Consolidated fi nancial statements Statement of comprehensive income 134 Statement of fi nancial position 138 Statement of changes in equity 139 Statement of cash fl ows 140 Segment reporting 142 Notes 150 Auditor’s report 262
All in all, RBI employs about 59,000 staff and has total assets of approximately € 147 billion.
Key ratios Return on equity before tax 13.7% 0.0 PP 13.7% 9.5% 22.0% 25.7% Return on equity after tax 9.7% (2.8) PP 12.5% 6.4% 16.6% 20.2% Consolidated return on equity 10.8% (2.1) PP 13.0% 7.1% 17.4% 20.1%
Return on assets before tax 0.98% 0.07 PP 0.90% 0.53% 1.77% 1.98%
Resources Number of employees as of reporting date 59,261 (0.9)% 59,782 59,211 63,376 58,365 1 Calculated according to the Austrian Banking Act (Bankwesengesetz, BWG). Raiff eisen Bank International (RBI) as part of the RZB Group is not subject to the Austrian Banking Act. 2 Proposal to the Annual General Meeting.
EUROPE: France: Paris; Germany: Frankfurt/Main; Italy: Milan; Malta: Sliema; Russia: Moscow; Sweden: Stockholm; Spain: Madrid; UK: London; ASIA AND AMERICA: China: Beijing, Hong Kong, Xiamen; India: Mumbai; Kazakhstan: Almaty (leasing company); Korea: Seoul; Malaysia: Johor Bahru; Singapore: Singapore; USA: New York; Vietnam: Ho Chi Minh City.
Interview with the Chairman of the Management Board 8 Management Board of RBI 14 Report of the Supervisory Board 16 RBI at a glance 18 RBI’s strategy 21 RBI in the capital markets 28 Corporate Governance Report 33 Corporate responsibility 44
After the merger in 2010 of the principal business areas of RZB and Raiff eisen International, what was the focus of 2011? We made progress with all our customer groups and implemented what we had planned to do. For example in private banking, we launched the “Friedrich Wilhelm Raiff eisen” brand in CEE, a high-end platform which markets our services to currently over 30,000 customers in this segment. We will see the fruits of this investment in the years to come. Moreover, we were successful in intensifying sales of our investment banking products. In Austria, for instance, we were lead manager for nine of the 13 public corporate bonds issued by Austria’s biggest corporations, making us the clear leader in this area.
So you aren’t unhappy with the results for 2011? Absolutely not. Profi t before tax of € 1.4 billion in such a diffi cult economic environment is an achievement we can rightly be proud of. This represents a growth of 7 per cent compared to 2010. One thing that made this possible is that the markets in Central and Eastern Europe where we operate continued to show comparatively high economic growth, which also resulted in a signifi cant improvement in our risk situation. Our result confi rms our sustainable business model, which will continue to keep us very competitive!
Why was there no need for RBI to clean up its balance sheet? There are a number of reasons, all of which are connected with our strategic orientation. Besides our traditionally low exposure to the peripheral European countries, we have always valued our CDS portfolio at market price. In addition, it has always been our goal – and we have achieved this – to acquire banking subsidiaries on favorable terms. We have been and still are relatively conservative in our provisioning, which means that we are constantly cleaning up our balance sheet. In the fourth quarter of 2008, for example, when the fi rst signs of the crisis in CEE became noticeable,
we started provisioning on a massive scale. I also want to highlight the fact that over the course of 2011 our NPL ratio fell by 0.3 percentage points to 8.6 per cent. A particularly welcome fact is that our coverage ratio – in other words, the ratio of loan loss provisions to non-performing loans – has risen to over 68 per cent throughout the Group. As a result, we further improved our balance sheet structure even in what was not exactly an easy year.
Talking about risks, Hungary must have been your biggest concern in 2011? Hungary is without a doubt the most diffi cult market for us at the moment and indeed for almost all banks active there. This is partly due to structural problems in the economy, but we are also subject to the government’s arbitrariness, as seen for example in the excessive bank levy or in the possibility of repaying foreign currency mortgage loans at fi xed exchange rates. This forced us to increase provisioning, leading to a signifi cant loss in Hungary. Despite all this, however, we must not lose sight of the fact that we made a very good profi t in Hungary for many years, which enabled us to off set less favorable trends in other markets. Now, it’s the other way round. It thereby becomes apparent that our diversifi cation across countries, customers and products is paying off .
How did the other markets develop? 2011 was a very good year, particularly in Russia and Poland, but also in Austria. In Russia we are one of the leading foreign banks, with over two million customers. From this strong starting position and given the very good prospects for growth in the Russian market, we will be able to generate a signifi cant contribution to earnings there on a long-term basis. In 2011 some 29 per cent of our profi t before tax came from Russia, up from 17 per cent the previous year. In Central Europe, Poland as the biggest country with above-average growth prospects is clearly our most important market. In 2011 the country contributed nearly 9 per cent to RBI’s profi t before tax, 2.5 percentage points up on 2010. We are also doing well in Austria. Although we do feel the impact of the renewed downswing in the economy, we still earned around 27 per cent more in 2011 than in 2010 with Austrian and international customers we service from Vienna.
In autumn there were reports that Raiff eisen might withdraw from some markets. What was that about? Let me be quite clear about this, it is not in line with our strategy to withdraw from individual countries. All I said was that in times where regulatory pressure is increasingly restricting the banks, we must be allowed to ponder over such extreme measures. This does not mean that this is our goal. Our aim is and will continue to be to serve our customers as far as possible throughout the entire CEE region.
Banks are facing a lot of new rules. Are banks starting to see regulators as their enemy? Regulators naturally strive to improve confi dence in the banking industry, and increased minimum capital ratios are certainly one way to do this. However, this is being done at an unfortunate time, and on top of that, in too much haste. This measure is counterproductive, and could completely choke off economic growth which is already sluggish. The regulations published by the European Banking Authority (EBA) at the end of October call for what I regard as an arbitrarily chosen core tier 1 capital ratio of 9 per cent by the end of June 2012. This is putting pressure on many banks in Europe. We – to be more exact, the RZB Group – are not in this position. We have put together a comprehensive bundle of measures, consisting of numerous individual projects. We are also in the fortunate position of making profi ts which are strengthening our equity. As a result, we can meet the new requirements from our own resources.
How does that match your statement in summer 2011 that RBI is considering a capital increase? There’s no contradiction there. We said that we regard a capital increase as a possible option for strengthening our capital ratio, but, of course, this depends on the development of the macroeconomic environment. It’s not news that the trend has been anything but favorable for such a move. It is, therefore, both reasonable and logical to make use of other options in order to achieve the capital ratio.
The Austrian regulators too attracted attention with their early introduction of the Basel III rules and a cap on growth in lending volumes in CEE. How is this aff ecting RBI? By meeting the EBA ratio, we are also reaching the Basel III ratio of 7 per cent, which the Austrian National Bank and the Financial Market Authority have set as mandatory from the start of 2013. The additional core capital buff er of up to 3 per cent will not take eff ect until 2016. Besides, I don’t regard the guideline that in new business only up to € 110 should be lent for every € 100 of deposits as a major restriction. As growth in lending is tied to economic growth, it is likely to be moderate in the next few years.
Refi nancing is diffi cult for banks in the current environment. What does this mean for RBI? Compared to others, we’re very well placed. We already raised much of our total planned funding for 2011 in the fi rst half year, when the state of the bond markets was
Dear Shareholders, following years of crisis, the fi rst half of 2011 was shaped by a temporary relief and improvement in the general economic situation. The second half of the year, however, was marked by the intensifying sovereign debt crisis in Europe, accompanied by a signifi cant slowdown in economic growth. At the same time, European banks were aff ected by signifi cant changes to the regulatory standards concerning capital requirements which have to be implemented within a short time frame. Raiff eisen Zentralbank Österreich AG, as the superordinate banking institute and main shareholder of RBI, has to fulfi ll the 9 per cent capital ratio requirement by the end of June 2012 and therefore, together with RBI, immediately started the implementation of the necessary measures after the new requirement had been announced.
Overall, the Supervisory Board was able to fulfi ll its supervisory duties conscientiously and take all its decisions in a carefully reasoned way.
The Chairman of the Working Committee, Audit Committee and Personnel Committee regularly reported to the Supervisory Board on the relevant committee’s work.
At the Annual General Meeting held on 8 June 2011, Walter Rothensteiner was reelected as a member of the Supervisory Board and reappointed by the Supervisory Board as its Chairman. In addition to Alfred Lejsek, the Austrian Finance Minister appointed Anton Matzinger as Deputy State Commissioner.
These consolidated fi nancial statements (income statement, statement of fi nancial position, statement of changes in equity, cash fl ow statement and notes) as well as the annual fi nancial statements for RBI AG have been audited by KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Vienna. The audit revealed no grounds for objections. All legislative provisions were fully satisfi ed. Therefore, the unqualifi ed Auditor’s Report was issued.
The consistency check of the Corporate Governance report according to Section 243b of the Austrian Commercial Code (UGB) was performed by Univ.Prof.DDr. Waldemar Jud Corporate Governance Forschung CGF GmbH, and its fi nal results report yielded no signifi cant grounds for objections.
The Supervisory Board would like to express its gratitude to the Management Board, the Staff Council and all employees for their outstanding commitment in this constantly changing environment.
RBI at a glance A leading bank in Central and Eastern Europe, including Austria
RBI is a member of the Raiff eisen customer guarantee association (Raiff eisen-Kundengarantiegemeinschaft, RKÖ), established in 2000, which made RBG a pioneer in deposit protection in Austria. Supplementing the statutory Austrian deposit guarantee scheme, the Raiff eisen customer guarantee association guarantees up to 100 per cent of customer deposits, depending on the fi nancial strength of the member institutions. Unlike the statutory deposit guarantee scheme, it covers all deposits, regardless of whether they belong to private individuals or businesses. The guarantee also applies to all foreign currency deposits and to claims related to issues of senior bonds.
The RBI segments RBI comprises seven segments, with its main focus on retail and corporate banking in the Central Europe, Southeastern Europe, Russia and CIS Other segments, while mass market and premium retail strategies are developed on a countryspecifi c basis.
Segments Focus Central Europe Retail and corporate customers in the Czech Republic, Hungary, Poland, Slovakia and Slovenia
CIS Other Retail and corporate customers in Belarus, Kazakhstan and Ukraine
Group Markets Customer and proprietary trading on debt and equity capital markets
Corporate Center segment 53,835 63.7% 1 1 Change of total assets versus fi gures 31 December 2010 expressed in local currencies varies due to fl uctuation euro exchange rates. 2 Allocation of staff to Group Corporates, Group Markets and Corporate Center is not possible.
RBI’s strategy Long-term value creation is the primary objective RBI’s primary strategic objective is to create long-term value for its shareholders which, in addition to free fl oat shareholders, include the Raiff eisen Zentralbank Österreich AG (RZB) as a strong core shareholder and central institution of the Austrian Raiff eisen Banking Group. This objective is to be achieved fi rst and foremost through a strong focus on customers and a full line of services. Taken together, these two factors lead to high customer satisfaction. Balanced portfolio- and risk diversifi cation in RBI’s home market of Central and Eastern Europe (including Austria) and sustainable risk management ensure that these objectives remain valid in the long term.
■ A leading market position in its home market safeguards RBI’s long-term profi tability. ■ Group-wide uniform risk management, corresponding to the bank’s risk-taking capacity and aimed at avoiding concentration risks (loans, liquidity, etc.), safeguards the company’s independence.
■ RZB (and therefore indirectly the Raiff eisen Banking Group) is to remain the reliable core shareholder. ■ The business model and balance sheet structure are designed in such a way as to ensure a rating comparable with the average of European banks.
■ The eff ects on profi tability and risk are constantly taken into account when using fi nite resources such as capital and liquidity.
The overall environment for banks is subject to a highly dynamic development. This applies particularly to the markets in which RBI operates. Changes in the market environment (competitors withdrawing, economic dynamics easing, supervisory regulations becoming more stringent, etc.) call for constant adaptation of the business focus. Strong, Group-wide coordination and collaboration among the individual corporate units is therefore of greatest importantance. A consequent focus on customers and transparent decision making processes determine the bank’s success in the market. The open corporate culture embodied at RBI contributes to employee motivation and therefore to the achievement of the bank’s strategic objectives.
Strategy by segment RBI’s business is subdivided into seven segments. While the focus in the Central Europe, Southeastern Europe, Russia and CIS Other segments is on retail and corporate banking, activities with Austrian companies and major international customers are handled by Group Corporates. Group Markets deals with capital market customers and proprietary trading and the Corporate Center segment encompasses various services that are provided by Group headquarters and that assist in the implementation of the Group’s overall strategy; they are assigned to this segment to ensure comparability.
ZUNO Bank handles RBI’s direct banking activities in the CEE region. ZUNO is currently active in the Slovakian and Czech markets, and at present off ers current and savings accounts. The plan is to expand these services to include retail lending, overdraft facilities and credit card services. Furthermore, there are plans to extend its regional presence into the Polish and Hungarian markets in 2012. ZUNO’s business philosophy is to handle its business relationships entirely via electronic means (e.g., e-mail, online chat, Facebook, call centers, etc.).
In Slovakia, Raiff eisen possesses one of the best-known and most valuable brands in the Slovak banking sector through Tatra banka, which focuses on the affl uent customer segment. Its innovation leadership with regard to new technologies (e.g., Internet and mobile banking, instant card issuance services, contactless payment services, etc.) is set to be extended further. Workfl ows are being optimized in Slovakia, as they are throughout the entire network. The number of employees was reduced from around 3,700 to around 3,400 between 2008 and 2011.
In Slovenia, RBI is concentrating on business with local corporate and retail customers and on optimizing its network. Given the market environment, another area of focus here also concerns measures to reduce costs and optimize processes.
In the Czech Republic, the main focus is on business with affl uent retail customers. To this end, projects have been launched to improve the way these customers are targeted via the existing branch network. Alternative sales alliances, such as joint credit card issuance with the mobile provider Vodafone (“AQUA”), are being expanded. In corporate customer business, RBI promotes capital- and liquidity-light products. In the Czech Republic, as in other countries, RBI generally prefers to lend to existing customers with good credit ratings. Internal improvements are also being developed to supplement the marketrelated measures. For example, a central IT system is currently being implemented to reduce the administrative expenditure on technology and processing, while organizational workfl ows are also being optimized. As a result, customer services were further improved despite a 9 per cent reduction in the number of administrative employees.
RBI operates as a universal bank in the countries of the Southeastern Europe segment (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Romania and Serbia). It has a bank and leasing companies in each country, and in certain markets is also represented through capital management and asset management companies as well as through pension funds. The target customer group, however, varies according to country. RBI operates a leasing company in Moldova.
In Romania, the focus is also on large and medium-sized corporate customers and on affl uent retail customers. The ongoing optimization of processes (e.g., loan processing for retail customers, other processing in the branches, regional centralization, etc.) allows costs to be reduced while maintaining or even improving the quality of service.
The market environment in Serbia continues to demand strict cost and risk management. The main focus here is on costcutting measures and process optimization. For both corporate and retail customers, the key aim from a market perspective is to further develop relationships with customers that have good credit ratings. High-end services and products form the basis therefore.
RBI’s aim in Russia is to consolidate its role as one of the leading foreign banks. Business development in Russia is predominantly organic, in particular through the ongoing strengthening of RBI’s existing presence in the regions. In corporate customer business – where RBI occupies a strong position in the country – the bank is increasingly supporting Russian companies to expand into other RBI markets. RBI’s strategic orientation as a service provider for complex treasury (e.g., currency hedging) and investment banking (e.g., capital market issues) products, and also its general advisory activities with regard to fi nancial services, helps to strengthen this position. In affl uent retail customer business, the aim is to consolidate and develop RBI’s position by further expanding high-end services (e.g., expanded online banking and insurance solutions, as well as improved advisory services). The establishment of regional competence centers ensures effi cient and customer-focused product processing.
As the biggest foreign bank in Belarus, RBI is the fi rst point of contact for investors and international corporate customers. The aim is to further consolidate its pioneering role in the fi eld of affl uent retail banking by expanding alternative sales and service channels (e.g., through Internet and mobile banking). The challenging business environment (high infl ation, potential further devaluation of the currency) calls for a defensive business policy to limit RBI’s risk position. This means continuing to pay close attention to customers’ credit ratings, avoiding loans in foreign currencies and restricting the granting of loans.
In the countries of the CIS Other segment, as elsewhere, RBI focuses on strict cost management.
The Group Markets segment covers capital market customers and proprietary trading. In principle, activities in this segment are defensively orientated and mainly serve to support business activities in the corporate and retail divisions. This segment also includes net income from customer business, from sales of all banking products, and from business relationships with banks, institutional customers and governments. The aim is to strengthen capital- and liquidity-light products and thus improve service expertise with regard to capital market and investment banking products for governments and fi nancial institutions. This has enabled RBI to participate in syndicates involved in successful benchmark bond issues on the international capital markets (e.g., Credit Bank of Moscow, Erste Group, Intesa Sanpaolo, UniCredit, Monte dei Paschi di Siena).
Strategy according to business divisions In addition to the segments, RBI also manages its business according to business divisions and has established appropriate organizational and reporting structures for this purpose. This subdivision leads to the following strategic priorities: Corporate strategy
In the course of the merger of Raiff eisen International with RZB’s principal business areas, the corporate banking strategy of the newly created RBI underwent a comprehensive adaptation to align with macroeconomic conditions. The focus in doing so was on the maximum possible exploitation of synergies in the area of sales force management (particularly by means of Group-wide customer management and customer marketing) and product development (e.g., by building product competence centers) and long-term further development of RBI’s market position in the medium-sized and large corporate customer segment. Long-term, comprehensive support of corporate customers continues to be central to the corporate banking strategy (relationship customer approach). “Comprehensive” in this context means off ering state-of-the-art fi nancial services with corporate and investment banking products across borders for all customer groups – medium-sized customers, large local companies and international corporate groups.
Mass Banking The balance between lending activities, expanding the transaction service and diff erentiated bundles of current account products has proven to be successful and has led to an increase in the number of customers. RBI will continue this approach in 2012. Another focus will be on standardizing the range of products. In order to be able to provide an optimum mix of sales and service quality, RBI will continue to develop its sales organization.
Premium Banking Only three years after it was set up, the Premium Banking segment, which supports affl uent private individuals with liquid assets of up to € 200,000, already has nearly half a million customers. Around 1,000 account managers support these customers in the markets throughout Central and Eastern Europe. Their attention to service quality, products with high added value and attractive product bundles ensures that long-term customer relationships are developed.
In line with the adapted market-side strategy, internal capacities are also being optimized. The bank’s know-how in sales and in the product line is to be extended by more intensive training and continuing education activities. Customer marketing activities are coordinated Group-wide; in addition, a uniform Group-wide trading platform has been set up. Moreover, several initiatives have been launched to encourage further cross-border know-how transfer.
