Overview Raiffeisen Bank International Group Monetary values in € million 2014 Change 2013 2012 Income statement 1/1–31/12 1/1–31/12 1/1–31/12
Net provisioning for impairment losses (1,716) 49.3% (1,149) (1,009) Net fee and commission income 1,586 (2.5)% 1,626 1,516 Net trading income (30) – 321 215
You announced a strategic review in February 2015. What prompted you to take this step? The conditions in which we operate have changed massively in the past year. The crisis in Ukraine, along with its implications such as sanctions and currency devaluations, has affected not only our income statement but also our share price. Additionally, the Russian economy is suffering from the oil price collapse. Moreover, a new normality has developed in the banking industry and we will have to adapt to it. We are being confronted with ever stricter regulations that entail high capital requirements as well as with weaker economic growth in a low interest rate environment. In order to be able to still grow in promising markets, we have decided on measures that will give us a generous capital buffer and help us to meet our target of a common equity tier 1 ratio (CET1 ratio, fully loaded) of 12 per cent. To achieve this, we will reduce risk-weighted assets, i.e. the part of our business that is backed by equity, by a gross amount of around 16 billion euros by the end of 2017. This is in addition to the approximately 10 billion euro reductions already undertaken in the fourth quarter of 2014. The reduction will be partly offset by growth in other business areas. Ultimately, RBI will not only be better capitalized but will also be more efficient, less complex and less subject to risk. We are therefore well on the way to becoming a more focused universal bank, which will secure our profitability in the long term. The positive reaction of our share price and bond prices upon the announcement of our plans indicates that the capital markets are convinced by this change of strategy.
Can you describe the strategic review in more detail? We will sell our units in Poland and Slovenia in order to improve our capital position – both are markets that are in or are facing a resource-intensive period of consolidation. Moreover, the significance of our network banks in Poland and Slovenia for the Group as a whole is regrettably limited, with regard to earnings synergies and strategy. Without further investment, our direct bank Zuno will also be unable to achieve the size needed for long-term success and so we have decided to dispose of it. In Russia, where we cannot ignore the deterioration in the macroeconomic situation despite good profits, we intend to reduce our risk-weighted assets by around 20 per cent by the end of 2017. To take the country’s political risk into account, we will also continue to tighten our lending criteria, cut our exposure to cyclical sectors, reduce maturities and increase collateral. The
difficult situation in neighboring Ukraine restricts our business opportunities to a great extent. For this reason, we plan to reduce our risk-weighted assets by approximately 30 per cent in the same period. In Hungary – another market that is too important to leave – our bank will be restructured due to the aforementioned situation. Given the intention to focus on Central and Eastern Europe, our operations in Asia and the USA will be considerably rescaled or exited by the end of 2017 and end of 2016 respectively.
So, you are cutting risk-weighted assets by about a fifth in Russia, which has been your cash cow in the past. Where will your earnings come from in the future? A profit before tax of 436 million euros in Russia for the 2014 financial year shows that it remains to be an important market for us. However, we are also successful in other countries. For example, in the last financial year we generated a very respectable profit before tax of 145 million euros in Slovakia. In the Czech Republic, where the economy turned around in 2014, we earned 94 million euros before tax as number five in the market. Another positive example is Romania, with a profit before tax of 119 million euros and a return on equity before tax of 18.6 per cent. The fact that the Romanian economy, in which we have the fourth largest bank of the country, offers good growth prospects as a result of radical structural reforms makes me optimistic. We expect the country’s economy to grow 3 per cent in 2015, compared to 1.2 per cent for the eurozone. In neighboring Serbia, where we rank among the five largest banks, our business is also performing well. In the reporting period, we earned a profit before tax of 48 million euros despite a negative GDP trend.
Will there be a dividend for the 2014 financial year? No dividend will be paid for the 2014 financial year. Regardless of the results, which were impaired by one-off effects, we are cutting costs. Our aim is to reduce costs by 2016 to a level lower than that of 2012. This will entail huge efforts on our part, as we will not only have to cut costs in real terms but will also have to compensate for inflation in some countries. Assuming constant prices and exchange rates, costs are expected to be around 20 per cent lower than the 2014 level after the Group restructuring in
2017, as already outlined. In order to remain a leading universal bank in Central and Eastern Europe in the future, we have drawn up cost-cutting and efficiency enhancement programs – and we are well on the way to achieving our ambitious goals. In the past year, we have already significantly cut our general administrative expenses while revenues remained largely stable. However, as we also profited from currency devaluations, we are aware that we must not relax our efforts. Instead, we will have to continue to work hard on our costs and efficiency. To achieve this, we are constantly evaluating and optimizing our organizational structure and processes.
The Chairmen of the Working, Audit, Remuneration, Personnel, Risk and Nomination Committees regularly reported to the Supervisory Board on the respective committee‘s work.
Between December 2014 and January 2015, there were a string of developments which negatively affected several of RBI’s markets and share price. These were, in particular, the intensification of the conflict in Ukraine, the sharp oil price fall, as well as the abandoning of the fixed exchange rate between the euro and Swiss franc. Against this backdrop, the Management Board presented various strategic scenarios and a resulting package of measures to the Suspervisory Board, with an aim to better the risk position and raise the capital buffer, during an extraordinary meeting on 28 January 2015.
The audit revealed no reason for objections. All legislative provisions were fully satisfi ed and the unqualifi ed auditor‘s report was thus issued.
Following an extensive audit and discussion of the consolidated fi nancial statements, as well as of the annual fi nancial statements, in the Supervisory Board and in the preceding Audit Committee, the Supervisory Board approved the annual fi nancial statements of RBI AG. The annual fi nancial statements have thus been adopted in accordance with Section 96 (4) of the Austrian Stock Corporation Act. The consolidated fi nancial statements were noted by the Supervisory Board.
On behalf of the Supervisory Board Walter Rothensteiner, Chairman On behalf of the Supervisory Board
RBI at a glance A leading bank in CEE as well as Austria Raiffeisen Bank International AG regards Central and Eastern Europe (including Austria) as its home market. For over 25 years, RBI has been operating in Central and Eastern Europe (CEE), where today it maintains a closely knit network of subsidiary banks, leasing companies and numerous specialized financial service providers. As a universal bank, RBI ranks among the top five banks in several countries. This role is supported by the Raiffeisen brand, which is one of the most widely recognized brands in the region. RBI has positioned itself in CEE as a fully integrated corporate and retail banking group with a comprehensive product offering. At the end of 2014, around 52,000 RBI employees served approximately 14.8 million customers in around 2,900 business outlets in CEE.
Long-term success story RZB was founded in 1927 as “Genossenschaftliche Zentralbank”. The RZB founded its first subsidiary bank in Central and Eastern Europe already back in 1987. Since then, further own subsidiaries have been established. From 2000 onward, Raiffeisen’s expansion into CEE countries has mainly been achieved by acquiring existing banks. These were subsequently combined into a holding company that operated under the name Raiffeisen International from 2003. In April 2005, Raiffeisen International was listed on the stock exchange in order to finance its future growth efficiently. Today’s RBI was established in 2010 through the merger of Raiffeisen International with the principal business areas of Raiffeisen Zentralbank Österreich AG (RZB).
With total assets of € 285.9 billion as at 31 December 2014, RBG is Austria’s largest banking group. As at this reporting date, RBG managed € 92.8 billion in domestic customer deposits (excluding building society savings), of which € 49.4 billion were held in savings deposits. RBG has thus maintained its market share of around 30 per cent and, once more, its role as market leader among Austria’s banks. RBG’s strong market position was achieved through healthy organic growth.
To further strengthen RBI‘s position as a leading financial services provider, reliance is placed on the following core competencies: ■ RBI positions itself as a diversified universal banking group with distinct central control elements.
■ Launch of the selling process for the Polish unit: Poland is an attractive and rapidly growing market for banks. Following the successful integration of Polbank, RBI has a top-eight bank in a rapidly consolidating market. Substantial capital resources would be required in order to participate in this market consolidation. Poland also plays a relatively minor role for cross-border business within RBI.
■ Reduction in the number of branches in the US (by the end of 2016) and in Asia (by the end of 2017): In order to focus on European markets and to reduce complexity within the Group, units will be either exited or significantly reduced. Crossborder US dollar refinancing will thereby also be considerably reduced.
■ An around 30 per cent reduction in the RWA of the Ukrainian unit by the end of 2017: A challenging political and economic environment makes rescaling necessary. This will further reduce RBI’s foreign currency risks and US dollar refinancing needs.
For all of these measures, the specific aspects of the various markets are taken into consideration. This raises the synergy potentials of an international banking group while at the same time promoting the entrepreneurship of the units (incl. self-financing capacity). The criteria for success in the market are consistent customer orientation, as well as rapid and transparent decision-making processes.
■ Further development of existing sales channels and expansion of alternative channels (e.g. internet, mobile banking, franchise models, cooperation models) to ensure a sustainable and balanced mix of traditional and alternative sales channels
■ Improvement of the cross-border cooperation model to exploit further synergy potentials, as well as simplification of the product portfolio
■ Strengthening of securitization and syndication capacities for capital relief, as well as enhanced local refinancing for the further diversification of the refinancing basis
■ Increase in profits through strengthening of customer product penetration (cross-selling) and product cost transparency
RBI strives to establish long-term partnerships with corporate customers that have a link to CEE (incl. Austria). Other regions are serviced on a selective basis only. RBI sees itself as financial advisor for a currently estimated 87,000 corporate customers – medium-sized businesses, major local companies and international corporate groups – and supports them with cross-border financial services. Its customers’ needs are a top priority and RBI is committed to supporting them with high-quality products and services.
In the premium (available assets of up to € 200,000) and private banking segment (available assets of at least € 200,000), a gradual increase in asset volumes is seen in CEE as a whole. Under its private banking brand ”Friedrich Wilhelm Raiffeisen,“ RBI currently serves nearly 21,000 customers (notably in the Czech Republic, Hungary, Romania, Russia, and Ukraine, as well as in Slovakia under the Tatra banka brand). In day-to-day banking operations, top-quality advisory services, innovative banking solutions (video or telephone advising, modern mobile banking options, etc.), and banking product packages tailored to customers needs, ensure above average customer satisfaction.
Further potential for growth lies in the expanding of business with insurance and asset management companies and in the development of customized products for this customer segment.
Despite this, stock indexes such as the US Dow Jones and the German DAX achieved several new highs during the year. The bullish sentiment in the equity markets was bolstered by the low-interest rate policy adopted by the European Central Bank (ECB). In early June, it cut its already low base rate from 0.25 to 0.15 per cent. At the same time, the ECB Council decided to impose a penalty rate, for the first time, of minus 0.1 per cent on bank deposits at the ECB.
Towards the end of the year, most European and US stock markets again became increasingly volatile. On a positive note, key economic indicators appeared to be stabilizing in Europe and the US. Countering this was China’s disappointing economic performance and the collapse of the Russian rouble. The Russian economy is faced with growing difficulties not only from the sanctions, but also from capital outflows and a sharp drop in oil prices, which by year-end had fallen to the lowest level seen in over five years.
As at the editorial deadline on 9 March 2015, RBI’s stock was priced at € 13.32. The shares therefore recorded a gain of 6 per cent versus 31 December 2014.
In 2014, 163 million RBI shares were traded, amounting to a total value of € 3.4 billion and an average daily volume of 658,697 shares.
Stock data and details Price as at 31 December 2014 € 12.54
Price performance since 1 January 2014 compared to ATX and EURO STOXX Banks in €
RBI EURO STOXX Banks (relative to RBI) ATX (relative to RBI) Index basis = € 24.54
Successful issuance activities RBI’s benchmark transaction in February 2014 for € 500 million was met with strong demand. The callable subordinated bond, issued to strengthen the bank’s tier 2 capital, was oversubscribed several times within a short period. It has a coupon of 4.5 per cent p. a. (reference rate EUR Mid-Swap plus 330 basis points). More than 380 institutional investors placed orders. Especially strong demand came from the UK, Germany and Switzerland. The subordinated bond is callable in 2020 (subject to regulatory requirements being fulfilled) and matures in 2025.
RBI rating Last year, RBI was rated by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. In order to ensure accurate assessment, RBI maintained regular contact with rating agency analysts and informed them, and other market actors, on a regular basis about its performance and trends in RBI’s business developments.
Martin Schaller, CEO of Raiffeisen-Landesbank Steiermark AG, and Bettina Selden, who brings with her, inter alia, her experience as a member of the management board of both OeKB EH Beteiligungs- und Management AG and PRISMA KreditversicherungsAG, were elected to the Supervisory Board for the first time. They succeed Markus Mair, who resigned with effect from 4 June 2014, and Stewart Gager, whose period of office ended on the same day. Kurt Geiger was reelected to RBI’s Supervisory Board by the Annual General Meeting, after his term in office ended on 4 June 2014.
The next ordinary Annual General Meeting will take place on 17 June 2015. No equity or participation dividend will be distributed for the 2014 financial year.
As in previous years, the investor day in London, which followed the publication of the 2013 results, was very well attended. On reporting dates, RBI continued to hold regular presentations for Austrian equity and debt investors at its head office, which struck a chord. These were followed by conference calls, each involving 200 to 300 participants.
Alongside the already established quarterly results conference calls, RBI gave the financial community the opportunity to obtain information, as well as answers to their questions, first-hand from the Management Board in additional conference calls held after the release of the outlook revision in September and publication of the ECB stress test results in October. The RBI Management Board subsequently had many individual discussions with investors, analysts and rating agencies.
RBI continuously strives to keep market participants fully informed. In the interest of making its communications as easily accessible and widespread as possible, RBI makes conference call presentations, as well as other important events, available as online webcasts. These can be viewed at any time at www.rbinternational.com → Investor Relations → Presentations & Webcasts.
The ACGC is organized into rules L, C and R. L Rules (Legal Requirements) are based on compulsory legal requirements. C Rules (Comply or Explain) should be observed; any deviation must be explained and justified in order to ensure conduct that complies with the Code. R Rules (Recommendations) have the characteristics of recommendations; non-compliance does not need to be reported or justified.
RBI deviates from the below C Rule, but conducts itself in accordance with the Code through the following explanation and justification: C Rule 45: non-competition clause for members of the Supervisory Board RBI is a company of the Austrian Raiffeisen Banking Group (RBG), which is also a majority shareholder through its central institution, RZB. Some members of the Supervisory Board therefore also hold executive roles in RBG banks. Moreover, a number of members of the Supervisory Board hold executive roles in other banks and financial services institutions. Consequently, know-how and experience specific to the industry are applied in exercising the control function of the Supervisory Board, to the benefit of the company.
With regard to R Rule 62 of the ACGC, the company commissioned KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft (KPMG) to conduct an external evaluation on compliance with the C and R Rules of the Code. The report on this external evaluation is public and available at www.rbinternational.com → Investor Relations → Corporate Governance → External Evaluation of the CG Code.
Members of the Management Board held seats on the supervisory board or comparable functions in the following domestic and foreign companies that are not included in the consolidated financial statements: ■ Karl Sevelda Oesterreichische Kontrollbank AG; Siemens AG Österreich (since 28 November 2014)
Composition of the Supervisory Board During the 2014 financial year, the Supervisory Board comprised of: Supervisory Board member Year of birth Original appointment End of term
Erwin Hameseder 1956 8 July 2010 1 Annual General Meeting 2015 1st Deputy Chairman
Independence of the Supervisory Board In accordance with C Rule 53 of the ACGC, the RBI Supervisory Board prescribed the following criteria for the independence of the members of the company’s Supervisory Board: ■ The Supervisory Board member shall not have been a member of the Management Board or a senior executive of the company or one of its subsidiaries in the past five years.
■ The Supervisory Board member shall not have, or have had in the previous year, any significant business relationships with the company or a subsidiary of the company. This also applies to business relationships with companies in which the Supervisory Board member has a significant financial interest, albeit not with regard to carrying out executive functions within the company. The approval of individual transactions by the Supervisory Board according to L Rule 48 of the ACGC does not automatically lead to a qualification of “not independent”.
Bettina Selden and Kurt Geiger, as members of the Supervisory Board, are both neither shareholders with a shareholding of greater than 10 per cent, nor do they represent the interests of such shareholders. They are therefore “free float representatives” according to C Rule 54 of the ACGC.
Members of the committees The rules of procedure of the Supervisory Board govern its organization and allocate particular tasks to the Working, Audit, Remuneration, Risk, Nomination, and Personnel Committees. These committees are comprised of the following members: Functions of the Management Board and the Supervisory Board Allocation of competencies and functions of the Management Board
Erwin Hameseder 1st Deputy Chairman 1st Deputy Chairman 1st Deputy Chairman 1st Deputy Chairman 1st Deputy Chairman 1st Deputy Chairman
RBI’s Organization & Internal Control System was integrated into RZB during the financial year. It now deals with matters relating to the internal control system, instructions and organization for both the RZB Group and the RBI Group. The servicing of RBI AG is regulated through Service Level Agreements.
Decision-making authority and activities of the committees (of the Supervisory Board)
The internal regulations of the Management Board, as well as the Supervisory Board and its committees, outline the business management measures that require the approval of the Supervisory Board or of the responsible committee.
The Personnel Committee deals with the remuneration of Management Board members as well as their employment contracts. In particular, it is responsible for approving bonus allocation and stock allocation to members of the Management Board through the Share Incentive Program.
A Risk Committee was established during the 2014 financial year. Its responsibilities include advising the Management Board on current and future risk propensity and risk strategy, monitoring the implementation of this risk strategy with regard to the controlling, monitoring and limitation of risk in accordance with the Austrian Banking Act (BWG), as well as the observing of capitalization and liquidity. It is also responsible for ensuring proper consideration of the pricing of offered services and products, as well as the business model and credit risk strategy, and where applicable, to submit a plan with corrective measures. The Risk Committee also monitors if the incentives offered by the internal remuneration system give adequate consideration to risk, capital, liquidity, and the probability as well as timing of realized gains.
At its meeting on 21 January 2014, the Supervisory Board established a temporary Project Committee to take further decisions on matters relating to RBI‘s capital increase. It comprised of Walter Rothensteiner, Erwin Hameseder, Heinrich Schaller, Johannes Schuster, Martin Prater and Rudolf Kortenhof. The Project Committee was authorized, in particular, to decide on the final extent of the capital increase, the subscription ratio, as well as the subscription and offer price, and to decide on corresponding adjustments to the Articles of Association. The committee‘s work ended on 10 February 2014 after the corresponding decisions had been taken.
The Working Committee held eight meetings in the 2014 financial year. The Audit Committee met twice, the Personnel Committee once, and the Remuneration Committee, the Risk Committee and the Nomination Committee each met twice. The Project Committee met once.
Only one member of the Supervisory Board (Markus Mair) was hindered from personally attending more than half of the sittings of the Supervisory Board.
Fixed remuneration, as shown in the above table, includes salaries and benefits in kind. Performance-based components of the Management Board’s remuneration basically consist of bonus payments (immediately payable shares of the cash portion of the bonus for 2013 and deferred bonus amounts from previous years) and share-based remuneration under the Share Incentive Program (SIP).
For the 2014 year (payable in 2015), there was no bonus allocation for the Management Board due to the operating result. Furthermore, there was no allocation of share-based payments in 2013, as no SIP tranche had been issued in 2010 owing to the merger between Raiffeisen International and the principal business areas of Raiffeisen Zentralbank Österreich AG (RZB). Moreover, the maturity of the program was extended to five years in accordance with legal regulations. Therefore, the next SIP tranche will not mature before 2016.
The measurement of bonuses is linked to the achievement of company goals in relation to profit after tax, return on risk-adjusted capital (RORAC), and cost/income ratio, as well as to annually consented on personal goals. Payment of bonuses is deferred as set forth in the Austrian Banking Act (BWG) and implemented according to internal RBI regulations.
Due to the enormous increase in the complexity of the regulatory provisions for variable remuneration, the Management Board was prompted to review the benefits and meaningfulness of share-based remuneration. Originally intended as a variable longterm remuneration element which is geared to market and corporate success, the SIP has since lost this meaning because the annual bonus for the same target group of top executives is now deferred for three to five years, and half must be paid in instruments (e.g. shares). It was therefore decided that no further SIP tranches will be issued in future.
