Publisher: Raiffeisen International Bank-Holding AG Editor: Investor Relations Editorial deadline: 8 March 2006
Consulting and support: BCA Mensalia Graphic concept and design: Büro X Wien Printer: Druckerei Holzhausen Place of production: Vienna
Investor relations contact Public relations contact E-mail: investor.relations@ri.co.at E-mail: ri-communications@ri.co.at Internet: www.ri.co.at p Investor Relations Internet: www.ri.co.at p Public Relations Telephone: +43-1-717 07-2089 Telephone: +43-1-717 07-1504
You will find the online version of the annual report at ar2005.ri.co.at. (The original German version of the report is available at gb2005.ri.co.at.)
Return on equity (ROE) after tax 17.6% 0.0 PP 17.6% 19.8% 15.4%
Group Management Report General economic environment 55 Banking sector development in CEE 57 Business trend in 2005 59 Summary of consolidated performance 60 Balance sheet development 68 Development of equity 70 Risk management 72 Operations and IT 74 Human resources 76 Outlook for 2006 79 Events after the balance sheet date 80
Consolidated Financial Statements Income statement 94 Profit development 95 Balance sheet 96 Statement of changes in equity 97 Cash flow statement 99 Notes 101 Unqualified auditor’s certificate 161 List of fully consolidated companies 162
Królewski Trakt – or the King’s Trail – brings green into the city as well as cutting through it like a knife. Walking along the King’s Trail, you pass through centuries of densely packed cultural history. In L/azienki Park, adjoining the trail, you will encounter artificial lakes, pavilions, bridges, waterfalls and sculptures, including the statue of composer Frederick Chopin, who was born near Warsaw. Close by, concerts are held each summer Sunday at around noon. Do not miss this unique opportunity to experience a parkscape in the style of French absolutism directly alongside an English landscape garden and to compare the two. The ageold contrast between nature’s freedom and the ideas of a totalitarian state is to be seen here in its most agreeable form in horticultural art. Having arrived in the Old Town, rebuilt after 1945, it is traditional to fortify oneself in the winiarnia Fukierowska wine tavern, which is already 300 years old.
The Manduševac Fountain – shrouded in legend – is the best place to begin your tour of the old town. Throwing a coin into the fountain is said to bring luck.
7 A historic place On Ćirila i Metoda street, at No. 8, you will see the stone head of a man gazing fixedly at St. Mark’s Church. A lot of legends have grown up around him.
Bucharest, Romania 1 Breakfast To re-enter a dream world when you have only just got up, let the fresh hot apple pie with ice cream melt in your mouth at the Cremcaffé. It’s next to the university at Strada Toma Caragiu 3 2 Astonishing The Palace of the People (Casa Poporului ) was built by the communist dictator Nicolae Ceaus̨escu. It is the world’s second -largest building after the Pentagon. It is a monstrous witness to recent history. Strada Izvor 2– 4 3 Excursion The epitome of romantic scenery – an old monastery on an island in the middle of a lake – is provided by Snagov, just 25 miles north of Bucharest. This is where Count Dracula is said to lie in his grave ... until midnight, that is.
4 Sport Physical regeneration on a Sunday can mean many things. Lying-in, say. Or just the opposite, namely visiting the World Class Health Academy Fitness Club in the Marriott Grand Hotel. Calea 13 Septembrie 90 5 Lunch The Casa Doina has long been spoiling its guests with its consistently superb quality. The waiters are as charming as they are elegant. This is where the cream of Bucharest society comes to eat. And how right they are! S̨os. Kiseleff 4 6 A walk Visit the Village Museum to stroll among 50 old buildings from all over Romania collected together in an area of 37 acres. Circle the museum on foot to discover churches, mills and farmhouses. S̨os. Kiseleff 28–30 7 Evening The Embryo Club is as young as its name suggests. This is a place where fashion is reborn every day. The ambience is defined by up-to-the-minute design. The most fashionable DJs and VJs play here.
Karlův most 3 Sunday breakfast The Slavia café and restaurant opposite the National Theatre is not just popular with actors and writers. Václav Havel also comes here to savour his wild strawberry flapjack.
Prague, Czech Republic 5 Humour Society in miniature – observed with charming acerbity, as it were through a pocket looking glass – performs in the evening at the Spejbl and Hurvínek puppet theatre.
www.spejbl-hurvinek.cz 6 Bibliophilia Prague is a city of literature and the love of books. If you have already been to the Kafka Museum, visit the Prague Museum of Czech Literature.
Strahovské nádvoří 1 7 Fine weather Žluté láznìě on the Vltava is the ideal place to swim, sunbathe, play beach volleyball or enjoy a cool Pils in one of the many beer gardens.
4 Taking a bath A visit to the thermal springs at Ilidža for an extensive bathe is a very popular pastime in Sarajevo. The River Bosna rises in the nearby park.
www.terme-ilidza.ba 5 Corso In every city, the desire to see and be seen tends to be manifested on one particular street. In Sarajevo, that street is Ferhadija – and one can also stop off at the Escobar Café.
6 Lunch They say that one hasn’t really visited Sarajevo until one has tried the famous cevapcici at Željo’s. It’s true. Ćevabdžinica Željo, Kundurdžiluk 19 7 Sport The lightness of badminton goes well with Sunday. And if that’s too lightweight for you, grab a bowling ball. Regardless of your preference, changing your mind is always an option at the Zetra Olympic Arena.
Ploshtad Sveta Nedelya 2 3 Cinema Cinema-goers who like to watch films in their original language will be especially enthusiastic about the small Odeon cinema in the city centre. Bul. Patriarh Evtimii 1 4 Day trip The imposing 10th century Rila Monastery some 60 miles south of Sofia is a UNESCO World Heritage Site. It is located in the wonderful landscape of the Rila National Park.
Each of these mini-guides to the cities that are both metropolises and Raiffeisen centres begins with a brief portrait of the locality. The surveys here are purely subjective – but it is often a detail that says most about the special charm of a place.
These are the city’s landmarks. They aid recognition and, if they are tall enough, can also help you find your bearings. Clichés simplify complex environments and reinforce one’s memory.
At the bottom of each page, we have added special inside information from the Raiffeisen International employees who live and work on the spot, sharing with you their observations and their most memorable experiences in the city.
You’re doing business and rushing from one appointment to the next in Eastern Europe – and you finally have a few hours to spare or even a whole day off. What now? Where are the nicest places to go – but off the beaten tourist track? Where can you eat traditional food with the locals? Where can you take it easy with newly acquired friends? Our colleagues have long since found the answers and are delighted to be able to share their experience and knowledge with you. And not just about a country’s distinctive features. What they can also tell you is how to turn a free Sunday into an unforgettable day off.
Fear not if you meet a dragon on your Sunday walk through town! It is merely guarding its bridge as the heraldic animal of the city of Ljubljana, whose name is said to come from the word ljubljena, or “beloved” – and this really is an endearing place with its mixture of old-Austrian and Italian flair. Evidence has been found of a first settlement 4,000 years ago. Latin, Slav and German cultures have interlaced here to create a scenario replete with equal amounts of historical profundity and charming southern lightness. Both the city’s numerous Art Nouveau buildings and the early modern architecture of Jože Plečnik – a pupil of Otto Wagner – contribute greatly to that impression. Jože Plečnik enjoyed his first successes in Prague and Vienna before starting to transform his native city in 1925. Plečnik’s most important works included the National Library and the University Library, the riverfront improvements along the Ljubljanica and the Tromostovje bridge. The Main Square, Prešernov trg, is to the north of the bridge. From there, you can walk on to the university, founded in 1595.
Ljubljana, Slovenia 1 Must-see The Ljubljana Grad fortress is the city’s most famous landmark. A 3D exhibition will tell you everything about its history, right back to its ancient roots. Študentovska ulica 2 Breakfast The Le Petit Café next to the Križanke concert hall is famous not just for its café latte but also for its beautiful terrace shaded by mature trees. This is the ideal place for Sunday breakfast.
Knafljev prehod 1 7 Excursion In the warmer months, we can recommend a trip to Lake Bled. This Alpine lake nests in a deep valley. The church on the island is a traditional place to make marriage proposals. www.bled.si 8 Raiffeisen International Raiffeisen Krekova banka d.d. 13 outlets; Head Office in Ljubljana: Financni center Tivoli 1000 Ljubljana Phone: +386-1-475 7800 Fax: +386-1-475 7809 www.r-kb.si
Sheshi Avni Rustemi 4 Delicate The elegantly curved Ottoman Ura e Tabakeve stone bridge was built in the 18th century. It leads across the Lana creek to the Merchants’ Quarter. Bulevardi Zhan D’Arc 5 History The National Museum covers Albanian history since the time of the Illyrians. The many archaeological finds are particularly impressive. Sheshi Skenderbej 6 Evenings Let the relaxing atmosphere at the Ujvara envelop you. Quiet music plays in the background and superb cuisine dominates in the foreground. Rruga Gjin Bue Shpata 7 Nightlife The Living Room is by far the coolest bar in the city. Recover from a hot day in its roof level lounge as you enjoy the pleasant refreshing breeze and a cold drink.
Rruga Punëtorët e Rilindjes 16 8 Raiffeisen International Raiffeisen Bank Sh.a.
4 Beach pleasures Ukraine’s Ibiza is called Hydro Park. Nocturnal revellers can also enjoy summer beach activities on the banks of the Dnieper. The many cafés and restaurants feature live music in the evening. 10, Peredimska Sloboda Vul.
8 Raiffeisen International JSCB Raiffeisenbank Ukraine 39 outlets, www.rbua.com; Head Office: 43, Zhylyanska Vul., 01033 Kiev
3 Lunch The Suri is exactly the place to go to treat your palate at the same time as escaping from the tourist rush. This restaurant combines excellent traditional cooking with a very pleasant atmosphere. Nebojšina 41 4 Museum The world’s only Nikola Tesla Museum is devoted exclusively to the pioneer of electrical engineering. Tension is high as blue lightning flashes through the glass flasks.
2 Must-see The Smolensky Cathedral in the Novodevichy Convent impresses the visitor with its magnificent 16th century frescos and wonderful icons.
Olympiysky prospekt, 15 5 Local cuisine The Sudar serves original Russian cuisine in elegant surroundings. Traditionally, one also orders vodka and snacks. Kutuzovsky prospekt, 36 6 Flea market The Old Arbat is a pedestrian zone and popular flea market. It is the ideal place to find an original souvenir.
Unlike many other cities, Pristina does not impress one with the beauties of its past. Its main attraction is the interesting nature of its present. Few places have been transformed as quickly. The pace of change is apparent wherever you go. Not long ago, Pristina was a slightly larger-than-small town. Then a zone of protection was set up after the expulsion of the Albanians, and not just homecomers but also many people who had previously lived elsewhere began to settle there. Consequently, the city has grown at an explosive speed. There has been no time to implement an urban development plan, and money has often been too short to put up anything but the shells of buildings. Numerous mosques financed by Arab sources can be seen rising between the new buildings. Nobody knows what the present population of Pristina is, with estimates ranging between 600,000 and a million. It is chaos, but abounding in creativity. Among all this, you can still find a place of orderliness and peace, namely the Museum of Archaeology, which houses the fragments of this remarkable city’s complex past.
29 outlets; Head Office: Rruga UC̨K 51, Pristina Phone: +381-38-226 400 Fax: +381-38-244 193 www.raiffeisen-kosovo.com
Minsk, Belarus 1 An exceptional experience Despite its disagreeable subject matter – World War II – the Museum of the Great Patriotic War is well worth visiting. Its gloomy exhibition halls in Soviet style house a moving collection of documents. www.warmuseum.by 2 Movement The Olimp Palace of Water Sports is a glass complex flooded with bluish light. If you are lucky, you may spot an Olympian in training in the gymnasium or the racing pool.
Ul. Surganova 2v 4 Culture The Opera and Ballet Theatre – a gigantic building from the Stalin era – is currently being renovated. Performances are therefore taking place in the Palace of the Republic. www.balet.by 5 Restaurant Rakovsky Brovar does its own brewing. Food is cooked according to old traditions. Order some Kvas, the national beverage, to wash down your potato pancake and sour cream.
www.brovar.by 6 Spending money GUM, the city’s most well-known department store, is the place to find the best Belarussian products and branded articles from the West. Prospect Nezavisimosty 21 7 Entertainment This unusual building offers a variety of attractions. Bowling, a discotheque, shows and a bar are all combined in the Madison Club to create a perfect Sunday out.
1 Cosmopolitan The atmosphere is urban and the choice of breakfasts and newspapers is international. So Sunday is best begun in the Szpilka café and bar.
Pl. Trzech Krzyży 18 2 Devotion The Catholic Church of St. Anna is very popular with students. Go to Sunday mass to share in the authenticity and living faith that are typical here. Kościóĺ s̀więtej Anny, Ul. Krakowskie Przedmieście 68 3 Shop ‘til you drop Early risers can find some remarkable treasures at the antique market in Warsaw’s Kola quarter. The market closes at 2 pm.
A magnificent avenue of truly imperial format lined with parks stretches between the Royal Castle in the centre and the Summer Palace on the edge of Warsaw.
5 Cosy and unsophisticated The menu is a collection of all the traditional Polish dishes, and the wooden decor of the Folk Gospoda matches it. Customers have a choice of dumplings, cabbage and mushrooms.
www.teatrwielki.pl 7 Evenings Nights can be pretty long at Foksal 19. The musicians and DJs only play quietly on the ground floor, because that is where people eat. The guests – and the noise – then head upstairs for dancing. www.foksal19.pl 8 Raiffeisen International Raiffeisen Bank Polska S.A. 83 outlets; Head Office: Ul. Piętkna 20, 00-549 Warszawa Phone: +48-22-585 2000 Fax: +48-22-585 2585 www.raiffeisen.pl
www.cafeslavia.cz 4 Beer museum There is a vivid exhibition of the history of beer-making at the former U Fleků malthouse. Don’t worry! You’ll get a chance to have a drink or two when the guided tour is over.
5 Humour Society in miniature – observed with charming acerbity, as it were through a pocket looking glass – performs in the evening at the Spejbl and Hurvínek puppet theatre.
8 Raiffeisen International Raiffeisenbank a.s. 50 outlets; Head Office: Phone: +420-221-141 111 Fax: +420-221-142 111 www.rb.cz
Mýtna ulica 1 2 UFO Novy Most – the “New Bridge” over the Danube – is not just a prominent city landmark. Its UFO-shaped tower café also offers visitors one of the best allround views of Bratislava.
www.presporacik.sk 4 Sport Bratislava’s big shopping centres are also an attraction for sports fans. For instance, you can ice skate or even swim in the Aupark mall. Unfortunately, power shopping has yet to become a recognized sport. Aquapark Aulandia, www.aulandia.sk
5 The river Ships wait moored on the banks of the Danube to take the visitor on a brief ride. A path leads along the river bank. It is particularly popular with young people looking for recreation on a sunny Sunday.
www.hotelgellert.hu 3 Representation The Parliament building is 293 yards long. It is not just Budapest’s longest building. It is also one of Hungary’s most impressive. Its neo-Gothic facade graces the Danube bank.
