Service Glossary 258 Alternative Performance Measures (APM) 258 Addresses 260 Publication details 262
RBI at a glance Raiffeisen Bank International AG (RBI) regards Austria, where it is a leading corporate and investment bank, as well as Central and Eastern Europe (CEE) as its home market. 14 markets in the CEE region are covered by subsidiary banks. Additionally, the Group comprises numerous other financial service providers, for instance in the areas of leasing, asset management and M&A.
Monetary values 2016 2016 in € million 2017 pro forma Change published 2015 2014 2013
Net fee and commission income 1,719 1,599 7.5% 1,497 1,519 1,586 1,626
Loans and advances to customers 81,232 79,769 1.8% 70,514 69,921 77,925 80,635
Return on equity after tax 12.5% 7.0% 5.8 PP 6.7% 5.2% – 5.7%
Consolidated return on equity 12.2% 6.2% 6.0 PP 5.8% 4.8% – 4.9%
NPE coverage ratio 56.3% 66.3% (10.0) PP 66.7% – – –
Risk-weighted assets (total RWA) 71,902 67,911 5.9% 60,061 63,272 68,721 79,897
Common equity tier 1 ratio (transitional) 12.9% 12.7% 0.2 PP 13.9% 12.1% 10.8% 10.7%
Common equity tier 1 ratio (fully loaded) 12.7% 12.4% 0.3 PP 13.6% 11.5% 10.0% –
Employees as at reporting date (full-time equivalents) 49,700 50,203 (1.0)% 48,556 51,492 54,730 57,901
What areas did the transformation program focus on in particular? The program’s objective was to significantly improve our risk profile and capital position. To that end, we implemented a range of measures. For example, we withdrew from selected markets such as Asia, the US and Slovenia as well as from certain business areas such as car financing in Russia. This also involved repositioning some of our network banks to minimize the effects of political risk for our bank, above all in Eastern Europe. Moreover, the merger of RBI and RZB has enabled us to reduce the complexity of the Group. We not only completed the program more than one year ahead of schedule, but also significantly surpassed our capital targets. As a consequence, the CET1 ratio (fully loaded) of the former RBI increased from 10 per cent at the end of 2014, to 12.7 per cent for the merged entity at the end of the reporting period. For that reason, we were able to turn our attention to our bank’s profitability in 2017, which evidently had a positive effect on the net profit for the year.
Is the consolidation phase now over? We want to return to growth. At present, we are targeting selective growth, which means that we want to place a specific focus on several countries. This will be markets that are characterized by a high degree of stability and excellent economic prospects. Their populations are doing well on average and unemployment has significantly reduced. Many firms in these countries are also planning to grow, which will benefit us as a traditional customer-focused bank. In light of the good capital position, we are also looking at buying portfolios. Our strategy is to be a leading universal bank in CEE, for which focused growth is essential.
Digitalization is the word on everyone’s lips. Where does RBI stand on this issue? We believe digitalization offers interesting opportunities for our business processes. We are exploring these and will systematically exploit them if they have a positive effect on efficiency and customer relationships. The latter in particular is a top priority for us as a relationship bank that places creating value for its customers at the forefront. We already have a digitalization pioneer within the Group, namely Tatra banka. Our Slovakian subsidiary is one of the first banks in the region to offer innovative digital solutions such as payments by smartphone without those involved having to exchange their account data. Biometric voice recognition in call centers is another example. We are gradually transferring this know-how to other markets, where a largely young population is generally receptive to such innovations. Our Elevator Lab is a further step towards digitalization. This is a program in which we are collaborating closely with fintechs, technologically-oriented companies with innovative solutions for the financial services industry. We have also joined R3, another example of our digitalization activities. This is an international consortium with more than 160 members that are working on pilot projects for the commercial use of blockchain applications.
International Retail Strategy & Products3 1 Reports to the whole Management and Supervisory Board 2 Reports temporarily to the CEO 3 Reports temporarily to the Management Board member for Corporate Banking As at 31 December 2017
The 2017 financial year saw an economic upturn in Austria and our core markets on the one hand, and on the other, was a year of continued low interest rates, notably in the euro area. This positive overall macroeconomic trend and favorable market environment contributed to the strong year-on-year improvement in RBI’s consolidated profit. The better operating result was mainly positively impacted by lower risk costs. Alongside the successful sale of non-performing loans, this was also due to a notable decrease in net provisioning for impairment losses.
In the 2017 financial year, the members of the Supervisory Board and its Committees were kept informed in a timely and comprehensive manner by the Management Board – at four meetings of the Supervisory Board, eight meetings of the Working Committee, four meetings of the Risk Committee, and two meetings respectively of the Audit Committee, Remuneration Committee, Nomination Committee and Personnel Committee – about key political, economic, regulatory and legal developments and potential risks, as well as on individual business areas, risk developments and business performance at RBI and Group companies. The information was provided verbally as well as in writing. This enabled the Supervisory Board to duly fulfil its duty to supervise and advise the Management Board and to form a comprehensive view of developments at RBI. In addition to the ordinary Supervisory Board and Committee meetings, extraordinary meetings also took place as required – one of the Supervisory Board, one of the Remuneration Committee and five of the Nomination Committee. The respective Chairperson regularly reported on the work of the Committees to the Supervisory Board.
Furthermore, Supervisory Board members obtained further in-depth knowledge of current and bank regulatory issues through training programs. In the intervals between meetings, the Supervisory Board Chairperson and/or Deputy Chairperson met regularly with the Management Board in order to exchange views and information on topical issues. The members also held expert discussions to gain information on matters to be addressed by the Supervisory Board on a regular basis. Overall, the members of the Supervisory Board diligently fulfilled their supervisory duties and formed sound decisions.
The consolidated financial statements (income statement, statement of financial position, statement of changes in equity, cash flow statement and notes) as well as the annual financial statements for RBI have been audited by KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft (KPMG). As the audit revealed no reason for objections, with all legislative provisions fully satisfied, an unqualified auditor’s report was issued.
Following an extensive audit and discussion of the consolidated financial statements and annual financial statements at the Supervisory Board meeting and preceding Audit Committee meeting, the Supervisory Board approved the annual financial statements of RBI. The statements were thus adopted in accordance with § 96 (4) of the Austrian Stock Corporation Act (AktG). The consolidated financial statements were noted by the Supervisory Board.
On the other hand, the regional Raiffeisen banks are connected to RBI AG as the central institution of the Austrian Raiffeisen Banking Group.
The Österreichischen Raiffeisen-Einlagensicherung eGen In Austria, deposit protection and investor compensation with respect to banks is subject to the provisions of the Austrian Act on Deposit Guarantee Schemes and Investor Compensation (Einlagensicherungs- und Anlegerentschädigungsgesetz – ESAEG). The Österreichische Raiffeisen-Einlagensicherung eGen (ÖRE) is responsible for the statutory deposit guarantee and investor compensation scheme for the Raiffeisen banks, the regional Raiffeisen banks, as well as RBI AG.
Comparable regulations apply to the members of the regional IPS. The institutional protection schemes hence supplement the RBG system of mutual assistance that comes into effect if a member experiences economic difficulties.
The primary objective is long-term value creation RBI is a leading universal banking group in the CEE region and Austria. Its business activities comprise the corporate customer business, financial services for retail customers in CEE, as well as business with banks and other institutional clients. The challenges facing RBI’s business model will continue to be influenced by regulatory requirements, bank-specific taxes, politically motivated market interventions, the persistently low interest rate environment and technological developments, as well as new competitors. In order to successfully meet these challenges, RBI implemented a transformation program; following the merger of RBI and RZB, the strategic focus is on growth in the most promising markets for the years ahead. To this end, the focus for RBI will continue to be on the CEE region, which offers structurally higher growth rates than Western Europe and therefore more attractive levels of interest rates and returns, strengthened by the addition of leading specialist institutions in Austria, notably the building society, asset management company and pension fund management company, RBI benefits at the same time from the stability of the Austrian business areas. The overall result is a balanced, attractive business portfolio.
RBI’s business model is based on the following core competencies: ■ RBI maintains and develops a strong and reliable brand that serves as the basis for its business model.
For corporate and institutional clients, key emphasis is placed on Group-wide sales and management tools with a focus on capital- and liquidity-efficient products (particularly trade finance, capital market products and hedging of currency, interest rate and credit risks, as well as payment transfer business). At the same time, Group-wide product competence centers not only enhance efficiency through the pooling of know-how but also facilitate customer access to complex financing products (e.g. in the areas of project, real estate and export financing and capital market transactions).
At the editorial deadline for this report on 27 February 2018, RBI’s stock was priced at € 31.85. The shares therefore posted a gain of 5 per cent compared to 31 December 2017, outperforming the ATX (unchanged) and the Euro Stoxx Banks (up 4 per cent).
Shareholder structure Following the merger of RBI AG and RZB AG, the regional Raiffeisen banks hold approximately 58.8 per cent of RBI’s shares, with 41.2 per cent in free float. The shareholder base is well diversified due to the broad geographic spread and various investment strategies. The majority of institutional investors are from North America and Europe and increasingly from Asia and Australia. These include sovereign wealth funds and supranational organizations, which offer stability due to their preferred long-term investing strategies. There are also a large number of Austrian retail investors.
Stock data and details Price as at 31 December 2017 € 30.20
Annual General Meeting and dividend proposal RBI’s Annual General Meeting that took place on 22 June 2017 approved all of the proposed resolutions relating to the individual agenda items. Erwin Hameseder (President of Raiffeisen-Holding NÖ-Wien Beteiligungs GmbH) was elected new Chairman of the RBI Supervisory Board. The Supervisory Board mandates of Heinrich Schaller (CEO of RLB OÖ) and Günther Reibersdorfer (CEO of Raiffeisenverband Salzburg) were extended. Peter Gauper (CEO of RLB Kärnten), Wilfried Hopfner (CEO of RLB Vorarlberg), Rudolf Könighofer (CEO of RLB Burgenland) and Johannes Ortner (CEO of RLB Tirol) were newly elected to the Supervisory Board. Also new to the Supervisory Board are Eva Eberhartinger, Chair of Tax Management in the Department of Finance, Accounting, and Statistics at the Vienna University of Economics and Business, and Birgit Noggler, an independent tax advisor with financial expertise gained in previous positions, including as CFO of an ATX listed company. Each member of the Supervisory Board was elected until the end of the Annual General Meeting which will resolve on the granting of discharge for the 2021 financial year.
On 8 February 2017, RBI announced its preliminary figures for the 2016 financial year. To mark release of the final results for the 2016 financial year, RBI’s Management Board met with investors in Vienna on 15 March and also held a conference call with over 200 participants. On the following day, RBI invited institutional investors and analysts to its investor presentation in London. The event, which takes place on the day following the publication of the full-year results for a number of years now, met with keen interest among the more than 60 participants.
In the first quarter, RBI attended roadshows and conferences in Frankfurt, Linz, London and Zürs. On 17 May 2017, RBI published its figures for the first quarter of 2017. Some 180 international analysts and institutional investors participated in the subsequent conference call.
In the first half of September, RBI’s Management Board and Investor Relations team participated in a number of conferences and met with numerous investors in Taipei, Hong Kong, Los Angeles, San Francisco, New York, Boston and London during a two-week international roadshow. Moreover, in late September, a meeting with debt analysts took place in London, as did the annual meeting with equity analysts followed by individual and group discussions with investors. Sales force briefings were also held with seven international brokers.
RBI strives to keep market participants fully informed. In the interest of making its communications as easily accessible and widespread as possible, RBI makes conference call presentations and other important events available as webcasts online. These can be viewed at any time online at www.rbinternational.com → Investor Relations → Presentations & Webcasts.
Contact for equity and debt investors E-Mail: ir@rbinternational.com Internet: www.rbinternational.com → Investor Relations Telephone: +43-1-71 707-2089 Fax: +43-1-71 707-2138
RBI deviates from the C Rules below, however complies with the Code through the following explanations and justifications: C Rule 45: non-competition clause for members of the Supervisory Board RBI AG is the central institution of the Raiffeisen Banking Group Austria (RBG). Within RBG, RBI serves as the central institution of the regional Raiffeisen banks and other affiliated banks. Some members of the Supervisory Board in their function as shareholder representatives therefore also hold executive roles in RBG banks. Consequently, comprehensive know-how and experience specific to the industry can be applied in exercising the control function of the Supervisory Board, to the benefit of the company.
C Rule 52a: The number of members of the Supervisory Board (without employee representatives) shall be ten at most. The Supervisory Board currently consists of nine core shareholder representatives for the RBG and three free float representatives. It thus has two more members than in the year before. This increase in the number of members was based on a resolution passed by the Annual General Meeting on 22 June 2017. The increase provides the Supervisory Board with additional industry knowledge and experience, more diversity, and further strengthens its ability to exercise its control function.
Karl Sevelda resigned as Chairman of the Management Board on 18 March 2017. At the same time, Johann Strobl was appointed Chairman of the Management Board (previously Deputy Chairman of the Management Board) and Klemens Breuer was appointed Deputy Chairman of the Management Board (previously member of the Management Board).
Klemens Breuer (Deputy Chairman of the Management Board) resigned from his position on 31 October 2017. The Working Committee temporarily reallocated responsibilities following his resignation. On 1 November 2017, Johann Strobl assumed responsibility for the Capital Markets area of the Management Board, while Peter Lennkh assumed responsibility for the Management Board area of Retail Banking. A new Deputy Chairman of the Management Board had not been appointed at the time this report was written.
On 7 December 2017, the Supervisory Board appointed Andrii Stepanenko to the Management Board, subject to approval by the supervisory authority. Upon receiving approval, Andrii Stepanenko is expected to take over the Retail Banking area from Peter Lennkh in March 2018.
Members of the Management Board held seats on the supervisory board or comparable functions in the following domestic and foreign companies that are not included in the consolidated financial statements: Karl Sevelda Oesterreichische Kontrollbank AG (until 2 June 2017), Siemens AG Austria Klemens Breuer FMS Wertmanagement AöR (until 5 January 2017), UNIQA Insurance Group AG (since 4 July 2017) Andreas Gschwenter RSC Raiffeisen Service Center GmbH, Austria, Deputy Chairman Peter Lennkh Oesterreichische Kontrollbank AG (since 2 June 2017)
Raiffeisen Bank d.d., Bosnia and Herzegovina, Deputy Chairman Raiffeisen banka a.d., Serbien, Chairman (from 1 April 2017, previously member) Raiffeisenbank a.s., Czech Republic, Deputy Chairman Raiffeisen Bank Polska S.A., Poland, member Raiffeisen Bank S.A., Romania, member AO Raiffeisenbank, Russia, member Tatra banka, a.s., Slovakia, member Raiffeisen Bank Sh.A., Albania, Chairman
Raiffeisen Centrobank AG, Austria, Chairman (from 1 November 2017, previously member) AO Raiffeisenbank, Russia, member Raiffeisen Bank Polska S.A., Poland, member Raiffeisen Bank d.d., Bosnien and Herzegovina, Chairman Raiffeisen Bank S.A., Romania, member Tatra banka, a.s., Slovakia, member Raiffeisenbank a.s., Czech Republic, member
Michael Höllerer and Johannes Schuster (both members of the Supervisory Board) resigned their Supervisory Board mandates with effect as of 18 March 2017.
Martin Schaller 1965 4 June 2014 Annual General Meeting 2019 1st Deputy Chairman
Helge Rechberger2 1967 10 October 2010 Until further notice 1 Effective as of 10 October 2010 2 Delegated by the Staff Council
Independence of the Supervisory Board In accordance with and taking into consideration C Rule 53 and Appendix 1 of the ACGC, the Supervisory Board of RBI AG specified the following criteria for the independence of the members of the company’s Supervisory Board: ■ The Supervisory Board member shall not have been a member of the Management Board or a senior executive of the company or of one of its subsidiaries in the past five years.
■ The Supervisory Board member shall not have, or have had in the previous year, any significant business relationships with the company or a subsidiary of the company. This also applies to business relationships with companies in which the Supervisory Board member has a significant financial interest, albeit not with regard to carrying out executive functions within the Group.
The approval of individual transactions by the Supervisory Board according to L Rule 48 of the ACGC does not automatically lead to “non-independent” qualification.
■ The exercise of functions within the Group or merely exercising the function of a management board member or senior executive by a Supervisory Board member does not, as a rule, lead to the company concerned being regarded as a company in which a Supervisory Board member has a significant financial interest, to the extent that circumstances do not support the presumption that the Supervisory Board member derives a direct personal advantage from doing business with the company.
18 March to 22 June 2017: Walter Rothensteiner UNIQA Insurance Group AG, Chairman Erwin Hameseder AGRANA Beteiligungs-AG, Chairman; STRABAG SE, Deputy Chairman; UNIQA Insurance Group AG, 2nd Deputy Chairman; Südzucker AG, 2nd Deputy Chairman; Flughafen Wien AG
In addition to their functions as members of RBI AG’s Supervisory Board, supervisory board mandates were also held during this period at the following material subsidiaries: Walter Rothensteiner Kathrein Privatbank Aktiengesellschaft, Austria, Chairman LEIPNIK-LUNDENBURGER INVEST Beteiligungs Aktiengesellschaft, Austria, Deputy Chairman Erwin Hameseder LEIPNIK LUNDENBURGER INVEST Beteiligungs Aktiengesellschaft, Austria, Chairman Klaus Buchleitner LEIPNIK LUNDENBURGER INVEST Beteiligungs Aktiengesellschaft, Austria, member Kurt Geiger Raiffeisen Bank AVAL JSC, Ukraine, member
22 June to 31 December 2017: Erwin Hameseder AGRANA Beteiligungs-AG, Chairman; STRABAG SE, Deputy Chairman; UNIQA Insurance Group AG, 2nd Deputy Chairman; Südzucker AG, 2nd Deputy Chairman
In addition to their functions as members of RBI AG’s Supervisory Board, supervisory board mandates were also held during this period at the following material subsidiaries: Erwin Hameseder LEIPNIK LUNDENBURGER INVEST Beteiligungs Aktiengesellschaft, Austria, Chairman Klaus Buchleitner LEIPNIK LUNDENBURGER INVEST Beteiligungs Aktiengesellschaft, Austria, member Rudolf Könighofer Raiffeisen Informatik GmbH, Austria, member
Members of the Committees The procedural rules of the Supervisory Board govern its organization and allocate particular tasks to the Working, Audit, Remuneration, Risk, Nomination and Personnel Committees. These committees comprise the following members: O VE
Raif feisen Bank Internat ional | Annual Repor t 2017 3rd Deputy Chairman 4th Deputy Chairman
Advisory Council members receive reasonable compensation for their activities. The compensation for the 2017 financial year is based on a resolution that must be passed by the Annual General Meeting.
Group Strategy Head Office Operations 1 Reports to the whole Management and Supervisory Board 2 Reports temporarily to the CEO
3 Reports temporarily to the Management Board member for Corporate Banking
■ A Plenipotentiary served under the CEO from 18 March to 20 December 2017 and was assigned the following areas: Group Regulatory Affairs, Group Digital Banking, Group Marketing and Group Sustainability Management. These divisions were transferred to RBI in the course of the merger of RBI and RZB. Legal Services also reported directly to the Plenipotentiary during this period.
■ The Plenipotentiary resigned on 20 December 2017, and the areas previously under him were placed directly under the authority of the CEO.
■ The Group Participations division was transferred from the Management Board area of the Chief Financial Officer to the Management Board area of the CEO.
Management Board area of Retail Banking & Markets: ■ The Group Asset Management division was taken over by RBI in the course of the merger. It provides asset management products and services to clients of RBI, the regional Raiffeisen banks and the Raiffeisen banks in Austria.
■ Due to Klemens Breuer’s resignation on 31 October 2017, Johann Strobl temporarily assumed responsibility on 1 November 2017 for the Markets area, comprising Group Business Management & Development, Group Capital Markets, Group Investment Banking, Institutional Clients and Raiffeisen Research.