Furthermore, protection against occupational disability risk is provided by a pension fund and/or on the basis of an individual pension benefit, which is secured by a reinsurance policy. Contracts for Management Board members are limited to the duration of their term in office or a maximum of five years. Regulations regarding severance payments, in case of the early termination of Management Board mandates, are based on the principles stipulated by the Austrian Code of Corporate Governance, as well as on the stipulated maximum limits (a maximum of two years’ total annual remuneration for early termination without serious cause and in any case no longer than the remaining term. No remuneration is given for premature terminations for serious reasons caused by the Management Board member).
Supervisory Board remuneration was apportioned to individual Supervisory Board members as follows. The amounts provided are provisional amounts from the statement of financial position, subject to the approval of the Annual General Meeting 2015. Attendance fees were not paid.
Group of persons Number of contingently allocated shares at 31/12/ 2014 Minimum allocation of shares Maximum allocation of shares
Members of the management boards of bank subsidiaries and branches affiliated to RBI 409,539 122,862 614,309
Report on measures taken by the company to promote women to the Management Board, the Supervisory Board and into executive positions (Section 80 of the Austrian Stock Corporation Act [AktG]) as laid down in Section 243b (2) 2 of the Austrian Commercial Code (UGB) One of Raiffeisen’s fundamental values has always been to offer equal opportunities for equal performance regardless of gender or other factors. This begins with the recruitment process, where it is important to ensure that the same standards are always applied in staff selection, without prejudice and without restrictions. The relatively high proportion of 67 per cent of female employees at RBI underscores the effectiveness of these activities.
The following table shows the total proportion of women in managerial positions (positions with staff responsibility) at RBI as a whole, as well as the breakdown by Management Board, tier 2 and tier 3 management levels. Changes can mostly be explained by total headcount fluctuations (e.g. reduction measures), as well as by organizational adjustments (number of organizational units or hierarchical levels) at various Group units.
Proportion of women of the Proportion of women of the Management Tier 2 Tier 3 Year total number of employees total number of executives Board management management
The Management Board is aware of the need to continuously promote the existing initiatives as well as to maintain its openness to new initiatives in order to further increase the percentage of women in highly qualified positions. To achieve this end, it encourages women to take advantage of these opportunities and to make specific calls for such initiatives.
The Annual General Meeting selected KPMG Austria AG Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Vienna, now KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, as its external auditor and bank auditor for the 2014 financial year. KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft has confirmed to RBI that it has the certification of a quality auditing system. It has also declared that there are no reasons for disqualification or prejudice. The Supervisory Board is informed of the result of the audit by a statutory report regarding the audit of the consolidated financial statements by the auditor, as well as by the report of the Audit Committee. Furthermore, the auditor assesses the efficiency of the company’s risk management in accordance with the Austrian Code of Corporate Governance, based on the documents submitted to him and otherwise available. The resulting report is presented to the Chairman of the Supervisory Board, who is responsible for addressing the report in the Audit Committee and for reporting thereon in the Supervisory Board.
Within the RZB Group (of which RBI is an important part), economic, ecological and social responsibilities form part of a whole. Sustainable action has been part of the Group’s agenda and identity since it was founded by Friedrich Wilhelm Raiffeisen. Thus, corporate responsibility and sustainability are integral components of RBI’s business activities.
Furthermore, RBI acted as joint bookrunner in September 2014, together with three other UNICO member banks, for the structuring and placement of a European Investment Bank (EIB) Climate Awareness Bond.
As a fair partner, RBI maintains an active, transparent and open dialog with all stakeholders. In this regard, the Sustainability Report, an annual publication on sustainability performance, plays an important role. At the Econ Awards 2014, RBI’s most recent Sustainability Report received a gold award for outstanding achievements in corporate communications in Germanspeaking countries. The RZB Group’s 2011/12 Sustainability Report “We create sustainable value” received its first ever award in the category “Sustainability and CSR Report”, while the electronic update for the reporting year 2013 received a prize at the Austrian Sustainability Reporting Awards (ASRA) in 2014, for being one of the best sustainability reports produced by a major Austrian corporation.
RBI has been reporting under the Carbon Disclosure Project since 2011 and has been a CDP Reporter Services member since 2013. The data relating to the CDP is audited in accordance with ISO 14064-3. The companies which perform best in terms of reporting and planning, as well as in the implementation of measures, form the Carbon Performance Leadership Index (CPLI). In 2014, RBI was represented in this index for the second time. Moreover, with 96 A points, RBI has been ranked among the five best companies within the “Financials” sector in the DACH region (Germany, Austria and Switzerland) for the first time. The average for the DACH region is 69 C.
In order to reduce emissions, it is important to know the precise sources of such emissions. The CO2 emission figures for Group head office were first recorded in 2009. Whereas in 2009, “energy”, at 56 per cent, was the greatest contributor to RBI’s CO2e emissions (CO2 equivalent or CO2e is a term used to describe the effect of greenhouse gases caused by human beings on the greenhouse effect), the 2014 survey showed a marked improvement. The reduction in electricity consumption, the switch to green electricity (without the use of large-scale hydropower), and the increase in energy efficiency, not least through the use of district cooling, enabled this share to be reduced to 10 per cent. The partial relocation to the nearly zero-energy building at the new location “R 19” in Muthgasse in the Vienna-Döbling district also played a role. “Transport” (business travel) now accounts for the highest share of CO2e emissions. Paper-based CO2e emissions were also reduced, by 93 per cent, through cutting paper consumption and switching to recycled paper. Since 2009, the CO2 footprint per employee has been reduced 34 per cent and now stands at 2,312 kg CO2e.
Further attention focused on mobility, one of the three biggest sources of CO2 emissions in the RZB Group. The first survey on employees’ journeys to work was conducted in 2009 on behalf of the Environment Committee. A new mobility survey was launched in fall of 2014 to ascertain employees’ travel habits during business trips and when traveling to their place of work. To increase the number of surveys returned by the network banks, the online questionnaire was translated into the respective national language. The results will be evaluated at national level in the first quarter of 2015.
As an engaged citizen, RBI assumes responsibility for society and the environment. As part of social development, it supports a wide variety of charitable projects, also via the H. Stepic CEE charity which is involved with charitable projects in Central and Eastern Europe. When selecting the charity projects, care is taken to ensure the aid really does reach those who need it most urgently. The offices involved make sure aid is provided promptly and without red tape. All projects are subjected to local-level monitoring and their progress is reported.
Market development 34 Development of the banking sector 37 Performance and financials 38 Events in the financial year 38 Detailed review of income statement items 40 Comparison of results with the previous quarter 44 Statement of financial position 46 Equity 47 Research and development 49 Internal control and risk management system 50 Capital, share, voting and control rights 52 Funding 54 Risk management 55 Human resources 56 Outlook 57 Events after the reporting date 59
Overall, current signs indicate a strong decoupling of economic cycles between Europe and the US. Last year the US economy, mirroring its trend from the two previous years, grew 2.4 per cent, driven by private consumption and corporate investment. Private consumption benefitted from positive labor market conditions, moderately increasing wages and a sharp drop in energy prices in the second half of the year. Unlike in the previous three years, fiscal consolidation has had hardly any dampening effect on economic activity in the US. Even though the increase in economic output lagged the momentum of past upswings, the labor market continued its robust recovery. Over the course of the year, unemployment fell from 6.7 per cent to 5.6 per cent, just slightly above the level deemed consistent with full employment.
In contrast to the trend – superimposed by Russia – in the region as a whole, the economies in Central Europe (CE) and Southeastern Europe (SEE) noticeably grew in 2014. CE recorded average GDP growth of 2.9 per cent, compared to 1.4 per cent in SEE. In addition to exports, domestic demand also recovered significantly, predominantly in CE countries. The solid economic performance in CE is broad-based. Moreover, all CE countries experienced significantly positive GDP growth rates in 2014, with the Czech Republic, Hungary and Slovenia reversing their stagnation and recession trends of previous years. In the CE region, economic growth particularly stood out in Poland and Hungary in 2014; these countries achieved GDP growth of more than 3.0 per cent. During the same period, economic output in Slovakia and Slovenia expanded roughly 2.5 per cent, and by 2.0 per cent in the Czech Republic. The positive trend is expected to continue in 2015, with solid GDP growth of 3.0 per cent expected in CE, mainly driven by continued notable growth in Germany and increasingly strong domestic demand and investment.
Economic growth in Austria remains behind expectations Following a promising second half of 2013, a period of stagnation then took hold that lasted the whole year, implying real gross domestic product growth of 0.3 per cent for 2014 as a whole (2013: 0.2 per cent). Despite stable employment growth, private consumption failed to show signs beyond a tentative recovery. Government spending was only somewhat more dynamic. Corporate investment activity also disappointed, particularly in the second half of the year, while the positive trend at the beginning of the year was attributable to pull-forward effects. In the second half of the year, weak growth in domestic demand was partly offset by foreign trade. Economic growth momentum was also weak at the beginning of 2015.
Global currencies In the first half of 2014, the euro/US dollar exchange rate fluctuated within a very narrow range of between EUR/USD 1.35 and EUR/USD 1.39. In the second half of the year, the euro went into freefall, pushing the single currency down to EUR/USD 1.21 by the end of the year. At the beginning of the year, the euro’s downward trend accelerated again. In early march 2015, the euro was 1.12 against the dollar. The exchange rate was mainly driven by the monetary policies of the ECB and US Federal Reserve. Since the middle of 2014, there have been indications that the US Federal Reserve would begin normalizing its monetary policy, a first step being the end of its bond purchases in November. At the same time, there were indications that the ECB would embark on a similar bond purchasing program in the foreseeable future.
CEE currencies CEE currencies trended weaker against the euro over the course of 2014. While the other currencies in the CE and SEE region declined within a range of between roughly 0.5 per cent and 3 per cent, the Hungarian forint (down 6.0 per cent) and Serbian dinar (down 5.3 per cent) weakened most significantly against the euro. The strongest devaluations were experienced in the CIS region, where the crisis in eastern Ukraine, the sliding oil price and sanctions against Russia led to hefty devaluations. For example, the Russian rouble fell nearly 36 per cent against the euro in the second half of 2014 (38 per cent for the year) and the Ukrainian hryvnia lost 41 per cent against the euro over the course of 2014. In 2014, the Belarusian rouble remained stable with just 1.4 per cent devaluation against the euro; however, lost almost 20 per cent against the euro up till the end of February in 2015. In the first two months of 2015, the Russian rouble recovered again somewhat against the euro, up by almost 4 per cent; while the Ukrainian hryvnia fell by around 37 per cent against the euro.
Performance and financials The consolidated financial statements of RBI are prepared in accordance with the International Financial Reporting Standards (IFRS) as applied in the EU. RBI AG also prepares individual financial statements in accordance with the Austrian Commercial Code (UGB) in conjunction with the Austrian Banking Act (BWG), which provides the formal basis of assessment for calculating dividend distributions and taxes. For more information on disclosures required by the UGB and BWG, please see the relevant sections of this Group management report, including the notes section.
RZB clearly passed AQR and stress test The ECB subjected all banks that will be directly supervised in the future to the Comprehensive Assessment, which mainly comprised an extensive Asset Quality Review (AQR) and a Europe-wide stress test. RBI was subject to the ECB stress test, as part of RZB. Accordingly, the data published for the stress test related to the RZB Group. RZB clearly surpassed the required capital adequacy ratios in both the baseline scenario and the adverse scenario. The ECB's Asset Quality Review, which preceded the stress test, led to 0.65 percentage point adjustments to the CET1 ratio used by the ECB in its stress test for RZB. The main reason for these adjustments was the fact that the ECB employs a different approach than RZB for portfolio-based loan loss provisions. Moreover, the AQR did not consider loan loss provisions formed by RBI in the 2014 financial year. However, these were mostly allocated in the financial year 2014. The ECB’s recommendations were implemented to the extent in which they corresponded with the accounting policies of the IFRS or qualitatively sharpened the applied model.
Sub-consolidation of RBI In October 2014, RBI was notified of the regulatory sub-consolidation of RBI as subgroup of RZB. Pursuant to Article 11 para 5 CRR (Capital Requirement Regulation), RBI is thus separately regulated on a sub-consolidated basis and recognized as a superordinate credit institution for the subgroup within the meaning of Section 30 of the BWG. Accordingly, the Group is required to maintain a minimum total capital ratio of 13.76 per cent as of 30 November 2014. This stipulated total capital ratio (transitional), including adequate buffer, has been adhered to on a sub-consolidated basis (Group level) since that date.
Currency turmoil in Ukraine and Russia In 2014, the dominant themes in international financial markets remained to be the geopolitical tensions in Ukraine, the widening of sanctions against Russia and resulting uncertainty. Consequently, the Russian rouble and Ukrainian hryvnia depreciated significantly against the US dollar and euro. Overall, exchange differences recognized in equity amounted to € 1.3 billion, with a negative effect on the common equity tier 1 ratio of 94 basis points, the bulk of which originated from units in Russia (47 basis points) and in Ukraine (19 basis points).
Net provisioning for impairment losses rose 49 per cent, or € 567 million, to € 1,716 million year-on-year. This was mainly due to the situation in Ukraine, which was impacted by the depreciation of the hryvnia, and by the challenging overall macroeconomic environment, leading to an increase in net provisioning for impairment losses of € 412 million to € 533 million. Asia also contributed to the increase, with defaults by large corporate customers resulting in an increase of € 215 million to € 291 million. In contrast, the credit risk situation improved in most other markets.
In the course of the year, total assets fell 7 per cent, or € 9,016 million, to € 121,624 million. Nearly half of this decrease (approximately € 4.2 billion) was attributable to currency effects mainly resulting from the depreciation of the Ukrainian hryvnia and Russian rouble against the euro. The reduction in short-term interbank business was also responsible for the decline in total assets.
Equity including non-controlling interests recorded a decline of € 2,062 million to € 8,302 million. Equity reduced as a result of dividend payments totaling € 539 million for the financial year 2013 and as a result of total comprehensive income of minus € 1,754 million, which was attributable to the loss after tax of € 463 million as well as currency devaluations of minus € 1,335 million.
Due to the negative result, RBI AG will not distribute a dividend on shares and on participation capital for the financial year 2014.
In addition to the positive contribution from Russia and Group head office, this was also driven by the positive development of the credit business in Belarus (up € 24 million) and repricing measures in the deposit business in Slovakia (up € 10 million). In contrast, interest income in Hungary declined € 43 million as a result of lower interest income from derivatives, reduced lending volumes and a lower market interest rate level. In Romania, lower market interest rates, as well as declining income from securities, also led to a decrease in net interest income of € 7 million. The negative development of net interest income in Ukraine (down € 61 million) was purely currency-related, whereas net interest income in local currency was up 20 per cent. In Poland, net interest income marginally declined € 4 million due to sharply lower market interest rates. RBI recorded a decrease in net interest income of € 4 million in the Czech Republic as a result of lower margins in the retail and corporate customer business, as well as due to currency effects. In Slovenia, reduced lending volumes, in particular, led to a decline in net interest income of € 6 million.
The Group's net interest margin increased 13 basis points to 3.24 per cent year-on-year owing to lower refinancing costs at Group head office, as well as improved margins in Russia and CEE Other.
Net trading income fell € 351 million to minus € 30 million, largely due to a € 313 million decrease in currency-based transactions to minus € 51 million. This was mainly attributable to valuation losses on derivatives in Russia, as well as exchange rate-related valuation losses on foreign currency positions in Ukraine. In contrast, Group head office – as well as Hungary – posted valuation gains on derivatives. Net income from interestbased transactions declined € 20 million as a result of valuation losses in Russia. Net income from other transactions declined € 43 million to minus € 42 million.
Other administrative expenses decreased 7 per cent, or € 84 million, to € 1,193 million. The reduction in Ukraine (down € 26 million) and Russia (down € 16 million), was largely attributable to currency effects. Poland posted the most significant decline (down € 31 million), particularly for legal, advisory and consulting expenses, as well as IT and advertising expenses. In Romania (down € 8 million), the reduction was mainly related to office space expenses, and in the Czech Republic (down € 6 million) it was primarily related to legal, as well as advisory and consulting expenses. In contrast, in Slovakia higher deposit insurance fees, higher legal, as well as advisory and consulting expenses, and IT and advertising expenses resulted in a € 8 million increase.
The number of business outlets was down 159, to 2,866, compared to year-end 2013. The most significant declines in the number of business outlets occurred in Ukraine (down 127), Poland (down 19), Bulgaria (down 12), and Albania (down 12).
The Group invested € 415 million in fixed assets in the reporting period. Of that, 36 per cent (€ 150 million) flowed into own tangible assets. Investments in intangible assets – mainly related to software projects – amounted to 42 per cent. The remainder was invested in assets of the operating leasing business.
In Ukraine, net provisioning for impairment losses came to € 533 million – mainly due to higher individual loan loss provisions – up € 412 million in total from the previous year's level. This was mainly due to tensions in eastern Ukraine, as well as to the depreciation of the hryvnia and the resulting required provisions for collateralized US dollar loans. Net provisioning for impairment losses in the Group Corporates segment increased € 232 million to € 490 million, primarily caused by individual loans to large corporate customers in Asia. In Russia, a growing retail and corporate customer portfolio, as well as individual loans in the corporate customer business, also led to an increase in net provisioning for impairment losses of € 104 million to € 152 million. In contrast, Poland, Slovenia and Bulgaria posted significant declines. The € 61 million decline in Poland resulted primarily from sales of impaired loans. Impairment needs were € 42 million lower in Slovenia and € 39 million lower in Bulgaria after a significant increase in the non-performing loan portfolio and an update of collateral valuations in the previous year made higher net provisioning for impairment losses necessary.
The expense for bank levies fell € 20 million to € 177 million, in the reporting year. Bank levy expenses declined € 14 million in Austria due to a change in the assessment base and decreased € 7 million in Slovakia.
Changed legislation in Hungary led to a one-off effect in the form of a provision of € 251 million, which was reported under sundry operating expenses. The legislation passed by the Hungarian parliament favoring foreign currency borrowers related to foreign exchange margins which can be applied to foreign currency loan disbursements and installments, as well as unilateral rate changes on consumer loans.
The disposal of 18 subsidiaries resulted in a loss of € 10 million in the reporting year, while a loss of € 6 million was recorded in the previous year as a result of the exclusion of seven subsidiaries from the consolidated group. Of the 18 excluded subsidiaries, 11 companies were excluded due to immateriality, five companies were sold, one company was excluded as a result of end of operation, and another due to liquidation. The companies were predominantly active in the leasing, trading and financing business. The sale of commodity trading group F.J. Elsner, Vienna, resulted in a net loss from disposal of group assets of € 11 million.
Income taxes increased € 254 million to € 486 million year-on-year. The deferred tax expense increased € 214 million to € 183 million. This included a one-off effect related to the impairments of deferred tax assets of € 196 million. Impairments at Group head office totaled € 161 million as due to the updated medium-term tax planning tax loss carry-forwards can not be realized. In Asia, deferred tax assets of € 35 million were also impaired as insufficient taxable profit would have been available due to the planned reduction in business operations. Current taxes increased € 40 million to € 303 million, mainly as a result of higher tax expenses in Poland and the Czech Republic. At Group head office, current tax expenses totaled € 3 million; whereas tax income of € 44 million was recognized in the previous year due to a tax allocation at Group level.
Comparison of results with the previous quarter in € million Q4/2014 Q3/2014 Change absolute Change in %
Compared to the third quarter of 2014, net interest income fell 5 per cent, or € 45 million, to € 895 million, in the fourth quarter of 2014. This development was attributable to a currency-related decline in net interest income in Russia; though net income rose 10 per cent in local currency. The net interest margin declined 17 basis points to 3.06 per cent quarter-on-quarter. In Asia, this decline was driven by the reduced lending volume with corporate customers and by higher provisioning. In Central Europe, the net interest margin, weighed down by the low interest rate level, fell 21 basis points. In Russia, the decline was 29 basis points and was attributable to lower interest income due to currency effects.
