Recognition of changes in the fair value of the contingent consideration which do not represent corrections within the measurement period is dependent on how the contingent consideration is to be classified. If the contingent consideration is classified as equity, it is not re-measured on the following reporting date. Its settlement is recognized within equity. A contingent consideration classified as assets or liabilities is measured on the following reporting dates according to IAS 39 or IAS 37 Provisions for liabilities and charges, contingent liabilities or contingent receivables if applicable and a resulting profit or loss is recognized in the income statement.
Shareholdings in subsidiaries not included in the consolidated financial statements because of their minor significance, shareholdings in associated companies that are not valued at equity and other equity participations are shown under financial investments.
Separately acquired intangible fixed assets, i.e. those with a definite useful life not acquired in a business combination, are capitalized at acquisition cost less accumulated amortization and impairment. Amortization is accrued in a straight line over the expected useful life and reported as an expense in the income statement. The expected useful life and the depreciation method are reviewed at each reporting date and any possible changes in measurement taken into account prospectively. Separately acquired intangible fixed assets with an indefinite useful life are capitalized at acquisition cost less accumulated impairment. The normal useful life of software is between four and six years. The normal useful life for large software projects may extend over a longer period.
Intangible fixed assets acquired in a business combination are reported separately from goodwill and measured at fair value. Goodwill and other intangible fixed assets without definite useful lives are tested for impairment at each reporting date. Impairment tests are performed whenever certain events (trigger events) occur during the year. Whenever circumstances indicate that the expected benefit no longer exists, impairment must be recognized pursuant to IAS 36.
Expected useful lives, residual values and depreciation methods are reviewed annually. Any necessary future change of estimates is taken into account. Any anticipated permanent impairment is reported in the income statement and shown under the item "general administrative expenses". In the event that the reason for the write-down no longer applies, a write-up will take place up to a maximum of the amount of the amortized cost of the asset.
Details on assets held for sale pursuant to IFRS 5 are included in the notes under (23) Other assets.
These types of provision are reported in the statement of financial position under the item "provisions for liabilities and charges". Allocation to the various types of provision is booked through different line items in the income statement depending on the nature of the provision. Allocation of loan loss provisions for contingent liabilities are recorded under net provisioning for impairment losses, restructuring provisioning, provisioning for legal risks and other employee benefits are recorded in general administrative expenses. Provision allocations that are not assigned to a corresponding general administrative expense are as a matter of principle booked against other net operating income.
Please refer to Provisions for pensions and similar obligations in the notes under (27) Provisions for liabilities and charges for further details.
As of the financial year 2011, the following general and specific principles for the allocation, the claim and the payment of variable remuneration (including the payment of the deferred portion of the bonus) for board members of RBI AG and certain Group units and identified staff ("risk personnel") are applied:  60 per cent and for especially high amounts 40 per cent of the annual bonus respectively will be paid out on a proportional basis as 50 per cent cash immediately (up-front), and 50 per cent through a phantom share plan (see details below), which will pay out after a holding period (retention period) of one year. An exception to this are the Group units in Bulgaria, with 40 percent up-front portion and a retention period of two years, and in the Czech Republic with a holding period of 1.5 years.
All expenses related to the share incentive program are recognized in staff expenses in accordance with IFRS 2 (share-based payment) and charged to equity. They are described in greater detail in the notes under (32) Equity.
Deferred taxes are calculated and recognized in accordance with IAS 12 applying the liability method. Deferred taxes are based on all temporary differences that result from comparing the carrying amounts of assets and liabilities in the IFRS accounts with the tax bases of assets and liabilities, and which will reverse in the future. Deferred taxes are calculated by using tax rates applicable in the countries concerned. A deferred tax asset should also be recognized on tax loss carry-forwards if it is probable that sufficient taxable profit will be generated against which the tax loss carry-forwards can be utilized within the same entity. On each reporting date, the carrying amount of the deferred tax assets is reviewed and impaired if it is no longer probable that sufficient taxable income will become available in order to partly or fully realize the tax assets. Deferred tax assets and deferred tax liabilities within the same entity are netted. Income tax credits and income tax obligations are recorded separately under the items "other assets" and "tax provisions" respectively.