99 outlets; Head Office: Akadémia útca 6 1054 Budapest Phone: +36-1-484 4400 Fax: +36-1-484 4444 www.raiffeisen.hu
5 Lunch Pri Kovaču serves excellent local food combined with wines from the various regions of Slovenia.
www.kovac-co.si 6 Nightlife There are a wealth of restaurants and bars along the banks of the river. The atmosphere in the Cutty Sark Pub is rustic. Enjoy sophisticated drinks among rough timber beams, bricks and old adverts.
Sunday may well be a day to lie-in – but you won’t be able to sleep beyond noon in Zagreb. For over a 100 years, it has been traditional for a cannon shot to be fired out of the highest window in the mediaeval Lotrščak Tower. It is no reason to panic, but it is a good reason to get up because Zagreb is an ancient city full of sights. In fact, a fairly early start is advisable if you want to explore them. Head for Ban Josip Jelačić Square for breakfast in the sun at one of the busy street cafés. A look around the square will take you through 200 years of history manifested in a diversity of architectural styles from classicism to secessionism to modernism.
Zagreb, Croatia 1 Art The pillared rotunda housing the Croatian Art Complex is an early modernistic building. It is immediately apparent that its architect, Ivan Meštrović, was a sculptor.
Trga kralja Tomislava 22 2 Inspiration The Stone Gate is a monument to many epochs of history. This is said to be the site of both religious miracles and profound poetic inspiration. Kamenita 3 3 Museum The Museum of Naive Art houses 1,600 masterpieces. Croatia is world-famous for this 20th century art movement. The museum is only open until 1 pm on Sundays. www.hmnu.org 4 Going for a meal Ribarski Brevijar is the favourite restaurant of many locals. It serves excellent food at affordable prices, and it is a very cozy place to sit.
Walking through Sarajevo, you will tend to find yourself straying off your path in the nicest possible way as your nose follows the sweet scents that tempt it every few yards along your route. Just obey their saccharine call and let it lead you into one of the city’s many small cafés. You will be astonished at the immense variety of fragrant enticements: apple pies, cakes, apples stuffed with walnuts (tufahija), baklava, ice cream and a raft of frothy creations with and without a chocolate coating, not to mention numerous shapes and consistencies of confectionery whose correct names are known only to local connoisseurs. You will probably have a final spell of prudent resistance to the attack on your waistline when you arrive at the sweets counter. Ignore it! After all, sweet things are sweeter in Sarajevo than anywhere else. It won’t matter just this once. Sumptuous though the transgression may be, it will not necessarily mean that you are the victim of an incurably sweet tooth. The only problem with all the cakes is choosing one. Don’t try to try them all. You will be doomed to failure.
Sarajevo Bosnia and Herzegovina 1 Underground Who can claim to have been in a tunnel museum? The tunnel was the city’s lifeline during the siege. The War Tunnel Museum is open from 9 am to 5 pm on Sundays.
4 Taking a bath A visit to the thermal springs at Ilidža for an extensive bathe is a very popular pastime in Sarajevo. The River Bosna rises in the nearby park. www.terme-ilidza.ba
5 Corso In every city, the desire to see and be seen tends to be manifested on one particular street. In Sarajevo, that street is Ferhadija – and one can also stop off at the Escobar Café.
They like taking to the skies in Belgrade. The best way to survey the city is indeed from a bird’s-eye point of view. You can book a balloon flight over the city for about 100 euros in the warmer months of the year: Log on to www.beobalon.org. Or if you don’t have a good head for heights, visit the round Air Museum instead of taking an aerial round trip. This astonishing doughnut-shaped structure was built in 1980. It has an outer skin of 1,250 mirrored panes of glass. How they are cleaned remains as much a mystery as the UFOs to which its visionary architecture pays tribute. Inside, besides coming face-to-face with aliens, one is also told about Ikarus, which was the name of the first Serbian aircraft manufacturer. The earliest locally built aircraft took to the skies as early as 1910, just seven years after the Wright brothers. The first half of the 20th century was a proud era for the Serbian aviation industry. Now, these old birds in all their peculiar forms hover through this glassy museum, documenting a long history from Ikarus to the captive balloon to the flying saucer and back.
45 outlets; Head Office: Bulevar AVNOJ-a 64a 11070 Novi Beograd Phone: +381-11-320 2100 Fax: +381-11-220 7080 www.raiffeisenbank.co.yu
2 Experiencing nature Our Sunday excursion takes us to the Sharri-Brezovica ski area, some 45 miles away. In the summer, the mountain invites the walker to ramble past its many wells. In the winter, its 14 pistes are a magnet to skiers.
3 Museum The National Gallery holds exhibitions of both Kosovar and international artists. This is also a place to discover exciting work by the younger generation. Rruga Lidhja e Prizrenit 60 4 Lunch Excellent Kosovar specialities served in an informal atmosphere are to be found at Tiffany’s.
People have always striven to get a better view, whether by climbing a mountain, building a tower or putting up some modern high-tech complex. The city of Tirana is pretty chaotic, but at the same time, there are a number of particularly delightful ways of getting an overview. Who can claim to have climbed to the top of a minaret? A unique opportunity not to be missed in Tirana is a visit to the Et’hem Bey mosque on Skanderbeg Square. One takes one’s shoes off at the entrance to face the sporting challenge of a dark and steep stairway, finally – and hopefully without suffering an attack of vertigo – emerging on a balcony that is just 16 inches wide. A heavenly panorama is the reward for one’s effort. One can also enjoy the panorama of Tirana totally effortlessly in suspended weightlessness from the cablecar opened in 2005. To do so, one steps into one of the stylishly designed gondolas at the Institute of Nuclear Physics to fly across the city with no more than a quiet whirr. The journey ends 15 minutes and two and a half miles later, and from there you can raise your eyes even further to the peak of Mount Dajti. The city looks completely different again when viewed from this distance, surrounded by the natural beauty of the National Park.
Tirana, Albania 1 The morning The Patisserie Française will serve you a very sophisticated breakfast in true Parisian fashion, complete with excellent pastries and fine cakes.
A visitor to Bucharest will encounter art and culture wherever he or she goes, including not just museums but also the Stavropoleos Church, where one can admire iconic portraits of saints hanging above oriental arches while listening in on Byzantine music. Visiting the National Museum is a must – even if compulsion does not go well with Sunday. Romanian artists like Brâncusi, poets like Ionescu and philosophers like Eliade made key contributions to the modern age. Numerous different interpretations of artistic history are to be found under one roof in the Museum of Art Collections in the former Romanit Palace, which houses private Romanian collections. Bucharest’s gallery landscape is also many-faceted. The website at www.bucharest-guide.com provides an excellent overview of the city’s artistic attractions. There are many small museums dealing with every possible subject, providing something for everyone. It is not least up to the visitor to decide what is a museum and what isn’t – as the experienced architecture enthusiast will discover while exploring “Little Paris”, which is what Bucharest used to be called in the period between the two World Wars. And if you are not interested in art, there is an alternative, namely the Sports Museum.
5 Lunch The Casa Doina has long been spoiling its guests with its consistently superb quality. The waiters are as charming as they are elegant. This is where the cream of Bucharest society comes to eat. And how right they are! S̨os. Kiseleff 4 6 A walk Visit the Village Museum to stroll among 50 old buildings from all over Romania collected together in an area of 37 acres. Circle the museum on foot to discover churches, mills and farmhouses. S̨os. Kiseleff 28–30 7 Evening The Embryo Club is as young as its name suggests. This is a place where fashion is reborn every day. The ambience is defined by up-to-the-minute design. The most fashionable DJs and VJs play here.
8 Raiffeisen International Raiffeisen Bank S.A. 216 outlets; Head Office: Piaţa Charles de Gaulle 15 011857 Bucures,ti 3 Phone: +40-21-306 1000 Fax: +40-21-230 0700 www.raiffeisen.ro
Bulgaria is a realm of water boasting over 500 mineral springs – and Sofia is its heart. The springs and wells are among the city’s most important attractions. They are above all to be found in the old town and in the Bankia and Kniazevo districts. Sofia was already famous far and wide for its hot and cold mineral waters in antiquity. Their healing powers were known long before there was any scientific explanation for them. Fortunately, one doesn’t have to be ill to appreciate the refreshing and invigorating effect of these waters. The impressive variety of the different waters rising from the depths of the earth is reflected in Sofia’s cityscape in the form of the correspondingly imaginative shapes of its fountains. Sculptural and architectural creations both archaic and modern give each well its own special meaning. And the waters are not just good for bathing in. As their high consumption of mineral waters proves, Bulgarians are pretty addicted to the treasure that gushes forth from their soil.
The motionless old gentleman is to be encountered in 68 variants. Today’s Moscow pulsates energetically between them at breakneck speed. This is a city of contrasts. The fresh fascination of consumption is a glittering counterpoint to the sparse grey background of the past. This abundance of disparity makes Moscow one of the world’s most exciting and lively cities. The modern artistic and cultural scene is wild and bold. The night belongs to the DJs and electronic music. If you want a taxi, just step out onto the road. A private car will soon stop and take you wherever you want to go for very little money. Or descend into the Metro to find yourself in a cultural monument that dates back to the year 1935. Since the end of the 19th century, Muscovites have done their shopping in the GUM, which translates into State Universal Store.
5 Local cuisine The Sudar serves original Russian cuisine in elegant surroundings. Traditionally, one also orders vodka and snacks. Kutuzovsky prospekt, 36 6 Flea market The Old Arbat is a pedestrian zone and popular flea market. It is the ideal place to find an original souvenir.
7 Nightlife First is the place to go when night falls in Moscow. Highly critical door stewards uphold fashion and style, so do some shopping beforehand! And then it’s time to party.
Breakfast at your hotel may be substantial, international and delicious – not to mention already paid for – but it’s worth going without and sampling the unknown on a Sunday. If you’re staying at the Minsk Hotel, all you need to do is walk across the road and look around for a while until you find a tiny café called Kubik, or cube. The melodious bell at the door is a harbinger of the unique atmosphere inside. Having first paid at the desk, you can savour not just excellent cakes but also teas of every kind. An infuser containing various herbs is placed on the tea cup and left to draw for a longer or shorter period, as preferred, to allow the flavours to develop. Tea is almost a religion here. You might indeed think that this is a country of tea-drinkers, but very tasty beer and world-famous vodka are also made in Belarus. To find the latter, stick hard on the heels of a local and watch where he or she goes. And if you are looking for something traditional and folksy, remember the name Kvas. This is the bitter and refreshing drink that all Belarussians pine for when far from home.
Ul. Surganova 2v 4 Culture The Opera and Ballet Theatre – a gigantic building from the Stalin era – is currently being renovated. Performances are therefore taking place in the Palace of the Republic. www.balet.by
Kiev – the Ukrainian capital – is considered to be the cradle of Russia. The best way to start one’s Sunday is to take a walk through the city. Kreshchatik, Kiev’s main street, is closed to traffic at the weekend and becomes a promenade where one can immerse oneself in the city’s social life. From there, one’s steps take one upwards to Kiev’s most beautiful orthodox cathedral on Mikhailovskaya Square. One can then ride an attractive little cable railway down the hill. Sagaidachnogo Street is well worth a visit – and you must definitely take in Andriyivsky Uzviz, which is Kiev’s steepest street. Here, you will often come across markets and festivals, can buy Ukrainian craft products, and will find any number of art galleries, studios, souvenir shops and, not least, cultural history museums that give one a profound insight into the history not just of this legendary street but also of Kiev as a whole.
Kiev, Ukraine 1 Must-see The Pecherskaya Lavra monastery complex is the pearl of Kiev architecture. The catacombs are still a place of intensive worship. 25, Sichnego Povsstanniya Vul.
6 Local cuisine The Khutorok is in a houseboat on the river. Good food makes it very popular with the people of Kiev.
JSPP Bank Aval 1.342 outlets, www.aval.ua; Head Office: 9, Leskova Vul., 01011 Kiev
As already noted, Raiffeisen International continued its dynamic growth trend in 2005, with a large part of its growth being organic, that is, excluding acquisitions. We maintained our return on equity at a high level of 17.6 per cent, while reducing the cost-income ratio by 1.9 percentage points to 61.6 per cent despite continued high investments.
Growing faster than the market average, gaining market shares, and maintaining a return on equity high are again our primary goals for 2006. The continued rapid transformation of our Ukrainian banks and – after the acquisition of Impexbank closes – the integration process in Russia, by far the region’s largest market, are further top priorities.
On behalf of my fellow Managing Board members, I would like to thank the customers and business associates of our Group units for their confidence in us. We also thank our shareholders – those who accompanied us through the IPO as well as the many that have come aboard since then – for their support. That applies, of course, especially to our core shareholder, Raiffeisen Zentralbank. Naturally, the success story of 2005 would not have been conceivable without the dedicated involvement of our staff, whose members now number 43,600. I am especially grateful to them. We look forward to writing another successful chapter together as the banking group for Central and Eastern Europe in 2006.
38 www.ri.co.at Preface Managing Board Supervisory Board’s Report Overview Interview Stock
Raiffeisen International Bank-Holding AG (Raiffeisen International) can look back on an outstanding year in 2005. That development again documents the company’s good strategic orientation and the quality of its management. Raiffeisen International has its roots in Raiffeisen Zentralbank Österreich AG (RZB) and remains an integral and fully consolidated part of the RZB Group. RZB has bundled its most important group companies in Central and Eastern Europe (CEE) in Raiffeisen International. This effective, focussed subsidiary is ideally positioned to tap the great growth potential of the CEE region.
Being embedded in the RZB Group remains a major advantage for Raiffeisen International. RZB is a stable parent company that provides an excellent framework. Its stake in Raiffeisen International after the IPO amounted to 70 per cent.
On behalf of the Supervisory Board, I wish to thank everyone who has contributed to the success of Raiffeisen International. That includes, of course, the new shareholders. Their confidence and investment in Raiffeisen International are essential prerequisites for the company’s successful operation. We are naturally also grateful to the company’s Managing Board and to the executives of its subsidiaries. The Supervisory Board also wishes to thank the employees, whose members now number about 43,600. Raiffeisen International’s successes would not be conceivable without their dedicated effort, particularly on behalf of their customers.
A functioning financial infrastructure is a prerequisite for the ever closer interlinking of economic areas within Europe. Raiffeisen International sees itself as a pathfinder and service provider for this development. It places special value providing customers with service and assistance that measure up to international standards.
