased by 8.7 per cent to 45.2 per cent as the economic recession fully unfolded during the year 2009. The portfolio share of customers at default (rating class 5.0) also increased from 2.0 per cent to 6.6 per cent as well. On the regional level, the main focus of the customers at default lay in Ukraine and Russia followed by Hungary with a distance. Nearly one half of the exposure not rated is due to small loans which are loaded without their ratings into the group data warehouse. Nonetheless, the exposure share of unrated corporate customers has been decreased above average as a consequence of process improvements.
It should be noted that the rating shown in this table only reflects the borrowers’ credit standing and does not take into account the amount of collateral provided in individual transactions.
5.0 Default (acc. to Basel II definition) 2,531,273 6.6% 951,437 2.0%
For project financing the rating model shows five different grades. The breakdown of project financing volume in thousands of euros is as follows: The volume of assets rated through project rating has decreased by 9 per cent compared to year end 2008 where the main reduction took place in Central Europe. The good rating profile of the portfolio reflects the high collateralization in these special financing transactions. Nonetheless, there have been downgrades as well.
Retail customers Retail customers are divided into private individuals and small and medium-sized enterprises (SME). For retail customers, a twofold scoring system is used – consisting of the initial and ad-hoc scoring based on customer data and behavioral scoring based on account data.
The table below provides a breakdown of the credit exposure (including off-balance sheet exposure) for retail customers by region (domicile of the booking unit) in thousands of euros: Project rating 2009 Proportion 2008 Proportion 6.1 Excellent project risk profile – very low risk 940,405 28.4% 1,451,184 40.0%
6.2 Good project risk profile – low risk 1,316,273 39.8% 1,405,852 38.8%
6.3 Acceptable project risk profile – average risk 745,345 22.5% 664,786 18.3%
6.4 Poor project risk profile – high risk 219,127 6.6% 73,559 2.0%
From a geographical point of view, the segments Russia and CIS Other were hit by the largest decrease (minus 20 per cent and minus 18 per cent respectively).
Financial institutions The customer division financial institutions mainly contains exposures to banks and securities firms. The internal rating model for financial institutions is based on a peer-group approach that takes both qualitative and quantitative information into account. A ceiling is applied to the final rating for financial institutions by the respective country rating.
The following table shows the credit exposure per rating class for financial institutions (including off-balance sheet exposure but excluding central banks) in thousands of euros: In comparison to year end 2008, loans and advances to and securities issued by financial institutions increased significantly by 22 per cent to € 11,040,528 thousand. The rating distribution of financial institutions showed an even higher clustering in the rating class A3, which went up from 68.3 per cent to 75.5 per cent in the overall portfolio share. This increase was mainly due to short-term deposits made at other banks. The exposure in the rating class B4 increased by 142 per cent compared to the year end 2008. The main increase was recorded in Southeastern Europe. The exposure of unrated financial institutions was below 1 per cent as of 31 December 2009. This exposure was caused mainly by short-term loans to small banks, where the rating process had not been completed yet.
Sovereigns Another rating model is used for central governments, central banks, and regional municipalities as well as other public sector entities. The table below provides a breakdown of the credit exposure to sovereigns (including central banks and off-balance sheet exposure) based on the internal rating in thousands of euros: Internal rating 2009 Proportion 2008 Proportion
The high exposure in average rating grades resulted mainly from the deposits of network banks at local central banks in Central and Eastern Europe with an acceptable credit standing. These deposits are used to meet the respective minimum reserve requirements and to manage excess liquidity on a short-term basis and therefore are intrinsically tied to the banking activities in these countries. The exposure to rating class B2 has been reduced by € 2,870,297 thousand compared to year-end 2008. This can be mainly attributed to the rating of Hungary, which has been downgraded from B2 to B3. The exposure in rating class B5 increased by € 816,305 thousand. This has been caused mainly by the rating downgrade of Serbia (from B4 to B5).
Default and workout process Non-performing loans are defined analogous to Basel II default criteria. Default is defined in Raiffeisen International as the event where a specific debtor is unlikely to pay its credit obligations to the Group from primary sources, or the debtor is overdue more than 90 days on any material credit obligation. Raiffeisen International has defined twelve default indicators which are used to identify a default event including the insolvency or similar proceedings of a customer, if an impairment provision has been allocated or a direct write-off has been carried out, if credit risk management has judged a customer account receivable to be not wholly recoverable, or the workout unit is considering stepping in to help a company restore its financial soundness.
