Survey of key data Monetary values in € million 2008 Change 2007 20061 2005 2004
Loans and advances to banks 9,038 (18.2)% 11,053 8,202 5,794 4,779
Loans and advances to customers 57,902 18.5% 48,880 35,043 24,714 16,242
Consolidated return on equity (after minorities) 17.4% (2.7) PP 20.1% 21.4% 17.2% 17.0%
Net provisioning ratio (avg. risk-weighted assets) 1.32% 0.48 PP 0.84% 0.97% 0.81% 0.98%
Number of shares on 31.12. in million 154.67 – 154.67 142.77 142.77
Preface by the Chairman of the Managing Board 24 Managing Board of Raiff eisen International 26 Report of the Supervisory Board 28 Overview of Raiff eisen International 30 Interview with the Chairman of the Managing Board 32 Stock and investor relations 35 Corporate governance report 40 Corporate responsibility 49
Poland Offi cial name Republic of Poland/ Rzeczpospolita Polska Surface area 312,685 km2
(World ranking: 68) Inhabitants 38.1 million (World ranking: 32) Capital Warsaw/Warszawa (1.7 million inhabitants) Other large Łódź, Kraków, cities Wrocław, Poznań, Gdańsk Offi cial language Polish Currency Złoty
Population Inhabitants per km2 122 Average growth (0.1)% Poles 98.7% Other 1.3%
Top 5 countries of import Germany 24% Russia 9% PR China 7% Italy 7% France 5%
Raiff eisen International in Poland Balance sheet total in € million 7,108 Branches 123 Employees 3,271
Economy Gross domestic product in US$ billion 143.0 Gross national income per capita US$ 12,790
Import goods (Top 5) Electronics 14% Machinery 12% Chemicals and chemical products 9%
Export goods (Top 5) Motor vehicles and parts 17% Machinery 14% Electronics 14% Electro-technology 9% Chemicals and chemical products 6%
Raiff eisen International in the Czech Republic Balance sheet total in € million 7,198 Branches 107 Employees 2,654
Slovakia Offi cial name Republic of Slovakia/ Slovenská republika Surface area 49,034 km2 (World ranking: 126) Inhabitants 5.4 million (World ranking: 109) Capital Bratislava (426,091 inhabitants) Other large Košice, Prešov, Nitra, cities Žilina, Banská Bystrica Offi cial language Slovakian Currency Euro (Slovakian crown until 31 Dec. 2008)
Import goods (Top 5) Machinery and transport equipment 44% Mineral oils, lubricants 11% Chemical products 9% Food, beverages, tobacco 5% Iron and steel 5%
Hungary Offi cial name Republic of Hungary/ Magyar Köztársaság Surface area 93,030 km2
(World ranking: 107) Inhabitants 10.1 million (World ranking: 80) Capital Budapest (1.7 million inhabitants) Other large Debrecen, Miskolc, cities Szeged, Pécs, Györ Offi cial language Hungarian Currency Forint
Population Inhabitants per km2 108 Average growth (0.2)% Hungarians 96.6% Other 3.4%
Top 5 countries of import Germany 27% Russia 7% Austria 6% PR China 6% Italy 6%
Top 5 countries of export Germany 28% Italy 6% Austria 5% Slovakia 5% Romania 5%
Raiff eisen International in Hungary Balance sheet total in € million 9,568 Branches 164 Employees 3,960
Offi cial name Republic of Slovenia/ Republika Slovenija Surface area 20,253 km2
(World ranking: 150) Inhabitants 2.0 million (World ranking: 142) Capital Ljubljana (246,753 inhabitants) Other large Maribor, Celje, Kranj, cities Velenje, Koper Offi cial language Slovenian Currency Euro
Export goods (Top 4) Machinery and transport equipment 40% Chemical products 14% Semi-fi nished products 13% Iron and steel 4%
Top 5 countries of export Germany 19% Italy 13% Croatia 8% Austria 8% France 7%
(World ranking: 123) Inhabitants 4.4 million (World ranking: 116) Capital Zagreb (779,145 inhabitants) Other large Split, Rijeka, Osijek, cities Zadar, Karlovac Offi cial language Croatian Currency Kuna
Economy Gross domestic product in US$ billion 42.9 Gross national income per capita US$ 9,310
Export goods (Top 5) Machinery and vehicles 31% Preliminary products 15% Chemical products 9% Petroleum and petroleum derivatives 9% Food and live animals 8%
Top 5 countries of export Italy 19% Bosnia and Herzegovina 14% Germany 10% Slovenia 8% Austria 6%
Raiff eisen International in Croatia Balance sheet total in € million 5,984 Branches 79 Employees 2,333
(World ranking: 124) Inhabitants 3.9 million (World ranking: 124) Capital Sarajevo (304,075 inhabitants) Other large Banja Luka, Tuzla, cities Zenica, Mostar, Bihać Offi cial Bosnian, languages Croatian or Serbian Currency Convertible marks
Population Inhabitants per km2 77 Average growth 0.3% Bosnians 48% Serbs 37% Croats 14% Other 1%
Top 5 countries of import Croatia 17% Germany 12% Serbia (incl. Montenegro) 10% Italy 9% Slovenia 8%
Top 5 countries of export Croatia 19% Italy 14% Germany 13% Serbia (incl. Montenegro) 13% Slovenia 12%
Raiff eisen International in Bosnia and Herzegovina Balance sheet total in € million 2,395 Branches 100 Employees 1,776
Offi cial name Republic of Albania/ Republika e Shqipërisë Surface area 28,748 km2 (World ranking: 139) Inhabitants 3.2 million (World ranking: 131) Capital Tirana/Tiranë (343,078 Einwohner) Other large Durrës, Elbasan, cities Shkodra, Vlora, Korça Offi cial language Albanian Currency Lek
Economy Gross domestic product in US$ billion 9.1 Gross national income per capita US$ 2,930
Top 5 countries of import Italy 27% Greece 15% Turkey 7% Germany 6% Russia 4%
Offi cial name Republic of Kosovo/ Republika e Kosovës (Albanian)/ Republika Kosovo (Serbian) Surface area 10,887 km2
Import goods (Top 4) Food 25% Machinery 21% Mineral products 18% Chemical products and wood 10%
Export goods (Top 2) Metal wastes 49% Food 16% (no other information available)
Economy Gross domestic product in US$ billion 32.0 Gross national income per capita US$ 4,030
Chemical products 14% Semi-products 9% Food, live animals, beverages, tobacco 5%
Top 5 countries of import Russia 14% Germany 12% Italy 10% PR China 7% Slovenia 4%
Export goods (Top 5) Food, live animals, beverages, tobacco 17% Semi-products 15% Machinery and transport equipment 14% Chemical products 10% Raw materials 5%
Top 5 countries of export Italy 12% Bosnia and Herzegovina 12% Montenegro 11% Germany 11% Russia 5%
Top 5 countries of export Turkey 12% Germany 10% Italy 10% Greece 9% Belgium 6%
(World ranking: 80) Inhabitants 21.6 million (World ranking: 51) Capital Bucharest/Bucureşti (1.9 million inhabitants) Other large Cluj-Napoca, Iaşi, cities Constanţa, Timişoara, Craiova Offi cial language Romanian Currency Lei
Export goods (Top 5) Supply products to industry 37% Durable consumer goods 24% Means of transport and parts 15% Fuel and petrol, mineral oil 8% Food and beverages 3%
Top 5 countries of export Italy 17% Germany 17% France 8% Turkey 7% Hungary 6%
(World ranking: 43) Inhabitants 46.8 million (World ranking: 27) Capital Kiev/Kyïv (2.7 million inhabitants) Other large Charkiv, cities Dnipropetrovs’k, Odesa, Donec’k, Zaporižžja Offi cial language Ukrainian Currency Hryvnia
Export goods (Top 5) Iron metal 40% Food products 13% Machinery and electro-technological products 10% Primary energy source and mineral products 9% Chemicals 8%
Raiff eisen International in Ukraine Balance sheet total in € million 6,285 Branches 1,134 Employees 17,368
Economy Gross domestic product in US$ billion 36.9 Gross national income per capita US$ 3,470
Import goods (Top 5) Mineral products, primary energy source 36% Reactors, boilers, equipment 12%
Top 5 countries of import Russia 60% Germany 8% Ukraine 5% PR China 3% Poland 3%
Top 5 countries of export Russia 36% The Netherlands 18% United Kingdom 6% Ukraine 6% Poland 5%
Raiff eisen International in Belarus Balance sheet total in € million 1,646 Branches 103 Employees 2,168
Offi cial name Russian Federation/ Rossijskaja Federacija Surface area 17,075,400 km2
Economy Gross domestic product in US$ billion 986.9 Gross national income per capita US$ 5,770
Import goods (Top 5) Machinery, equipment, means of transport 49% Chemical products and rubber 14% Food 14% Metals and metal products 8% Clothing and shoes 4%
Top 5 countries of import Germany 13% PR China 12% Ukraine 7% Japan 6% USA 5%
Export goods (Top 5) Energy sources 65% Metals and metal products 14% Chemical products and rubber 6% Machinery, equipment 5% Wood and wood products 4%
Top 5 countries of export The Netherlands 12% Italy 8% Germany 8% Turkey 5% Belarus 5%
This change in the global economic situation has led us to focus even more on the quality of our assets. Therefore, a risk policy geared to the new environment is the centerpiece of our action package. We have committed ourselves to even stricter underwriting standards on new loans concerning credit limits, maturities and collateralization. Credit growth will slow down noticeably, and we will see an increase in loan defaults from companies and private households. Further measures are aimed at increasing effi ciency and continuously growing in the retail division, where our primary goal is to promote further expansion of customer deposits.
The Czech Raiff eisenbank’s merger with eBanka in July 2008 marked the successful conclusion of the integration of our tenth acquisition. For the second year in a row, we refrained from purchasing another bank in 2008. This was a logical step, given that we are already extremely well-positioned throughout the region and in light of the global deterioration of the economic environment. This in part signifi cant macroeconomic downturn also provided the grounds for the bank’s fi rst reduction in staff numbers – namely, in Ukraine – after many years of continual staff expansion. Unfortunately, we also had to take a similar step in Hungary at the beginning of the current year.
In Russia, Raiff eisenbank was one of the fi rst system-relevant banks to sign an agreement with the Russian Central Bank. Based on that agreement, loans by Raiff eisenbank to the country’s smaller banks are guaranteed to a large extent by the central bank. That has improved the fl ow of liquidity to small and medium-sized local banks and contributed to stabilizing the banking market.
We are pleased that the services and positioning of Raiff eisen International received recognition from leading fi nancial magazines even in a diffi cult market environment. Euromoney, Global Finance, and The Banker all agreed in 2008 that Raiff eisen International together with RZB is the best banking group in Central and Eastern Europe.
In this year of very great challenges for all people and businesses, the confi dence of our customers and business associates is enormously important. I therefore wish to thank them for that confi dence. My gratitude also extends to our shareholders, both to Raiff eisen Zentralbank as our stable core-shareholder as well as to our institutional and private investors. We greatly appreciate their confi dence in view of the unpleasant situation on the stock markets. Finally, I sincerely thank our more than 63,000 employees. They were the ones who made our outstanding development possible and will use their expertise and dedication to best utilize the opportunities of the crisis.
The annual fi nancial statements and management report as well as the consolidated fi nancial reports and consolidated management report for 2007 were examined at the meeting on 26 March 2008. Pursuant to the Audit Committee ’s recommendation, the annual fi nancial statements were ratifi ed, and the proposal regarding the use of profi t was approved. The Supervisory Board was informed about the management letter. Note was taken of the corporate governance report together with the external examination. The Supervisory Board joined in the Audit Committee’s proposal to appoint KPMG Austria GmbH, Wirtschaftsprüfungs - und Steuerberatungsgesellschaft as auditor and submitted that proposal to the Annual General Meeting. Finally, the merger of Raiff eisen International GROUP IT GmbH with Raiff eisen International was discussed, and a report was given on that topic to the Annual General Meeting.
At the meeting on 9 June 2008, the compliance report was submitted and discussed in addition to the regular report on the situation of the Company and the Group.
The current situation on the capital markets also shaped the meeting on 3 December 2008. At that meeting, the planning for 2009 was presented to the Supervisory Board and subsequently discussed. In addition, the Managing Board reported on lending policy measures and projects in the area of IT. A status report was given on the topic of compliance. At that meeting, the Supervisory Board appointed Rainer Franz as a member of the Managing Board for another year.
The Working Committee dealt essentially with the appointment of offi cers in the Group and disposition of shareholdings in Group companies. The Audit Committee prepared the ratifi cation of the annual fi nancial statements and dealt with the proposal concerning the distribution of profi t and the management letter. It furthermore made a proposal for the selection of the auditor of the fi nancial statements. The Personnel Committee concerned itself with matters related to the remuneration of the Managing Board, including the bonus arrangements and the directors and offi cers insurance.
Raiff eisen International is one of the leading banking groups in Central and Eastern Europe. Its roots go back to 1986, when the fi rst subsidiary bank was founded in Hungary. This occurred at a time when the fall of the Iron Curtain was not yet in sight. So, Raiff eisen International may be described as a pioneer of the expansion to Central and Eastern Europe. In the subsequent years, the Group fi rst established banks of its own in various countries of the region. In 2000 the acquisition of existing banks began as well. The most recent acquisition was that of Impexbank in Russia in 2006, whose merger with the Russian Raiff eisenbank has now been completed. As a result, one of the most important banking networks in Central and Eastern Europe has arisen.
The network comprised 15 banks and further specialist companies, including leasing companies, in 17 markets at the end of December 2008. The banks and specialist companies had 3,231 business outlets and 63,376 employees serving more than 14.7 million customers. This expansion documents not only the great importance of the Raiff eisen International network, but also means security through geographical risk diversifi cation in a diffi cult market environment. Because the network banks in these 17 markets all operate as mutually independent units, an unfavorable development in one country can be off set by a positive trend in another market.
Euromoney awarded Raiff eisen International and RZB the award “Best Banking Group in Central and Eastern Europe (CEE)” in July 2008 for the fourth year running. The magazine also honored the network banks in Albania, Belarus, Bosnia and Herzegovina, Kosovo, Serbia, and Slovakia as “Best Bank”.
The Banker named Raiff eisen International together with RZB “Bank of the Year” in Central and Eastern Europe in November 2008. At the same time, it honored the local subsidiaries in Bulgaria, Croatia, and Slovakia as “Bank of the Year”.
Emerging from the crisis stronger with our customers Interview with Herbert Stepic, Chairman of the Managing Board of Raiff eisen International Bank-Holding AG
By no means! Of course, the entire region is affected by the crisis, but the media sometimes give the impression that Eastern Europe is the reason for the crisis or is making it dramatically worse. That is a worrisome tendency that I strongly object to. I see a new chapter beginning. Growth has been interrupted or continues, but in some cases at signifi cantly lower levels. In the past fi ve years, the countries in this region have grown on average 4.5 percentage points more strongly than the euro area. The diff erence is even likely to have been above 4 percentage points in 2008. Now, that has probably been accompanied by some overheating tendencies in certain regions and sectors. So, a decline of the growth diff erence to about 2.5 percentage points, as many now forecast for the medium term, is a healthy development that will help sustain the economic catch-up process.
portfolio and write-downs like most of its local and international competitors. As a consequence it will not be able to continue posting record results as in the past years. However, thanks to its strong core business, RZB will do comparatively well – given the general conditions – and report a positive result for 2008. The shareholders also have given RZB and its strategy for increasing capital their full backing.
One thing you probably are not happy about in 2008 is your stock price, right?
Furthermore, we will do our best to support our customers in this crisis and to emerge from it stronger with them. What makes me particularly confi dent is our staff . I am very proud of them! Our employees are mostly young people, all hungry for success, and have aboveaverage levels of education. Our Group has excellent human capital at its disposal, which is what has made us so successful and will now contribute greatly to overcoming the crisis.
Finally, a question about your charity organization. How is it doing?
Concerns about infl ation and rising commodity prices dominated market events until mid-year. In particular, the sharp rise of oil prices to a high of almost US$ 150 per barrel drove up infl ation markedly. The infl ation rate in the euro countries was at times considerably above the ECB’s target of 2 per cent, reaching 4 per cent in June and July. Prices also climbed appreciably in Central and Eastern Europe, and even increased by double-digit percentage rates in the Commonwealth of Independent States.
The fi nancial crisis worsened signifi cantly in the third quarter, triggered by the collapse of US investment bank Lehman Brothers, which in only a few days led several well-known banks to seek mergers with other large fi nancial institutions. AIG, the world’s largest insurer, US mortgage fi nance companies Fannie Mae and Freddie Mac, and other banks, including some from Europe, only managed to avoid bankruptcy through government assistance and partial nationalization.
It then became clear the fi nancial crisis would also aff ect the real economy. The US government adopted a fi rst package of measures totaling US$ 700 billion to stabilize the fi nancial market and restore confi dence. On 11 and 12 October 2008, the European Union likewise adopted joint measures to strengthen the European fi nancial system. Rescue packages were also adopted at the national level, which mostly consisted of government guarantees for liquidity procurement, providing funds to improve the equity situation, and increasing investor protection. These steps were buttressed by further key interest rate cuts by the central banks of major industrialized countries.