The RZB Group has been present in Central and Eastern Europe for almost 20 years. Its first subsidiary bank was founded in Hungary in 1986 and commenced operations the following year. Since that time, the network has grown both organically and through acquisitions. Raiffeisen International’s largest acquisition to date was made in 2005 with the purchase of Bank Aval in Ukraine.
Our IPO in April 2005 was a milestone in the development of Raiffeisen International. In the process, we placed shares with a total value of more than € 1.1 billion. The strong demand for the issued shares and gratifying development of their price reflects the market’s approval of our strategic orientation toward the growth markets of Central and Eastern Europe.
The Gable Cross is the trademark used by every member of the Raiffeisen Banking Group. It consists of two stylized horse’s heads crossed and attached to the gable of a house. It is a symbol of protection rooted in old European traditions. A gable cross on the roof was believed to protect a house and its occupants from outside dangers and to ward off evil. It stands for the protection and security that the members of the Raiffeisen Banks enjoy through their self-determined collaboration. Today, the Gable Cross is one of Austria’s best-known trademarks, and it is in use around the world, particularly within the scope of RZB’s homogeneous branding in Central and Eastern Europe.
In addition to 16 network banks, many specialist companies, primarily leasing businesses, are collected together under the umbrella of Raiffeisen International. Altogether, the Group has 65 subsidiaries and associated companies.
Numerous international awards from renowned institutions have more than adequately confirmed the out-standing position of Raiffeisen International in the Central and Eastern European countries. Among the most important are: - Bank of the Year 2005 in Emerging Markets, The Banker - Best Bank in Central and Eastern Europe, Euromoney - Best Bank in Central and Eastern Europe, Global Finance
As at 31 December 2005 in € mn Change* outlets of staff of takeover)
Raiffeisen Bank Bosna i Hercegovina, * Growth in local currencies differs due to the euro exchange rates.
The year 2005 was very successful for Raiffeisen International. Are you satisfied with how things went? The year could hardly have gone better. We broke all records in Austria with our IPO. The stock was 22 times oversubscribed. We could have placed the entire issue in Austria, and in the end more than 80,000 Austrian private investors subscribed shares. All in all, we got a very friendly reception from the capital market. In line with our outstanding performance and earnings situation, our stock price also performed very satisfactorily. In retrospect, the decision to go public was absolutely correct. However, we have also shown that we are consistently implementing our strategy.
You mean the acquisition of Bank Aval and the current takeover of Impexbank in Russia? Those are very concrete and essential steps toward implementing our customer and regional strategy of strong business expansion in the retail segment, which includes private individuals and small and medium-sized enterprises, and in the fast-growing CIS markets. But it would be wrong to reduce our recent successes to those two acquisitions. We were able to maintain our momentum and again grew more strongly than the already fast-growing banking market. The rise of our retail clientele also reflects this trend. We wanted to increase their number from 5.0 to 5.9 million on our own, excluding acquisitions. What we achieved was 6.4 million retail customers, a result in which we take great pride.
How many customers will the acquisitions add? Bank Aval will add about three million retail customers, and Impexbank about 300,000. That makes us the largest banking group in Ukraine and one of the leading banks in Russia. By acquiring Impexbank, we will have an almost nationwide branch network and save at least four years of branch expansion on our own. Together with our existing Raiffeisenbank in Russia, we will be the largest foreign banking group in the country. Additionally we will have an excellent basis to dynamically expand retail business in a market with a population of almost 150 million.
When and how will Impexbank be integrated into the Group? The transaction will close after all the government approvals have been obtained. The legal and operational merger is planned for 2007. Increasing our share of the Russian market was one our primary goals for 2006. So, we are also very well on schedule there.
And where would you like to be by year’s end in the most promising customer segment, retail banking? Including Bank Aval, we now have about 9.7 million customers. Our plan is to expand that organically – without new acquisitions – to 11 million. In terms of products, we want to focus more on unsecured personal loans. We also plan to expand our asset management activities in the better developed markets and establish them in the less developed markets. A programme to enhance our sales team’s efficiency will support us in implementing that. In all this, of course, we also have to keep an eye on the risk aspect. This large number of measures does not mean, however, that we are focusing exclusively on the retail banking market. We also equally want to score points with corporate customers and further increase our good market share. Overall, we want to grow more strongly than the market in all customer segments again in 2006.
What will the emphasis be in the case of corporate customers? Due to our Number One position in Ukraine and as the leading Western bank in Russia, we have become an even more attractive partner to our international customers than we previously had been. In local business, we plan an offensive in the middle market.
But the focus will probably continue to be on leasing business? Of course. We initiated a reorganisation in that area last year that involves decentralising the business. The leasing business used to be strongly controlled from Vienna. As a result of the restructuring, our network banks now have more responsibility for that. We expect not only a surge in business, but also see potential for cost reduction.
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The area of operations and IT will probably remain a substantial cost pool. What plans do you have there? We are continuing to work systematically on improving business processes and harmonising the IT architecture.
However, precisely for cost reasons, the introduction of standardised systems without regard for the environment is not always sensible. We are working all out to implement standard systems in areas where products and processes are nearly the same, as in treasury, card settlement, and risk management. Group-wide use of the Six Sigma method enables us not only to optimise processes continuously, but also to create internal benchmarks. Especially in the case of banks with large branch networks, like Bank Aval, we will centralise processing as far as possible in service factories and simultaneously orient and train personnel in the branches with a view to customer service and sales.
Getting back to the acquisitions. Is your acquisition target for 2006 met with the Russian deal? In what markets do you still intend to expand? In principle, we have realised the main expansion goal for this year with this acquisition. We are not actively looking for banks now that we could acquire. However, we constantly keep our eyes open and will certainly not let unique opportunities get away from us. In regard to markets, we have always said that we can imagine a future addition to our network in Central Asia.
There was huge demand for the stock already in the subscription phase. Orders totalling 680 million shares caused the issue to be 22 times oversubscribed. Austrian private investors placed about 84,000 subscription orders for more than 34 million shares. The allotment for all shareholders had to be reduced accordingly.
The stock was placed with investors in the framework of a public offering in Austria and on the international capital market. A greenshoe of 4.4 million shares was fully exercised. The total number of shares placed was 34.3 million. The proceeds amounted to € 1.1 billion, one of the largest issue volumes placed in Austria. The issue proceeds have been used for further expansion of our network in Central and Eastern Europe, including the acquisition of Bank Aval in Ukraine.
Price performance of Raiffeisen International stock versus the ATX and DJ EURO STOXX Banks
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The distribution by geographic criteria shows that about half the shares were placed in Austria, where 40 per cent went to private shareholders and 9 per cent to institutional investors. The remainder was placed in Great Britain (16 per cent), other EU countries (14 per cent), the United States (11 per cent), Switzerland (6 per cent), and other countries.
The stock has also shown suitable liquidity in respect to trading volume. From the issue date to the end of December, it registered trading volume of more than 45 million shares, with a total amount of € 2.1 billion. On average, about 264,000 shares were traded daily on the Vienna Stock Exchange.
Following the Austrian and international roadshow for the IPO, which took place over 13 days in 17 cities in 10 different countries in Europe and the United States, continuous communication with the capital market began after the end of the required blackout period. Besides many visits by investors and analysts in Vienna, Raiffeisen International also attended several investor conferences – in Warsaw in May, in London in September and in Prague in November. The company presented to US investors in September at a roadshow in New York.
Raiffeisen International held a Capital Markets Day in October at Schönbrunn Castle in Vienna to give institutional investors and analysts detailed information, especially about our latest acquisition, Bank Aval in Ukraine. For that occasion, we prepared our Investor’s Handbook. That publication is available in English at our website: www.ri.co.at p Investor Relations p RI Facts & Figures p Capital Markets Day.
For our many private shareholders, Raiffeisen International attended the Gewinn-Messe (Gewinn Trade Fair) in Vienna and the Anlegerforum (Investor Forum) in Salzburg. The acquisition of Bank Aval and further expansion measures were also the focus at both events.
High/low (closing prices), 25 April to 31 December 2005 € 59.40 / € 39.25
Average daily trading volume (single counting), 25 April to 31 December 2005 264,000 shares
No. of shares outstanding 142,770,000 2006 financial calendar 30 March 2005 Annual report, analyst conference and conference call 26 April Beginning of quiet period 10 May 1st quarter report and conference call 7 June Annual meeting, Vienna 13 June Ex-dividend day and dividend payment day 27 July Beginning of quiet period 10 August 1st half report and conference call 13 October Capital Markets Day, Kiev 26 October Beginning of quiet period 9 November 1st – 3rd quarter report and conference call
E-mail: investor.relations@ri.co.at, Website: www.ri.co.at p Investor Relations Phone: +43-1-717 07-2089, Fax: +43-1-717 07-2138
Corporate governance The central guidelines for Raiffeisen International in implementing modern corporate governance are the trusting and efficient cooperation of the various corporate bodies, protection of shareholder interests, and open and transparent communication. Raiffeisen International therefore welcomes the Austrian Corporate Governance Code, which was established in September 2002. The full text of the Code is available on our website: www.ri.co.at p Investor Relations p Corporate Governance. With its listing on the stock exchange, Raiffeisen International agreed to comply with the Austrian Corporate Governance Code. These comments regarding compliance with the Code in the period from the listing to the end of 2005 refer to the Code as amended in February 2005. However, the company is already in compliance with large parts of the Code as amended in January 2006. Appropriate measures are planned in areas where adjustments are still needed.
The Managing Board has six members and manages the company. The structure of Raiffeisen International presented on page 39 gives an overview of the responsibilities of the individual Managing Board members. The Supervisory Board also has six members. Four of them, Walter Rothensteiner, Manfred Url, Patrick Butler and Karl Sevelda are also members of RZB’s Managing Board. The independent members of the Supervisory Board are Stewart D. Gager and Peter L. Woicke. To create clear structures internally, the rules of procedure of the Managing Board, the Supervisory Board and the Working, Audit, and Personnel Committees assign well defined responsibilities. In that way, control and management of the company is achieved that is oriented to the future and accords with modern entrepreneurial principles.
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The annual meeting will be held on 7 June 2006 at the Austria Centre in Vienna. The invitation will be published at least three weeks in advance of that date. Raiffeisen International is committed to the one-share-one-vote principle. All shareholders are therefore treated as equals. In addition to voting to discharge the Managing Board and the Supervisory Board and electing a new Supervisory Board, the shareholders will vote on the use of profit and thus on the amount of the dividend. To increase the transparency of the annual meeting, the opening and the speech of the Managing Board chairman will be broadcast live on the internet.
Rule 16 says that the Managing Board shall be constituted of several persons, with one member acting as the chairperson of the Managing Board. Internal rules of procedure of the Managing Board shall define the distribution of responsibilities and the mode of cooperation between management board members. The Managing Board of Raiffeisen International has six members, and its chairman is Herbert Stepic. The distribution of responsibilities among Managing Board members is regulated outside of the rules of procedure.
Rule 28 deals with stock option plans: If a stock option plan is proposed, the parameters of comparison to be applied shall be defined in advance and may include, for example, the performance of stock indices, share price targets, or other suitable benchmarks. Retroactively changing performance goals (repricing) is to be avoided. All changes are to be disclosed and explained. Blocking periods and exercise periods as well as exercise windows are to be defined. When defining a stock option plan, the goal of achieving sustainable value creation by the company shall be kept in mind. Decisions on the introduction of stock option plans for the Managing Board and any changes relating to such plans shall be taken at the annual meeting.
On 9 August 2005, Raiffeisen International published the report required by the Austrian Stock Corporation Act (Aktiengesetz) in the Official Gazette (Amtsblatt zur Wiener Zeitung) regarding the establishment of a share incentive program for conditionally allotting stock to members of the Managing Board and executive employees. The details concerning the relevant performance criteria are presented on page 139. No repricing has occurred since that time. At the end of the program’s term, the shares will be automatically allotted to the participants to an extent determined by the fulfilment of the performance criteria. Blocking and exercise periods and exercise timeframes are therefore not necessary due to the structure of the program. Thanks to the definite performance criteria, consideration is given to sustainable creation of value by the company. The share incentive program has been approved by the Supervisory Board. Further details about the program and the related repurchase of stock are available at our website: www.ri.co.at p Investor Relations p RI Shares p Share Incentive Program.
The acquisition of Joint Stock Post Pension Bank Aval (Bank Aval) is a milestone in the expansion of Raiffeisen International’s network. This transaction fits seamlessly into the series of acquisitions since the beginning of 2000, which complement our strong organic growth. The strategic importance of this acquisition for Raiffeisen International cannot be overstated. By combining Raiffeisenbank Ukraine with Bank Aval, we have become the Number One in Ukraine, a market with a population of almost 50 million, in addition to Albania, Bosnia and Herzegovina, and Serbia and Montenegro. Bank Aval brings about 1,300 business outlets, 3.3 million customers, and about 17,000 employees to the Raiffeisen network. At the end of 2005, the bank’s assets amounted to € 3.4 billion. The two institutions fit together well. Bank Aval is one of the leading banks in Ukraine, with large market shares in all business areas. Raiffeisenbank has great experience in serving commercial and international customers. The strategic goal is to maintain and expand market leadership in Ukraine.
The potential for future growth in the banking sector is clearly indicated by past development. While the aggregate balance sheet totals of all Ukrainian banks stood at about € 11.5 billion at the end of 2002, that figure grew to € 28.5 billion by the end of the first half of 2005. Especially significant growth is expected to continue for retail banking business. In line with the economic trend and rising incomes, demand will also increase for previously seldom-sought products. Continuous growth may be expected especially in loans to households. The ratio of household loans to GDP in Ukraine at the end of 2004 was only a little over 4.5 per cent. That is more than the average for the CIS countries of 3.8 per cent, but significantly less than in other growth regions such as Central Europe with 12.4 per cent and Southeastern Europe with 11.9 per cent. The comparable value for the euro area is 50.2 per cent. Further momentum for the banking sector could derive from the upcoming privatisation of existing state-owned banks. From a macroeconomic perspective, impetus might also come from admission to the World Trade Organisation planned for 2006.
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The acquisition of Bank Aval is a consistent step in our strategy of growing primarily in the CIS countries and in Southeastern Europe, and there especially in retail banking business. As a “young bank” founded by private individuals in 1992 after the shift to free enterprise in Central and Eastern Europe, it has trained excellent and motivated employees and hence appropriate expertise in developing the fastgrowing Ukrainian market. Most of Bank Aval’s customers are small and medium-sized enterprises (SMEs) and private individuals, on which our growth strategy primarily focuses. The rapid economic growth gives rise overall to corresponding growth potential for Ukraine and especially for the banking sector as a financial intermediary. With its established expertise in developing these markets, Raiffeisen International will be in a position to quickly realise that potential.