Net trading income fell € 98 million from the previous quarter to minus € 68 million. Currency-based transactions decreased, particularly in Ukraine, where the significant currency devaluation led to valuation losses on foreign currency positions. Net income from interest-based transactions declined, predominantly in Russia and at Group head office, due to valuation losses on securities positions and derivatives.
General administrative expenses amounted to € 728 million in the fourth quarter, down € 48 million from the previous quarter's level. While staff expenses were down € 72 million to € 301 million, due also to the release of bonus provisions, other administrative expenses were up € 27 million to € 319 million, as a result of an increase in advertising, PR and promotional expenses, as well as legal, advisory and consulting expenses. Depreciation of tangible fixed assets was € 108 million in the fourth quarter, likewise down € 3 million from the previous quarter's level.
Net income from derivatives decreased 72 per cent in the fourth quarter, or € 74 million, to € 28 million. This was mainly driven by the valuation result from the change in the credit spread of own issues, which came to € 95 million in the third quarter due to higher premiums for subordinated bonds; whereas, this was € 47 million in the fourth quarter. Likewise, net income from the valuation of derivatives entered into for hedging purposes fell € 25 million quarter-on-quarter.
Net income from financial investments fell to minus € 39 million in the fourth quarter, down from plus € 23 million in the previous quarter. This development was attributable to higher impairment charges on equity participations, particularly at Group head office, and higher valuation losses on the fair value securities portfolio (mainly in Russia), as well as lower net proceeds from the sale from the fair value securities portfolio.
Bank levies increased 8 per cent in the fourth quarter to € 40 million. Bank levies rose € 11 million in Hungary, whereas they fell € 9 million in Slovakia.
New legislation in Hungary led to a one-off effect in the form of a € 204 million provision, up from € 67 million in the second quarter, of which € 20 million were released in the fourth quarter.
Loans and advances to customers (before deduction of impairment losses on loans and advances) fell 3 per cent, or € 2.7 billion, to € 77.9 billion in the reporting period, primarily as a result of currency effects. The largest decline related to loans and advances to private individuals (down € 1.4 billion), mainly due to currency effects in Russia and Ukraine as well as to volume effects in Poland. Loans and advances to large corporate customers fell € 0.7 billion; while these declined in Russia and Ukraine, in particular, due to currency effects, Poland, Slovakia and the Czech Republic reported increases.
The Group's refinancing volume via banks (chiefly commercial banks) decreased 26 per cent, or € 7.7 billion, to € 22.4 billion. The money market business declined € 10 billion and was caused by lower short-term deposits of RZB at Group head office. In contrast, deposits in the giro and clearing business rose € 1.9 billion and long-term deposits rose € 0.4 billion.
able to currency devaluations in Russia and Ukraine. In contrast, deposit business rose in the Czech Republic and Romania. Deposits from sovereigns – above all at Group head office and in Hungary – increased € 0.3 billion, as did deposits from mid market customers in the corporate business. The loan/deposit ratio (net – i.e. after deducting impairment losses on loans and advances) was 106.7 per cent (2013: 112.1 per cent).
Equity on the statement of financial position RBI’s equity on the statement of financial position, consisting of consolidated equity, consolidated profit/loss and non-controlling interests, decreased 20 per cent, or € 2,062 million, to € 8,302 million compared to year-end 2013.
The capital increase carried out at the beginning of 2014, in which 97,473,914 new shares were issued at an issue price of € 28.50, resulted in a net capital increase of € 2,725 million (i.e. after deduction of issuance costs). On the other hand, the redemption of participation capital reduced equity by € 2,500 million. RBI repaid the full € 1,750 million of the participation capital subscribed by the Republic of Austria on 6 June. Participation capital of € 750 million subscribed by private investors was repaid on 10 September.
Dividend payments to RBI's shareholders for the financial year 2013 (€ 298 million) and to the subscribers to the participation capital (€ 200 million) reduced the consolidated equity by € 498 million.
At the beginning of November 2014, the ECB took over responsibility for banking supervision in the euro curreny area. The Single Supervisory Mechanism (SSM) is a new system of banking supervision comprising the ECB and the national competent authorities of the participating member states. Its primary function is to contribute to the safety and soundness of credit institutions, as well as to the stability of the European financial system while ensuring a uniform supervision. As a subconsolidated subgroup, RBI – as one of 120 major banking groups, that represents 82 per cent of the banking sector (measured by assets) in the euro area – is also subject as a group to direct supervision by the ECB. In connection with this, RBI expects – in addition to significantly raised reporting requirements – an increased presence of regulatory topics with strategic relevance.
The Deposit Guarantee Directive was published in the Official Journal of the EU in 2014 and is to be implemented in Austrian law by July 2015. The directive concerns the establishment of a Deposit Protection Fund, which is fed by contributions from credit institutions. The targeted volume amounts to 0.8 per cent of covered deposits. The implementation act was not available at the reporting date. Neither the structure, nor the timing, of the first contribution payments by credit institutions are known, therefore, the exact expense in Austria for RBI can not be quantified.
 Process descriptions for the preparation, quality control, approval, publication, implementation, and monitoring of directives and instructions.
Each year the Annual Report shows the consolidated results in the form of a complete set of consolidated financial statements. These consolidated financial statements are examined by an external auditor. In addition, the Group management report provides verbal comments on the consolidated results in accordance with the statutory requirements.
(2) The Articles of Association contain no restrictions concerning voting rights or the transfer of shares. The Management Board is not aware of any restrictions arising from agreements among shareholders.
(3) RZB AG holds around 60.7 per cent of the capital stock (2013: 78.5 per cent) in the company indirectly through its wholly owned subsidiary Raiffeisen International Beteiligungs GmbH and other subsidiaries. The remaining shares of RBI AG are held in free float. The Management Board knows of no direct or indirect participations in the capital amounting to 10 per cent or more.
(4) Pursuant to the company’s Articles of Association, RZB AG is granted the right to delegate up to one third of the Supervisory Board members to be elected by the Annual General Meeting, as long as it holds a participation in the capital stock. Beyond that, there is no special right of control associated with holding shares.
(7) Pursuant to Section 169 of the Austrian Stock Corporation Act (AktG), the Management Board has been authorized since the Annual General Meeting of 4 June 2014 to increase the capital stock with the approval of the Supervisory Board – in one or more tranches – by up to € 446,793,032.95 through issuing up to 146,489,519 new common bearer shares with voting rights against contributions in cash and/or in kind (including by way of the right of indirect subscription by a bank pursuant to Section 153 (6) of AktG) by 25 August 2019 at the latest and to fix the offering price and terms of the issue with the approval of the Supervisory Board. The Management Board is further authorized to exclude shareholders’ subscription rights, with the approval of the Supervisory Board, (i) if the capital increase is carried out by contributions in kind or (ii) if the capital increase is carried out by contributions in cash and the shares issued under the exclusion of subscription rights do not exceed 10 per cent of the company’s capital stock (exclusion of subscription rights). The authorization of 26 June 2013 pursuant to Section 169 of AktG (authorized capital), which had been previously partially utilized, was revoked.
The Annual General Meeting of 4 June 2014 authorized the Management Board to acquire own shares, under the provisions of Section 65 (1) 4 and 8 of AktG, during a period of 30 months from the date of the resolution (i.e. by 3 December 2016), up to a maximum of 10 per cent of the company’s respective capital stock and, if deemed appropriate, to retire them. The authorization may be exercised in full or in part or also in several installments, for one or more purposes – with the exception of securities trading – by the company, by affiliated enterprises or, for their account, by third parties. The acquisition price for repurchasing the shares may be no lower than € 1.00 per share and no higher than 10 per cent above the average unweighted closing price over the 10 trading days prior to exercising this authorization. The Management Board was further authorized, pursuant to Section 65 (1b) of AktG, to decide, with the approval of the Supervisory Board, on the sale of own shares by means other than the stock exchange or a public tender, to the full or partial exclusion of shareholders’ subscription rights. This authorization applies for a period of five years from the date of the resolution (i.e. until 3 June 2019). Shareholders’ subscription rights may only be excluded if the own shares are used to pay for a contribution in kind, to acquire enterprises, businesses or branches of activity of one or several companies in Austria or abroad, or for the purpose of implementing the company’s Share Incentive Program (SIP) for executives and members of the Management Boards of the company and affiliated enterprises. In addition, if convertible bonds are issued in accordance with the Annual General Meeting resolution of 26 June 2013, shareholders’ subscription rights may also be excluded in order to issue (own) shares to the holders of these convertible bonds who exercise the conversion or subscription rights granted them under the terms of the convertible bonds to shares of the company. This authorization replaces the authorization to purchase and use own shares that was granted in the Annual General Meeting of 20 June 2012. No own shares have been bought since the authorization was issued in June 2014.
The Annual General Meeting of 4 June 2014 also authorized the Management Board, under the provisions of Section 65 (1) 7 of AktG, to acquire own shares for the purpose of securities trading, which may also be conducted off-market, during a period of 30 months from the date of the resolution (i.e. until 3 December 2016), of up to a maximum of 5 per cent of the company’s respective capital stock. The consideration for each share to be acquired must not be less than half the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice this closing price. This authorization may be exercised in full or in part or also in several installments by the company, by affiliated enterprises or, for their account, by third parties. This authorization replaces the authorization for the purpose of securities trading that was granted in the Annual General Meeting of 20 June 2012.
(8) The following material agreements exist, to which the company is a party and which take effect, change or come to an end upon a change of control in the company as a result of a takeover bid:  As a subsidiary of RZB, RBI AG is insured under RZB’s group-wide D&O insurance. Insurance cover remains in place in the event of a merger with another legal entity of the RZB Group. In the event of a merger with a legal entity outside the RZB Group, RBI AG will no longer be covered under RZB’s group-wide insurance from the date of the merger. In such case, insurance cover only exists for breaches of obligations committed prior to the merger.
 The company’s SIP provides the following upon change in corporate control: “If a change in corporate control or a merger occurs during the vesting period without the combination being exclusively concerned with subsidiaries, all contingent shares will lapse without replacement at the time of acquiring the shares of RBI AG and the investor’s actual possibility of disposing of them, or at the time of the merger. An indemnification payment will be made for these contingent shares. The indemnity sum calculated will be paid out with the next possible salary payment.”
 The brand agreement concluded with RZB AG on the unrestricted use of the name and logo of Raiffeisen Bank International for an indefinite period of time in all jurisdictions in which the brand is registered now or in the future includes a right of cancellation upon a change of control.
 The company’s refinancing agreements and agreements concerning third-party financing for subsidiaries, which are guaranteed by the company, stipulate that the lenders can demand early repayment of financing in the event of a change in control.
Funding Banks essentially refinance themselves using their own funds, customer deposits and various capital and interbank market tools. The refinancing situation on the capital markets was generally very favorable in 2014. Although the US central bank terminated its bond purchases in the course of the year, this had very little impact on the capital market environment. Further rate cuts (including a negative deposit rate for commercial banks) and additional liquidity injections by the European Central Bank (ECB), employed in response to slowing economic growth and a fall in inflation during the year, were particularly relevant to the eurozone. Excess liquidity therefore prevailed on the money market and government bond yields including risk premiums declined sharply on most bond markets in the course of the year.
The diversification of financing sources for the Group's units continued to play a highly significant role in 2014.
Long-term funding from sources that are less susceptible to changes on the international capital markets plays a particularly important role. To achieve this, the Group actively collaborates with supranational institutions. These institutions have supported banks in Eastern Europe by providing bilateral loans and also through developing the local capital markets. The Group cooperates with these institutions not only in terms of financing, but also in other areas such as risk-sharing programs to optimize risk-weighted assets.
To strengthen its capital base, RBI issued a subordinated bond worth € 500 million in February 2014, with an eleven-year maturity, an initial right of termination after six years and a coupon of 4.5 per cent. The yield spread at issue equated to 330 basis points above EUR Mid-Swap.
For short-term funding, RBI used both the interbank market and its program for short-term issues (commercial papers), the "EuroCommercial Paper and Certificate of Deposit Programme", in 2014. Under this program, RBI issued commercial papers in various currencies, thereby enabling it to also refinance itself outside of the interbank market.
Developments in compensation Since banks are typical services companies, personnel costs represent a major portion of administrative expenses – at RBI it was 48 per cent in 2014 – and cost reduction programs naturally also impact salaries and fringe benefits. Personnel costs for the reporting period fell 11 per cent year-on-year. RBI's negative result had a marked impact on variable compensation for the 2014 financial year. In accordance with the regulatory framework, bonus commitments were not made, or were reduced on a differentiated basis, for management, “identified staff” employees and other employees.
Alongside the two key factors of employee engagement (commitment, discretionary effort) and employee enablement (optimised roles, supportive environment), twelve additional dimensions such as quality and customer orientation, cooperation, strategic direction, as well as performance and training were also surveyed.
When planning improvement measures, considerable emphasis was placed on direct involvement of employees. These measures will be implemented over the coming months and customized according to the priorities of the respective units.
In parallel, a number of proven initiatives with verifiable positive effects on employee engagement were continued. For example, training and mentoring opportunities were expanded, new career paths were defined for a number of functions, and the teambuilding as well as work-life-balance programs were intensified.
The SEE region’s GDP growth in 2015 and 2016 should be less strongly affected by one-off effects (such as the natural disasters in Serbia and Bosnia-Herzegovina in 2014) and unmet consolidation requirements (such as in Croatia). After GDP growth of 1.4 per cent in 2014, and 1.9 per cent in 2015, SEE will likely near its current potential growth rate of 3.0 per cent again in 2016. Romania, in particular, should remain on a solid growth trajectory with GDP rising at around 3.0 per cent per year. Economic growth in Romania should be supported by rather lax monetary policies in 2015 and subsequent years. Other SEE countries, whose development in the past years was stagnant, are expected to slowly join the positive progress of Romania in 2015 and 2016.
Outlook for RBI We are planning an aggregate gross risk-weighted asset (total RWA) reduction of € 16 billion in selected markets by the end of 2017 (total RWA as at 31 December 2014: € 68.7 billion). We intend to partly offset the reduction with growth in other business areas.
After the implementation of the new strategic measures, the cost base should be 20 per cent below the level of 2014 (at constant prices and foreign exchange rates; general administrative expenses 2014: € 3,024 million). We target a cost/income ratio of between 50 and 55 per cent in the medium term.
We aim for a return on equity before tax of approximately 14 per cent and a consolidated return on equity of approximately 11 per cent in the medium term. The full year 2015 consolidated result may be negative as the majority of the restructuring costs (around € 550 million in total) are expected to be booked in 2015.
The measures to be implemented include sale of the operations in Poland and Slovenia, as well as the direct banking unit Zuno. Exposure to the Russian market is to be reduced, with a risk-weighted asset (total RWA) reduction of approximately 20 per cent planned by the end of 2017 (total RWA as at 31.12.2014: € 8.4 billion). A reduction in exposure is also foreseen in Ukraine, where total RWA will be decreased by approximately 30 per cent by the end of 2017 (total RWA as at 31.12.2014: € 3.0 billion). In Hungary further optimization of the operation will be undertaken. As part of the drive to increase Group focus on the CEE region, operations are to be significantly scaled back or exited in Asia by the end of 2017 and in the US by the end of 2016.
Central Europe 63 Southeastern Europe 70 Russia 79 CEE Other 82 Group Corporates 86 Group Markets 87 Corporate Center 88
Profit before tax in the Southeastern Europe segment increased 26 per cent, or € 71 million, to € 348 million year-on-year. The increase was primarily due to lower net provisioning for impairment losses in Bulgaria, Romania, and Croatia.
The Russia segment continued to make the largest regional contribution to net income with a profit before tax of € 436 million, despite being down € 179 million year-on-year. The decline was the result of a € 104 million increase in net provisioning for impairment losses and a € 221 million lower net trading income caused by currency effects, compensated by a € 112 million improvement in net interest income.
The Corporate Center segment’s profit before tax increased € 446 million to € 507 million from € 62 million in the prior year’s period. This was mainly due to higher interest and dividend income, lower general administrative expenses and a higher net income from liabilities designated at fair value. In contrast, goodwill impairments amounted to € 306 million; € 148 million thereof for the Group unit in Russia, € 101 million for Poland, and € 51 million for Albania.
Central Europe in € million 2014 2013 Change Q4/2014 Q3/2014 Change
Return on equity before tax – 2.0% – – – –
The segment’s net interest income fell 4 per cent to € 1,022 million year-on-year. An increase in Slovakia contrasted with declines in Hungary, Slovenia, Poland, and the Czech Republic. In Slovakia higher margins in new retail business and repricing measures in the deposit business led to an increase in net interest income (up € 10 million). The biggest reduction was reported in Hungary (down € 43 million), where net interest income declined due to lower interest income from derivative financial instruments and securities, as well as to lower volumes and market interest rates. In the Czech Republic, lower margins in retail and corporate customer business, as well as currency effects, had a negative effect on net interest income (down € 4 million). The marginal € 4 million decline in Poland was attributable to considerably lower market interest rates; whereas the lower net interest income in Slovenia (down € 6 million) was mainly due to lower lending volumes. The segment’s net interest margin declined 15 basis points to 2.77 per cent year-on-year. The sharpest decline was reported in Hungary at 56 basis points. Total assets increased 6 per cent, or € 2.4 billion, to € 40.8 billion year-on-year. Risk-weighted assets (total RWA) declined 7 per cent, or € 1.6 billion, to € 22.8 billion.
The segment’s net fee and commission income declined 3 per cent, or € 15 million, to € 531 million year-on-year. Net income from payment transfer business increased 5 per cent to € 251 million, mainly as a result of higher margins in Slovakia as well as higher fees charged to customers in connection with the financial transaction tax in Hungary. In contrast, net income from other banking services fell to minus € 8 million, predominantly due to reduced business with combined products in Poland, as well as to lower fee and commission income from structured financing in the Czech Republic. Net income from foreign currency, notes/coins and precious metals business also declined year-on-year by 8 per cent to € 142 million due to volume and currency effects.
Net trading income in the segment reduced € 8 million to € 20 million. Net income from interest-based transactions decreased € 8 million to € 31 million year-on-year. This was mainly attributable to valuation losses on interest-based derivatives of € 15 million, in the Czech Republic, and of € 9 million in Hungary; whereas in Poland, valuation gains increased € 16 million. Net income from currency-based transactions fell from minus € 12 million to minus € 17 million year-on-year. Exchange-rate related valuation losses from foreign currency positions in Poland and in the Czech Republic were largely compensated by valuation gains in Hungary.
The segment’s general administrative expenses declined 10 per cent to € 987 million year-on-year. This was predominantly due to software depreciation in the Czech Republic in the previous year. Staff expenses declined in all of the segment’s countries and was led by Poland and the Czech Republic. In Poland, staff expenses were down € 15 million, mainly due to the completion of the restructuring measures after the merger of Raiffeisen Bank and Polbank. In the Czech Republic, staff expenses declined € 15 million. This was partly due to currency effects and partly to an employee reduction in course of the current cost-cutting program. Other administrative expenses primarily fell in Poland (down € 31 million) as the integration of Polbank led to a higher expense in the comparable period of the previous year. In contrast, other administrative expenses rose € 8 million in Slovakia because of an increase in deposit insurance fees, and legal, advisory and consulting expenses, as well as higher IT, advertising, PR and promotional expenses. Higher depreciation of tangible and intangible fixed assets was mainly posted in Hungary and Poland; whereas it declined € 56 million in the Czech Republic, because of the impairment of a software project in the same period of the previous year.
Other results in the Central Europe segment fell € 236 to minus € 326 million year-on-year.
Due to a change in legislation in Hungary, a one-off effect in the form of a provision of € 251 million was posted in sundry operating expenses in the reporting period. This law related to exchange rate margins which can be applied to foreign currency loan disbursements and installments, as well as unilateral interest rate changes on consumer loans. The bank levy contained in other results fell – mainly in Slovakia – € 7 million to € 87 million.