Raiff eisen International is currently included in six main share indices. In terms of weighting, the stock occupies seventh place in each of the two most important Austrian share indices, the ATX and the ATX Prime. It is furthermore included in the Dow Jones Euro Stoxx Banks, which is important for the sector.
Raiffeisen International ATX (relative to RI) DJ Euro Stoxx (relative to RI)
The Managing Board comprehensively informed the public, investors, and analysts about business fi gures for 2007 and interim results during the year under review in the context of presentation and conference calls. In each case, the management faced the questions raised by the participants in detailed question and answer sessions. These sessions took account of the increased information needs of market operators, particularly against the background of the fi nancial crisis.
The goal of Raiff eisen International’s e-mail service is to ensure that institutional and private investors receive information simultaneously. Online registration for this widely used information service is possible at any time at www. ri.co.at → Investor Relations → Ordering and E-mail Service.
High/low in 2008 (closing prices) € 110.20/€ 16.23 Earnings per share for 2008 € 6.39 Market capitalization as of 31 December 2008 € 3 billion Average daily trading volume in 2008 (single counting) 551,618 shares Stock exchange turnover in 2008 (single counting) € 8.7 billion Free fl oat as of 31 December 2008 approx. 30%
Financial calendar 2009 26 February Start of Quiet Period 26 March 2008 Annual Report, Analyst Conference, Conference Call 30 April Start of Quiet Period 14 May First Quarter Report, Conference Call 9 June Annual General Meeting 17 June Ex Dividend and Dividend Payment Date 30 July Start of Quiet Period 13 August Semi-Annual Report, Conference Call 29 October Start of Quiet Period 12 November Third Quarter Report, Conference Call
Raiff eisen International Bank-Holding AG, Investor Relations Am Stadtpark 3, 1030 Wien, Austria
Raiff eisen International agrees to comply with the Austrian Corporate Governance Code (ACGC) as amended in June 2007. The ACGC is publicly available at the websites of the Austrian Working Group for Corporate Governance (www.corporate-governance.at) and Raiff eisen International (www.ri.co.at).
Composition of the Managing Board The Managing Board currently consists of six members: The members of the Managing Board have seats on the supervisory boards of the following domestic and foreign companies not included in the consolidated fi nancial statements: ■ Herbert Stepic: OMV AG
■ The supervisory board member shall not maintain or have maintained in the past year any business relations with the company or one of its subsidiaries to an extent of signifi cance for the member of the supervisory board. This shall also apply to relationships with companies in which a member of the supervisory board has considerable economic interest. The approval of individual transactions by the supervisory board pursuant to L Rule 48 does not automatically mean the person qualifi es as not independent.
■ The supervisory board member shall not be a member of the management board of another company in which a member of the management board of the company is a supervisory board member.
■ The supervisory board member shall not be a close relative (direct off spring, spouse, life partner, parent, uncle, aunt, sibling, niece, or nephew) of a member of the management board or of persons who hold one of the aforementioned positions.
Manfred Url, 1956 11 May 2001 Regular Annual Deputy Chairman General Meeting 2011
All members of the Supervisory Board of Raiff eisen International meet the criteria applying to the independence of supervisory board members.
As a member of the Supervisory Board, Steward D. Gager is neither a shareholder with a stake of more than 10 per cent nor represents such shareholders and is therefore “free fl oat representative ” in the meaning of C Rule 54 of the ACGC 2007.
Members of the Supervisory Board have the following supervisory board seats in domestic and foreign companies: ■ Walter Rothensteiner: UNIQA Versicherungen AG ■ Karl Sevelda: Bene AG, Unternehmens Invest AG
Persons who are 75 years or older may not be elected as a member of the Supervisory Board or be reappointed for another term in offi ce. Furthermore, no person may be elected who has altogether more than eight supervisory board seats in companies listed on the stock exchange. The chair in the supervisory board of a company listed on the stock exchange counts twice.
The Managing Board of Raiff eisen International manages the Company according to clearly defi ned goals, plans, and guidelines with a forward-looking orientation and relying on modern principles of entrepreneurship. In the process, it constantly takes into account the interests of the shareholders and employees.
The remuneration of the Managing Board is reported according to fi xed and performance-based components including remuneration for membership in boards of subsidiaries, bonuses, and payments in kind.
For the duration of the Managing Board contract, payments are made to pension funds on the basis of a contribution-oriented system. On the whole the same rules apply to the Managing Board members as apply to employees. They provide that a basic contribution to a pension fund and an additional contribution be made by the Company if the employee makes contributions in the same amount. Three Managing Board members additionally have individual retirement benefi ts that are funded by pension liability insurance.
The following amounts of remuneration were paid to the Managing Board of Raiff eisen International: In the year under review, the share of performance-based remuneration components amounted to 60.7 per cent. It had been 45.1 per cent in the preceding year.
It is a prerequisite for participation in the SIP that the benefi ciaries make an investment of their own and hold a number of Raiff eisen International shares during the term that corresponds to at least 30 per cent of the number of conditionally allotted shares.
A tranche of the remuneration program matured for the fi rst time in 2008 (the 2005 SIP tranche). In accordance with the terms of the program (published in the Amtsblatt zur Wiener Zeitung on 9 August 2005), the maximum number of shares to be allotted, i.e., maturing shares, was reached by exceeding the set performance criteria (average return on equity over the waiting period and TSR ranking). Because of the designated value limit for an allotment, the lower number of shares shown in the following table was actually transferred. The value of the allotted shares is equivalent to 65.69 per cent of the performance-based remuneration components.
To avoid legal uncertainties, a severance indemnity was paid in cash instead of a transfer of shares in four countries in accordance with plan terms and conditions for qualifying employees. In Austria, the possibility was granted to qualifying persons likewise to receive a cash settlement instead of half of the shares due in order to pay from that the wage tax due at the time of transfer. For these reasons, a lower number of actually transferred shares was deducted from the total number of own shares.
A new tranche is issued in the framework of the SIP every year. That means that conditional shares are allotted respectively for three tranches as of the balance sheet date. The number of those shares amounted to 202,377 as of 31 December 2008 (the 2006 allotment accounted for 65,803 of those, the 2007 allotment for 51,903, and the 2008 allotment for 84,591).
Managing Board members of bank subsidiaries associated with Raiff eisen International 81,057 6,579,397 64,616
The originally disclosed number of conditionally allotted shares changed as a result of various personnel changes in the Group units and the maturing of the 2005 SIP tranche and is presented in the following table as an aggregate: 2006 SIP to 2008 SIP
Furthermore, there are no indemnifi cation agreements between the Company and its Managing Board and Supervisory Board members, e.g., for the eventuality of a public takeover bid.
Number of shares Minimum Maximum maturing as of allotment allotment Groups of persons 31 Dec. 2008 of shares of shares
Executives of Raiff eisen International and other enterprises associated with it 32,822 8,206 49,234
Following the recommendation in the preamble to the ACGC, the Company commissioned an external evaluation by Univ.-Prof. DDr. Waldemar Jud Unternehmensforschungs GmbH, which confi rmed full compliance with the Austrian Corporate Governance Code. The results of that evaluation are available to the public on the Raiff eisen International website (www.ri.co.at).
As owners of the Company, the shareholders exercise their rights by voting at the Annual General Meeting. The voting proceeds according to the one-share-one-vote principle in which all shareholders have equal rights without voting right restrictions. Every unit share issued confers one vote, and no registered shares have been issued. The shareholders can exercise their voting right themselves or through proxies. Unless diff erent voting majorities are prescribed by law, the Annual General Meeting’s resolutions are ratifi ed by a simple majority of the capital stock in attendance at the time of ratifi cation. In addition to voting on the discharge of the Managing Board and Supervisory Board, the election of Supervisory Board members and on proposals they have submitted themselves, the shareholders vote on the use of profi t and hence on the amount of the dividend. To ensure maximum transparency of the Annual General Meeting, the opening comments and speeches by the Managing Board are broadcast live on the internet at www.ri.co.at → Investor Relations → Events → Annual General Meeting and may also be viewed there later. That gives shareholders who were unable to attend the Annual General Meeting in person the opportunity to obtain the information fi rst-hand.
Transparency Open and transparent communication with shareholders and their representatives, customers, analysts, employees, and the interested public is especially important to Raiff eisen International. The internet and particularly the Company website play an important role in that. In this regard, the website presents, among other things, the following continuously updated information: ■ Annual and interim reports ■ Company presentations ■ Ad hoc announcements, press releases, and IR mailings ■ Share price information and data on the Company’s stock ■ Financial calendar with long advance notice of important dates ■ Directors’ dealings ■ Articles of association of Raiff eisen International ■ Criteria of independence for Supervisory Board members ■ Analysts’ estimates ■ Forms for ordering printed materials and signing up for automatically distributed
The Supervisory Board’s consent is required for contracts between the Company and members of the Supervisory Board that obligate the members to performance in relation to the Company or a subsidiary (Section 228 (3) Commercial Code) apart from their activity in the Supervisory Board for more than merely negligible compensation. That also applies to contracts with enterprises in which a Supervisory Board member has a considerable economic interest. The Company did not enter into any such contracts in 2008.
Raiff eisen International’s close link to the issue of corporate responsibility is also shown by the gable cross, the trademark of the entire Raiff eisen Banking Group. It consists of two stylized horse’s heads crossed on the gable of a house. It is a traditional European symbol believed to protect a house and its occupants from outside dangers and to ward off evil. As the Raiff eisen logo, it stands for the social security that Raiff eisenbank members enjoy through their self-determined cooperation. The gable cross is used around the world, and so too for Raiff eisen International’s branding.
Corporate responsibility Raiff eisen International is committed to corporate responsibility as a modern version of Friedrich Wilhelm Raiff eisen’s ideas concerning corporate conduct. The starting point for his notion was helping the economically disadvantaged by enabling them to help themselves through cooperative organizations. This linkage of economic activity with aspects of social welfare may be understood as corporate responsibility, with assumption of environmental responsibility likewise playing a vital role both in the concept of corporate responsibility and for Raiff eisen International
Raiff eisen International serves more than 14.7 million customers, including many small and medium-sized businesses as well as large enterprises. In equity participations, the company focuses on creating value for the long term and not siphoning off profi ts for the short term. Even in crises, it strives to resolve diffi culties jointly with the aff ected parties.
Raiff eisen International is aware of the especially intense competition for qualifi ed employees in Central and Eastern Europe. It therefore positions itself as an attractive employer by giving employees extensive opportunities for education and training as well as room to develop their skills in a pleasant working environment.
Execution of the corporate responsibility concept is manifested in concrete behavior. An example of assuming environmental responsibility connected with Raiff eisen International’s core business is its fi nancing of the Kavarna wind energy farm in Bulgaria, which has an annual output of 40 megawatts, by the Raiff eisen-Leasing International subsidiary in cooperation with Raiff eisen Energy and Environment. By making this project possible, Raiff eisen International is contributing to the construction and operation of an environment-friendly plant to exploit renewable energy sources.
Another example of the successful combination of Raiff eisen International’s core business with responsible conduct is the establishment of a training center for its employees in Ukraine. The Financial Academy Raiff eisen Bank Aval (FARBA) helps the company pursue its goal of optimally educating and training its employees to enhance their effi ciency. It does so, on the one hand, with the intention of promoting its core business. On the other hand, the education and training also benefi ts the employees, since they can realize their potential – an important aspect for work satisfaction and career opportunities.
Economic growth in the euro area slowed signifi cantly during 2008 and is likely to be only about 0.8 per cent for the full year. Real GDP in the euro area still grew by 2.6 per cent in 2007. The countries of Central and Eastern Europe held up comparatively well in the context of the global economic downswing and the continuing crisis on international fi nancial markets in 2008. According to current estimates, the reporting period’s real GDP growth in the new EU member states of Central Europe (Czech Republic, Hungary, Poland, Slovakia, and Slovenia) came to an average of 4.1 per cent. This decline against the 5.9 per cent increase achieved in the preceding year was largely in line with and attributable to the growth slowdown in Western Europe.
Economic development in the Southeastern European countries (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania, and Serbia ) showed continued high momentum in 2008 with average real GDP growth of 6.1 per cent and resulted primarily from good harvests in the agricultural sector, which had suff ered in the year before due to weather-related losses.
A slowdown was also registered in the European countries of the CIS (Belarus, Russia, and Ukraine), where real GDP growth averaged only 5.4 per cent in 2008 after 8.1 per cent in the previous year. One major reason for this was the decline of raw material prices from about mid-year onward and the worsening situation of the local and international fi nancial sector. However, the extreme rise of oil prices still stimulated the Russian economy until mid-year.
Despite this trend reversal around mid-year, average infl ation rates in Central and Eastern Europe were above the preceding year’s level, in some cases signifi cantly. The increase was least pronounced in the Central European countries at 5.1 per cent (after 3.5 per cent in 2007). The Southeastern European countries registered an increase to an average 8.6 per cent (after 5.0 per cent in the preceding year), with infl ation rates in Bulgaria (12.3 per cent) and Serbia (12.8 per cent) in the double-digit range. The increase in the CIS countries was even greater, with the average infl ation rate coming to 15.1 per cent (after 9.4 per cent the previous year). Ukraine registered the region’s highest infl ation rate at 25.2 per cent.
Burden due to inter national fi nancial markets The continuing crisis on international fi nancial markets initially peaked in September 2008 with the bankruptcy of US investment bank Lehman Brothers. Extensive support of the banking sector by governments and central banks in the United States and Europe helped temporarily stabilize the fi nancial markets in the fi nal months of 2008. On the other hand, a severe recession began to appear in the United States and Western Europe.
Banking sector development in Central and Eastern Europe The aggregate assets of banks in the entire region of Central and Eastern Europe continued to show increases in the fi rst half of 2008, though at a lower level than in the past few years. If the available fi gures are projected to the full year (no fi nal fi gures were available at the time this report was completed), assets of the banking sector in Central and Eastern Europe increased about 10 per cent on a euro basis in 2008. That represents a slowing of growth by about two-thirds, after an average increase of somewhat more than 30 per cent had been registered in 2007.
Introduction and scope of consolidation The consolidated fi nancial statements of Raiff eisen International are prepared in accordance with the International Financial Reporting Standards (IFRS). Raiff eisen International Bank-Holding AG also prepares individual fi nancial statements conforming to the Austrian Commercial Code (UGB), which provide the formal basis of assessment for calculating dividend payments and taxes. For more on the disclosures required by the UGB, please see the relevant sections of the notes to this report. The majority of Raiff eisen International is held by Raiff eisen Zentralbank Österreich Aktiengesellschaft (RZB), which makes it part of the RZB Group. The stake held by RZB amounted to about 70 per cent at the end of the year, and the rest of the shares were free fl oat.
As of 31 December 2008, Raiff eisen International’s scope of consolidation comprised 131 Group units, including network banks and leasing companies in 17 markets and a number of fi nancial companies and bank-related service pro-viders. For more information on changes in the scope of
Raiff eisen International has made use early of IFRS 8 in the present consolidated fi nancial statements. This standard lays out a new structure for segment reporting. Reporting is now based solely on regional units. Further details may be found in the consolidated fi nancial statements.
The table below gives an overview of the development of profi t from operating activities: Operating income up 29 per cent due to interest result
Net fee and commission income grew by almost 20 per cent, or € 247 million, to € 1,496 million, which represents a 31 per cent share of operating income. This solid growth was about equally distributed among all regions, with Central and Southeastern Europe accounting for the largest
Net trading income was 31 per cent, or € 40 million, above the preceding year’s value and amounted to € 168 million. That resulted in a 3 per cent share of operating income. The individual income components developed very diff erently. While the result from interestrelated business came to minus € 88 million due to the strong interest rate movements
Operating income General administrative expenses Cost/income ratio in € million in € million triggered by the global fi nancial crisis, profi t from currency-related business stood at € 258 million.
Net interest income Net fee and commission income Net trading income Other net operating icome
Against the background of the global fi nancial and economic crisis, from which the CEE countries are not being spared, allocations to provisioning for impairment losses had to be raised substantially in 2008, and especially in the fourth quarter. Provisions were raised by 119 per cent, or € 423 million, to € 780 million, and their increase was far above growth of business volume. While individual provisions rose by 78 per cent, portfolio-related provisions went up 266 per cent. Decreasing creditworthiness of borrowers and resulting lower internal and external ratings were the reason for that. The risk/earnings ratio therefore climbed signifi cantly from 14.8 to 24.1 per cent.
1 Excluding one-off effects due to the sale of Raiffeisenbank Ukraine and the minority stake in Bank TuranAlem in the amount of € 588 million.
Earnings per share (EPS) calculated from consolidated profi t improved by € 0.59 from € 5.80 to € 6.39. The average number of shares outstanding amounted to 153.6 million in 2008. That number stood at 145.0 million in 2007, because new shares from the capital increase of October 2007 were only included on a pro rata basis. The proposed dividend of € 0.93 per share is the same as the previous year, and the payout ratio therefore stands at 14.6 per cent.