Ukrainian Processing Centre JSC (UPC) was acquired for a purchase price of USD 32 million. The UPC’s range of services includes authorising local and international payment card transactions, technical support for POS terminals, developing and managing ATM networks, and regional interbank clearing. This acquisition enables Raiffeisen to centralise processing functions more and thus achieve further economies of scale.
Apart from country-specific developments, great importance for the new member states attaches to growth in the “old” EU countries, which are among their main trading partners with Germany at the fore. The year 2005 saw a mild slowing of economic activity internationally. Real economic growth in the Eurozone probably amounted to 1.5 per cent (2004: 1.8 per cent). The slowing was somewhat more pronounced in the United States, even though GDP growth there came to 3.5 per cent (2004: 4.2 per cent) and was thus still significantly above the Eurozone’s. As in the year before, gross fixed capital formation was a substantial economic engine in the countries of Central and Eastern Europe (CEE) in 2005. That is attributable, on the one hand, to the continuing inflow of foreign direct investments and, on the other, to improvement of the corporate earnings situation and the increasing willingness of banks to extend credit to small and medium-sized enterprises. In addition, the business environment for the new member states, candidate countries, and countries seeking candidate status is continuously improving thanks to the EU integration process. The construction of new and modernisation and expansion of existing production plants should contribute positively to export and economic growth in the coming years.
Annual real GDP growth, in per cent * The Group Management Report encompasses the pages 55 to 80.
Declining inflation rates in CE and SEE – inflation increase in Russia and Ukraine
Significantly declining inflation rates and strong currency development allowed central banks to lower their key interest rates in the course of 2005. The largest interest rate cut on the financial markets of the new EU member states was in Hungary, where the central bank lowered key interest rates by 3.5 percentage points to 6.0 per cent, after the inflation rate had also fallen by more than 3 percentage points. The Polish, Slovakian, and Czech central banks also reduced their key interest rates – in the case of the Czech Republic to even below the ECB’s interest rate level. The greatest jump in key interest rates was in Romania. While they still stood at 17 per cent at the end of 2004, the gradual opening of the capital market – foreigners have been allowed to make deposits in leu since mid-2005 – and the resulting nominal revaluation of the currency prompted the central bank to lower its key interest rates by 9.5 percentage points to 7.5 per cent at year’s end.
Except for the Hungarian forint and the Slovenian tolar – Slovenia joined the European Exchange Rate Mechanism (ERM II) in June 2004 and the tolar has been virtually stable since then – the currencies of the new EU member states appreciated against the euro in 2005, in some cases significantly. Slovakia also decided to join the ERM II at the end of November, although that step had been originally planned for mid-2006. The country still aims to join the EU at the beginning of 2009. The Romanian leu registered an especially strong movement, mainly in the first half of the year, which was promoted by the gradual opening of the capital market. On the other hand, the Russian rouble’s revaluation against the euro was mainly due to the development of the euro against the US dollar. The latter gained against the euro during the year by about USD 0.18 to USD 1.18 per euro. Despite high inflows from energy exports and resulting current account and budget surpluses, the Russian central bank endeavoured to protect domestic production from the negative consequences of an excessive revaluation of the rouble. The revaluation of the Ukrainian hryvnia against the US dollar in April is mainly to be viewed as an attempt to get rising inflation rates under control. While the hryvnia had been practically fixed at UAH 5.30
Personal loans, in per cent of GDP vs. GDP per capita (at purchasing power parities, in EUR)
Our stock was first quoted on the Vienna Stock Exchange on 25 April 2005, and its initial price was fixed at € 39.00. It was admitted to Austria’s most important stock index, the ATX, on 28 April. In the period to the end of December 2005, the stock price advanced by more than 70 per cent to € 55.55, and our market capitalisation increased to € 7.9 billion. The free float amounts to 30 per cent.
On 20 August, negotiations to purchase Joint Stock Post Pension Bank Aval, a Ukrainian firm, were concluded. The transaction closed in October. Raiffeisen International paid a price of USD 1,028 million for the acquisition of a 93.5 per cent stake. Raiffeisen International has agreed to purchase the stock of the remaining minority shareholders – Bank Aval is listed on the Kiev Stock Exchange – at the same price per share.
The acquisition has increased the number of our customers in Ukraine by more than 3.2 million and has added about 1,342 business outlets to our network (figures as of the end of December 2005).
Bank Aval’s assets amounted to € 3.4 billion at the end of 2005. As measured by balance sheet totals, Raiffeisenbank Ukraine and Bank Aval together have a market share of more than 11 per cent. That makes Raiffeisen the Number One banking group in Ukraine. We also acquired Ukrainian Processing Center, JSC (UPC). The price for that was USD 32 million.
The majority of Raiffeisen International is held by RZB, which makes it a part of the RZB Group. As a result of Raiffeisen International’s IPO in April 2005, RZB’s stake has decreased to 70 per cent. The remaining shares are in free float.
Several IFRS rules have been changed or newly introduced effective at the beginning of 2005. Their mostly retrospective application required a restatement of the preceding year’s figures. However, the resulting divergences from the data presented for the preceding year were only slight. A precise statement regarding the changes is given in the section “Principles underlying the consolidated accounts”.
Although the IPO and the acquisition of Bank Aval were the main themes of 2005, the substantial organic improvements of earnings achieved by Raiffeisen International in all regions and business areas were notable. The volume and earnings increases were most evident in the CIS countries and in Southeastern Europe as well as in retail banking, which has put Raiffeisen International on an even broader basis than before.
Profit (after minority interests) reached € 382 million, which represents an increase by more than 83 per cent, or € 173 million, compared with the preceding year’s € 209 million. Taking into consideration capital consolidation effects, the companies newly included in the scope of consolidation accounted for 8 per cent, or € 14 million, of that earnings growth. Stronger currencies throughout the CEE region had a positive earnings effect of about € 8 million. Organic growth thus came to 72 per cent, or € 151 million.
At € 40.7 billion, the balance sheet total crossed the € 40 billion threshold for the first time. Compared with the preceding year, in which it was € 28.9 billion, the consolidated balance sheet total rose by 41 per cent, or € 11.8 billion. The doubling of the balance sheet total within two years clearly reflects the continuing significant growth of business volume.
The table below reviews the development of key items in the consolidated income statement: Development of Raiffeisen International’s consolidated income statement €mn 2005 Change 2004* 2003
* Because of amended and new IFRS rules, the 2004 comparative figures have been adjusted slightly.
The cost-income ratio, a measure of efficiency, improved as planned from 63.5 per cent to 61.6 per cent as a result of higher operating income and is thus on its way to our medium-term target of below 60 per cent.
Slight shifts in the composition of operating income resulted from our strategic focus on retail banking business and stronger presence in high-margin markets.
The increase of income tax by 53 per cent to € 109 million was slightly less than proportionate relative to earnings development. That is partly due to the use of tax loss carryforwards and the first-time application of the taxation of fiscal unities in Austria. Profit after tax rose by 70 per cent from € 270 million to € 460 million. This stronger increase compared with profit from operating activities (plus 53 per cent) is attributable to the already described less than proportionate increases of provisioning for impairment losses and of the tax burden.
Consolidated profit apportionable to Raiffeisen International came to € 382 million and was thus 83 per cent, or € 173 million, higher than in the preceding year. Earnings per share derived from that improved by € 0.86 from € 1.93 to € 2.79.
A two-for-one stock split was performed in 2005. In addition, new shares were issued in the framework of our IPO. The average number of outstanding shares in the year under review consequently amounted to 137.1 million (preceding year: 108.2). Despite the greatly increased equity base resulting from the issue of new shares and from allocation to reserves in 2004 (rise of average equity by almost 70 per cent to € 2,608 million), the return on equity (ROE) before tax fell only slightly by 0.4 percentage points to 21.8 per cent.
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The negative earnings contribution from the segment of participations and other items is largely due to the costs of centralised Group management. Last year was the first full year of that, as the Managing Board’s areas and some management functions had not been established until 2004. Those costs remain in this segment and are not divided among the other segments.
Net interest income grew in the year under review by nearly 50 per cent, or € 399 million, to € 1,202 million. Acquisitions accounted for 11 per cent, or € 46 million, of that. The increase is significantly above balance sheet total growth of 41 per cent, and the interest margin (calculated on the average balance sheet total) clearly improved by 25 basis points from 3.30 per cent in the preceding year to 3.55 per cent. While the interest margin declined slightly in Central Europe (by 8 basis points) and Southeastern Europe (by 3 basis points), it rose in the CIS countries by an impressive 80 basis points to 4.96 per cent.
Interest income rose by 34 per cent to € 2,103 million. At 69 per cent, interest income from loans and advances to customers accounted for the largest share of that. The corresponding balance sheet item shows an average increase of 43 per cent. Here, too, the most significant increase was that of interest income from retail banking. Interest income from the securities portfolio developed worse because of falling interest rates on the bond markets in CEE. Altogether, it came to € 213 million. That represented a plus of 28 per cent, but the average portfolio grew by 92 per cent. This development was also partly due to local supervisory regulations.
In contrast to the income side, interest expenses rose by only 18 per cent to € 901 million. Despite an increase of average deposit volume by 37 per cent, interest expense in that area only increased by 10 per cent. These incongruent changes were partly due to lower interest expenses in the area of liabilities evidenced by paper and to shifts of refinancing into other currencies as well as to moving calculatory refinancing costs for trading assets to trading profit/loss.
In general, the main reason for this growth was the increased number of customers in the area of personal banking and small and medium-sized enterprises. That customer group accounted for almost three-fourths of the earnings plus. The rise of commission income was especially strong in the
Profit from proprietary trading plays only a subordinate role for Raiffeisen International. The limits on trading in interest rate and private equity products allow little latitude. Compared with the preceding year, trading profit from interest rate and credit products changed by only 5 per cent and remained at a level of € 13 million. In year-on-year comparison, the trading portfolio of fixed-interest securities shrank by 29 per cent to € 1,442 million. Trading profit from stock transactions reached € 2 million.
Net income from financial investments and current financial assets amounted to € 11 million (plus 32 per cent). This item is composed of 1) net income from financial investments, which in turn consists of net remeasurements of securities held to maturity and net proceeds from sales of securities held to maturity, and 2) net income from other current financial assets, which in turn consists of net remeasurements of current financial assets and net proceeds from sales of current financial assets at fair value through profit and loss.
General administrative expenses grew in 2005 by 41 per cent, or € 339 million, to € 1,162 million. Additions to the scope of consolidation accounted for 15 per cent of that increase, or about € 50 million. General administrative expenses thus rose somewhat less than operating income, with the result that the cost-income ratio, a measure of operating efficiency, improved from 63.5 to 61.6 per cent. Raiffeisen International’s goal is to reduce the ratio to below 60 per cent in the medium term.
Staff expenses, which went up by 45 per cent, or € 171 million, to € 552 million, accounted for 47 per cent of operating expenses (preceding year: 46 per cent). Of that, € 144 million were organic in origin, while € 27 million was attributable to companies newly consolidated in the fourth quarter.
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Growth on the asset side was driven by loans and advances to customers, which increased by 52 per cent, or € 8.5 billion, to € 24.7 billion. Changes in the scope of consolidation contributed € 2.2 billion. Adjusted for provisions for impairment losses of € 650 million, loans and advances to customers now account for 59 per cent of balance sheet assets. Lending to corporate customers rose most strongly, by € 6.5 billion in absolute terms and 70 per cent in relative terms, and came to € 15.8 billion at year’s end. Lending to retail customers increased by 29 per cent and reached € 8.2 billion on the balance sheet date.
The share of other assets increased by 3 percentage points to 13 per cent, because liquid funds (cash reserve) rose by 53 per cent to € 2.9 billion, and tangible and intangible assets together went up by € 1.0 billion.
On the liabilities side, the largest balance sheet item, deposits from customers, grew by 37 per cent, or € 6.7 billion, to € 24.9 billion. Their share of the liabilities side thus comes to 61 per cent. The newly consolidated Bank Aval contributed € 2.4 billion to that increase. Sight deposits rose by 55 per cent to € 10.7 billion, and time and savings deposits by 26 per cent to € 14.2 billion. The cover rate of customer deposits to loans and advances to customers decreased from 112 to 101 per cent.
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Paid-in capital – consisting of subscribed capital and capital reserves – changed mainly as a result of a capital increase in the framework of our IPO, which amounted to € 555 million net of issuing costs,
Raiffeisen International is not a separate banking group within the meaning of the Austrian Banking Act (BWG) and therefore is not itself as a group subject to its regulations. The following figures have been calculated according to the regulations of the Banking Act and are accounted for within the scope of the RZB banking group. They are provided here for information purposes only.
Additional own funds showed an increase of one-third to € 537 million. The greater part of this subordinated capital – needed primarily because of local supervisory regulations – was financed by RZB.
Corresponding local supervisory requirements, which in some cases diverge from EU regulations, were fulfilled by all affected Group units.
The risks of our individual network banks and specialist companies are controlled and managed by means of a comprehensive system of risk principles, risk measurement and monitoring processes, and appropriate organisational structures. The policy and hence the principles of risk management are determined in the framework of rules prescribed by the Group’s head office: - The management of credit, country, market, liquidity and operational risks is coordinated at every level of the Group.
- To guarantee a consistent and coherent approach to risk management, it is coordinated with Group parent RZB.
- Uniform rating methods are used throughout the Group. - Credit guidelines are revised and approved during the annual budgeting and planning process. - There is clear firewalling between operational staff and all risk management personnel. - Provisions for default on loans to corporate customers are formed mainly on a case-by-case basis that includes risk of loss. Provisions for default on loans to retail customers are based on the portfolio approach.
We have further strengthened risk management in retail banking and for the customer group of small and medium-sized enterprises (SMEs). The following measures were taken in the past year: - Standardisation: Approval process implemented for new products in retail banking; approval process improved for loans to SMEs - Lending: Scorecards compliant with Basel II introduced at product levels in eight countries; guideline established for lending to SMEs - Portfolio management in retail banking: Monthly review with each network bank; guideline for credit risk provisioning - Debt collection: Programme for debtor management implemented in three countries
The following further measures in risk management are planned or already being implemented: - Standardisation: Introduction of approval process for new products for SMEs; implementation of new Group-wide rules, standardisation of reporting and management for SME portfolios - Lending: Introduction of application scorecards compliant with Basel II for retail customers in all network banks by the end of 2006 - Portfolio management: Improvement of the standardised reporting platform; introduction of behavioural scorecards compliant with Basel II in four countries: Poland, Czech Republic, Slovakia, and Hungary - Debt collection: Installation of programme for debtor management in two other countries - Development of framework for management of exchange rate risk - Further development of risk management tools for credit risk and transaction risk associated with credit cards and overdraft credit.