Management Board area of the Chief Operating Officer/Chief Information Officer (COO/CIO): ■ A new COO Strategy, Governance and Change division was established with responsibility for development of the COO strategy and its systematic and effective execution at corporate and Group level.
■ In the course of the merger of RBI and RZB, RZB’s Sector Risk Controlling Services division was integrated into the Management Board area of the CRO.
The procedural rules of the Management Board, as well as the Supervisory Board and its Committees, outline the business management measures that require the approval of the Supervisory Board or of the appropriate Committee.
The Audit Committee monitors the accounting process. It issues corresponding recommendations or proposals for guaranteeing reliability and supervises the effectiveness of the company’s internal control, audit and risk management systems. The tasks of the Audit Committee include the supervision of the annual audit of the financial statements and consolidated financial statements, as well as checking and supervising the independence of the Group’s auditors, particularly with respect to additional work performed for the audited company. The Committee examines the annual financial statements, the management report, the consolidated financial statements and the Group management report, and is responsible for the preparation for their adoption by the Supervisory Board. It also examines the proposal for earnings appropriation and the consolidated corporate governance report. The Audit Committee presents a report on the results of its examinations to the Supervisory Board. It also conducts a process, in accordance with statutory requirements, for the selection of the (Group) auditor and bank auditor and submits a recommendation to the Supervisory Board concerning the appointment of the auditor. Moreover, the Audit Committee discusses the content of the management letter as well as the report on the effectiveness of the risk management system and the internal control system. Internal Audit must provide the Audit Committee with quarterly reports on the areas audited and on any audit findings from audits performed, taking into account § 42 (3) of the BWG. The Group Compliance area also reports twice a year on the status of the internal control system and its effectiveness.
The Supervisory Board held five meetings during the reporting period. In addition, the Management Board fully informed the Supervisory Board on a prompt and regular basis of all relevant matters pertaining to the company’s performance, including the risk position and risk management of the company and material Group companies, particularly in relation to important matters.
No member of the Supervisory Board was unable to personally attend more than half of the meetings of the Supervisory Board.
The Remuneration Committee’s responsibilities include, first and foremost, establishing guidelines for the company’s remuneration policies and practices, particularly on the basis of the BWG, as well as relevant sections of the ACGC. In addition, the Remuneration Committee supervises and regularly reviews the remuneration policies, remuneration practices and relevant incentive structures to ensure that all related risks are controlled, monitored and limited in accordance with the BWG, as well as with respect to the company’s capitalization and liquidity. In doing so, the long-term interests of shareholders, investors and employees of the company are also taken into account, as are the economic interests of maintaining a functioning banking system and the stability of the financial market. The Remuneration Committee also directly reviews the remuneration of executives responsible for risk management and compliance.
The responsibilities of the Risk Committee include advising the Management Board on current and future risk propensity and risk strategy, monitoring the implementation of this risk strategy with regard to the controlling, monitoring and limitation of risk in accordance with the BWG, as well as the monitoring of capitalization and liquidity. It is also responsible for checking whether the pricing of the services and products offered, the business model as well as risk strategy are given adequate consideration and where applicable for submitting a plan with corrective measures. The Risk Committee also monitors whether the incentives offered by the internal remuneration system give adequate consideration to risk, capital, liquidity, as well as the probability and timing of realized profits.
The Nomination Committee attends to the filling of any posts on the Management Board and the Supervisory Board that have become vacant. Consideration is given to the balance and diversity of knowledge, skills and experience of all members of the governing body in question. The Nomination Committee also specifies a target ratio for the under-represented gender on the Management Board and the Supervisory Board, as well as a strategy for achieving the defined target. In its decision-making process, it ensures that the Management Board and the Supervisory Board are not dominated by one individual person, or a small group of persons, in a way which is contrary to the company’s interests. The Nomination Committee’s responsibilities also include: ■ conducting regularly, and in all cases where specific events indicate a need for re-evaluation, an evaluation of the structure, size, composition and performance of the Management Board and Supervisory Board, as well as submission to the Supervisory Board of proposals for changes where necessary; ■ conducting regularly, but at least once a year, an evaluation of the knowledge, skills and experience of the individual members of both the Management Board and Supervisory Board and also of the respective governing body as a whole, and informing the Supervisory Board of the results; and
The Management Board’s remuneration paid in 2017 is shown in detail as follows: The amounts shown for Klemens Breuer and Hannes Mösenbacher, who resigned or joined the Management Board during the year, respectively, are prorated based on the period in which they served on the Management Board. In addition to the amounts shown above, € 351 thousand in fixed remuneration, € 592 thousand in bonus allocations, € 205 thousand in share-based payments, € 1,787 in severance payments, and € 365 thousand in other remuneration were paid to Karl Sevelda between 18 March and 30 June 2017. Furthermore, Herbert Stepic, Aris Bogdaneris and Patrick Butler were paid a total of € 342 thousand in deferred bonus amounts on account of their previous work on the Management Board and a total of € 206 thousand in connection with the 2012 SIP tranche.
The following total amounts were paid to the Management Board of RBI AG: Bonuses (incl. portions for prior years) 1,882 1,467
Management Board members’ contracts specify a maximum bonus. Similarly, the SIP includes a cap amounting to three times the allocation value. A maximum limit is thus in place for all variable compensation components. Other remuneration consists of compensation for board-level functions in affiliated companies, payments to pension funds and insurance companies, as well as vacation compensation and benefits.
RBI’s remuneration system does not encourage the assumption of disproportionate risks, and instead supports sound, effective risk management (e.g. through a performance management process with financial and non-financial targets as well as qualitative and quantitative key performance indicators and the use of a bonus pool approach). This goal is also achieved by limiting variable remuneration through thresholds and upper limits, which also enables more precise long-term cost planning. In addition, special rules apply to all employees whose professional activities have significant consequences for the risk profile of the company and/or the Group (“risk personnel”).
The remuneration system of RBI helps to address “silo mentality” by linking a significant part of variable remuneration to the Group’s performance – in compliance with statutory and regulatory requirements. At the same time, the remuneration and performance management system provides quality enhancement and aims to strengthen customer relationships in the long term.
The 2012 SIP tranche matured in 2017. In accordance with the terms and conditions of the program, the number of shares actually transferred was as follows: SIP 2012
Group of persons Number of Share-price value of Actual number of shares due €20.955 on allotment transferred shares date (10 April 2017)
To avoid legal uncertainties and in accordance with the program’s terms and conditions, eligible employees in three countries were given a cash settlement instead of an allocation of shares. In Austria, eligible parties were granted the option of accepting a cash settlement in lieu of half of the shares due in order to cover the income tax payable at the time of transfer. Therefore, fewer shares were actually transferred than the number that was due. The portfolio of own shares was consequently reduced by the lower number of shares actually transferred.
Furthermore, protection against occupational disability risk is provided by a pension fund and/or on the basis of an individual pension benefit, which is secured by a reinsurance policy. Contracts for Management Board members are limited to the duration of their term in office or a maximum of five years. Regulations regarding severance payments, in case of the early termination of Management Board mandates, are essentially based on the principles stipulated by the ACGC. Severance payments do not exceed the maximum limits stipulated in the ACGC (a maximum of two years’ total annual remuneration for early termination without serious cause – except for severance payments made under contractual agreements before 1 January 2010 – and in any case no longer than the remaining term. No remuneration is paid for premature terminations for serious reasons attributable to the Management Board member).
Group of persons Number of contingently allocated shares on 31 December 2017
Executives of RBI AG and other affiliated companies 75,138 22,541 112,707
Annual General Meeting On 24 January 2017, an Extraordinary General Meeting passed a resolution on the merger of RBI and RZB with a clear majority. The shareholders also approved the capital increase associated with the merger. RBI’s share capital was consequently increased by issuing new no par value bearer shares (ordinary shares). The number of shares issued rose to 328,939,621. RBI AG’s shares are listed on the Vienna Stock Exchange.
Due to a syndicate agreement relating to RBI, the regional Raiffeisen banks and direct and indirect subsidiaries of the regional Raiffeisen banks are parties acting in concert as defined in § 1 6 of the Austrian Takeover Act (see notification of voting rights published on 20 March 2017). The terms of the syndicate agreement include a block voting agreement for all matters that require a resolution from the Annual General Meeting of RBI, rights to nominate members of the RBI Supervisory Board and preemption rights among the syndicate partners. The terms also include a contractual restriction on sales of the RBI shares held by the regional Raiffeisen banks (with a few exceptions) for a period of three years from the effective date of the merger between RZB and RBI if the sale would directly and/or indirectly reduce the regional Raiffeisen banks‘ aggregate shareholding in RBI to less than 50 per cent of the share capital plus one share (at the end of the three-year period, the threshold drops to 40 percent of the share capital).
The Annual General Meeting for the 2016 financial year was held on 22 June 2017 in Vienna. The Annual General Meeting for the 2017 financial year will take place on 21 June 2018. The convening notice will be published in the Wiener Zeitung’s official journal and in electronic form a minimum of 28 days before the Annual General Meeting.
To further underscore the commitment to diversity, RBI’s diversity vision, mission statement and daily implementation guidelines were published in July 2017. Therein, RBI presents its stance on this issue: “RBI believes that diversity adds value. Capitalizing on the opportunities from diversity provides long-term benefits to the company and its employees as well as to the economy and society as a whole. RBI is continuing Raiffeisen’s 130 year success story as it embraces diversity. RBI actively and professionally harnesses the potential of diversity to give clients the best possible service as a strong partner and to position itself as an attractive employer.”
In addition, the Nomination Committee of RBI is committed to gender-neutral staffing policies in its activities and specifically considers gender diversity when filling positions in management bodies.
In 2017, a total of 39 per cent of the RBI AG Supervisory Board and 40 per cent of Management Board positions were filled with new personnel, with regard to the respective year-end numbers. The share of women in the Supervisory Board was up 8 percentage points to 28 per cent. The ages of persons range between 43 and 65 years on the Supervisory Board and between 45 and 58 years on the Management Board.
RBI AG launched the initiative “Diversity 2020” in 2016 and continued it with a number of programs in 2017. One of the core issues targeted by the diversity initiative is the empowerment of women. In particular, it aims to increase the number of women in top management positions. Extensive communication measures were implemented to further raise awareness and highlight the importance of this issue as well as to ensure maximum transparency for the initiative. Management positions are advertised and not filled until there is at least one qualified female candidate. Potentially suitable female candidates are actively approached if needed to meet this goal. If no women apply for the position, it can be filled from the male applicants after waiting for one month. Documents needed for interviews or hearings are anonymized in order to ensure greater objectivity in the selection process. Subconscious prejudices are a significant factor preventing the appointment of women to management positions, among other things. Voluntary training courses to raise awareness in this area have already been conducted in groups. An online training module is currently in development. In addition, RBI AG supports arrangements such as part-time management in order to overcome structural barriers. It also sees gender-specific mentoring as an important tool for increasing the representation of women in management positions. To expand on this, an in-house course on the “Empowerment of women” was offered to female managers, twelve “Leadership Talents” or “Emerging Leadership Talents” successfully completed the first course in May 2017.
Conflicts of interest Both the Management Board and the Supervisory Board of RBI AG are required to disclose any potential conflicts of interest. Members of the Management Board must therefore disclose to the Supervisory Board any significant personal interests in transactions involving the company and Group companies, as well as any other conflicts of interest. They must also inform the other members of the Management Board. Members of the Management Board who occupy management positions within other companies must ensure a fair balance between the interests of the companies in question.
The Annual General Meeting on 16 June 2016 selected KPMG as external Group auditor and bank auditor for the 2017 financial year. KPMG has confirmed to RBI AG that it has the certification of a quality auditing system. It has also declared that there are no reasons for disqualification or prejudice. The Supervisory Board is informed of the result of the audit by a statutory report regarding the audit of the consolidated financial statements by the auditor, as well as by the report of the Audit Committee. Furthermore, the auditor assesses the effectiveness of the company’s risk management in accordance with the ACGC, based on the documents submitted to the auditor and otherwise available. The resulting report is presented to the Chairman of the Supervisory Board, who is responsible for ensuring the report is addressed in the Audit Committee and presented to the Supervisory Board.
Strong economic growth in the euro area amid low interest rates The European Central Bank (ECB) left key rates unchanged in 2017, with a main refinancing rate at 0 per cent and a deposit facility rate at minus 0.4 per cent. After the first quarter of 2017, it reduced its monthly bond purchase volume from € 80 billion to € 60 billion on average per month. Euribor rates were in negative territory across all maturities for the year as a whole. Money market rates for maturities of 6 and 12 months also drifted marginally lower. The yield on two-year German government bonds initially reduced significantly, touching an all-time low of around minus 0.95 per cent in February before recovering again somewhat. The yield on 10-year German government bonds hovered mostly between 0.15 per cent and 0.50 per cent for the year as a whole, deviating from this range only briefly in July to reach a high of 0.65 per cent for 2017.
The pickup in economic activity in Austria accelerated significantly in the reporting period: The GDP growth for 2017 at 2.9 per cent, was double that of the 2016 (1.5 per cent). The economic trend was broad based and supported by both domestic and export demand. The demand in private consumption remained strong and stable. The extremely strong equipment investment cycle continued and building investment increased. After slow growth in 2016, exports began to revive significantly and contributed significantly to net export figures despite imports also rising. The noticeable uptick in employment and slower rise in employment potential led to a decline in the unemployment rate, which was at 5.5 per cent (ILO definition) for the full year 2017, and remained on its downward trend since 2011.
As so often was the case in recent years, the US economy got off to a weak start in 2017. Economic growth picked up noticeably later in the year, however, with real gross domestic product up an average 2.9 per cent (annualized) from the second to the fourth quarter. In addition to private consumption, gross fixed capital formation in particular enjoyed dynamic growth thanks to a higher oil price. The US economic output grew 2.3 per cent for full-year 2017.
Euro area GDP growth was at 2.5 per cent for the full-year 2017. The acceleration in economic growth momentum, compared to the previous year, was seen across all countries. The recovery was mainly domestically driven and buoyed by all demand components (public and private sector consumption as well as investment demand). Labor market conditions have also improved considerably. The unemployment rate is maintaining a stable downtrend, however was still well above the last cyclical low by the end of the year. In contrast, employment has surpassed its high reached in 2008. By end-2017, many sentiment indicators were either close to or above previous historical highs. Sentiment has sharply improved among both private households and financial market participants. At the sector level, company survey results from service providers and retailers, as well as the industry and construction sectors, were also substantially more positive. In the first half of the year, inflation rates were heavily driven by calendar effects and by the oil price. This initially caused inflation to jump to 2.0 per cent. However, the oil price effect gradually reduced until mid-year. The inflation rate subsequently fluctuated between 1.3 per cent and 1.5 per cent.
The Central European region (CE) recorded stronger year-on-year economic growth in 2017, with GDP growth of 4.4 per cent, and was 1.6 percentage points above the previous year’s level. The region benefited from strong economic growth in Germany, an ongoing recovery in the euro area, as well as expansionary monetary policies on the part of the ECB and CE central banks. Another factor was the step-up in investment activity from increased EU transfer payments in the region. Poland, the CE region’s growth engine, gained considerable traction, posting 4.5 per cent year-on-year growth. Overall, the economic data indicates balanced growth with solid export and dynamic domestic economic activity.
In Southeastern Europe (SEE), the economy reported growth of 5.1 per cent year-on-year in 2017, which was at a level not seen in years. Although a portion of this was attributable to temporary factors, it nonetheless highlights the fact that the weak phase of previous years has been overcome. In particular, the Romanian economy’s growth rate was once again significantly higher than in the previous year, increasing to 7.0 per cent. Its growth momentum was partly caused by fiscal easing in the form of tax cuts and by wage increases. As Romania’s growth rate is considerably higher than its potential growth rate, it is seen as unsustainable. Bulgaria enjoyed GDP growth of 4.0 per cent, catching up somewhat with Romania. Although Serbia’s growth disappointed in 2017, economic growth in Croatia came in stronger than expected.
Economic conditions in Eastern Europe (EE) continued to improve in 2017. Russia benefited from an oil price recovery relative to the previous year and private household demand also recovered again following an extended soft patch. Moreover, Moscow’s prudent monetary and fiscal policy had a stabilizing effect, though failed to deliver any additional growth impetus. All in all, following stagnation in the previous year, Russia’s economy returned to growth of 1.5 per cent in 2017, slightly higher than expected at the beginning of the year. Inflation in Russia continued to retreat significantly against the backdrop of a more stable currency and at the end of the year fell to the historic mark of 2.5 per cent. This allowed the Russian central bank to cautiously adjust its key rates downwards, albeit the interest rate level of 7.75 per cent at end-2017 is still very high. Ukraine’s economy grew 2.2 per cent – a slightly slower rate than in the previous year – but continued its moderate recovery. Belarus’ economy, which is heavily dependent on Russia, benefited from growth in Russia and ended its two-year recession.
The Group continued to focus intensively on current and forthcoming regulatory developments in the reporting period.
At the end of 2017, the Basel Committee on Banking Supervision finalized the new international regulations for the calculation of risk-weighted assets (Basel IV). This relates to the issue of how banks calculate their risk, which must be supported by capital. For the calculation of risks, banks may use a standard model defined by the regulator or their own in-house model. The output floor (a floor for the total RWA from all risk categories), set at 72.5 per cent for banks which use their own in-house models, constitutes a major change. This means that the capital requirement calculated using the bank's in-house model must equate to at least 72.5 per cent of the value calculated using a standard model.
Basel IV must be implemented internationally by 1 January 2022; there is not yet a legal translation of the standard for the EU. For the output floor, a transitional period is planned until 2027, by which time the 72.5 per cent must be reached.
Due to its classification as a systemically important institution, RBI must comply with these principles. A high degree of importance was accordingly assigned to BCBS 239 in 2017. A comprehensive Group-wide action and implementation plan was developed to ensure compliance with the BCBS 239 principles on a timely basis.
On 1 January 2015, the Austrian Bank Recovery and Resolution Act (Bankenabwicklungs- und Sanierungsgesetz (BaSAG)), the national transposition of the BRRD from 2014, entered into force. RBI AG is subject to direct European Central Bank (ECB) supervision with respect to bank recovery within the Single Supervisory Mechanism (SSM) framework and to direct supervision by the Single Resolution Board (SRB) with respect to resolution within the Single Resolution Mechanism (SRM) framework.
Similarly, the directive on key information documents for Packaged Retail and Insurance-based Investment Products (PRIIP) has been implemented in such a way that the relevant key information documents could be delivered to retail customers from 3 Janu-
The merger of RZB AG into RBI AG increased the number of consolidated companies by 175 specialized financial institution subsidiaries to 281 companies. The merger resulted in an increase in total assets of € 22,941 million and in equity of € 519 million. Further details are given in the notes in the principles underlying the preparation of financial statements section and in the statement of changes in equity.
In order to further optimize its capital structure, RBI placed perpetual additional tier 1 capital (AT1) with a volume of € 650 million and a value date of 5 July 2017. The coupon is 6.125 per cent p.a. until December 2022, after which it will be reset. Semiannual coupon payments on scheduled coupon dates of 15 December and 15 June of each year are discretionary. According to IAS 32, the AT1 is classified as equity due to the terms and conditions of the issue.
RBI is currently considering the alternative option of a sale of the core banking business of Raiffeisen Bank Polska (excluding FX portfolio) to an investor. RBI’s commitment to the Polish regulator to float shares in Raiffeisen Bank Polska on the Warsaw Stock Exchange can be fulfilled either by selling at least 15 per cent of Raiffeisen Bank Polska shares to free float shareholders through an IPO, or through a sale of Raiffeisen Bank Polska’s core banking operations to an investor. Given that the IFRS 5 criteria are not met, the core banking business has not been classified as an asset held for sale.