The return on equity (ROE) before tax fell from 25.7 to 22.0 per cent. That was primarily due to the underlying average equity, which was 35 per cent above the preceding year’s level at € 6,483 million in 2008 because of profi t
Average equity Profit before tax ROE before tax ROE before tax (without one-off effects)
The eff ects of the global fi nancial and economic crisis were felt in some CEE countries due to the partly massive devaluation of local currencies against the euro, including especially the Ukrainian hryvnia, which lost 46 per cent on an annual basis. Double-digit percentage declines were likewise registered by the Polish zloty (minus 16 per cent), the Russian ruble (minus 15 per cent), and the Romanian leu and Serbian dinar (minus 12 per cent each). The severe currency devaluation had a corresponding eff ect on the equity denominated in the respective local currencies and goodwill. That resulted in a valuation loss of € 873 million in the year under review. Altogether, valuation gains and losses had negative eff ects on equity in the amount of € 1,050 million.
As in the preceding years, the increase was mainly due to growth of loans to customers in 2008, which were up by 18 per cent, or € 8.5 billion, after provisioning.
In 2008 Basel II was adopted to calculate capital adequacy, this provides for a more comprehensive and risk-sensitive backing of business with own funds. At the beginning of December, RZB received approval for partial use of the Internal Ratings-Based approach. As a sub-group of RZB, Raiff eisen International can use this approach too. In the case of Raiff eisen International, the network banks in the Czech Republic, Slovakia, and Hungary use the approach. For the remaining Group units, risk-weighted assets (credit risk) is calculated according to the Standardized Approach.
While the switch to Basel II rules initially entailed an additional requirement totaling about € 740 million for the Standard Approach, of which operational risk accounted for € 440 million, use of the Internal Ratings-Based approach lowered the amount by € 86 million. An own funds requirement of about € 650 million therefore resulted for the full year from applying Basel II. Together with organic growth in 2008, that caused the own funds requirement to rise by 34 per cent to € 5,767 million.
Since no signifi cant changes in the scope of consolidation occurred in 2008, the comparability of the reported fi gures with the preceding year is not adversely aff ected. However, the items of the income statement were infl uenced more strongly than in the preceding years by the fl uctuations of some CEE currencies.
Interest income grew by 34 per cent to € 6,183 million. Just under 80 per cent of that derived from the most important balance sheet item, loans and advances to customers. Interest income from that source rose by almost 39 per cent on annual comparison. A signifi cant plus of 71 per cent was also shown by interest income from balances with central banks. The net contribution of interest income from derivatives stood at € 139 million.
Interest expenses increased by 35 per cent to € 2,951 million, which was somewhat greater than the growth of interest income. In general, the more diffi cult funding situation became noticeable for the Group toward the end of the year. Because of higher interest rates, expenses of € 1,583 million were incurred for customer deposits, which represents an increase of 34 per cent. On the other hand, the balance sheet item only rose on average by 15 per cent. Interest expenses for subordinated liabilities, needed mainly because of local supervisory regulations, climbed by 12 per cent from € 83 million to € 93 million.
The risk/earnings ratio – the ratio of provisioning for impairment losses to net interest income – went up 9.3 percentage points in the period under review to 24.1 per cent.
The most important earnings contribution came from payment transfer business with a share of 43 per cent. Income from that rose altogether by 14 per cent to € 643 million. The strongest regional increase was in Central Europe at 32 per cent.
In foreign currency and precious-metals business, the Group earned € 505 million and therefore 39 per cent more than in the preceding year. The increases came primarily from Central Europe and Russia. With a 34 per cent share, foreign exchange and notes/coins business made the second-largest contribution to net commission income.
Net income from fi nancial investments Net income from fi nancial investments amounted to minus € 26 million in the past year after minus € 9 million in the year before. After good development in the fi rst three quarters of 2008, the fi nancial market turmoil adversely aff ected valuation results on securities in the fourth quarter.
General administrative expenses General administrative expenses grew in the year under review by 21 per cent, or € 449 million, to € 2,633 million. Since operating income rose by 29 per cent and therefore more strongly than general administrative expenses did, the cost/income ratio improved signifi cantly. The ratio, which represents a bank’s cost effi ciency, decreased by 3.6 percentage points on the preceding year (57.6 per cent) to 54.0 per cent.
At 48 per cent, staff costs were the largest share of general administrative expenses in 2008. Compared with the preceding year, it grew by 18 per cent, or € 191 million, to € 1,276 million, of which wages and salaries accounted for 78 per cent, social security costs and staff -related taxes for 18 per cent, and voluntary social expenses, expenses on severance payments and retirement benefi ts, and expenses on the Share Incentive Program for 4 per cent. The strongest regional increases of staff costs were in the CIS and Southeastern Europe at 19 per cent each, followed by Central Europe at 15 per cent.
The Group’s average number of employees (expressed as full-time equivalents) grew by 11 per cent, or 5,904, to 61,454. The region with the largest increases was Southeastern Europe, where the average number of employees rose by 21 per cent, or 3,218. The corresponding number in Central Europe increased by 10 per cent, or 1,186, and in the CIS by only 5 per cent, or 1,468. Operating income per employee developed well, rising from € 68,000 to € 79,000.
With a plus of 27 per cent, or € 237 million, to € 1,113 million, other administrative expenses registered a greater increase than that of staff costs. The largest expense items were premises at € 314 million (plus 38 per cent), IT at € 153 million (plus 33 per cent), advertising at € 133 million (plus 17 per cent), and legal/consulting costs at € 108 million (plus 56 per cent). The cost of premises increased the most in the CIS at plus 52 per cent due to higher rents, while the corresponding fi gure rose by 32 per cent in Southeastern Europe and by 28 per cent in Central Europe.
The number of business outlets amounted to 3,231 at the end of the year. That means a net increase of 216 outlets compared with the preceding year. The new outlets were opened mainly in Southeastern Europe (212), and particularly in Romania (121) and Bulgaria (46). In the CIS, 35 branches were closed on balance due to further location optimization measures.
Finally, further income of € 4 million resulted from release of negative goodwill of Romanian securities service provider Raiff eisen Capital & Investment S.A., Bucharest. In the preceding year, similar initial consolidation eff ects in the amount of € 13 million had resulted from integrating three asset management companies.
Due to the worsened economic conditions, more provisions were made for loan defaults in 2008. Total provisioning for impairment losses therefore rose Group-wide by 49 per cent, or € 0.5 billion, to € 1.6 billion. In absolute terms, the increase of provisioning for impairment losses was the highest at € 220 million for
Loans and advances to banks fell by 18 per cent and amounted to € 9 billion at the end of 2008. That decline is attributable to a reduction of deposits at commercial banks by 20 per cent, or € 1.3 billion, and of deposits at central banks by 16 per cent, or € 0.7 billion. The item’s share of balance sheet assets dropped by 4 percentage points to 11 per cent.
Liabilities The structure of the Group’s liabilities showed a shift at the end of 2008 from deposits from customers to deposits from banks. Deposits from customers continued to dominate the
Deposits from customers rose altogether by 9 per cent, or € 3.7 billion, to € 44.2 billion. At € 3.4 billion, the increase in Central Europe was the largest. Deposits from retail customers went up 11 per cent to € 23.2 billion, while deposits from corporate customers grew by 3 per cent to € 18.4 billion.
Raiff eisen International’s balance sheet equity including consolidated profi t and minority interests amounted to € 6,518 million at the end of the year. Despite consolidated profi t including minority interests of € 1,078 million, equity remained below the preceding year’s level by 2 per cent, mainly due to currency devaluations.
Paid-in capital, which consists of subscribed capital and capital reserves, remained nearly unchanged at € 3,037 million. The eff ects of share buy-backs and of amounts from the Share Incentive Program booked directly to equity reduced paid-in capital by € 20 million.
Equity tors were dividend distributions to outside share-holders of Group units in the amount of € 47 million and currency diff erences of minus € 16 million.
banks, corporates and sovereigns according to the IRB approach since 1 December 2008. The following consolidated fi gures have been calculated according to the provisions of the BWG and are accounted for within the scope of the RZB-Kreditinstitutsgruppe.
Additional own funds showed an increase of 9 per cent, or € 89 million, to € 1,046 million. That primarily concerned subordinated capital (plus € 100 million). Needed mostly because of local supervisory regulations, this subordinated capital was fi nanced for the most part by RZB.
Set against own funds was an own funds requirement pursuant to the BWG of € 5,767 million, which was above the preceding year’s level by 34 per cent, or € 1,450 million, due to strong expansion and the switch to Basel II. Excess cover amounted to 21.2 per cent, or € 1,225 million, at the end of the year. In particular, the own funds requirement consists of requirements for credit risk (€ 4,831 million), market risk (€ 152 million), operational risk (€ 440 million), and open foreign exchange positions (€ 343 million).
The core capital ratio based on credit risk amounted to 9.7 per cent (minus 1.7 percentage points). The core capital ratio based on total risk-weighted assets yielded a value of 8.1 per cent at year’s end (minus 2.4 percentage points). The own funds ratio decreased by 2.7 percentage points to 9.7 per cent compared with the preceding year’s value, which was still calculated on the basis of Basel I at 12.4 per cent.
This development aff ected refi nancing for the entire banking sector. The situation eased slightly at the end of the year, however, thanks to capital injections and state guarantees as well as repeated key interest rate cuts by the ECB in the fourth quarter of 2008.
Part of Raiff eisen International’s funding needs in the last four months of 2008 were met by mostly medium-term loans from RZB, which derived partly from funds provided by Oesterreichische Kontrollbank.
January 2008 March 2008 June 2008 August 2008 November 2008 in basis points
Raiff eisen International’s funding has been based on several pillars for years. Customer deposits represented the largest share of that at 59 per cent, or € 44.2 billion, as of year’s end. Wholesale funding contributed 39 per cent, or € 29.6 billion, of which 59 per cent derived from RZB.
Among numerous other activities in risk management last year, applying Basel II in the entire Group was at the forefront. Raiff eisen International still uses the Standardized Approach to determine the amount of capital to be held in reserve according to Basel II regulations. As of 1 December 2008 the network banks in Slovakia, the Czech Republic, and Hungary were granted the permission by the regulatory authority to calculate credit risk of corporates, banks, and sovereigns according to IRB (internal ratings based approach). It is planned to move forward with the introduction of the IRB approach in the corporate customer division in 2009 and to begin introducing the Advanced IRB approach in the retail customer division.
For Raiff eisen International, using the IRB and Advanced IRB approaches has the advantage that portfolio risks can be quantifi ed even more accurately and the risk can be managed more effectively. The supervisory body honors this approach as a rule, with lower equity requirements in comparison to the standard approach.
In the following an overview is given of the most important activities in retail and corporate risk management in the last year and the focus for the current year. More information about risk management may be found in the notes to the consolidated fi nancial statements beginning on p. 175.
Retail risk management For private individuals and small businesses Raiff eisen International focused its risk management activities in 2008 on the following main areas: ■ Developing the general risk management system ■ Improving effi ciency and widening functional responsibilities ■ Continuing education of the risk management staff ■ Preparing the introduction of the Basel II Advanced IRB approach ■ Improving the reporting system, portfolio management, capital management tools, and data quality ■ Expanding fraud management and loan servicing ■ Adaption of credit risk guidelines for all network banks taking into account current market conditions ■ Develop rating and scoring tools for use in loan decisions
Also, more training was off ered last year on the topic of dealing with retail risks. The risk management teams of the network banks received further training in the framework of several extensive courses and workshops. Training sessions were held on developing scorecards for micro-companies, reporting, portfolio management, loan servicing, and fraud management.
The practical implementation of the system is based on fi ve risk emphases: application and signing, portfolio management, fraud management, customer relationship management, and loan servicing.
Risk measurement and forecasting processes were further adjusted to changed market conditions in 2008. Signifi cant improvements were achieved in risk assessment both at contract signing and during the term of loans. With the introduction of the further standardized lending practices, portfolios can be centrally controlled and optimized across the entire network. Furthermore, 40 new scorecards were developed for the application process and for the payment behavior of private individuals. Also, 14 new or revised scorecards for micro-companies were introduced.
The second phase of a project to assess the quality of real estate and its revaluation in the entire network was also successfully completed. The result was a series of process improvements at the network banks and uniform minimum requirements, which have been implemented Group-wide since the beginning of 2009.
There was also regular exchange of ideas in the area of credit servicing to optimize processes within the Group, accompanied by workshops, training sessions, and an in-house competition throughout the network, resulting in signifi cantly increased effi ciency in this area.
The introduction of Basel II in the retail division is proceeding according to plan. Some concepts have been updated based on comments by supervisory authorities and initial experience with their application. Several network banks in Central and Eastern Europe are already in the launch phase of projects to introduce the Advanced IRB approach.
Raiff eisen International has already invested a great deal in the platform for risk measurement, the reporting related to it, and the improvement of data quality. The new platform for managing retail risk is now to be put into action in 2009. Its use is expected to contribute considerably to innovative and modern modeling of credit risks in the future.
Use of even more sophisticated scorecards, for measuring the loss-given-default ratio, and improvement of the model for simulating foreign currency risks are also planned for 2009. Further models, e.g., to control economic capital required for intra-bank purposes or to perform stress tests at the macro level, are to be available in the fi rst half of 2009.
In continuation of the activities of 2008, it is also planned to further adapt the concept concerning portfolio valuation adjustment and implement minimum standards for real estate valuation and revaluation (third pillar of Basel II) in the entire Group by the end of 2009. Moreover, the effi ciency of loan servicing is to be increased, and staff and technical capacities expanded.
Despite all these changes, however, expansion and strengthening of business relationships with long-standing customers continues to be at the fore of Raiff eisen International’s lending policy.
In a joint eff ort with the external consultant who also contributed to structuring the process itself, the results of the functional development plan were centrally evaluated. On that basis, the plan was harmonized and approved. Functional development planning and the measures derived from it are now an important component in the ongoing development and strengthening of risk functionality within Raiff eisen International.
As in previous years, consistent and area-wide realization of Basel II was again one of Raiff eisen International’s most important risk management projects in 2008. The goals went far beyond implementing methods of measuring credit risk for regulatory purposes. The key pillars of the credit management process, i.e., measurement and management of risks, were continuously developed and adapted to international quality benchmarks.
In cooperation with RZB, Raiff eisen International subjected itself in 2008 to the demanding IRB approval process. One of the greatest challenges was to meet the requirements of quite various supervisory authorities in a relatively short time. Thanks to the regulators’ constructive approach and great eff ort on the part of the Basel II team, the approval process was successfully completed for the fi rst network banks. Those units are now planning to apply for the Advanced IRB approval process for the retail portfolio in 2009.
The network banks in Croatia and Romania will undergo the Foundation IRB approval process for the non-retail portfolio in 2009 pursuant to the Group-wide implementation plan. Furthermore, IRB preparations for all other units are moving forward. Parallel to that, Basel II activities in Russia and Ukraine continue to have highest priority.
Raiff eisen International supported and coordinated the local project teams with a special center for excellence to ensure standardized calculation of risk assets in compliance with Austrian legal requirements and local options.
Furthermore, Raiff eisen International worked intensively on Group-wide implementation of a management information system and Basel II risk management systems. Development and control of these applications were centralized. The Group also identifi ed standard factoring software and began its implementation in various countries.
In the area of retail operations, two solutions defi ned as Group-wide standards were introduced for processing collections (Debt Manager) and for processing loans in retail business (Capstone) in other countries.
Set as the Group standard and operated by RZB, the Global Treasury System (GTS) was also successfully introduced by the treasury unit in Hungary last year. Implementation of the system in other network banks operating in the treasury area will continue in 2009.
Moreover, the workforce will not be expanded further in 2009. At the same time, projects that are not absolutely necessary or do not promise a signifi cantly positive earnings contribution in the medium term are being deferred. Nevertheless, Raiff eisen International continues to work vigorously on strategic projects that will enhance the Group’s competitiveness on a medium-term horizon. Those include, for example, the core bank system and projects in the framework of shared services.
As in the past years, a large number of 6 sigma process optimization projects led in 2008 to a signifi cant increase of productivity in the amount of about € 75 million. Well over 100 such projects were executed in the areas of credit application processing and payment transfers. One emphasis was the operational optimization of reminder and collection processes – not least in order to be best prepared to meet the expected increase of non-performing loans.
The rollout of i-procurement software to optimize purchasing processes in the Group was completed in 2008. In its centrally controlled purchasing, Raiff eisen International focused on data transfer/telephony, desktop computers, notebooks, and outfi tting the branches (furnishings, outside advertising, etc.). Measurable economies of scale were realized by means of this bundling of Group-wide needs. Moreover, a training initiative was started to ensure specialized education of purchasing representatives in subsidiary banks on a broad basis.
Altogether, Raiff eisen International saved around € 95 million through centralized and networkbank -controlled purchasing activities in 2008.