The focus in corporate risk in 2005 was on further harmonisation and related enhancement of process efficiency. The Credit Manual, which applies to all units within the network, has been expanded and now fully complies with the Basel II regulations and the standards of the Austrian Financial Market Authority (FMA).
The provisioning approval process was completely standardised in 2005. Problem loan exposures are handled in the uniformly organised problem loan committees of the network banks.
The function of credit quality control will be reorganised in the course of 2006. This department will monitor and evaluate the quality of credit decisions, especially credits granted on the network banks’ own authority, the organisational structure, and the processes in risk management.
The individual network banks define the credit risk policy in coordination with the head office. In the process, the risk strategy is developed and includes, among other things, the amount of loan exposure by sectors, types of credit, and guidelines for maximum limit amount per customer or group of linked
customers. In addition to the local risk management team, customer advisors are also involved in this process. The credit risk policy and changes must be approved by the respective supervisory boards of the network banks.
The Basel II equity requirements are being implemented in a project that coordinates and centrally supports the process at all subsidiary banks of the RI Group. The main emphases of this Basel project are the optimisation of existing and development of new harmonised rating methods, the recording of defaults according to the Basel rules, and the equity calculation itself. These activities will produce uniform standards and harmonised methods and tools of credit evaluation throughout the Group.
Another central objective is to improve the availability and quality of data throughout the Group. Existing IT systems have been analysed and tested for Basel II compliance, and the necessary adaptations have been already or are in the process of being implemented. The selection of technical components for implementation at the Group level has been successfully completed in order to enable the internal ratings-based (IRB) approach and – for portfolios that are not material – the standard approach for the calculation of equity.
The core banking system strategy has been changed in recognition of the fact that the cost of implementing one common system in our diverse network banks with still very different regulatory environments would currently outweigh the benefits. We are now aiming for regional solutions that should bring us synergies across more homogenous countries.
Another priority was the development and rollout of a group data warehouse, which serves as a common platform for Group reporting and Basel II risk management. Several risk management tools were implemented both locally and at the head office level to comply with Basel II risk management standards. These efforts will continue in 2006. A new group MIS system was selected and a group model developed, which will be piloted next year in our bank in Poland.
A standard system for retail collections was also implemented in four countries to support the growth in retail lending, with two countries to follow next year. This system has been parameterised with the involvement of several network banks and is based on our group standard processes for collections.
That Raiffeisen International can only expand with suitably qualified staff is reflected by the very high proportion of university graduates that it employs.
We have expanded the existing managementby -objectives (MBO) process and transformed it into a performance management process. This integrated, annual performance management process serves to align the company’s objectives and individual work performance. That is accomplished by setting objectives and entering into corresponding agreements with individual employees. As a part of the annual performance evaluation, the capabilities of the individual employees are identified and promoted appropriately.
The shares are allotted according to the fulfilment of two equally weighted performance criteria. One parameter is Raiffeisen International’s performance compared with an ROE target, which is calculated as the average for the qualifying period. The second parameter is the total shareholder return of Raiffeisen International stock compared with all banks listed in the Dow Jones EURO STOXX Banks index. Details concerning the share incentive programme and the related buyback of shares may be found at our website: www.ri.co.at p Investor Relations p RI Shares p Share Incentive Programme.
After a mild economic slowdown in 2005, mainly due to record growth rates in the EU accession year of 2004 and the decline of economic growth in the euro area, the countries of Central and Eastern Europe should experience an upturn of economic development in 2006. Real GDP growth of 4.5 per cent is expected for the new EU member states, while about 5 percent is forecast for the countries of Southeastern Europe (accession candidates Romania, Bulgaria, and Croatia and the Western Balkan countries). The strongest economic growth is still predicted for the European countries of the CIS, although Ukraine is likely to lag significantly behind the high average growth rates of 2001-2004 (about 9 per cent p.a.) due to the rise of gas prices for the second year in a row. With expected real GDP growth of 5.5 per cent, economic growth in the CIS countries would slow slightly compared with 2005 (5.9 per cent). Real GDP growth of 6.0 per cent is forecast for Russia (2005: 6.1 per cent).
As in past years, consumer demand and capital investment should be the most important growth factors. Both are benefiting from the continuing credit boom in the countries of Central and Eastern Europe, which was first made possible by extensive privatisation of the banking sector and reforms of the legal and institutional framework resulting from efforts to join the EU. Moreover, the attractiveness of Central and Eastern European countries as locations for foreign capital investment remains undiminished. Together with newly built production capacities, the emerging economic recovery in the euro zone could contribute additionally to growth. The process of economic catch-up should permit the real and nominal revaluation trend for the currencies of Central and Eastern Europe to continue in the medium term, even though parliamentary elections are slated for 2006 in several countries (Ukraine, Hungary, Czech Republic, and Slovakia), which could have a substantial impact on important economic policy decisions and hence on the financial markets.
Raiffeisen International’s focus in 2006 remains on the retail segment, which consists of business with personal banking customers and with small and medium-sized enterprises. The increases in loans to personal banking customers and impressive growth in demand for credit cards confirm our strategic orientation. Our emphasis in the corporate customer segment is on higher-margin business with medium-sized customers.
Our medium-term goals remain unchanged. We intend to achieve a return on equity (ROE) before taxes of more than 25 per cent by the end of 2007. The cost-income ratio is to fall below 60 per cent, and the risk-earnings ratio should be under 15 per cent. By our estimates, the balance sheet total will grow by at least 20 per cent annually in the period to 2008. We see the strongest increases in the CIS countries, partly because of the acquisitions made there. We expect a significantly higher profit for the Raiffeisen International Group in 2006 compared with 2005.
Impexbank was founded in 1993 and is owned by seven Russian enterprises. It is primarily geared to serving personal banking customers as well as small and medium-sized enterprises with a nationwide network of about 190 branches and offices and 350 distribution outlets. For the first half of 2005, Impexbank reported a balance sheet total of € 1.2 billion and profit after tax of € 9.0 million. It had about 4,300 employees at that time.
The classification is geared to the location of the respective business outlets: • Central Europe (CE) Poland, Slovakia, Slovenia, Czech Republic, and Hungary
• Southeastern Europe (SEE) Albania, Bosnia and Herzegovina, Bulgaria, Kosovo, Croatia, Romania, and Serbia and Montenegro
The figures cited are taken from the financial statements prepared according to International Financial Reporting Standards (IFRS) that underlie our consolidated financial statement. Divergences from locally published data are possible. Further information on the segments is found from page 116.
Raiffeisen International has been present in Central Europe since 1986. With a 43 per cent share of assets, the region is still the Group’s most important, but we are growing there less dynamically than in other regions. Central Europe accounted for 52 per cent of our assets in 2004. We registered asset growth in the region of 15 per cent to € 17.3 billion in 2005. Risk-weighted assets increased somewhat more, by 19 per cent to € 12.9 billion.
Earnings before taxes nevertheless increased by 43 per cent last year to € 230 million, which put the region’s contribution to total earnings at 40 per cent (2004: 47 per cent). However, return on equity fell by 1.4 percentage points to 17.5 per cent due to a significant increase of equity resulting from profit retention and our IPO. The risk-earnings ratio declined from 16.6 to a still very good 9.4 per cent. The interest margin dropped slightly by 8 basis points.
Segment’s contribution to consolidated profit before tax 40.4% 47.3% (6.9 PP)
Founded in 1991, Raiffeisen Bank Polska S.A. concentrates mainly on Polish small and medium-sized enterprises (SMEs) and on personal banking customers. The bank has developed very dynamically. At the end of 2005, it was serving 220,000 personal banking customers (47 per cent more than at the end of 2004) and 3,000 corporate customers in 83 business outlets. With a balance sheet total equivalent to € 2.9 billion (plus 6.3 per cent year on year), it ranks 12th among local banks.
The year 2005 was the most successful in the bank’s history. Compared with 2004, total loans increased by 36 per cent to € 2.0 billion. Total deposits rose by 28 per cent in 2005 and reached € 2.1 billion.
The bank launched many new products for all its target groups last year. For example, it now offers R-Mobile service to personal banking customers and SMEs, which gives them convenient access to bank products via mobile telephone. Raiffeisen Bank’s achievements were decisive in its receiving many local awards. Gazeta Bankowa selected it as Best Bank of 2005, and it ranked second in the Forbes list of the country’s best retail banks.
Tatra banka a.s., founded in 1991, is the fourth-largest bank in Slovakia. Personal banking customers and SMEs are steadily gaining in importance. Despite greater competition, Tatra banka managed to defend its roughly one-fifth market share and maintain its leading role in corporate customer business, with market shares of 20 per cent in loans and 25 per cent in deposits.
The bank showed a balance sheet total of € 910 million at the end of 2005, which represents a plus of 36 per cent on the preceding year. It thus grew significantly faster than the Slovenian banking sector, which increased by 23 per cent. Raiffeisen Krekova banka is the country’s ninth-largest bank.
Raiffeisenbank a.s. began operation in 1993. With a balance sheet total of more than € 2.6 billion (plus 26 per cent), it is the country’s sixth-largest bank and offers building society saving as well as products and services in insurance and leasing in addition to traditional banking business. The bank has a distribution network with 50 business outlets.
Raiffeisen Bank opened 28 new business outlets last year (including 6 in Budapest), raising the total number to 99. At the end of 2005, it was serving 305,000 personal banking customers (plus 33 per cent) and 26,000 corporate customers (plus 41 per cent).
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* Because of amended and new IFRS rules, comparative figures have been adjusted slightly (see Notes, p. 101 ff).
Balance sheet assets increased by 33 per cent to € 13.9 billion, of which Southeastern Europe had a share of 34 per cent (preceding year: 36 per cent). Because of higher loans to corporate and personal banking customers, risk-weighted assets grew more strongly, by 58 per cent to € 9.4 billion. Provisioning for impairment losses rose by 42 per cent to € 63 million. That was a consequence of significantly expanding the loan portfolio. The return on equity went up slightly by 0.9 percentage points to 22.6 per cent because of higher attributable equity.
Raiffeisen Bank registered an increase of lending to small and medium-sized business by almost 30 per cent to € 81 million. It was serving about 17,000 customers in that segment at the end of 2005.
Raiffeisenbank (Bulgaria) EAD has been doing business since 1994. Its balance sheet total grew by 40 per cent in 2005 to € 1.4 billion and thus developed significantly better than the rest of the banking market. With a market share of 8.5 per cent as measured by balance sheet total, the bank ranks fourth among local institutions.
Loans to personal banking customers rose threefold in 2005 to € 107 million (the overall market grew by 63 per cent). The number of customers in this segment increased by about 70 per cent to more
Loans to corporate customers increased by 14 per cent to € 572 million at the end of 2005. Raiffeisenbank worked actively on the local market for syndicated financing and was responsible for € 60 million as co-arranger. Despite intense competition, deposits of corporate customers amounted to almost € 590 million. More than 40 per cent of the enterprises in Croatia are using the products of our network bank there.
In cooperation with Uniqa, an insurance company, we offered Flexi current accounts that include a cost-free life or accident insurance policy for one year. Innovations for customers were also introduced in mobile banking. Payments can now be executed and account information obtained via mobile telephone.
With Raiffeisen Banca pentru Locuinte, a building society, Raiffeisen Bank has introduced the bank-inbank concept. In 88 business outlets, customers are advised specially on the topic of home financing.
The number of corporate customers reached 3,100 in 2005 (plus 20 per cent) despite difficult general economic conditions. The risk-weighted assets of this segment almost doubled to € 567 million. Raiffeisen Bank expanded its business relations with the country’s leading enterprises, particularly in the oil and gas industry and in telecommunications, the metalworking industry, and the services sector.
Important successes were achieved in investment banking, among other things, by operating as a broker on the Bucharest Stock Exchange. In 2005, Raiffeisen Capital & Investment (RCI) registered transactions totalling more than € 360 million on the stock exchange and the OTC market, which was twice as much as in the preceding year. It thus ranked second. With four IPOs, RCI was also one of the most active local operators on the primary market.
Loans to larger corporate customers grew by € 200 million to € 573 million, the largest increase in the bank’s history. It thus has a one-fifth share in this segment of the local lending market.
Raiffeisen Bank Kosovo J.S.C. was founded in November 2001 as American Bank of Kosovo, and a 76 per cent stake was acquired by Raiffeisen International at the end of 2002. The remaining shares were purchased in September 2003. The bank’s balance sheet total was € 264 million at the end of 2005, which represents an increase of 76 per cent. It thus remained the country’s second-largest bank.
Still the smallest region for Raiffeisen International, the CIS countries are also the region with the highest growth rates in almost all areas. Earnings before taxes rose by 92 per cent, assets by 181 per cent to € 9.4 billion, and risk-weighted assets by 171 per cent to € 7.6 billion. Because of higher attributable equity, the return on equity thus fell by 3.7 percentage points to 32.3 per cent. The acquisition of Bank Aval, which was consolidated from October 2005 and thus contributed only a three-month result, was partly responsible for that. The region’s share of Raiffeisen International’s earnings increased from 23 to 27 per cent, and its share of balance sheet assets rose even more strongly from 12 to 23 per cent.
Except in the case of trading profit/loss (plus 85 per cent), growth rates for all earnings components were in the triple digits. Net interest income went up by 116 per cent, and net commission income by 118 per cent. The interest margin improved significantly by 80 basis points. Provisioning for impairment losses also rose above average (135 per cent) to € 55 million, particularly due to the increase of portfolio-based value adjustments for the retail segment. The risk-earnings ratio consequently changed from 19.3 to 20.9 per cent.
Segment’s contribution to consolidated profit before tax 26.6% 23.1% 3.5 PP
Parallel to income items, general administrative expenses rose significantly by 133 per cent to € 212 million. That was due to a considerable increase of staff from 3,494 on average to 8,373 (Bank Aval is only included in part) and expansion of the distribution network in Russia and Ukraine. We opened 35 new branches, and 1,343 business outlets were added by the acquisition of Bank Aval. The cost-income ratio climbed from 46.9 to 50.9 per cent.
In the corporate customer segment, Priorbank’s greatest competitive advantage is the ability to finance large projects by means of credit lines from international banks and supranational financial institutions like the EBRD and IFC. The bank has more than 6,800 corporate customers, including many of the country’s export-oriented and privately owned large enterprises. Its loan portfolio totalled more than € 341 million at the end of 2005, which represents a market share of 9 per cent.
ZAO Raiffeisenbank Austria has been in operation since 1997. Its balance sheet total grew by 86 per cent in the year under review to € 3.9 billion, which puts it in tenth place among Russian banks. The bank’s programme of regional expansion was implemented by opening three business outlets in Ekaterinburg, Novosibirsk, and Samara. Added to that were four in Moscow and two in St. Petersburg, bringing the total to 27 at year’s end.