In addition to a € 153 million higher operating result, net provisioning for impairment losses contributed in particular to this improvement, which at € 287 million was € 471 million below the previous year’s level. This was mainly attributable to a significant 35 per cent reduction in new provisioning. The NPL ratio was 5.7 per cent, 3.0 percentage points lower than at the beginning of the year. This decline was achieved through an overall improved risk position and from a clean-up of the non-performing loan portfolio. Alongside the derecognition of loans, non-performing loans totaling € 1,010 million were also sold. This was just below the level of the previous year but the gains on the sales were significantly higher.
General administrative expenses of € 3,104 million were slightly below the previous year’s level, down 1 per cent or € 37 million. Declines occurred mainly in Poland (due to the sale of the leasing subsidiary and the ongoing rightsizing program) and as a result of downscaling in Asia and the US. These positive effects were offset by currency appreciation and salary increases in Russia. The average number of employees (full-time equivalents) reduced year-on-year by 1,671 to 50,139. Nevertheless, staff expenses increased slightly, up € 2 million to € 1,554 million. Other administrative expenses also increased slightly, up nearly 1 per cent, or € 8 million, to € 1,222 million, driven by higher advertising and security expenses. The number of business outlets decreased 113 year-on-year to 2,409, mainly due to the rightsizing program in Poland (down 62 branches). As a result, office space expenses also reduced (down 6 per cent).
RBI’s equity including capital attributable to non-controlling interests rose € 1,490 million to € 11,241 million. RBI placed perpetual additional tier 1 capital (AT1) with a volume of € 650 million at the beginning of the third quarter. Under IAS 32, on the basis of the terms and conditions of the issue the AT1 capital is classified as equity. While profit after tax came to € 1,246 million, other comprehensive income amounted to minus € 197 million, which was mainly attributable to the valuation result arising from the change in own credit risk for own liabilities measured at fair value of minus € 140 million, as well as currency differences of minus € 70 million.
The key regulatory capital ratios also improved: Common equity tier 1 (after deductions) was € 9,266 million at the end of the year, € 662 million higher than at year-end 2016 while taking into account the proposed dividend. Total capital pursuant to the CRR stood at € 12,892 million, corresponding to an increase of € 1,088 million compared to the 2016 year-end figure. The
increase was also due to the issue of € 650 million in AT1 capital. Total risk-weighted assets were up € 3,992 million to € 71,902 million. This includes an inorganic effect of € 2,784 million as the Polish regulator increased the risk weight of collateralized mortgage loans to 150 per cent (instead of previously 35 per cent). This had an impact of minus 54 basis points on the common equity tier 1 ratio (fully loaded). Based on total risk, the common equity tier 1 ratio (transitional) was 12.9 per cent (up 0.2 percentage points), with a total capital ratio (transitional) of 17.9 per cent (up 0.5 percentage points). Excluding the transitional provisions as defined in the CRR, the common equity tier 1 ratio (fully loaded) stood at 12.7 per cent and the total capital ratio (fully loaded) was 17.8 per cent.
Recurring other net operating income 57 96 (39) 45 hereof regulatory other administrative expenses (148) (152) 4 (144)
Detailed review of income statement items pro forma Change 2016 published
(€ 59 million) from shares in affiliated companies reported in the previous year and the unfavorable interest rate environment, especially in the building society business.
The net interest margin remained unchanged year-on-year at 2.48 per cent. Due to the continuing low level of market interest rates, in most markets the net interest margin declined. In contrast, Eastern Europe reported a slight increase, supported by a higher local currency proportion of business volumes and positive effects from currency movements (4 basis points).
Net trading income increased € 25 million year-on-year to € 244 million. This included a € 31 million rise in net income from currency-based transactions to € 143 million, mainly due to valuation gains from derivatives and foreign currency positions in Russia, Slovakia and Serbia, and to an increase in the Czech Republic due to the removal of the minimum exchange rate for the Czech koruna. In contrast, Croatia reported a € 7 million decline, attributable to lower income from securities positions. Belarus and Poland also reported declines for the same reason. Net income from equity and index-based transactions increased € 30 million to € 16 million due to higher volumes in the issuance and sale of certificates (particularly partial protection and guarantee certificates) at Raiffeisen Centrobank AG. Net income from interest-based business fell € 42 million to € 82 million, primarily due to a decline in interest income and valuation gains from derivatives and securities positions at RBI AG, as well as in Albania, Romania and Croatia, while an increase was reported in the Czech Republic.
Recurring other net operating income declined € 39 million year-on-year to € 57 million. In addition to an increase in sundry operating expenses, primarily in Serbia, Russia and Romania, as well as the discontinuation of profit contributions as a result of the disposal of a service subsidiary (€ 9 million), the following changes in various individual items were posted: In the Czech Republic, recurring other net operating income fell € 7 million, as the previous year had included the sale of the card acquiring business (€ 8 million positive effect). In Poland, the disposal of the leasing company resulted in a € 10 million reduction in income from leasing activities. Furthermore, in Hungary, net proceeds from the disposal of tangible and intangible fixed assets declined € 6 million, while € 7 million in provisions for litigation were released in Slovakia. Finally, the expenditure for other taxes fell € 8 million in Hungary and at RBI AG.
Despite effects from currency appreciation, the Group’s general administrative expenses fell 1 per cent year-on-year, or € 37 million, to € 3,104 million. In particular, the average exchange rate of the Russian rouble appreciated 12 per cent year-onyear. The cost/income ratio improved 2.1 percentage points to 59.4 per cent due to higher operating income.
The Group invested € 410 million in fixed assets in the reporting period. Of that amount, 35 per cent (€ 144 million) was invested in own tangible fixed assets. Investments in intangible assets – mainly related to software projects – amounted to 49 per cent. The remainder was invested in assets in the operating leasing business.
Depreciation of tangible and intangible fixed assets fell 12 per cent year-on-year, or € 46 million, to € 328 million. The largest decline was reported in Poland, where in the previous year an impairment of the brand was recognized in the amount of € 26 million. The sale of the leasing company also resulted in a decline. Further reductions were also reported in Slovakia and as a result of the downscaling in Asia. In contrast, impairment charges in relation to buildings in the Raiffeisen Immobilienfonds portfolio in the amount of € 25 million were booked in the reporting period.
Net provisioning for impairment losses in the financial year included € 179 million in relation to corporate customers (previous year: € 500 million), and € 123 million in relation to retail customers (previous year: € 241 million).
The significant credit risk improvement is also reflected in the portfolio of non-performing loans, which declined € 2,299 million to € 4,611 million during the year. The reduction was primarily attributable to sales of non-performing loans (€ 1,010 million) and to the derecognition of uncollectible loans (€ 1,635 million). Currency effects resulted in a € 145 million further decline. The largest reductions occurred in Group Corporates & Markets (down € 723 million), Ukraine (down € 635 million) and Hungary (down € 183 million). As a result, the NPL ratio declined 3.0 percentage points year-on-year to 5.7 per cent. Non-performing loans compared to loan loss provisions totaling € 3,091 million (down € 2,103 million). As a result of the derecognition of loans and sales of non-performing loans, the NPL coverage ratio fell 8.1 percentage points to 67.0 per cent.
Net income from derivatives and liabilities improved € 218 million year-on-year to minus € 41 million. This improvement was due to better valuation results from bank book derivatives, particularly interest rate swaps used to hedge government bonds in the fair value securities portfolio, as well as from own issues. From the start of 2017, the change in the credit spread on own liabilities (previous year: minus € 119 million) is reported directly in equity.
The expense for bank levies fell € 54 million year-on-year to € 121 million. The reduction was largely due to a € 45 million decrease in expenses in Austria and a € 6 million decrease in Hungary (in each case resulting from changes in the calculation base). In Poland, the expense for bank levies fell € 3 million.
In the financial year, net income from the disposal of 49 subsidiaries amounted to minus € 2 million. In the previous year, net income of € 27 million resulted mainly from the sale of the Polish leasing company and of a real estate leasing project in the Czech Republic. Of the subsidiaries deconsolidated in the financial year, 43 were due to immateriality, two as a result of sale, three due to the termination of business activity, and one due to a change in control. The companies were active in leasing, financing and banking business, as well as suppliers of ancillary services.
Comparison of results with the previous quarter in € million Q4/2017 Q3/2017 Change
Other administrative expenses increased € 42 million to € 314 million due to seasonally related factors. The drivers included higher advertising and advisory and consulting expenses in Russia and at RBI AG, as well as a one-off effect for office space expenses in Hungary.
Depreciation of tangible and intangible fixed assets rose € 9 million quarter-on-quarter to € 90 million as a result of a € 5 million increase in impairment charges relating to buildings in the portfolio held by Raiffeisen Immobilienfonds. In addition, higher depreciation of tangible fixed assets was recorded in Romania.
Net income from derivatives declined to minus € 45 million in the fourth quarter, down from minus € 22 million in the third quarter. The main driver was the termination of a portfolio fair-value hedge following derecognition of the underlying transactions in Russia.
Income tax expense decreased € 20 million quarter-on-quarter to € 77 million. This was attributable to a lower quarterly result, notably in Russia and at RBI AG. In contrast, the effective tax rate rose to 25 per cent, up from 21 per cent in the previous quarter. This was mainly due to an extraordinary income tax payment from previous periods in the Czech Republic.
The item securities registered a decrease of € 1,949 million to € 22,575 million, notably at RBI AG, and in Poland and Russia. The € 4,692 million decline in other assets was mainly the result of the € 3,509 million reduction in the cash reserve (particularly in the Czech Republic and at RBI AG) and the € 1,226 million reduction in trading and banking book derivatives.
For information relating to funding, please refer to note (42) Risks arising from financial instruments, in the risk report section of the consolidated financial statements.
Capital of non-controlling interests rose € 78 million to € 660 million. This was due to the proportion of total comprehensive income attributable to non-controlling interests of € 131 million, the capital effect of € 74 million from the merger of RZB AG with RBI AG, the payment of dividends totaling € 90 million to minority shareholders of Group units, as well as further smaller capital movements mainly from changes in shareholder structure.
Total capital pursuant to the CRR/Austrian Banking Act (BWG) The following consolidated figures have been calculated in accordance with the provisions of the Capital Requirements Regulation (CRR) and other statutory provisions such as the Implementing Technical Standards (ITS) issued by the European Banking Authority (EBA).
In the context of financial engineering, it develops customized investment, financing and risk hedging solutions for its customers. Financial engineering encompasses not only structured investment products, but also structured financing, i.e. financing concepts that go beyond the application of standard instruments and are used in areas such as acquisition or project financing. RBI also develops individual solutions to hedge a broad spectrum of risks, from interest rate risk and currency risk through to commodity price risk. Besides financial engineering, RBI is also actively working on the further development of integrated product solutions for international payment transfers within cash management.
Banks are particularly impacted by digitalization. Not only are their products changing, but their processes and areas of activity are undergoing upheaval as a result of digitalization. The digital transformation places demands on banks to, for example, adapt their business models, increase the speed at which they respond to the market and keep up with new competitors such as start-ups and fintechs. CEE provides an ideal environment for banks such as RBI to offer cross-border digital banking solutions, due to the size of several of the markets and the openness of users towards new products, services and innovative retail and communication channels.
In October 2016, the international advisory firm Deloitte together with the European Financial Management Association (EFMA) published an independent study comparing 76 banks in eight CEE countries (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia) with respect to their digital competencies. The analysis, which covered a total of 361 existing functions for web and mobile applications, showed that RBI's Slovakian subsidiary bank Tatra banka sets the benchmark in the area of digital banking across the entire CEE region.
The high importance of digitalization for the further strategic development of RBI is also reflected by the Group from an organizational perspective. Group Digital Banking, a dedicated area reporting directly to the CEO, is responsible for managing the digital transformation of RBI. The implementation of the digital transformation is being undertaken by the "Innovation Management" and "Digital Roadmaps and Projects" departments. "Innovation Management" focuses on all aspects and methods with respect to internal and external innovations, while "Digital Roadmaps and Projects" is responsible for the development of digital objectives as well as a corresponding Group-wide implementation plan developed together with the respective specialist departments and 14 CEE network banks.
Furthermore, RBI is looking in detail at the potential and employment of new technologies, above all from Advanced Analytics and Blockchain. In November 2017, RBI became the first Austrian bank to join the Blockchain Consortium R3. The goal of this measure is to develop, together with other members of the consortium, new concepts with which Blockchain technology-based applications can also be commercially used. RBI will focus in this respect on the areas of cash and payment services, capital markets, digital identity, securities services and trade finance.
Significant risks relating to the Group accounting process are evaluated and monitored by the Management Board. Complex accounting standards can increase the risk of errors, as can the use of differing valuation standards, particularly in relation to the Group’s principal financial instruments. A difficult business environment can also increase the risk of significant financial reporting errors. For the purpose of preparing the consolidated financial statements, estimates have to be made for asset and liability items for which no market value can be reliably determined. This is particularly relevant for credit business, equity participations, trademark rights and goodwill. Social capital and the valuation of securities are also based on estimates.
The plausibility of each Group unit’s financial statements is initially checked by the responsible key account manager within Group Accounting & Reporting. Group-level control activities comprise the analysis and, where necessary, modification of the financial statements submitted by Group units. In this process, the results of meetings with representatives of the individual companies, in which the financial statements are discussed, and comments from the audit of the financial statements are taken into account. The discussions cover the plausibility of the individual financial statements as well as critical matters pertaining to the Group unit.
ments are also provided for management, as are forecast Group figures at regular intervals. The financial and capital planning process, undertaken by Group Planning & Finance, includes a three-year Group budget.
Financial reporting is a main focus of the ICS framework, whereby financial reporting processes are subject to monitoring and control reviews, the results of which are presented to the Management Board and the Supervisory Board for evaluation. Additionally, the Audit Committee is required to monitor the financial reporting process. The Management Board is responsible for ongoing company-wide monitoring. The internal control system is based on three lines of defense: The first line of defense is formed by individual departments, where department heads are responsible for monitoring their business areas. The departments conduct control activities and plausibility checks on a regular basis, in accordance with the documented processes.
(3) RLB NÖ-Wien Sektorbeteiligungs GmbH holds around 22.24 per cent of the share capital of the company according to the notification of voting rights published on 20 March 2017. By virtue of the syndicate agreement regarding RBI AG, the directly or indirectly held voting rights attached to a total of 193,449,778 shares, corresponding to a voting interest of around 58.81 per cent, are mutually attributable to the regional Raiffeisen banks and their direct and indirect subsidiaries pursuant to §§ 130 and 133 7 of the Austrian Stock Exchange Act (BörseG) as parties acting in concert as defined in § 1 6 of the Austrian Takeover Act
(ÜbG) (see the notification of voting rights published on 20 March 2017). The remaining shares of RBI AG are held in free float, with no other direct or indirect shareholdings amounting to 10 per cent or more known to the Management Board.
(5) There is no control of voting rights arising from interests held by employees in the share capital.
The Management Board was further authorized, pursuant to § 65 (1b) of the AktG, to decide, with the approval of the Supervisory Board, on the sale of own shares by means other than the stock exchange or a public tender, to the full or partial exclusion of shareholders’ subscription rights, and to stipulate the terms of sale. Shareholders’ subscription rights may only be excluded if the own shares are used to pay for a contribution in kind, to acquire enterprises, businesses, operations or stakes in one or several companies in Austria or abroad, or for the purpose of implementing the company’s Share Incentive Program (SIP) for executives and members of the Management Boards of the company and affiliated companies. In addition, if convertible bonds are issued
No own shares have been bought since the authorization was issued in June 2016.
The Annual General Meeting of 16 June 2016 also authorized the Management Board, under the provisions of § 65 (1) 7 of the AktG, to purchase own shares for the purpose of securities trading, which may also be conducted off-market, during a period of 30 months from the date of the resolution (i.e. until 15 December 2018), provided that the trading portfolio of shares purchased for this purpose does not exceed 5 per cent of the company's respective share capital at the end of any given day. The consideration for each share to be acquired must not be less than half the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition. This authorization may be exercised in full or in part or also in several partial amounts by the company, by a subsidiary (§ 189a 7 UGB) or by third parties acting for the account of the company or a subsidiary.
(8) The following material agreements exist, to which the company is a party and which take effect, change or come to an end upon a change of control in the company as a result of a takeover bid:  RBI AG was insured as a subsidiary of RZB under RZB’s group-wide D&O insurance until the merger took effect on 18 March 2017. On 18 March 2017, the insured party was changed from RZB to RBI AG through an addendum to the contract. Thus there was no change to the insurance cover for RBI AG and for the whole RBI Group. Insurance cover would remain in place following a merger with another leagal entity of the RBI Group. In the event of a merger with a legal entity outwith the RBI Group, the insurance policy would automatically cease at the end of the insurance period in which the merger took effect. In such cases, insurance cover only exists for claims for damages arising from breaches of obligations that occurred before the merger, which are reported to the insurer prior to any termination of RBI’s group-wide D&O insurance cover, and thereafter, within the agreed notification period of five years.
Corporate Governance The Corporate Governance Report can be found on the RBI website (www.rbinternational.com → Investor Relations → Corporate Governance), as well as in the Corporate Governance Report chapter of the Annual Report.
Serbia, economic growth should recover somewhat in 2018, following the weak growth experienced in 2017. In Croatia, growth in 2018 is projected at 2.3 per cent, somewhat weaker than seen in 2017.
The very strong economic upswing in CE and SEE, as well as the return to significant growth in Russia, Ukraine and Belarus, should positively impact the CEE banking sector in 2018. Favorable developments in the (new) operating business could also be supported by stable or even slightly improved interest margins and/or somewhat steeper yield curves in CE and SEE. Following adjustments carried out in recent years (reducing foreign currency loans and shrinking NPL portfolios), further negative effects on returns to arise from legacy positions are not anticipated. Similarly, no noticeable increase in risk costs in 2018 is expected, in view of the positive macroeconomic developments and continuing decline in corporate insolvencies. All in all, the return on equity in the CEE banking sector in 2018 should thus be at least on a par with 2017, or even slightly higher.
We aim to achieve a cost/income ratio of below 55 per cent in the medium term.
We target a consolidated return on equity of approximately 11 per cent in the medium term.
According to current forecasts, the Russian economy is poised to continue its moderate recovery in 2018, with economic growth seen at around 1.5 per cent. A slightly higher oil price should support the economy while ongoing comparatively tight monetary and fiscal policy is unlikely to provide any significant economic growth stimulus. The Russian presidential election in March 2018 is not expected to have a major impact on the economic situation. In Ukraine, parliamentary and presidential elections are on the agenda for 2019, which could heighten political uncertainty in 2018 and curb economic growth. As a result, economic growth in Ukraine is seen at a moderate 2.5 per cent in 2018.
We target a CET1 ratio (fully loaded) of around 13 per cent post dividend in the medium term.
Based on this target, we intend to distribute between 20 and 50 per cent (dividend payout ratio) of the consolidated profit.
The targets in this outlook include the impact from IFRS 9 and FINREP.
This results in the following segments:  Central Europe: Czech Republic, Hungary, Poland, Slovenia, and Slovakia  Southeastern Europe: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Romania, and Serbia  Eastern Europe: Belarus, Russia and Ukraine  Group Corporates & Markets: Austrian and international corporate customers, Markets, Financial Institutions & Sovereigns, business with the Raiffeisen Banking Group (RBG) and specialized financial institution subsidiaries  Corporate Center: central control functions in RBI AG (e.g. Treasury), other Group units and minority interests (including
The following description uses pro forma figures for 2016 in the year-on-year comparison (to adjust for changes resulting from the merger). The pro forma figures do not, however, incorporate the changes in segmentation resulting from the dissolution of the NonCore segment. RBI AG merged with RZB AG in the first quarter of 2017.