The RZB Group and Raiff eisen International as a subgroup prepared their fi rst corporate responsibility report in 2008, which was published at the beginning of 2009. The report provides comprehensive information concerning the Group’s corporate principles and
One of the main emphases of human resources management in 2008 was the establishment of a Group-wide international acceleration pool. Its aim is to off er high-potentials more opportunities for cross-border careers within the Raiff eisen International network. This makes it possible to fi ll vacant key positions both quickly and effi ciently by means of cross-national rotation. In addition, expertise in the Group is passed on and augmented by means of international personnel exchange, reinforcing the common “Raiff eisen Culture” in all regions.
Special emphasis is also placed on targeted further development of high-potentials in the network banks in order to off er those employees appropriate professional development and career opportunities and thereby keep them in the company. In the framework of the “Spot! – Grow! – Lead!” program initiated in 2007, talent pools were established at individual network banks in order to identify employees with high potential, generally promote them, and specifi cally cultivate them for suitable (management) positions.
Qualifi cation at all levels as key to success Based on a standardized Group training architecture, Raiff eisen International vigorously continued its local and international training and educational activities in 2008. Consequently, 79 per cent of all employees took part in at least one continuing education measure in the past year.
Already seven network banks were off ering their employees e-learning programs at the end of 2008. In the future, this form of learning will also be available to employees in Serbia, Albania, and Bosnia and Herzegovina. In addition to local initiatives, there was also more cooperation at regional and international levels in 2008.
Four factors that used to drive the economy in past years are now dimming growth prospects: ■ First, the recession in the United States and Western Europe is dampening demand for exports from the CEE region. This is already apparent from the latest monthly data for industrial production and the trade balance.
■ Second, a decline of foreign direct investment is emerging. Although Central and Eastern Europe might profi t in the medium term as a result of an outsourcing wave from Western Europe, that will probably not suffi ce to off set the cyclically induced decline of capital investment in 2009.
Nevertheless, the use of foreign funds to accelerate the transformation process continues to make good economic sense both for the CEE countries themselves and for the suppliers of the funds. Central and Eastern Europe is extremely attractive as a production location for the European market due to cheaper wages coupled with high level of education. That also explains the lively infl ow of foreign direct investments since the beginning of the transformation. Productivity and incomes are rising at the same time in the Central and Eastern European countries due to the infl ow of capital and know-how.
However, the shortage and rising cost of external fi nancing and the decline of direct investment will slow this process in 2009, at least temporarily. That might be partly off set if eff orts to raise the saving ratio succeed in the aff ected countries themselves. Conditions appear to be quite favorable for that, if one considers the strong growth of average incomes in the past years, the recently falling infl ation rates, and the current economic uncertainty. An increase of the saving ratios would lead to stronger deposit growth for banks, which would support the stability and fi nancial strength of the fi nancial sector in a continuing diffi cult global environment.
Outlook for Raiff eisen International Against the background of the current fi nancial and economic crisis, concerns have arisen in recent months about the economic stability and credit rating of some of the countries in the CEE region, as well as the fi nancial institutions operating there. Due to the considerable currency fl uctuations of some currencies against the euro, these concerns further deepened and have had a considerable impact on our business operations. Nevertheless, the countries of Central and Eastern Europe off er fi nancial institutions interesting perspectives and attractive long-term business opportunities, which result from their catch-up potential with the countries of Western Europe. We continue to be convinced of this potential, and continue to regard the CEE region as our core market. As in the past, not all markets will develop at the same pace, and we therefore consider our presence in 17 markets in CEE, where we have a large network of branch offi ces, to be a strength.
We expect business with corporate customers to make the largest contribution to profi t before tax again in 2009. This year we plan to continue our business model, which is based on integrated service and advisory solutions for our main bank customers, in the corporate customer division. Non-interest-bearing business, e.g. the further expansion of our leading position in cash management, will be one emphasis of our activities.
In the retail customer division we will continue to take advantage of our large branch network. Despite the diffi cult market conditions, we plan to further develop our product portfolio and segment specifi c value propositions particularly with respect to insurance, fee based liability products and affl uent banking. We also plan to increase investment in customer relationship management technology in order to increase product penetration for all our key customer groups.
Classifi cation of segments Raiff eisen International adopted IFRS 8 early, and it has been applied for the year 2008. Only the segmental reporting regulations laid out in IFRS 8 have been applied to this report.
Generally, internal management reporting in Raiff eisen International is carried out based on its matrix organizational structure. Under this organizational structure, members of the Managing Board are responsible for both specifi c countries and certain business areas. The highest decision making bodies, Raiff eisen International’s Managing and Supervisory Boards, make important decisions, such as the allocation of resources, according to geographical standpoints. The same applies to the appraisal of fi nancial strength and profi tability, which is why this has been identifi ed as the substantial reporting criterion.
As of 31 December 2008 the following Group segments existed. The location of the respective business outlets served as the criterion for segment assignment: ■ Central Europe (CE)
This segment contains the fi ve countries that joined the EU on 1 May 2004 – the Czech Republic, Hungary, Poland, Slovakia, and Slovenia. They represent not only the most fully developed banking markets in Central and Eastern Europe, but also the markets in which Raiff eisen International had its earliest presence.
This segment includes the assets and performance for those companies active in the Russian Federation on behalf of Raiff eisen International. The Group is represented in Russia by a bank, a leasing company and a capital management company.
Segment overview In the period under review, the CIS region registered the highest profi t before tax of all segments at € 665 million. The earnings increase of 50 per cent, or € 223 million, is primarily attributable to high interest income and good trading profi t. Balance sheet assets grew by 18 per cent on an annual basis. The CIS contributed 41 per cent to total profi t before tax and was therefore 8 percentage points above the comparable value in the preceding year.
The region of Southeastern Europe achieved the second-largest profi t before tax at € 534 million. The earnings increase of 12 per cent, or € 59 million, was based largely on solid growth of net interest income and net commission income and a relatively low rise of general administrative expenses. The contribution to profi t before tax amounted to 33 per cent and was therefore 2 percentage points below the preceding year’s value. Balance sheet assets grew by 12 per cent on annual comparison.
the comparable period and amounted to 3.14 per cent. At 13 per cent, growth of risk-weighted assets from € 20.8 billion before to € 23.5 billion was signifi cantly weaker than that of balance sheet assets. Their increase was based mainly on organic growth, but that was counteracted by the introduction of Basel II, which reduced the risk-weighted assets.
The region’s net fee and commission income grew by 21 per cent, or € 98 million, to € 568 million. Foreign currency and precious-metals business and notes/coins business played a large part in that at € 257 million, as did payment transfers and account services at € 201 million. Loan and guarantee business contributed another € 55 million. The Group units in the Czech Republic and in Poland registered the largest increases in net fee and commission income. The share of operating income due to business aff ecting commission income was the highest of all segments in Central Europe at 35 per cent.
Net trading income in the region of Central Europe came to € 56 million and therefore remained at the comparable period’s level. A positive result of € 85 million was achieved there from currency-related business. On the other hand, the region registered a loss of € 27 million in interest-related business, which was mainly caused by valuation losses on securities – primarily sovereigns – and derivative fi nancial instruments.
Net income from fi nancial investments amounted to € 2 million. The sale of shares valued at equity in Prague-based building society Raiff eisen stavebni sporitelna, a.s. by the local Raiff eisenbank made a positive contribution to earnings of € 11 million. On the other hand, valuation losses from securities in Hungary and the Czech Republic diminished earnings by € 10 million.
General administrative expenses rose on the comparable period by 18 per cent, or € 139 million, to € 930 million. Staff costs amounted to € 455 million, and the average number of employees increased by 10 per cent to 13,265. Other administrative expenses went up € 77 million to € 389 million. Depreciation/amortization/write-downs rose by € 4 million and reached a total of € 86 million. The number of business outlets increased on an annual basis by 8 per cent, or 40 outlets, to 572. That derived mainly from Hungary (plus 24 outlets). The region’s cost/income ratio decreased by 1.9 percentage points to 56.8 per cent.
Other net operating income amounted to minus € 10 million and mainly comprised tax expense not dependent on income at Group units in Hungary and Slovakia. In the preceding year, the result was off set by income of € 9 million from the initial consolidation of asset management companies in Slovakia and Hungary.
Net income from disposal of group assets, which was primarily based on income from the sale of two Hungarian real estate project companies in the second quarter, amounted to about € 8 million. The higher value in the preceding year of € 24 million mainly resulted from the sale of a Hungarian energy generating company and a Hungarian real estate company.
The merger of eBanka a.s., in which Raiff eisen International acquired a majority interest in 2006, with Raiff eisenbank a.s., which was founded in 1993, was successfully completed in July 2008. Since then, the two banks have been doing business jointly as Raiff eisenbank. All business outlets with the eBanka design have been remodeled over the past months in the style of Raiff eisen International’s new Group-wide branch design.
Raiff eisen had about 2,654 employees at 107 business outlets in the Czech Republic as of 31 December 2008. It had 411,000 customers at that time and showed a balance sheet total of € 7.2 billion. That represents a market share of just under 4 per cent. Raiff eisenbank is thus one of the fi ve largest banks in the country. Serving upscale private individuals and corporate customer business with small and medium-sized enterprises and large companies form the business emphases. In the past year, total deposits increased by 18.7 per cent to € 4.2 billion, while the loan portfolio grew by 25.6% per cent to € 5.5 billion.
Hungary The Hungarian economy has been shaped by budget consolidation in recent years. After real GDP growth of 1.1 per cent in 2007, growth in the year under review came to 0.7 per cent. When the turmoil on the global fi nancial markets put the Hungarian forint under heavy pressure in the second half of 2008, the Hungarian central bank raised its key interest rates temporarily despite declining infl ation rates and requested fi nancial assistance from the IMF and the EU. The growth of total bank assets in 2008 came to 12.5 per cent, or 8 per cent after conversion to euros.
Raiff eisen Bank Zrt., one of the largest network banks in the Raiff eisen International Group, began business operations in 1987. At the end of 2008, it was Hungary’s fi fth-largest bank with a balance sheet total of about € 9.6 billion. In the framework of a multi-year expansion program, the number of Raiff eisen International’s branches in Hungary increased in the year under review by 24 to over 164 business outlets. At the end of 2008, about 3,960 employees were serving more than 657,000 customers, whose number thus increased in the reporting period by 8.9 per cent. As a universal bank, Raiff eisen Bank Zrt. serves not only private individuals and small and medium-sized enterprises, but also a large number of corporate customers.
Total lending by Raiff eisen Bank Polska rose in the year under review by 14.9 per cent to € 5.3 billion, while an increase of total deposits was registered by 3.6 per cent to € 3.5 billion.
In leasing business, Raiff eisen is the third-largest provider in Poland with a portfolio of about € 1.5 billion, and it even occupies the country’s top spot in factoring. Selling the Raiff eisen Capital Management funds in all 123 business outlets also makes the bank one of the largest providers of foreign investment funds in the market.
Slovakia After record growth of 10.4 per cent in the preceding year, Slovakia’s real GDP grew by 6.8 per cent in 2008. This dynamic development was borne by the huge investments of foreign businesses in the past years. In mid-2008, the ECOFIN Council of the EU, consisting of the economics and fi nance ministers of the member countries, confi rmed Slovakia’s fulfi llment of all criteria for introduction of the euro at the beginning of 2009. The conversion rate of the Slovakian koruna against the euro amounted to 30.164. The successful launch of the euro at the beginning of this year has largely cushioned the turbulence of the global fi nancial market in Slovakia. Total bank assets increased in 2008 by about 6 per cent. Expressed in euros, that represents growth of about 18 per cent.
Established in 1991 as Slovakia’s fi rst private bank, Tatra banka, a.s. is now the third-largest bank in the country. As of 31 December 2008, Raiff eisen had a balance sheet total of € 11 billion and a branch network of 162 business outlets (2007: 156) in Slovakia. Its 3,885 employees were serving about 744,000 customers at the end of the reporting period.
From the beginning, Tatra banka operated as one of the most successful banks in the country in both retail and corporate customer business. Although Tatra banka off ers products and services in a high price segment, the personal customer segment has grown faster than the market. Total deposits rose in 2008 by 34.6 per cent to € 7.5 billion, while the loan portfolio increased by € 1.7 billion to € 6.2 billion. One business emphasis of Tatra banka is asset management. The subsidiary operating in that area, Tatra Asset Management s.r.o., covers one-third of the Slovakian market.
Raiff eisen International held a stake of 63 per cent in Tatra banka a.s. as of 31 December 2008. The rest was held indirectly by Raiff eisenlandesbank Niederösterreich-Wien AG, by the bank’s employees, or in free fl oat.
The bank received numerous awards in the year under review, including Best Bank from Euromoney and Bank of the Year from The Banker.
Slovenia After real GDP growth of 6.8 per cent in 2007, the year of the euro launch, the Slovenian economy registered growth of 5 per cent in 2008. Above all, external factors such as increased energy and food prices contributed to a rise of infl ation to an average of 5.7 per cent year-on-year. Total bank assets grew in 2008 by about 14.5 per cent.
In 2002, Raiff eisen acquired Krekova banka, which was founded in 1992 and today does business as Raiff eisen Banka d.d. At the end of 2008, the balance sheet total of Raiff eisen in Slovenia stood at € 1.5 billion. Its over 71,000 customers were being served at that time by about 344 employees in 16 business outlets and by almost 40 mobile bankers.
The business activities of Raiff eisen Banka focus on upscale private individuals and on small and medium-sized business customers. In total, lendings to customers rose by 10.4 per cent in 2008 to € 1.2 billion, and customer deposits by 23.3 per cent to € 545 million. To further increase business with upscale private individuals, the bank began implementation of an affl uent banking concept after a successful pilot program in summer 2008. The launch of this special advisory and service concept in all business outlets will be completed during 2009. Great attention is also being placed on cross-border fi nancing transactions in the corporate customer segment.
Raiff eisen International held an 86 per cent interest in Raiff eisen Banka d.d. at the end of the reporting period. Except for a small free fl oat, the remaining shares were owned by Raiff eisenLandesbank Steiermark AG and by Raiff eisenlandesbank Burgenland und Revisionsverband registrierte Genossenschaft mit beschränkter Haftung.
In the region of Southeastern Europe, profi t before tax amounted to € 534 million and was therefore signifi cantly above the preceding year’s comparable value of € 476 million. Profi t grew by 12 per cent, mainly thanks to the strong increase of net interest income and net fee and commission income. The region registered the second-highest earnings of all segments. Because of a signifi cantly higher equity base, the return on equity before tax fell by 4.5 percentage points to 25.8 per cent.
Allocations to provisioning for impairment losses rose from a very low level by 171 per cent, or € 100 million, to € 159 million. This increase was primarily due to new allocations to portfoliorelated provisions in nearly all of the region’s Group units. Individual provisions grew mainly as a result of allocations in the Group’s Serbian unit. The risk/earnings ratio therefore rose to 16.8 per cent (plus 8.8 percentage points). The share of the loan portfolio attributable to non-performing loans increased on an annual basis by 68 basis points to 2.26 per cent.
Net fee and commission income rose by 20 per cent from € 385 million to € 463 million. Payment transfers contributed € 175 million to that, and foreign currency and precious-metals business € 102 million. Loan administration and guarantee business rendered another € 91 million. The region’s largest increases were booked by the unit strongest in commissions, Raiff eisen Bank in Romania (plus € 52 million).
Net trading income also registered positive development in the region of Southeastern Europe. Altogether, it increased by 20 per cent to € 57 million. At € 80 million, currency-related business was signifi cantly above the comparable period’s value (€ 26 million). Due to market infl uences, a loss of € 12 million was booked in interest-related business, and losses of € 11 million in stockrelated business, especially due to positions in Croatia and Bosnia and Herzegovina.
Net income from derivative fi nancial instruments amounted to minus € 5 million and was based on valuation losses from hedging transactions due to other derivatives, used to minimize the interest rate risk of the loan portfolio in the Group’s unit in Kosovo.
Net income from fi nancial investments amounted to minus € 19 million. After a balanced result in the preceding year, this decline was shaped by losses arising from the valuation of securities (outside of the trading portfolio) primarily in Romania and Croatia.
The inclusion of Bucharest-based investment banking fi rm Raiff eisen Capital & Investment Romania S.A. due to materiality resulted in a special eff ect from initial consolidation of € 4 million.
Founded in 2006, leasing subsidiary Raiff eisen Leasing Sh.a. also continued to expand its market position.
The cost/income ratio of Raiff eisen in Albania amounted to 39.8 per cent in 2008. Despite the diffi cult environment, profi t before tax amounted to € 46 million, and profi t after tax to € 41 million, thus remaining at nearly the preceding year’s levels. On that basis, the return on equity came to 37.8 per cent before tax, and to 33.8 per cent after tax.
Raiff eisen entered the local banking market in 2000 with the acquisition of Market Banka, which was founded in 1992. After merging with Hrvatska Postanska Banka in 2002, Raiff eisen Bank d.d. Bosna i Hercegovina is now the country’s second-largest bank.