Raiffeisenbank improved its position in the segment of personal banking customers last year by launching new products and expanding its customer base. In November, it introduced credit cards in Moscow in the framework of a pilot project. The bank defended its leading position in lending to personal banking customers. The loan portfolio grew by 120 per cent to over € 400 million. Total deposits of private individuals increased by nearly 55 per cent to € 284 million. The bank introduced a credit programme for small and medium-sized enterprises in Moscow, which is to be expanded to further regions in the current year.
Raiffeisenbank also continued on its successful path in the corporate customer segment in 2005 and measured up to its good reputation as a premium service provider. The number of corporate customers served by the bank increased by 33 per cent to 3,600. Total loans rose by 74 per cent to € 1.7 billion.
JSCB Raiffeisenbank Ukraine was founded in 1998. Its balance sheet total was € 1.2 billion at the end of 2005, which represents an increase of nearly 100 per cent. Together with Bank Aval, which was integrated into the Raiffeisen International network in 2005, that makes us the country’s top bank as measured by balance sheet totals.
Raiffeisen International has a stake of about 8 per cent in Bank TuranAlem in Kazakhstan. In January 2005, Raiffeisen Leasing International founded a leasing company in Almaty. That company entered into strategic partnerships with international suppliers and thereby booked its first successes.
Notes 1/1 – 31/12 1/1 – 31/12 Change * Because of amended and new IFRS rules, the comparative figures have been adjusted slightly (see notes pages 101 ff). ** Figures take the two-for-one stock split into account
Quarterly results posted by Raiffeisen International €000 Q1/2005 Q2/2005 Q3/2005 Q4/2005
Subscribed Capital Retained Consolidated Minority €000 capital reserves earnings profit interests Total
The extraordinary general meeting on 8 March 2005 decided to perform a two-for-one stock split. It also authorised the Managing Board to increase the capital stock by up to € 67,000 thousand to € 447,435 thousand (authorised capital). At the same time, the decision was made to conduct an initial public offering (IPO) excluding subscription rights for existing shareholders.
The IPO was conducted on 25 April 2005. 17,770 thousand no-par shares were issued (including a greenshoe option), the nominal volume totalled € 54,083 thousand. The issue price was set at € 32.50 per share, yielding gross IPO proceeds of € 577,525 thousand. The issuing costs came to € 23,031 thousand and were netted against capital reserves.
The extraordinary general meeting on 8 March 2005 authorised the Managing Board to purchase own stock by 8 September 2006 pursuant to Section 65 (1) 4 of the Austrian Stock Corporation Act (AktG) in order to offer them for purchase to staff, executives, and members of the managing board or – at most – of the supervisory board of the company or of companies associated with it. Moreover, the company’s Managing Board has been authorised to purchase own stock by 8 September 2006 pursuant to Section 65 (1) 8 of the Austrian Stock Corporation Act (AktG) without dedicated purpose, with trading in own stock as the purpose of the purchase being excluded.
Non-cash positions in profit and transition to net cash from operating activities: Write-downs/write-ups of tangible fixed assets and financial investments 127,319 113,725
Change in assets and liabilities arising from operating activities after corrections for non-cash positions: Loans and advances to banks and customers (11,287,682) (7,252,781)
Proceeds from sales of: Financial investments and equity participations 2,751,647 2,101,707
Cash and cash equivalents at the end of previous period 1,895,356 1,748,977
The cash flow statement shows the composition of and changes in cash and cash equivalents during the financial year. It is subdivided into three sections, namely operating activities, investing activities, and financing activities.
Net cash from operating activities comprises inflows and outflows associated with loans and advances to banks and customers, trading assets, and other assets. Inflows and outflows associated with deposits from banks and customers, liabilities evidenced by paper, and other liabilities are likewise a part of operating activities. Interest payments and dividend receipts arising from operating activities are also shown separately as components of net cash from operating activities.
Raiffeisen International specialises in providing banking and financial services in Central and Eastern Europe (CEE). The Group includes universal banks in 15 countries that operate a broad network of local banking outlets. Raiffeisen International renders a comprehensive range of banking and financial services through those banks and other financial institutions. They range from account, cash management, deposit, loan, trade finance, and credit card services to mortgage and finance leasing services. The Group’s widely varied client base includes multinationals and major local enterprises, small and medium-sized enterprises, public sector institutions, and retail customers.
This consolidated financial statement was signed by the Managing Board on 1 March 2006 and subsequently submitted to the Supervisory Board for review and approval (ratification).
The consolidated financial statements are based on the reporting packages of all fully consolidated Group members, which were prepared on the basis of standards applied throughout the Group and IFRS rules. All fully consolidated companies prepared their annual financial statements for the period ended 31 December. Figures in these financial statements are stated in thousands of euros.
The most important changes to accounting policies are described below. The most important changes to the recognition and measurement policies of Raiffeisen International’s with respect to 2005 and years thereafter result from now limited measurement options allowed by IFRS, in particular with regard to IAS 39 concerning financial instruments and IAS 17 concerning finance leases. In all, however, it must be stressed that these changes will not have a material impact on Raiffeisen International’s consolidated financial statements.
Finance leases (IAS 17) The mandatory inclusion of initial direct costs in finance lease receivables has caused material changes in valuation at Raiffeisen International. These must be calculated with retrospective effect. Insofar as these costs were recognised in full in the income statement in prior years, their effects on the asset items in questions and on equity have required recognition
In the course of initial capital consolidation, all identifiable assets, liabilities, and contingent liabilities of the subsidiary are to be restated to their value at the time of acquisition. The acquisition costs offset netted against the prorated net assets. Resulting positive differences are then capitalised as goodwill and are subject to an annual impairment test. If there are any indications of a loss of value, the goodwill will be additionally tested for impairment. If negative goodwill arises upon first-time consolidation, that will be recognised immediately with effect on profit.
Shares in subsidiaries not included in the consolidated financial statements because of their minor significance and interests in associated undertakings not accounted for using the equity method are shown under financial investments and were carried at cost.
Shares in other companies were recognised at market value. If a market value was not available or could not be reliably measured, they were recognised at amortised cost.
Intercompany profits arising from transactions within the Group were eliminated insofar as they had a material effect on items in the income statement. Banking business transacted between the individual companies within the Group is usually transacted on normal market terms.
The number of consolidated companies and associated companies accounted for using the equity method changed as follows: Fully consolidated Fully consolidated Equity method Equity method
Included for the first time in the period under review 29 6 - 1
See the overview on pages 162 ff for a list of fully consolidated companies, associated companies accounted for using the equity method, and other equity participations.
In the reporting year 2005, the following companies were included in the scope of consolidation for the first time: Name Per cent stake Reporting date Reason
JSPP Bank AVAL (AVAL) In October 2005, the takeover of a 93.5 per cent interest in JSPP Bank Aval, Kiev, closed. Bank Aval is a universal bank focusing on retail business. At the time of the takeover, Bank Aval was the second-largest bank in Ukraine. The purchase price for the 93.5 per cent stake amounted to € 855,586 thousand. The balance sheet total at the time of first consolidation came to € 3,057,827 thousand and its equity stood at € 467,966 thousand.
The brand’s value (€ 120,921 thousand) has been determined using the comparable historical cost approach, because neither immediately comparable transactions nor a market with observable prices were available at the time of purchase price allocation. Documentation concerning brand-related marketing expense served as the data base for the historical cost comparison. The brand’s value was determined using comparable costs for establishing customer bases at other Group network banks.
Existing customer base When companies base relationships with customers on contracts, customer relationships result from contractual rights. If customer contracts and the associated customer relationships are acquired as part of a merger, they must be accounted for separately pursuant to IFRS 3 if they are based on contractual or other rights. Bank Aval meets the criteria for separate accounting of contractual and non-contractual customer relationships for existing customers. The customer base is determined separately for the corporate customer segment and the retail customer segment. The amortisation period for the corporate customer segment has been set at 7 years and for the retail customer segment at 20 years.
The purchase price came to € 1,384 thousand, the balance sheet total amounted to € 36,514 thousand, and equity at the time of acquisition was minus € 723 thousand. The goodwill resulting from the transaction reflects synergy with the Czech Raiffeisen-Leasing s.r.o., Prague, and represents an investment in the company’s distribution network of 8 branches.
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Income statement items were translated at the average rates of exchange during the year calculated on the basis of endof -month rates. Differences between the exchange rates prevailing on the balance sheet date and the average exchange rates employed in the income statement were netted against equity and not recognised in the income statement.
1. Financial assets or liabilities recognised at fair value in the income statement 1 a. Financial assets and liabilities held for trading Trading assets/liabilities serve the exploitation of short-term fluctuations in market prices. Securities (inclusive of short sales of securities) and derivative instruments held for trading were recognised at their fair values. In the case of listed securities, fair value was based on stock exchange prices. If such prices were not available, primary financial instruments and futures were internally priced on the basis of present value calculations and options were valued using appropriate option pricing models. Present value calculations were based on the zero-coupon curve. The employed option price formulas were Black-Scholes 1972, Black 1976 and Garman-Kohlhagen.
Derivative instruments held for trading were also shown as financial instruments held for trading. Where fair values inclusive of interest deferrals were positive (dirty prices), they were assigned to trading assets. Negative fair values were recorded under trading liabilities in the balance sheet. Positive and negative fair values were not reconciled. Changes in dirty prices were recognised in the income statement under trading profit / loss.
These financial instruments are recognised at fair value pursuant to IAS 39. They are stated under the balance sheet item other current financial assets, current income is stated under net interest income, and valuation and sale gains or losses are recognised in the income statement under income from financial investments.
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Raiffeisen International 2005 3. Loans and receivables Receivables were recognised at their nominal values without deduction for remeasurement. Accrued interest was only recognised in the income statement if there was a high likelihood that would actually be received. Debt instruments are also stated here if there is no active market for them.
4. Available-for-sale financial assets The category of financial assets available for sale comprises those financial instruments (principally equity participations in companies for which there is no active market) that did not qualify under any of the other three categories. To the extent that fair values may be reliably determined, they are valued at such. Valuation differences are stated under equity and are only recognised in the income statement if there is an objective indication of impairment. Only for debt instruments are such impairments recognised in the income statement, while equity instrument impairments are recognised under equity. The financial instruments themselves are reported under the balance sheet item financial investments or under other current financial assets.
Lending business risk is accounted for by making specific impairment provisions and following the more detailed rules of IAS 39 effective from 2005 forward also by making portfolio-based impairment provisions. The latter comprise impairment provisions for portfolios of loans with identical risk profiles that may be compiled under certain conditions. Both specific and portfolio-based impairment provisions are not netted against corresponding receivables but stated openly in the balance sheet.
For credit risks of receivables from customers and banks, provisions are made in the amount of expected loss according to homogeneous Group-wide standards. Risk of loss is deemed to exist if the discounted projected repayment amounts and interest payments are below the carrying value of the receivable, taking collateral into account. Portfolio-based impairments are calculated according to valuation models that estimate expected future cash flow for the receivables in the respective loan portfolio based on loss experience history. For retail portfolios without a documented loss history of their own, peer group benchmark figures serve as a comparative base.
Interest expenses incurred in connection with repurchase transactions and interest income receivable in connection with reverse repo transactions were recorded under net interest income on an accrual accounting basis (linear over their term).
Tangible fixed assets were set at cost of acquisition or manufacture less scheduled depreciation. Depreciation was carried out on a straight-line basis and assumed the following useful lives: Useful life Years
If a permanent impairment was to be expected, exceptional write-downs were carried out. In the event that the reason for the write-down no longer applies, a write-back will take place up to the amount of the asset’s amortised cost. Investment property deemed to constitute a financial investment was recognised at amortised cost in accordance with
Raiffeisen International Bank-Holding AG directly deducted the holdings of its own stocks from equity as of the balance sheet date. Profits/losses arising from own-stock holdings are netted against equity without earnings impact.
All provisions relating to so-called social capital (provisions for retirement benefits, severance payments, and anniversary bonuses) were measured using the projected unit credit method in conformity with IAS 19 (employee benefits).
The actuarial computation of retirement benefit commitments for active employees was based on an interest rate of 4.25 per cent per annum (previous year: 5.25 per cent per annum) and an effective salary increase of 3 per cent per annum or an individual career trend of 1.5 per cent per annum. The parameters for pensioners were an interest rate of 4.25 per cent per annum (previous year: 5.25 per cent per annum) and an anticipated increase in retirement benefits of 2 per cent per annum (previous year: 1.5 per cent per annum). Calculations were based on an assumed retirement age of 62 (in some individual cases 65), subject to transitional statutory requirements and special arrangements agreed in individual contracts.
Income tax credits and income tax obligations were recorded separately under other assets or tax provisions.
In conformity with IAS 30, transactions arising within the scope of the management or placement of assets for account of third parties were not recorded in the balance sheet. Commission arising from such transactions was recorded under net commission income.
The corporate customers segment encompasses business with large corporate and middle market companies from Central and Eastern Europe (CEE) as well as companies from other countries that are active in the CEE region, including especially multinationals. The criteria for inclusion are variables like revenues, profit, and size of workforce.
This segment also encompasses business with the public sector and with companies owned by state-owned entities and institutions (public sector). In addition, the segment also encompasses business with banks, financial service providers, and insurers (financial institutions).
The retail customer segment encompasses all private individuals (consumers), the self-employed (professionals) and small and medium-sized enterprises with annual revenues of less than € 5 million (retail SME). The line includes predominantly standardised products like passbooks, saving deposits, time deposits, and current and salary accounts, personal loans, overdraft lines, credit cards and mortgages and other loans granted for specific purposes.
Earnings from personal banking services provided by a number of Group units are also included in this customer segment. They employ an individualised advisory approach that targets high-net-worth individuals and provide asset management services.
The treasury segment encompasses the treasury’s proprietary trading as well as investment banking activities, which are only carried out by a few Group units.
Besides non-banking activities, the participations and other segment also encompasses the management of equity participations. In addition, the segment encompasses other cross-segment activities, including in particular those carried out by parent company Raiffeisen International Bank-Holding AG.
• The cost/income ratio expresses the cost efficiency of business segments. The cost/income ratio is measured using the ratio of general administrative expenses to the total of net interest income, net commission income, trading profit/loss and operating profit/loss (but adjusted to allow for the net result from hedge accounting and other derivative instruments).
Segment reporting is based on Raiffeisen International’s internal management income statement, which takes the form of a multi-stage contribution account. Income and expenses are allocated according to their causes. The income items are net interest income, net commission income, trading profit/loss and other operating profit/loss, whereby net interest income is calculated using the market interest rate method. The net interest received from equity is apportioned to individual segments on the basis of regulatory capital requirements and recognised under net interest income.
Provisioning for possible loan losses consists of net allocations to valuation reserves for counterparty risks and direct write-downs as well as amounts recovered from written-down claims. General administrative expenses include direct and indirect costs. Direct costs (staff expenses and other administrative outlay) are incurred by individual business segments while indirect costs are allocated according to agreed ratios.