Through its direct access to all important stock exchanges in CEE and its leading position on the Vienna Stock Exchange, RBI (through its subsidiary Raiff eisen Centrobank) is strongly represented not only in equity trading in these regions, but also as a provider of certifi cates in Germany and Austria. At the same time, RBI as part of the Raiff eisen network is both the largest provider of mutual funds and the largest provider of third-party funds in Austria. The custody business, in which RBI already holds a leading position today, is also to be expanded in the CEE markets. The bank will make further investments in systems and service quality for this purpose.
Political and regulatory decisions further increased the burden on the fi nancial sector, including the “Home Protection Plan” passed by the Hungarian parliament. This allows private citizens in Hungary to choose to repay foreign currency mortgage loans early at an exchange rate well below the market rate. Moreover, the European Banking Authority (EBA) decided that European banks are required to show a core capital ratio (core tier 1 as defi ned by the EBA) of 9 per cent by the end of June 2012. The introduction of a special bank levy by Austria and Hungary in 2010 was followed in 2011 by the Slovakian parliament’s decision to impose such a levy from 2012 onwards.
Raiffeisen Bank International EURO STOXX Banks (relative to RBI) ATX (relative to RBI)
RBI stock following the markets down While the RBI stock price developed at a relatively stable pace at the start of the year, the events in Japan led to a decrease at the end of the fi rst quarter, in line with most of the major share indices. Although the fi gures for the fi rst quarter were well received by analysts and investors, the share was unable to escape the negative trend in the market as a whole, and lost ground in the second half of the year, due to the general uncertainty in the markets. The factors responsible for this included the raising of requirements for core capital ratios of European banks by the EBA, the passage of the Hungarian Foreign Currency Act at the expense of the banks operating in Hungary, and last but not least a general concern about a further recession in the near future.
The high in RBI’s share price for 2011 was on 9 February at € 45.10, its low was on 23 November at € 14.16. It opened the year at € 43.06, and the price at the end of the year was € 20.07. In all, the share accordingly lost 51 per cent over the course of the year. During the same period the ATX fell by 35 per cent and the EURO STOXX Banks fell even more sharply by 38 per cent. At the time of the editorial deadline of this report (12 March 2012) the stock stood at € 24.85. This represents a gain of 24 per cent from 31 December 2011.
In 2011, a total of 67.9 million RBI shares was traded. This represents a total volume of € 2.0 billion and an average daily volume of 273,679 shares.
Shareholder structure At the close of 2011, approximately 15 per cent of RBI shares were held by institutional investors. These continued to show a broad geographical diversifi cation: 24 per cent were from the US, 21 per cent from Austria, 18 per cent from the UK and Ireland and 28 per cent from other EU countries. The remaining 9 per cent of institutional investors were from other countries, such as Singapore and Japan. A further 6 per cent of the free fl oat was held by private investors, mostly from Austria.
The European banking sector in particular was aff ected by the sovereign debt crisis. The growing mistrust of banks among one another but also of investors, made it much more diffi cult for banks to refi nance on the money and capital markets. In the second half of the year, European banks were almost entirely limited to secured bonds for refi nancing, and even then at signifi cantly higher interest rates than at the start of the year.
RBI successfully refi nances through debt capital market Despite the diffi cult market environment, RBI successfully used the international capital market for refi nancing, particularly in the fi rst half-year. For example, RBI issued unsecured benchmark bonds of € 1.0 billion in both January and March. In addition, RBI was the only Austrian bank in 2011 which placed a subordinated ten-year bond for € 500 million in May. Further information on funding activities is available starting from page 76.
RBI rating In 2011 RBI was rated by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. RBI maintains regular contact with the rating agency analysts, and keeps them informed – along with the fi nancial community in general – of trends in business, in order to ensure the most accurate evaluation possible.
The Annual General Meeting also decided to revoke the authorization dating back to 2007 for the Management Board to increase capital (“authorized capital” – Section 169 Austrian Stock Corporation Act) with regard to the as yet unused portion. In connection with this, the Management Board was authorized to increase capital against cash and/or contributions in kind subject to shareholders’ statutory pre-emptive rights as well as to repay all or part of participation capital.
The reports and presentations from the 2011 Annual General Meeting and a video of the Management Board presentations are available at www.rbinternational.com → Investor Relations → Events → Annual General Meeting.
Proposed dividend The next ordinary Annual General Meeting will take place on 20 June 2012 at the Austria Center Vienna. For the 2011 fi nancial year the Management Board will propose to the Annual General Meeting the distribution of a dividend of € 1.05 per share; this represents a total dividend of € 205 million. Subject to approval by the Annual General Meeting, the dividend will be paid to shareholders on 27 June 2012, which will also be the ex-dividend date.
There was a particularly strong interest in the RBI Investor Presentation in London as part of the results announcement for the 2010 fi nancial year. More than 110 analysts and equity and bond investors, as well as members of the RBI Management Board and the Investor Relations Team participated in this event, which was marked by intense audience interest and a detailed discussion.
As a major stock exchange player, RBI took part in a UBS conference in New York in May, where the presentation to an audience of over 100 was followed by numerous one-on-ones. In addition, RBI management completed a two-week roadshow, which opened on 15 September with the invitation of over 50 participants to an investor lunch in Vienna. Following the opening, the Management Board gave a series of presentations in London, Warsaw, Washington DC and New York.
Further roadshows – in total 20 – were conducted in Frankfurt, Geneva, Kitzbühel, Paris, Stockholm, Zurich and Zürs. The investor relations activities in 2011 closed with visits to investor conferences in New York and London.
Alongside personal contact, RBI off ers comprehensive information on its Investor Relations website at www.rbinternational.com → Investor Relations. In addition to annual and interim reports, presentations and information on all aspects of the RBI shares, there are also live webcasts of events. Moreover, publications can be ordered and you can register with the RBI e-mail service for investors and potential investors.
Financial calendar 29 March 2012 Annual Report 2011, Analyst Conference, Conference Call 30 March 2012 RBI Investor Presentation, London 10 May 2012 Start of Quiet Period 24 May 2012 First Quarter Report, Conference Call 20 June 2012 Annual General Meeting 27 June 2012 Ex-Dividend and Dividend Payment Date 15 August 2012 Start of Quiet Period 29 August 2012 Semi-Annual Report, Conference Call 14 November 2012 Start of Quiet Period 28 November 2012 Third Quarter Report, Conference Call
RBI attaches great importance to responsible and transparent business management in order to deepen and maintain understanding and trust with its various stakeholders, including capital market participants in particular. To this end it undertakes to adhere to the Austrian Corporate Governance Codex (ACGC) as amended in January 2010. The ACGC is publicly available on the website of the Austrian Working Group for Corporate Governance (www.corporate-governance.at) and from the RBI website (www.rbinternational.com → Investor Relations → Corporate Governance).
Transparency is central to corporate governance and is of particular importance to RBI. Its Corporate Governance Report is divided into sections following the legal guidelines of Section 243b of the Austrian Commercial Code (UGB), and is based on the structure set forth in Appendix 2 of the ACGC.
The ACGC is organized into L, C and R Rules. L Rules (Legal Requirements) are based on compulsory legal requirements. C Rules (Comply or Explain) should be observed; any deviation must be explained and justifi ed in order to ensure conduct that complies with the Codex. R Rules (Recommendations) have the character of recommendations; non-compliance does not need to be reported or justifi ed.
The 2011 fi nancial year was shaped, as was the previous year, albeit with less intensity, by the merger of Raiff eisen International with the principal business areas of RZB. Measures were taken in relation to the internal control system and the restructuring of the organization. The framework of Group and company directives constitutes the key element of the internal control system. The focus in 2011 was on improving the quality and user-friendliness of existing directives. To this end, existing regulations were tightened, and, where possible, consolidated in higher-level units with a common theme. A stricter review process was also implemented and the access to the underlying database was further improved. Additionally, Operations & IT was restructured and merged with the executive division of Retail Banking due to the downsizing of the RBI Management Board.
Composition of the Management Board In the 2011 fi nancial year the Management Board consisted of seven members: Management Board member Year of birth Original appointment End of term
Martin Grüll 1959 3 January 2005 31 December 20151 1 At the Supervisory Board meeting held on 7 June 2011, all mandates of the Management Board members were extended until 31 December 2015. 2 After the withdrawal of Patrick Butler on his own accord, the Supervisory Board appointed Klemens Breuer as the successor in this function for the period of 16 April 2012 to 31 December 2015.
Helge Rechberger2 1967 10 October 2010 Until further notice 1 Eff ective from 10 October 2010 2 Delegated by the Works Council
■ Company circumstances and the mere exercise of the function of a Board member or managing director by a Super visory Board member does not, as a rule, lead to the company concerned being regarded as a “company in which a Supervisory Board member has a considerable fi nancial interest,“ to the extent that circumstances do not support the presumption that the Supervisory Board member derives a direct personal advantage from doing business with the company.
■ The Supervisory Board member shall not have been an auditor of the company, or a shareholder or an employee of the auditor in the previous three years.
■ The Supervisory Board member shall not be a member of the Management Board of another company in which a Management Board member of the company is a member of the Supervisory Board.
■ The Supervisory Board member shall not be a close family relation (direct descendant, spouse, partner, father, mother, uncle, aunt, brother, sister, nephew, niece) of a member of the Management Board or of persons who fi ll one of the positions described in the preceding points.
Stewart D. Gager and Kurt Geiger, as members of the Supervisory Board, are neither shareholders with a share of greater than 10 per cent, nor do they represent the interests of such shareholders. They are therefore “free fl oat representatives” according to C Rule 54 of the ACGC 2010.
Members of the Supervisory Board had the following additional Supervisory Board mandates or comparable functions in domestic and foreign companies listed on the stock exchange: ■ Walter Rothensteiner: UNIQA Versicherungen AG ■ Erwin Hameseder: AGRANA Beteiligungs-AG, STRABAG SE, UNIQA Versicherungen AG, Südzucker AG,
Members of the Committees The rules of procedure of the Supervisory Board govern its organization and allocate particular tasks to the Working, Audit and Personnel Committees. These committees are composed as follows: Supervisory Board member Working Committee Audit Committee Personnel Committee
The Management Board of RBI leads the company according to clearly defi ned goals, plans and guidelines on its own authority, with a focus on future-oriented business management in line with modern business principles. In this way it constantly pursues the good of the company and considers the interests of shareholders and employees.
The fi elds of activity of the members of the Management Board have been defi ned by the Supervisory Board, without prejudice to the general responsibility of the Management Board, as follows: CEO Herbert Stepic
The rules of procedure of the Management Board and of the Supervisory Board and its committees outline the business management measures that require the approval of the Supervisory Board or of the appropriate committee.
The Working Committee is responsible for all matters that are brought before it by the Supervisory Board. Thus it is called on to approve matters not reserved for the Supervisory Board. In particular, these include the creation and dissolution of
subsidiaries and the acquisition of shares up to a certain book value, the conclusion and termination of syndicate and voting agreements with shareholders, the execution of functions in the management bodies of other companies by members of the Management Board, and the appointment of persons to the Management Boards and supervisory bodies of banks within the Group. Furthermore, the Working Committee approves the acceptance of operational banking risk above a certain level.
The Personnel Committee concerns itself with the remuneration of members of the Management Board and the contents of their employment contracts. In particular, it is responsible for approving the bonus payments and allocation of shares to members of the Management Board through the Share Incentive Program.
The Audit Committee oversees the accounting process and the eff ectiveness of the company’s internal control-, audit- and risk management systems. Its tasks include supervising the annual audit of the fi nancial statements and of the consolidated fi nancial statements, as well as checking and supervising the independence of the Group’s auditors, in particular with respect to the additional work performed for the audited company. The Committee audits the annual fi nancial statements, the management report, the consolidated fi nancial statements and the Group management report, and is responsible for the preparation of its fi ndings; it also audits the proposal for the appropriation of earnings and the Corporate Governance Report. It presents a report on the results of its audits to the Supervisory Board. The Committee is also responsible for preparing the recommendation of the Supervisory Board for the selection of the external auditor and bank auditor. Furthermore, the Audit Committee discusses the content of the management letter and the report on the eff ectiveness of the risk management system.
The following amounts were paid to the Management Board of RBI: Fixed and performance-based remuneration 7,545 8,191
The performance-based components of the Management Board’s remuneration normally consist of bonus payments for 2010 that are linked to the achievement of the company’s goals relating to profi t after tax, return on risk-adjusted capital (RORAC) and the cost/income ratio, as well as the achievement of annually agreed personal goals and the value of an allocation of shares under the Share Incentive Program (SIP) (see note (34) equity share-based remuneration ). The bonus payments for 2010 for three members of the Management Board who had transferred from Raiff eisen Zentralbank Österreich Aktiengesellschaft (RZB) to RBI were measured in accordance with a criterion defi ned by RZB on the basis of return on equity (ROE). In accordance with the contractual provisions applicable to these persons up until the end of 2010, bonus payments totaling € 940,500 were calculated and will be due for payment in 2012 (€ 297,000) and 2013 (€ 643,500). The amount actually paid will be determined at the discretion of the Personnel Committee of RBI’s Supervisory Board. The members of the Management Board coming from the former Raiff eisen International Bank-Holding AG (Raiff eisen International) who had waived bonus payments for 2010 were granted a non-recurring voluntary payment of a total of € 1,400,000, which is being executed in accordance with the system for deferred bonus payments described under note (34) equity.
Principles of the remuneration policy and practices in accordance with Section 39 (2) in conjunction with Section 39b of the Austrian Banking Act (BWG)
In accordance with Section 39 (2) in conjunction with Section 39b of the Austrian Banking Act (BWG) including annexes (Austrian provisions for the implementation of Section 22 (2) in conjunction with Annex V Part 11 of Directive 2006/48/EC in the version enacted by Directive 2010/76/EU), RBI’s Supervisory Board approved the “General Principles of the Remuneration Policy and Practice” in 2011, monitors these regularly and is responsible for implementing them. Remuneration of the Management Board and other “risk personnel” must comply with these principles. In particular, the new principles will be applied to bonus payments for 2011 and subsequent years.
In 2011 the third tranche of the SIP (Share Incentive Program - SIP, 2008 tranche) matured. In accordance with the terms and conditions of the program (published in “euro adhoc” on 29 May 2008), the number of shares actually transferred was as follows: SIP 2008 Value at share price of € 39.00 at the Number Number allotment day of actually of due (12/4/2011) transferred Group of persons shares in € shares
In order to avoid legal uncertainties and in accordance with the program’s terms and conditions, eligible employees in two countries were given a cash settlement instead of an allotment of shares. In Austria the eligible parties were granted the option of accepting a cash settlement in lieu of half of the matured shares in order to off set the wage tax payable at the time of transfer. Therefore, fewer shares were actually transferred than the number that had matured. The portfolio of own shares was subsequently reduced by the lower number of shares actually transferred.
Under the SIP, a new tranche has hitherto been issued each year - including also in 2011. However, because of the merger of Raiff eisen International with the principal business areas of RZB, no SIP tranche was issued in 2010. This means that on the balance sheet date, contingent shares for only two tranches were allocated. As of 31 December 2011 the number of these contingent shares was 608,964 (of which 370,092 were attributable to the 2009 allocation and 238,872 to the 2011 allocation). The number of contingently alloted shares originally announced changed due to various personnel alterations within Group units and the maturing of the 2008 SIP tranche, and is aggregated in the following table: SIP 2009-2011 Number of contingently alloted shares Minimum Maximum as at of allotment of allotment Group of persons 31/12/2011 of shares of shares
Members of the Management Boards of bank subsidiaries affi liated with RBI 287,754 86,326 431,631
For six members of the Management Board essentially the same rules apply as for employees, which provide for a basic contribution to a pension fund on the part of the company and an additional contribution, if the employee makes his own contributions in the same amount. One member of the Management Board has a performance–based pension benefi t. For four members of the Management Board, additional individual pension benefi ts apply, which are fi nanced by a reinsurance policy. One member of the Management Board has been granted a further individual pension commitment, which is being funded by a single premium under a reinsurance policy (in an amount of € 1,500,000).
In the 2011 fi nancial year, a D&O (directors and offi cers) pecuniary damage and liability insurance policy was concluded with UNIQA Sachversicherung AG for the Management Board and the Supervisory Board, the cost of which will be carried by the company.
Annual General Meeting The Annual General Meeting for the 2010 fi nancial year was held on 8 June 2011 at the Austria Center Vienna. The next Annual General Meeting for the 2011 fi nancial year will take place on 20 June 2012. The convening notice will be published a minimum of 28 days before the Annual General Meeting in electronic form and in the Wiener Zeitung’s offi cial register.
The opening session and the Management Board’s speeches are streamed live on the internet at www.rbinternational.com → Investor Relations → Events → Annual General Meeting, and can also be viewed there at a later time. This creates maximum transparency also for those shareholders who cannot attend the Annual General Meeting in person.
Report on the measures taken by the company to promote women on the Management Board, the Supervisory Board and in 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)
The Management Board is committed to consistently promoting the existing initiatives as well as maintaining its openness to new initiatives, in order to further increase the percentage of women in highly qualifi ed positions.
Lasting values in dynamic times The values which guide all Raiff eisen organizations to this day date back to the social reformer Friedrich Wilhelm Raiff eisen (1818–1888). He saw it as his duty to alleviate economic hardship and, in founding the fi rst cooperative banking association in 1862, he laid the foundation for today’s global organization of Raiff eisen cooperatives. Principles such as the willingness to provide mutual assistance as well as the self-administration of the cooperative by its members have remained valid to this day. The Raiff eisen structure of values has consistently provided a stable foundation – even in times of change.
Creating sustainable success Social and corporate responsibility form an integral and self-evident part of the way RBI conducts its business. True to the motto, “We create sustainable success,” active commitment contributes towards a sustainable development of both the company and society alike. Thereby, the responsibility extends to all three pillars of sustainability: business, environment and society. Across all business divisions, RBI remains dedicated to its goal of being a responsible bank, fair partner and committed corporate citizen.
A review of key measures and current initiatives is set out below. Detailed information on RBI’s activities and its sustainability goals may be found in the RZB Group’s 2010 Sustainability Report, available for download at www.rzb.at/ CorporateResponsibility/EN. The RZB Group publishes its Sustainability Reports every two years, with the content being based on the standards of the Global Reporting Initiative (GRI). The next report is scheduled to appear in 2013.
RBI is a member of the UN Global Compact and, in its capacity as a listed company, has committed itself to comply with the Austrian Corporate Governance Codex. The Corporate Governance Report may be found from page 33 onwards.
Carbon Disclosure Leadership Index The Carbon Disclosure Project (CDP), launched in 2000, is aimed at increasing transparency in the reporting of greenhouse gas emissions. Since 2011, RBI has voluntarily provided information on its CO2 emissions, business-related climate risks and reduction targets as part of this program. The published data is compiled in the so-called Carbon Disclosure Leadership Index, which consists of input from the 30 highest scoring companies based on the criterion of completeness of reporting. With a score of 85 out of a possible 100 points, RBI ranks 13th and is thus the best ATX company. All of the information entered is available at www.cdproject.net.