The cost/income ratio of Raiff eisen in Bosnia and Herzegovina improved to 64.3 per cent in 2008 from 64.5 per cent in the preceding year. Profi t before tax for 2008 amounted to € 28 million (2007: € 24 million), while profi t after tax came to € 16 million (2007: € 24 million). The return on equity thus declined to 15 per cent before tax, and 8.7 per cent after tax.
Bulgaria The Bulgarian economy continued its strong growth of the past years – annual GDP growth averaged 6.3 per cent from 2004 to 2007 – with a real increase of 6 per cent in 2008. The country entered the EU at the same time as Romania at the beginning of 2007, and the Bulgarian lev has been pegged fi x to the euro and originally to the German mark since 1997. Because of sharply higher energy and food prices, the infl ation rate nevertheless averaged 12.3 per cent in 2008. The Bulgarian banking sector experienced a boom in the past year, which was refl ected in an annual increase of total bank assets by about 22.5 per cent.
Raiff eisen International has been represented in Bulgaria since the founding of Raiff eisenbank (Bulgaria) EAD in 1994. It increased its balance sheet total by 20.2 per cent in the year under review to € 4.8 billion and employed about 3,700 employees at the end of the year. That represents a rise of 21.5 per cent compared with 2007. Set against that is an increase of customers by 22.9 per cent to 653,000 customers. The branch network in Bulgaria was expanded by 45 business outlets in 2008 to 197. The range of sales activities is completed by 272 mobile bankers.
The cost/income ratio improved in 2008 from 53.2 per cent to 47.4 per cent. Against that background, Raiff eisen International in Bulgaria achieved profi t before tax of € 78 million, and profi t after tax of € 70 million. The return on equity amounted to 23.4 per cent before tax, and to 21.0 per cent after tax.
The foreign currency deposit rating of Raiff eisenbank from Moody’s is Baa3 with a stable outlook. The Banker gave the company, which now occupies fourth place on the Bulgarian market, its 2008 Bank of the Year award.
Croatia The Croatian economy slowed significantly in 2008 with real GDP growth of 2.2 per cent compared with an increase of 5.6 per cent in 2007. As in previous years, the Croatian kuna reached its highs at the peak of the tourist season again in 2008. The Croatian banking sector, which has the highest rate of market penetration in all of Central and Eastern Europe after Slovenia, was hit relatively hard by the rising cost and shortage of external funding due to its high share of foreign currency loans. Total bank assets increased by about 3.5 per cent in 2008.
After the founding of Raiffeisenbank Austria d.d. in 1994, Raiffeisen successively expanded its presence Croatia. At the end of 2008, Raiffeisenbank Austria was the country’s fourth-largest bank with a balance sheet total of € 6.0 billion, which represents an increase of 7.3 per cent compared with 2007. Not least due to the stronger growth of the branch network last year to 79 business outlets as of 31 December, the number of customers served rose in the reporting period by 29,300 to about 582,000. The number of employees grew in the same period by 244 to 2,333.
Besides serving private individuals, making loans to large and medium-sized corporate customers was another focus of Raiffeisenbank Austria’s business activity as a universal bank. Total lendings to customers rose in the reporting period to € 3.9 billion, while customer deposits increased to € 3.3 billion.
The cost/income ratio of Raiff eisen in Kosovo improved to 45.2 per cent. Profi t before tax amounted to € 20 million after € 18.3 million in the preceding year, while profi t after tax stood at € 15 million. The return on equity thus came to 34.7 per cent before tax, and to 25.5 per cent after tax.
Euromoney awarded Raiff eisen Bank Kosovo the title of the country’s Best Bank in 2008.
Raiff eisen has had a presence in Romania since the founding of Raiff eisen Bank S.A. in 1998. At the end of 2008, it had a balance sheet total of € 6.6 billion, which is 17.1 per cent more than in the preceding year, and had about 6,899 employees. Raiff eisen Bank is the country’s thirdlargest bank since its merger with Banca Agricola in 2002.
As a universal bank, Raiff eisen Bank off ers a full range of fi nancial services and products to its customers, who numbered about 2 million at the end of 2008. Its national network, which was expanded last year by 122 business outlets, consisted of 557 business outlets as of 31 December. The bank focused its attention in the past year mainly on expanding dealings with private individuals in all business areas. That included specifi c products for upscale private individuals and lending business with medium-sized corporate customers.
In addition to banking business, Raiff eisen is also one of the leading fi rms in Romania in leasing, insurance, asset management, building society saving, and capital market dealings. Raiff eisen Asset Management SA, for example, is one of the three most important providers of asset management, and Raiff eisen Capital & Investment SA ranks as the second-largest investment bank. Raiff eisen Leasing IFN SA occupied third place among Romania’s leasing companies in 2008, with total new business of € 150 million.
The cost/income ratio of Raiff eisen in Rumania improved last year to 53.3 per cent, which refl ects strong centralization of all business processes. Against that background, profi t before tax of € 193 million was achieved, which led to a return on equity before tax of 46.6 per cent. The return on equity after tax of 39.0 per cent resulted from a taxed profi t of € 161 million.
Except for a small free fl oat, Raiff eisen Bank was owned by Raiff eisen International as of 31 December 2008.
In retail and corporate customer business and in the treasury and investment banking areas, Raiff eisen banka is one of the best addresses in the Serbia banking market. Business with affl uent customers was expanded in 2008. In addition, the successful course taken in the area of small and medium-sized enterprises was continued. Consequently, total lendings to customers increased by about € 2.0 billion in 2008, and customer deposits totaled € 1.2 billion at year’s end. Altogether, Raiff eisen banka and its subsidiaries had 2,210 employees serving over 585,000 customers in 103 business outlets at the end of 2008.
Net trading income grew from € 47 million to € 161 million. Currency-related business gave rise here to income of € 199 million. Most of that (€ 145 million) derived from hedging transactions in the Group’s Russian unit aimed at minimizing the currency risk of certain loan portfolios. On the other hand, interest-related business brought a loss of € 50 million, which was mainly based on valuation losses on securities of corporates in Russia.
Net income from derivative fi nancial instruments amounted to minus € 8 million in the year under review. That was largely based on a valuation result in Russia, where interest rate swaps had been entered into to reduce yield curve risk.
Belarus The Belarusian economy achieved real GDP growth of 10 per cent in 2008. Although the central bank kept the Belarusian rouble stable relative to the US$ throughout the year, the infl ation rate averaged 14.8 per cent. Despite strong growth in recent years, the Belarusian banking sector exhibits relative low market penetration compared with other Central and Eastern European countries. Total bank assets registered growth of almost 60 per cent in 2008.
One of the country’s leading leasing companies, SOOO Raiff eisen Leasing generated new business in the amount of € 54.9 million in 2008. The lending business of Priorbank reached a total of € 1.2 billion as of 31 December 2008, while deposit business grew by 16.2 per cent to € 0.6 billion thanks to an enlarged branch network and new joint marketing arrangement with the Belarusian postal service.
Despite expansion in personal customer business, the cost/income ratio of Raiff eisen in Belarus reached 47.8 per cent in the reporting period, which underscores the high cost effi ciency of operations in Belarus. Profi t before tax amounted to € 54 million and led to a return on equity before tax of 38.4 per cent. The return on equity after tax of 27.1 per cent resulted from profi t after tax of about € 38 million.
Raiff eisen International held a clear majority in Priorbank, OAO of 88 per cent at the end of the reporting period. The remaining shares were in free fl oat.
Founded in 1996, ZAO Raiffeisenbank is now one of Russia’s leading banks. The balance sheet total of Raiffeisen International in Russia rose by 22.8 per cent in the year under review to around € 15 billion, and by expanding its network further in 2008, the bank is now represented in 45 of 83 regions of the Russian Federation. As a universal bank, Raiffeisenbank offers its products to both retail and corporate customers.
The corporate customer segment registered significant growth of lending in the year under review. The loan portfolio increased by 4.2 per cent on 2007 to € 6.1 billion at the end of 2008. The number of corporate customers served rose to about 9,500 in the year under review. Total deposits of corporate customers at ZAO Raiffeisenbank amounted to € 2.9 billion at the end of 2008.
After acquiring 94 per cent of VAT Bank Aval in October 2005, Raiff eisen International increased its stake to 96 per cent by the end of December 2008. The remaining shares were in free fl oat.
Business divisions As well as the regional segmentation Raiff eisen International is structured into business divisions which refl ect the internal organization and reporting structure. Business is divided into the following divisions: ■ Corporate customers ■ Retail customers ■ Treasury ■ Participations and other
Because of the minor importance of public sector and fi nancial institutions for the consolidated results of Raiff eisen International, their results are included in the corporate customers division.
The retail customers division includes private individuals (consumers) and small and medium-sized enterprises with an annual turnover of less than € 5 million (small enterprises). There may be minor deviations in some countries. Small enterprises engaged in project or trade fi nance related activities are not included. Furthermore, micro customers, whose annual revenues are less than € 1 million and where exposure is lower than € 100 thousand are included. They are off ered standardized products such as savings accounts, time deposits, current and salary accounts, consumer credits, overdraft lines, credit cards, and mortgages as well as other earmarked loans.
Earnings arising from private banking provided by a number of Group units are also included in this customer division. For high-net-worth individuals an individualized advisory approach is applied and asset management services are off ered.
The treasury division encompasses the treasury’s proprietary trading and investment banking activities, which are carried out only in a few Group units.
Own-account trading involves on-balance and off -balance sheet interest and currency products (futures, and options), which include money market transactions, currency transactions, cash management, refi nancing and asset/liability management (maturity conversion). Proprietary trading in fi nancial instruments is centrally controlled and subject to strictly monitored limits. In addition, Raiff eisen International has a portfolio of medium-term and long-term fi nancial investments.
Net income from fi nancial investments 1 0 (48) 21 (26)
General administrative expenses grew by a moderate 18 per cent to € 526 million, which further improved the cost/income ratio to 31.3 per cent. Other net operating income rose by 25 per cent to € 33 million, to which operating leasing contributed the most at € 28 million. Risk-weighted assets for credit risk according to Basel II amounted to € 31.1 billion, which means an increase of 26 per cent on the preceding year’s comparable value, still calculated according to Basel I. In addition to business expansion, the new method of calculation, which in particular burdens loans and advances to banks and to the public sector with higher risk weightings, was also responsible for this.
Despite high profi t, the return on equity before tax declined by 3.8 percentage points to 26.4 per cent due to a sharply increased equity base. This division’s share of total earnings rose by 8 percentage points to 62 per cent.
Against this background, the strategy of concentrating acquisition eff orts on mid-market customers and on long-term customer relation ships with main bank status has proved its value. Raiff eisen International is achieving great proximity to customers with this business model, which enables it to recognize opportunities and risks early and adjust to them accordingly. Moreover, the company’s mid-market strategy has led to a corresponding diversifi cation of its customer portfolio, which may be regarded as a strong advantage given the diffi cult market environment.
With a business model based on close customer relationships and with wide regional and sectoral diversifi cation, Raiff eisen International is well-prepared for the expected eff ects of the fi nancial crisis. The focus of the corporate customer division in 2009 will be primarily on deposit business, corporate cash management, and factoring products.
The corporate customer division benefi ted again in 2008 from cultivating and intensifying these cooperative relationships. The focus was on advising and supporting Western European businesses of very high credit standing in opening offi ces and establishing companies in Central and Eastern Europe. Since these new customers already have a corresponding track record in their home countries, Raiff eisen International can off er simplifi ed, customer-friendly solutions thanks to the support provided – in consultation with the customer – by the respective cooperating bank. With the help of this strategy, Raiff eisen International again expanded its leading position with international customers in 2008.
Operating income from the retail customers division grew by 25 per cent to € 2,819 million. The greatest increase was achieved in net interest income with a plus of 28 per cent to € 1,844 million. Net fee and commission income rose by 20 per cent and reached € 962 million. Despite continued high general administrative expenses, the cost/income ratio fell by 1.7 percentage points to 66.6 per cent. Risk-weighted assets amounted to € 19.1 billion at the end of the period under review and therefore remained at the preceding year’s level. Despite organic growth, the Basel II rules led to a lower weighting of total lendings to retail customers compared with the preceding year’s value calculated according to Basel I.
The return on equity before tax fell sharply by 7.2 percentage points to 22.3 per cent due to strong growth of the equity base in the past year and the decline in profit. The division’s share of total earnings dropped by 9 percentage points to 30 per cent.
Raiff eisen International further expanded its off ering of credit and debit cards in 2008. That involved not only increasing the number of cards issued, but also promoting their active use by cardholders to raise contribution margins. Altogether, the number of credit cards issued rose in the reporting period to 1.7 million, and that of debit cards to 8.2 million. Transaction volume increased from € 15 billion in the preceding year to € 21.4 billion in the reporting period. Various new products were also launched on the market in 2008, including for example products introduced by Raiff eisen Bank Aval in cooperation with MTS, the third-largest mobile phone carrier in Ukraine.
Raiff eisen International also off ers card processing services for retailers in 11 of its 15 markets. In 8 of those, the Group’s network banks rank among the country’s top three and thus make Raiff eisen International one of the most important regional providers in this area.
Raiff eisen International also achieved great progress in 2008 in business with affl uent private individuals (assets above € 25,000). This new business area was taken up in Croatia, the Czech Republic, Romania, Russia, and Serbia, and more countries are to follow in 2009. The goal is appeal to discriminating customers with a balanced off ering of sales and advice. Income from business with affl uent private individuals contributed around 11 per cent to the retail segment’s total result in 2008 and is expected to continue growing in the years ahead.
Raiff eisen International’s retails business will be shaped by four factors in 2009, which are expected to strengthen the distribution network. An important goal is to increase customer deposits. Also, the infrastructure of customer relationship management is to be further developed. It is also planned to realize a customer service initiative in all network banks and to expand the range and distribution capacities for affl uent private individuals and self-employed individuals.
General administrative expenses rose by 30 per cent in the year under review. The cost/income ratio also went up 3.7 percentage points to 31.3 per cent. The own funds requirement and riskweighted assets increased sharply due to the initial application of Basel II rules, which link investments in sovereigns and banks to the corresponding rating. The preferential weightings according to Basel I may no longer be applied.
The division’s return on equity before tax fell by 7.3 percentage points to 25.6 per cent due to the fall in profi t and rise of the own funds requirement and of equity calculated on that basis.
The division also includes the computational results from the investment of equity, which rose sharply in the period under review due to the high interest rate level in the CEE region.
Corporate customers Retail customers Treasury Participations and other in € million
Further details to the above mentioned changes are reported under note (34) equity.
Items booked directly in retained earnings developed as follows: Group equity Minority interests
Sundry income and expenses directly recognized in equity – (27) – –
Non-cash positions in profit and transition to net cash from operating activities: Write-downs/write-ups of tangible fixed assets and financial investments 216,302 218,452
Changes in assets and liabilities arising from operating activities after corrections for non-cash positions: Loans and advances to banks and customers (11,617,659) (20,652,322)
Cash and cash equivalents at the end of previous period 3,664,187 4,063,633
Cash and cash equivalents include the cash reserve recognized in the balance sheet, which consists of cash in hand and balances at central banks due at call. It does not include loans and advances to banks that are due at call, which belong to operating activities.
As of 31 December 2008 the following Group segments existed. The location of the respective business outlets served as the criterion for segment assignment: Central Europe This segment contains the five countries that joined the EU on 1 May 2004 – the Czech Republic, Hungary, Poland, Slovakia, and Slovenia. They represent not only the most fully developed banking markets in Central and Eastern Europe, but also the markets in which Raiffeisen International had its earliest presence. Southeastern Europe Southeastern Europe includes Albania, Bosnia and Herzegovina, Croatia, Kosovo, Moldova, Serbia, as well as Bulgaria and Romania, which joined the EU on 1 January 2007. Moldova has been included in this segment due to its close economic ties to Romania and the respective management structures within the Group. Russia This segment includes the assets and performance for those companies active in the Russian Federation on behalf of Raiffeisen International. The Group is represented in Russia by a bank, a leasing company and a capital management company. Commonwealth of Independent States (CIS) other This segment includes Belarus, Kazakhstan and Ukraine.
The figures stated are derived from the financial statements prepared in accordance to the International Financial Reporting Standards (IFRS) that underlie the consolidated financial statements. Divergence from locally published data is possible, as they may be based on different valuation regulations or differing reporting deadlines.
The segment reporting according to IFRS 8 shows the segment performance on the basis of internal management reporting, supplemented with the reconciliation of the segment results to the group results. Raiffeisen International’s management reporting is based on IFRS. Therefore, no differences occur in the recognition and measurement principles between segment reporting and consolidated financial accounts.
The presentation of segment performance is based on the income statement. Profit and loss are attributed to the country in which the profit is generated. Income positions are the net interest income, net fee and commission income, net trading income and the other net operating income. Additionally, the current income from associates which are accounted at equity is stated. The material expense positions, which are part of the segment reporting, are included in the income statement. The segment performance is reported up to the consolidated profit. The segment assets are represented by the balance sheet total and the risk-weighted assets. The item liabilities includes all positions of the liabilities side except the equity.