Net income from derivatives and liabilities increased to € 7 million year-on-year (2013: minus € 4 million). This was mainly due to improved net income from hedging transactions for the adjustment of the currency and interest rate structure in the Czech Republic.
Detailed results of individual countries: Czech Republic in € million 2014 2013 Change Q4/2014 Q3/2014 Change
Loans and advances to customers 6,335 5,983 5.9% 6,335 6,201 2.2%
Return on equity before tax 13.2% 7.6% 5.5 PP 6.0% 15.7% (9.8) PP
Return on equity after tax 10.4% 6.5% 3.9 PP 3.8% 12.9% (9.0) PP
Net provisioning for impairment losses (128) (152) (15.8)% (87) (3) >500.0%
Loans and advances to customers 4,714 4,990 (5.5)% 4,714 4,853 (2.9)%
Employees as at reporting date 2,298 2,603 (11.7)% 2,298 2,326 (1.2)%
Net fee and commission income 146 161 (8.9)% 36 37 (4.0)%
Net provisioning for impairment losses (25) (86) (70.5)% 28 (15) –
Loans and advances to customers 9,791 9,744 0.5% 9,791 9,867 (0.8)%
hereof foreign currency % 58.8% 55.4% 3.4 PP 58.8% 56.9% 1.9 PP
Loan/deposit ratio (net) 116.2% 124.2% (7.9) PP 116.2% 117.5% (1.3) PP
Net fee and commission income 149 135 10.8% 39 38 2.7%
hereof foreign currency % 1.2% 0.6% 0.6 PP 1.2% 1.0% 0.2 PP
Return on equity after tax 11.2% 10.8% 0.3 PP 6.6% 14.8% (8.3) PP
Net fee and commission income 7 8 (4.3)% 2 2 5.9%
Net provisioning for impairment losses (23) (65) (64.8)% (7) (10) (33.2)%
Loans and advances to customers 825 1,051 (21.5)% 825 884 (6.6)%
hereof foreign currency % 4.3% 4.2% 0.1 PP 4.3% 4.5% (0.1) PP
Southeastern Europe in € million 2014 2013 Change Q4/2014 Q3/2014 Change
Net fee and commission income was up 3 per cent, or € 10 million, to € 358 million. Net income from other banking services increased € 8 million to € 25 million year-on-year, largely as a result of income generated from lead arranger activities in Romania. Net income from payment transfer business increased 4 per cent to € 198 million. This was positively influenced by higher sales in Croatia and Bulgaria and margin improvements in account management and in the credit card business in Romania. Net income from foreign currency, notes/coins and precious metals business was up 6 per cent to € 75 million, and was driven by higher volumes and margins – mainly in Romania and Bosnia and Herzegovina. In contrast, net income from loan and guarantee business declined € 13 million to € 15 million, primarily in Romania.
General administrative expenses fell 1 per cent to € 689 million year-on-year. Staff expenses declined € 6 million to € 296 million as a result of lower provisions for bonus payments. Other administrative expenses were also down, due to a reduction in office space expenses after higher relocation costs in Romania in the previous year. Depreciation remained almost unchanged, as decreases in Croatia, Bulgaria and Serbia were offset by an impairment in Romania. The cost/income ratio improved 0.7 percentage points to 53.7 per cent.
The share of non-bank non-performing loans in the segment’s loan portfolio fell 0.7 percentage points to 13.2 per cent, while the NPL coverage ratio improved 3.6 percentage points to 66.5 per cent.
The region’s tax expense increased € 23 million to € 52 million year-on-year, while the tax rate was up 5 percentage points to 15 per cent. The increase was mainly the result of a one-off effect in Romania, where a deferred tax liability of € 12 million was released in the previous year.
Detailed results of individual countries: Albania in € million 2014 2013 Change Q4/2014 Q3/2014 Change
Net provisioning for impairment losses (29) (29) 0.6% (10) (7) 48.5%
Return on equity after tax 16.8% 16.6% 0.2 PP 12.8% 15.9% (3.2) PP
Employees as at reporting date 1,326 1,371 (3.3)% 1,326 1,336 (0.7)%
Net provisioning for impairment losses (16) (15) 9.7% (10) 2 –
Loan/deposit ratio (net) 72.5% 72.7% (0.2) PP 72.5% 72.0% 0.4 PP
Return on equity after tax 8.0% 10.9% (2.9) PP – 18.0% –
Net fee and commission income 40 38 6.7% 11 10 6.5%
Loans and advances to customers 2,175 2,526 (13.9)% 2,175 2,297 (5.3)%
Return on equity before tax 5.9% – – 9.7% 5.6% 4.1 PP
Return on equity after tax 5.3% – – 8.8% 5.0% 3.7 PP
Net fee and commission income 62 56 11.5% 16 17 (3.9)%
Net provisioning for impairment losses (50) (58) (13.9)% (15) (4) 285.7%
Loans and advances to customers 3,200 3,436 (6.9)% 3,200 3,323 (3.7)%
Loans and advances to customers 488 458 6.5% 488 483 1.1%
Return on equity before tax 17.2% 19.6% (2.4) PP 12.0% 17.0% (5.0) PP
Return on equity after tax 15.3% 17.6% (2.3) PP 10.7% 15.3% (4.5) PP
Employees as at reporting date 705 699 0.9% 705 707 (0.3)%
hereof foreign currency % 49.7% 54.3% (4.6) PP 49.7% 50.2% (0.5) PP
Loan/deposit ratio (net) 85.1% 90.2% (5.1) PP 85.1% 96.3% (11.2) PP
Return on equity before tax 18.6% 19.2% (0.7) PP 13.6% 26.3% (12.7) PP
Net provisioning for impairment losses (19) (23) (14.2)% (7) (5) 47.6%
hereof foreign currency % 61.3% 69.8% (8.5) PP 61.3% 64.5% (3.3) PP
Loan/deposit ratio (net) 81.4% 89.2% (7.8) PP 81.4% 78.7% 2.7 PP
Return on equity before tax 10.1% 11.9% (1.8) PP 5.5% 11.0% (5.5) PP
Employees as at reporting date 1,581 1,602 (1.3)% 1,581 1,590 (0.6)%
Return on equity before tax 28.8% 38.7% (9.9) PP 17.6% 23.8% (6.2) PP
The segment’s income taxes fell € 50 million to € 96 million as a result of lower net income, while the tax rate amounted to 22 per cent (2013: 24 per cent).
Net fee and commission income 304 308 (1.4)% 90 74 21.8%
Loans and advances to customers 8,389 9,967 (15.8)% 8,389 10,806 (22.4)%
Employees as at reporting date 8,252 8,542 (3.4)% 8,252 8,390 (1.6)%
CEE Other in € million 2014 2013 Change Q4/2014 Q3/2014 Change
Net provisioning for impairment losses (542) (108) 403.8% (212) (144) 46.7%
The segment’s net fee and commission income declined € 16 million to € 194 million year-on-year. This included a decrease in net income from payment transfer business – mainly exchange rate related in Ukraine - 21 per cent, or € 32 million, to € 125 million. This decline, however, was partly offset by a € 18 million increase in net income from foreign currency, notes/coins and precious metals business to € 55 million which was also reported in Ukraine as a result of higher volumes and margins.
Net trading income reduced from plus € 12 million in the comparable period of the previous year to minus € 112 million in the reporting period. This was mainly due to net income from currency-based transactions, which was burdened by higher valuation losses from foreign currency positions in Ukraine.
Sundry net operating income fell € 11 million to minus € 16 million year-on-year. The negative impact was the result of a newly introduced tax on purchases of foreign currency in Ukraine (€ 11 million). In contrast, real estate sales of € 4 million had a positive effect; whereas, net income arising from non-banking activities declined.
General administrative expenses declined € 62 million to € 296 million year-on-year. The majority of this reduction was in Ukraine, primarily due to the devaluation of the Ukrainian hryvnia, while general administrative expenses in Belarus increased as a result of inflation related adjustments to wages and salaries and higher other administrative expenses. The segment’s staff expenses decreased € 54 million as a result of employee reductions in Ukraine. The decline in other administrative expenses was mainly a result of the currency development in Ukraine. A € 30 million impairment of the brand and customer base and € 4 million impairment of a building, led to increased depreciation of tangible and intangible fixed assets. The segment’s number of business outlets declined by 130 to 769. The cost/income ratio increased 9.5 percentage points to 65.6 per cent.
The region’s net provisioning for impairment losses increased € 434 million to € 542 million year-on-year, mainly driven by developments in Ukraine. Net provisioning for impairment losses rose € 412 million in Ukraine and was largely required on foreign currency loans due to the devaluation of the Ukrainian hryvnia and the resulting required provision for collateralized US dollar loans, as well as to various defaults on loans to corporate customers. In Belarus, net provisioning for impairment losses totaled € 9 million, whereas provisions of € 13 million were released in the previous year. This was mainly the result of various defaults on loans to corporate customers and the application of new default rates.
Tax income of € 27 million was posted for the region in the reporting period after a tax expense of € 47 million in the previous year. This was mainly due to the capitalization of tax loss carry-forwards in Ukraine.
Net fee and commission income 66 62 6.9% 15 20 (24.5)%
Employees as at reporting date 2,176 2,216 (1.8)% 2,176 2,162 0.6%
Loans and advances to customers 2,688 3,599 (25.3)% 2,688 2,890 (7.0)%
hereof foreign currency % 57.5% 46.9% 10.6 PP 57.5% 55.4% 2.1 PP
Loan/deposit ratio (net) 104.7% 115.9% (11.2) PP 104.7% 118.6% (13.9) PP
Return on equity before tax – 16.1% – – – –
Return on equity after tax – 12.8% – – – –
Employees as at reporting date 11,478 13,053 (12.1)% 11,478 12,199 (5.9)%
Net provisioning for impairment losses (490) (258) 90.1% (209) (236) (11.1)%
Return on equity before tax – 9.6% – – – –
Net provisioning for impairment losses increased € 232 million to € 490 million year-on-year. This increase was primarily the result of high net allocations to individual loan loss provisions due to defaults on loans to large corporate customers in Asia, which increased € 215 million to € 291 million. At Group head office, net provisioning increased slightly by € 29 million to € 196 million. Non-performing loans in Asia were up € 432 million to € 734 million, which corresponds to an 18.7 per cent share of the segment ’s total loan portfolio. Overall, the share of non-performing loans in the segment’s total loan portfolio rose 3.8 percentage points to 10.5 per cent.
The segment’s other results decreased from € 1 million to minus € 5 million year-on-year. Group head office’s bank levy had a negative effect of € 5 million, as it was allocated to the individual segments for the first time in the reporting year.
The tax expense increased € 52 million to € 87 million. In Asia, an impairment of € 35 million on deferred tax assets was carried out, as there would have been insufficient taxable profit available in future, due to the planned reduction of business in China.
Net provisioning for impairment losses 1 (15) – (2) 1 –
Return on equity before tax 16.9% 18.9% (2.1) PP 17.8% 27.6% (9.8) PP
The segment’s net fee and commission income decreased 9 per cent to € 110 million year-on-year, due to lower sales. This was attributable to the decline in customer demand for fixed-income bank products, due to the low interest rate level, as well as to lower volumes of bonds, derivative products and funds.
General administrative expenses in the Group Markets segment declined 3 per cent to € 244 million year-on-year. Staff and depreciation expenses allocated to the segment declined year-on-year, whereas other administrative expenses increased due to higher legal, advisory and consulting fees arising within the course of the Asset Quality Review. The cost/income ratio improved 0.8 percentage points to 66.5 per cent.
Return on equity before tax 19.1% 2.7% 16.3 PP – 38.0% –
As of fourth quarter 2014, disclosure of investments in cash generating units was changed. On the one hand, goodwill and impairment of goodwill is assigned to the segment in which the investment is recognized, on the other, changes in carrying amount of investments in subsidiaries are eliminated in order to represent the Group-relevant effects in the respective segment. Till that time they were shown under reconciliation. The previous year figures were adapted accordingly.
The segment’s net interest income rose € 388 million or 58 per cent to € 1,053 million year-on-year. This increase was particularly due to higher intra-Group dividend income and lower funding costs, which were achieved through an optimization of the Group’s refinancing structure. Besides income from the predominantly short-term investment of free liquidity, interest expenses of € 73 million (2013: € 60 million) for the subordinated capital of RBI AG were also reported in the segment. Assets declined 10 per cent to € 31.1 billion year-on-year, largely due to the optimization of the liquidity position. Risk-weighted assets (total RWA) were up 12 per cent to € 18.7 billion.
Net provisioning for impairment losses generally plays a minor role in this segment due to the intra-Group nature of its business activities. Net provisioning for corporate customers at Group head office amounted to € 10 million in the reporting year.
The Austrian bank levy had a negative impact of € 79 million on net income. In addition, net income from disposal of Group assets resulting from the sale of commodity trading group F.J. Elsner, Vienna, amounted to minus € 11 million.
A tax expense of € 173 million was recognized in the Corporate Center segment in the reporting year. This resulted mostly from the € 161 million impairment on deferred tax assets at Group head office, since the tax loss carry-forwards cannot be utilized according to the updated medium-term tax plan.
Net income from disposal of group assets [10] (9,755) (6,465) 50.9%
Earnings per share is obtained by dividing adjusted consolidated profit/loss (less dividends for participation capital) by the average number of common shares outstanding. In the fiscal year 2014, the number of common shares outstanding was 284,898 thousand compared with 194,948 thousand in the previous year.
Net gains (losses) on derivatives hedging fluctuating cash flows (10,241) (16,364) (10,241) (16,364) 0 0
Deferred taxes on income and expenses directly recognized in equity 2,081 6,626 2,081 6,626 0 0
The following components of retained earnings developed as follows: in € thousand Remeasurements reserve Exchange differences Capital hedge
Unrealized net gains (losses) of the period (13,003) (1,314,018) 2,041 34,361 (10,241) 21,567 5,334 hereof net gains (losses) reclassified to income statement 0 0 0 0 0 10 (2)
Profit attributable to non-controlling interests (12,138) (14,640) (7,121) 4,240 in € thousand Q1/2013 Q2/2013 Q3/2013 Q4/2013
Loans and advances to customers [16, 35, 52] 77,925,416 80,634,618 (3.4)%
Provisions for liabilities and charges [29, 35, 52] 968,913 733,116 32.2%
Statement of changes in equity in € thousand Subscribed capital Participation capital/
Own shares/share incentive program 0 0 1,057 0 0 0 1,057
Statement of cash flows in € thousand 2014 2013 Profit/loss after tax (463,079) 602,946
Net provisioning for liabilities and charges and impairment losses 2,346,865 1,449,536
Changes in assets and liabilities arising from operating activities after corrections for non-cash positions: Loans and advances to banks and customers 6,480,543 (422,067)
Proceeds from sale of: Tangible and intangible fixed assets 110,400 64,193
Cash and cash equivalents at the end of period 6,768,685 6,674,226
Net cash from operating activities comprises inflows and outflows from loans and advances to banks and customers, from deposits from banks and customers as well as debt securities issued. Inflows and outflows from trading assets and liabilities, from derivatives, as well as from other assets and other liabilities are also shown in operating activities. The interest, dividend and tax payments from operating activities are separately stated.
In order to achieve the maximum possible transparency and clear lines of reporting, seven segments were defined in compliance with the IFRS 8 thresholds. IFRS 8 establishes a 10 per cent threshold for the key figures of operating income, profit after tax and segment assets.
The Corporate Center segment encompasses all of the services provided by Group head office in various divisions that serve to implement the Group’s overall strategy and that are allocated to this segment to ensure comparability. Therefore, this segment includes the following areas: Liquidity management and balance sheet structure management as part of proprietary trading, participation management, income from banking operations carried out by Group head office for refinancing Group units, the Austrian transaction and services business for financial services providers, as well as income from the holding and other companies outside the financial service provider business that do not fall directly under another segment.
The cost/income ratio represents the cost efficiency of the segment. The cost/income ratio shows the proportion of the administrative expenses and the operating income, meaning the sum of net interest income, net fee and commission income, net trading income and the other net operating income (less bank levies, impairment of goodwill and any one-off effects from sundry operating expenses).
In accordance with Basel III framework, specific determining factors have to be considered. The proportion of common equity tier 1 capital to total capital requirement (common equity tier 1 ratio) is an important indicator if the capital underlying for the business volume is adequate. The industry sector specifics are tending to different risk weights within the calculation of riskweighted assets according to CRR. These factors are crucial for the calculation of the regulatory minimum own funds requirements. Moreover the efficient use of the available capital is calculated internally, whereby the actual usage is brought in proportion to the theoretical available risk coverage capital. The long-term liquidity ratios are additionally restrictive and they are defined in accordance with the regulatory guidelines.
Net interest margin (average interest-bearing assets) 2.77% 4.27% 5.92% 8.92% 2.31%
Provisioning ratio (average loans and advances to customers) 0.94% 1.85% 1.52% 13.46% 2.42%
The Russia segment continued to make the largest regional contribution to net income with a profit before tax of € 435,975 thousand, despite being down € 178,804 thousand year-on-year. The decline was the result of a € 103,921 thousand increase in net provisioning for impairment losses and a € 220,705 thousand lower net trading income caused by currency effects, compensated by a € 112,098 thousand improvement in interest income.
In the CEE Other segment, geopolitical tensions in Ukraine led to higher net provisioning for impairment losses. In the reporting year a loss before tax of € 253,446 thousand was posted after a profit before tax of € 216,648 thousand in the previous year.
Provisioning ratio (average loans and advances to customers) (0.04)% – – 2.13%
Reconciliation comprises consolidation adjustments to reconcile segments with Group results. The financials of the reportable segments are shown after elimination of intra-segment items. However, the inter-segment items are eliminated in reconciliation. The main eliminations are dividend payments to head office and inter-segment revenues charged and expenses carried by the head office.
Provisioning ratio (average loans and advances to customers) 1.37% 2.28% 0.48% 2.29% 1.27%
The consolidated financial statements for the 2014 financial year and the comparative figures for the 2013 financial year were prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) insofar as they were adopted by the EU on the basis of IAS Regulation (EC) 1606/2002. The interpretations of the International Financial Reporting Interpretations Committee (IFRIC/SIC) that were already applicable have been considered. All standards published by the IASB as International Accounting Standards and adopted by the EU have been applied to financial statements for 2014. The consolidated financial statements also satisfy the requirements of Section 245a of the Austrian Commercial Code (UGB) and Section 59a of the Austrian Banking Act (BWG) regarding exempting consolidated financial statements that comply with internationally accepted accounting principles. IAS 20, IAS 31, IAS 41 and IFRS 6 have not been applied as there were no relevant business transactions in the Group.
All financial statements of fully consolidated companies prepared in another functional currency than Euro were translated into the reporting currency Euro 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 reporting date. Differences arising from the translation of equity (historical exchange rates) are offset against retained earnings.
The income statement items were translated at the average exchange rates during the year calculated on the basis of month-end rates. Differences arising between the exchange rate as of the reporting date and the average exchange rate applied in the income statement are offset against equity (retained earnings). In cases of significantly fluctuating currency rates, the transaction rate is applied instead of the average rate according to IAS 21.
In the case of four subsidiaries not headquartered in the euro-area, the US-Dollar was the reporting currency for measurement purposes given the economic substance of the underlying transactions, as both the transactions and the refinancing were undertaken in US-Dollars. In the case of two subsidiaries headquartered in Europe, the Russian rouble was the reporting currency for measurement purposes given the economic substance of the underlying transactions.
The application of the relevant provisions in IAS 29 in connection with IFRIC 7 (Applying the restatement approach under IAS 29 Financial reporting in hyperinflationary economies) impacts the financial statements as at 31 December 2014, as well as the financial statements of subsequent periods.