ENERGY GLOBE Award goes to Raiff eisen Bank in Romania In November 2011 the “I Love Velo” cooperation project between the Romanian Raiff eisen Bank and NGO Green Revolution was honored with the ENERGY GLOBE Award in the Upper Austrian city of Wels. Raiff eisen in Romania had initiated an internal project back in 2009 to encourage employees to ride bikes. In order to reach a wider public, Raiff eisen – in conjunction with Green Revolution – launched the “I Love Velo” program, Romania’s fi rst free of charge bike-sharing project. In 2010, the Bank had also received the “Silver PR Award for Excellence” in the category of “Social Responsibility and Stakeholder Dialogue” for this project.
Social commitment As a major economic force in the markets in which it conducts business, RBI is committed to upholding the responsibility of serving society as is demonstrated by its extensive measures and support for various initiatives. Below is a brief description of a few of the current RBI projects.
Community Day In September 2011, RBI organized its fi rst Community Day in cooperation with Caritas Vienna. A room for children and youths at the Caritas “House Amadou,” a shelter for refugees and migrants, was redesigned on a Saturday. More than
Children Protection Award MYKI The children protection organization “die möwe” was established in 1989. As the fi rst social organization of its kind in Austria, it is dedicated to addressing the taboo topic of child abuse and mistreatment, off ering help for mistreated and abused children and young people. The Austrian Children Protection Award MYKI, which is presented in fi ve categories, was established in 2011 in order to contribute in this way to improving child protection and welfare. As the main sponsor, Raiff eisen presented the prize in the category of “Material security and social integration,” two elements which RBI, as a fi nancial service provider, regards as very essential.
As an employer, RBI creates an environment in which it challenges its employees, while also promoting and supporting their individual skills and capabilities. RBI is fi rmly committed to the principle of merit while, however, also endorsing an open corporate culture in which employees are able to continue developing on both a professional and personal basis.
Overall, a considerable slowdown in economic growth in Central and Eastern Europe is expected in 2012, mainly due to the signifi cant deterioration of the situation in the eurozone as a result of the sovereign debt crisis. Thanks to Russia acting as its engine of growth, the CIS region is likely to continue to record the strongest growth. As a global recession is not expected,
Annual real GDP growth in per cent compared to the previous year Country 2010 2011e 2012f 2013f
Positive trend in Austria After the 2009 collapse in economic output (real GDP: minus 3.8 per cent), the Austrian economy performed very well in 2010 (real GDP up 2.3 per cent) as well as in the fi rst half of 2011. This economic expansion was driven by high growth in exports and an increase in investment. In the second half of 2011, however, growth slowed down considerably; in the fourth quarter real GDP even declined slightly year-on-year. Nevertheless, the good fi rst half year ensured strong growth for the full year (real GDP: plus 3.1 per cent). These generally positive trends led to a further decline in unemployment, which, compared to the eurozone, was already very low. In contrast, infl ation rose sharply to 3.5 per cent as a result of higher crude oil prices in the fi rst half of 2011 and government measures, such as tax increases. Infl ation, however, had passed its peak in September (Harmonized Index of Consumer Prices: 3.9 per cent p.a.).
Sovereign debt crisis puts a strain on fi nancial markets The European sovereign debt crisis had already had a negative impact on the fi nancial markets in 2010 but the situation only deteriorated in 2011. Following Greece and Ireland, Portugal became the third country in the eurozone forced to resort to help from the EFSF/IMF safety net as of April 2011. While Ireland and Portugal were largely successful in implementing the restructuring programs negotiated with the EU and the IMF, it became increasingly clear as 2011 progressed that Greece would come nowhere near to meeting the targets it had agreed on for the consolidation of its budget. It soon became evident that another “rescue package” would have to be put together to avoid a default. EU fi nance ministers approved this second rescue package for Greece in July; in addition to further offi cial loans, it stipulated a “voluntary” agreement by private bondholders to give up 21 per cent of their claims.
The fear that participation by the private sector would lead to a wave of contagion spreading to countries like Spain and Italy became reality in August 2011. Measured by GDP, Italy is the second-most heavily indebted country in the eurozone after Greece and its government bonds came under particularly heavy pressure. Even intervention by the ECB, which added Italian and Spanish papers to the government bonds it was buying at the beginning of August, only gave short-term relief. By the time the contagion reached Italy and Spain, at the latest, the sovereign debt crisis had become systemic with major negative eff ects on the whole fi nancial sector and, in turn, on the real economy. To stop this downward spiral, eurozone heads of state and government agreed on a package of measures at the end of October. However, the plans for a coordinated capitalization of the European banking sector, a leveraging of the EU safety net (the EFSF) and an increase of the amount of claims to be given up by the private sector as agreed in the second package for Greece only led to a brief interruption in the sell-off of bonds issued by European peripheral states. The ECB’s decision at the end of 2011 to improve the European banks’ liquidity supply by issuing triennial refi nancing operations caused a more sustainable relief in the European bond markets.
CEE currencies CEE currencies had initially remained stable up to the middle of 2011, but lost ground as the sovereign debt crisis deteriorated from mid-August onwards. This particularly aff ected the liquid currencies in Central Europe (the Czech koruna, Hungarian forint and Polish zloty), which dropped heavily against the euro. The rise in risk aversion due to the lack of a solution to the eurozone’s problems spilled over into CEE and, as during the fi nancial crisis, induced investors to treat the whole region indiscriminately.
The Polish zloty has been subject to particularly heavy market pressure since the beginning of the sovereign debt crisis in the eurozone. The reason behind this is the very high liquidity in the Polish currency and bond markets. However, interventions in the markets by the Polish authorities in the course of 2011 temporarily stabilized the zloty. The Czech koruna also fell sharply against the euro from August onwards, but the Hungarian forint was most aff ected: Political decisions and a downgrading of Hungary’s credit rating pushed it back to its 2009 lows against the euro. While the currencies of countries in Central Europe were subject to strong fl uctuations, Southeastern European currencies did not fully refl ect the uncertainties and increase in risk aversion on a direct basis. However, indirect eff ects, such as a decline in foreign investment, were certainly noticeable and led, in particular in the second half of 2011, to a depreciation of the Croatian kuna, Romanian leu and Serbian dinar. This trend is likely to continue in 2012.
The shortage and higher cost of external fi nancing for banks and governments and the lower demand for credit – both due to banks’ more restrictive lending policies – resulted in stagnant credit growth in CEE (minus 1.5 per cent year-on-year) in 2009. The situation recovered in 2010 with credit in CEE expanding by almost 14 per cent overall. In 2011, a 14 per cent credit growth is expected to be achievable once more. CEE credit expansion rates were, however, generally much lower in 2010 and 2011 than in the years preceding the crisis from 2004 to 2008.
The fi nancing environment for CEE states improved signifi cantly in 2010 and the fi rst half of 2011, securing both refi nancing and new issues of sovereign debt on the local and global bond markets. Many countries took advantage of the favorable situation to pre-fi nance their requirements. Yields on local sovereigns trended sideways for a long time. This was partly due to the ongoing expansionary monetary policy in Western Europe and partly to the decline in risk premiums. At the same time, investors took a very diff erentiated view of the individual CEE countries on the debt market. Risk factors such as indebtedness, budget defi cits and political uncertainty were all refl ected in bond prices. This environment will continue to benefi t the CEE countries promoting reforms. Risk premiums for many CEE countries are currently lower than those for a number of eurozone economies such as Italy, Portugal or Spain. The fi nancing environment for CEE governments and banks, however, deteriorated signifi cantly in the second half of 2011, which means that support measures (involving the IMF) for individual CEE countries cannot be ruled out for 2012.
RBI’s profi t before tax for 2011 rose by 7 per cent to € 1,373 million. The performance of the individual earnings components in the income statement diff ered widely. Performance also varied at regional level. While many CEE countries – in particular Russia (up 63 per cent to € 434 million), Slovakia (up 51 per cent to € 185 million) and the Group Corporates segment (up 26 per cent to € 374 million) – achieved signifi cant growth in earnings, Hungary reported a loss before tax of € 375 million. The situation in Hungary is partly the result of measures taken at political level (legislation allowing early repayment of foreign currency mortgage loans at preferential rates) and partly of a further decline in the quality of the loan portfolio in the local Group units.
Year-on-year, net income from derivatives and designated liabilities turned positive and came to € 413 million. This was partly due to a € 258 million rise in net income from revaluations of derivative instruments entered into for steering purposes, in particular because of the yield curve becoming fl atter from the second quarter onwards. At the same time, the value of designated liabilities arising from own issues decreased as a result of the signifi cant widening in RBI’s credit spread following the developments on the capital markets; this led to a valuation gain of € 184 million.
The increased volatility on the fi nancial markets caused by the European sovereign debt crisis is refl ected in the valuation losses on securities and participations and the € 278 million drop in net income from fi nancial investments to minus € 141 million.
At € 399 million, income taxes were € 289 million higher than in the previous year. This is due to non-recurring eff ects with deferred taxes in the reporting year and in 2010. In 2011, the losses in Hungary could not be made fully deductible for tax purposes by recognizing tax loss carry-forwards and, in addition, gains on own liabilities increased deferred taxes. By contrast, 2010 brought some tax relief, particularly as a result of deferred tax income arising from the recognition of tax loss carry-forwards in Austria (€ 120 million); a change in tax legislation in Ukraine provided additional tax relief (€ 26 million). In total the eff ective tax rate rose from 8.6 per cent to 29.1 per cent. Without the one-off eff ects above, the eff ective tax rate would have been 20 per cent.
Earnings on each of the 194.6 million shares outstanding amounted to € 3.95 in 2011 after € 4.56 in the previous year. The Management Board will propose to the Annual General Meeting in June 2012 that a dividend of € 1.05 per share be paid for 2011, as for 2010. This would result in a total payment of € 205 million.
Changes in profi t and return on equity in € million
Equity up 5 per cent to € 10.9 billion Equity including non-controlling interests rose by 5 per cent or € 532 million compared with the beginning of the year to € 10,936 million. An increase from other comprehensive income of € 811 million and contributions by non-controlling interests of € 169 million were off set by dividend distributions for 2010 totaling € 463 million. Of this amount, € 204 million was attributable to RBI shareholders, € 200 million to the participation capital and € 58 million to non-controlling interests.
Regulatory own funds rose by 2 per cent year-on-year to € 12,858 million. The changes described in equity (excluding net valuation gains on fi nancial assets available-for-sale that are not relevant for regulatory purposes) raised tier 1 capital by 2 per cent to € 9,434 million, while additional own funds (tier 2) remained unchanged at € 3,368 million. Short-term additional own funds (tier 3) increased by 45 per cent to € 100 million as a result of tier 2 issues approaching maturity.
Despite the introduction of the CRD III regulations, which mainly aff ected market risk and were responsible for a rise of € 324 million, the own funds requirement remained virtually unchanged, increasing by € 39 million to € 7,624 million. A 2 per cent increase in credit risk and a 66 per cent increase in market risk were off set by a 65 per cent reduction in the own funds requirement for foreign currency risk as a result of a change in methodology.
The tier 1 ratio (total risk) increased by 0.2 percentage points to 9.9 per cent. The own funds ratio rose by 0.2 percentage points to 13.5 per cent. The core tier 1 ratio (without taking hybrid capital into account) improved from 8.9 per cent to 9.0 per cent.
Total assets gained 12 per cent or € 15.8 billion from the beginning of 2011, rising to € 147.0 billion. In all, currency effects reduced total assets by around 1 per cent. The growth in assets refl ected higher short-term loans to banks, partly including repo transactions, which raised loans and advances to banks by € 4.2 billion. Cash reserves also increased by € 6.6 billion due to higher balances at central banks. Loans and advances to customers after provisioning rose by € 5.6 billion, largely as a result of loans to major customers and repo transactions with non-banks. On the liabilities side, the increase was mainly due to two items: deposits from customers increased by € 9.1 billion, which was mainly on account of institutional and corporate customers (€ 6.3 billion) and private individuals (€ 3.3 billion). The loan/deposit ratio (loans and advances to customers divided by customer deposits) improved by 9 percentage points compared with the end of 2010 to 122 per cent. Deposits from banks also rose by € 4.3 billion as a result of an infl ow of short-term deposits, while debt securities issued declined by € 2.2 billion as a result of various issues maturing – in particular a € 1.5 billion stateguaranteed bond issued in 2009.
RBI’s net interest income rose 3 per cent in 2011, adding € 89 million to reach € 3,667 million. Net interest income therefore made up 67 per cent of operating income. The net interest margin (calculated using average total assets) improved by 10 basis points, coming in at 2.61 per cent. Average total assets were down 1 per cent.
In Hungary, on the other hand, income fell by € 42 million due to the diffi cult credit environment and a decline in customer volumes. Belarus also saw income decrease by € 18 million, as the closing price on the reporting date was used for income statement items in line with IAS 29 (hyperinfl ation accounting).
Net fee and commission income remained stable year-on-year at € 1,490 million, accounting for 27 per cent of operating income. Net income from the payment transfer business increased by € 12 million, while net income from other banking services gained € 11 million. In contrast, income from the securities business decreased by € 16 million. Net income from the sale of own and third-party products declined € 6 million year-on-year.
Net income from the payment transfer business rose € 12 million to € 611 million, making it the largest component of net fee and commission income at 41 per cent. The increase was driven by the improved economic climate and the accompanying rise in transaction volumes. With € 103 million, Ukraine made the largest contribution, while optimized pricing policies in the Czech Republic generated a € 13 million increase.
Net income from the loan and guarantee business remained unchanged year-on-year at € 280 million, with Russia and Romania accounting for the largest contributions at € 60 million and € 47 million respectively. While Russia recorded a € 26 million gain, narrower margins and lower volumes prompted a € 25 million decline in Romania.
At € 330 million, net income from the foreign currency, notes/coins, and precious-metals business was on a par with the previous year. The main part of income was generated in Russia, Poland, the Czech Republic and Romania. Refl ecting increased volumes, the highest gains were recorded in Russia and the Czech Republic.
Net income from interest-based transactions declined 19 per cent, or € 40 million, to end the year at € 171 million. Net income in Russia dropped by € 15 million year-on-year, the 2010 fi gure, however, had been particularly high due to valuation gains on interest-rate products. Net income also fell in Croatia, driven by valuation losses on government bonds, which came under a great pressure due to the European sovereign debt crisis. The yield curve for the Group Markets and Group Corporates segments also fl attened, which resulted in a lower net income from interest swaps.
Net interest income Net fee and commission income Net trading income Other net operating income 1 Excl. impairment of goodwill
Net income from other business stemmed largely from capital guarantees issued. The valuation method was adjusted here to refl ect changes to the statutory requirements, which resulted in a net income of € 81 million.
Other net operating income excluding impairment of goodwill fell from € 6 million in 2010 to minus € 45 million. This was largely due to the bank levy introduced in 2011 in Austria amounting to € 83 million. In connection with the “Home Protection Plan” in Hungary, losses from the restructuring of non-performing loans could be off set against the bank levy, reducing it by € 31 million to € 10 million in the reporting year.
Net income from non-banking activities fell slightly year-on-year, as did net income from additional leasing services.
This increase was mainly the result of market-related salary adjustments and bonus payments in a number of markets as well as changes to statutory social security contributions in Russia and Slovakia. At the same time, the rise in the average number of staff increased staff expenses in the Czech Republic (especially due to the expansion of the branch network), Ukraine, Russia, Poland and Slovakia. The average number of staff employed by the Group (full-time
equivalents) rose 1 per cent or 833 persons to 60,021 employees. The largest increases were recorded in the Czech Republic (up 349), Ukraine (up 189), Russia (up 137), Poland (up 87) and Slovakia (up 75).
Other administrative expenses increased by 2 per cent or € 23 million to € 1,209 million. This was the result of increases in IT expenditure (up 10 per cent), deposit insurance fees (up 16 per cent), security expenses (up 11 per cent), and advertising, PR and promotional expenses (up 3 per cent). In contrast, other administrative expenses (down 14 per cent), offi ce supplies (down 3 per cent) and communication expenses (down 2 per cent) all declined.
The depreciation of tangible and intangible fi xed assets rose € 31 million year-on-year to € 372 million (2010: € 340 mil lion). The depreciation of intangible assets recorded the most marked increase, advancing € 15 million to € 143 million. This was partly linked to the implementation of new software and a shorter useful life for the systems being replaced. New software projects in Ukraine, Romania, Russia and Austria also triggered further depreciation. The depreciation of tangible assets increased € 14 million, coming in at € 194 million. The main reason for this increase was an € 11 million impairment relating to property in Russia.
Fixed interest swaps by Group headquarters accounted for the bulk of net income from other derivatives, which gained € 258 million to € 194 million. The sustained decline of the long-term euro yield curve since the fi rst quarter of 2011 had a positive eff ect on valuation gains for these products.
of higher credit spreads. Combined with the interest component, this generated a plus of € 184 million, compared with minus € 22 million in 2010.
Net income from fi nancial investments In the period under review, the international capital markets were hit particularly hard by the European sovereign debt crisis, which resulted in a volatile development of the fair value of securities. In turn, this prompted a decline in net income from fi nancial investments of € 278 million to minus € 141 million.
The sale of government bonds generated gains totaling € 94 million, which boosted net income from fi nancial assets heldto -maturity. The sale was linked to the European Banking Authority’s (EBA) increased regulatory capital requirements.
Impairment of goodwill The other results were strongly aff ected by the € 187 million impairment in goodwill recorded in Ukraine, Hungary and Slovenia: The revised macroeconomic forecast for Ukraine and the rise in the applicable discount rate generated a partial goodwill impairment of € 183 million at Raiff eisen Bank Aval, which left the balance sheet showing goodwill for the Bank of € 29 million. Goodwill was already low for the banks in Hungary (€ 3 million) and Slovenia (less than € 1 million), and was completely written off . As at the end of the year, total goodwill came to € 408 million.
Net income from disposal of Group assets In 2011, net income from the disposal of Group assets was minus € 3 million. Five subsidiaries were no longer consolidated, four of them on the grounds of immateriality. One subsidiary was dropped from the consolidation following closure. The companies are primarily active in leasing, investment and fi nancial services.
Current taxes fell due to lower taxes in Austria, down to € 341 million in 2011 (2010: € 357 million).
The net result is that the eff ective tax rate rose from 8.6 per cent to 29.1 per cent. Without the one-off eff ects, the eff ective tax rate would have been around 20 per cent.
Net fee and commission income declined in the fourth quarter by € 22 million to € 365 million. This was mainly the result of lower net income from the loan and guarantee business and lower income from the securities business.