Net interest income after provisioning 759,173 787,612 588,572 351,976 (35,625) 2,451,709
Net fee and commission income 568,379 463,136 223,046 233,594 8,214 1,496,369
Net income from financial investments 1,753 (18,923) 5,383 (13,836) (15) (25,638)
Share of profit before tax 26.9% 32.5% 26.7% 13.9% – 100.0%
Share of profit after tax 27.5% 35.3% 24.5% 12.6% – 100.0%
The values for 2007 were adapted according to IFRS 8: Central Europe Southeastern Europe
Russia CIS other Reconciliation Total of which current income from associates 1,813 (2,504) – – – (691)
Net interest income after provisioning 698,724 673,246 427,292 318,202 (55,591) 2,061,872
of which other administrative expenses (312,239) (283,063) (156,618) (112,555) (12,140) (876,615)
The company also belongs to the Group of Raiffeisen-Landesbanken-Holding GmbH, Vienna, which is the ultimate parent company. This financial holding owns the majority stake in Raiffeisen Zentralbank Österreich Aktiengesellschaft. Moreover Raiffeisen International is also included in the consolidated financial statements of Raiffeisen Zentralbank Österreich Aktiengesellschaft.
All standards and interpretations to be applied to financial statements 2008 have been applied. IAS 20, IAS 31, IAS 41, IFRS 4 and IFRS 6 are not applied as there were no relevant business transactions in the Group.
The new interpretations effective since 2008 had no material effects on the recognition and measurement methods of the bank: IFRIC 12 (Service Concession Arrangements), IFRIC 13 (Customer Loyalty Programmes), IFRIC 14 (IAS 19 – The Limit on a Defined Benefit Asset Minimum, Funding Requirements and their Interaction), IFRIC 15 (Agreements for the Construction of Real Estate) and IFRIC 16 (Hedging of a Net Investment in a Foreign Operation).
Relevant Standards and Interpretations published but not effective have not yet been applied: The adapted IAS 1 (Presentation of Financial Statements, effective date: periods beginning on or after 1
January 2009), IFRS 2 (Share-based Payment; effective date: periods beginning on or after 1 January 2009) and changes within the scope of the improvement project.
A financial asset is recognized when it is probable that the future economic benefits will flow to the enterprise and the cost or value can be reliably measured. A financial liability is recognized when it is probable that an outflow of resources embodying economic benefits will result from the settlement of the obligation and the amount at which the settlement will take place can be measured reliably.
Deferred taxes were not separately shown in the income statement and on the balance sheet. Details are provided under the appropriate headings in the notes.
Raiffeisen International consolidates all material subsidiaries, in which Raiffeisen International BankHolding AG directly or indirectly, holds either more than 50 per cent of the voting rights or otherwise has control over the financial and operating policies. On principle, these subsidiaries are firstly integrated on the date when the Group obtains control of the company and are excluded when the group no longer has control of the company. Special purpose vehicles founded for securitization transactions which are – from an economic point of view – controlled by the Group, are integrated according to SIC 12.
In the case that further shares are acquired under existing control or shares are sold without loss of control, such transactions are recognized directly in equity during the course of continuing consolidation.
Shareholdings in subsidiaries not included in the consolidated financial statements because of their minor significance and shareholdings in companies which have not been valued at equity are shown under financial investments and are measured at amortized cost.
The annual impairment test for goodwill for 2008 and 2007 did not result in an impairment loss as the recoverable amount for all Cash Generating Units was higher than their respective carrying amount.
Companies of Raiffeisen International Group use brands to differentiate their services from the competition. According to IFRS 3, brands of acquired companies have been recognized separately under the item intangible fixed assets. Brands have an indefinite useful life and are therefore not subject to scheduled amortization. Brands have to be tested annually for impairment and additionally, whenever indications of impairment arise.
Consolidation entries Intra-group balances between parent company and subsidiaries and intra-group balances between subsidiaries are eliminated in the consolidated accounts. Remaining temporary differences are recognized under other assets/other liabilities.
The number of fully consolidated companies and companies valued at equity changed as follows: Because of their minor importance in giving a view of the Group’s assets, and financial and earnings position, 87 subsidiaries were not included in the consolidated financial statements (2007: 84). They were recognized at amortized cost under financial investments. The balance sheet total of the companies not included in the Group came to less than 1 per cent of the Group’s aggregated balance sheet total.
In the financial year 2008, the following companies were included into the consolidated financial statements for the first time: Fully consolidated Equity method
Included for the first time in the financial period 19 29 – –
Due to the control principle from an economic point of view (SIC-12), the following companies were firstly integrated in the consolidated financial statements: RB Russia Finance Limited, Dublin, a special purpose vehicle to raise capital for ZAO Raiffeisenbank, Moscow, was integrated as of 1 January 2008.
ROOF Consumer Bulgaria 2007 – 1 B.V., Amsterdam, and ROOF Consumer Romania 2008 – 1 B.V., Amsterdam, were founded in connection with a securitization of unsecured consumer loans and were integrated as of 1 March and 1 July 2008.
In the third quarter 2008, two mergers took place: eBanka a.s., Prague, was merged with Raiffeisenbank a.s., Prague, as of 7 July 2008 and Raiffeisen International GROUP IT GmbH, Vienna, with Raiffeisen International Bank-Holding AG, Vienna, as of 15 July 2008.
SCTO Bécsi Út Real Estate Development Kft., Budapest, was sold at the end of April and therefore excluded from the Group. Income from disposal of group assets amounted to € 1.9 million. In May 2008, two Hungarian leasing companies – SCTD Kondorosi út Kft., Budapest, and SCTH Budaörs Kft., Budapest, were sold and excluded. This resulted in an income of € 5.2 million. The Hungarian Raiffeisen Real Estate Mangement Zrt, Budapest, was sold to CEU-REM Holding Zrt., Budapest, and excluded in July 2008. The result was minus € 0.3 million. In the fourth quarter 2008, two further companies – SCT Csörsz utca Kft., Budapest, and RLRE & EUBE OC - TERRONIC II., s.r.o., Prague, – were sold. The income from this disposal was € 1 million.
The effect of sold subsidiaries on liquidity is equal to selling price as there were no liquid funds.
Financial statements of fully consolidated companies prepared in foreign currencies were translated into euros employing the modified current rate method in accordance with IAS 21. Equity was translated at its historical exchange rates while all other assets, liabilities and the notes were translated at the prevailing foreign exchange rates as of the balance sheet date. Differences arising from the translation of equity (historical exchange rates) were offset against retained earnings and not recognized in income statement.
In the case of one subsidiary not headquartered in the euro-area (GSI Group Software Investment AG, Zug), the euro was the reporting currency for measurement purposes given the economic substance of the underlying transactions. Roof Russia S.A., Luxemburg, carries out its business transactions and refinancing in US$, therefore the functional currency is the US$. The following exchanges rates were used for currency translation: Rates in units per € As of 31.12. Average As of 31.12. Average
Derivative financial instruments held for trading are also shown under trading assets or trading liabilities. Positive fair values including accrued interest (dirty price) are shown under trading assets. Negative fair values are recorded under trading liabilities. Positive and negative fair values are not netted. Changes in dirty prices are recognized in the income statement under net trading income.
1 b. Designated financial instruments at fair value This category comprises mainly all those financial assets which are irrevocably designated as financial instrument at fair value (so called fair value option) upon initial recognition in the balance sheet independent of the intention to trade. An entity may use this designation only when doing so results in more relevant information, because a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis. These instruments are debt securities and other fixed-interest securities or equities and other variable-yield securities.
2. Financial assets held-to-maturity 3. Loans and advances 4. Financial assets available-for-sale 5. Financial liabilities
5. Financial liabilities Liabilities are recognized at amortized cost. Discounted debt securities and similar obligations are measured at their present value.
Measurement techniques based on observable market data (level II) When current bid and asking prices for financial instruments are unavailable, the prices of similar financial instruments provide evidence of the current fair value or are determined by accepted measurement methods enclosing observable prices and parameters (in particular present value calculation or option price model). These methods concern the majority of the OTC-derivates and non-quoted debt instruments.
Financial investments X Held-to-maturity of which financial investments not traded on an active market At cost Available-for-sale
Negative fair values of derivatives for hedge accounting (IAS 39) X n/a a) Fair value hedge according to IAS 39 b) Cash flow hedge according to IAS 39 c) Hedging of a net investment (capital hedge)
If derivates are held for the purpose of risk management and if the respective transactions meet specific criteria, the group uses hedge accounting. Within the financial accounting, three types of hedging relations are distinguished which are treated different in accounting.
e) Other derivative instruments Derivative instruments held to hedge against market risks (except trading assets/liabilities) that are based on an inhomogeneous portfolio do not satisfy the requirements for hedge accounting according to IAS 39. They are captured as follows: Dirty prices are recognized under derivatives (on the assets side: positive market values; on the liabilities side: negative market values). The effect of re-measuring those derivative instruments on a clean price basis is recognized under net income from derivatives (net income from other derivative instruments); interest is recorded under net interest income.
At each balance sheet date it is assessed whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred, when: there is objective evidence of impairment as a result of a loss event that occurred after the initial recognition of the asset until the balance sheet date (a ‘loss event’), that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets and the amount can be reliably estimated.
Credit risk is accounted for by making specific impairment provisions and portfolio-based impairment provisions. The latter comprise impairment provisions for portfolios of loans with identical risk profiles that may be compiled under certain conditions. In the retail division, provisions are built according to product portfolio and past due days. Specific and portfolio-based impairment provisions are not netted against corresponding receivables but are stated separately in the balance sheet.
For credit risks related to loans and advances to customers and banks, provisions are made in the amount of expected loss according to homogeneous Group-wide standards. Risk of loss is deemed to exist if the discounted projected repayment amounts and interest payments are below the carrying value of the loans, taking collateral into account. Portfolio-based impairments are calculated according to valuation models that estimate expected future cash flows for the loans in the respective loan portfolio based on loss experience history. This is carried out by considering the economic environment. For retail portfolios without a documented loss history of their own, peer group benchmark figures serve as a comparative base.
In a genuine sale and repurchase transaction, the transferor sells assets to a third party and agrees at the same time to repurchase these assets at an agreed price and time. The assets remain in the balance sheet of the transferor and are measured like the balance sheet item where they are shown. Cash inflows arising from a sale and repurchase transaction are recognized in the balance sheet depending on the counterparty as deposits from banks or deposits from customers.
Tangible fixed assets are measured at cost of acquisition or conversion less scheduled depreciation. The straight-line method is used for depreciation and is based on the following useful life figures: If a permanent impairment was to be expected, extraordinary write-downs were carried out. In the event that the reason for the write-down no longer applies, a write-up will take place up to the amount of the amortized cost of the asset.
The actuarial calculation of pension obligations for active employees is based on the following assumptions: Calculations are based on an assumed retirement age of 65 years and are subject to transitional statutory regulations and special arrangements in individual contracts. Actuarial gains or losses calculated for pension obligations are recognized immediately in profit. The right to vote according to IAS 19.92 (“corridor method”) was not applied.
The actuarial computation of severance payments and anniversary bonuses is based on the following assumptions: The biometrical basis for the calculation of provisions for pensions, severance payments and anniversary bonuses of Austrian companies is provided by AVÖ 2008-P-Rechnungsgrundlagen für die Pensionsversicherung (Computational Framework for Pension Insurance) – Pagler & Pagler, using the variant for salaried employees and considering a long-life factor. In other countries, similar actuarial parameters are used for calculation.
The balance sheet item comprises subordinated capital and supplementary capital. Liabilities, documented or undocumented, are subordinated if, in the event of liquidation or bankruptcy, they can only be met after the claims of the other – not subordinated – creditors have been satisfied. Supplementary capital contains all paid in own funds which are available for the company for more than eight years with the creditor renouncing prior notice, for which interest is paid only from the profit (before reserve transactions) and which can be repaid in the case of solvency only after all other debtors are satisfied.
The number of common shares in Raiffeisen International Bank-Holding AG to be actually transferred will depend on meeting two performance criteria: the targeted average return on equity (ROE) and the total shareholder return (TSR) for Raiffeisen International Bank-Holding AG shares in relation to TSRs of shares in the DJ Euro Stoxx Banks index after a three-year holding period. Moreover, beneficiaries have to be in active service for Raiffeisen International. SIP participation is voluntary.
Net trading income comprises the customer margins resulting from the foreign exchange business, results due to foreign exchange revaluations and all realized and unrealized gains and losses from financial assets and liabilities at fair value. In addition, it includes all interest and dividend income attributable to trading activities and related refinancing costs.
According to IAS 39, a financial guarantee is a contract under which the guarantor is obliged to make payments that compensate the party to whom the guarantee is issued for a loss arising in the event that a particular debtor does not meet payment obligations on time as stipulated in the original terms of the debt instrument. At the date of recognition of a financial guarantee, the initial fair value corresponds under market conditions to the premium at the date of signature of the contract. For subsequent valuations, a check has to be performed if the credit commitment has to be designated at fair value through profit and loss or if it has to be presented as provision according to IAS 37. The higher of the two amounts has to be recognized.
Information on capital management, regulatory own funds and risk-weighted assets are disclosed in the Notes (50).
The following table shows income statement according to IAS 39 measurement categories: Net gains (losses) on financial assets and liabilities held-for-trading 46,058 (24,612)
Net gains (losses) on financial assets and liabilities at fair value through profit or loss (46,600) (8,529)
Net realized gains (losses) on financial assets not measured at fair value through profit or loss – 549
Impairment on financial assets not measured at fair value through profit and loss (780,301) (357,525)
Net realized gains (losses) on financial assets not measured at fair value through profit or loss (38) 198
Currency-based transactions include a loss of € 93,936 thousand resulting from the ineffective part of capital hedge for investments in the Ukrainian and Belarus network unit.
The item net income from other derivatives includes valuation results and results from early termination of derivatives which are held to hedge against market risks (except trading assets/liabilities). They are based on an inhomogeneous portfolio and do not satisfy the requirements for hedge accounting according to IAS 39.
Net income from securities at fair value through profit and loss (46,599) (8,529)
Income from disposal of group assets amounting to € 7,860 thousand (2007: € 26,517 thousand) is mainly due to income arising from the disposal of project companies in Hungary and the Czech Republic.
Legal, advisory and consulting expenses include audit fees of the group companies which comprise expenses paid for the audit of financial statements amounting to € 6,774 thousand (2007: € 5,884 thousand) and tax advisory as well as other additional consulting services provided by the auditors amounting to € 2,305 thousand (2007: € 986 thousand).
Amortization of intangible fixed assets capitalized in the course of initial consolidation was € 7,233 thousand (2007: € 11,998 thousand). This is due to scheduled amortization of the acquired customer base.
Net proceeds from disposal of tangible and intangible fixed assets (2,716) (2,846)
Net expense from allocation and release of other provisions 4,516 (17,158)
The following transition shows the relation between profit before tax and the effective tax burden: Other tax deductions and tax increases include group taxation, belated tax payments for prior periods and effects resulting from changes in future tax rates for the calculation of deferred taxes.
Average number of ordinary shares outstanding (in 1,000 units) 153,599 144,987
Loans and advances to customers break down into business divisions according to Basel II definition as follows: Loans and advances to customers classified regionally (counterparty’s seat) are as follows: (17) Impairment losses on loans and advances
The trading assets consist of the following securities and derivative instruments held for trading: Securities shown last year under pledged securities ready to be sold or repledged by transferee are allocated to the appropriate securities category in the table above. The last year figures were adapted. Further details are shown under item (40) Genuine repurchase agreements.
Positive fair values of derivatives in fair value hedges (IAS 39) 16,577 5,997
Securities shown last year under pledged securities ready to be sold or repledged by transferee are allocated to the appropriate securities category in the table above. The last year figures were adapted. Further details are shown under item (40) Genuine repurchase agreements.
Equity participations valued at amortized cost for which fair values could not be reliably measured amounted to € 39,840 thousand (2007: € 40,189 thousand).
Raiffeisen International concluded syndicate contracts with the respective shareholders of the following subsidiaries: Raiffeisenbank a.s. (Czech Republic), Tatra banka a.s. (Slovakia), Raiffeisen Bank, Zrt. (Hungary) respectively Raiffeisen-RBHU Holding GmbH (Austria), Raiffeisen Banka d.d. (Slovenia ), Raiffeisenbank Austria d.d. (Croatia). These syndicate contracts regulate especially options between direct and indirect shareholders.
The syndicate contracts expire if control over the company changes – also in the case of a takeover bid. The following agreement has been made with the European Bank for Reconstruction and Development (EBRD) regarding Priorbank, OAO (Belarus): EBRD has the option to sell all shares held in Priorbank, OAO (Belarus) to the company, if control over the company changes.
Treasury bills and bills of public authorities eligible for refinancing 2,181,732 1,692,911
The item software comprises acquired software amounting to € 216,051 thousand (2007: € 188,486 thousand) and developed software amounting to € 586 thousand (2007: € 2,641 thousand).
The fair value of investment property totalled € 11,256 thousand (2007: € 18,457 thousand). The decrease in the item investment property is due that buildings are used for own operating purposes.