The credit portfolio and individual borrowers are subject to constant monitoring. The main purposes of monitoring are to ensure that the borrower is meeting the terms and conditions of the contract as well as following the obligor’s economic development. It is supplemented by an early warning system and conducted on a monthly basis. A review is conducted at least once annually for the non-retail divisions corporate customers, financial institutions, and sovereigns. This includes a rating review and the reevaluation of financial and tangible collaterals.
Within the scope of the Basel II project a Group-wide default database has been created for recording and documenting customer defaults. The database tracks recoveries and work-out costs as well, which makes it suitable for calculating and validating PDs and LGDs (the probability of default, PD, and loss given default, LGD, both are parameters in the regulatory Internal Ratings Based approach used for determining required own funds and the Group’s internal risk quantification models).
Troubled loans (where debtors are expected to run into material financial difficulties or delayed payment) need special handling. In the non-retail segments, Problem Loan Committees (PLCs) of each Group member review problematic exposures. In case of the need for intensified handling and workout, the troubled loans are assigned either to a designated specialist or to a restructuring unit (workout department), both part of the risk or credit risk management divisions. Employees of workout units are specially trained and are assisted by in-house legal departments and/or by external specialists as well. Work-out units play a decisive role in accounting and analyzing as well as booking provisions for impairment losses (write-offs, value adjustments, provisioning). Their early involvement can help in reducing losses caused by troubled loans. Cases in which restructuring or liquidation take place are analyzed in Raiffeisen International to find out their causes. Lending processes are then adapted as necessary on the basis of these results.
Provisions for impairment losses are formed on the basis of Group-wide standards according to IFRS accounting principles and cover all identifiable credit risks. In the non-retail segments, problem loan committees of each Group member decide on building individual loan loss provisions. In the retail area, provisioning is performed by retail risk departments in individual Group units. They compute loan loss provisions according to defined calculation schemes on a monthly basis. The provisioning amount is then approved by local accounting departments.
The following table shows the exposure outstanding in the defined asset classes from balance sheet positions loans and advances to banks and loans and advances to customers and the corresponding non-performing loans, collateral provided for these loans, and impairment losses on loans by segments (domicile of booking unit): €000 Central Europe
In 2009 in the corporate customers division, NPL ratio was the highest in the segment CIS Other, standing at 15.9 per cent, which is mainly attributable to loan defaults in Ukraine. For the total division this ratio went up from 2.4 per cent to 8.8 per cent. In nominal amounts, non-performing loans reached € 2,576,244 thousand where € 1,697,445 thousand impairment losses on loans have been allocated and in addition € 1,246,939 thousand of collateral is available.
As of 31/12/2008 1 Allocation including direct write-downs and income on written down claims. 2 Usage including direct write-downs and income on written down claims.
Corporate customers – small business 3,482,430 741,299 2,900,688 31/12/2008 Maximum credit exposure Fair value of collaterals1 €000 Net exposure Commitments /
Collateral Collateral is divided into pledges (e.g. guarantees ) and asset-based collateral. In Raiffeisen International liens on residential or commercial properties are the main type of collateral used with Raiffeisen International.
Country risk Country risk includes transfer and convertibility risks as well as political risk. It arises from cross-border transactions and direct investments in foreign countries. Raiffeisen International is exposed to this risk due to its strong business activities in the Central and Eastern
European convergence markets. In these markets political and economic risks generally increased in the course of the global economic crisis.
As country risk is closely associated with the risk of sovereign institutions, it is measured based on the same ten-class rating model. This rating model includes a quantitative analysis of the macroeconomic risk of a particular country and a qualitative analysis of the political risk that a particular country represents. Country risk management in Raiffeisen International is based on the country risk policy which is reviewed semi-annually by the Managing Board as prepared by the Country Risk Committee. This committee includes representatives of the various business segments and risk management departments. This policy sets a strict limitation of risk exposure to foreign countries.
In day-to-day work, business units have to submit limit applications for the respective countries for all cross-border transactions in addition to the limit applications a customer. Country risk is also measured separately when assessing internal capital adequacy and is reflected in product pricing as well as in risk-adjusted performance evaluation. Business units therefore get rewarded for mitigating country risk by seeking insurance (e.g. from export credit insurance organizations) or guarantors in third countries.
Stress tests finally simulate the impact of severe crises in selected countries and regions on the Group’s performance. These stress tests are another core area of country risk management and underline the special importance of this topic in Raiffeisen International’s risk management.