Net income from currency-based transactions declined, falling from € 29 million in the third quarter of 2011 to minus € 55 million. This was mainly due to the drop in net income in Belarus following the application of IAS 29 (hyperinfl ation accounting), which was off set by valuation gains on a strategic currency position.
Consolidated profi t In € million Q4/2011 Q3/2011 Change absolute Change in %
The Southeastern Europe and CIS Other segments recognized slightly lower provisions in the fourth quarter. In Russia, net releases of provisions for loan losses totaled € 63 million. This was due to premature repayments and sales of non-performing loans, increased collateral and the reversal of portfolio-based loan loss provisions due to lower loss rates.
Net income from derivatives and designated liabilities Net income from derivative fi nancial instruments rose in the fourth quarter of 2011 by € 154 million to € 264 million. The main reason for this was a gain of € 135 million from liabilities designated at fair value. This item shows the net income from RBI issues, which generated valuation gains in the fourth quarter due to the higher spreads.
Impairment of goodwill Other net income was adversely aff ected in the fourth quarter of 2011 by the impairment of goodwill in the amount of € 183 million in Ukraine.
Loans and advances to banks rose by 20 per cent or € 4.2 billion to € 25.7 billion. Due to market-related liquidity requirements, short-term interbank transactions were increased.
At the end of the year, the impairment losses on loans and advances totaled € 5.1 billion. Of this, € 4.8 billion represented provisions for loans and advances to customers and € 0.2 billion represented provisions for loans and advances to banks. € 3.0 billion of the customer-related loan loss provisions were related to corporate customers and € 1.8 billion aff ected retail customers. At € 1.6 billion, the highest amounts of loan loss provisions were attributed to Central Europe. The CIS Other segment and Southeastern Europe accounted for € 1.0 billion of loan loss provisions each, Group Corporates € 0.7 billion, Russia € 0.6 billion and Group Markets € 0.2 billion, respectively.
Loans and advances to banks (net) Loans and advances to customers (net) Securities Other assets in € billion
Other assets increased by 59 per cent year-on-year to € 17.6 billion (2010: € 11.0 billion), virtually all of which was due to the higher cash reserve (up € 6.6 billion). Other assets were made up of the cash reserve (€ 11.4 billion), tangible and intangible fi xed assets (€ 2.6 billion), derivatives (€ 1.4 billion) and the remaining item of other assets (€ 2.2 billion).
Equity and liabilities Equity and liabilities were dominated by deposits from customers, which accounted for a share of 45 per cent. Deposits from banks remained unchanged at 26 per cent. Equity and subordinated capital represented 10 per cent of the equity and liabilities side of the statement of fi nancial position and the other liabilities totaled 18 per cent.
Deposits from banks amounted to € 38.0 billion. This represents an increase of 13 per cent or € 4.3 billion compared to the previous year’s fi gure. This growth resulted primarily from deposits by commercial banks.
Consolidated equity, consisting of subscribed capital, participation capital, capital reserves and retained earnings increased by € 574 million to € 8,825 million. The growth in retained earnings was due primarily to the transfer of earnings of € 683 million from the fi nancial year 2010. Other comprehensive income reduced retained earnings by € 127 million, primarily due to exchange diff erences totaling minus € 271 million (including capital hedges). Net income from the valuation of fi nancial assets available-for-sale was € 113 million after deferred taxes. The eff ects from the application of hyperinfl ation accounting in Belarus amounted to € 83 million. As a result of a change in the hedging strategy, cash fl ow hedging was ended in the second quarter of 2011 and replaced by portfolio hedges. Valuation losses on ending the cash fl ow
RBI AG’s Annual General Meeting in June 2011 approved the payment of a dividend of € 1.05 per share for the fi nancial year 2010, which involved a distribution totaling € 204 million. In addition, a dividend of € 200 million was paid on the participation capital. Consolidated profi t amounted to € 968 million.
Capital of non-controlling interests rose € 77 million to € 1,143 million, due primarily to capital contributions of € 169 million, mainly for Group units in Hungary, Slovakia and the Czech Republic. In addition, dividends amounting to € 58 million were distributed on non-controlling interests. The share of non-controlling interests in the eff ects of hyperinfl ation in Belarus amounted to € 12 million.
Own funds pursuant to the Austrian Banking Act (BWG) RBI does not form an independent credit institution group (Kreditinstitutsgruppe) as defi ned by the Austrian Banking Act (BWG) and therefore is not subject to the regulatory provisions on a consolidated basis as it is part of the RZB Group. The majority of credit risk is calculated using the standardized approach in accordance with Section 22 of the BWG, credit risk for most non-retail business at RBI AG and its subsidiaries in Croatia, Malta, Romania, Slovakia, the Czech Republic, Hungary and the US is measured using the internal ratings based approach (foundation IRB approach). A large part of the loans and advances to retail customers in Slovakia and Hungary are measured under this approach. Market risk is predominantly calculated according to the standard approach in accordance with Section 22 of the BWG, RBI AG carries out the calculation in part according to the internal model. The consolidated values shown below have been calculated in accordance with the provisions of the BWG and are assumed in calculation fi gures for the RZB credit institution group.
Core capital rose 3 per cent or € 228 million to € 9,434 million, primarily due to profi t from the fi nancial year. The presumed dividend for distribution in the fi nancial year 2011 has already been deducted from this. The depreciation of in particular the Belarusian rouble, Hungarian forint and Polish zloty against the euro had a negative impact on own funds.
Additional own funds remained virtually unchanged from the previous year at € 3,368 million. This item consists of longterm subordinated capital, of which the largest part pertained to RBI AG at € 2,259 million, supplementary capital of RBI AG of € 599 million, and the provision excess of internal rating approach positions of € 234 million. Hidden reserves released in the reporting period pursuant to Section 57 of the BWG increased core capital by € 55 million.
This led to an improvement of 2.4 percentage points in the excess cover ratio to 68.6 per cent or € 5,234 million.
The tier 1 ratio – based on credit risk – was 12.2 per cent. Based on total risk, the tier 1 ratio was 9.9 per cent, with a core tier 1 ratio of 9.0 per cent. The own funds ratio totaled 13.5 per cent.
Measures to achieve EBA requirements European banks are required to raise their core tier 1 ratio as defi ned by the European Banking Authority (EBA) to 9 per cent by 30 June 2012 to shore up the fi nancial system.
Research and development As a universal bank, RBI is not involved in research and development in the strictest sense of the term. In the context of fi nancial engineering, however, it does develop customized solutions for investment, fi nancing or risk hedging. Financial engineering encompasses not only structured investment products, but also structured fi nancing: fi nancing concepts which go beyond the application of standard instruments and are used in acquisition or project fi nancing, for example. RBI also develops individual solutions to hedge a broad spectrum of risks – from interest rate risk and currency risk through to commodity price risk.
Internal control and risk management system in regard to the Group accounting process Balanced and comprehensive fi nancial reporting is a priority for RBI and its governing bodies. Naturally, these reports must comply with all relevant statutory requirements. The Management Board is responsible for establishing and defi ning a suitable internal control and risk management system that encompasses the entire accounting process. The internal control system is intended to provide the management with the information needed to ensure eff ective internal controls for accounting, which are constantly being improved. The control system is designed to comply with all relevant guidelines and regulations and to optimize the conditions for specifi c control measures.
■ the hierarchical decision-making process for approving Group and company directives and departmental and divisional instructions,
The plausibility of each Group unit’s fi nancial statements is initially checked by the relevant key account manager within the Group Financial Reporting department. The subsequent consolidation steps are then performed using the Cognos Controller consolidation system, including capital consolidation, expense and income consolidation, and debt consolidation. Lastly, possible intra-Group gains are eliminated. At the end of the consolidation process, the notes to the fi nancial statements are prepared in accordance with IFRS, the BWG and UGB.
The consolidated fi nancial statements are prepared using Group-wide standard forms. The accounting and valuation standards are defi ned and explained in the RZB Group Accounts Manual and must be applied when preparing the fi nancial statements. Detailed instructions for the Group units on measuring credit risk and similar issues are provided in the Group directives. The relevant units are kept abreast of any changes to the instructions and standards through regular training courses.
The Management Board and Controlling department are responsible for ongoing internal monitoring. In addition, the relevant department heads are charged with monitoring their areas, including performing regular controls and plausibility checks.
Group Audit regularly and independently verifi es compliance with the internal rules within the RZB Group units. The head of Group Audit reports directly to the RZB and RBI Management Boards.
(6) Pursuant to the articles of association, a person who is 68 years or older may not be appointed as a member of the Management Board or be reappointed for another term in offi ce. The rule for the Supervisory Board is that a person who is 75 years or older may not be elected as a member of the Supervisory Board or be elected for another term in offi ce. Furthermore, there are no regulations regarding the appointment and dismissal of members of the Management Board and the Supervisory Board or regarding amendments to the Company’s articles of association beyond the provisions of the relevant laws.
(7) Pursuant to Section 169 of the Austrian Stock Corporation Act (AktG), the Management Board has been authorized since the Annual General Meeting of 8 June 2011 to increase the capital stock – in one or more tranches – by up to € 298,145,314.10 by issuing up to 97,752,562 new common bearer shares with voting rights against contributions in cash and/or in kind within fi ve years after recording the relevant amendment to the articles of association in the commercial register, while preserving the right of subscription to which the law entitles shareholders, including the right of indirect subscription by way of a bank pursuant to Section 153 (6) of the Austrian Stock Corporation Act, and to fi x the off ering price and terms of the issue with the approval of the Supervisory Board. The Supervisory Board or a committee authorized for this purpose by the Supervisory Board is authorized to adopt amendments to the articles of association that arise upon issuing shares from the authorized capital.
In the course of the merger of the principal business areas of RZB with Raiff eisen International on 10 October 2010, the RZB issue “Raiff eisen-Partizipationskapital 2008/2009” in the amount of € 2.5 billion was transferred to RBI on unchanged terms.
Pursuant to Section 102a of the Austrian Banking Act (BWG), the Annual General Meeting of 8 June 2011 authorized the Management Board of the Company, within fi ve years of recording the relevant amendment to the articles of association in the commercial register, to retire either the participation capital in its entirety or the participation capital of individual tranches that were diff erentiated on issue, with the approval of the Supervisory Board and taking into account the terms of issue; partial retirement of participation capital of individual issues or tranches is permissible, provided the equal treatment of eligible holders of participation capital is ensured.
■ The Company’s Share Incentive Program (SIP) provides the following upon a 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 and the investor’s actual possibility of disposing of them, or at the time of the merger. An indemnifi cation payment will be made for these contingent shares. The indemnity sum calculated will be paid out with the next possible salary payment.”
■ Furthermore, the syndicate agreements concluded by RBI in relation to individual subsidiaries with the relevant shareholders will automatically be terminated upon a change of control.
(9) There are no indemnifi cation agreements between the Company and its Management Board and Supervisory Board members or employees for the case of a public takeover bid.
The network banks in CEE also used the international markets for fi nancing, e.g. through a syndicated loan by the Romanian subsidiary, with participation by the European Bank for Reconstruction and Development (EBRD), or structured fi nancing in Croatia. Especially important for CEE subsidiaries is long-term fi nancing from sources which are less aff ected by changes in the international capital market. These should become even more important in future. Besides fi nancing backed
Successful benchmark issues RBI’s resources for medium- to long-term refi nancing include two issue programs, the “EUR 25,000,000,000 Debt Issuance Program” and the “EUR 20.000.000.000 Emissionsprogramm der Raiff eisen Bank International AG.” Under these programs, bonds can be issued in diff erent currencies and with diff erent structures. The total volume of outstanding bonds under the programs may not exceed € 25 billion or € 20 billion respectively. At the end of the year 2011, there was a total of € 12 billion outstanding in the two programs.
In May 2011 RBI was the only Austrian bank to place a subordinated bond for € 500 million with a ten-year maturity. This replaced a bond for € 366 million that had been called. It was placed at 325 basis points over mid-swaps, with a coupon of 6.625 per cent.
Further refi nancing measures For short-term funding RBI used both the interbank market and its two programs for short-term issues (commercial papers), the “European Commercial Paper Program” and the “US Commercial Paper Program.” Under these two programs RBI can issue commercial papers in various currencies, thereby enabling it to refi nance also outside the interbank market.
To diversify its funding sources, RBI is also working actively on developing secured refi nancing sources where longer-term funding can be secured by otherwise illiquid assets. The resulting mobilization of assets is to become increasingly important in the future.
Besides the diffi cult market environment for refi nancing USD by non-US banks, RBI’s move to advance its funding activities to the fi rst quarter of 2011 for security purposes is refl ected in net interest income for 2011. The early implementation of the 2011 funding plan made a positive contribution to profi t.
Risk management 2011 was marked by enormous market uncertainty. While the recovery of the global economy from 2010 continued in the fi rst six months of the year, the second half of 2011 off ered a diff erent setting. The sovereign debt crisis in the peripheral European states and the protracted negotiations, and in particular the political tensions regarding the countermeasures to be adopted, fueled anxiety and caused distrust on the European markets. During summer, fi nancial institutions started stockpiling their excess liquidity and placed it in “the safe haven“ of the ECB rather than providing liquidity to the interbank market. Compared to previous years, the number and volume of new issues declined sharply. The increased nervousness was also refl ected on the stock markets, both by the high price volatility and some signifi cant declines in value, especially of fi nancial stocks.
In this environment, RBI Risk Management took into account the increased market volatility by using existing and new management tools and thus was able to respond in time to the changes in economic conditions. Particular emphasis was placed on maintaining a strong liquidity position and on reducing existing exposure to countries and fi nancial institutions especially in the markets aff ected by the sovereign debt crisis. Furthermore, internal processes and structures were critically evaluated, both to ensure the desired effi ciency of the risk control systems as well as to uncover potential risks from operational processes at an early stage and be able to manage them. All of these measures contributed towards further enhancing the robustness of the RBI loan portfolio.
Especially the detailed publication of the banks’ loans and advances to countries provided the fi nancial markets with fundamental information for risk assessment. Thereby RBI was shown to hold only a very small amount of debt from the peripheral European states and since publication has reduced it even further. To this end, risk management reduced both the limits as well as the outstanding risk exposure, to counteract negative consequences arising from the European sovereign debt crisis.
After analyzing the results of the stress tests and in view of the macroeconomic developments in the fall of 2011, the EBA decided to re-examine the capital adequacy of banks. Thereby it investigated the capital requirements necessary for the participating banks to achieve a capital ratio of 9 per cent. To shore up European fi nancial institutions against the volatile market environment and to ensure the stability of the fi nancial markets, banks must now attain this ratio by the end of June 2012. RBI only participated indirectly in this exercise as part of RZB; consequently there are no detailed results for RBI. Nevertheless, RBI developed a number of initiatives as part of RZB, to attain the prescribed ratio. The implementation of these measures already started in 2011.
The planned implementation of the liquidity requirements according to Basel III in 2011 was another issue regarding liquidity risk. Although there is still no fi nal draft of the regulatory requirements and these can therefore be interpreted very differently, calculations have already been conducted for RBI and individual Group units. The implementation of the required data landscape and of the corresponding calculation applications has also already been introduced and will constitute a key area of activity in 2012.
The Liquidity Contingency Committee (LCC) is a committee that concerns itself with liquidity management and measures in the case of diffi cult market situations or crises. Due to the diffi cult market situation, the LCC was convened in the second half of 2011 and had met several times by year-end.
Simulation of net interest income RBI’s interest income represents a signifi cant earnings factor and thus makes a material contribution towards stabilizing the capital base and to the success of the business model. To do justice to this signifi cance, risk management of interest fl ows is realized in its own entity independently of liquidity risk. Here, particularly the impact of diff erent interest rate scenarios on interest income is simulated. In close cooperation with the front-offi ce units, RBI thus prepares for various developments on the market and can react quickly in the case of negative trends. The emphasis in this area in 2011 was on further developing the available analytical and reporting tools on the one hand and on harmonizing these systems within the Group on the other.
The following table gives an overview of the current status of these projects. The implementation of the IRB approach in subsidiaries in the CEE region will continue in 2012.
RB International Finance (USA) LLC, New York (USA) IRB STA 3 STA STA
Raiff eisenbank Austria d.d., Zagreb (Croatia) IRB 4 STA STA STA
All other units STA STA STA STA 1 IRB = Internal ratings-based approach 2 Only for risk related to the open currency positions and general interest rate risk in the trading book 3 STA = Standard approach 4 Only on a consolidated basis
As of 31 December 2011, RBI had 59,261 employees (measured on a full-time equivalent basis ), down 1 per cent or 521 people against the end of 2010. The largest cutbacks, based on the total number of employees in a particular country, were recorded in Hungary, Russia and Ukraine. The average age of employees remained relatively low at 36 years, which refl ects the image of RBI as a young and dynamic bank. Graduates accounted for 74 per cent of employees, indicating a highly skilled workforce. 68 per cent of employees were women.
Performance management The performance management process was adapted to comply with the CRD III Requirements Directive (further details at the end of the section). In 2011, the bulk of improvements to HR tools and guidelines was based on these requirements. The key priorities lay in matching individual managers’ performance targets to the business strategy, providing intensive training for managers and staff , and improving processes.
The range of e-learning courses – a vital component in ongoing training – was expanded in the period under review. E-learning is primarily used to provide the best possible support for training on common topics as well as on local and Group-wide initiatives. Improvements to the technical infrastructure and more user-friendly features resulted in considerably higher levels of use and acceptance in 2011.
In order to give key managers detailed feedback on their current performance – including a market comparison – RBI developed a Group-wide top management audit in 2011. The audit forms the basis for individual development plans that promote internationalization and a diversifi cation of management skills.
In addition, a wide variety of local initiatives were set up to identify and encourage high potentials, such as assessment centers for branch managers in Kosovo, for middle management in Russia and for top local talent in Hungary, as well as the Croatian School of Excellence and the Executive Education Program launched in cooperation with local and international business schools in Russia and Poland.
Joining forces in Human Resources Group-wide management, knowledge management and mutual learning remained key issues for RBI’s Human Resources management activities in 2011. Priorities included implementing Group standards and promoting cooperation between subsidiary banks, particularly the exchange of experiences and best practices. The annual meeting of RBI HR managers was held in April and covered current topics such as job grading, change projects, compensation programs, performance management, and incentive schemes. Moreover, two regional meetings held in Minsk and Zagreb looked at diff erent regional and national requirements. The spotlights here were on optimal HR structure, employee development, and the optimization of administrative HR processes.
New compensation rules The Austrian Banking Act (Section 39b BWG), amended to comply with new EU legislation (Capital Requirements Directive III, CRD III), requires banks to have variable remuneration schemes from 2011 onwards. The aim is to motivate employees to adopt practices promoting sustainability and long-term growth. Consequently, RBI modifi ed its remuneration schemes in 2011, introducing special rules for managers, risk buyers (roles where business decisions directly aff ect the risk profi le), employees with supervisory duties, and employees who fall into the same remuneration group as managers and risk buyers and whose activities have a signifi cant impact on the risk profi le (“identifi ed staff ”).