Office furniture and equipment as well as other tangible fixed assets 919,379 (3,665) (87,872) 313,802 (94,942) 6,850 1,053,552
Land and buildings used by the Group for own purposes (124,370) – (27,712) 495,908
Land and buildings used by the Group for own purposes 600,069 – (46,978) 90,373 (17,240) 1,742 627,967 of which land value of developed land 7,510 – (738) 657 – – 7,429
Office furniture and equipment as well as other tangible fixed assets 868,626 (59,950) (18,867) 229,964 (93,919) (6,475) 919,379
Land and buildings used by the Group for own purposes (122,712) – (20,516) 505,255
Deferred taxes break down as follows: The net deferred taxes result from the following items: Current tax assets 66,347 96,269
Deferred income tax assets are recognized for unused tax loss carry-forwards and amounted to € 26,324 thousand (2007: € 7,858 thousand). The tax loss carry-forwards are mainly without any time limit. The Group did not recognize deferred income tax assets of € 1,815 thousand (2007: € 2,484 thousand) because from present point of view there is no prospect to realize them within a reasonable period of time.
Deposits from banks classified regionally (counterparty’s seat) break down as follows: Deposits from banks break down into the following bank segments: Giro and clearing business 741,046 521,925
Deposits from customers break down as follows according to Basel II definition: Deposits from customers classified regionally (counterparty’s seat) are as follows: (28) Liabilities evidenced by paper
As of 31 December 2008, future cash flows from hedged liabilities amounting to € 114,177 thousand are to be expected, this is € 42,678 thousand for the next year and for 2010 until 2014 € 71,499 thousand.
Negative fair values of derivatives in cash flow hedges (IAS 39) 49,531 8,302
In 2008, expenses on subordinated liabilities totalled € 93,444 thousand (2007: € 84,019 thousand).
Authorized capital In the Annual General Meeting held on 5 June 2007, the Management Board was authorized, with the approval of the Supervisory Board, to increase the subscribed capital by a maximum of € 217,724 thousand by issuing up to a maximum of 71,385,000 no-par bearer shares with voting rights against a contribution in cash and/or in kind within five years, after having the respective changes in the Articles of Association recorded in the Company Register (authorized capital). € 36,287 thousand (11,897,500 shares) were used for the capital increase on 5 October 2007 (Secondary Public Offering). As of 31 December 2008, the authorized capital not used amounted to € 181,437 thousand.
Dividend proposal The Managing Board intends to propose at the Annual General Meeting that a dividend of € 0.93 per ordinary share be distributed from Raiffeisen International Bank-Holding AG’s profit for the financial year 2008, which represents a maximum distribution of € 143,841 thousand, and that the remaining amount be carried forward.
In order to avoid juridical uncertainties, the entitled employees in four countries received cash compensation instead of the distribution of shares, according to the program conditions. In Austria, the entitled persons got the alternative to receive cash compensation instead of half of the due shares, to be able to settle the payable income tax. According to that regulation, the stock of the own shares was reduced by a lower number of effective distributed shares.
Amount with share price of € 81.17 at the allotment day
Executives of Raiffeisen International Bank-Holding AG and other affiliated companies 24,818 2,014,477 15,362
The originally announced contingent allotted shares has changed as a result of various management changes in the Group units and due to the saturation of the SIP allotment 2005.This is shown on an aggregated level in the table: The shares required for the SIP have been raised through share buybacks. In 2008, Raiffeisen International bought back 321,973 no-par shares at a weighted average price of € 89.44. The low average price is because an option on shares of Raiffeisen International was exercised. The expenses resulting from the program are recognized in income statement as staff expenses.
Members of the Managing Board of Raiffeisen International Bank-Holding AG 60,977 15,244 91,466
Executives of Raiffeisen International Bank-Holding AG and other affiliated companies 32,822 8,206 49,234
As of 31 December 2008, the transactions with related parties are as follows: As of 31 December 2007, the transactions with related parties are as follows: Parent companies Affiliated companies
Assets and liabilities with counterparties outside Austria are as follows: Securitization is the packaging of designated portfolios of loans or leasing claims with an appropriate level of credit enhancement and the redistribution of these portfolios to investors. The objective of Raiffeisen International’s securitization is to ease the strain on the Group’s regulatory own funds and to use additional refinancing sources.
Structurally similar is the second transaction, ROOF Romania 2008-1. Unsecured consumer loans of Raiffeisen Bank S.A., Bucharest (RO), with a volume of € 175 million were securitised and transferred to ROOF Consumer Romania 2008-1 B.V., Amsterdam (NL).
Regarding the true sale transaction ROOF Poland 2006 effected in 2006, the option to refill the volumes of the already existing portfolio was exercised at the beginning of 2008. This portfolio disclosed within ROOF Poland 2008-1 comprises loans from car leasing contracts with a total volume of € 240,820 thousand as of 31 December 2008.
From a Group view, the non-derecognized loans arising from the true sale transaction ROOF Russia 2007-1 amounted to € 263,707 thousand at year end 2008 (2007: € 254,199 thousand). In this case, the increase of the book value is mainly due to the currency translation effect resulting from USD against € as the volume of the consumer loan portfolio in original currency nearly remained unchanged.
Within the scope of synthetic securitizations, the non-derecognized loans came up to € 404,403 thousand at year end (2007: € 402,204 thousand). The differences compared to the volumes as at the beginning of the transactions is due to the fact that volumes matured in the meantime and to changes in currency exchange rates. Furthermore, originators like Raiffeisenbank Polska, S.A., Warsaw (PL), and Raiffeisenbank a.s., Prague (CZ), differently exercised the option to refill the volumes to a marginal extent and to exceed slightly the original values.
Securities purchased in a genuine sale and repurchase agreement totalled € 2,689,990 thousand (2007: € 1,931,915 thousand). Assets which were sold or repledged amounted to € 33,896 thousand (2007: € 9,661 thousand), thereof € 32,574 thousand were bonds, notes and other fixedinterest securities and € 1,332 thousand were loans and advances (2007: € 9,661 thousand).
Operating leases from view of Raiffeisen International as lessor: Operating leases from view of Raiffeisen International as lessee: Page 174 Consolidated Financial Statement
As a subsidiary and major sub-group of RZB Group, Raiffeisen International Bank-Holding AG is integrated into RZB´s risk management system. Different risk management units at several organizational levels of the Group ensure that all material risks are measured and limited, and that business in general is evaluated under a risk/return perspective. For this purpose and in addition to legal and regulatory requirements, risk management takes into account the particular nature, scale, and complexity of the business activities and the resulting risks.
In order to ensure a consistent and coherent risk management approach, the Managing Board of Raiffeisen International Bank-Holding AG decides on the risk strategy and risk management within the framework laid down by RZB Group. They define the risk appetite, set limits for all material risks, and demand a minimum risk-adjusted return in the Group’s risk strategy.
In particular, the Managing Board of Raiffeisen International defines and implements the Group’s risk policies. A specific risk policy defines the plans for the development of the Bank’s business in a certain business division for a given period. For example, the credit risk policies for corporate customers regulate which industries will be targeted, restricted, or excluded from lending or what the minimum rating, amount of collateral or required profit on a transaction is for each Group member. Specific risk policies are an integral part of all business operations and in this context also establish a systematic link between earnings and risks in all business divisions.
Organizational structure The implementation of risk management is structured in several levels. Raiffeisen International develops and implements risk management in close cooperation and coordination with RZB as the parent and the individual subsidiaries.
As a cross-divisional and Group-wide body, the Group Risk Committee is responsible for the ongoing development and implementation of methods and parameters for risk quantification models and risk management processes. It also analyzes the risk situation of the Group with respect to the internal capital adequacy of the Group and the corresponding risk limits. Furthermore, it approves risk management /controlling activities like the allocation of risk capital and advises the Managing Board in these matters.
The Market Risk Committee (MACO) is responsible for controlling market risks of trading and banking book activities and for establishing appropriate limits and relevant processes. For this purpose, the committee evaluates company results, the amount of risks taken and the limit utilization, as well as the results from stress tests.
Maintaining a sufficient level of capital is a core objective of risk management at Raiffeisen International. Capital adequacy according to internal standards is monitored based on the Group’s actual risk level on a quarterly basis. It takes into account capital requirements both from a regulatory point of view (going concern perspective) and from an economic point of view (liquidation perspective). In both views the Group measures risks for all material risk types on a consolidated basis and for all relevant network units in a value-at-risk model.
Stress tests show the impact of significant negative variances in risk factors which might not be adequately captured in a value-at-risk model. They can be based on historical events (e.g. Russian crisis in 1998) or hypothetical scenarios. Thus they allow the analyzis of risk concentrations (i.e. in size, industry, and region) and deliver a deep insight into the profitability, solvability, and survival probability of the Group in extreme situations. Decisions on the required capital ratios take into account those scenarios, keeping in mind the likelihood of the scenario and the possible countermeasures that would be taken by the Group in such a scenario.
Liquidation perspective Risk in the liquidation perspective is measured as economic capital presenting a comparable risk measure across all types of risks. It is calculated as the sum of unexpected losses stemming from different Group members and different risk categories (credit and country risk, market, and operational risk). In addition, a separate risk buffer for other (mostly immaterial) risks not explicitly quantified is held on an overall Group level.
Risk contribution of individual risk types to economic capital at Raiffeisen International as of 31.12.2008
Going concern perspective In parallel to that procedure, risk is calculated as value-at-risk on the basis of a confidence interval of 99 per cent as well. This capital requirement is likewise weighed against a corresponding estimate of risk-taking capacity which is derived from the Group’s available capital based on a going concern basis (with respect to regulatory capital adequacy).
Raiffeisen International manages regulatory capital on Group level according to Austrian regulations whereas local regulatory capital requirements are met by adequate structural balance sheet measures. The target for regulatory capital is intentionally set higher than the minimum regulatory requirement in order to assure sufficient regulatory capital at all times and to account for other risks or higher risks which are not considered in the regulatory requirements. Thus the banking group ensures goingconcern and the distribution of a minimum profit with a defined confidence level as well.
Credit risk is by far the most important risk driver in Raiffeisen International as also indicated by internal and regulatory capital requirements. Thus credit risk is analyzed and monitored both on an individual loan (and customer-by-customer basis respectively) and on a portfolio basis. Credit risk management and lending decisions are based on the respective credit risk policies, credit risk manuals, and the corresponding tools and processes which have been developed for this purpose.
The current values of collateral and other risk mitigation effects are calculated with each credit assessment as well. For the calculation of risk mitigation effects, the value accounted for is the value Raiffeisen International expects to receive when selling the collateral within a reasonable liquidation period. Eligible collaterals are defined in the Group’s collateral catalogue and evaluation guidelines for collateral. The respective value of the collateral is calculated via specified methods, which include standardized calculations based on market values, predefined discounts, or expert assessments.
Corporate Customers The internal rating model for corporate customers takes into account qualitative factors as well as several business and performance figures (e.g. interest cover, EBT margin, EBTDA margin, equity ratio, return on assets, debt amortization period), which are tailored to the various industries and financial reporting standards.
Exposure to corporate customers, by internal rating and region corporate customers project finance
The following table provides a breakdown of the credit exposure according to the internal rating in the business division corporate customers (including off-balance sheet exposure) in thousands of euros. These figures are based on the customer rating only. Collateral must also be taken into account in the overall assessment of credit risk: The overall credit quality of corporate customers slightly declined in the past financial year. Compared to the year before, the portfolio share of the best rating categories (up to rating class 2.0) decreased by 0.5 per cent to 22.4 per cent and the proportion of exposures with acceptable credit standing (up to rating class 3.0) declined by 2.5 per cent to 35.6 per cent. Consequently, the portfolio share of lower rated customers increased by 0.5 per cent to 36.5 per cent. Also the amount of customers in default (rating class 5.0) increased from 1.1 per cent to 2.0 per cent. The portfolio share of unrated customers increased to 3.4 per cent mainly due to small loans that are loaded without their ratings into the group data warehouse. The internal rating shown in this table only reflects the borrowers’ credit standing and does not take into account the amount of collateral provided in individual transactions.
In 2007 a new rating model for project finance has been introduced. The exposure from project finance is shown below.
Internal rating 2008 Proportion 2007 Proportion 4.0 Weak credit standing/sub-standard 5,626,043 11.8% 5,376,925 12.5%
5.0 Default (acc. to Basel II definition) 951,437 2.0% 474,967 1.1%
6.2 Good project risk profile – low risk 1,405,852 39.0% 777,769 49.7%
6.4 Poor project risk profile – high risk 73,559 2.0% 50,946 3.3%
€000 CE SEE CIS Total 2008 of which collateralized – – – –
Impairment losses on loans 2,153 – – 2,153 €000 CE SEE CIS Total 2007 of which collateralized – – – –
The retail portfolio has the highest ratio of non-performing loans to total loans. With respect to smalland -medium sized enterprises the ratio increased by 2.2 percentage points to 6.0 per cent, for retail private individuals 4.0 per cent of the total exposure is classified as non-performing (an increase by 1.1 percentage points from the previous year). By regional breakdown, the NPL ratio increased in the CIS region from 3.7 per cent to 8.0 per cent significantly.
All in all, total loan loss provisions for retail customers increased by 54 per cent to € 783 million. The coverage ratio in the CIS region was 121.2 per cent (a decrease of 64.3 percentage points). In absolute amounts, non-performing loans for retail customers reached € 951 million, where € 532 million are available as collateral. For the difference between these values € 783 million in loan loss provisions have been allocated.
1 Allocation including direct write-downs and income on written down claims. 2 Usage including direct write-downs and income on written down claims.
Loans and advances as well as loan loss provisions according to Basel II asset classes are shown in the following table: Carrying amount
Overdue financial assets The definition of default and the assessment of the expected recovery value are heavily influenced by the number of days payments are late. The following table shows the amount of overdue financial assets for different time bands.
€000 Current < 31 days 31-90 days 91-180 days 181 days 1year > 1 year €000 Current < 31 days 31-90 days 91-180 days 181 days 1year > 1 year
Country risk Country risk includes transfer and convertibility risks as well as political risk. It arises from cross-border transactions and direct investments in foreign countries. As country risk is closely associated with the risk of sovereign institutions, it is measured based on the same ten-class rating model. This rating model includes a quantitative analysis of the economic risk of a particular country and a qualitative analysis of the political risk that a particular country represents. Country risk according to this definition is of lower importance to the group members of Raiffeisen International as they mainly do business within their own countries. However, additional intra-group country risk arises from equity participations and financing transactions/guarantees.
Within the scope of its risk policy and assessments of creditworthiness, Raiffeisen International also considers the borrower’s industry. The following table covers the customer credit exposure (offbalance sheet items included, but without banks and central banks): Counterparty credit risk If a counterparty in derivative, repurchase, securities or commodities lending or borrowing transactions defaults then the bank can suffer losses when an equivalent contract is re-established with another counterparty. In Raiffeisen International this risk is measured by the mark-to-market approach where a predefined add-on is added to the current positive fair value of the contract in order to account for potential future changes. When assigning internal risk capital these price changes are calculated based specifically for different contract types based on historical market price changes in the previous two years.
For derivative contracts the standard lending approval process applies as well where the same risk classification, limitation, and monitoring process is used as in the bank’s other credit business. For instance, the weighted nominal exposure of derivative contracts is added to the customers’ total exposure in the limit application and monitoring process as well as in the calculation and allocation of internal capital.
In order to reduce counterparty credit risk the bank uses credit risk mitigation techniques like netting agreements and collateralisation. In general, Raiffeisen International strives to establish standardized ISDA master agreements with all counterparties in order to provide full risk coverage for positive fair values on a daily basis.
Value-at-risk is of central importance in setting limits. It is calculated weekly for Raiffeisen International using a variance-covariance matrix approach. In this calculation the Group uses a confidence level of 99 percent, sets the holding period to 10 days, and derives volatilities and correlations from historical market data of one business year. The accuracy and reliability of this value-at-risk approach which is based on past market developments is checked using appropriate backtesting.
Value-at-risk figures forecast maximum losses under normal market conditions but do not provide any specific information about the effects of exceptionally extreme market movements. To take such events into account, Raiffeisen International carries out weekly defined stress tests focusing on the biggest daily market movements in the preceding five years. With stress scenarios the Group simulates crisis situations and major fluctuations in market parameters and computes their effect on the its current positions. Stress tests consequently deliver important results for the management of risks (especially on hidden market risk concentrations).
Market risk in the trading book Market risk in Raiffeisen International’s trading books depends primarily on currency risk, which results from hedging positions entered by the Asset/Liability Management Committee offsetting the risk of changes in the value of foreign-currency denominated equity investments made in foreign Group units. This risk has increased significantly during the last year due to high fluctuations in foreign exchange rates.