The risk-weighted assessment base pursuant to section 22 of the Austrian Banking Act served as sector-specific substitute for segment assets (including market risk).
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Financial year 2004 Corporate Retail Participations €000 customers customers Treasury and other Total
Basis of assessment (incl. market risk) 9,982,477 4,778,249 4,307,836 569,776 19,638,338
Secondary segment reporting shows earnings components and portfolio figures by regional aspects. Allocation criterion is the respective company branch. The regional segments under review are described below (internal English-language abbreviations in parentheses): • Central Europe (CE) This segment contains the five countries in which Raiffeisen International operates that joined the EU on 1 May 2004. They are the Czech Republic, Hungary, Poland, Slovakia, and Slovenia.
• Southeastern Europe (SEE) Southeastern Europe includes Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania, Serbia and Montenegro (including Kosovo).
This segment contains the members of the Commonwealth of Independent States – created from parts of the former Soviet Union – where Raiffeisen International is active, namely Belarus, Russia, Ukraine, and, since the beginning of
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Net income from financial investments and current financial assets 7,798 2,988 122 10,908
Net income from financial investments and current financial assets 5,658 2,653 (38) 8,273
Interest income 2,097,294 1,567,087 from loans and advances to banks 251,266 192,351 from loans and advances to customers 1,454,700 1,030,812 from current financial assets 56,683 44,769 from financial investments 156,043 120,964 from receivables under finance leases 131,927 102,199 from derivative financial instruments (non-trading), net 46,675 75,991
Current income 2,807 2,367 from shares and other variable-yield securities 93 132 from interests in subsidiaries - 1,940 from companies accounted for using the equity method 502 73 from other equity participations 2,212 222
Net interest income 1,202,098 803,471 * Erratum: reclassifications in 2004 did not affect earnings.
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Provisions for impairment losses on balance sheet and off-balance-sheet items were made as follows: Allocated to the provision for impairment losses (360,736) (225,306)
Commission income amounted to € 518,752 thousand (2004: € 395,933 thousand) while commission expense came
The position trading profit comprises all interest and dividend income, refinancing costs, commissions, and value changes on trading portfolios.
Net proceeds from sales of securities classified as current financial assets 4,509 3,952
The Group’s consolidated administrative expenses comprise staff expenses, other administrative outlay, and depreciation/amortisation/write-downs on tangible and intangible assets. They broke down as follows: Staff expenses (551,983) (380,626)
Depreciation/amortisation/write-downs on the client base acquired with Bank Aval that has been capitalised in the initial consolidation came to € 1,192 thousand.
Among other things, other operating profit/loss captures revenues and expenses arising from non-banking activities as well as revenues and expenses from the disposal of tangible or intangible assets as well as income from write-ups of tangible and intangible assets. The net result from hedge accounting, likewise included in this item, results from remeasurements of hedging instruments and the underlying hedged items.
Net income from the disposal of tangible and intangible fixed assets (1,147) (2,278)
Net expense from allocations to and releases of other provisions (11,318) (452)
Other operating income/expense consists primarily of transitory items resulting from the joint sale of our own financial services and services rendered by third parties (e.g. insurers).
Raiffeisen International Bank-Holding AG and three of its subsidiaries form a joint tax entity headed by Raiffeisen Zentralbank Österreich AG. This made it possible to allocate Group member tax losses to the Group parent’s tax income/loss position. Raiffeisen Zentralbank Österreich AG paid Raiffeisen International Bank-Holding AG € 8,003 thousand in prorated tax equalisation for 2005.
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Theoretical income tax expense in the financial year based on the domestic income tax rate of 25 per cent (142,139) (115,863)
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Loans and advances to customers break down into business segments as follows: Public sector 638,388 453,515
Loans and advances to customers break down along geographical lines as follows: Central Europe (CE) 10,830,751 8,726,506
Provisioning for impairment losses was carried out applying homogeneous Group-wide standards and covered all recognisable counterparty risks. The following breakdown of impairment losses on loans and advances shows their development during the financial year and the balance sheet items that underlie the entry for impairment losses on loans and advances: Change in Transfers, On scope of exchange On €000 1/1/2005* consolidation Allocated** Released Used differences 31/12/2005
Loans and advances to customers 314,032 120,041 256,415 (161,128) (48,263) 724 481,822
Shares and other variable-yield securities 23,863 11,378 of which shares and other securities 22,103 9,911 of which investment fund units 1,760 1,467
Equity participations measured at amortised cost for which fair values could not be reliably ascertained totalled € 36,007 thousand (2004: € 9,209 thousand).
On scope of Exchange On €000 1/1/2005 consolidation differences Additions Disposals Transfers 31/12/2005
Land and buildings used by the Group for its own operations (80,927) - (9,565) 294,461
Other land and buildings (7,513) - (2,642) 4,258 of which land value of developed land - - - 853
Additions to tangible and intangible assets did not include major individual investments.
On scope of Exchange On €000 1/1/2004 consolidation differences Additions Disposals Transfers 31/12/2004
Land and buildings used by the Group for its own operations (76,704) - (7,121) 159,755
Other land and buildings (4,737) - (1,275) 6,690 of which land value of developed land - - - 9
Positive fair values of derivative hedging instruments within the scope of fair-value hedges within the meaning of IAS 39 - 1,046 of which interest rate contracts - 1,030 of which share- and index-related contracts - 16
Positive fair values of other derivative financial instruments in the banking book 25,149 43,212 of which interest rate contracts 4,112 1,604 of which exchange rate contracts 21,037 41,608
No tax deferrals were capitalised for tax loss carryforwards of € 7,911 thousand have not been capitalised because there appeared to be no prospect to realise them within a reasonable period at the time.
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Change in Transfers, On scope of exchange On €000 1/1/2005 consolidation Allocated Released Used differences 31/12/2005 of which for pending litigation 11,199 - 13,036 (1,760) - 615 23,090
Other provisions for liabilities and charges consist largely of provisions for pending litigation and unused vacation rights.
Negative fair values of derivative hedging instruments within the scope of fair-value hedges within the meaning of IAS 39 244 4,030 of which arising from interest rate contracts 244 487 of which arising from exchange rate contracts - 3,369 of which arising from share-and index-related contracts - 175
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Of total subordinated capital, Raiffeisen Zentralbank Österreich AG furnished € 431,502 thousand (2004: € 377,873 thousand).
As of 31 December 2005, the issued share capital of Raiffeisen International Bank-Holding AG was subdivided into 142,700 thousand no-par (bearer) shares with a total nominal value of € 434,518 thousand. After deducting 95,260 shares held by the company itself, the stated subscribed capital came to € 434,228 thousand.
Management is going to propose at the annual general meeting to distribute a dividend of € 0.45 per common share from the financial year 2005 balance sheet profit of Raiffeisen International Bank Holding AG, representing a total distribution of € 64,247 thousand, and carry the remainder forward.
The number of unused but authorised shares comes to 4,244,285 no-par shares.
The number of common shares in Raiffeisen International Bank-Holding AG to be actually transferred will depend on meeting two performance criteria: The average return on equity (ROE) and the total shareholder return (TSR) for Raiffeisen International Bank-Holding AG stock relative to TSRs of DJ EURO STOXX BANKS index company stocks after a three-year holding period. Moreover, beneficiaries have to be in active service for Raiffeisen International.
SIP participation is voluntary. As of 31 December 2005, the contingent allotment under this program came to 136,130 no-par shares. The originally announced share allotment has changed as a result of various management changes in the Group segments.
Members of the Managing Board of Raiffeisen International Bank-Holding AG 31,032 7,885 46,548
Members of the managing boards of bank subsidiaries associated with Raiffeisen International Bank-Holding AG 84,103 21,026 126,155
The shares required for the SIP have been raised through stock buybacks. In 2005, Raiffeisen International bought back 95,260 no-par shares at a weighted average value of € 50.06. The fair 2005 value of this allotment program comes to € 1,119 thousand and has been accounted for under personnel expense. A buy option has been made to secure more own shares needed for further SIPs. Option premiums paid for this were immediately netted against profit reserves.
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Maturities breakdown as of 31 December 2005: Due at call or More than More than at unspecified Up to 3 months, 1 year, More than €000 maturity 3 months up to 1 year up to 5 years 5 years
Maturities breakdown as of 31 December 2004: Due at call or More than More than at unspecified Up to 3 months, 1 year, More than €000 maturity 3 months up to 1 year up to 5 years 5 years
The following related enterprises have been identified as the essentially related: The parent companies are Raiffeisen-Landesbanken-Holding GmbH and Raiffeisen Zentralbank Österreich Aktiengesellschaft. The main companies that exert a significant influence are Raiffeisen-Holding Niederösterreich-Wien registrierte Genossenschaft mit beschränkter Haftung and Raiffeisenlandesbank Niederösterreich-Wien AG.
In financial year 2004, transactions with related enterprises are shown below: Companies Companies Parent with significant Affiliated valued using Other equity €000 companies influence companies equity method participations
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Expenditure on subordinated liabilities in the year under review totalled € 22,757 thousand (2004: € 13,797 thousand).
The following off-balance-sheet liabilities and commitments existed at year-end: Contingent liabilities 2,934,629 1,733,636 of which arising from endorsed bills 5,003 1,693 of which arising from guarantee credits 1,104,848 743,963 of which arising from other guarantees 1,193,451 736,279 of which arising from letters of credit 607,619 224,746 of which other contingent liabilities 23,708 26,955 of which arising from irrevocable loan promises/stand-by facilities 5,094,374 2,943,885 up to 1 year 2,551,029 1,372,259 more than 1 year 2,543,345 1,571,626 of which other commitments 1,706,362 1,261,476
The following balance sheet assets were furnished as collateral for the above named obligations: Loans and advances to banks 207,868 13,393
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Volumes of fiduciary business outstanding on the balance sheet date that were not recognised in the balance sheet developed as follows: Loans and advances to banks 4,888 10,349
Receivables arising from finance leases developed as follows: Gross investment value 2,047,111 1,492,848
Minimum lease payments 2,047,111 1,492,848 up to 3 months 281,741 273,964 from 3 months up to 1 year 567,779 373,560 from 1 year up to 5 years 1,091,489 784,773
Assets let under finance leases broke down as follows: Vehicles leases 1,239,345 928,718
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As a subsidiary and key sub-group of RZB, Raiffeisen International is integrated into RZB’s risk management system.
Under the Austrian Banking Act (BWG), RZB as parent company is obliged to install a risk management system appropriate to the scope and type of business in question that, in addition to meeting statutory requirements, also meets internal needs for risk control, risk management, and risk limiting.
To guarantee coherent and consistent risk management and conformity with all legal and regulatory standards within Raiffeisen International Group, the Managing Board of Raiffeisen International Bank-Holding AG decides risk management guidelines within the framework laid down by the RZB Group. The Managing Board of Raiffeisen International Bank-Holding AG approves general risk control and risk management principles, limits for the risks in question and the procedures to be used to capture and manage risk. In addition, it initiates measures to optimise the loan portfolio and to relieve strain on the Group’s available equity, defines lending policy and loan portfolio management standards and lays down procedures for measuring credit risk.
Risk policy is an integral part of Group controlling. In other words, profit and risk management in all business segments are systematically linked. Risk policy encompasses plans for the development of the bank’s business as a whole, among other things according to industry focus, geographical distribution, and segmental subdivision as well as according to exposure size class. In particular, the Managing Board and Supervisory Board lay down limits for all pertinent risks, and they limit agglomerated risks by setting lower and upper limits for major exposures.
Once each quarter, the available covering assets and funds (earnings, reserves, and equity) are compared with aggregated risks on a value-at-risk basis in a multistage process. The Group’s risk-bearing capacity thereby sets a ceiling on its aggregated overall banking risk. In addition to actual measured risk, existing risk limits are also taken into account. When estimating unexpected losses on an annual basis (so-called economic capital), the Group employs a confidence interval of 99.95 per cent. That figure is based on the probability of default implied by the Group’s target rating.
The purpose of calculating economic capital is to ascertain the amount of capital required for the Group’s continued existence on a going concern basis even applying extreme loss scenarios. Based on that level of risk, a risk-adjusted performance measurement (RAPM) can then be carried out. That in turn is used as a parameter in overall Group management and for the purposes of the associated capital allocations. Economic capital is currently calculated by risk category and Group unit. Further extension of this management instrument is in progress.
Individual risk types in relation to Raiffeisen International’s economic capital on 31 December 2005
Raiffeisen International employs risk-classification procedures for assessing counterparty risk (rating procedures, scoring models) when assessing creditworthiness so as to provide an independent assessment of credit risk (as required, inter alia, by Basel II) and, in future, to calculate regulatory own funds using an internal ratings based approach (IRB). Throughout the Group, the internal rating models for corporate customers and financial institutions rank creditworthiness in ten classes.
The following table provides a breakdown of loans outstanding to corporate customers in thousands of euros. The figures for each financial rating class relate to loan amounts outstanding, and the overall assessment also takes furnished collateral into account: Loans outstanding to corporate customers by internal rating and region € million 3,.000
All default definitions have been adapted for the purposes of the IRB approach and the revised definitions have been applied throughout RZB-Kreditinstitutsgruppe within the scope of the implementation of Basel II. According to the definition employed by RZB-Kreditinstitutsgruppe, a default situation exists if a customer is overdue with respect to a material financial obligation to the bank for at least 90 days, if the customer is the subject of insolvency or similar proceedings, if a value adjustment or direct write-down has been carried out to a customer account receivable, or if Credit Risk Management have adjudged a customer account receivable to be not wholly recoverable.
The following table provides a breakdown of loans outstanding pertaining to the balance sheet items loans to banks and customers as well as the relevant shares of non-performing loans (excluding ceded collateral) and impairment loss provisions by region and in total: €000 CE SEE CIS Total 2005
Country risks include transfer and convertibility risks and political risk. The measurement of risks associated with sovereign institutions is based on a ten-class rating model that captures both macroeconomic factors and qualitative indicators. Each country limit takes into account transfer risks arising from transactions net of any third-country collateral. Country risk is of secondary importance to Raiffeisen International because the network banks mainly do business within their own countries. The following table shows loans outstanding and off-balance-sheet transactions (excluding those with banks and central banks) of Raiffeisen International by business segments: Loans outstanding to banks by internal rating and region € million
A1 A2 A3 B1 B2 B3 B4 B5 C D N.R.
Raiffeisen International defines market risk as the risk of possible losses arising from changes in the market due to fluctuating or changing interest rates, foreign exchange rates, share prices, and prices in general. This risk category encompasses both trading book and banking book positions. Risky positions are the result either of business done for customers or of the deliberate assumption of positions.