All RZB Group companies were evaluated to determine how certain criteria (e.g. business model, assets, economic capital, etc.) aff ect risk, after which decisions were taken on how to apply the new remuneration guidelines (in full, partially, or the basic minimum) and who qualifi ed as “identifi ed staff .” Based on that assessment, a detailed set of compensation principles was developed that form the backbone of remuneration policy and practices in RBI and RZB banks. This provides a framework across the Group to ensure that employee remuneration is aligned with the new legal requirements: General RBI Compensation Principles
■ Compensation is driven by a functional structure (e.g. grading structure) and is performance-related. ■ Compensation is competitive and aff ordable and is defi ned according to the relative value of the job, market value and practices.
■ To ensure that total organization/unit performance is refl ected in short-term incentives, bonus pools defi ne total amounts of payments.
■ Mid-/Long-term Incentive (LTI): for sustained performance up to fi ve years based on mid- and long-term measurements.
■ Performance is the basis for all variable compensation schemes and takes into account: ■ the bank, business unit (where applicable) and individual performance (including compliance with the RZB Group Code of Conduct and the compliance regulations).
■ Individual performance is the output of achieved results and behaviors/competencies based on both quantitative and qualitative measures, assessed within the performance management process and by taking into account fi nancial and non-fi nancial criteria.
■ Employees engaged in control functions are compensated independent of the business unit they supervise, have appropriate authority and their remuneration is determined on the basis of achievement of their organizational objectives, regardless of the results of the business activities they monitor.
■ Guaranteed variable payments are used only as an exception limited to the fi rst year of employment.
Additional rules apply to “identifi ed staff ,” such as deferring parts of the variable remuneration for a stipulated period.
New compensation rules were introduced in all Group units, in line with the Group principles and the relevant local statutory requirements. In some countries, this involved altering existing variable remuneration schemes, as was the case for the annual bonus system in Bosnia and Herzegovina and the incentive schemes for individual retail units in Serbia.
In the course of the merger of Raiff eisen International with the principal business areas of RZB in 2010, the compensation structures in Austria were standardized and harmonized. This process was completed in 2011. The compensation and bonus systems were completely overhauled to comply with the new regulatory demands. The basic compensation model was compared against market standards, and salary margins were defi ned for all function groups. With these steps, the compensation scheme harmonization process – a key component in the development of a new corporate culture – was completed.
The renewed slowdown in the eurozone’s economy, combined with persistently weak investment activity, is, as in the case of Central Europe, likely to have a dampening eff ect on Southeastern Europe and could lead to stagnation or even recession in some countries. Tighter lending, persistently high unemployment and a drop in transfers from Southeastern Europeans working abroad are impairing consumer spending. Governments there also have limited resources to signifi cantly increase consumption or fi nance investments. Consequently, GDP is expected to rise only marginally by around 0.3 per cent in 2012.
Outlook for RBI In the context of expected overall economic developments, particularly in CEE, we are aiming, with the inclusion of the acquisition of Polbank, for a return on equity before tax of around 15 per cent in the medium term. This is excluding future acquisitions, any capital increases, as well as unexpected regulatory requirements from today’s perspective.
Against the backdrop of a permanently changing regulatory environment and further strengthening of our balance sheet structure we are continuously evaluating the level and structure of our regulatory capital to be able to act promptly and fl exibly. Depending on market developments, a capital increase also continues to be a possible option.
Despite the cautious economic growth forecast, we expect to see a stabilization of the net provisioning ratio along with only a marginal increase in non-performing loan volumes. Due to current developments on the economic and political fronts, it is not possible to accurately predict when we will reach a turning point as far as non-performing loans are concerned.
In 2012, we expect higher bank levies than in the previous year. In Austria and CEE this will presumably result in a negative earnings eff ect of some € 160 million (of which approximately € 100 million in Austria, € 40 million in Hungary and € 20 million in Slovakia).
In 2012 we will once again pay increased attention to cost development. Therefore, we have implemented Group-wide cost effi ciency programs in order to achieve a fl at cost development. The number of Group outlets is to remain fairly stable in 2012 (excluding Polbank), although there may continue to be some optimization of our network in some countries.
Strengthening the core capital The tender off er period for buying back several RBI hybrid bonds ended on 5 March 2012. In total, RBI bought back securities with a total nominal value and at a liquidation preference amount of € 358 million. The buyback increases the core tier 1 capital by approximately € 113 million (the diff erence between the nominal and redemption amount) or the core tier 1 ratio by 0.12 percentage points. This strengthens the capital structure accordingly against the backdrop of the changes in the regulatory requirements.
In the course of its measures to prepare for the Basel III guidelines that will be in force as of 2013, RBI is currently optimizing its structure of participations. The European implementation of Basel III will limit the recognition of the capital contributions provided by minority shareholders. In order to avoid this eff ect, RBI will acquire the minority shareholdings that RZB holds in the Slovak Tatra banka a.s. and the Czech Republic’s Raiff eisenbank a.s. By doing so, RBI will increase its already existing majority shareholdings in these network banks and will further simplify the shareholder structure.
Group management report Market development 50 Performance and fi nancials 54 Detailed review of items in the income statement 58 Comparison of results with the previous quarter 64 Statement of fi nancial position 67 Equity 68 Research and development 71 Internal control and risk management system 71 Capital, share, voting and control rights 73 Funding 76 Risk management 78 Human resources 83 Outlook 87 Events after the balance sheet date 89
Segments 92 Segment overview 94 Central Europe 95 Southeastern Europe 103 Russia 112 CIS Other 115 Group Corporates 119 Group Markets 120 Corporate Center 122
Division of the segments Segmentation principles Internal management reporting at RBI is based on the current organizational structure. The matrix structure means that each member of the Management Board is responsible both for individual countries and for specifi c business activities (country and functional responsibility model). A cash generating unit within the Group is either a country or a business activity. Accordingly, the RBI management bodies – Management Board and Supervisory Board – make key decisions that determine the resources allocated to any given segment based on its fi nancial strength and profi tability, which is why these reporting criteria are an essential component in the decision-making process. The division into segments is also in accordance with the International Financial Reporting Standards (IFRS) – in particular IFRS 8.
In order to achieve the maximum possible transparency and clear lines of reporting, seven segments were defi ned in compliance with the IFRS 8 thresholds. IFRS 8 establishes a 10 per cent threshold for the key fi gures of operating income, profi t after tax and segment assets.
This segment comprises Belarus, Kazakhstan and Ukraine. In Belarus RBI operates through a bank and a leasing company. In Kazakhstan it is represented in the leasing business. In Ukraine RBI is represented by a bank, a leasing company and a credit card payment processing business and provides the full range of fi nancial services through its dense local distribution network.
The Corporate Center segment encompasses all services provided by Group headquarters in various divisions that were created to implement the Group’s overall strategy and are allocated to this segment to ensure comparability. Moreover, this segment includes the following areas: Liquidity management and balance sheet structure management as part of proprietary trading, participations (in particular those of subsidiaries in CEE), income from banking operations carried out by Group headquarters and by the Maltese subsidiary for refi nancing Group units, the Austrian transaction services business, which off ers a wide range of order processing products and services for fi nancial services providers, as well as income from the holding and other companies that do not fall directly under another segment.
Segment overview Profi t before tax at RBI rose by 7 per cent year-on-year to € 1,373 million. On the one hand this increase was based on a slight rise in operating income adjusted for non-recurring eff ects, while on the other hand lower net provisioning for impairment losses also had a signifi cant positive impact on profi tability. In addition, the sharp increase in valuation gains arising from derivative fi nancial instruments also improved the result. At the same time, the 5 per cent rise in administrative expenses, which largely refl ected the active support of business growth, led to an increase in the cost/income ratio to 57.0 per cent.
In Central Europe, profi t before tax fell by € 236 million to € 33 million. An increase in net provisioning for impairment losses in Hungary was one of the main reasons for this decline. Balance sheet assets rose by 3 per cent compared with the previous year.
In the year under review, Southeastern Europe reported profi t before tax of € 351 million, a rise of 15 per cent compared to 2010. This result was positively infl uenced largely by lower net provisioning for impairment losses, whereas the slight fall in operating income had a negative eff ect. Total assets in this segment were 1 per cent up year-on-year.
In the CIS Other segment, profi t before tax rose by 19 per cent to € 106 million, almost exclusively due to lower net provisioning for impairment losses. Balance sheet assets in the segment fell year-on-year by 5 per cent, largely due to stagnation in lending, and exchange rate eff ects.
The Group Corporates segment saw a 27 per cent rise in profi t before tax to € 374 million during the year under review. This was due to the rise in operating income and the year-on-year lower net provisioning for impairment losses. Balance sheet assets in this segment were 3 per cent down on the previous year.
Net interest margin 3.16% 3.29% (0.13) PP 2.89% 3.14% (0.25) PP
Return on equity before tax 1.2% 10.4% (9.2) PP 2.9% – –
Net interest income in the segment remained virtually unchanged year-on-year at € 1,102 million. The largest increases were realized here by the units in Slovakia and Poland, mainly due to the expansion of their customer portfolios. In Slovakia, this refl ected higher income from loans to corporate and retail customers. Growth was defi ned particularly by a signifi cant expansion of the mortgage loan portfolio, and with regard to corporate customers fi nancing in connection with environmental technology projects. In Poland, the rise in net interest income was based on a signifi cant increase in the corporate customer portfolio due to the improved demand for credit. In addition, the interest income from securities rose as excess liquidity was invested successfully, as it had been in the previous year. In the other countries within the segment, net interest income was down. In Hungary, this was due to a fall in lending volumes as a result of the ongoing diffi cult credit environment. In the Czech Republic, on the other hand, the higher interest expenses for customer deposits acquired proactively, as well as the interest expenses for the newly acquired subordinated capital, brought a reduction in earnings. The net interest margin in the region fell by 13 basis points to 3.16 per cent, and the balance sheet assets in this segment increased by 3 per cent year-on-year to € 34.9 billion. At the same time, risk-weighted assets fell by 6 per cent from € 22.9 billion to € 21.5 billion, particularly due to the decline in retail business in Slovakia as well as in the Corporate Customers and Financial Institutions divisions in Hungary.
Net trading income rose year-on-year in Central Europe by 83 per cent to € 77 million. Net income from currency-based transactions was up by € 26 million to € 62 million, primarily due to revaluation gains on various foreign currency instruments in Poland and Hungary. Net income from interest-based transactions grew, compared to the previous year, by € 13 million to € 14 million. This mainly refl ected revaluation gains on interest rate swap transactions in the Czech Republic and Hungary.
Other net operating income in the region improved in the year under review from minus € 58 million to minus € 2 million. This increase was driven by higher net income from non-banking activities as well as reduced expenses for the banking levy in Hungary. This reduction was the result of the partial deductibility of losses from the early repayment of foreign currency loans as established with retroactive eff ect by the Hungarian government at the end of 2011.
Although a fall in net provisioning for impairment losses was recorded in several countries in Central Europe, the segment as a whole posted a rise of 58 per cent or € 238 million to € 646 million. The main contributor to this was Hungary with net provisioning of € 478 million. The political and economic situation here called for additional collective individual loan loss provisions. One notable reason for this was the law permitting private individuals to repay foreign currency mortgage loans early at an exchange rate well below the market rate. The decisive repayment rate for allocations to loan loss provisions in the case of foreign currency loans was around 29 per cent.
Below please fi nd the detailed results of the individual countries in the segment: Czech Republic 1/1–31/12 1/1–31/12 In € million 2011 2010 Change Q4/2011 Q3/2011 Change
Net provisioning for impairment losses (79) (94) (15.8)% (22) (25) (14.0)%
Profi t after non-controlling interests 45 33 36.0% 13 8 64.1%
hereof foreign currency % 6.9% 7.1% (0.2) PP 6.9% 6.6% 0.3 PP
Return on equity before tax 20.8% 17.4% 3.4 PP 19.6% 16.9% 2.6 PP
Number of employees as of reporting date 3,012 2,894 4.1% 3,012 3,171 (5.0)%
Profi t attributable to non-controlling interests 27 10 173.1% (71) 93 –
Loans and advances to customers 5,564 6,279 (11.4)% 5,564 5,919 (6.0)%
Number of employees as of reporting date 2,977 3,244 (8.2)% 2,977 3,188 (6.6)%
1/1–31/12 1/1–31/12 In € million 2011 2010 Change Q4/2011 Q3/2011 Change
Net fee and commission income 138 132 4.7% 36 34 6.1%
Net provisioning for impairment losses (58) (61) (5.5)% (22) (13) 66.1%
Profi t after non-controlling interests 82 56 47.7% 16 19 (18.3)%
hereof foreign currency % 39.8% 36.2% 3.6 PP 39.8% 39.7% 0.1 PP
Return on equity after tax 12.4% 8.6% 3.8 PP 10.1% 11.9% (1.8) PP
Net fee and commission income 129 126 2.5% 32 33 (2.9)%
Profi t attributable to non-controlling interests (51) (33) 54.9% (9) (14) (37.9)%
Profi t after non-controlling interests 98 60 64.6% 31 24 27.2%
Loans and advances to customers 6,636 6,011 10.4% 6,636 6,536 1.5%
Net fee and commission income 8 6 17.5% 2 2 (1.9)%
Profi t attributable to non-controlling interests 1 0 – 0 0 (83.7)%
hereof foreign currency % 6.9% 9.5% (2.7) PP 6.9% 6.7% 0.2 PP
Number of employees as of reporting date 323 352 (8.2)% 323 342 (5.6)%
Net provisioning for impairment losses (258) (335) (23.1)% (64) (70) (7.6)%
Net interest margin 4.07% 3.90% 0.17 PP 4.04% 4.16% (0.12) PP
Net trading income for Southeastern Europe was down 26 per cent year-on-year to € 41 million. Net income from currency -based transactions fell by 8 per cent to € 28 million. While the net valuation of forward and swap transactions in Romania rose slightly, net income in Croatia decreased due to the expiration of a number of currency swap transactions and signifi cantly lower currency volatility. Interest-based transactions posted income of € 15 million, a fall of 40 per cent. In Croatia, the widening of the credit spread resulted in valuation losses on various government bonds in the portfolio.
The segment’s general administrative expenses rose year-on-year by a total of 1 per cent to € 746 million. Staff expenses were down in several countries, particularly in Romania where the reduction was sharpest due to lower expenses for bonus payments. By contrast, other administrative expenses were 3 per cent higher in total. This rise was mainly attributable to Romania, where higher expenses were incurred for new IT applications and for deposit protection. A change in VAT regulations in Romania also had a negative impact. Depreciation in the segment rose by 5 per cent to € 108 million, primarily as a result of investment in intangible fi xed assets including IT applications, particularly in Romania. Conversely, general administrative expenses fell in Croatia due to savings virtually across the board. The combination of lower operating income and increased general administrative expenses meant that the cost/income ratio was up slightly by 1.1 percentage points to 54.7 per cent.
Net provisioning for impairment losses was down by a total of 23 per cent or € 77 million to € 258 million. Net allocations to individual loan loss provisions fell by 6 per cent or € 20 million to € 315 million. The main contributor to this was Croatia, where greater success with the collection of receivables and restructuring measures for loans to retail customers fueled the reduction. In addition, impairment loss provisions for a large corporate customer in Albania were also released. Portfoliobased loan loss provisions had a positive impact of € 54 million, with the highest releases recorded here in Bulgaria and Romania. Croatia, by contrast, saw an increase in net provisioning for the large customer portfolio due to adjustment to newly calculated loss rates. The proportion of non-performing loans in the segment’s loan portfolio grew to 11.3 per cent, mainly as a result of larger individual cases in the corporate customer business.
Other results for the Southeastern Europe segment fell year-on-year by € 9 million to minus € 10 million. Net income from fi nancial investments was down from € 10 million to minus € 5 million due to disposal and valuation losses on government bonds in Romania as well as corporate bonds in Croatia. The deconsolidation of a leasing company in Moldova for materiality reasons resulted in a net loss on the disposal of Group assets of € 0.3 million.
Income taxes for the region climbed by 19 per cent year-on-year to € 47 million. The eff ective tax rate remained unchanged at 13 per cent.
Profi t after deduction of non-controlling interests rose by 16 per cent to € 289 million.
Profi t attributable to non-controlling interests 0 0 (7.5)% 0 0 325.5%
Loans and advances to customers 972 776 25.2% 972 855 13.7%
Return on equity before tax 29.6% 24.7% 4.9 PP 43.5% 33.4% 10.1 PP
Net fee and commission income 32 30 5.9% 8 8 (2.0)%
Net provisioning for impairment losses (20) (28) (29.4)% (7) (6) 26.8%
Loans and advances to customers 1,358 1,350 0.6% 1,358 1,373 (1.1)%
hereof foreign currency % 74.2% 75.5% (1.3) PP 74.2% 73.4% 0.8 PP
Return on equity before tax 11.1% 3.6% 7.5 PP 1.7% 13.6% (11.9) PP
Number of employees as of reporting date 1,569 1,640 (4.3)% 1,569 1,583 (0.9)%
Profi t attributable to non-controlling interests (1) (1) (42.3)% 0 0 –
Profi t after non-controlling interests 33 31 6.7% 0 5 –
Return on equity before tax 7.5% 7.3% 0.2 PP – 4.4% –
Return on equity after tax 6.9% 6.8% 0.2 PP – 4.2% –
Profi t attributable to non-controlling interests (11) (14) (18.6)% (4) 1 –
Loans and advances to customers 3,830 3,814 0.4% 3,830 3,809 0.6%
Return on equity after tax 5.3% 6.4% (1.0) PP 7.1% – –
Net fee and commission income 8 7 5.9% 2 2 (6.0)%
hereof foreign currency % 0.0% 0.0% 0.0 PP 0.0% 0.0% 0.0 PP
Return on equity after tax 14.1% 12.6% 1.5 PP 7.2% 18.3% (11.1) PP
Profi t attributable to non-controlling interests (1) 0 91.7% 0 0 –
Loans and advances to customers 4,428 4,247 4.3% 4,428 4,404 0.5%
hereof foreign currency % 52.1% 52.1% 0.0 PP 52.1% 52.1% 0.0 PP
Return on equity before tax 23.1% 26.9% (3.7) PP 35.8% 20.3% 15.5 PP
Net fee and commission income 35 33 4.2% 9 9 5.1%
Profi t attributable to non-controlling interests 1 2 (42.9)% 0 0 36.3%
Loans and advances to customers 1,331 1,391 (4.4)% 1,331 1,348 (1.3)%
Return on equity before tax 11.0% 5.6% 5.4 PP 10.0% 12.4% (2.4) PP
Number of employees as of reporting date 1,765 1,848 (4.5)% 1,765 1,772 (0.4)%
Russia In the Russia segment, profi t before tax increased by 63 per cent year-on-year, to € 434 million. Here, higher general administrative expenses were more than off set by the signifi cant increase in operating income. In particular, profi t before tax was improved by the release of provisions for impairment losses on loans and advances. The return on equity before tax rose by 9.3 percentage points to 34.0 per cent.