The cost of the defined benefit pension plan is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. The interest rate used to discount the Group’s defined benefit obligations is determined on the basis of the yields obtained in the market at the balance sheet date for top-rated fixed-income corporate bonds. Considerable discretion has to be exercised in this connection in setting the criteria for the selection of the corporate bonds representing the universe from which the yield curve is derived. The main criteria for the selection of such corporate bonds are the issuance volumes of the bonds, the quality of the bonds and the identification of outliers, which are not taken into account. Mercer’s recommendation is used to determine the interest rate. Assumptions and estimates used for the defined benefit obligation calculations are described in the section on pension obligations and other termination benefits. Quantitative data for long term employee provisions are disclosed in note (29) Provisions for liabilities and charges.
(1) Income statement according to measurement categories in € thousand 2014 2013 Net gains (losses) on financial assets and liabilities held-for-trading 326,186 276,555
Net realized gains (losses) on financial assets not measured at fair value through profit and loss 67,953 14,127
Net realized gains (losses) on financial assets not measured at fair value through profit and loss 4,156 2,562
Write-ups/impairment on financial assets not measured at fair value through profit and loss (8) 321
A change of default probability for the counterparty risk led to a net result of minus € 9,620 thousand in income from interestbased transactions (2013: net result of minus € 8,960 thousand).
Net income from other derivatives includes valuation results from those derivatives, which are held to hedge against market risks (except trading assets/liabilities). They are based on a non-homogeneous portfolio and do not satisfy the requirements for hedge accounting according to IAS 39.
Net income from liabilities designated at fair value comprises a profit from changes in own credit risk amounting to € 166,210 thousand (2013: loss of € 125,528 thousand) and a negative effect from changes in market interest rates totalling € 183,037 thousand (2013: positive effect of € 146,821 thousand).
(7) Net income from financial investments The position net income from financial investments comprises valuation results and net proceeds from securities of the financial investment portfolio (held-to-maturity), from securities at fair value through profit and loss, and equity participations which include shares in affiliated companies and other companies.
Net income from securities at fair value through profit and loss 89,405 25,908
The depreciation of tangible and intangible fixed assets includes an impairment of € 49,090 thousand (2013: € 69,894 thousand) mainly for the brand and customer relationships in Ukraine and land in Romania.
In the event of termination of function or employment contract and retirement from the company, two members of the Management Board are entitled to severance payments according to the Salaried Employees Act (Angestelltengesetz) or Bank Collective Agreement (Bankenkollektivvertrag), one member of the Management Board according to contractual agreements and three members of the Management Board according to the Company Retirement Plan Act (Betrieblichen Mitarbeitervorsorgegesetz). The entitlement to receive severance payments according to the Salaried Employee Act or according to contractual agreements lapses in case of termination by the employee.
Net proceeds from disposal of tangible and intangible fixed assets (5,179) (15,574)
Net expense from allocation and release of other provisions (24,702) 4,195
The expenses from FX loans are derived from the provisions for the Settlement Act in Hungary. The law related to FX margins which can be applied to foreign currency loan disbursements and installments, as well as unilateral rate changes on consumer loans.
RBI AG and 13 of its domestic subsidiaries are members of a joint tax entity headed by Raiffeisen Zentralbank Österreich Aktiengesellschaft.
The following reconciliation shows the relation between profit before tax and the effective tax burden: Profit/loss before tax 22,882 834,657
Intangible and tangible fixed assets 2,166,966 2,843,266 1 Adaption of previous year figures regarding the measurement category financial assets available-for-sale versus financial assets at fair value through profit and loss.
Positive fair values of derivatives not designated as hedging instruments according to IAS 39 hedge accounting are reported in the measurement category trading assets. The measurement category financial assets available-for-sale comprises other affiliated companies, other equity participations as well as non fixed-interest and fixed-interest securities. Loans and advances are reported on a net basis after provisions for impairment losses. Other assets comprise intangible and tangible fixed assets.
Equity and liabilities according to measurement categories in € thousand 2014 2013
Loans and advances to customers classified regionally (counterparty’s seat) are as follows: (17) Impairment losses on loans and advances Provisions for impairment losses are formed in accordance with uniform Group standards and cover all recognizable credit risks. A table with the development of the impairment losses on loans and advances can be found in the risk report. Provisions for impairment losses are allocated to the following asset classes: Corporate customers – large corporates 3,583,039 2,836,613
Retail customers – small and medium-sized entities 2,419,920 2,617,921 335,537 224,830 29,766 2,363,326
Retail customers – small and medium-sized entities 462,536 309,813 152,723 64,127 7,765
Treasury bills and bills of public authorities eligible for refinancing 1,658,097 1,321,466
Positive fair values of derivatives in cash flow hedges (IAS 39) 309 6,305
The table below shows the expected hedged cash flows from assets in their time periods affecting the statement of comprehensive income: More than 1 year, up to 5 years 1,174,058 1,424,405
(20) Financial investments This position consists of securities available-for-sale, financial assets at fair value through profit or loss, and securities held-tomaturity as well as strategic equity participations held on a long-term basis.
Pledged securities ready to be sold or repledged by the transferee shown under financial investments amounted to € 351,868 thousand.
The carrying amount of the securities reclassified into the category held-to-maturity amounted at the date of reclassifications to € 452,188 thousand. Thereof, reclassifications in 2008 amounted to € 371,686 thousand and in 2011 € 80,502 thousand. As of 31 December 2014, the carrying amount totaled € 39,883 thousand and the fair value totaled € 42,286 thousand. In 2014, a result from the reclassified securities of € 1,414 thousand (2013: € 7,470 thousand) was shown in the income statement. If the reclassification had not been made, a loss of € 1 thousand (2013: loss of € 345 thousand) would have arisen.
Other intangible fixed assets 87,657 159,220 hereof customer relationships 22,472 35,280
The item software comprises acquired software amounting to € 422,154 thousand (2013: € 464,773 thousand) and developed software amounting to € 109,044 thousand (2013: € 80,553 thousand).
The following overview shows the development of the book value of goodwill, gross amounts and cumulative impairments of goodwill by cash generating units. Main goodwill positions are reported in the following cash generating units: Raiffeisenbank a.s., Prague (RBCZ), Raiffeisen Bank Polska S.A., Warsaw (RBPL).
Development of goodwill 2014 in € thousand AVAL RBAL RBCZ RBPL RBRU Other Total As at 1/1 0 50,628 37,323 198,323 236,974 21,028 544,163
Cumulative impairment1 (129,791) (56,428) 0 (99,423) (148,482) (29,431) (463,554) 1 Calculated with period-end exchange rate AVAL: Raiffeisen Bank Aval JSC, Kiev (UA) RBAL: Raiffeisen Bank Sh.a., Tirana (AL) RBCZ: Raiffeisenbank a.s., Prague (CZ) RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL) RBRU: AO Raiffeisenbank, Moscow (RU)
2013 in € thousand AVAL RBAL RBCZ RBPL RBRU Other Total As at 1/1 0 50,850 40,700 175,052 266,325 24,680 557,607
Cumulative impairment1 (226,079) (5,775) 0 0 0 (20,326) (252,181) 1 Calculated with average exchange rate AVAL: Raiffeisen Bank Aval JSC, Kiev (UA) RBAL: Raiffeisen Bank Sh.a., Tirana (AL) RBCZ: Raiffeisenbank a.s., Prague (CZ) RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL) RBRU: AO Raiffeisenbank, Moscow (RU)
In the financial year 2014, impairment of goodwill on group view amounted to € 305,663 thousand (2013: € 2,948 thousand). The highest impairment on goodwill (€ 148,482 thousand) was made for AO Raiffeisenbank, Moscow (RBRU) due to reductions of growth assumptions and an increase of the discount rate for the bank resulting from the worsening in the Russian economy. The increase of the discount rate mainly derived from higher inflation rates and a rating deterioration of Russia. The business plan for Raiffeisen Bank Polska S.A. Warsaw (RBPL) was revised and takes into account smaller interest margins and lower fee and commission income due to keen competition. The new business plan assumes cost reduction and stable expenses whereby partly lower earnings are compensated. The impairment of goodwill of Raiffeisen Bank Polska S.A., Warsaw, amounted to € 101,354 thousand. Moreover, the impairment of goodwill for Raiffeisen Bank Sh.a., Tirane (RBAL) amounting to € 50,726 thousand resulted from higher discount rates.
In the future phase the model is based on a normal economically sustainable earnings situation, whereby approximation of expected return on equity and cost of equity is assumed (assumption of convergence).
The following table shows key assumptions that have been made for the individual cash generating units: 2014 Cash generating units RBCZ RBPL
In the previous year, RBI used the following parameters: 2013 Cash generating units RBAL RBCZ RBPL RBRU
Planning period 5 years 5 years 5 years 5 years RBAL: Raiffeisen Bank Sh.a., Tirana (AL) RBCZ: Raiffeisenbank a.s., Prague (CZ) RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL) RBRU: AO Raiffeisenbank, Moscow (RU)
The use value of a cash generating unit is sensitive to various parameters: primarily to the level and development of future dividends, to the discount rates as well as the nominal growth rate in the steadying phase. The applied discount rates have been calculated using the capital asset pricing model: they are composed of a risk-free interest rate and a risk premium for entrepreneurial risk taking. The risk premium is calculated as the market risk premium that varies according to the country in which the unit is registered multiplied by the beta factor for the indebted company. The values for the risk-free interest rate and the market risk premium are defined using accessible external market data sources. The risk measure beta factor has been derived from a peer group of financial institutions operating in Western and Eastern Europe. The above-mentioned interest rate parameters represent market assessments; therefore they are not stable and could in case of a change affect the discount rates.
RBCZ Czech Republic is a core market for the Group where selective growth strategy is pursued. Improvement through increased use of alternative distribution channels and additional consulting services. Stable costs are assumed.
Weakening of the macroeconomic environment. Possible negative effects of changed local capital requirements. Pressure on interest margins through greater competition.
Cumulative impairment2 (23,137) 0 (23,137) 1 Calculated with average exchange rate 2 Calculated with period-end exchange rate RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL) AVAL: Raiffeisen Bank Aval JSC, Kiev (UA)
If customer contracts and associated customer relationships are acquired in a business combination, they must be recognized separately from goodwill, if they are based on contractual or other rights. The acquired companies meet the criteria for a separate recognition of non-contractual customer relationships for existing customers. The customer base is valued using the multi-period excess earnings method based on projected future income and expenses allocable to the respective customer base. The projections are based on planning figures for the corresponding years.
Land and buildings used by the Group for own purpose 568,482 711,804
The fair value of investment property totaled € 276,658 thousand (2013: € 209,414 thousand).
Land and buildings used by the Group for own purpose 968,421 13,642 (161,963) 37,215 (20,134) (3,035) 834,146 of which land value of developed land 13,445 1,060 (2,343) 190 0 0 12,352
Write-ups, amortization, depreciation, impairment Carrying amount hereof hereof as at in € thousand Cumulative Write-ups Depreciation 31/12/2014
Office furniture, equipment and other tangible fixed assets (788,693) 3,338 (104,882) 298,202
In the reporting year, additions to intangible and tangible fixed assets include single investments exceeding € 10,000 thousand in Group head office.
Write-ups, amortization, depreciation, impairment Carrying amount hereof hereof as at in € thousand Cumulative Write-ups Depreciation 31/12/2013
Deferred tax assets and liabilities after offsetting: Deferred tax assets 284,562 488,959
Deposits from customers break down as follows: Corporate customers – large corporates 30,739,814 31,439,453
Deposits from customers classified regionally (counterparty’s seat) are as follows: (28) Debt securities issued
(29) Provisions for liabilities and charges in € thousand As at 1/1/2014
Severance and similar payments include provisions for anniversary bonuses and other payments in the amount of € 21,191 thousand (2013: € 16,954 thousand) and obligations from other benefits due to termination of employment according to IAS 19R amounting to € 60,186 thousand (2013: € 51,700 thousand).
RBI is involved in pending legal issues, which may occur in the banking business. RBI does not expect that these legal cases will have a material impact on the financial position of the Group. As of 31 December 2014, Group-wide provisions for pending legal issues amounted to € 94,285 thousand (2013: € 53,691 thousand). Single cases exceeding € 10,000 thousand occurred in Austria, Slovakia and Ukraine (2013: in Austria, Slovakia and Ukraine).
The return on plan assets for 2014 was € 1,023 thousand (2013: € 526,670 thousand). For 2014, the fair value of rights to reimbursement recognized as an asset was € 17,210 thousand (2013: € 12,537 thousand).
Plan assets broke down as follows: hereof own financial instruments 1 6 hereof property occupied or other assets used by the Group or other related parties 0 0
In the reporting year, most of the plan assets were quoted on an active market, less than 10 per cent were not quoted on an active market.
The defined investment structure will be implemented in the two funds named “60” and “7”, in which the accrued amounts for RZB/RBI are invested with an investment concept. The weighting of predefined asset classes move between a bandwidth according to objective criteria, which can be derived from market trends. In times of stress, hedges of the equity component are made.
The following table shows the actuarial assumptions used to calculate the net defined benefit obligation: Per cent 2014 2013
Longevity at age 65 for current pensioners - females 24.4 24.2
Longevity at age 65 for current members aged 45 - males 23.4 23.1
The other termination benefits developed as follows: DBO as at 1/1 51,700 50,153
The following table shows the actuarial assumptions used to calculate the other termination benefits: Additional future salary increase for employees 3.0 3.0
Negative fair values of derivatives in fair value hedges (IAS 39) 137,379 104,123
Negative fair values of derivatives in cash flow hedges (IAS 39) 63,171 28,413
As long as the conditions for hedge accounting according to IAS 39 are fulfilled, derivative financial instruments are measured at their fair values (dirty prices) in their function as hedging instruments. The hedged items in connection with fair value hedges are loans and advances to customers, deposits from banks and debt securities issued, which are taken to hedge against interest rate risk.
The table below shows the expected hedged cash flows from liabilties in their time periods affecting the statement of comprehensive income: More than 1 year, up to 5 years 0 22,864
Insurance contract liabilities must be regularly reviewed and subjected to a liability adequacy test. The adequacy test determines, on the basis of a comparison with estimated future cash flows, whether the carrying amount of insurance liabilities needs to be increased. In 2014, there was no charge related to the liability adequacy test.
Discretionary participation feature – The pension products include a discretionary participation feature which may result in RBI Group paying customers more than the contractual minimum.
The following table presents the effect on RBI Group’s profit before tax resulting from the change in mortality of the insuree: Change in profit before tax in € thousand 2014 2013
Non-controlling interests 494,561 484,824 1 Adaption of previous year figures regarding capital reserves and retained earnings.
As of 31 December 2014, the subscribed capital of RBI AG as defined by the articles of incorporation amounted to € 893,586 thousand. The subscribed capital consists of 292,979,038 non-par bearer shares. The subscribed capital was increased through the issuance of 97,473,914 new non-par bearer shares in the course of a capital increase carried out at the beginning of 2014 by € 297,295 thousand. The net increase in capital reserves amounted to € 2,427,421 thousand after deduction of issuance costs of € 52,596 thousand (company tax and several additional costs, e.g. consulting expenses). After deduction of own shares of 604,517, the stated subscribed capital totaled € 891,742 thousand.
In June, the Austrian regulatory authorities granted approval for a redemption of participation capital. On this basis, RBI fully repaid € 1,750,000 thousand of the participation capital subscribed by the Republic of Austria on 6 June. Participation capital of € 750,000 thousand subscribed by private investors was repaid on 10 September.
The acquisition of own shares mainly serves to cover the obligation of RBI within the framework of the share incentive program (SIP) towards the members of the Management Board and executive employees. These bonus payments are carried out in the form of company shares.
The Annual General Meeting held on 4 June 2014 also authorized the Management Board, in accordance with Section 65 (1), item 7 of the Austrian Joint Stock Companies Act (AktG), to acquire own shares for the purpose of securities trading, which may also be conducted off-market, during a period of 30 months from the date of the resolution (i.e. until 3 December 2016), of up to a maximum of 5 per cent of the respective subscribed capital of the company. The consideration for each share to be acquired must not be less than half the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice the closing price. This authorization may be exercised in full or in part or also in several installments by the
company, by affiliated companies or, for their account, by third parties. This authorization replaces the authorization for the purpose of securities trading that was granted in the Annual General Meeting held on 20 June 2012.
Pursuant to Section 159 (2) item 1 of the Austrian Joint Stock Companies Act (AktG), the subscribed capital has been increased contingently by a maximum of € 119,258 thousand by issuing a maximum of 39,101,024 common bearer shares (contingent capital). The contingent capital increase would only be carried out if and when use would be made of an irrevocable right of exchange or subscription granted on shares by the company to creditors holding convertible bonds issued on the basis of the resolution of the Annual General Meeting on 26 June 2013 and the Management Board does not decide to issue own shares.
The Annual General Meeting of 9 June 2009 authorized the Management Board of the company to issue, in one or more tranches, participation rights having equity characteristics pursuant to Section 174 of the Austrian Joint Stock Corporation Act (AktG) in a total nominal amount of up to € 2,000,000 thousand within 5 years as of the date of the resolution with the approval of the Supervisory Board and in accordance with the terms for participation rights to be set by the Management Board and to the exclusion of shareholders’ subscription rights. It should be noted that, under the provisions of the relevant laws, participation rights confer no voting rights or other membership rights. Issuing participation rights therefore entails no change of ownership structure from the standpoint of stock corporation law and shareholders’ voting rights. The company decided on 15 July 2009 to strengthen its equity by issuing participation rights in the amount of € 600,000 thousand based on the authorizing resolution of June 2009. In the course of the merger of the principal business areas of RZB with Raiffeisen International with effect from 10 October 2010, the mutual loans and liabilities of the receiving and the transferring company were wiped out. The same is true of the participatory rights in the amount of € 600,000 thousand, which had been subscribed in full by RZB. This authorization expired on 8 June 2014 and no further participatory rights were issued.
The following table contains financial information of subsidiaries which are held by the Group and in which material noncontrolling interests exist. Intra-group transactions are not eliminated in the amounts shown.
2014 in € thousand Ownership interest Net assets Profit/loss after tax
Raiffeisen Bank Aval JSC, Kiev (UA) 3.8% 9,211 (10,393) (13,064) (23,456)
As apposed to the above stated financial information which only relates to non-controlling interests, the following table contains summary financial information of the individual subsidiaries (including non-controlling interests): Raiffeisen Bank Aval JSC, Kiev (UA)
In the reporting year, no interests in subsidiaries were sold in which RBI AG has control.
For Raiffeisenbank a.s., Prague, a syndicate contract exists between RBI AG and the joint shareholder. The syndicate contract regulates especially purchase options between direct and indirect shareholders. The syndicate contracts expire automatically if control over the company changes – also in the case of a takeover bid.
As at end of 2014, the Ukrainian National Bank launched foreign currency transfer controls. Besides other restrictions, a foreign investor is not able to carry out dividend payments and other capital transactions. First of all, this restriction is valid til mid of 2015.
Members of the management board of the company 331,707 99,513 497,561
In the financial year 2014, no shares were bought back for the share incentive program.
True Sale Transaction ROOF Poland Leasing 2014 Ltd, Dublin (IE) Raiffeisen-Leasing Polska S.A., Warsaw (PL)
True Sale Transaction Raiffeisen Leasing Polska Auto Lease Securitisation Raiffeisen-Leasing Polska S.A., Warsaw (PL)
Synthetic Transaction (JEREMIE) ROOF Romania SME 2011 – 1 Raiffeisenbank S.A., Bucharest (RO)
Synthetic Transaction (JEREMIE) ROOF Bulgaria SME 2011 – 1 Raiffeisenbank (Bulgaria) EAD, Sofia (BG)
Synthetic Transaction (JEREMIE) ROOF Slovakia SME 2013 – 1 Tatra banka a.s., Bratislava (SK)
The following securitization programs from previous years remain active in 2014: The securitization for car leasing contracts of the leasing subsidiary in Poland concluded in 2012 where loans and advances were transferred to the special purpose vehicle Compass Variety Funding Limited, Dublin (IE), remained active also in 2014. According to IFRS 10, which is mandatory as of 2014, a part of the SPV was consolidated which corresponds to the specified assets and liabilities that the Group controls. The first loss piece remaining in the Group amounted to 15 per cent at the beginning of the transaction. Due to the repayments, first of all to the not subordinated investors, the loans and advances have reduced to € 17,703 thousand as at year-end 2014 (2013: € 88,203 thousand).