These changes have resulted in a shift from a mixed system to an exclusively regional segmentation, as all of the operating business booked in each region is now consolidated into one segment.
Recurring other net operating income (29) (27) 7.0% (21) 0 >500.0%
Net interest income rose 44 per cent year-on-year, or € 294 million, to € 960 million. The increase was mainly due to the inclusion of Poland, which contributed net interest income of € 266 million to the segment. On a segment level, the margin thus remained essentially unchanged. The net interest margin in Central Europe decreased 2 basis points overall to 2.20 per cent. While the margin declined in the Czech Republic and Slovakia due to the interest rate situation, it improved as a result of liquidity optimization in Hungary and the inclusion of Poland in this segment. In Poland itself, the margin improved 37 basis points to 2.31 per cent as a result of changes to the terms governing customer deposits, as well as a reduction in excess liquidity. Likewise in Hungary, net interest income was up € 24 million, due mainly to lower interest-like expenses and lower interest expenses for deposits from customers. In the Czech Republic, repricing measures for customer deposits led to an increase in net interest income of € 9 million.
Net fee and commission income was up 43 per cent year-on-year, or € 167 million, to € 557 million, including a positive effect of € 138 million from the inclusion of Poland in the segment. In the Czech Republic, net fee and commission income increased € 15 million to € 132 million, primarily due to early loan repayments, better margins in the foreign currency, notes/coins and precious metals business and higher net income from the sale of own and third party products. Hungary also reported a – largely margin-driven – increase of € 8 million to € 130 million. In Slovakia, net fee and commission income improved € 6 million to € 157 million, mainly due to higher volumes in the payment transfer and securities business.
Net trading income also rose year-on-year, up € 30 million to € 59 million. In the Czech Republic, net trading income increased € 20 million to € 28 million, largely as a consequence of the removal of the minimum exchange rate for the Czech koruna and positive valuation results from interest-based derivatives. In Slovakia, currency-based transactions improved € 5 million, primarily driven by higher income from derivatives. The inclusion of Poland in the segment resulted in a positive effect of € 3 million.
Recurring other net operating income fell € 2 million to minus € 29 million. Aside from the inclusion of Poland with a negative contribution of € 2 million, the reduction was primarily attributable to a decline of € 7 million in the Czech Republic resulting largely from the sale of the card acquiring business (POS terminals) in the previous year, which generated € 8 million in proceeds. In contrast, year-on-year provisions for litigation were lower in Slovakia (down € 7 million).
Other results in the Central Europe segment decreased € 80 million year-on-year to minus € 56 million.
Net income from financial investments was down € 39 million year-on-year to € 12 million. This decline was due to the sale of Visa Europe Ltd. shares to Visa Inc., which generated proceeds of € 56 million in the previous year (Slovakia: € 30 million; the Czech Republic: € 19 million; Hungary: € 6 million). This was offset by positive net income from available-for-sale securities of € 20 million in the financial year.
The portfolio of non-performing loans was up € 430 million to € 1,559 million, owing to the reclassification of Non-Core portfolios in the amount of € 683 million. Adjusted for currency effects and reclassifications, the reduction came to € 293 million. This was largely due to a portfolio reduction of € 183 million in Hungary, supported by loan sales. The Czech Republic reported a decline of € 126 million, and Slovakia posted a decline of € 28 million. In contrast, Poland’s non-performing customer loans were up € 31 million. The proportion of non-bank non-performing loans in the segment’s loan portfolio decreased 0.3 percentage point year-on-year to 5.0 per cent. The NPL coverage ratio fell 3.6 percentage points to 67.7 per cent.
In the previous year, a provision of € 7 million was released in connection with the implementation of the Settlement Act (unilateral interest rate changes on consumer loans) in Hungary.
The segment’s income taxes rose 63 per cent, or € 43 million, to € 111 million. The effective tax rate increased 3 percentage points year-on-year to 21 per cent. The increase was mainly attributable to income taxes in the Czech Republic relating to previous periods.
Recurring other net operating income 26 27 (2.9)% 8 3 126.1%
Net income in the segment improved as a result of a sharp decrease in risk costs, above all in Albania, and a positive effect from the release of provisions in connection with the Walkaway Law in Romania. On the other hand, the operating result declined and lower net income from financial investments – which in the previous year included proceeds of € 38 million from the sale of shares in Visa Europe Ltd. – was reported.
Southeastern Europe in € million 1/1-31/12 pro forma Change Q4/2017 Q3/2017 Change
Net interest income decreased 1 per cent year-on-year, or € 10 million, to € 727 million. Croatia and Bulgaria reported the largest declines (down € 8 million and € 7 million respectively), followed by Albania (down € 2 million), due to lower interest income on loans and advances to customers. In contrast, Romania reported the largest increase in the segment, up € 7 million, as a result of lower interest expenses on deposits from customers. In Bosnia and Herzegovina, as well as Serbia, net interest income remained almost unchanged. The net interest margin in the segment as a whole decreased 18 basis points to 3.34 per cent, with declines in all countries. The steepest reduction of 35 basis points was reported in Serbia, where interest rates in the customer business had to be adjusted due to a cut in the benchmark rate.
Net trading income fell 47 per cent year-on-year, or € 25 million, to € 28 million in Southeastern Europe. Volume-related declines in interest income and lower valuation results from securities positions and derivative financial instruments in Albania, Romania and Croatia were mainly responsible for the € 22 million decrease in interest-based business to minus € 2 million. The currency-based business declined € 3 million to € 31 million primarily in Croatia, while Serbia reported higher net income from foreign currency positions.
General administrative expenses were up 2 per cent year-on-year, or € 12 million, to € 694 million. Staff expenses rose € 2 million, while the average headcount fell by 221 to 14,895. The rise was a result of higher bonus provisions in Croatia and an increase in staffing levels in Bulgaria. In contrast, a decrease in staffing levels in Albania and Bosnia and Herzegovina led to savings. The segment’s other administrative expenses also increased 2 per cent, or € 6 million, to € 307 million, which mostly reflected a rise in security and advertising expenses in Romania. Depreciation of tangible and intangible fixed assets also rose 6 per cent, or
The positive development of the risk situation in Albania was mainly responsible for the overall decline. Net releases of loan loss provisions amounted to € 3 million in 2017, after the default of several large corporate customers had necessitated exceptionally high net provisioning for impairment losses of € 65 million in the previous year. Bulgaria reported a net release of € 9 million due to a significant decrease in individual loan loss provisioning. The risk situation also improved in Serbia, Bosnia and Herzegovina and Romania. In contrast, the provisioning requirement in Croatia amounted to € 48 million (up € 25 million), as a result of one large corporate customer default.
In contrast, net income from financial investments fell € 42 million year-on-year to € 4 million. This mainly reflected proceeds of € 38 million from the sale of Visa Europe Ltd. shares to Visa Inc. in the previous year (€ 21 million in Romania, € 10 million in Croatia and € 7 million in Bulgaria).
Provisioning ratio (average loans and advances to customers) (0.42)% 0.74% (0.39)%
Net fee and commission income also increased, up 18 per cent, or € 69 million, to € 460 million. Net income from the payment transfer business was up 21 per cent, or € 41 million, to € 230 million, mainly as a result of exchange rate movements, but also driven by higher volumes and margins in Russia and Ukraine. In addition, fee and commission income from lending grew – in particular for credit cards, corporate customers and loan modifications (up € 13 million). Net income from other banking services was up € 7 million to € 32 million, primarily due to volume effects in Russia.
Net trading income also rose from € 58 million in the previous year to € 89 million. Net income from currency-based transactions grew € 25 million to € 70 million. Russia reported a € 21 million rise due to valuation gains from derivative financial instruments and foreign currency positions. Ukraine also posted an increase of € 6 million as a result of the more limited devaluation of the Ukrainian hryvnia. In contrast, Belarus posted a € 3 million decline due to valuation losses on open foreign currency positions. Net income from interest-based business improved € 7 million to € 19 million, driven by higher gains from securities positions in Russia and Ukraine.
Recurring other net operating income declined € 10 million to minus € 19 million, mainly as a result of provisions totaling € 11 million for litigation in Russia.
Eastern Europe in € million 1/1-31/12 pro forma Change Q4/2017 Q3/2017 Change
As in the previous year, the Eastern Europe segment was again affected by currency volatility in 2017. The average exchange rate of the Russian rouble appreciated 12 per cent year-on-year, while that of the Ukrainian hryvnia declined 7 per cent. The reporting date exchange rates of the Ukrainian hryvnia, Belarusian rouble and Russian rouble were down 15 per cent, 13 per cent, and 7 per cent respectively from the start of 2017.
The 35 per cent improvement in the segment’s profit after tax to € 689 million was mainly attributable to lower loan loss provisioning and, to a small extent, the appreciation of the Russian rouble referred to above. In Russia, for example, profit increased due to lower allocations to loan loss provisions and higher net interest income. Profit growth in Ukraine was driven by net releases of provisions for impairment losses, which partly reflected sales of non-performing loans. In Belarus, the lower operating result was partially offset by lower loan loss provisions.
In the reporting year, there was a net release of provisions for impairment losses of € 11 million, whereas net provisioning amounted to € 163 million in the previous year. In Russia, where provisions were necessary in the previous year to cover larger individual cases in the corporate customer business, net provisioning for impairment losses fell €99 million to € 47 million. The credit risk situation also improved considerably in Ukraine; a net release of € 58 million was reported in the financial year, supported by the sale of non-performing loans, after a net release of € 2 million in the previous year. In Belarus, no provisioning was required in 2017. This compared to net provisioning of € 20 million, mainly as a result of defaults in the corporate customer business, in the previous year.
The portfolio of non-performing loans in Eastern Europe declined € 909 million year-on-year to € 666 million. The currencyadjusted decrease was € 784 million. The largest reduction was reported in Ukraine (down € 635 million), supported by derecognition and sales. In Russia and Belarus, non-performing loans were down € 120 million and € 29 million respectively. The proportion of non-performing loans to non-banks in the segment’s loan portfolio fell 8.3 percentage points year-on-year to 6.4 per cent. The NPL coverage ratio fell 7.1 percentage points to 78.6 per cent.
Net fee and commission income 307 286 7.4% 73 75 (2.6)%
The profit after tax of the Group Corporates & Markets segment declined due to a lower operating result and higher net provisioning for impairment losses resulting from individual defaults on loans to large corporate customers. The decline in the operating result was due to a dividend of € 59 million received in the previous year from an unconsolidated company, as well as lower interest income in the building society business. General administrative expenses increased, driven by higher other administrative expenses due to changes in the segment allocation. This was offset by lower bank levies allocated to the segment.
The following table shows the main profit contributions by sub-segment: Profit/loss after tax in € million pro forma Change Q4/2017 Q3/2017 Change
The decline in net income in the sub-segment Corporates Vienna was mainly due to higher net provisioning for impairment losses. While the sub-segment Markets Vienna made a greater contribution to profits, due to lower net provisioning for impairment losses and higher fee and commission income, the contribution made by the sub-segment Specialized financial institution subsidiaries and other declined, mainly due to a dividend of € 59 million received in the previous year from an unconsolidated company, as well as lower interest income in the building society business.
Net interest income declined 17 per cent, or € 102 million, to € 507 million. This was predominantly due to a dividend of € 59 million received in the previous year from an unconsolidated company and to a lower volume of new contracts in the building society business. The segment’s net interest margin declined 49 basis points to 1.34 per cent.
General administrative expenses increased 4 per cent, or € 23 million, to € 681 million. Staff expenses rose € 4 million on the back of higher staffing levels and salary adjustments at RBI AG. Other administrative expenses also increased € 17 million: the consolidation of Group units that were reported in the Non-Core segment in the previous year and RBI AG’s higher cost allocation increased expenses, while the disposal of various Group units at the beginning of the year reduced expenses. The segment’s cost/income ratio increased 6.4 percentage points to 63.3 per cent.
Net provisioning for impairment losses amounted to € 133 million in the reporting period (previous year: € 112 million) due to the default of several large corporate customers. As a result of loan sales, the portfolio of non-performing loans to customers on a currency-adjusted basis decreased € 723 million to € 1,302 million. The share of non-bank non-performing loans in the segment’s loan portfolio increased 0.4 percentage points to 4.9 per cent. The NPL coverage ratio fell 19.0 percentage points to 48.2 per cent.
Corporate Center in € million 1/1-31/12 pro forma Change Q4/2017 Q3/2017 Change
Recurring other net operating income 100 85 18.2% 41 18 125.3%
Net provisioning for impairment losses (1) (9) (84.3)% 2 (4) –
This segment essentially comprises net income from Group head office’s governance functions and from other non-operational Group units. As a result, its net income is generally more volatile. In 2017 operating income increased mainly due to higher dividend income from Group units belonging to other segments. Other results also improved – this was mainly due to higher net income from interest rate swaps used to hedge government bonds and from own issues (the valuation result from the change in credit spread on own liabilities has been directly recognized in equity since the beginning of 2017), offset by a decline in net income from financial investments (liquid assets invested in government bonds).
Recurring other net operating income improved 18 per cent, or € 15 million, to € 100 million, as a result of higher income from intra-Group service charges.
General administrative expenses in the segment declined 6 per cent, or € 22 million, to € 335 million, due to lower other administrative expenses.
In the financial year, net provisioning for impairment losses amounted to € 1 million, after a provisioning requirement of € 9 million for specific corporate customers at Group head office in the previous year.
Other results improved € 30 million to minus € 207 million. This was mainly attributable to the € 205 million increase in net income from derivatives from interest rate swaps used to hedge government bonds and from own issues (the valuation result from the change in credit spreads on own liabilities has been directly recognized in equity since the beginning of 2017), offset by a decline of € 169 million in net income from financial investments (mainly liquid assets invested in government bonds).
The expenses for bank levies booked in the segment amounted to € 46 million, which was € 8 million less than in the previous year.
Statement of comprehensive income 80 Statement of financial position 84 Statement of changes in equity 85 Statement of cash flows 86 Segment reporting 88 Notes 95 Risk report 146 Auditor‘s report 248 Statement of all legal representatives 254
Statement of comprehensive income RZB AG was merged into RBI AG based on the resolutions passed by the extraordinary General Meetings of RZB AG and RBI AG on 23 January 2017 and 24 January 2017, respectively. RZB AG’s results and that of its fully consolidated subsidiaries have been included in the consolidated financial statements for the 2017 financial year as from 1 January. Details on the merger are provided in the notes in the section on principles underlying the preparation of financial statements. The comparable figures in these consolidated financial statements correspond to the results published by RBI prior to the merger since the management has decided not to show the transaction retroactively. As a result, comparability is limited.
As there were no conversion rights or options outstanding, a dilution of earnings per share did not take place.
Remeasurements of defined benefit plans 6,252 2,704 6,252 2,704 0 0
Changes in equity of companies valued at equity which are not reclassified to profit and loss (2,360) 0 (2,360) 0 0 0
Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their default risk (139,643) 0 (139,643) 0 0 0
Items that may be reclassified subsequently to profit or loss (61,045) 187,598 (62,545) 201,682 1,500 (14,085)
Deferred taxes on income and expenses directly recognized in equity 11,417 11,536 11,803 9,849 (386) 1,687
According to IAS 19, revaluations of defined benefit plans are to be shown in other comprehensive income. This resulted in other comprehensive income of € 6,252 thousand in the reporting year (2016: € 2,704 thousand).
Cash flow hedging has been applied in five Group units to hedge against interest rate risk. In the financial year, this led to a positive result of € 11,164 thousand.
Unrealized net gains (losses) of the period 2,704 284,008 (43,445) 0 6,449
Unrealized net gains (losses) of the period 6,252 (62,417) (6,042) 0 9,515
Net gains (losses) reclassified to income statement 0 15,249 0 0 0
Net gains (losses) reclassified to income statement 0 (8,498) 0 0 0 in € thousand Fair value reserve
Unrealized net gains (losses) of the period 51,858 (8,370) 0 -
Net gains (losses) reclassified to income statement (122,286) 17,543 0 -
Unrealized net gains (losses) of the period (87) 11,592 (9,179) (139,643)
As a result of the merger of RZB AG into RBI AG assets increased € 22,940,554 thousand. Details of the merger are included in the notes in the section on principles underlying the preparation of financial statements.
Statement of changes in equity in € thousand Subscribed capital Capital reserves Retained earnings
In order to further optimize the capital structure, on 5 July 2017 RBI issued perpetual additional tier 1 capital (AT1) with nominal value of € 650,000 thousand. Under the terms of issue the additional tier 1 capital is classified as equity under IAS 32. Taking account of the issue costs and of the discount, equity increased € 644,814 thousand. In December 2017 a dividend of € 17,731 thousand was paid out of retained earnings on the additional tier 1 capital.
Statement of cash flows in € thousand Notes 2017 2016 Profit/loss after tax 1,246,009 573,615
Non-cash positions in profit/loss and transition to net cash from operating activities: Write-downs/write-ups of tangible fixed assets and financial investments [7, 8, 21, 23] 399,686 338,745
Net provisioning for liabilities and charges and impairment losses [3, 9, 28, 42] 610,481 1,109,023
Changes in assets and liabilities arising from operating activities after corrections for noncash positions: Loans and advances to banks and customers [12, 14, 15] (6,500,351) (1,213,085)
Trading assets/trading liabilities (net) [12, 17, 18, 29, 39] 135,172 1,020,621
Payments for purchase of: Tangible and intangible fixed assets [23] (371,003) (363,380)
in € thousand 2017 2016 Cash and cash equivalents at the end of previous period1 [12, 13] 12,242,415 13,482,547
Separately to the above, the Non-Core segment was dissolved in the first quarter of 2017, due to the conclusion of the transformation program, with the remaining business allocated to the regional segments. This is described in detail in the notes to the segments. In contrast to the provisions of IFRS 8.29, an adjustment of the previous year figures was not made. The result of this segment is largely due to losses from the reduction of business volumes and therefore a comparison would not be given.
This segment encompasses the most advanced banking markets in Central and Eastern Europe, namely the EU members Czech Republic, Hungary, Poland, Slovakia and Slovenia. In Poland, in addition to the credit business with corporate customers and small and medium-sized enterprises (including factoring), the focus is also on retail banking and on business with affluent customers. The Polish bank was transferred from the Non-Core segment (disclosure for 2016) to the Central Europe segment. In Slovakia, RBI is active in the corporate and retail customer business, leasing, asset management and building society business. In retail business Tatra Banka is pursuing a multibrand strategy. In Slovenia, the Group now has one leasing company. The business volume of the Slovenian leasing company has been reduced as scheduled. At the beginning of 2017 this was transferred to the segment from the Non-Core segment. In the Czech Republic, RBI is engaged in the real estate leasing and building society business in addition to offering traditional banking services to corporate and retail customers. The focus is on broadening relationships with existing affluent customers. In Hungary, the Group provides services to retail and corporate customers via the bank's countrywide network. The focus rests on corporate customers and affluent retail customers.
There is a change in the segmentation due to the merger of RBI and RZB. The previous RBI segments – Central Europe, Southeastern Europe, Eastern Europe and Corporate Center – have been expanded to include the RZB areas. The Group Corporates & Markets segment has been introduced for operating business booked in Austria.
This segment comprises Belarus, Russia and Ukraine. In Belarus, RBI is represented by a bank and a leasing company. Raiffeisenbank Russia is one of the leading foreign banks in Russia and services both corporate and retail customers. The branch network also offers products targeted toward affluent retail customers and small and medium-sized entities, with the focus on large cities. Furthermore, RBI is active in the new issuance business. The product range in Russia is rounded off by leasing business. In Ukraine RBI is represented by a bank, a leasing company, a card-processing company as well as a special purpose vehicle (SPV) for the acquisition of real estate properties, and provides a full range of financial services via a tightly knit branch network.