Return on equity before tax 34.0% 24.7% 9.3 PP 46.4% 25.8% 20.7 PP
The net trading income decreased from € 74 million to € 38 million. Here, the net income from interest-based transactions, at € 45 million, was 24 per cent lower than in the previous year. This was mainly due to lower net valuations of fi xed-interest bonds and notes in comparison with the previous year. The net income from currency-based transactions also declined, decreasing by € 21 million to minus € 7 million. Lower revaluation gains from currency swaps linked to proprietary trading and from foreign currency positions were responsible for this decline.
The segment’s other net operating income improved by € 16 million to reach minus € 13 million. This was primarily a result of signifi cantly lower allocations to other provisions – after relatively high allocations in the previous year, mainly for litigation following the closure of an outlet – as well as the increase in income from the operating leasing business in connection with real estate.
Profi t attributable to non-controlling interests (5) (2) 236.2% (2) (1) 58.1%
Profi t after non-controlling interests 316 212 49.1% 109 53 107.8%
Return on equity after tax 27.3% 21.5% 5.9 PP 42.0% 12.4% 29.6 PP
CIS Other Profi t before tax in the CIS Other segment rose by 19 per cent to € 106 million in the year under review. On the one hand, the improvement was attributable to the decline in net provisioning for impairment losses; on the other hand, the segment’s net income was infl uenced by the unstable currency situation and resulting sharp devaluation of the Belarusian rouble. It has since been classifi ed as the currency of a hyperinfl ationary country. In order to ensure comparability with previous periods, reporting had to be adjusted following the introduction of hyperinfl ation accounting in the fourth quarter. The adjustment eff ectively reduced profi t by a net amount of € 54 million. The segment’s return on equity before tax rose by 1.7 percentage points to 15.1 per cent.
Net provisioning for impairment losses (128) (214) (40.2)% (29) (28) 4.5%
The segment’s balance sheet assets declined by 5 per cent year-on-year to € 6.8 billion, primarily due to weaker credit growth in Ukraine. In addition, currency devaluation in Belarus also had a negative impact despite credit expansion in local currency. The net interest margin decreased by 9 basis points to 6.10 per cent. Credit risk-weighted assets declined by 3.2 per cent year-on-year to € 5.5 billion owing to a drop in retail customers in Ukraine.
The segment’s net fee and commission income fell by 4 per cent year-on-year to € 176 million, with income from payment transfer business making the largest contribution, remaining nearly unchanged at € 129 million. The resulting net income improvement in Ukraine was attributable to the increase in the number of accounts and transactions with retail and corporate customers. As foreign currency lending to private customers has been discontinued in Ukraine, net income of € 35 million from the foreign currency, notes/coins, and precious-metals business came in 17 per cent below the previous year’s level. The net income contribution from the loan and guarantee business was somewhat lower at € 5 million. In Belarus, foreign currency translation resulted in an overall decrease in net fee and commission income.
Net trading income in the region fell year-on-year from € 23 million to minus € 1 million, with net income from currencybased transactions declining to minus € 5 million in total. Although the application of hyperinfl ation accounting in Belarus impacted net trading income by € 84 million, the loss was mitigated by valuation gains arising from strategic currency positions taken to hedge equity, which exceeded the previous year’s € 1 million level by € 76 million. The reason for this was the signifi cantly sharper devaluation (63 per cent) of the local currency against the euro in the period under review. A currency swap realized in the year under review likewise generated income of € 44 million. By contrast, net income from interest-based transactions fell by € 8 million to € 5 million year-on-year. Net income from fi xed income government securities and bonds was lower year-on-year due to mark-to-market valuation in Ukraine.
General administrative expenses dropped by 3 per cent year-on-year to € 336 million. At the same time, staff expenses remained nearly unchanged despite an increase in the number of employees in Ukraine. The staff increase in Ukraine resulted from an expansion in credit and customer activity and from the establishment of the Transaction Services Center, which provides numerous clearing and other services for the local network. The € 13 million decline in other administrative expenses to € 117 million was related to various expense items mainly in Ukraine. Depreciation of intangible and tangible fi xed assets increased, mainly due to IT investments in the new core bank system in Ukraine. By contrast, currency devaluation led to lower administrative expenses in Belarus. As a result of the sharper decline in operating income relative to general administrative expenses, the cost/income ratio for the segment rose by 1.9 percentage points to 57.5 per cent.
Other results fell € 42 million year-on-year to minus € 15 million, due mainly to the decline from € 27 million to minus € 15 million in net income from fi nancial investments. Valuation gains on the fi xed income portfolio of Ukrainian government bonds recognized at fair value fell below the previous year’s level owing to the deteriorating macroeconomic situation. In addition, losses on the sale of Ukrainian government bonds were realized.
Income taxes for the segment climbed to € 52 million. The eff ective tax rate increased to 49 per cent, primarily as a result of the hyperinfl ation accounting rules applied in Belarus, as well as higher non-deductible expenses in Ukraine.
Profi t attributable to non-controlling interests (1) (7) (82.8)% 7 (1) –
Profi t/loss after non-controlling interests 4 44 (90.0)% (49) 6 –
Loans and advances to customers 772 1,096 (29.6)% 772 874 (11.7)%
Number of employees as of reporting date 2,210 2,223 (0.6)% 2,210 2,234 (1.1)%
Profi t after non-controlling interests 59 28 115.3% 14 26 (47.4)%
Loans and advances to customers 4,248 4,148 2.4% 4,248 4,158 2.2%
hereof foreign currency % 56.8% 65.6% (8.8) PP 56.8% 58.0% (1.2) PP
Return on equity before tax 9.3% 1.9% 7.4 PP 5.1% 17.5% (12.4) PP
Group Corporates Profi t before tax for this segment rose by 27 per cent year-on-year to € 374 million in 2011 due to signifi cantly higher operating income and lower net provisioning for impairment losses. Return on equity before tax rose by 3.9 percentage points to 22.4 per cent.
Net provisioning for impairment losses (116) (129) (10.5)% (79) (17) 374.3%
Net interest margin 1.97% 1.63% 0.34 PP 2.16% 2.08% 0.08 PP
Return on equity before tax 22.4% 18.5% 3.9 PP 15.8% 25.3% (9.5) PP
Net fee and commission income rose by 15 per cent or € 22 million to € 178 million, whereby the increase earned by Group headquarters was based on the increase in sales of capital and funding light products. Service income from business with customers from CEE was particularly strong due to the rise in fee and commission income both from standard loans and from project and structured fi nancing. Net income from export fi nancing grew as well. The Group unit in the US increased its net fee and commission income to € 17 million, mainly from its loan and guarantee business.
Net trading income rose by 11 per cent to € 21 million. Whereas valuation gains on currency and interest-based transactions with a range of fi nancial instruments in the profi t center of Group headquarters declined, net trading income for the Group unit in Singapore increased by € 11 million.
Income taxes increased year-on-year by € 11 million to € 76 million, while the eff ective tax rate decreased by 2 percentage points to 20 per cent.
Group Markets Profi t before tax in the Group Markets segment grew by 7 per cent to € 266 million in the year under review due to higher operating income driven by an increase in net trading income, as well as lower net provisioning for impairment losses. Return on equity before tax rose by 4.1 percentage points to 19.5 per cent.
Net fee and commission income for the segment was up 7 per cent to € 115 million versus the previous year. This increase came primarily from the Financial Institutions profi t center and was attributable to higher profi ts not only from service contracts in cash management but also – despite the stagnating market for institutional issues – from the issuing business. The private banking and asset management division of subsidiary Kathrein Privatbank AG in Vienna made a stable contribution of € 12 million from its securities business. The Mergers & Acquisitions division likewise increased its contribution to net fee and commission income to € 9 million. By contrast, net fee and commission income of Raiff eisen Centrobank Group declined to € 17 million due to lower income from support provided to corporate customers for primary market transactions.
Other results fell from € 7 million to minus € 4 million in the year under review, with net income from derivatives at Group headquarters coming in lower than in the previous year. This was attributable to the close-out payments in connection with the sale of parts of the securities portfolio held–to-maturity. Net income from fi nancial investments remained nearly unchanged. This was due to the valuation of the securities portfolio and of CDS transactions within the scope of Group headquarters’ risk assumption, which resulted in write-ups in the fourth quarter stemming from high market volatility in the previous periods.
Profi t after deduction of non-controlling interests rose by 4 per cent to € 194 million.
Corporate Center The Corporate Center segment posted a net loss before tax of € 65 million. The € 174 million decrease year-on-year was primarily attributable to the decline in other results. The return on equity before tax was negative, amounting to 3.4 per cent.
Net provisioning for impairment losses 55 0 – (5) 60 –
The segment’s net trading income climbed by 86 per cent to reach € 38 million. This increase was primarily due to the Group headquarters’ Treasury department, and resulted from liquidity management and proprietary trading in the context of balance sheet structure management. Valuation gains on various foreign currency and interest-related fi nancial instruments that were held for hedging purposes constituted another contributory factor.
The segment’s other net operating income totaled € 20 million, compared with € 133 million in the previous year. This decline was triggered by the newly introduced special bank levy in Austria, amounting to € 83 million. As in the previous year, income from the Raiff eisen Data Service Center in Vienna, which primarily provides treasury services, made a positive contribution to income, totaling € 27 million.
The general administrative expenses rose by 4 per cent or € 11 million, to reach € 318 million, largely due to the rising expenditure of the direct bank ZUNO’s headquarters, based in Vienna. The only business outlet recognized in this segment is the Group headquarters.
The other results decreased year-on-year to minus € 158 million. Net income from fi nancial investments included in this fi gure fell from € 16 million to minus € 538 million, largely due to valuation losses on Group internal equity participations. On the other hand, the net income from derivatives turned around from minus € 34 million to € 382 million. This was caused by net valuations on hedging transactions for own issues, which resulted from the favorable position of RBI AG with regard to decreasing long-term interest rates.
Income taxes amounted to € 24 million, after reaching € 183 million in the previous year. This decrease was primarily attributable to the high dividend income in this segment that is not included in the basis of taxation. The signifi cant year-onyear change is also due to the considerably lower deferred taxes, resulting from valuation diff erences for various fi nancial instruments and equity participations between the fi nancial statements under IFRS and the fi nancial statements for tax purposes. In addition, the reduced eligibility of loss carry-forwards decreased the positive tax amount.
Net fee and commission income 553 824 134 2 (24) 1,490
Net provisioning for impairment losses (470) (600) (22) (2) 30 (1,064)
The implementation of mid-offi ce concepts in the Russian, Bulgarian, Serbian and Slovakian network banks’ regional centers served to increase effi ciency in the mid-corporate segment. These pursued the goal of minimizing the customer advisors ’ administrative load and thus further increasing the quality of customer services in acquisition and consulting.
2011 was also greatly infl uenced by a decisive improvement in cooperation between customer managers, product managers and risk managers, due to the comprehensive introduction of account planning methods and customer relationship management (CRM) systems. In particular, this helped to systemize and intensify Group-wide cooperation, with a special focus on capital- and liquidity-light products.
A key element of RBI’s corporate banking strategy is the introduction of a Group-wide concept which, on the one hand, supports know-how transfer within the Group and, on the other hand, promotes centralized development of complex corporate banking products with local support for increased effi ciency. Several initiatives were launched in this regard. For instance, the Group-wide deployment of product experts intensifi ed knowledge transfer. In addition, a newly developed technical platform will make it easier in future to compile and effi ciently distribute specialist knowledge throughout the entire RBI network.
Return on equity before tax in the Corporate Customers business division rose by 1.2 percentage points to 16.1 per cent, due to the growth in profi t before tax.
Private individuals Due to changes in the economic environment in the second half of the year, this business division was confronted with less demand for loans among private individuals. Nevertheless, in 2011, RBI achieved an increase in loans to private individuals of 2 per cent in total.
Here, the quality of newly issued loans is still the center of attention. The bank continually monitors risk-relevant product parameters, such as the maximum loan-to-value ratio for mortgages or the maximum term for personal loans.
In 2011, RBI was very successful with its focus on close customer relationships and the development of solid customer deposits. The latter increased in the private individuals segment by 12 per cent as a result of sales and customer care activities, which also enabled RBI to improve its position in most markets. Here, customer faith in the Raiff eisen brand was of decisive signifi cance and allowed RBI to expand its customer and deposit base without having to off er higher interest rates.
Asset management RBI views the asset management business in CEE as an important growth market. For this reason, the bank is focusing on developing attractive and secure investment instruments for distribution to its customers through the regional bank network. In 2011, despite the extremely diffi cult environment for the investment fund business, the average managed assets increased by 13 per cent to € 6.2 billion.
Kathrein Privatbank AG, based in Vienna, has established itself over recent years as a private bank for business owners, foundations and asset transfers. In 2011, the assets managed by this private bank stood at around € 4.3 billion (2010: € 4.6 billion), of which € 2.2 billion was in fund assets which declined year-on-year by € 130 million (2010: € 2.4 billion). Due to devaluations of fi xed assets, profi t decreased year-on-year by € 5.6 million, falling to € 3.2 million.
As a result of salary increases, bonus payments and growth in IT expenses for various banking systems, general administrative expenses increased by 3 per cent to € 1,806 million in the year under review. Thus, the cost/income ratio increased by 1.6 percentage points, to reach 72.8 per cent.
Despite the tense market situation, net provisioning for impairment losses was successfully kept at the previous year’s level of € 600 million. Here, the highest level of net provisioning for individual and portfolio-based impairment losses was required in Hungary (€ 249 million), while net provisioning for impairment losses was realized to a lesser extent in Ukraine, Croatia and Bulgaria.
Due to the development of business with Special Customers, the other results decreased from € 18 million to minus € 13 million.
The Financial Institutions & Public Sector division posted a slight fall in profi ts over the year, with profi t before tax falling by 10 per cent to € 235 million. Whereas performance was, on the one hand, infl uenced by the increase in net interest income, returns on fi nancial investments were, on the other hand, lacking.
General administrative expenses increased by 14 per cent to € 226 million, due to which the cost/income ratio also increased slightly by 1.7 percentage points to 42.9 per cent. As in all divisions, the rise was caused by salary increases and bonus payments, as well as by growth in IT expenses as a result of investments.
Credit risk-weighted assets decreased year-on-year due to reductions in volume by 11 per cent to € 7.8 billion.
Return on equity before tax in the Financial Institutions & Public Sector division fell due to the reduced profi t before tax by 6.0 percentage points to 20.6 per cent.
The money market business posted a further increase in secured transactions and shorter maturities. ECB-eligible bonds and blue chip shares were accepted as collateral on which basis customers profi ted from the favorable fi nancing costs in the repo business.
In recent years, RBI has established itself as a central investment bank in the Raiff eisen sector for services to national and international fi nance investors and listed companies through its subsidiary Raiff eisen Centrobank. Customers include institutional investors who buy shares and share derivatives from the CEE region as well as Austria and surrounding EU countries. In market making, the Raiff eisen Centrobank is number 1 on the Vienna stock exchange and a leading trader of equities in the CEE. RBI’s direct stock exchange membership on numerous international stock exchanges, as well as optimal access to local markets in CEE through its network banks allow RBI’s customers to participate in contemporary and low-cost stock trading in this region.
Treasury Treasury business is covered in the “Funding” section of the management report.
In 2011 the Capital Markets & Treasury division posted a profi t before tax of € 389 million, an increase of 31 per cent year-on-year.
Net trading income rose 22 per cent to € 290 million, mainly caused by an increase at Group headquarters based on valuation gains from interest rate and currency derivatives. Additionally, the valuation of capital guarantees issued produced a very positive result of € 72 million, in comparison with minus € 14 million in the previous year.
General administrative expenses increased, primarily due to the implementation of a system for structured products, by 26 per cent year-on-year to € 215 million.
The Participations & Other division posted a net loss before tax of € 131 million, after a minus of € 83 million the year before. There was, however, a marked increase in net interest income, which rose by 28 per cent to € 242 million. The result also includes the imputed results from the investment of equity, which increased strongly on the back of interest rate hikes in Ukraine, Croatia, Slovakia and Hungary in the reporting period.
Net fee and commission income of the division included the somewhat higher (year-on-year) commissions payments of RBI AG for country risk insurance. Impairment of goodwill in Ukraine, Hungary and Slovenia negatively aff ected other net operating income with € 187 million in the year under review.
Participations & Other also includes expenses from central Group management. According to internal guidelines, these expenses remain in this business division and are not wholly distributed among other divisions.
Statement of comprehensive income 134 Statement of fi nancial position 138 Statement of changes in equity 139 Statement of cash fl ows 140 Segment reporting 142 Notes 150 Auditor’s report 262
Net income from derivatives and designated liabilities [6] 412,828 (84,185) –
Net gains (losses) on derivatives hedging fluctuating cash flows (45,951) 38,578 (45,951) 38,578 0 0 hereof unrealized net gains (losses) of the period (46,904) 38,578 (46,904) 38,578 0 0 hereof net gains (losses) reclassified to income statement 953 0 953 0 0 0
Net gains (losses) on financial assets available-for-sale 150,824 10,140 150,824 10,140 0 0 hereof unrealized net gains (losses) of the period 153,967 10,140 153,967 10,140 0 0 hereof net gains (losses) reclassified to income statement (3,143) 0 (3,143) 0 0 0
Deferred taxes on income and expenses directly recognized in equity (44,556) (7,680) (44,556) (7,680) 0 0
Other comprehensive income Capital hedge comprises hedges for investments in economically independent sub-units.
Through the application of IAS 29 (hyperinflation accounting) in Belarus € 95,152 thousand was recognized directly in other comprehensive income.
Unrealized net gains (losses) of the period 180,388 (11,332) 38,578 10,140 0 (7,680)
Loans and advances to customers [16, 35, 36] 81,576,235 75,657,061 7.8%
Impairment losses on loans and advances [17, 35] (5,053,212) (4,755,872) 6.3%
Provisions for liabilities and charges [29, 35, 36] 770,957 671,908 14.7%
Effects due to the merger 124,555 1,900,000 (1,951) 299,757 0 2,898 2,325,259
The effects due to the merger of the principal business areas of RZB with Raiffeisen International in the year 2010 amounted to € 2,325,259 thousand and consist of the participation capital amounting to € 2,500,000 thousand and retained earnings of € 299,757 thousand, which were transferred and a capital increase of € 124,555 thousand against a contribution in kind. In the course of the merger, receivables and liabilities of the target and the acquiring company were offset. This was also the case for the participation rights of € 600,000 thousand, which were fully held by RZB AG.