An external placement of diversified payments rights of AO Raiffeisenbank, Moscow, with a carrying amount of the outstanding debt securities issued of 129,338 thousand (2013: € 125,346 thousand) is worth mentioning. The change in carrying amounts compared to the previous year is due to fluctuating currency exchange rates. The maturity of the tranche 2012-A ends in May 2017, those of 2012-B and 2012-C end in May 2019.
Within the scope of further synthetic securitizations, RBI participated in the so-called JEREMIE programs in Bulgaria and Romania (ROOF Romania and Bulgaria SME 2011-1), as well as in Slovakia since 2013 (ROOF Slovakia SME 2013-1). By contract of the respective network banks with the European Investment Fund (EIF) the granting of loans to small and medium-sized enterprises is to be supported as they can receive guarantees from EIF under the JEREMIE initiative. The current volume of the portfolio under JEREMIE first loss portfolio guarantees amounts to € 54,034 thousand (2013: € 48,087 thousand) for the utilized volume of Raiffeisenbank S.A., Bucharest, € 64,845 thousand (2013: € 63,801 thousand) for Raiffeisenbank (Bulgaria) EAD, Sofia, and € 13,483 thousand (2013: € 845 thousand) for Tatra banka a.s., Bratislava.
A true sale securitization program regarding the retail loans portfolio of AO Raiffeisenbank, Moscow, rolled out in 2013 and amounting to about € 125,000 thousand is still active. The loans were sold to a special purpose vehicle which is held by the Group, where the senior tranche and the first loss piece are held by Group internal investors. Due to amortization of the program and already made repayments, the carrying amount of the outstanding loans and advances of this transaction amounted to € 44,106 thousand (2013: € 95,262 thousand) at year-end 2014.
Total exposure of structured products (excluding CDS): in € thousand Outstanding nominal amount Carrying amount Outstanding nominal amount Carrying amount
The table below shows the carrying amounts of financial assets transferred: 2014 Transferred assets Associated liabilities in € thousand Carrying amount hereof securitizations hereof repurchase agreements Carrying amount hereof securitizations hereof repurchase agreements 2013 Transferred assets Associated liabilities in € thousand Carrying amount hereof securitizations hereof repurchase agreements Carrying amount hereof securitizations hereof repurchase agreements
Loans and advances1 7,086,587 2,098,851 1 Without loans and advances from reverse repo and securities lending business. 2 Without derivatives.
The table below shows the corresponding liabilities to the assets pledged as collateral and contains liabilities from repo business, securities lending business, securititizations and debentures: Deposits from banks 4,978,526 3,269,688
The Group received collateral which can be sold or repledged if no default occurs in the course of reverse repo business, securities lending business, derivative and other transactions.
Statutory, contractual or regulatory requirements as well as protective rights of non-controlling interest might restrict the ability of the Group to access and transfer assets freely to or from other Group entities and settle liabilities. As at reporting date, the Group hasn’t conceded any material protective rights associated to non-controlling interests and therefore these were not a source of significant restrictions.
Financial investments 711,713 131,049 1 Without loans and advances from reverse repo and securities lending business. 2 Without derivatives.
Other financial instruments (legally enforceable) 4,848,030 447,840 4,400,190 1,316,599 0 3,083,591
In 2014, assets which were not subject to legally enforceable netting agreements amounted to € 105,480,048 thousand (2013: € 113,099,362 thousand) whereas an immaterial part was accounted for by derivative financial instruments and cash balances from reverse repo business. Moreover, liabilities which are not subject to legally enforceable netting agreements totaled € 106,962,257 thousand in the reporting year (2013: € 109,744,300 thousand) whereas an immaterial part was accounted for by derivative financial instruments and cash deposits from repo business.
Other financial instruments (legally enforceable) 1,816,509 447,247 1,369,262 1,316,599 0 52,663
Reverse repurchase, securities lending & similar agreements (legally enforceable) 8,131,019 0 8,131,019 8,123,543 0 7,476
Other financial instruments (legally enforceable) 6,242,119 229,353 6,012,766 6,012,766 0 0
(41) Derivative financial instruments 2014 Nominal amount by maturity Fair values in € thousand Up to 1 year More than 1 year, up to 5 years More than 5 years Total Positive Negative
The surplus of negative market values for equity/index contracts is offset by shares purchased for hedging purposes. These shares are recording under trading assets and are not shown in the above table.
Foreign exchange rate and gold contracts 45,597,652 9,059,471 2,409,684 57,066,807 748,253 (655,470)
Equity/index futures - forward pricing 769,345 597 0 769,942 16,879 (28,816)
In the case of a market valuation where the market cannot be considered an active market because of its restricted liquidity, the underlying financial instrument is assigned to Level II of the Fair Value hierarchy. If no market prices are available, these financial instruments are measured using valuation models based on observable market data. These observable market data are mainly reproducible yield curves, credit spreads and volatilities. The Group generally uses valuation models which are subject to an internal audit by the Market Risk Committee in order to ensure appropriate measurement parameters.
At Group standard, well-known valuation techniques are used to measure OTC derivatives. For example, interest rate swaps, cross currency swaps or forward rate agreements are measured using the customary discounted cash flow model for these products. OTC options, such as foreign exchange options or caps and floors, are based on valuation models which are in line with market standards. For the products mentioned as examples, these would include the Garman-Kohlhagen model, Black-Scholes 1972 and Black 1976. Complex options are measured using binomial tree models and Monte-Carlo simulations.
of default. Direct CDS quotations are used where available. If no CDS quotation is available, the own probability of default is calculated by assigning the own rating to a sector and rating-specific CDS curve. The net valuation due to the changed credit risk of the counterparty is shown in note (5) net trading income, interest-based transactions.
2014 2013 in € thousand Level I Level II Level III Level I Level II Level III
Shares and other variable-yield securities 345,500 2,086 237 402,805 4,460 306
Call/time deposits from trading purposes 0 0 0 0 0 0
Bonds, notes and other fixed-interest securities 3,430,919 332,688 82,559 4,745,594 3,536,599 7,242
Positive fair values of derivatives from hedge accounting 0 941,575 187 0 549,903 23,101 1 Including other derivatives. 2 Includes only securities traded on the stock exchange.
If instruments are reclassified from Level I to Level II, this means that market quotations were previously available for these instruments but are no longer so. These securities are now measured using the discounted cash flow model, using the respective valid yield curve and the appropriate credit spread.
If instruments are reclassified from Level II to Level I, this means that the measurement results were previously calculated using the discounted cash flow model but that market quotations are now available and can be used for measurement.
In 2014, mainly bonds and other fixed-income securities in the amount of € 11,057 thousand were transferred from Level II to Level I driven by higher market liquidity of individual products.
in € thousand As at 1/1/2014 Change in consolidated group Exchange differences Purchases Sales, repayment
Financial assets at fair value through profit or loss 12,131 0 (1,692) 52,013 (27,322)
Financial assets at fair value through profit or loss 2,953 0 48,179 (1) 86,261
Loans and advances to banks 0 11,068,873 4,503,419 15,572,292 15,458,620 113,671
2013 in € thousand Level I Level II Level III Fair value Carrying amount Difference
The following table contains revocable credit lines which are unweighted according to Basel III: Revocable credit lines 18,268,598 16,726,791
The Credit Portfolio Committees define the credit portfolio strategies for different customer segments. In these committees, representatives from business and risk management divisions together discuss the risks and opportunities of different customer segments (e.g. industries, countries, retail products). Based on the discussion, credit portfolio management then develops lending policies and sets limits steering the future credit portfolio. Due to the underlying statutes, resolutions cannot be made without approval of the members of the risk division.
the customer divisions, the Chief Financial Officer (CFO) and the relevant division and department managers from risk management and workout.
Moreover, an independent and objective audit, free of potential conflicts, is carried out during the audit of the annual financial statements by the auditing companies. Finally, the Group is continuously supervised by the Austrian Financial Markets Authority and by local supervisors in those countries, where the Group is represented by branches or subsidiaries.
Risk of not being able to satisfy claims of the Group´s senior debt holders
Unexpected losses on an annual basis (economic capital) must not exceed the present value of equity and subordinated liabilities 99.92 per cent as derived from the default probability implied by the target rating
Risk-taking capacity (projected earnings plus capital exceeding regulatory requirements) must not fall below the annualized value-at-risk of the Group 95 per cent presuming the owners´ willingness to inject additional own funds
Regional allocation of economic capital according to booking Group unit in € thousand 2014 Share 2013 Share
No lending transaction is performed in the non-retail segments without running through the limit application process beforehand. This process is also consistently applied – besides new lending – to increases in existing limits, roll-overs, overdrafts, and if changes in the risk profile of a borrower occur (e.g., with respect to the financial situation of the borrower, the terms and conditions, or collateral) compared to the time the original lending decision was made. In addition it is used when setting counterparty limits in treasury and investment banking operations, other credit limits, and for equity participations.
The whole limit application process is based on defined uniform principles and rules. Account management for multinational customers doing business simultaneously with more than one member of RBI, is supported by the Global Account Management System, for example. This is made possible by Group-wide unique customer identification in non-retail asset classes.
The following table translates items of the statement of financial position (bank and trading book positions) into the maximum credit exposure, which is used in portfolio management. It includes exposures on and off the statement of financial position before the application of credit-conversion factors and thus represents the total credit exposure. It is not reduced by the effects of credit risk mitigation like for example guarantees and physical collateral, effects that are, however, considered in the total assessment of credit risks. The total credit exposure is used – if not explicitly stated otherwise – for showing exposures in all subsequent charts in the risk report. The reasons for different values used for internal portfolio management and external financial accounting are the different scope of consolidation (regulatory vs. accounting rules according to IFRS, i.e. corporate legal basis), different classifications and presentation of exposure volumes.
A more detailed credit portfolio analysis is based on individual customer ratings. Ratings are performed separately for different asset classes using internal risk classification models (rating and scoring models), which are validated by a central organization unit. Default probabilities assigned to individual rating grades are estimated for each asset class separately. As a consequence the default probability of the same ordinal rating grade (e.g., corporates good credit standing 4, financial institutions A3, and sovereigns A3) is different between these asset classes.
The internal rating models for corporate customers take into account qualitative parameters and several ratios of the statement of financial position and profit ratios covering different aspects of customer credit-worthiness for various industries and countries. In addition, the model for smaller corporates also includes an account behavior component.
The following table shows the total credit exposure according to internal rating of corporates (large corporates and mid-market). For a better readability, the individual grades of the rating scale are summarized to the 9 main rating grades.
in € thousand 2014 Share 20131 Share 8 Weak credit standing / sub-standard 2,693,793 3.6% 3,177,222 4.0%
1 Adaptation of previous year figures due to harmonization of master scales.
Within the framework of harmonization and continuing development of master scales, movements in the individual rating grades occured. The previous year figures were adapted accordingly.
The maximum credit exposure to corporates amounted to € 74,842,411 thousand (2013: € 78,517,943 thousand) at year-end 2014. At € 29,194,614 thousand (2013: € 31,041,882 thousand) Group Corporates is the largest segment. Compared to year-end 2013, the segment Group Corporates reported a decline of € 1,847,268 thousand due to decrease in credit financing and letters of credit. In the segment Central Europe, the credit exposure increased € 459,757 thousand to € 18,118,270 thousand due to increased repo business.
The credit exposure in Russia amounted to € 8,300,748 thousand (2013: € 9,990,053 thousand), thus representing a decrease in credit exposure of € 1,689,305 thousand due to a decline in framework financing and bonds as well as currency devaluation of the Russian rouble. The remaining exposure is allocated to Southeastern Europe at € 9,258,938 thousand (2013: € 9,893,211 thousand), Group Markets at € 5,540,054 thousand (2013: € 4.890.260 thousand), CEE Other at € 3,003,927 thousand (2013: € 3,748,491 thousand) and Corporate Center at € 1,425,860 thousand (2013: € 1,295,533 thousand).
6.4 Poor project risk profile – high risk 486,767 5.7% 615,521 7.0%
The maximum credit exposure in project finance amounted to € 8,608,620 thousand (2013: € 8,748,547 thousand) at year-end 2014. At 77.5 per cent, projects rated in the two best rating grades excellent project risk profile – very low risk (rating 6.1) or good project risk profile – low risk (rating 6.2) accounted for the highest share of the portfolio. This reflects mainly the high level of collateralization in specialized lending transactions. The increase of € 182,437 thousand in rating grade 6.1 resulted mainly from new business. The increase of € 129,525 thousand in rating grade 6.2 resulted from rating upgrade, especially in the Polish and the Russian portfolio. Similarly, there was a decrease in rating grade 6.3. The remaining decrease in rating grade 6.3 resulted from a rating downgrade of project finance in Canada and from finished project financing.
The total credit exposure of retail customers breaks down by Group segments as follows: 2014 in € thousand Central Europe Southeastern Europe Russia CEE Other Group Markets Retail customers – private individuals 13,877,776 7,051,272 3,083,626 1,248,350 12,254
Retail customers – small and medium-sized entities 1,838,845 934,313 408,589 165,410 0 hereof individual loan loss provision 768,534 358,469 124,149 577,172 75 hereof portfolio-based loan loss provision 97,206 34,259 43,255 22,461 0 2013 in € thousand Central Europe Southeastern Europe Russia CEE Other Group Markets
Retail customers – small and medium-sized entities 2,084,916 739,617 93,216 290,245 0 hereof individual loan loss provision 988,679 358,156 118,534 419,234 93 hereof portfolio-based loan loss provision 91,213 42,135 28,971 20,413 0
Compared to year-end 2013, the retail credit portfolio decreased € 781,888 thousand to € 28,620,435 thousand.
The highest volume of € 15,716,621 thousand (2013: € 15,545,687 thousand) was booked in segment Central Europe. Compared to year-end 2013, this was an increase of € 170,934 thousand, mainly caused by an increase in loans in Slovakia.
The second largest segment was Southeastern Europe with € 7,985,585 thousand (2013: € 7,411,917 thousand). Compared to the previous year, the exposure increased € 573,668 thousand. This was mainly due to an increase in Romania and Croatia.
The segment Russia reported – despite an expansion of credit exposure in retail customers division – a decrease of € 1,234,304 thousand due to currency devaluation of the Russian rouble. The segment CEE Other reported a decline of € 290,133 thousand due to currency devaluation of Ukrainian hryvnia.
The following table shows the maximum credit exposure of this asset class by segment: 2014 in € thousand Central Europe
Central Europe Southeastern Europe Russia CEE Other Group Corporates Group Markets Corporate Center
Taking all rating grades together, segment Group Markets accounted for the largest portfolio share at € 16,628,085 thousand (2013: € 21,924,434 thousand) or 77.7 per cent, followed by the segment Group Corporates at € 1,486,551 thousand (2013: € 2,117,293 thousand) or 6.9 per cent.
Time deposits, securities lending business, potential future exposures from derivatives, sight deposits, and bonds are the main product categories in this asset class. These exposures therefore have high collateralization grades (e.g., in securities lending business or through netting-agreements) depending on the type of product.
The Group continues to reduce the unsecured exposure in this asset class according to its strategy. New business in this asset class thus mainly stems from repurchase agreements, counterparty credit exposure from derivatives and short-term money market deposits. Credit business with other financial institutions in the Austrian Raiffeisen Banking Group which are participating in a joint risk monitoring system of course is not restricted.
The maximum credit exposure to sovereigns amounted to € 21,754,066 thousand (2013: € 19,284,264 thousand) at year-end 2014 and represented 14.0 per cent (2013: 11.8 per cent) of the bank’s total credit exposure.
The rating grade excellent credit standing (A1) showed an increase of € 1,990,965 thousand. This mainly resulted from the rise in the portfolio of Austrian, and German government bonds (up € 1,581,244 thousand).
The medium rating grades Good credit standing (rating A3) to Mediocre credit standing (rating B3) represented the highest share with 53.3 per cent (2013: 57.8 per cent). The high exposure in these rating grades mainly results from deposits of network banks at local central banks as well as from government bonds in Central and Southeastern Europe. The deposits at local central banks are mandatory for meeting the respective minimum reserve requirements or used in order to manage excess liquidity on a shortterm basis and therefore are intrinsically linked to the banking business in these countries. The increase in rating grade B2 mainly resulted on the one hand from rating upgrade of Romania (B3 to B2) and on the other hand from rating downgrade of Italy (B1 to B2). The rating grades B4 and B5 accounted for € 4,831,750 thousand or 22.2 per cent of total credit exposure. The credit exposure in rating grade C increased due to a rating worsening of Ukraine from B5 to C.
The table below shows the credit exposure to sovereigns (including central banks) selected by products: in € thousand 2014 Share 2013 Share
The table below shows the credit exposure to the public sector in non-investment grade (rating B3 and below): in € thousand 2014 Share 20131 Share 1 Adaption of previous year figures due to different mapping.
Here, the credit exposure decreased to € 6,806,627 thousand (2013: € 9,205,016 thousand) year-on-year. The decrease resulted primarily from a rating upgrade of Romania from B3 to B2.
Collateralization is one of the main strategies and an actively pursued measure for reducing potential credit risks. The value of collateral and the effect of other risk mitigation techniques are determined within each limit application. The risk mitigation effect taken into account is the value that the Group expects to receive when selling the collateral within a reasonable liquidation period. Eligible collaterals are defined in the Group’s collateral catalog and corresponding evaluation guidelines for collateral. The collateral value is calculated according to specified methods which include standardized calculation formulas based on market values, predefined minimum discounts, and expert assessments.
2014 Maximum credit exposure Fair value of collateral in € thousand Net exposure Commitments/guarantees issued
Retail customers – small and medium-sized entities 2,363,326 514,639 1,797,081 2013 Maximum credit exposure Fair value of collateral in € thousand Net exposure Commitments/guarantees issued
Collateral ready to be sold or repledged in the absence of default of the debtor amounted to € 21,591,758 thousand (2013: € 21,617,052 thousand).
The credit portfolio and individual borrowers are subject to constant monitoring. The main purpose of monitoring is to ensure that the borrower meets the terms and conditions of the contract, as well as following the obligor’s economic development. Such a review is conducted at least once annually in the non-retail asset classes corporates, financial institutions, and sovereigns. This includes a rating review and the re-evaluation of financial and tangible collateral.
2014 Current Overdue Collateral in € thousand Up to 30 days 31 days, up to 90 days 91 days, up to 180 days 181 days, up to 1 year
Retail customers – small and medium2013 Current Overdue Collateral in € thousand Up to 30 days 31 days, up to 90 days 91 days, up to 180 days 181 days, up to 1 year
This chapter represents exclusively exposure without any reason for default according to Article 178 CRR. In the corporate division, the group distinguishes for loans, when terms or loan conditions are altered in favor of the customer, between modified and foreborne loans according to the valid definition of the EBA document "Implementing Technical Standard (ITS) on Supervisory Reporting (Forbearance and non-performing exposures)".
The crucial aspect deciding a loan is forborne is the financial situation of a customer at the time the terms and conditions are altered. Loans are defined as foreborne loans if at the time of altering the terms and conditions of a loan the customer, due to its creditworthiness (considering the internal rating and other information available at this point of date), is assessed to be in financial difficulties and the modification is assessed as concession. If this modification consequently leads to a further concession or to substantial overdue of more than 30 days, the credit exposure is considered as non-performing exposure (NPE), independent if a reason for default according to Article 178 CRR exists.
In the division retail customers restructured loans are subject to an observation period of at least three months in order to be sure that the customer meets the newly agreed terms. In those cases where the concerned customer meets the newly agreed terms and credit exposure was not overdue for 180 days before the new agreement, it is transferred from the portfolio in observation to the living portfolio. Those credit exposure already overdue for 180 days before the new agreements or those customers who did not meet the newly agreed terms, remain in the portfolio which is fully impaired.