The Group Corporates & Markets segment covers operating business booked in Austria. This primarily comprises financing business with Austrian and international corporate customers serviced from Vienna, Financial Institutions & Sovereigns and business with the institutions of the Raiffeisen Banking Group (RBG). This segment also covers the capital market-based customer and proprietary business in Austria. Besides RBI AG, this also includes financial services outsourced to subsidiaries, such as Vienna-based Raiffeisen Centrobank AG (equity trading and capital market financing), Kathrein Privatbank Aktiengesellschaft, Raiffeisen Leasing Group, Raiffeisen Factor Bank AG, Raiffeisen Bausparkasse Österreich Gesellschaft mbH and Raiffeisen Kapitalanlage-Gesellschaft mit beschränkter Haftung. The valued at equity company card complete Service Bank AG, Vienna, is also allocated to this segment.
The Corporate Center segment encompasses services provided by Group head office in various areas that serve to implement the Group’s overall strategy and that are allocated to this segment to ensure comparability. Therefore, this segment includes the following areas: Liquidity management and balance sheet structure management as part of proprietary trading, equity participation management, the banking operations carried out by Group head office for financing Group units, the Austrian transaction and services business for financial services providers, as well as other companies outside the financial service provider business that do not fall directly under another segment. Also allocated to this segment are the minority interests from the non-bank segment (income from entities valued at equity method). These include equity participations in UNIQA Insurance Group AG, Vienna as well as LEIPNIK-LUNDENBURGER INVEST Beteiligungs AG, Vienna, (holding company with strategic participations in the flour & mill and vending segments).
The Non-Core segment included all business activities which were sold, rescaled or exited as a result of the strategic review decided upon in February 2015. These included the business in Poland and Slovenia as well as the online bank ZUNO BANK AG, Vienna, and the business activities in Asia and the USA.
The remaining bank business in Poland was transferred to the Central Europe segment in the first quarter of 2017 after its sales process was postponed. The Polish leasing business was sold at the beginning of December 2016. Leasing activities in Slovenia were also allocated to the Central Europe segment. Following the unsuccessful sales process for ZUNO BANK AG parts of the existing business in the Czech Republic and Slovakia were integrated into the subsidiary banks in those countries, the remaining transcations were closed. Corporate customer business in Asia and the USA was reduced as scheduled, any remaining business activities were allocated to the Group Corporates & Markets segment.
Provisioning ratio (average loans and advances to customers) 0.15% 0.83% (0.11)% 0.50%
Significant changes in profit/loss are described below: In Central Europe, the figures for this financial year are not directly comparable to the previous year’s figures as the segment now includes Poland, which until year-end 2016 was reported in the Non-Core segment. Poland was reclassified at the beginning of 2017 as the intended sale of the Polish units could not be completed at the end of 2016 in the bank’s case. The Polish leasing business, however, was sold at the end of November 2016. Profit after tax in the segment rose € 128 million to € 419 million, with € 49 million of the increase attributable to the inclusion of the Polish bank described above. Other key factors contributing to the increase were higher profits both in Hungary – primarily resulting from higher net releases of loan loss provisions owing to sales of non-performing loans – and in the Czech Republic due to an improved credit risk situation.
Net income in the Southeastern Europe segment improved as a result of sharp decrease in risk costs, above all in Albania, and a positive effect from the release of provisions in connection with the Walkaway Law in Romania. On the other hand, the operating result declined and lower net income from financial investments – which in the previous year included proceeds of € 38 million from the sale of shares in Visa Europe Ltd. London, – was reported.
As in the previous year, the Eastern Europe segment was again affected by currency volatility in 2017. The average exchange rate of the Russian rouble appreciated 12 per cent year-on-year, while that of the Ukrainian hryvnia declined 7 per cent. The reporting date exchange rates of the Ukrainian hryvnia, Belarusian rouble and Russian rouble were down 15, 13 and 7 per cent respectively from the start of 2017. The 32 per cent improvement in the segment’s profit after tax to € 689 million was mainly attributable to lower loan loss provisioning and, to a small extent, the appreciation of the Russian rouble referred to above. In Russia, for example, profit increased due to lower allocations to loan loss provisions and higher net interest income. Profit growth in Ukraine was driven by net releases of provisions for impairment losses, which partly reflected sales of non-performing loans. In Belarus, the lower operating result was partially offset by lower loan loss provisions.
The Group Corporates & Markets segment was introduced in financial year 2017 in the course of the merger. In contrast to the provisions of IFRS 8.29 an adjustment of the previous year’s figures was not made as the transformation program that was still running in the previous years would have greatly limited its meaningfulness. The segment’s profit/loss after tax reached € 209 million, with the Corporates sub-segment contributing € 61 million. Higher loan-loss provisions for two specific cases in the large corporate customers business had a negative effect here. The Markets sub-segment reported € 72 million, benefiting above all from the higher fee and commission income. The specialized companies operating in Austria contributed € 93 million.
Profit/loss after deduction of non-controlling interests 236,678 300,630 470,434 112,085 51,492
Net interest margin (average interest-bearing assets) 2.31% 3.55% 6.60% 2.16% 0.60%
Provisioning ratio (average loans and advances to customers) 0.2% 1.3% 1.6% 0.5% 1.4%
Assessment of segment profit and loss The segment reporting according to IFRS 8 shows the segment performance on the basis of internal management reporting, supplemented with the reconciliation of the segment results to the consolidated financial statements. In principle, RBI’s management reporting is based on IFRS. Therefore, no differences occur in the recognition and measurement principles between segment reporting and consolidated financial statements.
Profitability is measured by the return on equity (ROE) and return on risk-adjusted capital (RORAC) based on the internal management systems. The return on equity shows the profitability of a CGU and is calculated as the ratio of profit/loss after deduction of profit/loss attributable to non-controlling interests to average consolidated equity employed. The return on equity reflects the yield of the capital of each segment. The calculation of the RORAC incorporates risk-adjusted capital, which reflects the capital necessary in case of possible unexpected losses. In RBI this capital requirement is calculated within the economic capital model for credit, market and operational risk. This ratio shows the yield on the risk-adjusted equity (economic capital), but is not an indicator pursuant to IFRS. Within the different countries and business lines the actual RORAC generated is compared with the respective predetermined minimal value (RORAC hurdle), which reflects appropriate market yield expectations.
The following key performance indicators are relevant in ensuring a reasonable and sustainable business structure, whereby the composition of the results and the underlying portfolio parameters are of significance. The structure of the primary funding basis for loans and advances to customers is measured using the loan/deposit ratio (net) which is the proportion of loans and advances to customers less impairment losses to deposits from customers (each less claims and obligations from (reverse) repurchase agreements and securities lending). The share of the result derived from the core business is also relevant. The net interest margin is calculated based on average interest-bearing assets. The proportion of the net fee and commission income to operating income is also a key performance indicator, which is included in the target setting for the business mix.
In accordance with the Basel III framework, specific legal regulations have to be considered. The proportion of common equity tier 1 capital to total risk-weighted assets (common equity tier 1 ratio) is for example an important indicator of whether the underlying capital is adequate for the business volume. Industry sector specifics lead to different risk weights within the calculation of risk-weighted assets according to CRR. These factors are crucial for the calculation of the regulatory minimum total capital requirements. In addition, as part of the annual Supervisory Review and Evaluation Process (SREP), the ECB stipulates in a notification that additional CET1 capital must be held in order to cover those risks which are not considered or are insufficiently considered in Pillar I. The efficient use of the available capital is calculated internally, whereby the actual usage is compared to the theoretically available risk coverage capital. The long-term liquidity ratios are also restrictive and are defined in accordance with the regulatory requirements.
Raiffeisen Bank International AG (RBI AG) is registered at the Vienna Commercial Court (Handelsgericht Wien) under Companies Register number FN 122.119m. The company address is at Am Stadtpark 9, 1030 Vienna.
Since company shares are traded on a regulated market within the meaning of Section 1 (2) BörseG (prime market of the Vienna Stock Exchange) and several issues of RBI AG have been listed on a regulated stock exchange in the EU pursuant to Section 59a of the Austrian Banking Act (BWG), RBI AG has to prepare consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS). The eight regional Raiffeisen banks as the core shareholders hold around 58.8 per cent of the shares, the remaining shares being in free float.
The consolidated financial statements are lodged with the Companies Register in accordance with Austrian disclosure regulations and published in the official journal of the Wiener Zeitung. They were signed by the Management Board on 27 February 2018 and subsequently submitted for the notice of the Supervisory Board.
As a credit institution pursuant to Section 1 of the Austrian Banking Act (BWG), RBI AG is subject to regulatory supervision by the Financial Market Authority, Otto-Wagner-Platz 5, A-1090 Vienna, Austria (www.fma.gv.at) and by the European Central Bank, Sonnemannstrasse 22 D-60314 Frankfurt am Main, (www.bankingsupervision.europa.eu).
The merger represents a transaction under common control for which the provisions of IFRS 3 are not applicable (IFRS 3.2. (c)). As the transaction under common control is not regulated under IFRS, the management has selected the continuation of carrying amount method as the accounting method for this type of transaction, in accordance with IAS 8.10. This means that all assets and liabilities of RZB AG were taken over at their carrying amount, taking consolidation effects into account, and all differences between the consideration transferred as a result of the issue of new shares and the carrying amount of the net assets acquired were recognized in equity.
The integration was completed on 24 January 2017 by resolution of the extraordinary General Meetings. The management has decided not to show the intra-group transactions retroactively. As a result, the figures for the comparable period were not adjusted. The statement of financial position as at 31 December 2016 and the results of the 2016 fiscal year including the notes to the financial statements correspond to RBI’s published results prior to the merger. For reasons of materiality, the effects of the merger were reflected as at 1 January 2017.
The merger of RZB AG into RBI AG affected the consolidated statement of financial position as at 1 January 2017 as shown below: Assets in € thousand 31/12/2016 Change 1/1/2017
tions of the International Financial Reporting Interpretations Committee (IFRIC/SIC) that are already applicable have been considered. All standards published by the IASB as International Accounting Standards and adopted by the EU have been applied to the financial statements for 2017. The consolidated financial statements also satisfy the requirements of Section 245a of the Austrian Commercial Code (UGB) and Section 59a of the Austrian Banking Act (BWG) regarding exempting consolidated financial statements that comply with internationally accepted accounting principles. IAS 20, IAS 41 and IFRS 6 have not been applied as there were no relevant business transactions in the Group.
Standards and interpretations to be applied in the EU from 1 January 2017 onward were accounted for in these consolidated financial statements. With regard to the earlier application of IFRS 9.7.1.2 regarding the presentation of profits and losses on financial liabilities designated at fair value, please refer to the chapter Application of new and revised standards. Figures in these financial statements are stated in € thousand. The following tables may contain rounding differences. The consolidated financial statements are based on the going concern principle.
Accumulated exchange differences are reclassified from the item exchange differences shown in other comprehensive income to the income statement under net income from disposal of group assets, in the event of a disposal of a foreign business operation which leads to loss of control, joint management or significant influence over this business operation.
In the case of one subsidiary headquartered outside the euro area, the US dollar was the reporting currency for measurement purposes given the economic substance of the underlying transactions, as both the transactions and the financing were undertaken in US dollars. In the case of three subsidiaries headquartered in the euro area, the Russian rouble was the reporting currency for measurement purposes given the economic substance of the underlying transactions.
The following exchange rates were used for currency translation: 2017 2016 As at Average As at Average Rates in units per € 31/12 1/1-31/12 31/12 1/1-31/12
US-Dollar (USD) 1.199 1.131 1.054 1.102 1 Due to a disposal of Group assets, the Kazakh tenge was no longer in use in the 2017 financial year.
To distinguish between finance leases on the one hand and operating leases on the other, judgments have to be made from the view of the lessor, the criterion being the transfer of essentially all risks and opportunities from the lessor to the lessee. Details are provided in (44) Finance leases, and (45) Operating Leases.
Financial assets and liabilities at fair value through profit or loss 193,915 57,777
Net realized gains (losses) on financial assets not measured at fair value through profit and loss 9,118 13,128
Write-ups/impairment on financial assets not measured at fair value through profit and loss (362) (55)
Interest and interest-like income, total 4,256,985 4,043,862 from balances at central banks 24,391 20,766 from loans and advances to banks 228,648 151,333 from loans and advances to customers 3,376,465 3,159,065 from financial investments 332,177 277,277 from leasing claims 119,864 153,773 from derivative financial instruments - economic hedge (net) 0 100,653 from derivative financial instruments - hedge accounting (net) 166,873 160,449 from shares and other variable-yield securities 2,456 78 from shares in affiliated companies 16,326 24,640 from other interests 16,326 3,661
Interest income includes interest income (unwinding) from impaired loans to customers and banks in the amount of € 133,523 thousand (2016: € 185,018 thousand). Interest income from impaired loans and advances to customers and banks is recognized based on the interest rate used to discount the future cash flows for the purpose of measuring the impairment loss.
The increase in net fee and commission income from the management of investment and pension funds was attributable to subsidiaries or subsidiary groups included in the course of the merger of RZB AG with RBI AG: Raiffeisen Kapitalanlage-Gesellschaft mit beschränkter Haftung and Valida Group.
(5) Net trading income Net trading income includes interest and dividend income, financing costs, commissions and any changes in fair value of trading portfolios.
1 Adaptation of previous year figures due to a change in the allocation of net income to the sub-items
Net income from hedge accounting includes a valuation result from derivatives used in fair value hedges of minus € 70,109 thousand (2016: € 9,200 thousand) and changes in the carrying amount of the fair value hedged items of € 74,634 thousand (2016: minus € 15,778 thousand). The termination of a portfolio fair value hedge in Russia resulted in a one-off effect of minus € 20,109 thousand in the 2017 financial year. This item also includes the ineffective portions of the cash flow hedge amounting to € 162 thousand (2016: € 211 thousand).
(7) Net income from financial investments Net income from financial investments comprises valuation results and net proceeds from sales of securities from the financial investment portfolio (held-to-maturity), from securities measured at fair value through profit and loss, and equity participations which include shares in affiliated companies, associates and other companies.
Legal, advisory and consulting expenses include audit fees in relation to RBI AG and its subsidiaries which comprise expenses for the audit of financial statements amounting to € 5,986 thousand (2016: € 6,531 thousand) and tax advisory as well as other additional consulting services provided by the auditors amounting to € 13,635 thousand (2016: € 8,524 thousand). Thereof, € 2,820 thousand (2016: € 1,879 thousand) relates to the Group auditor for the audit of the financial statements and € 1,085 thousand (2016: € 1,434 thousand) accounts for the other consulting services.
Note (20) Investments in associates contains details on net income from associates.
The increase in general administrative expenses was attributable to the merger of RZB AG with RBI AG. After adjusting for this effect, general administrative expenses fell a marginal 1 per cent year-on-year.
In the event of termination of function or employment contract and departure from the company, one member of the Management Board is entitled to severance payments according to contractual agreements; four members of the Management Board have entitlements under the Company Retirement Plan Act (Betriebliches Mitarbeitervorsorgegesetz). The entitlement to receive severance payments according to contractual agreements lapses in the case of termination by the employee.
Moreover, protection against the risk of occupational disability exists which is covered by a pension fund and/or by individual pension agreements secured through reinsurance. The contracts of the members of the Management Board run for the functional duration or are limited to a maximum of five years. Severance payments in the event of early termination of function without good cause amount to a maximum of two years total remuneration (except for one member of the Management Board covered by previous contractual arrangements).
The item other taxes includes the financial transactions tax in Hungary in addition to property taxes.
FX reserve reclassified to income statement 989 0 (1,434) 3,866 4,138 0 938 8,498
The sale of fully consolidated companies generated a cash inflow of € 3,336 thousand while the exclusion of ZUNO BANK AG, Vienna, from the consolidated group produced a cash outflow of € 49,444 thousand.
In the reporting year, there was a release of € 21,356 thousand in provisions relating to the Walkaway Law in Romania and recognized under profit/loss from banking business due to governmental measures. A provision of € 26,741 thousand was recognized in the previous year for this item.
Net assets after non-controlling interests 59,227 137 3,345 (1,481) 6,864 10,772 41,106 119,969
Other changes include minus € 68,824 thousand unrecognized deferred taxes from temporary differences. They were not capitalized because there was no utilization based on the current mid-term tax planning.
The effective tax rate decreased 13 percentage points year-on-year to 23 per cent in 2017. The sharp reduction was firstly the result of an improved contribution to earnings at RBI AG and secondly to the use of loss carryforwards which were not carried as assets in some Group units (Albania, Hungary). In addition, the tax rate fell significantly in Poland, following higher tax expenses in Poland in the previous year due to the intragroup sale of the leasing company.
Positive fair values of derivatives not designated as hedging instruments according to IAS 39 hedge accounting are reported in the measurement category trading assets. The measurement category financial assets available-for-sale comprises other affiliated companies, other equity participations, and non fixed-interest and fixed-interest securities. Loans and advances are reported on a net basis after deduction of provisions for impairment losses.
Loans and advances to banks classified regionally (counterparty domicile) are as follows: Loans and advances to banks break down into the following segments: Multilateral development banks 31,331 4,003
Loans and advances to customers classified regionally (counterparty domicile) are as follows:
Loans and advances to customers are distributed among asset classes as follows: Corporate customers – large corporates 43,744,065 41,676,239
Loans and advances to customers classified regionally (counterparty domicile) are as follows: Raiffeisen Bank International | Annual Report 2017
Impairment losses on loans and advances declined mainly as a result of derecognition of uncollectible loans and selling nonperforming loans.
Retail customers – small and medium-sized entities 2,062,307 2,185,471 321,337 213,247 25,327 1,946,897
Retail customers – small and medium-sized entities 321,337 213,247 108,090 100,328 19,809
Pledged securities which are permitted to be sold or repledged by the transferee shown under the trading assets item amounted to € 403.407 thousand (2016: € 63,540 thousand).
Pledged securities permitted to be sold or repledged by the transferee shown under financial investments amounted to € 357,410 thousand (2016: € 598,309 thousand).
Investments in associates were included in the course of the merger of RZB AG with RBI AG. There were no associates in the previous year's period. Investments in associates were as follows: Company, domicile (country) Core business Share of voting rights and equity 2017 Carrying amount in € thousand card complete Service Bank AG, Vienna (AT) Issue of credit cards and operating giro, guarantee and credit business 25.0% 19,041
Posojilnica Bank eGen, Klagenfurt (AT) Bank and audit association 59.0% 0
Raiffeisen Informatik GmbH, Vienna (AT) Services provider for data processing as well as construction and operation of data processing center 47.6% 33,869
Profit or loss from continuing operations 30,526 62,859 6,143 8,060 39,863
UNIQA Insurance Group AG, Vienna (AT) Contract insurance and reinsurance 10.9% 333,666
Significant influence over UNIQA Insurance Group AG, Vienna, exists as a result of a syndicate agreement with the other core shareholders that governs the right to appoint members of the Supervisory Board, among other things. Significant influence over Österreichische Kontrollbank AG, Vienna, exists as a result of two permanent positions on the Supervisory Board.
Group's interest in net assets of investee as at 1/1 33,173 131,863 7,191 10,078 60,904
Total comprehensive income attributable to the Group 8,393 22,028 1,488 545 3,839
Group's interest in net assets of investee as at 1/1 14,484 77,949 31,528 345,441
Total comprehensive income attributable to the Group (3,491) 5,182 8,745 12,490
The following overview shows the development of the carrying amount of goodwill, gross amounts and cumulative impairments of goodwill, by cash generating units. The increase in goodwill was the result of the merger of RZB AG with RBI AG and relates to Raiffeisen Kapitalanlage-Gesellschaft m.b.H. (RKAG), Vienna.
Cumulative impairment1 0 0 (543,867) (543,867) 1 Calculated with average exchange rates RBCZ: Raiffeisenbank a.s., Prague (CZ) RKAG: Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Vienna (AT)
In the stabilization phase the model is based on a normal economically sustainable earnings situation, whereby convergence of expected return on equity and cost of equity is assumed.