The regional breakdown of credit exposure reflects the broad diversification in European markets. The following table shows the regional distribution of credit exposure from banks and customers (including off-balance sheet exposure) by domicile of borrower: 1 EU-27 excluding member states listed in this table
Counterparty credit risk If a counterparty in a derivative, repurchase, securities or commodities lending or borrowing transaction defaults then losses can arise from re-establishing the contract with another counterparty. In Raiffeisen International this risk is measured by the mark-tomarket approach where a predefined add-on is added to the current positive fair value of the contract in order to account for potential future changes. For internal management purposes potential price changes, which can affect the fair value of the instrument, are calculated specifically for different contract types based on historical market price changes.
For derivative contracts the standard limit approval process applies where the same risk classification, limitation, and monitoring process is used as for traditional lending. In doing so, the weighted nominal exposure of derivative contracts is added to the customers’ total exposure in the limit application and monitoring process as well as in the calculation and allocation of internal capital.
An important strategy for reducing counterparty credit risk is credit risk mitigation techniques like netting agreements and collateralization. In general, Raiffeisen International strives to establish standardized ISDA master agreements with all counterparties in order to be able to perform close-out netting and credit support annexes (CSA) for full risk coverage for positive fair values on a daily basis.
Raiffeisen International defines market risk as the risk of possible losses arising from changes in the market due to fluctuating or changing interest rates, foreign exchange rates, share prices and prices in general. This risk category encompasses both trading book and banking book positions. Risky positions are the result either of business done for customers or result from proprietary position taking.
Raiffeisen International approves, measures, monitors and manages all market risks by setting a variety of limits. The overall limit is set by the Managing Board on the basis of the Group’s risk-bearing capacity and income budgeting. This limit is apportioned on the basis of a coordinated proposal made by the treasury department and market risk management in the weekly market risk committee. The individual limits set at book level 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, vega) and stop-loss limits, depending on the type of transaction. All products in which open positions can be held are listed in
the product catalogue. New products are added to this list only after running through the product approval process (PAP). Positions and limits are checked daily throughout the Group.
Value-at-risk figures forecast maximum losses that will not be exceeded with a certain confidence level under normal market conditions but do not provide any specific information about the effects of exceptionally extreme market movements. To take such events into account, weekly stress tests are carried out focusing on the biggest daily market movements in the preceding five years. With stress scenarios crisis situations and major fluctuations in market parameters are simulated and their effect on the Group’s current positions is computed. The results are an important input for the management of risks (especially on market risk concentrations).
Market risk in the trading book Market risk in Raiffeisen International’s trading books depends primarily on currency risk, which results from foreign-currency denominated equity investments made in foreign Group units and the corresponding hedging positions entered by the Asset Liability Management Committee. This risk has decreased significantly during the last year due to the steady decline in foreign exchange rates’ volatilities.
Foreign exchange rate risk and capital (ratio) hedges Foreign exchange rate risk in a narrow sense denotes the risk that one suffers losses due to open foreign exchange positions. Exchange rate fluctuations affect foreign-currency denominated equity investments, expenses, and revenues. Exchange rate changes, however, also influence regulatory capital requirements of assets denominated in foreign currencies, even if they are refinanced in the same currency and thus do not create an open foreign exchange position.
Raiffeisen International holds several material participations located in countries outside of the European Monetary Union with equity denoted in the corresponding local currency. Also, a significant share of the Group’s risk weighted assets is denoted in foreign currencies. Changes in foreign exchange rates thus lead to a change of consolidated capital; and they influence the Group’s own funds requirement for credit risks as well.
Basically, there are two different approaches for managing foreign exchange rate risks: • Preserve equity: With this hedging strategy an offsetting capital position is held on Group level for local equity positions. However, the necessary hedging positions cannot be executed in all currencies due to required high volume. And these hedges might be inefficient for some currencies as well, if they carry a high interest rate differential.
Market risk in the banking book Interest rate risk in the banking book arises from different maturities and repricing schedules of Raiffeisen International’s assets and the corresponding liabilities (i.e. deposits and refinancing on debt and capital markets). This risk in particular is due to different interest rate sensitivities, rate adjustments, and other optionality of expected cash flows. Interest rate risk in the banking book is material for euro and US-dollar as major currencies as well as for local currencies of network banks located in Central and Eastern Europe.