Value-at-risk is of central importance in setting limits. It is calculated on a weekly basis for all Group units using a variance-covariance matrix and applying a confidence interval of 99 per cent. Market data are taken from the preceding year applying a retention period of 10 days. The informative value and reliability of the value-at-risk approach based on past market developments are checked using appropriate back testing.
The ascertained value-at-risk figures forecast maximum losses under normal market conditions but do not provide any specific information about the effects of exceptional extreme market movements. To take such events into account, Raiffeisen International carries out weekly defined stress tests that capture the biggest daily market movements in the preceding five years. That procedure allows the simulation of crisis situations and of major fluctuations in market parameters and the application of those simulations to positions. The results are an important substructure for risk management.
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Raiffeisen International’s market risk mainly consists in currency risk from foreign Group units’ local-currency equity and respective hedging transactions controlled by the assets/liabilities management committee.
The table below shows risk figures (99%, VaR, 10-day) for market risk in the trading books of Raiffeisen International, by risk type, in thousands of euros: VaR on Average Minimum- Maximum- €000 31/12/2005 VaR VaR VaR
Alongside value-at-risk measurement, interest rate risk in the banking book is also estimated using classical means of capital and interest maturity analysis. Furthermore, because of the special importance and complexity of interest rate risk in the banking book, Raiffeisen International also employs interest-income scenarios and simulations. Managing the structure of balance sheets is a core task of the treasury departments at network banks, which receive assistance from assets/liabilities management committees.
Interest maturity gaps at Raiffeisen International as of 31 December 2005 (€ 000): Maturity gap 2005 >6-12 mon >1-2 yrs >2-5 yrs >5 yrs
The change in the present value of Raiffeisen International’s banking book in the year ended 31 December 2005 in €000 given a simultaneous one-basis-point increase in interest rates: Change in present value >6-12 mon >1-2 yrs >2-5 yrs >5 yrs
The change in the present value of Raiffeisen International’s banking book in the year ended 31 December 2004 in €000 given a simultaneous one-basis-point increase in interest rates: Change in present value >6-12 mon >1-2 yrs >2-5 yrs >5 yrs
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Raiffeisen International defines liquidity risk as the risk that the bank could be unable to meet its current and future financial obligations in full or in good time. The tasks of managing liquidity and liquidity risk and, in turn, of ensuring the bank’s solvency at all times are performed both by Raiffeisen International and on a decentralised basis by the local banks. An internal monitoring system records and analyzes cash flows by currency both for each location and globally on a weekly basis. The bank maintains extensive liquid holdings of securities to ensure its liquidity in various currencies and carries out liquidity balancing and cash-flow forecasts at regular intervals. These too are the responsibility of the assets/liabilities management committees.
In line with Basel II, Raiffeisen International defines operational risk as the risk of unexpected losses resulting from inadequate or failed internal processes, people and systems, or from external events, including legal risks. As is the case with other types of risk, the principle of firewalling between risk management and risk controlling is also applied to operational risk. Operational risk is analyzed and managed on the basis of the bank’s own historical loss data and the results of risk evaluations. It intends to apply the standardised approach to operational risk by business process and event type per business segment. Raiffeisen International plans to introduce standardised early-warning indicators in operational risk monitoring.
As a capital backing for operational risk in the sense of Basel II, Raiffeisen International plans to use a standard approach based on gross earnings per business segment.
To reduce operational risk further, the Group is stepping up its staff training program as well as working on the development of emergency plans and back-up systems. It is also applying the SixSigma method for business process improvement.
The total volume of unsettled derivative financial instruments broke down as follows on 31 December 2005: Nominal amounts by maturity Fair values
OTC products b) Exchange rate and gold contracts 10,768,155 383,349 15,927 11,167,431 113,178 (101,022)
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The total volume of unsettled derivative financial instruments broke down as follows on 31 December 2004: Nominal amounts by maturity Fair values
More Up to than 1 year, More than in € Tausend 1 year up to 5 years 5 years Total Positive Negative
Carrying Carrying in € Tausend Fair value amount Difference Fair value amount Difference
Loans and advances to banks 5,794,293 5,794,266 27 4,781,163 4,779,403 1,760
Loans and advances to customers 24,882,459 24,714,026 168,433 16,342,555 16,242,295 100,260
The own funds of Raiffeisen International within the meaning of the Austrian Banking act (BWG) broke down as follows: Tier 1 capital (core capital) 2,392,458 1,977,086
Total own funds requirement is made up as follows: Risk-weighted basis of assessment pursuant to Sec. 22 BWG 26,582,048 16,690,114 of which 8 per cent minimum own funds requirement 2,126,564 1,335,209
Own funds requirement for the trading book under Sec. 22b (1) BWG 112,405 136,127
Own funds requirement for open currency positions under Sec. 26 BWG 154,164 99,731
The risk-weighted assessment base (including market risk) came to € 29,914,156 thousand (2004: € 19,638,338 thousand).
The members of the Managing and Supervisory Boards of Raiffeisen International Bank-Holding AG were remunerated as follows: Short-term employee benefits 3,558 846
Key management refers to the Managing Board members of Raiffeisen International Bank-Holding AG and Raiffeisen Zentralbank Österreich AG.
The following table shows Raiffeisen International’s key management-related remuneration: Sight deposits 2 6
Herbert Stepic, CEO Martin Grüll Aris Bogdaneris, MA Rainer Franz, MBA Peter Lennkh Heinz Wiedner
Walter Rothensteiner, Chair Manfred Url, Vice Chair Patrick Butler Stewart D. Gager (from 24 January 2005) Karl Sevelda Peter L. Woicke (from 24 January 2005)
We conducted our audit in accordance with International Standards on Auditing (ISA) issued by the International Federation of Accountants (IFAC). Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Raiffeisen International Bank-Holding AG as of December 31, 2005, and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS ). We further confirm that the managements report is consistent with the consolidated financial statements of Raiffeisen International BankHolding AG.”
OOO “Raiffeisen Capital” Asset-Management Company, Moscow (RU) 90,000,000 RUB 100.0% FI
Raiffeisen Auto Leasing Bulgaria EOOD, Sofia (BG) 5,000 BGN 81.1% FI
Raiffeisen Bank d.d. Bosna i Hercegovina, Sarajevo (BA) 84,833,000 BAM 97.0% BA
Raiffeisen International GROUP IT GmbH, Vienna (AT) 37,000 EUR 99.0% BR
Raiffeisen Mandatory Pension Fund Management d.d., Zagreb (HR) 110,000,000 HRK 72.9% FI
RI Eastern European Finance B.V., Amsterdam (NL) 2,000,000 EUR 100.0% FI
Tatra Group Finance, s.r.o., Bratislava (SK) 314,100,000 SKK 72.4% 3.2% BR
The following tables show select equity participations. The complete list of Raiffeisen International Bank-Holding AG’s equity participations is on file at the Group parent’s headquarters.
Raiffeisen stambena š tedionica d.d. Zagreb (HR) 70,000,000 HRK 26.0% BA
Subscribed capital Per cent Of which held Type of Company, domicile (country) in local currency stake indirectly 1) company2)
AGRAS Grupul Wiener Stadtische S.A., Bucharest (RO) 8,912,153 RON 12.9% IN
Második Ingatlan Vagyonkezelö Kft., Budapest (HU) 3,000,000 HUF 74.8% 3.8% FI
Raiffeisen Capital & Investment S.A., Bucharest (RO) 1,600,000 RON 99.5% FI
Raiffeisen Real-Estate Management, Ltd., Zagreb (HR) 100,000 HRK 72.9% 72.9% BR
Tatra Asset Management sprav.spol., a.s., Bratislava (SK) 52,000,000 SKK 69.7% FI
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Banking book – All items that are not assigned to the trading book.
Cash flow – Inflows and outflows of cash and cash equivalents.
Consolidated ROE (return on equity) – Consolidated profit in relation to average balance sheet equity (including minority interests).
Cost/income ratio – Indicator of an enterprise’s cost efficiency based on the ratio of expenses to earnings. It is calculated by comparing general administrative expenses (comprising expenditure on staff and other administrative outlay and depreciation/amortisation/write-downs of tangible and intangible fixed assets)
Dirty Price – Price of a financial instrument inclusive of broken period interest (interest deferrals).
Earnings per share (EPS) – The amount of net profit for the period less the amount apportionable to preferred shareholders divided by the average number of ordinary shares in circulation during the period.
Fair value – The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.
Gross investment value – Total of minimum payments under a finance lease from the point of view of the lessor and any unguaranteed residual value to which the lessor is entitled.
Net provisioning ratio – Denotes both net loan impairment provisioning/average risk-weighted asset (i.e. the ratio of net new loan impairment provisions relative to the average risk-weighted assets in the banking book) and net loan impairment provisioning / total loan portfolio (i.e. the ratio of net new loan impairment provisioning relative to the total loan portfolio).
Operating lease – Lease under which commercial ownership remains with the lessor alongside legal ownership, with the effect that the lessor must show the asset on its balance sheet.
Operating profit/loss – In IFRS-compliant financial statements, consists of operating income net of general administrative expenses. Operating income comprises net interest income, net commission income, trading profit/loss and other operating profit/loss adjusted by the net result from hedge accounting and net income from other derivative instruments. General administrative expenses comprise staff expenses and other administrative outlay and depreciation/amortisation/write-downs of tangible and intangible fixed assets.
Own funds within the meaning of BWG – Made up of core capital (tier 1), additional and subordinated capital (tier 2) and short-term subordinated capital and rededicated tier 2 capital (tier 3).
Own funds ratio – This ratio’s numerator is own funds within the meaning of the Austrian Banking Act (BWG) and its denominator is the basis of assessment pursuant to section 22 BWG plus 12.5 times the own funds required as cover for the trading book and open currency positions.
Projected unit credit method – An actuarial valuation method defined by IAS 19 that sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation (sometimes known as the accrued benefit method prorated on service or as the benefit/years of service method).
Repurchase agreement – During a genuine repurchase transaction (repo), the enterprise sells assets to a counterparty and concurrently agrees to reacquire the assets at an agreed time and at a prearranged price.
ROE (return on equity) – Consolidated profit before tax or after tax in relation to average balance sheet equity (including minority interests).
RZB-Kreditinstitutsgruppe – Pursuant to section 30 of the Austrian Banking Act (BWG), RZB-Kreditinstitutsgruppe is made up of all banks, financial institutions, securities companies, and companies rendering banking-related ancillary services in which Raiffeisen Zentralbank holds direct or indirect interests as a superordinate institution.
Stress tests – Stress tests endeavour to simulate extreme fluctuations in market parameters. They are used because such fluctuations are usually inadequately captured by VaR models (VaR forecasts maximum losses under normal market conditions).
VaR – Value at risk expresses the potential loss that will, with a 99 per cent probability, not be exceeded within the period for which an asset is held in the portfolio in question.
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Bosnia and Herzegovina Raiffeisen Bank d.d. Bosna i Hercegovina Danijela Ozme 3, 71000 Sarajevo Phone +387-33-287 100 Fax +387-33-213 851 SWIFT/BIC: RZBABA2S www.raiffeisenbank.ba Contact: Edin Muftić edin.muftic@rbb-sarajevo.raiffeisen.at 68 banking outlets
Hungary Raiffeisen Bank Zrt. Akadémia utca 6, 1054 Budapest Phone +36-1-484 4400 Fax +36-1-484 4444 SWIFT/BIC: UBRTHUHB www.raiffeisen.hu Contact: Eva Felegyhazi eva.felegyhazi@raiffeisen.hu 99 banking outlets
Poland Raiffeisen Bank Polska S.A. Ul. Pieçkna 20, 00-549 Warszawa Phone +48-22-585 2000 Fax +48-22-585 2585 SWIFT/BIC: RCBWPLPW www.raiffeisen.pl Contact: Piotr Czarnecki piotr.czarnecki@raiffeisen.pl 83 banking outlets
Russia ZAO Raiffeisenbank Austria Troitskaya Ul. 17/1, 129090 Moskwa Phone +7-495-721 9900 Fax +7-495-721 9901 SWIFT/BIC: RZBMRUMM www.raiffeisen.ru Contact: Johann Jonach jjonach@raiffeisen.ru 27 banking outlets
Serbia and Montenegro Raiffeisenbank a.d. Bulevar AVNOJ-a 64a 11070 Novi Beograd Phone: +381-11-320 2100 Fax: +381-11-220 7080 SWIFT/BIC: RZBJCSBG www.raiffeisenbank.co.yu Contact: Oliver Rögl oliver.roegl@raiffeisenbank.co.yu 45 banking outlets
Austria Raiffeisen-Leasing International GmbH Am Stadtpark 9, 1030 Vienna Phone +-43-1-71 707-2966
Bosnia and Herzegovina Raiffeisen Leasing d.o.o. St. Branilaca Sarajeva 20, 71000 Sarajewo Phone +387-33-970 7979 Fax +387-33-974 2057 Contact: Belma Sekavic-Bandic info.leasing@rbb-sarajevo.raiffeisen.at 5 branches
Bulgaria Raiffeisen Leasing Bulgaria OOD Business Park Sofia Building 11, 2nd floor, 1715 Sofia Phone +359-2-970 7979 Fax +359-2-974 2057 www.rlbg.bg Contact: Ekaterina Hristova Ekaterina.hristova@rbb--sofia.raiffeisen.at 10 branches
Romania Raiffeisen Leasing SRL Calea 13 Septembrie 90 Grand Offices Marriott Grand Hotel Sector 5, 76122 Bucures̨ti Phone +40-21-403 3300 Fax +40-21-403 3298 Contact: Bernd Künzel bernd.kuenzel@raiffeisen-leasing.ro 17 branches
Russia OOO Raiffeisen Leasing Nikoloyamskaya 13/2 109240 Moskwa Phone +7-495-721 9980 Fax +7-495-721 9901 Contact: Jaroslaw Konczewski jkonczewski@raiffeisen.ru 4 branches
Serbia and Montenegro Raiffeisen Leasing d.o.o. Bulevar AVNOJ-a 45a 11070 Beograd Phone +381-11-301 6580 Fax +381-11-313 0081 Contact: Ralph Zeitlberger ralph.zeitlberger@rba-belgrade.raiffeisen.at 5 branches
Slovenia Raiffeisen Leasing d.o.o. Tivolska 30 (Center Tivoli), 1000 Ljubljana Phone +386-1-241 6250 Fax +386-1-241 6268 Contact: Borut Bozic borut.bozic@raiffeisen-leasing.si 2 branches
Austria (Head Office) Am Stadtpark 9, 1030 Wien Phone +43-1-717 07-0 Fax +43-1-717 07-1715 SWIFT/BIC: RZBAATWW www.rzb.at
Basis of assessment (incl. market risk) 29,914 52.3% 19,638 12,802 9,283
Core capital ratio (Tier 1), incl. market risk 8.0% (2.1 PP) 10.1% 9.4% 9.8%