The own funds requirement for the trading book is calculated using the standardized approach as defined in Austria’s solvability directive.
of which currency risk without capital position 15,554 4,066 582 16,153
of which currency risk without capital position 430 976 279 2,489
Change of present value 31.12.2008 6-12 months > 1-2 years > 2-5 years > 5 years
Change of present value 31.12.2007 6-12 months > 1-2 years > 2-5 years > 5 years
Liquidity management, i.e. ensuring that the bank meets is obligations at all times, is performed both centrally by Raiffeisen International and on a decentralised basis by the local banks. An internal monitoring system records and analyzes cash flows by currency for each group member and globally on a weekly basis. Based on this data, the bank creates liquidity balances, and analyzes whether the Group’s short- and medium-term liquidity situation always conforms to legal regulations on liquidity levels and defined internal liquidity limits. Liquidity analyzes also include simulations on the sensitivity of liabilities and the liquidity of assets as well as defined liquidity crises in scenariobased cash flow forecasts. All these analyzes are discussed in the Group’s Asset/Liability Management Committee.
Funding liquidity risk Funding liquidity risk is mainly driven by changes in the risk appetite of lenders or by rating migrations of a bank that seeks external funding. Raiffeisen International’s banking activities are refinanced by combining the placing power and know-how of RZB AG as parent credit institution and the retail franchise of deposit-taking network banks and their own issuing plans. While such issues decreased during the fourth quarter 2008 due to the economic environment, the focus is on the extension and safeguarding of customer deposits.
Maturity 1 week 1 month 1 year 1 week 1 month 1 year
In line with Basel II, operational risk is defined as the risk of unexpected losses resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. In this risk category Raiffeisen International manages internal risk drivers like unauthorized activities, fraud or theft, execution and process errors, or business disruption and system failures. External factors are managed such as damage to physical assets or consciously conducted human fraud.
As with other risk types the principle of firewalling between risk management and risk controlling is also applied to operational risk in Raiffeisen International. Operational risk controlling units are mainly responsible for the implementation and refinement of methods for operational risk management in different Group members (e.g. performing self assessment, defining and monitoring KRIs, etc.) and for reporting to the central operational risk controlling function. Business line managers are the persons responsible for managing and mitigating operational risks. They decide on the application of operational risk steering actions such as buying insurance and the use of further risk mitigating instruments.
Risk identification An important task for controlling operational risks is identifying and evaluating risky areas which might endanger the bank’s existence if a loss occurs (but where losses are unlikely to be realized) and also areas where losses are more likely to happen frequently (but are not threatening the bank’s existence).
Assessment is executed on the corporate level for each Group member, where all operational risk categories and business functions are assessed in a two-dimensional matrix. All Group members assign ratings for each combination of operational risk category and business function according to their estimation of the total annual loss for high probability/low impact events and low probability /high impact incidents. Low probability/high impact events are quantified by a Group-wide scenario analysis framework that includes the simulation of up to ten specific scenarios. Each entity is furthermore required to run additional scenarios depending on the individual risk profile and local specifics.
Loss data is collected in a central database called ROCO (Raiffeisen Operational Risk Controlling) in a structured and homogeneous Group-wide form according to the event type for each business field. Collecting losses stemming from operational risks is a prerequisite for implementing a statistical loss distribution model and a minimum requirement for implementing the statutory Standardized Approach. Furthermore, loss data (and near misses) is used to create and validate operational risk scenarios and for exchange with international data pools to develop advanced operational risk management tools. A general risk report which is presented to the Group Risk Committee semiannually provides a comprehensive overview on operational risks.
Risk reduction in operational risks is initiated by business managers who decide on preventive actions like risk mitigation or risk transfer. These managers also define contingency plans if these scenarios would become real and nominate responsible persons/departments for initiating the defined actions. In addition, several dedicated organisational units provide support to business units for reducing operational risks. IT security, for example, develops procedures that ensure integrity and confidentiality for all kinds of data. Fraud management is another one of these functions in the retail business field, and it is dedicated to proactive monitoring and preventing fraud attempts. Raiffeisen International also executes an extensive staff training programme and has different emergency plans and back-up systems in place. Finally, the SixSigma method is applied for business process improvement.
The total volume of unsettled financial instruments as of 31 December 2008 breaks down as follows: Nominal amount by maturity Fair values
The total volume of unsettled financial instruments as of 31 December 2007 breaks down as follows: Nominal amount by maturity Fair values
Intangible and tangible fixed assets 2,216,285 2,215,657 628 2,293,250 2,290,385 2,864
Shares and other variable-yield securities 35,771 – 1,203 75,001 – 2,967
Call/time deposits for trading purposes – – – 13,892 – –
Bonds, notes and other fixed-interest securities 1,503,527 471,445 – 1,242,367 222,063 –
Call/time deposits for trading purposes – 10,572 – – 39,449 –
Fiduciary business not recognized in the balance sheet was concluded with the following volumes: Fees income from fiduciary business amounted to € 8,391 thousand (2007: € 11,565 thousand). Fees expenses totalled € 2,487 thousand (2007: € 1,839 thousand).
The most crucial control system for Raiffeisen Internal is equity. Raiffeisen International is not subject to the Austrian Banking Act, as on the one hand no banking licence is drawn and on the other hand this company is integrated in the RZB Group, which is already subject to regulatory monitoring. Nevertheless, the network banks of Raiffeisen International are subject to the local regulative equity regulations.
Equity and in a broader sense own funds serve as protection against unexpected losses. In terms of an orderly business control, the assignment of the management of Raiffeisen International is to guarantee capital adequacy. On the whole, Raiffeisen International uses basically the same control systems as RZB Group.
Raiffeisen International uses target values for internal regulation. These incorporate all risk types, including trading book, foreign exchange, and operational risk. The local network banks are in charge of maintaining the local regulative targets, in accordance with the equity investment’s management and corporate planning division.
Raiffeisen International Bank-Holding AG, a subsidiary of Raiffeisen Zentralbank Österreich Aktiengesellschaft, does not have its own banking group as defined by the Austrian Banking Act (BWG). Therefore, it is not itself subject to the relevant regulatory requirements. However, the following figures are accounted for within the scope of RZB-Kreditinstitutsgruppe. The following figures are provided for information purposes only.
The own funds of Raiffeisen International according to the Austrian Banking Act (BWG) 1993/Amendment 2006 (Basel II) break down as follows (the values as of 31 December 2007 are based on Basel I, but are adapted for the reporting scheme): Paid-in capital 3,036,600 3,056,925
Additional own funds according to Section 23 (1) 5 BWG 149,338 91,001
Core capital ratio (tier 1), incl. market and operational risk 8.1% 10.5%
Moreover, there exists a protection against the risk of occupational invalidity which is covered by a pension fund or by individual pension agreements secured through reinsurance.
Group relations of key management Key management refers to the Managing Board of Raiffeisen International Bank-Holding AG, the parent company, and Raiffeisen Zentralbank Österreich Aktiengesellschaft, the majority shareholder. Relations of key management to Raiffeisen International are as follows (respective fair values): Full-time equivalents 2008 2007
The following table shows relations of close family members of key management to Raiffeisen International: Beyond that, there are no further relations of Raiffeisen International to key management. Moreover, there is no compensation agreed between the company and their members of the Managing Board and Supervisory Board in the case of a takeover bid.
The members of the Managing Board have mandates in the Supervisory Board of quoted companies at home and abroad: Herbert Stepic: OMV AG, VAT Raiffeisen Bank Aval, Tatra banka a.s. Rainer Franz: Tatra banka a.s., VAT Raiffeisen Bank Aval Heinz Wiedner: VAT Raiffeisen Bank Aval Aris Bogdaneris: VAT Raiffeisen Bank Aval Martin Grüll: VAT Raiffeisen Bank Aval, OAO Priorbank Peter Lennkh: VAT Raiffeisen Bank Aval, OAO Priorbank
Raiffeisen Zentralbank is entitled to send up to one third of the members of the Supervisory Board, insofar as it has a shareholding in Raiffeisen International. Individuals finishing the stage of life of 75 years are not able to be elected to a member of the Supervisory Board and may not be appointed for another functional period. In addition, individuals having more than 8 mandates in Supervisory Boards of quoted companies may not be elected. The chairmanship in the Supervisory Board of a quoted company is counted twice.
Members of the Supervisory Board Working Committee Audit Committee Personnel Committee
We have audited the accompanying consolidated financial statements of Raiffeisen International Bank-Holding AG, Vienna, for the financial year from 1 January to 31 December 2008. These financial statements comprise the balance sheet as at 31 December 2008, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with laws and regulations applicable in Austria and International Standards on Auditing, issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
The following table shows a selection of operating companies of Raiffeisen International’s consolidated group. The complete list of Raiffeisen International’s equity participations is deposited with the Group parent’s headquarters 1 Company type: BA… Bank, BR …Company rendering banking-related ancillary services, FI …Financial institution
List of equity participations The following tables show a selection of equity participations. The complete list of Raiffeisen International ’s equity participation is deposited with the Group parent’s headquarters.
Other non-consolidated subsidiaries and equity participations 1 Equity participations held via companies that are not included in the consolidated financial statements (pro-rata share) 2 Company type: BA…Bank, BR…Company rendering banking-related ancillary services, FI…Financial institution
Raiffeisen Banca pentru Locuinte S.A., Bucharest (RO) 96,000,000 RON 33.3% BA
Czech Real Estate Fund (CREF) B.V., Amsterdam (NL) 18,000 EUR 20.0% FI
Doplnková dôchodková spolo nos Tatra banky, a.s., Bratislava (SK) 50,000,000 SKK 100.0% FI
Raiffeisen Voluntary Pension Fund Management d.o.o., Zagreb (HR) 33,445,300 HRK 100.0% FI
Back testing – The backward comparison of VaR fi gures with actual results to test the quality of a model.
Basel II – The body of capital adequacy regulations proposed in recent years by the “Basel Committee,” an international forum dedicated to improving bank supervision. According to EU Directives 2006/48/EC and 2006/49/EC, the regulations must be applied in the member states of the European Union from 1 January 2007 onwards to all banks and fi nancial service institutions. As in the case of the Basel I Accord, the goal is to ensure that banks have adequate capital resources and that uniform competitive conditions are created for both lending and credit trading. The main objective of the changes made by Basel II compared with Basel I is to orient capital adequacy requirements prescribed by government more strongly to actual risk and hence approximate the capital requirements internally ascertained by banks.
CAGR – Compound Annual Growth Rate is the average increase of a fi gure.
Cash fl ow – Infl ows and outfl ows of cash and cash equivalents.
Cash fl ow hedge – Protection against the risk of variability in projected cash fl ows, resulting either from risk associated with a recognized asset or liability or risk associated with a forecasted transaction. Whereas the eff ective portion of the hedge relating to changes in value of the hedging instruments can be directly recognized in equity, the ineff ective portion has a direct eff ect on profi t and loss.
Cash fl ow statement – Statement of cash fl ows during the fi nancial year arising from operating activities, investing activities and fi nancing activities and a reconciliation of cash and cash-equivalents held at the beginning and the end of the fi nancial year.
Clean price – Price of a fi nancial instrument without accrued interest.
Consolidated ROE – Return on Consolidated Equity, i.e. the equity attributable to the shareholder of Raiff eisen International. It is calculated by consolidated profi t in relation to average balance sheet equity (without minority interests). Average equity is based on month-end fi gures and does not include current year profi t.
Core capital – so called Tier I, involves regulatory core capital as defi ned in § 23 BWG.
Cost/income ratio – Indicator of an enterprise’s cost effi ciency based on the ratio of expenses to earnings. It is calculated by comparing general administrative expenses (comprising staff expenses and other administrative expenses and depreciation /amortization of tangible and intangible fi xed assets) with operating income (net interest income, net commission income, trading profi t/loss and other operating profi t/loss).
Credit exposure – Comprises all on-balance sheet exposures (loans, debt securities) and off -balance-sheet exposures (guarantees, commitments) that expose Raiff eisen International to credit risk.
Dirty price – Price of a fi nancial instrument including accrued interest.
EBRD (European Bank for Reconstruction and Development ) – An institution that promotes the transition to an open market economy and to private and entrepreneurial action in the countries of Central and Eastern Europe. Through its investments, it supports activity of the private sector and strengthens fi nancial institutions, legal systems, and development of infrastructure needed by the private sector.
EMTN (Euro Medium Term Notes) Program – Framework agreement between companies and bond traders who make it possible for the companies to issue medium-term securities in the European capital market for the purpose of fl exibly procuring outside capital.
Fair Value Level I – (is quoted on an active market). The fair value is measured through a market price, if available.
Fair Value Level II – (evaluation method through observable parameters). When current bid and asking prices are unavailable, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a signifi cant change in economic circumstances since the time of the transaction. (Used methods: cash method and option pricing models)
Funding – All means used by banks for the purpose of refi nancing.
Hedging – Designating one or more hedging instruments so that their change in fair value is an off set, in whole or in part, to the change in fair value or cash fl ows of a hedged item.
Liquidity risk – Risk that the bank could be unable to meet its current and future fi nancial obligations in full or in good time. This arises from the danger that e.g. refi nancing can only be obtained at very disadvantageous terms or is entirely impossible.
Net provisioning ratio (total credit exposure) – Risk valuation ratio. Is calculated by provisioning for impairment losses divided by the total credit exposure.
Operating lease – Lease under which commercial and legal ownership remains with the lessor with the eff ect that the lessor must show the asset on its balance sheet.
OTC instruments – Financial instruments that are neither standardized nor traded on a stock exchange. They are traded directly between market participants “over-the-counter”.
Risk-weighted assets (incl. market risk) – Comprises the basis of assessment within the meaning of section 22 of the Austrian Banking Act (BWG) plus 12.5 times the own funds required as cover for the trading book and open currency positions.
Risk-weighted assets (credit risk) – This is the sum of the weighted accounts receivable and includes receivables in the form of asset items, off balance sheet items according to annex 1 of § 22 and derivatives according to annex 2 of § 22 BWG.
Securitization – Special type of refi nancing and the packaging of designated portfolios of loans or leasing claims with an appropriate level of credit enhancement and the redistribution of these portfolios to investors.
Poland Raiff eisen Bank Polska S.A. Ul. Piękna 20 00549 Warszawa Phone: +48-22-585 2001 Fax: +48-22-585 2585 SWIFT/BIC: RCBWPLPW www.raiff eisen.pl
Romania Raiff eisen Bank S.A. Piaţa Charles de Gaulle 15 011857 Bucureşti 1 Phone: +40-21-306 1000 Fax: +40-21-230 0700 SWIFT/BIC: RZBRROBU www.raiff eisen.ro
Russia ZAO Raiff eisenbank Smolenskaya-Sennaya pl., 28 119002 Moskwa Phone: +7-495-721 9900 Fax: +7-495-721 9901 SWIFT/BIC: RZBMRUMM www.raiff eisen.ru
Slovenia Raiff eisen Banka d.d. Slovenska ulica 17 2000 Maribor Phone: +386-2-229 3100 Fax: +386-2-252 4779 SWIFT/BIC: KREKSI22 www.raiff eisen.si
Albania Raiff eisen Leasing Sh.a. Rruga Kavajes 44 Tiranë Phone: +355-4-2274 920 Fax: +355-4-2232 524 www.raiff eisen.al
Bosnia and Herzegovina Raiff eisen Leasing d.o.o. Sarajevo St. Branilaca Sarajeva No. 20 71000 Sarajevo Phone: +387-33-254 354 Fax: +387-33-212 273 www.rlbh.ba
Hungary Raiff eisen Lízing Zrt. Váci utca 81-85 1139 Budapest Phone: +36-1-298 8016 Fax: +36-1-298 8600 www.raiff eisenlizing.hu
Kosovo Raiff eisen Leasing Kosovo Rruga Agim Ramadani No. 17 Prishtina 10000 Phone: +381-38-222
Moldova Raiff eisen Leasing SRL 51 Alexandru cel Bun 2012 Chisinau Phone: +373-22-2793 13 Fax: +373-22-2283 81 www.raiff eisen-leasing.md
Slovakia Tatra Leasing s.r.o. Továrenská 10 81109 Bratislava Phone: +421-2-5919 3168 Fax: +421-2-5919 3048 www.tatraleasing.sk
Slovenia Raiff eisen Leasing d.o.o. Tivolska 30 (Center Tivoli) 1000 Ljubljana Phone: +386-1-241 6250 Fax: +386-1-241 6268 www.rl-sl.com
Ukraine LLC Raiff eisen Leasing Aval Moskovskiy Prospect, 9 Corp. 5 offi ce 101 04073 Kyiv Phone: +38-044-590 2490 www.rla.com.ua
Czech Republic Raiff eisen Leasing Real Estate s.r.o. Hvezdova 1716/2b 14078 Praha 4 Phone: +420-2-215116 10 Fax: +420-2-215116 41 www.realestateleasing.cz
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Raiff eisen International Bank-Holding AG Am Stadtpark 3 1030 Vienna Austria Phone: +43-1-71707 0 Fax: +43-1-71707 1715 Internet: www.ri.co.at
Publication details The forecasts, plans, and statements addressing the future are based on knowledge and assumptions of Raiff eisen International at the time at which they are drawn up. Like all statements addressing the future, they are exposed to risks and uncertainty factors that may lead to considerable deviations in the result. No guarantees can therefore be provided that the forecasts and targeted values, or the statements addressing the future, will actually materialize.