Banks perform maturity transformation as an important role for international financial markets. The need for maturity transformation arises from the needs of depositors to access their funds within short notice and the diametric desire of borrowers for longterm loans. This function constantly results in positive or negative liquidity gaps for different maturities that are managed through transactions with other market participants under normal market conditions.
Change of present value 31/12/2009 6–12 months >1–2 years >2–5 years >5 years
Change of present value 31/12/2008 6–12 months >1–2 years >2–5 years >5 years
Short-term liquidity risk The following table shows excess liquidity and the ratio of cash inflows plus counterbalancing capacity to cash outflows (liquidity ratio) for select maturities on a cumulative basis, taking into account balance sheet items and off-balance-sheet transactions. Based on expert opinions, statistical analyses and country specifics, this calculation also incorporates estimates on the prolongation of defined assets, the so-called sediment of customer deposits, and the liquidity counterbalancing capacity (in particular, assets that are eligible for refinancing at central banks and that can be used as collateral in repo transactions). These parameters have been updated in 2009 according to the statistical evidence collected during this year.
Internal limits have been established for each Group unit to limit liquidity risk. They require a positive short-term liquidity gap based on the internal liquidity model. In addition the Group maintains extensive holdings of liquid securities to ensure liquidity in various currencies and favors assets eligible in tender transactions in the lending business. In the case of a liquidity shortage in the Group, contingency plans come into force. In particular, prioritized action lists for handling liquidity shortages (also with regard to the publicity impact) exist for all major Group members.
Funding liquidity risk Funding liquidity risk is mainly driven by changes in the risk appetite of lenders or by a rating downgrade of a bank that seeks external funding. Funding rates and supply rise and fall with credit spreads, which change due to the market- or bank-specific situation.
As a consequence, long term funding depends on restoring confidence in banks and the increased effort in collecting customer deposits. Raiffeisen International’s banking activities are refinanced by combining the wholesale strengths and know-how of Raiffeisen Zentralbank as parent credit institution and the retail franchise of deposit-taking network banks and their own issuing plans. Extending and securing deposit gathering activities currently receives the main focus.
This risk is managed first of all by the Asset Liability Management Committee of Raiffeisen International. The main task is the coordination of funding plans for the year ahead and strategic funding plans for longer horizons. Moreover, Raiffeisen International coordinates the medium-term and long-term borrowing activities its subsidiaries through syndicated loans, bilateral funding agreements with banks, and financing facilities of supranational institutions. These funding sources are based on long-term business relationships.
For managing and limiting liquidity risks, the medium term targets for loan/deposit ratios (the ratio of customer loans to customer deposits) have been revised and tightened for individual network banks. The new limits incorporate planned future business volumes as well as the feasibility for increasing customer deposit in different countries. On the one hand, this initiative reduces external funding requirements. On the other hand, it also reduces the need for internal funding operations and the risk associated with such liquidity transfers.
Deposits from banks 20,110,170 19,577,262 4,032,782 5,157,533 9,347,284 1,039,663 Deposits from customers 42,578,249 43,198,192 34,615,528 6,533,424 1,860,708 188,531 Debt securities issued 2,526,651 2,763,853 382,558 881,960 1,287,110 212,225 Other liabilities 508,700 718,383 639,587 75,627 3,139 28 Subordinated capital 2,470,285 2,614,976 12,638 60,855 772,059 1,769,424
Deposits from banks 26,213,164 29,113,564 7,229,421 6,962,430 13,947,698 974,015 Deposits from customers 44,205,905 47,874,345 38,510,884 7,085,415 2,084,907 193,139 Debt securities issued 3,393,383 3,781,616 575,331 910,727 1,866,544 429,014 Other liabilities 663,645 769,735 720,647 30,918 6,257 11,913 Subordinated capital 1,684,456 1,976,750 19,899 43,378 871,194 1,042,279
Derivatives in the trading book 1,449,562 74,926,511 24,624,827 28,063,898 21,115,547 1,122,239 Hedging derivatives 50,890 304,177 16,028 166,667 96,297 25,185 Other derivatives 778,811 11,520,200 4,715,794 2,130,197 4,582,805 91,404 Credit derivatives 2,196 2,196 2,196 0 0 0
These operational risks are analyzed and managed on the basis of the Group’s own historical loss data and the results of self assessments. Another management tool is the incentive system implemented in internal capital allocation. This system rewards high data quality and low expected operational risks costs of individual business units. Generally speaking, Raiffeisen International implements a centralized – decentralized system for operational risk management. In this process, a central operational risk management function defines all basic principles and minimum requirements, which are then implemented risk-specifically and risk specific in the native language of individual units of Raiffeisen International.