Key assumptions that have been made for the individual cash generating units: 2017 Cash generating units RBCZ RKAG
RBCZ Czech Republic is a core market for the Group where a selective growth strategy is pursued. Improvement through increased use of alternative distribution channels and additional consulting services. Stable costs are assumed.
The assumptions are based on internal as well as external sources. Macroeconomic assumptions of the research department were compared with external data sources and the 5year plans were presented to the Management Board and approved by the Supervisory Board.
Possible weakening of the macroeconomic environment. Pressure on net fee and commission income by more aggressive market participants cannot be excluded.
tion in the long-term growth rate could occur without the value in use of cash generating units declining below the respective carrying value (equity capital plus goodwill).
Reduction of the growth rates in phase III 0.0 PP 0.5 PP RBCZ: Raiffeisenbank a.s., Prague (CZ) RKAG: Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Vienna (AT)
Brand rights are only recognized for Raiffeisen Bank Aval JSC, Kiev. The carrying value of the brand as well as the gross amount and cumulative impairment loss have developed as shown below: in € thousand AVAL Total 1 Calculated with average exchange rates 2 Calculated with period-end exchange rates AVAL: Raiffeisen Bank Aval JSC, Kiev (UA)
Group companies 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 indeterminable useful life and are therefore not subject to scheduled amortization. Brands are tested annually in the course of the impairment test of goodwill per cash generating unit and additionally whenever indications of impairment arise.
Cumulative impairment2 (13,262) (12,152) (1,668) (27,082) 1 Calculated with average exchange rates 2 Calculated with period-end exchange rates AVAL: Raiffeisen Bank Aval JSC, Kiev (UA) RBCZ: Raiffeisenbank a.s., Prague (CZ) RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL)
Land and buildings used by the Group for own purpose 584,896 480,713
Land and buildings used by the Group for own purpose (415,010) 219 (37,176) 584,896 of which land value of developed land (510) 0 0 10,339
Office furniture, equipment and other tangible fixed assets (719,268) 112 (75,156) 253,740
Change in consolidated group Exchange differences Additions Disposals Transfers As at 31/12/2016
Office furniture, equipment and other tangible fixed assets (733,738) 632 (75,619) 236,624
There were single investments (buildings) exceeding € 10,000 in Bulgaria in the reporting year. There were no single investments exceeding € 10,000 thousand in the previous year.
The Group refinances itself periodically with international commercial banks and multinational development banks. These credit contracts contain ownership clauses normally used in business. These clauses grant permission to the parties to the contracts for exceptional termination in the event of a change in control of RBI AG. This could lead to increased refinancing costs for the Group.
Deposits from banks classified regionally (counterparty domicile) break down as follows: Raiffeisen Bank International | Annual Report 2017
Deposits from banks break down into the following segments: Multilateral development banks 927,570 1,128,536
TBSK SK4120011016 senior private placements EUR 250,000 6M EURIBOR + 0.5 % 19/8/2020
The item severance and similar payments includes provisions for service anniversary bonuses and other payments in the amount of € 33,009 thousand (2016: € 25,979 thousand) and obligations from other benefits due to termination of employment according to IAS 19 amounting to € 82,988 thousand (2016: € 58,544 thousand).
The decline in provisions for banking business due to governmental measures was mainly caused by releasing provisions related to the Walkaway Law in Romania.
 Legal steps were taken against RBI AG in connection with the early repayment of an Icelandic liability. The amount in dispute is € 25,000 thousand.
Other provisions mainly consist of provisions relating to the bank resolution fund and bank levies.
The Group expects to pay € 371 thousand in contributions to its defined benefit plans in 2018. In the financial year 2017, the Group’s contribution to defined benefit plans was € 287 thousand.
The defined benefit obligations developed as follows: DBO as at 1/1 42,748 44,143
Plan assets developed as follows: Plan assets as at 1/1 14,203 13,762
The pension provider Valida Pension AG has established an asset/risk management process (ARM process). According to this process, the risk-bearing capacity of each fund is evaluated once a year based on the liability structure of investment and risk associations, which itself is derived from the statement of financial position. Based on this risk-bearing capacity, the investment structure of the fund is derived. When determining the investment structure, defined and documented customer requirements are also taken into account.
The following table shows the longevity assumptions used to calculate the net defined benefit obligation: Longevity at age 65 for current pensioners – males 21.2 21.1
Changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below: 2017 2016 in € thousand Addition Decrease Addition Decrease
Future salary growth (0.5 per cent change) 700 (651) 433 (414)
Future pension increase (0.25 per cent change) 3,563 (3,378) 1,380 (1,320)
Negative fair values of derivatives in fair value hedges (IAS 39) 133,168 132,565
As long as the conditions for hedge accounting according to IAS 39 are fulfilled, derivative financial instruments are measured at their fair values (dirty prices) in their function as hedging instruments. The hedged items in connection with fair value hedges are loans and advances to banks, loans and advances to customers, financial investments, deposits from banks, deposits from customers and debt securities issued, which are hedged against interest rate risk.
The table below shows the expected hedged cash flows from liabilities affecting the statement of comprehensive income by maturity: More than 1 year, up to 5 years 527,980 587,577
Negative fair values of derivatives in cash flow hedges (IAS 39) 61,702 275,102
Negative fair values of derivatives in net investment hedge (IAS 39) 9,637 17,749
Net gains of € 11,164 thousand (2016: net gains of € 5,788 thousand) relating to the effective portion of cash flow hedges were recognized in other comprehensive income.
The item liabilities held for sale (IFRS 5) mainly consists of Raiffeisen Pension Insurance d.d., Zagreb, amounting to € 61,622 thousand.
The development of equity is shown under the statement of changes in equity section.
The Management Board was further authorized pursuant to Section 65 (1b) of the Austrian Stock Corporation Act (AktG), to decide, with the approval of the Supervisory Board, on the sale of own shares by means other than the stock exchange or a public tender, to the full or partial exclusion of shareholders’ subscription rights. Shareholders’ subscription rights may only be excluded if the own shares are used to pay for a contribution in kind, to acquire enterprises, businesses, branches of activity or shares in one or several companies in Austria or abroad, or for the purpose of implementing the company’s Share Incentive Program (SIP) for executives and members of the Management Boards of the company and affiliated enterprises.
On 5 July 2017, RBI AG issued perpetual additional tier 1 capital with a nominal value of € 650,000 thousand and no maturity. The interest rate is 6.125 per cent p.a. until December 2022 and will be reset thereafter. Due to the terms and conditions of the issue, the additional tier 1 capital is classified as equity under IAS 32. Equity increased € 644,814 after accounting for the issue costs of € 886 thousand and the discount of € 4,300 thousand. Own shares, which have a carrying amount of € 199 thousand, were also deducted from the capital.
Raiffeisen Bank Aval JSC, Kiev (UA) 31.8% 110,659 42,633 (6,788) 35,844
Net increase in cash and cash equivalents 44,831 (3,070,095) 532,082 3,928 0
Net increase in cash and cash equivalents 25,553 1,978,052 (187,299) 5,148
As opposed to the above stated financial information which only relates to non-controlling interests, the following table contains financial information of the individual subsidiaries (including controlling interests): Raiffeisen Bank Aval JSC, Kiev (UA)
Dividends paid to non-controlling interests during the year1 40,832 13,055 26,478 8,969 0 1 Included in net cash from financing activites
RBI and merged into the then existing Polish subsidiary of RBI. After suspension of the intended IPO in the beginning of July 2017, RBI has been in ongoing discussions with the Polish regulator regarding further steps and a new timetable for the IPO. According to the announcement of the Polish regulator on 1 August 2017, the IPO should be closed by not later than 15 May 2018. On 17 November 2017, RBI published its intention to carve out the foreign exchange retail mortgage portfolio (FX Portfolio) held by RBPL and eventually transfer this portfolio to RBI. Depending on the details of the loans selected for the demerger and future currency fluctuations the gross volume is currently expected to be between € 3 billion and € 3.5 billion. The precise volume will be determined taking into account legal (including tax) requirements. As a result, RBI is currently preparing a carve-out of the FX Portfolio and the listing of the shares in RBPL on the Warsaw Stock Exchange and, as an alternative to the listing, is considering the sale of a majority stake in RBPL's core banking operations (without the FX Portfolio). RBI's commitment to the Polish regulator to list the shares in RBPL on the Warsaw Stock Exchange may be fulfilled by an IPO of at least 15 per cent of RBPL shares to free float investors or through a sale of a majority stake in RBPL's core banking operations. No execution decision has yet been taken regarding any of the scenarios, namely the IPO or the sale of the majority stake.
As at end of 2014, the Ukrainian National Bank launched foreign currency transfer controls. The dividend payment was restricted to USD 5 million a month for 2016 and to USD 2 million for 2014 and 2015. The Ukrainian National Bank is expected to make a decision soon regarding the dividend payment for 2017.
In 2014, the share incentive program (SIP) was terminated due to regulatory complexities. The last tranches of the SIP were issued in 2011, in 2012 and in 2013. The respective duration periods are five years. Therefore, the 2012 tranche matured in 2017. In accordance with the terms and conditions of the program (published by euro adhoc on 27 June 2012), the number of shares actually transferred was as follows: Share incentive program (SIP) 2012 Group of persons
Impairment losses on loans and advances (3,102,348) 0 0 0 0 2016 Short-term assets/liabilities Long-term assets/liabilities in € thousand Due at call or without maturity Up to 3 months More than 3 months, up to 1 year More than 1 year, up to 5 years More than
Impairment losses on loans and advances (4,955,132) 0 0 0 0
The table below shows the carrying amounts of financial assets transferred: 2017 Transferred assets Associated liabilities in € thousand Carrying amount hereof securitizations hereof repurchase agreements Carrying amount hereof securitizations hereof repurchase agreements 2016 Transferred assets Associated liabilities in € thousand Carrying amount hereof securitizations hereof repurchase agreements Carrying amount hereof securitizations hereof repurchase agreements
Loans and advances1 7,241,502 6,729,870 1 Without loans and advances from reverse repo and securities lending business 2 Without derivatives
in € thousand Pledged Otherwise restricted with liabilities Pledged Otherwise restricted with liabilities 1 Without loans and advances from reverse repo and securities lending business 2 Without derivatives
Reverse repurchase, securities lending & similar agreements (legally enforceable) 8,163,649 0 8,163,649 7,816,104 0 347,545
Other financial instruments (legally enforceable) 153,296 0 153,296 0 0 153,296 2017 Gross amount Net amount
Repurchase, securities lending & similar agreements (legally enforceable) 297,678 0 297,678 291,291 0 6,387
Repurchase, securities lending & similar agreements (legally enforceable) 447,514 0 447,514 433,849 0 13,665
(39) Derivative financial instruments 2017 Nominal amount by maturity Fair values in € thousand Up to 1 year More than 1 year, up to 5 years More than 5 years Total Positive Negative
Foreign exchange rate and gold contracts 35,898,030 8,507,329 1,779,425 46,184,784 686,601 (566,084)
Foreign exchange rate and gold contracts 36,878,782 9,413,284 1,828,282 48,120,348 913,876 (1,070,164)
Level I Quoted market prices Level II Valuation techniques based on market data Level III Valuation techniques not based on market data 2017 2016 in € thousand Level I Level II Level III Level I Level II Level III
Liabilities at fair value through profit and loss 0 2,522,055 0 0 2,783,648 0
Year-on-year, the share of financial assets classified as Level II decreased. The decrease resulted mainly from divestitures from the category financial assets at fair value through profit and loss, particularly the category bonds, notes and other fixed-interest securities. Level I financial assets increased strongly compared to the values at year-end 2016 due to the merger of RZB AG into RBI AG.
Financial assets at fair value through profit or loss 5,290,102 324,417 11,120 1,937,532 1,972,735 52,490
Shares and other variable-yield securities 90,120 0 551 3 0 2,721
in € thousand As at 1/1/2017 Change in consolidated group Exchange differences Purchases Sales, repayment
Financial assets at fair value through profit or loss 52,490 0 (41) 42 (846)
in € thousand Gains/loss in P/L Gains/loss in other comprehensive income Transfer to level III Transfer from level III As at 31/12/2017
Financial assets available-for-sale 0 (61) 60,989 0 237,756 in € thousand As at 1/1/2017 Change in consolidated group Exchange differences Purchases Sales, repayment in € thousand Gains/loss in P/L Gains/loss in other comprehensive income Transfer to level III Transfer from level III As at 31/12/2017
In the reporting year, losses resulting from financial instruments of the Level III fair value hierarchy amounted to € 229 thousand (2016: gain of € 135,817 thousand).
Shares and other variable-yield securities Closed end real estate fund 59 Net asset value Haircuts 40 – 90%
Liabilities in € thousand Level I Level II Level III Fair value Carrying amount Difference
2017 in € thousand Level I Level II Level III Fair value Carrying amount Difference
Other commitments which shall not be shown under credit lines amounted to € 594,374 thousand (2016: € 415,220 thousand) at year-end 2017.
With the introduction of the CRR (Capital Requirements Regulation) in 2014, there were a number of significant changes to the rules contained until then in the Austrian Banking Act (BWG) for a banking group organized according to cooperative principles. In accordance with this EU Regulation credit institutions must, when determining their total capital, generally deduct their positions in the total capital instruments of other credit institutions outside their group of credit institutions, unless there is an exemption under an Institutional Protection Scheme (IPS) they have set up themselves. The RBG therefore established an IPS and concluded contractual or statutory liability arrangements as well. The IPS safeguards the participating institutions and ensures their liquidity and solvency to prevent bankruptcy. Based on the structure of the Raiffeisen Banking Group the IPS has been designed in two stages, and applications were submitted to the competent supervisory authority and approved in October and November 2014.
As RBG’s central institution, RBI AG is a member of the federal IPS whose members, in addition to the regional Raiffeisen banks, include: Raiffeisen-Holding Niederösterreich-Wien reg GmbH, Vienna, Posojilnica Bank eGen, Klagenfurt, Raiffeisen Wohnbaubank AG, Vienna, and Raiffeisen Bausparkasse GmbH, Vienna. A regional IPS was also set up in most federal states.
Risk management functions are performed on different levels in the Group. RBI AG develops and implements the relevant concepts as the parent credit institution and in cooperation with the subsidiaries of the Group. The central risk management units are responsible for the adequate and appropriate implementation of the Group’s risk management processes. In particular, they establish common Group directives and set business-specific standards, tools, and practices for all Group entities. The merger of RZB AG into RBI AG made it possible to simplify and streamline the organization of risk management and risk controlling.
In addition, local risk management units are established in the different Group entities of RBI. 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 report them to central risk management units via defined interfaces.
The central Group Risk Controlling division assumes the independent risk controlling function required by banking law. Its responsibilities include developing the Group-wide framework for overall bank risk management (integrating all risk types) and preparing independent reports on the risk profile for the Risk Committee of the Supervisory Board, the Management Board and the heads of individual business units. It also measures required risk coverage capital for different Group units and calculates the utilization of the allocated risk capital budgets in the internal capital adequacy framework.
The Group Asset/Liability Committee assesses and manages statement of financial position structure and liquidity risks and defines the standards for internal funds transfer pricing. In this context it plays an important role in the long-term funding planning and the hedging of structural interest rate and foreign exchange risks. The Capital Hedge Committee is a sub-committee of the Group Asset/Liability Committee and manages the currency risk of the capital position.
The Securitization Committee is the decision-making committee for limit requests in relation to securitization positions within the specific decision-making authority framework and develops proposals for modifications to the securitization strategy for the Man-
Moreover, an independent and objective audit, free of potential conflicts of interest, is carried out during the audit of the annual financial statements by the auditing companies. Finally, the Group is continuously supervised by the European Central Bank, the Austrian Financial Market Authority and also by the local supervisor in those countries where the Group is represented by branches or subsidiaries.
Two very important functions in assuring independent oversight are performed by the divisions Audit and Compliance. Independent internal auditing is a legal requirement and a central pillar of the internal control system. Audit periodically assesses all business processes and contributes considerably to securing and improving them. It sends its reports directly to the Management Board of the Group which discusses them on a regular basis in its board meetings.
Maintaining an adequate level of capital is a core objective of the Group. Capital requirements are monitored regularly based on the risk level as measured by internal models, and in choosing appropriate models the materiality of risks annually assessed is taken into account. This concept of overall bank risk management provides for capital requirements from a regulatory point of view (sustainability and going concern perspective) and from an economic point of view (target rating perspective). Thus it covers the quantitative aspects of the internal capital adequacy assessment process (ICAAP) as legally required. The full ICAAP process of the Group is audited during the supervisory review process for RBI credit institution group (RBI-Kreditinstitutsgruppe) on an annual basis.
Risk of not meeting the capital requirement as defined in the CRR regulations
Capital and net income projection for a threeyear planning period based on a severe macroeconomic downturn scenario 85-90 per cent based on the management decision that the Group might be required to temporarily reduce risks or raise additional capital
During the year, the economic capital of the Group increased 11.7 per cent, or € 618,748 thousand, to € 5,928,456 thousand. However, the comparable figures for 2016 relate to the RBI subgroup prior to the merger with RZB. The increase in the market risk was caused by the implementation of the EBA Guideline for the interest rate risk in the banking book under the ICAAP framework. Overall, as at the reporting date, credit risk accounted for 57 per cent (2016: 61 per cent) of economic capital. Additionally, a general buffer for other risks, unchanged at 5 per cent of calculated economic capital, is added. In the allocation of risk capital as at 31 December 2017, the largest share of economic capital, at 33 per cent (2016: 34 per cent), is consumed by Group units located in Central Europe.
Regional allocation of economic capital according to Group booking unit: in € thousand 2017 Share 2016 Share
This perspective thus also complements traditional risk measurement based on the value-at-risk concept (which is in general based on historical data). Therefore it can incorporate exceptional market situations that have not been observed in the past and it is possible to estimate the potential impact of such developments. The stress test also allows for analyzing risk concentrations (e.g. individual positions, industries, or geographical regions) and gives insight into the profitability, liquidity situation, and solvency
under extreme situations. Based on these analyses risk management in the Group enhances portfolio diversification, for example via limits for the total exposure to individual industry segments and countries and through ongoing updates to lending standards.
The internal control system for credit risks includes different types of monitoring measures, which are tightly integrated into the workflows to be monitored – from the customer’s initial credit application, to the bank’s credit approval, and finally to the repayment of the loan.
The assumed exposure contains positions held for liquidity purposes, including in particular a portfolio of securities with very good and good credit standings and loans and advances to central banks. Retail loans from the building society business in Austria and the Czech Republic as well as leasing claims on corporate customers from real estate projects were also assumed.
The comparable figures for the 2016 year presented in this Risk Report correspond to the results published by RBI prior to the merger with RZB AG. As a result, comparability is limited. The following table shows the effect of the merger of RZB AG into RBI AG for corporate customers, banks, retail customers and sovereigns: in € thousand 31/12/2016 Change 1/1/2017
9 Very weak credit standing / doubtful 579,161 0.8% 683,561 1.0%
The credit exposure for good credit standing to minimal risk increased € 3,648,722 thousand, representing a share of 48.1 per cent (2016: 47.1 per cent). The share of loans with marginal credit standing to very weak credit standing declined from 9.9 per cent to 9.1 per cent.
The rating model for project finance has five different grades which take both individual default probabilities and collateral into consideration. The project finance volume is composed as shown in the table below: in € thousand 2017 Share 2016 Share 6.1 Excellent project risk profile – very low risk 4,922,405 59.1% 4,530,210 56.0%
The table below provides a breakdown of the total credit exposure for corporates and project finance by industries: in € thousand 2017 Share 2016 Share
Electricity, gas, steam and hot water supply 2,906,568 3.6% 3,046,017 4.1%
The merger of RZB AG into RBI AG resulted in an increase of € 3,733,071 thousand, particularly in the real estate, construction and manufacturing sectors.