The following table shows the non-performing exposure not failed according to asset classes: in € thousand 2014 Share
In the Group, the regulations for forbearance pursuant to EBA/ITS/2013/02 from 21 October 2013 (final EBA draft of ITS for the regulatory reporting for forbearance and non-performing loans pursuant to Article 99/4, number 575/2013 CRR) are implemented. The first-time reporting to the Authority was carried out in the course of FINREP reporting in the third quarter 2014. For non-retail customers, financial difficulties are measured by means of an internal early warning system which is based on numerous representative and accepted input factors for customer risk classification (e.g. due days, rating downgrade etc.). IAS 39 requires that impairments must be derived from an incurred loss event; defaults according to Article 178 CRR are still the main indicators for individual and portfolio-based loan loss provisions. The transfer of forborne exposure to the living portfolio is not automatically done after the determined monitoring period. Additionally, an expertise has to be obtained confirming that the circumstances of the concerned customers have improved.
Non-performing loans increased significantly in the segment Group Corporates by 45.8 per cent or € 629,320 thousand to € 2,002,746 thousand (2013: € 1,373,426 thousand) due to non-performing loans in Asia. Here, the ratio of non-performing loans to credit exposure rose 3.7 percentage points to 10.2 per cent, the NPL coverage ratio increased 6.3 percentage points to 53.5 per cent. Non-performing loans in the segment CEE Other went up 14.4 per cent or € 159,666 thousand to € 1,267,471 thousand (2013: € 1,107,805 thousand). Here, the NPL ratio increased 8.5 percentage points to 31.8 per cent and NPL coverage ratio increased also 14.9 percentage points to 87.1 per cent. In the segment Group Markets, non-performing loans increased 12.5 per cent or € 44,102 thousand to € 395,283 thousand (2013: € 351,271 thousand) due to a regrouping of nonperforming exposure of € 63 thousand from Group Corporates. Therefore, the NPL ratio increased 0.9 percentage points to 3.0 per cent, the NPL coverage ratio however sank 5.0 percentage points to 79.7 per cent. In the segment Russia, non-performing loans increased 3.1 per cent or € 14,734 thousand to € 496,302 thousand (2013: € 481,569 thousand. The NPL ratio went up 1.1 percentage points to 4.9 per cent, while the NPL coverage ratio sank 7.1 percentage points to 70.5 per cent. In Central Europe, non-performing loans decreased 14.5 per cent or € 509,873 thousand to € 2,998,907 thousand (2013: € 3,508,780 thousand), especially due to sale of non-performing loans amounting to € 293,873 thousand in Poland. The NPL ratio sank 2.3 percentage points to 9.1 per cent, while the NPL coverage ratio improved 3.6 percentage points to 68.0 per cent. In the segment Southeastern Europe, non-performing loans declined 9.0 per cent or € 174,300 thousand to € 1,769,536 thousand (2013: € 1,943,836 thousand). At the same time, the NPL ratio declined 0.4 percentage points to 11.6 per cent, the NPL coverage ratio improved 8.1 percentage points to 66.5 per cent.
Loans and advances to customers 5,010,140 (270) 2,347,946 (529,714) (1,095,634) (186,858) 5,545,610
Loans and advances to banks 6,715 25 1,945 (5,847) 0 15 2,853
Loans and advances to customers 477,173 1,143 256,269 (282,770) (39) (42,773) 409,003 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 to customers 4,593,102 (45) 1,914,424 (680,553) (1,037,505) 220,716 5,010,140
Loans and advances to banks 11,914 0 3,869 (4,506) (1,903) (2,658) 6,715
Loans and advances to customers 891,076 (5,867) 298,915 (341,384) (7,663) (357,903) 477,173 1 Allocation including direct write-downs and income on written down claims. 2 Usage including direct write-downs and income on written down claims.
The following table shows the breakdown of loan loss provisions according to segments: Individual loan loss provisions 5,726,171 5,195,279
Country risk includes transfer and convertibility risks as well as political risk. It arises from cross-border transactions and direct investments in foreign countries. The Group is exposed to this risk due to its strong business activities in the Central and Eastern European markets. In these markets political and economic risks to some extent are still seen as comparatively significant.
Active country risk management in the Group is based on the country risk policy which is set by the Management Board. This policy is part of the credit portfolio limit system and sets a strict limitation on cross-border risk exposure to individual countries. Consequently, in day-to-day work, business units have to submit limit applications for the respective countries for all cross-border transactions in addition to the limit applications for a customer. The limit size for individual countries is set by using a model which takes into account the internal rating for the sovereign, the size of the country, and the Group’s own capitalization.
Wholesale trade and commission trade (except car trading) 14,662,082 9.4% 16,086,635 9.8%
Public administration and defence and social insurance institutions 12,719,616 8.2% 10,991,094 6.7%
Retail trade except repair of motor vehicles 3,839,075 2.5% 4,093,906 2.5%
Extraction of crude petroleum and natural gas 1,252,770 0.8% 1,218,276 0.7%
The Group defines market risk as the risk of possible losses arising from changes in market prices of trading and banking book positions. Market risk estimates are based on changes in exchange rates, interest rates, credit spreads, equity and commodity prices, and other market parameters (e.g. implied volatilities).
The Market Risk Committee is responsible for strategic market risk management issues. It is responsible for managing and controlling all market risks in the Group. The Group’s overall limit is set by the Management Board on the basis of the risk-taking capacity
The Group uses a comprehensive risk management approach for both the trading and banking book (total-return approach). Market risks are managed therefore consistently in all trading and banking books. The following values are measured and limited on a daily basis in the market risk management system:  Value-at-Risk (confidence level 99 per cent, risk horizon one day)
Value-at-risk (VaR) is the main steering instrument in liquid markets and normal market situations. VaR is measured based on a hybrid simulation approach, where 5,000 scenarios are calculated. The approach combines the advantages of a historical simulation and a Monte-Carlo simulation and derives market parameters from 500 days historical data. Distribution assumptions include modern features like volatility declustering, random time change, and extreme event containers. This helps in reproducing fat-tailed and asymmetric distributions accurately. The Austrian Financial Market Authority has approved this model so that it can be used for calculating total capital requirements for market risks. Value-at-risk results are not only used for limiting risk but also in the internal capital allocation.
A comprehensive stress testing concept complements this multi-level limit system. It simulates potential present value changes of defined scenarios for the total portfolio. The results on market risk concentrations shown by these stress tests are reported to the Market Risk Committee and taken into account when setting limits. Stress test reports for individual portfolios are included in daily market risk reporting.
Total 108,495 73,534 43,896 193,402 45,892 1 Exchange rate risk on total bank level also includes equity positions of subsidiaries denominated in foreign currency.
The risk measurement approaches employed are verified – besides analyzing returns qualitatively – on an ongoing basis through backtesting and statistical validation techniques. If model weaknesses are identified, then they are improved accordingly. In the reporting period, there was no backtesting violation for RBI’s trading book as shown in the backtesting chart. This chart compares VaR and theoretical profits and losses on a daily basis. VaR denotes the maximum loss that will not be exceeded with 99 per cent confidence level on the next day. It is compared to the theoretical profits and losses, which shows the hypothetical returns that the bank would have realized due to the actual changes in market parameters on the next day. It is possible to see that the model correctly reproduces market volatility regimes and quickly reacts to changed market conditions. Due to the good forecast quality of the internal model, a factor reduction to 3.2 was approved as of 1 November 2014.
Market risk in the Group results primarily from exchange rate risk, which stems from foreign-currency denominated equity investments made in foreign Group units and the corresponding hedging positions entered into by the Group Asset/Liability Committee. The following table shows all material open foreign exchange rate positions as of 31 December 2014 and the corresponding values for the previous year. Those numbers include both trading positions as well as equity stakes in subsidiaries with foreign currency denominated statements of financial position.
Basically, there are two different approaches for managing exchange rate risks:  Preserve equity: With this hedging strategy an offsetting capital position is held on Group level for local currency denominated equity positions. However, the necessary hedging positions cannot be established in all currencies in the required size. Moreover, these hedges might be inefficient for some currencies if they carry a high interest rate differential.
The Group aims at stabilizing its capital ratio when managing exchange rate risks. Changes in foreign exchange rates thus lead to changes in the consolidated equity amount; however, the regulatory capital requirement for credit risks stemming from assets denoted in foreign currencies also changes correspondingly. This risk is managed on a monthly basis in the Group Asset/Liability Committee based on historical foreign exchange volatilities, exchange rate forecasts, and the sensitivity of the tier 1 ratio to changes in individual foreign exchange rates.
The following tables show the largest present value changes for the trading book of the Group given a one-basis-point interest rate increase for the whole yield curve in € thousand for the reporting dates 31 December 2014 and 31 December 2013. Currencies where the total interest rate sensitivity exceeds € 1 thousand are shown separately. There are only minor changes in the risk factors within the reporting period.
Different maturities and repricing schedules of assets and the corresponding liabilities (i.e. deposits and refinancing on debt and capital markets) cause interest rate risk in the Group. This risk arises in particular from different interest rate sensitivities, rate adjustments, and other optionality of expected cash flows. Interest rate risk in the banking book is material for Euro and US-Dollar as major currencies as well as for local currencies of Group units located in Central and Eastern Europe.
The following table shows the change in the present value of the Group’s banking book given a one-basis-point interest rate increase for the whole yield curve in € thousand for reporting dates 31 December 2014 and 31 December 2013. Currencies where the total interest rate sensitivity exceeds € 1 thousand are shown separately.
Banks perform maturity transformation as an important role for international financial markets. The need for maturity transformation arises from the needs of depositors to access their funds within short notice and the opposite need of borrowers for long-term loans. This function constantly results in positive or negative liquidity gaps for different maturities that are managed through transactions with other market participants under normal market conditions.
As a consequence, long-term funding depends on restoring confidence in banks and the increased effort in collecting customer deposits. The Group’s banking activities are refinanced by combining wholesale funding and the retail franchise of deposit-taking network banks and it is the central liquidity balancing agent for the local Group units in Central and Eastern Europe.
The following table shows a breakdown of cash flows according to the contractual maturity of financial liabilities: Carrying amount
Irrevocable credit lines 10,278,862 10,321,586 4,370,871 1,224,735 4,469,379 256,601 Adaption of previous year figures due to higher detailing.
In order to monitor operational risks, key risk indicators (early warning indicators) are used that allow promptly identifying and mitigating operational risks. These are also specifically tailored to individual Group units. A common catalog of key risk indicators, which is defined by the Group head office for internal benchmarking purposes, is mandatory for all Group units.
The Group currently calculates regulatory capital requirements for operational risks according to Basel III using the Standardized Approach (TSA). This approach applies to all Group units of the credit institution group. Operational risk reduction is initiated by business managers who decide on preventive actions like risk mitigation or risk transfer. Progress and success of these actions is monitored by risk controlling. The former also define contingency plans and nominate responsible persons or departments for initiating the defined actions if losses in fact occur. In addition, several dedicated organizational units provide support to business units for reducing operational risks. An important role is taken on by fraud management which reduces potential fraud related losses through proactive monitoring and preventive actions. The Group also executes an extensive staff training program and has different emergency plans and back-up systems in place.
(45) Foreign assets/liabilities Assets and liabilities with counterparties outside Austria are as follows: (46) Fiduciary business Fiduciary business not recognized in the statement of financial position was concluded with the following volumes on the reporting date: Loans and advances to banks 7,939 9,402
Fiduciary income and expenses break down as follows: Fiduciary income 12,796 13,476
As at 31 December 2014, write-offs on unrecoverable minimum lease payments totaled € 67,122 thousand (2013: € 61,592 thousand).
Future minimum lease payments under non-cancelable operating leases are as follows: More than 1 year, up to 5 years 91,127 80,818
Securities admitted for trading on a stock exchange 2014 2013 in € thousand listed unlisted listed unlisted
(50) Capital management and total capital according to CCR/CRD IV and Austrian Banking Act (BWG)
Capital was and is an integral part of the Group’s control mechanism. RBI as an international Group considers several control parameters. From a regulatory view, the Group is supervised on a subgroup level according to Article 11 paragraph 5 CRR (Capital Requirement Regulation) based on the FMA (Finanzmarkt Austria) decision from 24 October 2014 and is the superordinated credit institution for the subgroup in terms of Section 30 Austrian Banking Act. Morover, the Group has to adhere to the legal total capital regulations on an individual basis and is additionally part of RZB credit institution group.
The Group uses target values for internal regulation, which comprise all risk types. Control on a Group level is exerted by Planning & Finance. The individual Group units are responsible for the observation of the capital targets in coordination with central departments responsible for the participation management of the respective unit.
The main focus in the control is on the regulatory (minimum) capital ratios and the economic capital within the framework of ICAAP (Internal Capital Adequacy Assessment Process, quantitative method to assess the adequacy of internal capital as required by Basel II (Pillar 2) regulations). Moreover, the optimal mixture of capital instruments (e.g. additional tier 1 capital and tier 2 capital) plays an important role and is continuously analized and optimized.
Besides that, the risk taking capacity is calculated in the framework of regulatory limits. It is defined as the maximum loss which the bank or the banking group may encounter during the next 12 months without falling short of the regulatory minimum capital ratios.
The determination of the target values in relation to the compulsory minimum requirements needs additional internal control calculations. The department Risk Controlling calculates the value-at-risk in comparison with the above defined risk taking capacity. Moreover, a balance between economic capital and internal capital is drawn. The economic capital is integral part of the planning and control of the Group. Further details regarding this calculation are stated in the risk report.
After phase-out of the several transitional periods CRR and CRD IV respectively provides harder specifications for the regulatory capital with a minimum of common equity tier 1 of 4.5 per cent, tier 1 capital of 6 per cent and total capital of 8 per cent. Moreover, all banks are obliged to hold a so-called “capital conservation buffer” of 2.5 per cent comprising common equity tier 1 in addition to the new minimum requirements. This brings the requirement for total common equity tier 1 to 7 per cent, for tier 1 to 8.5 per cent and for total capital to 10.5 per cent (each including capital conservation buffer). A violation of the capital conservation buffer induces constraints of e.g. dividend distribution and coupon payments for certain capital instruments.
As mentioned at the beginning, the Group is supervised on a subgroup level. Based on this, a minimum total capital ratio of 13.76 per cent calculated on the total risk amount according to Article 92 paragraph 3 CRR was specified for the Group which has to be adhered as of 30 November 2014. This specified total capital ratio including a sufficient buffer on subgroup level has been adhered since this effective date.
In February 2014, RBI AG carried out a capital increase of € 2.78 billion which enabled the redemption of the total participation capital of € 2.5 billlion. This was an important step for strengthening and optimizing the capital structure. According to CRR/CRD IV, the participation capital was no longer eligble common tier 1 capital and from 2018 on it would fully loose eligibility.
Further expected regulatory changes or developments are displayed and analyzed in scenario calculations by Planning & Finance as well as Risk Controlling on an ongoing basis. Possible effects are included in planning and steering, if necessary.
The total capital breaks down as follows: in € thousand 2014
After phase-out of the transitional regulations, a common equity tier 1 ratio (fully loaded) of 10.0 per cent and a total capital ratio (fully loaded) of 15.2 per cent would be accounted.
The total capital requirement is composed as follows: Risk-weighted assets (total RWA) 68,721,124
Risk weighted assets for the credit risk according to asset classes break down as follows: Risk-weighted assets according to standardized approach 23,321,745
The total own funds requirement is composed as follows: in € thousand 2013
(52) Related parties Companies can carry out business with related parties that may affect the entity’s asset, financial and earnings position. Information about related parties refers to the top of the consolidated group of Raiffeisen-Landesbanken-Holding GmbH.
Parent companies are Raiffeisen-Landesbanken-Holding GmbH, Vienna, and Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna. Disclosures on RBI’s relations to key management are reported under note (53) Relations to key management.
To former members of the Management Board and to their surviving dependants € 103 thousand (2013: € 0 thousand) was paid.
The Annual General Meeting held on 4 June 2014 decided an annual remuneration for the members of the Supervisory Board of € 550 thousand and transferred the distribution to the Board itself. The members of the Supervisory Board settled the distribution in their meeting on 4 June 2014 as follows: Chairman € 70 thousand, Deputy Chairman € 60 thousand, members of the Supervisory Board € 50 thousand. Session fees are not paid.
Moreover, no contracts subject to approval in the meaning of Section 95 (5) item 12 Austrian Joint Stock Company Act (AktG) were concluded with members of the Supervisory Board in the financial year 2014.
Peter Lennkh 1 October 2004 31 December 2015 1 Effective as of 10 October 2010.
Helge Rechberger3 10 October 2010 Until further notice 1 Effective as of 10 October 2010. 2 Geiger was again elected as member of the Supervisory Board in the Annual General Meeting held on 4 June 2014. 3 Staff council delegates.
3rd Deputy Chairman 3rd Deputy Chairman 3rd Deputy Chairman 3rd Deputy Chairman – –
The reduction is expected to be partially offset by growth in other business areas.
At the beginning of 2015, changes to the Ukrainian National Bank’s monetary policy led to a slump. By the end of February, the Ukrainian hyvrnia had lost 37 per cent. This will have an effect on RBI’s loan portfolio; however, this has only little impact on RBI’s capital position.
At the beginning of the year, Belarus devalued the Belarusian rouble (BYR) by around 20 per cent. This was a result of the currency turbulence in Russia at the end of 2014. The Belarusian economy is strongly linked to the Russian’s. As Priorbank’s capital is partly secured through an economic hedge this has little impact on the capital position.
Fully consolidated Equity method Number of units 2014 2013 2014 2013
Included for the first time in the financial period 10 14 0 0
RB International Markets (USA) LLC, New York (US) 100.0% 1/1 Materiality
FWR Russia Funding B.V., Amsterdam (NL) 0.0% 1/7 Start of operations
ROOF Consumer Bulgaria 2007 - 1 B.V., Amsterdam (NL) 0.0% 31/1 Immaterial
Net income from disposal of group assets (11,261) 500 1,007 (9,755)
Elsner-Group: Warenhandlesgruppe F.J. Elsner, Vienna RBMT: Raiffeisen Malta Bank plc, Sliema
The liquidity effect of the sold Group unit amounted to € 92,786 thousand, mainly resulting from Raiffeisen Malta Bank.
Consolidated subsidiaries where RBI holds, indirectly, less than 50 per cent of the ordinary voting shares
The above entities are consolidated as they are either special purpose vehicles or funds set up by the Group. The Group is exposed to variability in returns from the vehicles from activities such as holding securities in the vehicles or issuing financial guarantees and the Group has the power to influence the relevant activities of these entities. These entities primarily run on ‘auto-pilot’ with the day to day business activities being performed by the Group by way of a Service Agreement.
Subsidiaries not consolidated where RBI holds, indirectly, more than 50 per cent of the ordinary voting shares
Because of their minor importance in giving a view of the Group’s assets, financial and earnings position 222 subsidiaries were not included in the consolidated financial statements (2013: 251). They are recognized at cost under financial investments at cost and are assigned to measurement category available-for-sale. Total assets of the companies not included came to less than 1 per cent of the Group’s aggregated total assets.
Centrotrade Minerals & Metals Inc., Chesapeake (US) 2,000 USD 100.0% OT
CJSC Mortgage Agent Raiffeisen 01, Moscow (RU) 10,000 RUB 0.0% BR
Closed Joint Stock Company Non-state pension fund Raiffeisen, Moscow (RU) 275,000,000 RUB 75.0% FI
Raiffeisen Investment Financial Advisory Services Ltd. Co., Istanbul (TR) 70,000 TRY 99.0% FI
RAIFFEISEN-LEASING REAL ESTATE Sp. z o.o., Warsaw (PL) 50,000 PLN 100.0% FI
RB International Markets (USA) LLC, New York (US) 8,000,000 USD 100.0% FI 1 Less own shares. 2 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, SC Securities firms.