Changes in assets and liabilities arising from operating activities after corrections for non-cash positions: Loans and advances to banks and customers (9,666,520) 13,332,712
Proceeds from sale of: Tangible and intangible fixed assets 87,840 70,471
Cash and cash equivalents at the end of previous period 4,806,891 4,179,572
Cash and cash equivalents at the end of period 11,401,747 4,806,891
Southeastern Europe The Southeastern Europe segment comprises Albania, Bosnia and Herzegovina, Bulgaria, Kosovo, Croatia, Romania and Serbia. In these countries, RBI is represented by banks, leasing companies, as well as, in some markets, by separate capital management and asset management companies and pension funds. In Albania and Kosovo, financial services are offered across all business divisions. In Kosovo, RBI also offers a comprehensive product range. In Bosnia and Herzegovina the emphasis is on small and medium-sized enterprises, while also boasting a wide range of products for retail customers. In Croatia the focus is on large and medium-sized corporate customers and also on retail customers (pension funds business). In Romania a broad range of financial services is offered via its tightly knit branch network. Moreover, the the Moldovan corporate customer market is also served from Romania. In Serbia, the market is serviced by a universal bank and a leasing company.
Russia Raiffeisenbank is one of the leading foreign banks in Russia and services both corporate and retail customers. The national branch network also offers products tailored for affluent private individuals. The product range in Russia is rounded off by leasing business. In view of the size of the banking market and its high natural and industrial potential, the Russia segment is of key significance for RBI.
Group Markets The Group Markets segment covers RBI AG’s customer and proprietary business related to the capital market. Income from currency, interest and securities trading as well as from trading in structured products for financial institutions is also allocated to this segment, as is proprietary business. The same applies to proprietary trading and market maker activities in Vienna, and to the branches in Singapore, China and London. This segment includes net income from customer business, sales of all banking products and business relationships with banks, institutional customers, governments and local authorities too. Furthermore, income from Raiffeisen Centrobank (equity trading and capital market financing) and from Kathrein & Co. Privatgeschäftsbank is also booked under this segment.
Growth is a very important indicator. Within the risk management certain limits are set for each segment. For this measurement growth rates for the profit after non-controlling interests and total revenues are considered. The diversification of the result is very crucial for the quality and the accordance with the strategic targets.
The presentation of segment performance is based on the income statement. Income and expenses are attributed to the country and/or business division in which they are generated. Operating income positions are the net interest income, net fee and commission income, net trading income and the other net operating income. The other results include the net income from financial investments, the net income from derivatives (hedging) and designated liabilities and the net income from disposal of group assets. The segment result is shown till the profit/loss after deduction of non-controlling interests. The segment assets are represented by the total assets and the risk-weighted assets. The item liabilities includes all positions of the liabilities side expect the equity. The reconciliation implies mainly the amounts resulting from the elimination of intragroup results and consolidation between the segments. Finally, financial ratios – usual in the line of business – are added to evaluate the results. The values shown in the segment reporting are also used for the compilation of the consolidated financial statements and are retrieved from the IFRS individual financial statements. In some units profit centre results are taken from the internal management income statement.
Net provisioning ratio (average risk-weighted assets, credit risk) 0.43% 0.00% – 1.66%
Raiffeisen Bank International (RBI) is a universal bank focusing on corporates and private customers in Central and Eastern Europe (CEE) and exclusively on corporates in Austria. In CEE, RBI consists of a closely-knit network of banks, leasing companies and numerous specialized financial service providers with 2,928 business outlets. In Austria, RBI concentrates on the top 1,000 corporate customers and it is one of Austria’s most prominent corporate finance and export and trade finance banks. Cash and asset management, treasury operations and investment banking are further fields of activity. RBI’s focus as a highly specialized financial engineer is on serving Austrian and foreign key accounts, multinationals and providers of financial services. RBI has branches, subsidiaries and representative offices in the world’s major financial centers and in Asia, which have selective business with corporate customers and financial institutions.
The consolidated financial statements for the financial year 2011 and the comparative figures for the financial year 2010 were prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) as far 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 to be applied to financial statements for 2011 and adopted by the EU, have been applied. The consolidated financial statements 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, IFRS 4 and IFRS 6 have not been applied as there were no relevant business transactions in the Group.
The amendments to IAS 32 (Classification of rights issues; entered into force on 1st February 2010) relating to the classification of granted rights, options or warrants to acquire a fixed number of own shares at a fixed price in any currency. These rights should be recognized as equity if they are granted on a pro rata to all existing shareholders of the same class of share. The changes in IAS 24 have no material impact on the consolidated financial statements for 2011
IFRIC 14 (The limit on a defined benefit asset, minimum funding requirements and their interaction; entered into force on January 1st, 2011) specifies additional criteria which limits the recognition of plan assets determined under IAS 19. The company must have use of excess assets for reducing future payments, to be able to recognize these as an asset. These changes have no effect on the consolidated financial statements for 2011.
IFRIC 19 (Repayment of financial liabilities with equity instruments; entered into force July 1st, 2010) now clarifies that equity instruments issued to creditors to extinguish a financial liability are part of the consideration paid pursuant to IAS 39.41 and the equity instruments should be measured at fair value. If this cannot be reliably determined, the equity instruments should be shown at the fair value of the extinguished liability. These changes have no effect on the consolidated financial statements for 2011
The revised IFRS 3 clarifies on the one hand that the requirements in IAS 39, IAS 32 and IFRS 7 are not applicable for conditional purchase agreements on corporate mergers, whose acquisition date is before the date of adoption of the revised IFRS, and on the other hand, how non-controlling interests are to be measured. Furthermore the loophole in IFRS 3 concerning how share-based payment arrangements are accounted for in a business combination has been closed. These changes have no effect on the consolidated financial statements for 2011.
IFRS 7 (changes in the necessary disclosures; came into force on January 1st, 2011) now includes clarification for the quantification of the financial impact of any collateral held on the risk of default. These changes have no material impact on the consolidated financial statements for 2011.
The revised IAS 27 (Consolidated and separate financial statements; into force July 1st, 2010) now clarifies that the consequential amendments from to IAS 21, IAS 28 and IAS 31, which result from former amendments to IAS 27, are to be applied at the same time as the new regulation of IAS 27. ‘These changes have no material impact on the consolidated financial statements for 2011.
The amendment to IAS 34 (Interim financial reporting; entered into force on January 1st, 2011) now highlights that it is necessary to disclose relevant transactions and events in the interim reporting. There are additional provisions regarding data on changes in the fair value and the updating of relevant information from the most recent annual report. These changes have no material impact on the consolidated financial statements for 2011.
If estimates or assessments are necessary for accounting and measuring under IAS/IFRS rules, they are made in accordance with the respective standards. They are based on past experience and other factors such as planning and expectations or forecasts of future events that appear likely from our current perspective. Basically, this applies to impairment losses on loans and advances, fair value and impairment of financial instruments, deferred taxes, provisions for retirement and similar benefits, the recoverability of goodwill and intangible fixed assets that are recognized in the course of business combinations. The actual figures may deviate from the estimated values.
All material subsidiaries, in which RBI AG directly or indirectly, holds either more than 50 per cent of the voting rights or otherwise has control over the financial and operating policies are fully consolidated. In principle, these subsidiaries are firstly integrated in the consolidated group on the date when RBI obtains control of the company and are excluded when it no longer has control of the company. The Group reviews the adequacy of previously made decisions on which companies to consolidate at least every quarter. Accordingly, any organizational changes are immediately taken into account. These include, apart from changes in ownership, also changes due to existing or newly signed contractual obligations by a unit of the Group. . Subsidiaries with deviating reporting dates are accounted for with their interim financial statements. The results from subsidiaries that were acquired or disposed of during the year are recorded, in the consolidated income statement, either from the actual date of acquisition or up to the actual date of disposal.
Special purpose entities (SPE) which are controlled by the group from an economic point of view, are integrated according to SIC 12. To determine whether a special purpose entity is controlled from an economic perspective, a number of factors are to be taken into consideration. These include an investigation into whether the activities carried out by the SPE in favor of the Group are in accordance with its specific business needs so that it can take advantage of the activities of the SPE, whether the Group has the decision-making powers to achieve the majority of the benefits from the SPE, whether in fact the Group receives the majority of the benefits of the activities of the SPE, or whether the Group retains the majority of the assets associated with the residual or ownership risks in order to benefit from its activities.
Intra-group business combinations (transactions under common control) are accounted for by carrying over book values.
In the scope of debt consolidation, intra-group balances between parent company and subsidiaries and intra-group balances between subsidiaries are eliminated in the consolidated accounts. Remaining temporary differences are recognized under “other assets/other liabilities.”
During 2011 impairment charges of € 187 million were made against goodwill on RBI Group level. The largest impairment charge (€ 183 million) arose in the Ukrainian Raiffeisen Bank Aval JSC due to the changed macro-economic outlook (GDP, growth rate, CPI, banking assets development). The recovery of the Ukrainian economy was slower than was forecasted in 2010. As a result the targeted market share and ROE were lower than last year's assumptions. The discount rate used for the impairment test for goodwill of Raiffeisen Bank Aval JC was between 21.7per cent and 13.7 per cent, depending on parameter. There were minor goodwill impairment charges amounting to € 3.4 million for the Hungarian Raiffeisen Bank Zrt. and € 0.6 million for the Slovenian Raiffeisen Bank Sh.a...
Sensitivity Analysis A sensitivity analysis was used to test the robustness of the impairment test for goodwill which was based on the above given assumptions. From a number of options for this analysis, two parameters were selected, namely, the cost of equity and the reduction in earnings. The table below shows to what extent an increase in the cost of equity or a reduction in earnings could be made without the fair value of the cash-generating units sinking below the carrying value (equity plus goodwill): Maximum sensitivity1 AVAL RBRU RBCZ RBAL UPC
Reduction in earnings – (48.0)% (58.0)% (76.0)% (53.0)% 1 Only change in terminal value assumptions.
Impairment test for intangible fixed assets Group companies use brands to differentiate their services from the competition. According to IFRS 3, brands of acquired companies have been recognized separately under the item “intangible fixed assets.” Brands have an indeterminable useful life and are therefore not subject to scheduled amortization. Brands have to be tested annually for impairment and additionally whenever indications of impairment arise.
The number of fully consolidated companies and companies valued at equity changed as follows: Number of units Fully consolidated Equity method 31/12/2011 31/12/2010 31/12/2011 31/12/2010
Raiffeisen Investment Financial Advisory Services Ltd. Co., Istanbul (TR) 78.11 % 1/6 Start of operations
Raiffeisen CIS Region Holding GmbH, Vienna (AT) 100.0 % 1/12 Start of operations
In the financial year 2011, the following companies were excluded from the consolidated group: Name Share Excluded as of Reason
The items of the income statement 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 were offset against equity.
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 and because both the transactions and the refinancing were undertaken in US-Dollars.
Accounting in highly inflationary economies - IAS 29 Since 1 January 2011, Belarus has been classified in accordance with IAS 29 (Financial reporting in hyperinflationary economies ) as a highly inflationary economy. Thus, the local activities of RBI are no longer recognized on the basis of historical acquisition and production costs, but have been adjusted for the effects of inflation. For this purpose the local inflation index has been used.
All items in the profit and loss account as of 1 January 2011 will be adjusted for inflation with retroactive effect and converted into EUR using the exchange rate. Gains and losses resulting from the inflation adjustment of monetary assets and liabilities are shown separately.
In 2011, the valuation methodology for capital-guaranteed products was adapted to the changed legal framework. The capitalguaranteed products (guarantee funds and pension plans) are shown as sold put options on the respective funds to be guaranteed. The valuation is based on a Monte-Carlo simulation. The RBI has provided capital guarantee obligations as part of the government-funded state-sponsored pension plans according to Section 108h (1) Z 3 EStG. The bank guarantees the retirement annuity, available for the payment amount, is not less than the sum of the amounts paid by the taxpayer plus credited for such taxable premiums within the meaning of the -Section 108g EStG.
These instruments are bonds, notes and other fixed-interest securities or shares and other variable-yield securities. These financial instruments are valued at fair value under IAS 39. In the statement of financial position, they are shown under the item “financial investments,” current income is shown under net interest income, valuation results and proceeds from disposals are shown in net income from financial investments.
3. Loans and advances Non-derivative financial assets with fixed or determinable payment for which there is no active market are allocated to this category. They are measured at amortized cost. If impairment occurs it is taken account of when determining the amortized cost. If there is a difference between the amount paid and face value – and this has interest character – the effective interest method is used and the amount is accrued as profit or loss. Profits from the sale of impaired loans are recognized in the income statement in the item “net provisioning for impairment losses.” Moreover, debt instruments are also stated here if there is no active market for them. Derecognition of financial assets within the framework of securitizations is – after checking if the securitized special purpose entity has to be integrated into the consolidated accounts – done on a risk and rewards or control test according to IAS 39 after identifying loss of control over the contractual rights arising from the financial asset.
5. Financial liabilities Liabilities are predominantly recognized at amortized cost. Discounted debt securities and similar obligations are measured at their present value. Financial liabilities measured at fair value are shown in the category “liabilities at fair value through profit and loss.”
Measurement techniques based on observable market data (level II) When current bid and asking prices for financial instruments are unavailable, the prices of similar financial instruments provide evidence of the current fair value or are determined by accepted measurement methods enclosing observable prices or parameters (in particular present value calculation or option price model). These methods concern the majority of the OTC-derivates and non-quoted debt instruments.
The Group uses derivates including swaps, standardized forward contracts, futures, credit derivatives, options and similar contracts. Within the operating activity, the Group carries out different transactions with derivative financial instruments for trading and hedging purposes. The Group applies derivatives in order to meet the requirements of the clients concerning their risk management, to manage and secure risks and to generate profit in proprietary trading. Derivatives are initially recognized at the time of the transaction at fair value and subsequently revalued to fair value. The resulting valuation gain or loss is recognized immediately in net income from derivatives, unless the derivative is designated as a hedging instrument for hedge accounting purposes and the hedge is effective. Here the timing of the recognition will depend on the type of hedging relationship.
If derivates 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 hedging relationship that the fair value or cash flow hedge is effective to a large degree.
a. Fair value hedge Hedge Accounting according to IAS 39 applies for those derivatives that are used to hedge the fair values of financial assets and liabilities. The credit business is especially subject to such fair value risks if it deals with fixed-interest loans. Interest-rate swaps that satisfy the prerequisites for hedge accounting are contracted to hedge against the interest-rate risks arising from individual loans or refinancing. Thus, hedges are formally documented, continuously assessed, and rated to be highly effective. In other words, throughout the term of a hedge, it can be assumed that changes in the fair value of a hedged item will be nearly completely offset by a change in the fair value of the hedging instrument and that the actual outcome will lie within a band of 80 to 125 per cent.
Derivative instruments held to hedge the fair values of individual items in the statement of financial position (except trading assets/liabilities) are recognized at their fair values (dirty prices) under “derivatives” (on the assets side: positive dirty prices; on liabilities side: negative dirty prices). Changes in the carrying amounts of hedged items (assets or liabilities) are allocated directly to the corresponding items of the statement of financial position and reported separately in the notes.
Both the effect of changes in the carrying values of positions requiring hedging and the effects of changes in the clean prices of the derivative instruments are recorded under net income from derivatives (net income from hedge accounting).
For the first time in 2011, in RBI the hedging of interest rate risk has been 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 were 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 excluding sight or savings deposits (the rules of the EU carve-out are thereby not applied).
c. Hedge of a net investment in a foreign operation (capital hedge) In the Group, hedges of investments in economically independent sub-units (IAS 39.102) are made in order to reduce differences arising from the translation of equity. Liabilities in foreign currency, currency options, currency futures and currency swaps are mainly used as hedging instruments. Where the hedge is effective the resulting gains or losses from foreign currency translation are recognized and shown separately in other comprehensive income. Any ineffective part of this hedge relation is recognized in net trading income. The related interest components are shown in net interest income. There are no deferred taxes calculated for the income from capital hedge due to the applied exception regulations according to IAS 12.39.
For credit risks related to loans and advances to customers and banks, provisions are made in the amount of expected loss according to homogeneous Group-wide standards. Risk of loss is deemed to exist if the discounted projected repayment amounts and interest payments are below the carrying value of the loans, taking collateral into account. Portfolio-based impairments are calculated according to valuation models that estimate expected future cash flows for the loans in the respective loan portfolio based on loss experience history. This is carried out regularly by considering economic conditions. For nonretail portfolios without a documented loss history of their own, peer group benchmark figures serve as a comparative base.
Securitization transactions The Group securitizes several financial assets from transactions with private customers and business customers by selling them to a special purpose entity that issues securities to investors. The assets transferred are derecognized fully or partly. Rights to securitized financial assets can be retained in the form of junior or subordinated tranches, interest claims or other remaining claims (retained rights).
Leases are classified according to their contractual structure as follows: Finance leases When nearly all the risks and rewards of a leased asset are transferred to the lessee, the Group as lessor recognizes a loan to banks or customers. The loan amount is the amount of the net investment. The proceeds from the finance lease are distributed at a constant periodic rate of the outstanding net investment in the leases. Under a finance lease the lessee holds assets that are shown under the relevant tangible fixed asset item, which corresponds to a lease liability.
Operating 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.
Acquired intangible fixed assets (software, customer base) with determinable useful lives are capitalized at acquisition cost and amortized over their estimated useful lives.
Internally developed intangible fixed assets comprise exclusively of software. Software is capitalized if it is probable that the future economic benefits attributable to the asset will accrue to the enterprise and the cost of the asset can be measured reliably. Expenses for research are recognized as an expense when they are incurred. The useful life of software is between four and six years and may be longer for major software projects. The useful life of the acquired customer base was set at seven years for corporate customers and for the acquired customer base in the retail segment of Raiffeisen Bank Aval JSC at 20 years and for OAO Impexbank (meanwhile merged with ZAO Raiffeisenbank) and eBanka a.s. (meanwhile merged with Raiffeisenbank a.s.) at five years.
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.
Calculations are based on an assumed retirement accession age of 65 years for men and 62 years for women and are subject to transitional statutory regulations and special arrangements in individual contracts.
The actuarial computation of severance payments and anniversary bonuses is based on the following assumptions: Average increase in salary 3.0 2.5
Variable Remuneration - special remuneration policies In RBI variable compensation is based on bonus pools on the bank or profit center level. Every variable pay system has fixed minimum and maximum levels and thus defines maximum payout values. For the fiscal year 2010, the bonus pools were based on the ratios net profit after tax, the cost/income ratio and return on risk adjusted capital (RORAC) where a comparison of the budget with the year-end figures was made. The bonus of all board members of affiliated banks in Central and Eastern Europe was already in2010 treated as a deferred payment where 30 percent of the annual bonus will be deferred over 3 years. The payout at the beginning of 2014 is dependent on the average annual target achievement (comparison of the budget with the year-end figures) of the ratios net profit after tax and RORAC of the respective Group's unit.
40 per cent of the annual bonus will be deferrred over a period of three (in Austria, five) years. Payment will be made on a proportional basis, 50 per cent cash and 50 per cent based on the phantom share plan.