Retail customers – small and medium-sized entities 3,041,403 8.0% 2,668,266 9.1%
Retail customers – small and medium-sized entities 1,002,360 738,631 403,160 522,804 1,310 hereof individual loan loss provision 273,452 371,579 643,693 233,462 45 hereof portfolio-based loan loss provision 86,772 90,081 55,444 16,997 0
Compared to year-end 2016, the retail credit portfolio increased € 8,702,503 thousand (of which € 6,649,870 thousand caused by the merger of RZB AG into RBI AG) to € 37,868,298 thousand. This increase was mainly caused by the mergerrelated integration of Raiffeisen Bausparkasse Gesellschaft m.b.H., Vienna (Group Corporates & Markets) and by Raiffeisen stavebni sporitelna a.s., Prague (Central Europe).
The change in the segment allocation of Raiffeisen Bank Polska S.A., Warsaw, from the segment Non-Core to the segment Central Europe and organic growth in Slovakia and in the Czech Republic additionally resulted in an increase in Central Europe. The € 526,346 thousand increase in the segment Southeastern Europe to € 8,600,040 thousand was attributable to an increase in Bulgaria and Romania.
In the table below the total retail credit exposure by products is shown: in € thousand 2017 Share 2016 Share
The increase in Central Europe was mainly due to the change in the segment allocation of Raiffeisen Bank Polska S.A., Warsaw, from the segment Non-Core to the segment Central Europe. Southeastern Europe reported declines in Romania, Bosnia and Herzegovina, Bulgaria and Croatia. The decline in Eastern Europe resulted from the development in Ukraine.
The reduction in loans denominated in Swiss francs was attributable to currency fluctuations and to declines in Poland, Hungary, Romania and Serbia. The decline in loans denominated in US dollars was mainly attributable to sales of non-performing loans and the derecognition of uncollectible loans in Ukraine. The portfolio of loans denominated in euros declined notably in Romania (down € 69,207 thousand), Poland (down € 69,135 thousand), Bosnia and Herzegovina (down € 57,807 thousand), Bulgaria (down € 48,051 thousand) and Croatia (down € 46,681 thousand).
9 Very weak credit standing / doubtful 4,183 0.0% 77,456 0.4%
Compared to year-end 2016, Eastern Europe recorded a € 353,683 thousand increase to € 2,147,246 thousand, which resulted from repo transactions in Russia. The € 163,834 thousand decline in Asia to € 964,866 thousand was mainly based on credit financing and money market business. However, it was partially offset by an increase in documentary credits. Western Europe reported a € 96,636 thousand decline to € 8,543,397 thousand, which was attributable to deposits, credit financing and swap transactions. The € 82,863 thousand decline in the item other to € 1,430,590 thousand resulted from credit and facility financing and from documentary credits, which was, however, offset by an increase in the bond portfolio.
The credit exposure to sovereigns recorded a € 8,118,844 thousand increase to € 33,052,078 thousand at year-end 2017. It accounted for 19.5 per cent (2016: 17.0 per cent) of the total credit exposure. The merger of RZB AG into RBI AG resulted in a € 9,714,716 thousand increase in the credit exposure, primarily in the rating grades A2, A3 and B3.
The change in the product groups repo and money market was mainly due to transactions with the Czech national bank.
The table below shows the credit exposure to sovereigns in non-investment grade (rating B3 and below): in € thousand 2017 Share 2016 Share
The credit exposure to sovereigns in non-investment grade mainly resulted from deposits of Group units with the local central banks in Central and Southeastern Europe. They are used for meeting the respective minimum reserve requirements and for managing the short-term investment of excess liquidity, and are therefore inextricably linked to the business activities in these countries. Compared to year-end 2016, the credit exposure increased € 660,202 thousand to € 8,403,408 thousand. This increase resulted primarily from the portfolio of government bonds from Hungary, Croatia and Russia.
Collateralization is one of the main strategies and an actively pursued measure for reducing potential credit risks. The value of collateral and the effect of other risk mitigation techniques are determined within each limit application. The risk mitigation effect taken into account is the value that the Group expects to receive when selling the collateral within a reasonable liquidation period. Eligible collaterals are defined in the Group’s collateral catalog and corresponding evaluation guidelines for collateral. The collateral value is calculated according to specified methods which include standardized calculation formulas based on market values, predefined discounts, and expert assessments.
Retail customers – small and medium-sized entities 2,322,297 548,920 1,450,380 2016 Maximum credit exposure Fair value of collateral in € thousand Net exposure Commitments/guarantees issued
Loans and advances to banks and customers net of allocated loan loss provisions (net exposure), the additional exposure off the statement of financial position (contingent liabilities, commitments, and revocable credit lines), and the market prices (fair value) of collateral pledged in favor of the Group are shown in the following table: 2017 Maximum credit exposure Fair value of collateral in € thousand Net exposure Commitments/guarantees issued
The Group executed a new synthetic transaction, ROOF Slovakia 2017, which was split into a senior, a mezzanine and a junior tranche. The mezzanine tranche in the amount of € 83,800 thousand was sold to institutional investors, while the credit risk of the junior and senior tranches are retained.
As part of the JEREMIE initiative, the participating subsidiaries (Raiffeisenbank (Bulgaria) EAD, Sofia, Raiffeisenbank S.A., Bucharest, and Tatra banka a.s., Bratislava) have received guarantees from the European Investment Fund (EIF) to support lending to small and medium-sized enterprises.
NPE NPE ratio NPE coverage ratio in € thousand 2017 2016 2017 2016 2017 2016
This section refers exclusively to exposures without grounds for default pursuant to Article 178 CRR. In the corporate business, when loan terms or conditions are altered in favor of the customer, the Group distinguishes between modified loans and forborne loans according to the applicable definition of the EBA document Implementing Technical Standards (ITS) on Supervisory Reporting (Forbearance and non-performing exposures) ) and the ECB guidance to banks on non-performing loans.
In the corporate customers sector, financial difficulties are measured by means of an internal early warning system which is based on numerous representative and accepted input factors for customer risk classification (e.g. overdue days, rating downgrades, etc.). IAS 39 requires that impairments must be derived from an incurred loss event; defaults pursuant to Article 178 CRR are still the main indicators for individual and portfolio-based loan loss provisions. The transfer of forborne exposures to the living portfolio is not automatically carried out after the determined monitoring period. Additionally, an expert opinion has to be obtained confirming that the circumstances of the customer concerned have improved.
Within the Group, a Group-wide default database is used for collecting and documenting customer defaults. The database also tracks the reasons for defaults, which enables the calculation and validation of default probabilities.
Change in consolidated group Exchange rate Additions Disposals As at 31/12/2017 in € thousand As at 1/1/2016
The volume of non-performing loans to non-banks fell € 1,874,188 thousand. An organic decline in the amount of € 2,154,932 thousand, primarily due to the sale of non-performing loans and the derecognition of uncollectible loans in Ukraine, at RBI AG, Romania and Croatia, contrasted with an increase of € 425,247 thousand due to the merger of RZB AG into RBI AG. The currency development also resulted in a € 144,822 thousand decline. The NPL ratio based on total credit exposure declined 3.5 percentage points to 5.7 per cent.
In 2017, in the asset class corporate customers, non-performing loans decreased € 1,365,996 thousand to € 2,991,424 thousand, mainly due to sales and derecognitions. The ratio of non-performing loans to credit exposure fell 3.0 percentage points to 6.3 per cent. The NPL coverage ratio fell 13.0 percentage points to 58.5 per cent. In the retail portfolio, non-performing loans sank 23.8 per cent, or € 506,789 thousand, to € 1,619,729 thousand, also due to sales and derecognitions. The ratio of non-performing loans to credit exposure fell 3.5 percentage points to 4.8 per cent. The NPL coverage ratio increased 0.6 percentage points to 82.8 per cent. At € 10,030 thousand at year-end 2017, the portfolio of non-performing loans to banks was € 67,247 thousand less than at year-
In the segment Central Europe, non-performing loans increased € 481,159 thousand to € 1,559,366 thousand. Of this amount, € 670,254 thousand resulted from the reclassification of Poland from the segment Non-Core into this segment, and € 44,485 thousand was due to the merger-related integration of Raiffeisen stavebni sporitelna a.s., Prague. In contrast, sales and derecognitions in Hungary resulted in a € 184,231 thousand decline. The NPL ratio amounted to 4.2 per cent and the NPL coverage ratio to 67.7 per cent.
The segment Eastern Europe recorded a decline in non-performing loans of € 57.7 per cent, or € 909,416 thousand, to € 666,698 thousand. This was caused both by sales of non-performing loans in an amount of € 248,823 thousand in Ukraine and also by the derecognition of uncollectible loans and currency depreciations in Ukraine and Russia. The ratio of nonperforming loans to credit exposure fell 6.8 percentage points to 5.2 per cent; the NPL coverage ratio declined 7.1 percentage points to 78.7 per cent.
Non-performing loans in the segment Group Corporates & Markets amounted to € 1,311,232 thousand. They originated from the former segments Group Corporates, Group Markets, and in some cases from Non-Core, together with an additional effect of € 380,443 thousand resulting from the merger of RZB AG into RBI AG. In the reporting period, derecognitions of uncollectible loans reduced non-performing loans by €632,313 thousand at RBI AG and by € 137,961 thousand at Raiffeisen Leasing Group. The NPL ratio at year-end amounted to 4.1 per cent and the NPL coverage ratio to 48.5 per cent.
Portfolio-based loan loss provisions 380,954 22,651 164,275 (188,438) (123) (23,599) 355,720 1 Allocation including direct write-downs and income on written down claims. 2 Usage including direct write-downs and income on written down claims.
The increase in Central Europe was mainly attributable to the change in the segment allocation of Raiffeisen Bank Polska S.A., Warsaw, from the segment Non-Core to the segment Central Europe.
Country risk also is reflected via the internal funds transfer pricing system in product pricing and in risk-adjusted performance measurement. Business units therefore can benefit from country risk mitigation by seeking insurance (e.g. from export credit insurance organizations) or guarantors in third countries. The insights gained from the country risk analysis are not only used for limiting the total cross-border exposure, but also for limiting the total credit exposure in each individual country (i.e. including the exposure that is funded by local deposits). Thereby the Group realigns its business activities according to the expected macroeconomic development within different markets and enhances the broad diversification of its credit portfolio.
The regional breakdown of the loans reflects the broad diversification of credit business in the Group’s markets. The following table shows the distribution of the credit exposure of all asset classes by the borrower’s home country grouped by regions: in € thousand 2017 Share 20161 Share 1 Adaptation of previous year figures due to modified allocation
The following table shows the total credit exposure of the Group by the customers’ industry classification: in € thousand 2017 Share 2016 Share
Retail trade except repair of motor vehicles 3,866,195 2.3% 3,674,826 2.5%
Electricity, gas, steam and hot water supply 2,915,441 1.7% 3,055,623 2.1%
Extraction of crude petroleum and natural gas 594,179 0.3% 776,215 0.5%
The Group invests in structured products. 41.9 per cent of this portfolio (2016: 54.7 per cent) is rated A or better by external rating agencies, with 60.3 per cent (2016: 60.7 per cent) of the portfolio containing loans and advances to European customers. These are mainly investments in asset-backed securities (ABS), asset-based financing (ABF) and in some cases also collateralized debt obligations (CDO). The total exposure for structured products showed a nominal amount of € 804,956 thousand (2016: € 739,850 thousand) and a carrying amount of € 769,650 thousand (2016: € 701,609 thousand).
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.
The Market Risk Committee is responsible for strategic market risk management issues. It is responsible for managing and controlling all market risks in the Group. The Group’s overall limit is set by the Management Board on the basis of the risk-taking capacity and income budget. This limit is apportioned to sub-limits in coordination with business divisions according to the strategy, business model and risk appetite.
The Group uses a comprehensive risk management approach for both the trading and banking book (total-return approach). Market risks are managed therefore consistently in all trading and banking books. The following values are measured and limited on a daily basis in the market risk management system:  Value-at-Risk (VaR) – (confidence level 99 per cent, risk horizon one day) Value-at-risk is the main market risk steering instrument in liquid markets and normal market situations. VaR is measured based on a hybrid simulation approach, where 5,000 scenarios are calculated. The approach combines the advantages of a historical simulation and a Monte-Carlo simulation and derives market parameters from 500 days historical data. Distribution assumptions include modern features like volatility declustering and random time change. This helps in reproducing fat-tailed and asymmetric distributions accurately. The Austrian Financial Market Authority approved this model so that it can be used for calculating total capital requirements for market risks. At the end of the third quarter, the VaR calculation was supplemented to include base interest rate risk factors. Value-at-risk results are not only used for limiting risk but also in the economic capital allocation.
Banking book VaR 99% 1d VaR as at VaR as at in € thousand 31/12/2017 Average VaR Minimum VaR Maximum VaR 31/12/2016
Total VaR 99% 1d VaR as at VaR as at in € thousand 31/12/2017 Average VaR Minimum VaR Maximum VaR 31/12/2016
The change in the VaR in May 2017 was mainly due to a trading position in Russian rouble.
The Group holds material equity participations located outside of the euro area with equity denominated in the corresponding local currency. Also, a significant share of risk-weighted assets in the Group is denominated in foreign currencies. Changes in foreign exchange rates thus lead to changes in the consolidated capital of the Group and to changes in the total capital requirement for credit risks as well.
Value-at-Risk and theoretical market price changes of trading book in € thousand
The Group aims at stabilizing its capital ratio when managing exchange rate risks. Changes in foreign exchange rates thus lead to changes in the consolidated equity amount; however, the regulatory capital requirement for credit risks stemming from assets denominated in foreign currencies also changes correspondingly. This risk is managed on a monthly basis in the Group Asset /Liability Committee based on historical foreign exchange volatilities, exchange rate forecasts, and the sensitivity of the tier 1 ratio to changes in individual foreign exchange rates.
The following table shows all material open foreign exchange rate positions as at 31 December 2017 and the corresponding values for the previous year. The numbers include both trading positions as well as capital positions of the subsidiaries with foreign currency denominated statements of financial position.
The following tables show the largest present value changes for the trading book of the Group given a one-basis-point interest rate increase for the whole yield curve in € thousand for the reporting dates 31 December 2017 and 31 December 2016. Currencies where the total interest rate sensitivity exceeds € 1 thousand are shown separately.
There are two different approaches for managing exchange rate risks:  Preserve equity: With this hedging strategy an offsetting position is held on Group level for local currency denominated equity positions. However, the necessary hedging positions cannot be established in all currencies in the required size. Moreover, these hedges might be inefficient for some currencies if they carry a high interest rate differential.
This risk is mainly hedged by a combination of transactions on and off the statement of financial position where in particular interest rate swaps and – to a smaller extent – also interest rate forwards and interest rate options are used. Management of the statement of financial position is a core task of the central Global Treasury division and of individual network banks, which are supported by the Group Asset/Liability Committee. They base their decisions on various interest income analyses and simulations that ensure proper interest rate sensitivity in line with expected changes in market rates and the overall risk appetite.
The following table shows the change in the present value of the Group’s banking book given a one-basis-point interest rate increase for the whole yield curve in € thousand for reporting dates 31 December 2017 and 31 December 2016. Currencies where the total interest rate sensitivity exceeds € 1 thousand are shown separately.
The significant changes in the present values for EUR and CHF were mainly caused by changes in methods (e.g. consideration of negative interest rates) and only to a lesser degree by position changes.
The regulatory component is addressed by compliance with the reporting requirements under Basel III (Liquidity Coverage Ratio, Net Stable Funding Ratio and Additional Liquidity Monitoring Metrics) respectively complying with the regulatory limits. In addition some units of the group have additional liquidity and reporting requirements set by their local supervisory authorities.
The liquidity scenarios are modelled using a Group-wide approach, acknowledging local specifications where they are justified by influencing factors such as the market environment or particular business characteristics; the calculation is performed at RBI Head Office. The modelling of cash inflows and outflows differentiates between product and customer segments, while if applicable, a distinction between different currencies is made as well. For products without a contractual maturity, the distribution of cash inflows and outflows is calculated using a geometric Brownian motion which derives the statistical forecasts for future daily balances from the observed, exponentially weighted historical volatility of the corresponding products.
Monitoring of limits and reporting limit compliance is performed effectively and the respective escalation channels are being utilized and work as designed. Limit compliance is generally very high throughout the Group, and any breach by Group units is reported to the Group ALCO and escalated. In such cases, appropriate steps are undertaken in consultation with the relevant unit or contentious matters are escalated to the next highest responsible body.
Generally, a haircut is applied to all liquidity buffer positions. These haircuts include a market-risk specific haircut and a central bank haircut. While the market risk haircut represents the potential price volatility of the securities held as assets as part of the liquidity buffer, the central bank haircut represents an additional haircut for each individual relevant security that may be offered as collateral.
Under difficult liquidity conditions, the units switch to a contingency process in which they follow predefined liquidity contingency plans. These contingency plans also constitute an element of the liquidity management framework and are mandatory for all significant Group units. The emergency management process is designed so that the Group can retain a strong liquidity position even in serious crisis situations.
In 2017, the regulatory limit for the LCR stood at 80 per cent. From 2018 onwards, this limit is 100 per cent.
The liquidity coverage ratio (LCR) requires the short-term resilience of banks by ensuring that they have an adequate stock of unencumbered high-quality liquid assets (HQLA) to meet potential liability run offs that might occur in a crisis, which can be converted into cash to meet liquidity needs for a minimum of 30 calendar days in a liquidity stress scenario.
In the Group’s funding plans, special attention is paid to a diversified structure of funding to mitigate funding liquidity risk. In the Group, funds are not only raised by RBI AG as the Group’s parent institution, but also individually by different banking subsidiaries. Those efforts are coordinated and optimized through a joint funding plan. Moreover, RBI AG arranges medium-term and longterm funding for its subsidiaries through syndicated loans, bilateral funding agreements with banks, and financing facilities provided by supranational institutions. These funding sources are based on long-term business relationships.
Derivatives in the trading book 1,568,384 5,544,783 2,446,036 1,863,116 921,315 314,316
Since October 2016, the Group has calculated the equity requirement for a significant part of the Group using the Advanced Measurement Approach (AMA). This includes units in Bulgaria, Romania, Russia, Slovakia and principal banks in Austria (Raiffeisen Bank International AG, Vienna, Kathrein Privatbank Aktiengesellschaft, Vienna, Raiffeisen Centrobank AG, Vienna, Raiffeisen Bausparkasse Gesellschaft m.b.H., Vienna, Raiffeisen Kapitalanlage-Gesellschaft mit beschränkter Haftung, Vienna). The Standardized Approach (STA) is still used to calculate the operational risk of the remaining units in the CRR scope of consolidation.
Operational risk reduction is initiated by business managers who decide on preventive actions like risk mitigation or risk transfer. Progress and success of these actions is monitored by risk controlling. The former also define contingency plans and nominate responsible persons or departments for initiating the defined actions if losses in fact occur. In addition, several dedicated organizational units provide support to business units for reducing operational risks. An important role in connection with operational risk activities is taken on by Financial Crime Management. Financial Crime Management provides support for the prevention and identification of fraud. The Group also conducts an extensive staff training program and has different contingency plans and backup systems in place.
Other fiduciary liabilities 111,817 75,742 1 Adjustment of the previous year’s figures
Fiduciary income and expenses break down as follows: 1 Adjustment of the previous year’s figures
Future minimum lease payments under non-cancelable operating leases are as follows: More than 1 year, up to 5 years 67,246 51,568
Employees as at reporting date 2016 Monetary values in € thousand
Assets and liabilities with counterparties outside Austria are as follows: Liabilities 82,837,933 71,456,232 1 Adaptations of the previous year’s figures
Shares and other variable-yield securities 464,315 145,484 155,634 56,628 1 Adaptations of the previous year’s figure for equity participations in listed companies
Capital continues to be an integral part of the Group’s control procedures. RBI as an international Group takes various control parameters into consideration.