Information on capital management, regulatory capital and risk-weighted assets is disclosed in the notes under (47) Capital management and total capital according to CCR/CRD IV and Austrian Banking Act (BWG).
The amendments clarify the provisions that relate to the allocation of employee or third-party contributions linked to periods of service. In addition, a solution that simplifies accounting practice is permitted if the amount of the contributions is independent of the number of years of service performed. These amendments have no material impact on the consolidated financial statements of RBI.
According to these amendments, IAS 16 is applicable for bearer plants which are no longer subject to obvious biological changes; therefore they can be recognized as tangible fixed assets. These amendments have no impact on the consolidated financial statements of RBI.
Under these amendments, the option to use the equity method to measure investments in subsidiaries, joint ventures and associated companies in separate financial statements of investors is reinstated. These amendments have no impact on the consolidated financial statements of RBI.
These amendments clarify that an entity may also apply the consolidation exception if its parent entity is an investment entity which measures its subsidiaries at fair value pursuant to IFRS 10. The amendments also clarify that an investment entity only has to consolidate a subsidiary that provides services related to the parent’s investment activities if the subsidiary itself is not an investment entity. These amendments have no material impact on the consolidated financial statements of RBI because the Group is not an investment entity pursuant to IFRS 10.
The amendments to IFRS 11 modify accounting for acquisitions of interests in joint operations in such a way that the acquirer of shares in a joint operation in which the activity constitutes a business operation as defined in IFRS 3 is required to apply all of the principles regarding the recognition of business combinations pursuant to IFRS 3 and other IFRS, provided they do not contradict the principles contained in IFRS 11. These amendments have no material impact on the consolidated financial statements of RBI.
Numerous amendments and clarifications to various IFRS. These amendments have no material impact on the consolidated financial statements of RBI.
IFRS 9 (financial instruments) contains requirements for the classification, measurement, derecognition of and accounting for hedging relationships. The IASB published the final version of the standard within the context of completion of the various phases on July 24, 2014 and it was definitively incorporated into EU law through the EU Commission’s adoption of Regulation (EU) No. 2016/2067 of November 22, 2016. Key requirements of IFRS 9 are: According to IFRS 9, all financial assets must be measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are measured at amortized cost at the end of subsequent accounting periods. All other instruments must be measured at fair value.
The amendments aim to ensure that entities provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities.
Amendments to IAS 12 (Deferred taxes; entry into force January 1, 2017)
The amendments clarify that unrealized losses related to debt instruments measured at fair value but at cost for tax purposes can give rise to deductible temporary differences. This applies irrespective of whether the holder expects to recover the carrying amount by holding the debt instrument until maturity and collecting all contractual payments or by selling the debt instrument. In addition, the carrying amount of an asset does not represent the upper limit for the estimation of probable future taxable profits. When estimating future taxable profits tax deductions resulting from the reversal of deductible temporary differences must be excluded and a company must assess a deferred tax asset in combination with other deferred tax assets. If tax law restricts the realization of tax losses, a company must assess a deferred tax asset in combination with other deferred tax assets of the same (admissible) type.
The amendments concern individual matters relating to the accounting of cash-settled share-based payments. The principal amendment/addition relates to the fact that IFRS 2 now contains provisions which relate to the calculation of the fair value of liabilities resulting from share-based payments. The consequences for the consolidated financial statements are still being analyzed.
Amendments to IFRS 4 (Insurance contracts; entry into force January 1, 2018)
The amendments aim to mitigate the consequences resulting from different first-time effective dates for the application of IFRS 9 and the successor standard to IFRS 4, especially for companies whose activities are predominantly connected with insurance. Two optional approaches are being introduced which can be used by insurers if certain requirements are met: the overlay approach and the deferral approach. The consequences for the consolidated financial statements are still being analyzed.
Amendments to IFRS 15 (Revenue from contracts with customers; entry into force January 1, 2018)
The IASB published clarifications to IFRS 15 in 2016. The amendments to clarify IFRS 15 'Revenue from contracts with customers' address three of the five topics identified (identifying performance obligations, principal versus agent considerations and licensing) and aim to provide transition relief for modified contracts and completed contracts. The consequences for the consolidated financial statements are still being analyzed.