ROOF Poland Leasing 2014 Ltd, Dublin (IE) 1 EUR 0.0% OT
SCTF Szentendre Ingatlanforgalmazó és Ingatlanfejlesztő Kft., Budapest (HU) 3,000,000 HUF 100.0% FI
Assets 2014 in € thousand Loans and advances Equities Debt instruments Derivatives
Liabilities 2014 in € thousand Deposits Equities Debt securities issued Derivatives
The principal uses of structured entities are to provide clients with access to specific portfolios of assets and to provide market liquidity for clients through securitizing financial assets. Structured entities may be established as corporations, trusts or partnerships. Structured entities generally finance the purchase of assets by issuing debt and equity securities that are collateralized by and/or indexed to the assets held by the structured entities.
The Group often transfers assets to these securitization vehicles and provide financial support to these entities in the form of liquidity facilities.
The maximum exposure to loss is determined by considering the nature of the interest in the non-consolidated structured entity. The maximum exposure for loans and trading instruments is reflected by their carrying amounts in the consolidated statement of financial position. The maximum exposure for derivatives and instruments off the statement of financial position such as guarantees, liquidity facilities and loan commitments under IFRS 12, as interpreted by the Group, is reflected by the notional amounts. Such amounts do not reflect the economic risks faced by the Group because they do not take into account the effects of collateral or hedges nor the probability of such losses being incurred. At December 31, 2014, the notional related replacement values of derivatives and instruments off the statement of financial position were € 30,352 thousand and € 136,782 thousand respectively. Size information of structured entities is not always publically available therefore the Group has determined that its exposure is an appropriate guide to size.
Cassie Gain Investments Limited, Road Town (VG) 1 USD 100.0% OT
CEE PRIVATE EQUITY FUND LIMITED PARTNERSHIP, St Helier (JE) 10,284 EUR 19.9% FI
CP Logistikcenter Errichtungs- und Verwaltungs GmbH, Vienna (AT) 37,000 EUR 98.0% OT
Doplnková dôchodková spolocnost Tatra banky, a.s., Bratislava (SK) 1,659,700 EUR 100.0% FI
FAGUS Beteiligungs GmbH in liquidation, Vienna (AT) 35,000 EUR 100.0% OT
FMK Fachmarktcenter Kohlbruck Betriebs GmbH, Eschborn (DE) 30,678 EUR 0.0% FI 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, SC Securities firms.
Kathrein & Co. I Vermögensverwaltungs GmbH - in liquidation, Munich (DE) 25,000 EUR 100.0% OT
OOO "Cplus", Moscow (RU) 20,000 RUB 100.0% SC 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, SC Securities firms.
PILSENINEST, uzavreny investicni fond, a.s., Prague (CZ) 212,000,000 CZK 0.0% OT
PMC SPINDLERUV MLYN s.r.o., Hradec Kralove (CZ) 100,000 CZK 100.0% OT
Raiffeisen Invest d.o.o., Zagreb (HR) 8,000,000 HRK 100.0% FI 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, SC Securities firms.
Raiffeisen Investment (Malta) Limited - in liquidation, Sliema (MT) 5,000 EUR 99.8% FI
Raiffeisen Investment Ukraine TOV - in liquidation, Kyiv (UA) 3,733,213 UAH 100.0% FI
Raiffeisen Solutions Spólka z ograniczona odpowiedzialno, Warszawa (PL) 550,000 PLN 100.0% FI
RAIFFEISEN SPECIAL ASSETS COMPANY d.o.o. Sarajevo, Sarajevo (BA) 1,982,591 BAM 100.0% FI
Ratio Holding Gesellschaft mit beschränkter Haftung, Vienna (AT) 40,000 EUR 100.0% OT
RB Szolgáltató Központ Kft. - RBSC Kft., Nyíregyháza (HU) 3,000,000 HUF 100.0% BR
REAL ESTATE RENT 1 DOO, Belgrade (RS) 39,960 RSD 100.0% FI
RL Hotel Palace Wien Besitz GmbH, Vienna (AT) 36,336 EUR 0.0% FI
RL Thermal GmbH & Co Liegenschaftsverwaltung KG, Vienna (AT) 1,452,003 EUR 0.0% FI 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, SC Securities firms.
ROOF Consumer Romania 2008 (1) B.V., Amsterdam (NL) 0 EUR 0.0% FI
SPV Krautland Nord Ingatlanforgalmazó Kft., Budapest (HU) 510,000 HUF 100.0% OT
St. Marx-Immobilien Verwertungs- und Verwaltungs GmbH, Vienna (AT) 36,336 EUR 99.0% OT
TelPol 3 S.A. in liquidation, Warsaw (PL) 100,000 PLN 100.0% OT
Unitary insurance enterprise "Seventh line", Minsk (BY) 29,418,000,000 BYR 100.0% VV
Verto Invest GmbH in Liqu., Vienna (AT) 35,000 EUR 100.0% OT
ASC Logistik GmbH in liquidation, Vienna (AT) 35,000 EUR 15.2% OT
A-Trust Gesellschaft für Sicherheitssysteme im elektronischen Datenverkehr GmbH, Vienna (AT) 5,290,013 EUR OT
Belarussian currency and stock exchange JSC, Minsk (BY) 48,717,430,230 BYR 0.0% SC
Burza cennych papierov v. Bratislave, a.s., Bratislava (SK) 11,404,927,296 EUR 0.1% SC
Central Depository and Clearing Company, Inc., Zagreb (HR) 22,500,000 HRK 0.1% FI
Einlagensicherung der Banken und Bankiers Gesellschaft m.b.H., Vienna (AT) 70,000 EUR 0.1% FI
Euro Banking Association (ABE Clearing S.A.S.), Paris (FR) 62,000 EUR 1.6% FI
Green Energie vetrny park Bilcice, s.r.o., Prague (CZ) 200,000 CZK 50.0% OT
International Factors Group S.C., Brussels (BE) 69,650 EUR 2.2% FI 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, SC Securities firms.
LLC "Insurance Company Raiffeisen Life", Moscow (RU) 240,000,000 RUB 25.0% VV
Public Joint Stock Company Settlement Center for Servicing of Contracts in Financial Markets, Kiev (UA) 153,100,000 UAH 0.0% FI
Public Joint Stock Company Stock Exchange PFTS, Kiev (UA) 32,010,000 UAH 0.2% SC
Raiffeisen CIV (Jersey) Ltd., St Helier (JE) 23,102 EUR 26.0% OT
Raiffeisen Software Solution und Service GmbH, Vienna (AT) 773,000 EUR 1.0% OT
Raiffeisen-Leasing Anlagen und KFZ Vermietungs GmbH, Vienna (AT) 35,000 EUR 17.0% FI
Sarajevska berza-burza vrijednosnih papira dd Sarajevo, Sarajevo (BA) 1,975,680 BAM 5.2% OT
SN De Transfer De Fonduri Si Decontari SA - Transfond, Bucharest (RO) 6,720,000 RON 2.6% BR
Society for Worldwide Interbank Financial Telekommunication n.s.c., La Hulpe (BE) 13,827,750 EUR 0.4% FI
Syrena Immobilien Holding AG, Spittal an der Drau (AT) 22,600,370 EUR 21.0% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financal holding, FI Financial institution, OT Other companies, SC Securities firms.
According to IAS 39, all financial assets, financial liabilities and derivative financial instruments are to be recognized in the statement of financial position. A financial instrument is defined as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. On initial recognition, financial instruments are to be measured at fair value, which generally corresponds to the transaction price at the time of acquisition or issue. According to IFRS 13, the fair value is defined as the exit price. This is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For subsequent measurement, financial instruments are recognized in the statement of financial position according to the respective measurement category pursuant to IAS 39, either at (amortized) cost or at fair value.
Trading assets/liabilities are acquired or incurred principally for the purpose of generating profit from short-term fluctuations in market prices. Securities (including short selling of securities) and derivative financial instruments held-for-trading are recognized at their fair values. If securities are listed, the fair value is based on stock exchange prices. Where such prices are not available, internal prices based on present value calculations for originated financial instruments and futures or option pricing models for options are applied. Present value calculations are based on an interest curve which consists of money market rates, future rates and swap rates. Option price formulas Black-Scholes 1972, Black 1976 or Garman-Kohlhagen are applied depending on the kind of option. The measurement for complex options is based on a binominal tree model and Monte-Carlo simulations.
In 2014, as in 2013, observable market prices were used for the valuation of liabilities of subordinated emissions measured at fair value. The financial liabilities are mostly structured bonds. The fair value of these financial liabilities is calculated by discounting the contractual cash flows with a credit-risk-adjusted yield curve, which reflects the level at which the Group could issue similar financial instruments at the reporting date. The market risk parameters are evaluated according to similar financial instruments that are held as financial assets. Valuation results for liabilities that are designated as a financial instrument at fair value are recognized in income from derivatives and liabilities.
Non-derivative financial assets (securities with fixed or determinable payments and fixed maturities) purchased with the intention and ability to hold them to maturity are reported in "financial investments". They are recognized at amortized cost and differences are amortized over the term to maturity and recognized in the income statement under net interest income. If impairment occurs, it is taken into account when determining the amortized cost and shown in net income from financial investments. Coupon payments are recognized under net interest income. A sale of these financial instruments is only allowed in certain cases explicitly stated in IAS 39.
They are measured at amortized cost. If there is a difference between the amount paid and face value – and this has an interest character – the effective interest method is used and the amount is stated under net interest income. If impairment occurs it is taken account of when determining the amortized cost. Impairment provisions and provisions for losses that have occurred but have not yet been identified are reported in the statement of financial position under the item "impairment losses on loans and advances". Profits from the sale of impaired loans are recognized in the income statement in the item "net provisioning for impairment losses".
The category of financial assets available-for-sale contains equity instruments including non-consolidated participations and those financial instruments that did not qualify for any of the other three categories. They are stated at fair value, if a fair value is reliably measurable. Valuation differences are shown directly in equity in other comprehensive income and only recognized in the income statement under net income from financial investments if there is an objective indication of impairment or if the financial asset available-for-sale is sold.
For equity instruments impairment exists, among other indicators, if the fair value is either significantly or permanently below cost. In the Group, equity instruments classified as available-for-sale are impaired when the fair value over the last six months before the reporting date was consistently more than 20 per cent below carrying value, or in the last twelve months, on average, more than 10 per cent below carrying value. In addition to these quantitative indications (trigger events), qualitative indications from IAS 39.59 are considered. It is not permitted to include the appreciation in value in the income statement for equity instruments classified as available-for-sale, but rather this should be recognized in other comprehensive income under the item fair value reserve (available-for-sale financial assets). This means that only impairments or disposals are to be shown in the income statement.
The Group derecognizes a financial liability if the obligations of the Group have been paid, expired or revoked. The net income or expense from the repurchase of own liabilities is shown in the notes under (6) Net income from derivatives and liabilities. The repurchase of own bonds also falls under derecognition of financial liabilities. Differences on repurchase between the carrying value of the liability (including premiums and discounts) and the purchase price are reported through profit and loss in net income from derivatives and liabilities.
In accordance with IAS 39.50, non-derivative financial instruments classified as trading assets and available-for-sale financial instruments can be reclassified as financial assets held-to-maturity and loans and advances in exceptional circumstances. The effects resulting from such reclassifications are shown in the notes under (20) Financial investments.
If derivatives are held for the purpose of risk management and if the respective transactions meet specific criteria, the Group uses hedge accounting. The Group designates certain hedging instruments as fair value hedges, cash flow hedges or capital hedges. Most of these are derivatives. At the beginning of the hedging relationship, the relationship between underlying and hedging instrument, including the risk management objectives, is documented. Furthermore, it is necessary to regularly document from the beginning and during the lifetime of the hedging relationship that the fair value or cash flow hedge is highly effective.
In RBI, within the management of interest rate risks, the hedging of interest rate risk is also made on the portfolio level. Individual transactions or groups of transactions with similar risk structures, divided into maturities according to the expected repayment and interest rate adjustment date in a portfolio, are hedged. Portfolios can be assets only, liabilities only, or both. For hedge accounting, the change in the value of the hedged asset or liability is shown as a separate item in other assets/liabilities. The hedged amount of the hedged items is determined in the consolidated financial statements including sight deposits (the rules of the EU carve-out are therefore applied).
If no sufficient current verifiable market data is available for the measurement with measurement models, also not observable market data is used. These initial parameters may include data which is calculated in terms of approximated values from historical data (fair value hierarchy level III). The utilization of these models requires assumptions and estimates of the management. The scope of assumptions and estimates depends on the price transparency of the financial instrument, the market and the complexity of the instrument.
For financial instruments valued at amortized cost (this comprises loans and advances, deposits, other short-term borrowings and long-term liabilities), the Group calculates the fair value. In principle, there is low or no trading activity for these instruments, therefore significant assessment by the Management is necessary for determining the fair value.
As the nature of the financial instruments is already shown by the classification of the items of the statement of financial position, the formation of categories was built in line with these items, which include financial instruments. Categories of financial instruments on the asset side are primarily cash reserve, loans and advances to banks, loans and advances to customers, trading assets, derivative financial instruments, derivatives for hedge accounting, and financial investments (among this category are separately financial assets not traded on an active market and which are shown at cost of acquisition). Categories of financial instruments on the liability side are most notably trading liabilities, derivative financial instruments, derivatives for hedge accounting, deposits from banks, deposits from customers, debt securities issued and subordinated capital.
Negative fair values of derivatives for hedge accounting (IAS 39) X n/a 1 AfS Available-for-sale HTM Held to maturity AFVTPL At fair value through profit and loss LAR Loans and advances TA Trading assets FL Financial liabilities TL Trading liabilities
Credit risk is accounted for by making individual impairment provisions and portfolio-based impairment provisions. The latter comprise impairment provisions for portfolios of loans with identical risk profiles that are compiled under certain conditions. The underlying rating models for corporate customers are distinguished between "corporate large" and "corporate regular" as well as “SME large” and “SME regular”. Moreover, portfolios under rating model “financial institutions” und those under “project finance” rating model are separately evaluated. A Group-wide uniform calculation of portfolio-based provisions is given in so far as centrally calculated historical Group default rates for each rating class are evaluated and applied. In the retail segment, provisions are built according to product portfolio and past due days and partly taking historical default rates into account. Individual and portfolio -based impairment provisions are not netted against corresponding receivables but are stated separately in the statement of financial position.
Interest expense from sale and repurchase agreements and interest income from reverse sale and repurchase agreements are accrued in a straight line over their term to maturity and are shown under net interest income.
Leases are classified according to their contractual structure as follows: Finance leases
An operating lease occurs when the risks and rewards of ownership remain with the lessor. The leased assets are allocated to the Group under "Tangible fixed assets" and depreciated in accordance with the principles applicable to the type of fixed assets. Rental income from the corresponding lease object is amortized on a straight-line basis over the term of the leasing contract and reported in other net operating income. Expenses for operating leases are generally amortized on a straight-line basis over the term of leasing contract and reported as administrative expenses.
All material subsidiaries in which RBI AG directly or indirectly has control are fully consolidated. The Group has control over an entity when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
 if the Group is exposed to risks of or has rights to variable returns
 if the Group has the ability to use its power over the investee in order to affect the amount of variable returns.
If voting rights are relevant, the Group has control over an entity, in which it directly or indirectly holds more than 50 per cent of the voting rights; except when there are indicators that another investee has the ability to determine unilaterally the relevant activities of the entity. One or more of the following points may be such an indicator:  Another investor has control over more than half of the voting rights due to an agreement with the Group
 Another investor has the ability to control financial policy and operational activities of the participation due to legal law or an agreement.
 Another investor has control over the participation due to its possibility to appoint and withdraw the majority of members of the Board or members of an equivalent governing body.
 Another investor has control over the entity due to its possibility to dispose of the majority of the delivered voting rights in a meeting of members of the Board or of members an equivalent governing body
In debt consolidation, intra-group loans and liabilities are eliminated. Remaining temporary differences are recognized in "other assets/other liabilities" in the consolidated statement of financial position.
If the company loses control over a subsidiary, the income/loss from disposal of group assets is shown in the income statement. . This is calculated as difference between
An associated company is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of an entity in which shares are held. There exists no control or joint management of decision making processes. As a rule, significant influence is assumed, if the Group holds 20 to 50 per cent of the voting rights. When judging, if the Group has the ability to exert a significant influence on another entity, the existence and the effect of potential voting rights which are actually usable or convertible are taken into account. Further parameters for judging significant influence are, for example, the representation in executive committees and supervisory boards (Supervisory Board in Austrian Joint Stock companies) of the entity and material business cases with the entity. Shares in associated companies are valued at equity and shown in the statement of financial positon under “Investments in associates”.
Shares in subsidiaries not included in the consolidated financial statements because of their minor significance and shares in companies that have not been valued at equity are included in “financial investments” and are measured at acquisition cost.
At each reporting date, the Group reviews to what extent there is objective evidence for impairment of a participation in an associated company. If there is objective evidence of impairment, an impairment test is carried out to determine the recoverable value of the participation – this is higher of the usable value and the fair value excluding selling costs – and the carrying amount. An impairment made in previous periods is reversed only if the assumptions underlying the determination of the recoverable value have been changed since recognition of the last impairment. In this case the carrying amount is written up to the higher recoverable value.
The acquisition of business operations is recognized according to the acquisition method. The consideration transferred in a business combination is measured at fair value. This is calculated as the aggregate of the acquisition-date fair value of all assets transferred, liabilities assumed from former owners of the acquired business combination and equity instruments issued by the Group in exchange to control of the business combination. Transaction costs related to business combinations are recognized in the income statement when incurred.
Recognition of changes in the fair value of the contingent consideration which do not represent corrections within the measurement time is dependent on how the contingent consideration is to be classified. If the contingent consideration is classified as equity, it is not 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 and shareholdings in companies that are not valued at equity are shown under financial investments and are measured at cost – if no shares prices are available.
On each reporting date, goodwill is examined with a view to its future economic utility on the basis of cash generating units (CGUs). A cash generating unit is defined by the management and represents the smallest identifiable group of assets of a company that generates cash inflows from operations. Within RBI, all segments according to segment reporting are determined as cash generating units. Legal entities within the segments form their own CGU for the purpose of impairment testing of goodwill. The carrying value of the relevant entity (including any assigned goodwill) is compared with its recoverable amount. This is, as a general principle, defined as the amount resulting from its value in use and based on expected potential dividends discounted using rate of interest reflecting the risk involved. The estimation of the future results requires an assessment of previous as well as future performance. The latter must take into account the likely development of the relevant markets and the overall macroeconomic environment.
Impairment tests for cash-generating units are based on a multi-year plan drawn up by the relevant management team and approved by the bodies responsible. This covers the CGU's medium-term prospects for success taking into account its business strategy, overall macroeconomic conditions (gross domestic product, inflation expectations, etc.) and the specific market circumstances. The data is then used to capture the terminal value on a going concern concept. Discounting of the earnings relevant for the measurement, i.e. potential dividends, is made using risk-adapted and country-specific equity capital cost rates determined by means of the capital asset pricing model. The individual interest rate parameters (risk-free interest rate, inflation difference, market risk premium, country-specific risks and beta factors) were defined by using external information sources. The entire planning horizon is divided into three phases with phase I covering the management planning period of three years. Detailed planning, including macroeconomic planning data, is extrapolated in phase II, which takes another two years. The terminal value is then calculated in phase III based on the assumption of a going concern. Details on impairment testing can be found under item (22) Intangible fixed assets.
All defined benefit plans relating to so-called social capital (provisions for pensions, provisions for severance payments and provisions for anniversary bonuses) are measured using the Projected Unit Credit Method in accordance with IAS 19 – Employee Benefits. 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 relevant parameters for salaried employees. In other countries, comparable actuarial parameters are used for calculation.
Please refer to Provisions for pensions and similar obligations in the notes under (29) Provisions for liabilities and charges.
 40 per cent and 60 per cent of the annual bonus respectively will be deferred according to local law over a period of three (in Austria, five) years (deferral period). Payment will be made on a proportional basis, 50 per cent cash and 50 per cent based on the phantom share plan.
 the achievement of the legally required common equity tier 1 ratio of the Group,