National regulators can in principle set systemic risk buffers (up to 5 per cent) as well as additional capital add-ons for systemic banks (up to 3.5 per cent). In the event that systemic risk buffers as well as add-ons for systemic banks are determined for a banking institution, only the higher of the two values is applicable. In September 2015, the responsible financial market stability committee of the FMA recommended the requirement of a systemic risk buffer for certain banks, including RBI. This was put into came into force as of the beginning of 2016 in a capital buffer regulation issued by the FMA. The SRB was set at 0.25 per cent for RBI in 2016, was raised to 0.50 per cent from 1 January 2017 on and will progressively increase to 2 per cent by 2019.
Moreover, a countercyclical buffer can also be implemented by national regulators, resulting in a weighted average at the level of RBI aimed at curbing excessive lending growth. This buffer is currently set at 0 per cent for Austria due to restrained lending growth and the stable macroeconomic environment. The buffer rates defined in other member states apply at the level of RBI.
The determination of eligible total capital – including 2017 profit – in accordance with the applicable regulations is based on international accounting standards. Further details can be found in the regulatory disclosure report. The comparable figures as at year-end 2016 correspond to the results published by RBI prior to the merger.
The fully loaded ratios are for information purposes only and are calculated assuming full implementation without taking the transitional provisions into account.
The total capital requirement composition was as follows: Total capital requirement for credit risk 4,811,850 3,907,300
Total capital requirement for position risk in bonds, equities, commodities and open currency positions 276,117 214,060
The leverage ratio is defined in Part 7 of the CRR and is not a mandatory quantitative requirement until 1 January 2018. Therefore, until then it serves for information purposes only.
Raiffeisen Bank International AG, Vienna (AT) IRB n.a. Internal model AMA
In the reporting period, RZB AG was merged into RBI AG. Accordingly, as of that date a parent company ceased to exist. In the previous year’s period, the parent company was Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna.
Provisions for liabilities and charges 0 0 0 0 2016 in € thousand Parent companies Affiliated companies
Share based payments 694 220 1 Adjustment of the previous year’s figures due to deferred bonus payments
Bonus calculation is linked to the achievement of annually agreed objectives. These comprise four or five categories covering specific targets and financial targets adapted to the respective function. These are, for example, profit after tax in a particular segment, return on risk adjusted capital (RORAC), total costs, risk-weighted assets, customer-oriented and employee-oriented targets, as well as process-based, efficiency-based, and infrastructure targets, and if necessary other additional targets. The bonus level is determined by the level of consolidated profit and the cost/income ratio, where the target values to be achieved are derived from the medium-term Group ROE objective. Payment is made according to the applicable regulations of the Austrian
Banking Act (BWG) implemented in the bank’s internal regulations (see employee compensation plans under the section recognition and measurement principles).
An amount of € 1,277 thousand (2016: € 511 thousand) was paid in pension benefits to former members of the Management Board and to their surviving dependants. In addition to these amounts, short-term benefits, deferred bonus components, termination benefits and pro-rata payments from a matured SIP tranche totaling € 3,892 thousand (2016: € 493 thousand) were paid to former members of the Management Board. Up to the termination of their functions at the date of the merger of RZB AG with RBI AG, former members of the Management Board of RZB AG were paid a total of € 2,252 thousand.
The Management Board as at 31 December 2017 was as follows: Members of the Management Board First assignment End of period
Included for the first time in the financial period 4 3
Of the 236 entities in the Group, 124 are domiciled in Austria (2016: 36) and 112 abroad (2016: 70). They comprise 25 banks, 147 financial institutions, 16 companies rendering bank-related ancillary services, ten financial holding companies and 38 other companies.
Adipes Immobilienleasing GmbH & Co. Projekt Bremervörde KG, Frankfurt am Main (DE) 100.0% 1/1 Merger
Adrittura Immobilienleasing GmbH & Co. Projekt Eiching KG, Eschborn (DE) 70.0% 1/1 Merger
Adular Immobilienleasing GmbH & Co. Projekt Rödermark KG, Eschborn (DE) 100.0% 1/1 Merger
Adamas Immobilienleasing GmbH & Co. Projekt Pflegeheim Werdau KG, Eschborn (DE) 100.0% 1/1 Merger
Adiantum Immobilienleasing GmbH & Co. Projekt Schillerhöhe Weimar KG, Eschborn (DE) 6.0% 1/1 Merger
Orestes Immobilienleasing GmbH & Co. Projekt Wiesbaden KG, Eschborn (DE) 6.0% 1/1 Merger
Unterinntaler Raiffeisen-Leasing GmbH & Co KG, Vienna (AT) 100.0% 1/1 Merger
Körlog Logistika Építö és Kivitelezö Korlátolt Feleösségü Társaság, Budapest (HU) 100.0% 1/1 Merger
Raiffeisen-Rent Immobilienprojektentwicklung Gesellschaft m.b.H. Objekt Wallgasse 12 KG, Vienna (AT) 30.0% 1/1 Merger
SCTE Elsö Ingatlanfejlesztö és Ingatlanhasznosító Kft., Budapest (HU) 100.0% 1/1 Merger
Raiffeisen Real Estate Fund, Budapest (HU) 45.8% 31/8 Change in control
Am Hafen" Sutterlüty GmbH & Co KG, Vienna (AT) 50.0% 1/1 Immaterial
RZB Finance (Jersey) IV Limited, St. Helier (JE) 100.0% 30/11 End of operations
Abrawiza Immobilienleasing GmbH & Co. Projekt Fernwald KG, Eschborn (DE) 6.0% 1/1 Immaterial
SCTE Elsö Ingatlanfejlesztö és Ingatlanhasznosító Kft., Budapest (HU) 100.0% 1/1 Immaterial
Because of their minor importance in giving a view of the Group’s assets, financial and earnings position 345 subsidiaries were not included in the consolidated financial statements (2016: 227). They are recognized at cost as interests in affiliated companies, under financial investments, and are assigned to the measurement category available-for-sale. Total assets of the companies not included came to less than 1 per cent of the Group’s aggregate total assets.
Achat Immobilienleasing GmbH & Co. Projekt Hochtaunus-Stift KG, Eschborn (DE) 10,000 EUR 1.0% FI
Acridin Immobilienleasing GmbH & Co. Projekt Marienfeld KG, Eschborn (DE) 5,000 EUR 100.0% FI
Adrittura Immobilienleasing GmbH & Co. Projekt Eiching KG, Eschborn (DE) 5,000 EUR 70.0% OT
AL Taunussteiner Grundstücks-GmbH & Co KG, Eschborn (DE) 10,000 EUR 88.0% FI
Abakus Immobilienleasing GmbH & Co Projekt Leese KG, Eschborn (DE) 5,000 EUR 6.0% FI
Infrastruktur Heilbad Sauerbrunn RBI-Leasing GmbH & Co.KG., Bad Sauerbrunn (AT) 3,511,788 EUR 75.0% FI
Niederösterreichische Landes-Landwirtschaftskammer Errichtungs- und Betriebsgesellschaft m.b.H., Vienna (AT) 36,400 EUR 100.0% FI
Orestes Immobilienleasing GmbH & Co. Projekt Wiesbaden KG, Eschborn (DE) 5,000 EUR 6.0% FI
Raiffeisen banka a.d., Belgrade (RS) 27,466,157,580 RSD 100.0% BA 1 Less own shares 2 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
Raiffeisen-Leasing Gesellschaft m.b.H., Vienna (AT) 363,364 EUR 100.0% FI 1 Less own shares 2 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
Raiffeisen Kapitalanlage-Gesellschaft mit beschränkter Haftung, Vienna (AT) 15,000,000 EUR 100.0% BA
Raiffeisen-Wagramer Straße 120 Projektentwicklungs GmbH, Vienna (AT) 35,000 EUR 100.0% OT
RLX Dvorak S.A., Luxembourg (LU) 31,000 EUR 100.0% OT 1 Less own shares 2 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
ZHS Office- & Facilitymanagement GmbH, Vienna (AT) 36,336 EUR 98.6% BR 1 Less own shares 2 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
A structured entity often has some or all of the following features or attributes:  Restricted activities;  A narrow and well defined objective;  Insufficient equity to permit the structured entity to finance its activities without subordinated financial support;  Financing in the form of the issue of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).
Below is a description of the Group’s involvements in non-consolidated structured entities by type.
The maximum exposure to loss is determined by considering the nature of the interest in the non-consolidated structured entity. The maximum exposure for loans and trading instruments is reflected by their carrying amounts in the consolidated statement of financial position. The maximum exposure for derivatives and instruments off the statement of financial position such as guarantees, liquidity facilities and loan commitments under IFRS 12, as interpreted by the Group, is reflected by the notional amounts. Such amounts do not reflect the economic risks faced by the Group because they do not take into account the effects of collateral or hedges or the probability of such losses being incurred. At 31 December 2017, the notional values of derivatives and instruments off the statement of financial position were € 25,975 thousand (2016: € 27,822 thousand) and € 61,793 thousand (2016: € 95,292 thousand) respectively. Information on the size of structured entities is not always publicly available therefore the Group has determined that its exposure is an appropriate guide to size.
As a sponsor, the Group is often involved in the legal set up and marketing of the entity and supports the entity in different ways such as providing operational support to ensure the entity’s continued operation. The Group is also deemed a sponsor for a structured entity if market participants would reasonably associate the entity with the Group. Additionally, the use of the Raiffeisen name for the structured entity often indicates that the Group has acted as a sponsor. The gross proceeds from sponsored entities for the year ending 31 December 2017 amounted to € 197,987 thousand (2016: € 18,197 thousand). No assets were transferred to sponsored non-consolidated structured entities in 2017 or 2016.
UNIQA Insurance Group AG, Vienna (AT) 309,000,000 EUR 10.9% VV 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
Abutilon Immobilienleasing GmbH & Co. Projekt Autohof Ibbenbüren KG, Eschborn (DE) 5,000 EUR 6.0% FI
Am Hafen" Sutterlüty GmbH & Co KG, Vienna (AT) 100,000 EUR 50.0% FI
BUXUS Handels- und Beteiligungs GmbH in Liqu., Vienna (AT) 35,000 EUR 100.0% OT
CP Logistikcenter Errichtungs- und Verwaltungs GmbH, Vienna (AT) 37,000 EUR 100.0% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
Hestia Property, s.r.o., Prague (CZ) 50,000 CZK 100.0% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
Eastern European Invest Holding GmbH in Liqu., Vienna (AT) 35,000 EUR 100.0% OT
OCTANOS Raiffeisen Immobilien Leasing Ges.m.b.H., Vienna (AT) 36,400 EUR 50.0% FI
R MORMO IMMOBILIEN LINIE S.R.L., Bucharest (RO) 50,000 RON 1.0% FI
Raiffeisen Financial Services Polska Sp. z o.o., Warsaw (PL) 4,657,500 PLN 100.0% FI
Raiffeisen Salzburg Invest Kapitalanlage GmbH, Salzburg (AT) 2,600,000 EUR 75.0% BA
RBM Wohnbau Ges.m.b.H., Vienna (AT) 37,000 EUR 100.0% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
Realplan Alpha Liegenschaftsverwaltung Gesellschaft m.b.H., Vienna (AT) 36,336 EUR 100.0% OT
Belarussian currency and stock exchange JSC, Minsk (BY) 9,006,584 BYN <0,1% OT
CJSC Truskavets Valeological Innovative Centre, Truskavets (UA) 100,000 UAH 5.0% OT
PJSC Settlement Center for Servicing of Contracts in Financial Markets, Kyiv (UA) 206,700,000 UAH <0.1% FI
R LUX IMMOBILIEN LINIE S.R.L., Timisoara (RO) 50,000 RON 1.0% FI
Raiffeisen Rehazentrum Schruns Immobilienleasing GmbH, Vienna (AT) 36,400 EUR 50.0% FI
Society for Worldwide Interbank Financial Telekommunication scrl, La Hulpe (BE) 13,767,125 EUR 0.5% FI
Tiroler Landesprojekte Grundverwertungs GmbH, Innsbruck (AT) 39,000 EUR 33.3% FI 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, VV Insurance,
Steirische Leasing für öffentliche Bauten Ges.m.b.H., Graz (AT) 36,336 EUR 50.0% FI
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 an interest rate curve which consists of money market rates, future rates and swap rates. Option price formulas Black-Scholes 1972, Black 1976 or Garman-Kohlhagen are applied depending on the kind of option. The measurement for complex options is based on a binominal tree model and Monte Carlo simulations. Derivative financial instruments held-for-trading are shown under the item 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 derivatives. Any liabilities from the shortselling of securities are shown in trading liabilities.
This category comprises mainly all those financial assets that are irrevocably designated as financial instruments at fair value (socalled fair value option) upon initial recognition in the statement of financial position independent of any intention to trade. An entity may use this designation only when doing so results in more relevant information for the user of the financial statements. This
is the case for those financial assets, which belong to a portfolio, which is managed and its performance evaluated on a fair value basis.
Financial liabilities are also designated as financial instruments at fair value, to avoid valuation discrepancies with related derivatives. The fair value of financial obligations under the fair value option in this category reflects all market risk factors, including those related to the credit risk of the issuer.
Non-derivative financial assets (securities with fixed or determinable payments and a fixed maturity) purchased with the intention and ability to hold them to maturity are reported under the item financial investments. They are recognized at amortized cost and differences are amortized over the term to maturity and recognized in the income statement under net interest income. If impairment occurs, it is taken into account when determining the amortized cost and shown in net income from financial investments. Coupon payments are recognized under net interest income. A sale of these financial instruments is only allowed in certain cases explicitly stated in IAS 39.
Non-derivative financial assets with fixed or determinable payment entitlements for which there is no active market are allocated to this category. These financial instruments are mainly recorded in the items loans and advances to banks and loans and advances to customers. Moreover, loans and advances relating to finance lease business, which are recognized in accordance with IAS 17, are stated in the items loans and advances to banks and loans and advances to customers.
They are measured at amortized cost. If there is a difference between the amount paid and face value – and this has an interest character – the effective interest method is used and the amount is stated under net interest income. If impairment occurs it is taken account of when determining the amortized cost. Impairment provisions and provisions for losses that have occurred but have not yet been recognized are reported in the statement of financial position under the item impairment losses on loans and advances. Profits from the sale of impaired loans are recognized in the income statement in the item net provisioning for impairment losses.
The Group derecognizes a financial liability if the obligations of the Group have been paid, expired or revoked. The income or expense from the repurchase of own liabilities is shown in the notes under (6) Net income from derivatives and liabilities. The repurchase of own bonds also falls under derecognition of financial liabilities. Differences on repurchase between the carrying value of the liability (including premiums and discounts) and the purchase price are reported in the income statement in net income from derivatives and liabilities.
In accordance with IAS 39.50, non-derivative financial instruments classified as trading assets and available-for-sale financial instruments can be reclassified as financial assets held-to-maturity and loans and advances in exceptional circumstances. The effects resulting from such reclassifications are shown in the notes under (19) Financial investments.
Where the borrower and lender are the same, offsetting of loans and liabilities with matching maturities and currencies occurs only if a legal right, by contract or otherwise, exists and offsetting is in line with the actually expected course of the business. Information on offsetting of financial instruments is provided in the notes under (38) Offsetting financial assets and liabilities.
Credit derivatives, the value of which is dependent on future specified credit (non-)events are shown at fair value under the item derivatives (positive fair values under assets and negative fair values under liabilities). Changes in valuation are recognized under net income from derivatives and liabilities.
Hedge accounting according to IAS 39 applies to those derivatives that are used to hedge the fair values of financial assets and liabilities. The credit business is especially subject to such fair value risks if it deals with fixed-interest loans. Interest rate swaps that satisfy the prerequisites for hedge accounting are contracted to hedge against the interest-rate risks arising from individual loans or refinancing. Thus, hedges are formally documented, continuously assessed, and tested to be highly effective. Throughout the term of a hedge it can therefore be assumed that changes in the fair value of a hedged item will be nearly completely offset by a change in the fair value of the hedging instrument and that the actual effectiveness outcome will lie within a band of 80 to 125 per cent.
Cash flow hedge accounting according to IAS 39 applies for those derivatives that are used to hedge against the risk of fluctuating future cash flows. Variable-interest loans and liabilities, as well as expected transactions such as expected borrowing or investment, are especially subject to such cash flow risks. Interest rate swaps used to hedge against the risk of fluctuating cash flows arising from specific variable interest-rate items are recognized as follows: The hedging instrument is recognized at fair value, changes in its clean price are recorded in other comprehensive income. Any ineffective portion is recognized in the income statement in net income from derivatives and liabilities.
c. Hedge of a net investment in an economically independent operation (capital hedge)
The effective interest rate method is a method of calculating the amortized cost of a financial instrument and allocating interest expenses and interest income to the relevant periods. The effective interest rate is the interest rate used to discount the forecast future cash inflows and outflows (including all fees which form part of the effective interest rate, transaction costs and other premiums and discounts) over the expected term of the financial instrument or a shorter period, where applicable, to arrive at the net carrying amount from initial recognition.
Under reverse repurchase agreements, assets are acquired with the obligation to sell them in the future. The purchased securities on which the financial transaction is based are not reported in the statement of financial position and accordingly not measured. Cash outflows arising from reverse repurchase agreements are recorded in the statement of financial position under the item loans and advances to banks or loans and advances to customers.
Credit risk is accounted for by forming individual loan loss provisions and portfolio-based loan loss provisions. The latter comprise impairment provisions for portfolios of loans with the same risk profiles that are formed under certain conditions for IBNR losses (incurred but not reported). This involves cases where there is not yet any objective evidence of an individual impairment of a financial asset and for this reason groups of financial assets with a similar default risk profile are collectively examined for impairment. The underlying rating models for corporate customers are distinguished between corporate large and corporate regular as well as SME large and SME regular. Moreover, portfolios for which the financial institutions or project finance rating models are applied are separately evaluated. A Group-wide uniform approach is in place for calculation of portfolio-based provisions in that centrally calculated historical Group default rates (Group HDRs) for each rating class are evaluated and applied. These Group HDRs show the average actually observed probability of default over the last five years. In the retail segment, with the exception of one Group unit where the amount of the portfolio impairment is calculated according to product portfolio and past due days, provisions are formed using a PD/LGD-based calculation (probability of default/loss given default). Individual and portfoliobased impairment provisions are not netted against corresponding receivables but are stated separately in the statement of financial position.
An operating lease exists when the risks and rewards of ownership remain with the lessor. The leased assets are allocated to the Group under the item 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 spread on a straight-line basis over the term of the leasing contract and reported in other net operating income. Expenses for operating leases are generally amortized on a straight-line basis over the term of the leasing contract and reported as administrative expenses.
 Another investor has control over the equity participation due to its possibility to appoint and withdraw the majority of members of the Board or members of an equivalent governing body,
 Another investor has control over the entity due to its possibility to possess the majority of the delivered voting rights in a meeting of members of the Board or of members an equivalent governing body.
The acquisition cost of these investments including goodwill is determined at the time of their initial consolidation, applying by analogy the same rules as for subsidiaries (offsetting acquisition costs against proportional fair net asset value). If associated companies are material, appropriate adjustments are made to the carrying value in the accounts, in accordance with developments in the company’s equity. Profit or losses of companies valued at equity are netted and recognized in the item current income from associates. Losses attributable to companies accounted for using the equity method are only recognised up to the level of the carrying value. Losses in excess of this amount are not recognised, since there is no obligation to offset excess losses. Further, any amounts recognised by the associate through other comprehensive income will be recognised in the other comprehensive Income statement of RBI. This is especially relevant for valuation effects seen from financial assets available-for-sale.