As with other risk types the principle of firewalling between risk management and risk controlling is also applied to operational risk in Raiffeisen International. Operational risk controlling units are mainly responsible for the implementation and refinement of methods for operational risk management in different Group units (e.g. performing self assessment, defining and monitoring of Key Risk Indicators – KRIs, etc.) and for reporting to the central operational risk controlling function. Business line managers are responsible for managing and mitigating operational risks. They decide on pro-active operational risk steering actions such as buying insurance and the use of further risk mitigating instruments.
Risk identification An important task for controlling operational risks is identifying and evaluating risky areas which might endanger the Group’s existence if a loss occurs (but where losses are highly unlikely to be realized) and also areas where losses are more likely to happen frequently (but only with a minor amount of loss).
Loss data is collected in a central database called ROCO (Raiffeisen Operational Risk Controlling) in a structured and Groupwide form according to the event type for each business line. Collecting losses stemming from operational risks is a prerequisite for implementing a statistical loss distribution model and a minimum requirement for implementing the regulatory Standardized Approach. Furthermore, loss data (and near misses) is used to create and validate operational risk scenarios and for exchange with international data pools to develop advanced operational risk management tools.
Quantification and mitigation Raiffeisen International currently calculates regulatory capital requirements for operational risks according to Basel II using the standardized approach (STA). After several years of implementation the Ukrainian network bank, Raiffeisen Bank Aval, applies this calculation methodology starting as of 1 January 2010 as well. As a consequence the standardized approach now is used in all major Group members.
The total volume of unsettled financial instruments as of 31 December 2009 breaks down as follows: Nominal amount by maturity Fair values
Intangible and tangible fixed assets 2,217,538 2,216,114 1,424 2,216,285 2,215,657 628
Financial assets at fair value through profit or loss 2,338,151 895,371 5 1,567,802 471,445 2,842
Shares and other variable-yield securities 40,084 157,029 5 64,275 0 2,842
Negative fair values of derivatives financial instruments1 93,969 625,565 0 958,708 1,267,180 4,681
Negative fair values of derivatives from hedge accounting 0 50,026 0 49,531 1,358 0
The following table contains the funds managed by Raiffeisen International: (50) Capital management and regulatory own funds
The most crucial steering instrument for Raiffeisen International is equity. Raiffeisen International is not subject to the regulatory requirements of the Austrian Banking Act, as on the one hand no banking license is drawn and on the other hand this company is integrated in the RZB-Kreditinstitutsgruppe, which is already subject to regulatory monitoring. Nevertheless, the network banks of Raiffeisen International are subject to the local regulative equity regulations.
Equity and in a broader sense own funds serve as protection against unexpected losses. In terms of an orderly business control, the role of the management of Raiffeisen International is to guarantee capital adequacy. In principle, Raiffeisen International uses basically the same steering instrument as RZB Group.
Raiffeisen International uses target values for internal regulation. These incorporate all risk types, including trading book, foreign exchange, and operational risk. The local network banks are in charge of maintaining the local regulative targets, in accordance with the unit’s investment management and corporate planning division.
The own funds of Raiffeisen International according to the Austrian Banking Act (BWG) 1993/Amendment 2006 (Basel II) break down as follows: Paid-in capital 3,637,865 3,036,600
Additional own funds according to Section 23 (1) 5 BWG 91,001 91,001
Tier 2 capital available to be redesignated as tier 3 capital 181,581 112,455
The total own funds requirement is as follows: Risk-weighted assets for the credit risk according to asset classes break down as follows: Risk-weighted assets according to Section 22 BWG 50,089,600 60,387,566 thereof 8 per cent minimum own funds for the credit risk according to Sections 22a to 22h BWG 4,007,168 4,831,005
Own funds requirement for position risk in bonds, equities and commodities 136,189 152,143
The average number of staff employed during the financial year (full-time equivalents) breaks down as follows: (52) Expenses on severance payments and retirement benefits
The same regulations are in principle valid for members of the Managing Board and employees. These regulations provide a basic contribution to a pension fund from the company and an additional contribution if the employee pays own contributions of the same amount. Three Managing Board members additionally have individual retirement benefits, which are funded by reinsurances.