For lessees, the new standard provides an accounting model which does not distinguish between finance and operating leases. In future, it will be necessary to report the majority of lease agreements in the balance sheet. For lessors, the rules of IAS 17 remain largely applicable, with the result that in future, they will still have to distinguish between finance and operating lease agreements – with corresponding implications for accounting. The consequences for the consolidated financial statements are still being analyzed.
This interpretation clarifies the accounting for transactions that include the receipt or payment of considerations in a foreign currency.
Amendments to IAS 40 for the classification of property under construction or development published (entry into force January 1, 2018)
Raiffeisen Bank International AG, Vienna, Austria, and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2016, and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.
As part of the credit risk monitoring process the bank checks if there is any indication of impairment and therefore whether an individual loan loss provision is needed. This includes assessing whether the customer can fully fulfill the contractually agreed repayments without the need of realizing collaterals.
We have obtained the documentation that describes the process of loan issuance, loan monitoring and determination of loan loss provisions and analysed these documents to determine whether the processes adequately identify impairment indicators and ensure amounts are recorded at their appropriate carrying value in the Financial Statements. In addition we tested the entire process as well as the essential key controls within these processes. As part of this work we checked the design, implementation and effectiveness of these key controls.
For individual loan loss provision we used a sampling based approach to determine whether impairment indicators were indentified and whether appropriate loan loss provisions were calculated. We critically assessed the banks estimates regarding the amount and timing of future cash flows, including those resulting from realisation of collaterals, and whether the banks assessment was in line with the internal and external information available. The sample selection was made using both a risk based approach dependant on the clients rating class, and random selection approach for clients with a lower probability of default. With regards to the internal collateral valuation we analysed whether the assumptions used in the model were adequate and in line with available market data. We involved our internal valuation specialists in this process.
For portfolio loan loss provision we reviewed whether the models and relevant parameters used were adequate for calculating loan loss provisions. For corporate clients we used sampling to test whether the applied probability of default rates per rating class had been correctly determined. Our internal valuation specialists assessed the appropriateness of the models and parameters used in the calculation. We further analysed whether the models and parameters used, taking into account backtesting results, are appropriate for calculating loan loss provisions.
The Group has entered into derivatives for trading and hedging purposes as part of its business activities. The allocation of a derivative to the trading/banking book or hedge accounting is significant for it’s presentation and subsequent valuation.
We involved valuation specialists to evaluate the fair values determined by the Group. We have examined the appropriateness of the valuation models used and the underlying valuation parameters by comparing the parameters used with available market data. Additionally we have sample tested the calculation and the assumptions used.
Finally, we assessed whether the disclosures in the notes regarding the valuation methods, fair value hierarchy and hedging relationships were complete and appropriate.
As at the Balance Sheet date liabilities measured at fair value amount to EUR 2.8 billion, out of which EUR 0.7 are subordinated. In addition to the general market risk factors, their fair value is significantly influenced by the own credit risk of the issuing entity (credit spread).
The Board describes the process of calculating the fair value of these liabilities that are measured at fair value within Note 40 and the “Recognition and Measurement Principles” chapter in the notes of the Financial Statements.
The fair value calculation of own debt security issued for which there no market price available is based on an internal valuation model. The fair value is determined using a Discounted Cash Flow model applying estimated credit spreads. The credit spreads used in the model are derived from available market data.
We have analysed the documentation that describes the process of issuance, valuation and risk and limit monitoring of liabilites measured at fair value. The design and implementation of essential controls in the processes were critically assessed and the effectiveness of these controls was tested.
We involved valuation specialists to evaluate the fair value model used by the Group. Further we compared the data inputs to this model to the available market data to determine whether the data input lies within a reasonable range in comparison to the available market data. Based on the documentation obtained we assessed whether the derived credit spread curve was adequate for dertermining the fair value of the liabilities. Using a samplling approach We tested whether the fair values calculation is appropriate on a sample basis.
Management's Responsibility and Responsibility of the Audit Committee for the Consolidated Financial Statements
Our aim is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free of material misstatements, whether due to fraud or error, and to issue an audit report that includes our opinion. Reasonable assurance represents a high degree of assurance, but provides no guarantee that an audit conducted in accordance with the EU Regulation and with Austrian Standards on Auditing, which require the audit to be performed in accordance with ISA, will always detect a material misstatement when it exists. Misstatements may result from fraud or error and are considered material if they could, individually or in the aggregate, reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
Moreover:  We identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, we plan and perform procedures to address such risks and obtain sufficient and appropriate audit evidence to serve as a basis for our audit opinion. The risk that material misstatements due to fraud remain undetected is higher than that of material misstatements due to error, since fraud may include collusion, forgery, intentional omissions, misleading representation or override of internal control.
 We obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.
 We communicate with the audit committee regarding, among other matters, the planned scope and timing of our audit as well as significant findings including any significant deficiencies in internal control that we identify in the course of our audit.
 We report to the audit committee that we have complied with the relevant professional requirements in respect of our independence and that we will report any relationships and other events that could reasonably affect our independence and, where appropriate, related measures taken to ensure our independence.
 From the matters communicated with the audit committee we determine those matters that required significant auditor attention in performing the audit and which are therefore key audit matters. We describe these key audit matters in our audit report except in the circumstances where laws or other legal regulations forbid publication of such matter or in very rare cases, we determine that a matter should not be included in our audit report because the negative effects of such communication are reasonably expected to outweigh its benefits for the public interest.
In accordance with Austrian Generally Accepted Accounting Principles the group management report is to be audited as to whether it is consistent with the consolidated financial statements and as to whether it has been prepared in accordance with legal requirements.
Based on our knowledge gained in the course of the audit of the consolidated financial statements and the understanding of the Group and its environment, we did not note any material misstatements in the group management report.
Our opinion on the consolidated financial statements does not cover other information, and we will not provide any assurance on it.
In conjunction with our audit, it is our responsibility to read this other information and to assess whether it contains any material inconsistencies with the consolidated financial statements and our knowledge gained during our audit, or any apparent material misstatement of fact. If on the basis of our work performed, we conclude that there is a material misstatement of fact in the other information, we must report that fact. We have nothing to report with this regard
Internal Audit, International Banking Units, Legal Services, Management Secretariat and Marketing & Event Management
Member of the Management Board responsible for Active Credit Management, Group Investor Relations, Participations,
Member of the Management Board responsible for Corporate Customers, Corporate Finance, Corporate
Sales Management & Development, International Business Support, Leasing Steering & Product Management and
Glossary 242 Alternative Performance Measures (APM) 243 Addresses 244 Publication details 246
Basel III – Expanded Basel-II regulations incorporating the experiences and insights from the financial and economic crisis, aimed at improving the alignment of incurred risks with a bank’s risk bearing capacity (derived from the level and quality of equity).
Common equity tier 1 ratio (transitional) – Common equity tier 1 as a percentage of risk-weighted assets (total RWA) according to CRR/CRD Iv methodology.
EBRD – European Bank for Reconstruction and Development. An institution that promotes the transition to an open market economy and private and entrepreneurial activity in the countries of Central and Eastern Europe. Through its investments, it supports private sector activity and strengthens financial institutions, legal systems, and development of infrastructure needed by the private sector.
Excess cover ratio (total capital) – Ratio of excess total capital to total capital requirement.
Individual loan loss provisions – For credit risks related to loans and advances to customers and banks, provisions are made in the amount of the expected loss according to uniform Groupwide standards. Risk of loss is deemed to exist if the discounted projected repayment amounts and interest payments are below the carrying value of the loan, taking collateral into account.
Leverage ratio – The ratio of tier 1 capital to specific exposures on and off the statement of financial position calculated in accordance with the methodology set out in CRD Iv.
Market capitalization – The number of issued shares multiplied by the share price on a given date.
Monte Carlo simulation – Numerical method to aggregate risks to evaluate specific risks in respect to their influence on corresponding income statement items.