In the case of termination of function or employment contract and retirement, two members of the Managing Board are entitled to receive severance payments according to the Salaried Employee Act (Angestelltengesetz), two members of the Managing Board according to contractual agreements and two members of the Managing Board only according to the Company Retirement Plan Act (Betriebliches Mitarbeitervorsorgegesetz). The entitlement to receive severance payments according to the Salaried Employee Act (Angestelltengesetz) and according to contractual agreements lapses with the exemption of one member of the Managing Board in case of termination by the employee. Moreover, four members of the Managing Board are entitled by contract to receive additional severance payments.
Individuals older than 68 years of age are not eligible to be elected as a member of the Managing Board and may not be appointed for another functional period.
All members of the Supervisory Board declare themselves to be independent in the meaning of criteria of independence agreed by the Supervisory Board and in conformity with the Austrian Corporate Governance Codex. None of the members hold more than a 10 per cent share in the company.
On 22 February 2010, Raiffeisen International published an ad-hoc release informing that Raiffeisen International Bank-Holding AG and Raiffeisen Zentralbank Österreich AG are currently taking a closer look at a possible merger as one of several possible strategic options. At the date of compilation, no official decisions have been made to implement any of these strategic options.
Raiffeisen Investment Fund Management Zrt., Budapest (HU) 100,000,000 HUF 70.3% FI
1 Company type: BA…Bank, BR…Company rendering banking-related ancillary services, FI…Finacial institution
RI FINANCE (JERSEY) PCC, St. Helier (JE) 2 EUR 100.0% FI
The following tables show a selection of equity participations. The complete list of the equity participations of Raiffeisen International Bank-Holding AG is deposited with the Group parent’s headquarters.
Asset Management Company Raiffeisen Aval, Kiev (UA) 8,000,000 UAH 100.0% FI
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Group’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Our audit did not give rise to any objections. In our opinion, which is based on the results of our audit, the consolidated financial statements comply with legal requirements and give a true and fair view of the financial position of the Group as of 31 December 2009 and of its financial performance and its cash flows for the year from 1 January to 31 December 2009 in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU.
In our opinion, the management report for the Group is consistent with the consolidated financial statements. The disclosures pursuant to Section 243a UGB (Austrian Commercial Code) are appropriate.
Glossary Affiliated companies – Entity over which the investor has control (i.e. power to govern the financial and operating policies).
Basel II – The body of capital adequacy regulations proposed in recent years by the “Basel Committee,” an international forum dedicated to improving bank supervision. According to EU Directives 2006/48/EC and 2006/49/EC, the regulations must be applied in the member states of the European Union from 1 January 2007 onwards to all banks and financial service institutions. As in the case of the Basel I Accord, the goal is to ensure that banks have adequate capital resources and that uniform competitive conditions are created for both lending and credit trading. The main objective of the changes made by Basel II compared with Basel I is to orient capital adequacy requirements prescribed by government more strongly to actual risk and hence approximate the capital requirements internally ascertained by banks.
Consolidated ROE – Return on Consolidated Equity, i.e. the equity attributable to the shareholder of Raiffeisen International. It is calculated by consolidated profit in relation to average balance sheet equity (without minority interests). Average equity is based on month-end figures and does not include current year profit.
Credit exposure – Comprises all on-balance sheet exposures (loans, debt securities) and off-balance-sheet exposures (guarantees, commitments) that expose Raiffeisen International to credit risk.
Default risk – Risk that counterparties in a financial transaction will not be able to fulfil an obligation, causing the other party a financial loss.
EBRD (European Bank for Reconstruction and Development ) – An institution that promotes the transition to an open market economy and to private and entrepreneurial action in the countries of Central and Eastern Europe. Through its investments, it supports activity of the private sector and strengthens financial institutions, legal systems, and development of infrastructure needed by the private sector.
EMTN (Euro Medium Term Notes) Program – Framework agreement between companies and bond traders who make it possible for the companies to issue medium-term securities in the European capital market for the purpose of flexibly procuring outside capital.
Fair Value Level II – (evaluation method through observable parameters). When current bid and asking prices are unavailable, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. (Used methods: cash method and option pricing models)
Gross investment value – The aggregate of minimum lease payments receivable by the lessor under a finance lease and any unguaranteed residual value accruing to the lessor.
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.
Operating leasing – Lease under which commercial and legal ownership remains with the lessor with the effect that the lessor must show the asset on its statement of financial position.