NSFR – Net Stable Funding Ratio. Relation of available stable funding to required stable funding.
Quarter-on-quarter – Compared to the quarter which precedes the quarter under consideration; for example, the fourth quarter of 2016 in comparison to the third quarter of 2016.
Risk-weighted assets (total RWA) – Risk-weighted assets (credit risk, CvA risk) plus market risk and operational risk.
Scorecard – A statistical tool in risk management for estimating risk parameters, typically used to determine probability of default or the loss given default.
VaR – value at risk. Expresses the potential loss that will, with a 99 per cent probability, not be exceeded within the period for which an asset is held in the portfolio in question.
Wholesale funding – Financing of banks by way of external sources, i.e. not through their total capital or customer deposits.
Year-on-year – Compared to the point in time, or the period, which occurred one year before the point in time or period under consideration; for example, the first half year of 2016 in comparison to the first half year of 2015, or 30 June 2016 in comparison to 30 June 2015.
Effective tax rate (ETR) gives a good understanding of the tax rate the company faces and simplifies comparison among companies. It will often differ from the company ś jurisdictional tax rate due to many accounting factors. The effective tax rate of a company is the average rate at which its pre-tax profits are taxed. It is calculated by dividing total tax expense (income taxes) by profit before tax. Total tax expense includes current income taxes and deferred taxes.
NPL – Non-performing loans. A loan is classified as non-performing when it is expected that a specific debtor is unlikely to pay its credit obligations to the bank in full, or the debtor is overdue by 90 days or more on any material credit obligation to the bank (RBI has defined twelve default indicators).
Other results – Consists of net income from derivatives and liabilities, net income from financial investments, expenses for bank levies, impairment of goodwill, releases of negative goodwill, net income from disposal of Group assets and profit/loss from banking business due to governmental measures reported under other net operating income.
Provisioning ratio is an indicator for development of risk costs and provisioning policy of an enterprise. It is computed by dividing net provisioning for impairment losses by average loans and advances to customers.
Return on assets (ROA before/after tax) is a profitability ratio and measures how efficiently a company can manage its assets to produce profits during a period. It is computed by dividing profit before tax/after tax by average assets (based on total assets, average means the average of year-end figure and the relevant month ś figures).
Return on tangible equity (ROTE) is used to measure the rate of return on the tangible common equity. It is computed by dividing consolidated profit less depreciation of intangible assets and less impairment of goodwill by average consolidated equity less intangible assets. Average equity is calculated using month-end figures for the period.
Alternative Performance Measures (APM) The Group uses alternative performance measures in its financial reporting, not defined by IFRS or CRR regulations, to describe RBI Group‘s financial position and performance. These should not be viewed in isolation, but treated as supplementary information.
Bulgaria Raiffeisenbank (Bulgaria) EAD Nikola I. vaptzarov Blvd. Business Center EXPO 200 PHAZE III, floor 5 1407 Sofia Phone: +359-2-91 985 101 Fax: +359-2-94 345 28 SWIFT/BIC: RZBBBGSF www.rbb.bg
Kosovo Raiffeisen Bank Kosovo J.S.C. Rruga UÇK, No. 51 10000 Pristina Phone: +381-38-22 222 2 Fax: +381-38-20 301 130 SWIFT/BIC: RBKOXKPR www.raiffeisen-kosovo.com
Belarus “Raiffeisen-Leasing” JLLC v. Khoruzhey 31-A 220002 Minsk Phone: +375-17-28 9-9394 Fax: +375-17-28 9-9974 www.rl.by
Hungary Raiffeisen Corporate Lízing Zrt. Akademia ut. 6 Phone: +36-1-477 8709 Fax: +36-1-477 8702 www.raiffeisenlizing.hu
Vietnam RBI Representative Office Ho-Chi-Minh-City 35 Nguyen Hue Str., Harbour view Tower Room 601A, 6th Floor, Dist 1 Ho-Chi-Minh-City
Austria Am Stadtpark 9 1030 vienna Phone: +43-1-26 216-0 Fax: +43-1-26 216-1715 www.rzb.at
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