The allocation, the claim and the payment of the variable remuneration (including the payment of a portion of the deferred bonus) depend on the following criteria: earning a net profit, the achievement of the legally required hard core capital ratio of the RBI Group. additionally, in Group units on the local level from achieving the legally required local minimum 'core tier 1 ratio excluding buffers," and the performance of the business areas and the affected person.
The obligation from number 11 of the annex to Section 39b of the Austrian Banking Act, under which a proportion of at least 50 per cent of variable compensation for risk personnel should take the form of shares or equivalent non-cash payment instruments, is covered in the RBI Group by a stock phantom plan. Proportionally 50 per cent of the "Up-front" and "deferred" bonus section will be divided by the average closing price of RBI's shares on the Vienna Stock Exchange for that year serving as the basis for calculating the bonus. Thereby, a certain amount of phantom shares will be determined. This amount will be fixed for the entire duration of the deferral period. After the expiration of the respective retention period the amount of specified phantom shares will be multiplied by RBI's share price for the previous fiscal year. The resulting cash will be paid when the next available monthly salary is paid.
Share based compensation The Management Board, with approval by the Supervisory Board, of RBI AG has approved the existence of a share incentive program (SIP) which offers performance based allotments of shares to eligible employees at home and abroad for a given period. Eligible employees are current board members and selected executives of RBI AG, as well as executives of its affiliated bank subsidiaries and other affiliated companies.
The number of ordinary shares of RBI AG which will ultimately be transferred depends on the achievement of two performance criteria: the targeted return on equity (ROE) and the performance of the share of the RBI AG compared to the total shareholder return of the shares of companies in DJ EURO STOXX Banks index after a three-year holding period. Furthermore, an employment contract must exist with RBI. Participation in the SIP is voluntary.
Expenses related to the share incentive program in accordance with IFRS 2 (share-based payment) are charged to equity.
Own shares of RBI AG at the balance sheet date, are deducted directly from equity. Gains and losses on own shares have no impact on the income statement.
Impairment on financial assets not measured at fair value through profit and loss (1,071,641) (1,211,179)
Net realized gains (losses) on financial assets not measured at fair value through profit and loss 94,364 5,010
Interest income includes interest income (unwinding) from impaired loans to customers and impaired loans to banks in the amount of € 204,960 thousand (2010: € 234,803 thousand). Interest income from impaired loans and advances to customers and banks is recognized with the rate of interest used to discount the future cash flows for the purpose of measuring impairment loss.
Details on risk provisions are shown under note (17) impairment losses on loans and advances.
The position net trading income includes interest and dividend income, refinancing costs, commissions and any changes in fair value of trading portfolios.
Net income from hedge accounting includes on the one hand, a valuation gain from derivatives of € 87,529 thousand (2010: minus € 15,312 thousand) and on the other hand, changes in the carrying amount of the fair value hedged items of minus € 84,156 thousand (2010: plus € 14,707 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, however, based on an inhomogeneous 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 € 248,491 thousand (2010: € 33,000) and a negative effect from changes in market interest rates.
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, companies valued at equity, and other companies.
Net valuations of securities at fair value through profit and loss (124,630) 57,869
The position other net operating income contains, among other things, sales revenues and expenses from non-banking activities, income and expenses from disposal as well as income from the revaluation of tangible and intangible fixed assets.
In the reporting period, four subsidiaries were excluded from the consolidated group due to materiality reasons. One subsidiary was excluded due to the end of operations. Net income from this disposal of group assets amounted to minus € 2,575 thou-
Theoretical income tax expense in the financial year based on the domestic income tax rate of 25 per cent (343,339) (321,830)
Tax decrease because of tax-exempted income from equity participations and other income 156,585 102,649
Other tax deductions and tax increases include mainly deferred tax assets built on tax loss carry-forwards and belated tax payments.
There were no conversion or option rights outstanding, so undiluted earnings per share are equal to diluted earnings per share. The capital increase of 40.837.624 ordinary shares issued, due to the merger of the prinical business areas of the RZB with Raiffeisen International in the year 2010, was considered retrospectively with regard to the calculation of the average number of outstanding common shares.
Of the purchased loans amounting to € 120,374 thousand, € 118,620 thousand are assigned to the measurement category loans and advances (2010: € 34,203 thousand) and € 1,754 thousand to held-to-maturity (2010: € 307 thousand).
Purchased loans amounting to € 1,196,718 thousand (2010: € 1,099,190 thousand) are assigned to the measurement category loans and advances. Purchased loans classified as held-to-maturity totaled € 37,639 thousand (2010: € 39,460 thousand).
Impaired assets The following table shows the carrying amount of individually impaired assets, the amount of individually allocated provisions and the corresponding net value of available collaterals: 31/12/2011 Impairments and collaterals
The trading assets consist of the following securities and derivative instruments held-for-trading: Bonds, notes and other fixed-interest securities 3,107,108 4,013,416
Treasury bills and bills of public authorities eligible for refinancing 889,762 1,083,173
Positive fair values of derivatives in fair value hedges (IAS 39) 426,350 360,827
Treasury bills and bills of public authorities eligible for refinancing 7,675,075 9,886,294
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 to € 80,502 thousand. As of 31 December 2011, the carrying amount was € 304,247 thousand and the fair value totaled € 305,775. In 2011, a result from the reclassified securities of € 13,955 thousand (2010: € 16,343 thousand) was shown in the income statement. If the reclassification had not been made, a gain of € 4,812 thousand (2010: € 9,042 thousand) would have arisen.
The carrying amount of the securities that were reclassified from held-to-maturity into the category of financial assets availablefor -sale at 31 December 2011 was € 3,193,708 thousand.
Raiffeisen Banca pentru Locuinte S.A., Bucharest (RO) 75,112 4,168 102 15,054
The item “software” comprises acquired software amounting to € 471,627 thousand (2010: € 424,611 thousand) and developed software amounting to € 59,232 thousand (2010: € 55,215 thousand).
The carrying amount of goodwill breaks down on the following cash generating units as follows: ZAO Raiffeisenbank, Moscow 257,171 263,124
Goodwill impairment of € 187,318 thousand was made at the Group units in the Ukraine, Hungary and Slovenia. Information about the impairment tests can be found in the chapter business combinations on page 153.
Tangible and intangible fixed assets developed in the financial year 2011 as follows: Cost of acquisition or conversion
Land and buildings used by the Group for own purpose 737,325 0 (12,731) 102,208 (32,472) 16,206 810,536 of which land value of developed land 13,901 0 146 7 (384) 0 13,670
Write-ups, amortization, depreciation, impairment Carrying amount hereof hereof € 000 Cumulative Write-ups Depreciation 31/12/2011
Intangible and tangible fixed assets developed in the financial year 2010 as follows: Cost of acquisition or conversion
Land and buildings used by the Group for own purpose 673,711 19,167 17,255 38,625 (15,536) 4,103 737,325 of which land value of developed land 8,826 4,617 421 37 0 0 13,901
Office furniture, equipment and other tangible fixed assets (727,523) 432 (142,127) 507,331
The net deferred taxes result from the following items: Loans and advances to customers 71,701 97,391
In the consolidated financial statements, deferred tax assets are recognized for unused tax loss carry-forwards which amounted to € 240,419 thousand (2010: € 269,811 thousand). The tax loss carry-forwards are mainly without any time limit. The Group did not recognize deferred tax assets of € 78,414 thousand (2010: € 22,074 thousand) because from a current point of view there is no prospect of realizing them within a reasonable period of time.
The following table contains debt securities issued exceeding € 200,000 thousand nominal value: Issuer ISIN Type Currency Nominal value in € 000 Coupon Due
Provisions for severance payments and similar obligations developed as follows: Defined benefit obligation (DBO) as of 1/1 60,770 9,404
Provisions for retirement benefits developed as follows: Defined benefit obligation (DBO) as of 1/1 24,873 4,960
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.
Subscribed capital As of 31 December 2011, the subscribed capital of RBI AG as defined by the articles of incorporation amounted to € 596,291 thousand. The subscribed capital consists of 195,505,124 non-par bearer shares. After deduction of own shares of 943,771, the stated subscribed capital totaled € 593,412 thousand.
Own shares The Annual General Meeting held on 8 July 2010 authorized the Management Board to acquire own shares, pursuant to Section 65 (1), item 8 of the Austrian Joint Stock Companies Act (AktG), during a period of 30 months as of the date of the resolution, of up to 10 per cent of the subscribed capital of the company and to withdraw if applicable. This authorization may be exercised in one or several installments by the company, by affiliated companies or, for their account, by third parties. The Management Board was further authorized 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 excluding the subscription rights of shareholders. This authorization replaces the authorization to buy back and use own shares that was granted in the Annual General Meeting of 10 June 2008.
Dividend proposal The Management Board intends to propose at the Annual General Meeting that a dividend of € 1.05 per share be distributed from Raiffeisen Bank International AG’s profit for the financial year 2011, which represents a maximum distribution of € 205,280 thousand, and the remaining amount be carried forward.
The number of shares outstanding developed as follows: Number of shares 2011 2010
Amount with share price of € 39.00 at the allotment day (12/4/2011)
Members of the management boards of bank subsidiaries affiliated with the company 21,348 832,572 18,244
Executives of the company and other affiliated companies 5,515 215,085 3,028
In order to avoid legal uncertainties and in accordance with the program’s terms and conditions, eligible employees in 2 countries were given a cash settlement instead of an allotment of shares. In Austria the eligible parties were granted the option of accepting a cash settlement instead of half of the matured shares in order to offset the wage tax payable at the time of transfer. Therefore, the number of actually transferred shares is lower than the number of due shares. The portfolio of own shares was subsequently reduced by the lower number of actually transferred shares.
Members of the management board of the company 197,135 59,141 295,703
Executives of the company and other affiliated companies 124,075 37,223 186,113
Impairment losses on loans and advances (4,755,872) 0 0 0 0
As of 31 December 2010, the transactions with related parties were as follows: 31/12/2010
Regarding true sale transaction ROOF Poland 2008-1 consisting of car leasing contracts, the total volume of the loans amounts to € 84,574 thousand as of 31 December 2011 (2010: € 195,020 thousand). The decline in volume is due to the maturing of the portfolio and to fluctuating exchange rates.
From a Group view, the non-derecognized loans arising from the true sale transaction ROOF Russia 2007-1 amounted to € 18,764 thousand at year-end 2011 (2010: € 53,178 thousand). In this case, the decrease of the carrying value is mainly explained by the maturity of the consumer loan volume in original currency as well as the currency translation effect resulting from conversion from USD to euro. Within the space of a year, the consumer loan volume in original currency matured by € 34.414 thousand. The possibility to replenish already redeemed volumes were no longer perceived.
Up to now the following transactions have been executed with external contractual partners (the indicated amounts represent the transaction volumes at the closing date): € 000 Seller of claims or secured party Date of contract End of maturity
RBI as investor Besides the above-mentioned refinancing and packaging of designated portfolios of loans or leasing claims, RBI also acts as an investor in ABS-structures. Essentially, this is about investments in Structured Credit Products. During the financial year 2011 market value changes led to a negative valuation result of about € 2 million (2010: positive valuation result of € 9 million).
As of 31 December 2011, RBI reported the following investment exposure (excluding CDS): € 000 Outstanding notional amount Carrying amount
The following repurchase and redelivery commitments are shown as of 31 December: Genuine repurchase agreements as borrower
Securities sold in genuine sale and repurchase agreement 4,801,503 5,415,578 hereof sold or repledged 4,742,840 5,355,684 hereof bonds, notes and other fixed-interest securities 4,607,688 5,355,684
Securities purchased in a genuine sale and repurchase agreement 4,851,646 1,483,131 hereof sold or repledged 1,485,715 57,059 hereof bonds, notes and other fixed-interest securities 1,453,894 56,433 hereof shares and other variable-yield securities 31,326 0 hereof loans and advances 495 626
As of 31 December 2011, write-offs on unrecoverable minimum lease payments outstanding totaled € 61,205 thousand (2010: € 39,958 thousand).
Assets under finance leases break down as follows: Real estate leasing 581,392 587,099
Operating leases from view of lessor Future minimum lease payments under non-cancelable operating leases are as follows: More than 1 year, up to 5 years 66,907 64,388
Operating leases from view of lessee Future minimum lease payments under non-cancelable operating leases are as follows: More than 1 year, up to 5 years 163,769 167,327
Standardized methodologies: Risk measurement and risk limitation methods are standardized Group-wide in order to ensure a consistent and coherent approach to risk management. This is efficient for the development of risk management methods andit forms the basis for consistent overall bank management across all countries and business segments in RBI.
Continuous planning: Risk strategies and risk capital are reviewed and approved in the course of the annual budgeting and planning process, whereby special attention is also paid to preventing risk concentrations.
Independent control: A clear personnel and organizational separation is maintained between business operations and any risk management or risk controlling activities.
Management Board Responsible for organizing and for further developing risk management
Support through operative credit risk management and a central, independent risk controlling, as well as through several specialty departments
Risk management functions are performed on different levels in the Group. RBI AG develops and implements the relevant concepts in coordination with RZB AG as the parent credit institution and in cooperation with its subsidiaries. The central risk management functions are responsible for the adequate and appropriate implementation of the Group’s risk management processes. In particular, they establish common group directives and set business-specific standards, tools, and practices for all Group entities.
Quality assurance and auditing Quality assurance with respect to risk management refers to ensuring the integrity, soundness, and accuracy of processes, models, calculations, and data sources. This should make sure that the Group adheres to all legal requirements and that it can achieve the highest standards in risk management related operations.
Two very important functions in assuring independent oversight are performed by the divisions Audit and Compliance. Independent internal auditing is a legal requirement and a central pillar of the internal control system. Audit periodically assesses all business processes and contributes considerably to securing and improving them. It sends its reports directly to the Management Board of RBI which discusses them on a regular basis in its board meetings.
The Compliance Office is responsible for all issues concerning compliance with legal requirements. It is supplementary to and at the same time an integral part of the internal control system and helps to prevent any shortcomings in daily operations.
Maintaining an adequate level of capital is a core objective of risk management at RBI. Capital requirements are monitored regularly based on the actual risk level as measured by internal models, and inchoosing appropriate models the materiality of risks is taken into account. This concept of overall bank risk management provides for capital requirements from a regulatory point of view (sustainability and going concern perspective) and from an economic point of view (target rating perspective). Thus it covers the quantitative aspects of the internal capital adequacy assessment process (ICAAP) as required by Basel II (Pillar 2) regulations. The full ICAAP process of RBI is audited during the supervisory review process for RZB Group of Credit Institutions by the Austrian Financial Markets Authority on an annual basis.
Risk of not being able to satisfy claims of the Group’s senior debt holders
RBI uses a confidence level of 99.95 per cent for calculating economic capital. This confidence level is derived from the probability of default implied by the target rating. The objective of calculating economic capital is to determine the amount of capital that would be required for servicing all of the claims of customers and creditors even in the case of such an extremely rare event.
In total, economic capital has been reduced by 6 per cent compared to last year. It shows – as in the previous year – that credit risk of asset class corporate customers remains the dominant risk category for RBI. Its share in total risk is 39 per cent; credit risks in total accounts for 74 per cent of economic capital. Market risk accounts for 7 per cent and operational risk for 9 per cent. In addition a general risk buffer is allocated for other risks as well.
The economic capital is compared to internal capital, which mainly denotes equity and subordinated capital of the Group. This capital form serves as a primary provision for risk coverage, for servicing claims of senior debtors if the bank should incur losses. Total utilization of available risk capital (the ratio of economic capital to internal capital) was 62.7 per cent at year end (2010: 74.2 per cent).
Economic capital is an important instrument in overall bank risk management. Economic capital limits are allocated to individual business segments during the annual budgeting process and are complemented for day-to-day management by volume, sensitivity, or valueat -risk limits. In RBI this planning is done on a revolving basis for the upcoming three years and incorporates the future development of economic capital as well as available internal capital. Economic capital thus substantially influences the plans for future lending activities and the overall limit for taking market risks.
In the year 2011 this objective has been continuously met on Group level. The slight reduction of the risk taking capacity during the first three quarters is mainly explained by the regulatory treatment of accrued profits. They are counted (net of planned dividend payments) to eligible own funds only after the annual report has been audited and thus only increase risk taking capacity as of December. Regulatory capital requirements, on the other hand, have increased already during the year, in particular due to higher lending volumes.
Sustainabiltiy perspective The main goal of the sustainability perspective is to ensure that RBI can maintain a sufficiently high core capital ratio at the end of a multi-year planning period also in a severe macroeconomic downturn scenario. This analysis is based on a multi-year macroeconomic stress test where hypothetical market developments in a severe but realistic economic downturn scenario are simulated. The risk parameters considered are amongst others: interest rates, foreign exchange rates and securities prices, as well as changes in default probabilities and rating migrations in the credit portfolio.
The internal control system for credit risks includes different types of monitoring measures, which are tightly integrated into the work flow – from the customer’s initial credit application, to the bank’s credit approval, and finally to the repayment of the loan.
Limit application process 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, who do 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.
Credit portolio management Credit portfolio management in RBI is, amongst others, based on the credit portfolio strategy. This strategy limits the exposure amount in different countries, industries or product types and thus prevents undesired risk concentrations. On top of that, analyzing the long-term potential of different markets is a routine activity. This allows for an early strategic repositioning of future lending activities.
The following table translates balance sheet items (bank and trading book positions) into the maximum credit exposure, which is used in portfolio management. It includes on-balance exposures and off-balance sheet exposures 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), other definitions for the loan exposure and different valuation rules.
Rating models in the main non-retail asset classes – corporates, financial institutions, and sovereigns – are uniform in all Group units and rank creditworthiness in 10 classes. For retail asset classes, country specific scorecards are developed based on uniform Group standards. Customer rating, as well as validation is supported by specific software tools (e.g. for business valuation, rating and default database).
The average credit portfolio quality in the corporate credit book improved significantly during the reporting period. The share of loans with weak or lower credit standing has been reduced by 5.6 percentage points to 25.5 per cent. Vice versa loans with good credit standing up to minimal risk increased from 32.8 per cent to 34.6 per cent. On the one hand, this improvement resulted from rating upgrades of existing customers, where the positive economic development compared to the previous year (e.g. in the Ukraine) lead to an improvement in the internal rating. On the other hand, this also reflects active credit portfolio management, which directs credit growth mainly to economically successful markets like e.g. Russia or Asia; and the high lending standards demand that new loans are extended mainly to customers with good credit ratings. Segment Group Corporates shows the highest exposure increase compared to last year and at the same time has the lowest average default probability. Due to the economic and political development in Hungary (bank tax and foreign currency conversion) the exposure of corporate customers in Hungary decreased by € 282.051 thousand.
Central Europe Southeastern Europe Russia CIS other Group Corporates Group Markets Corporate Center
The rating model for project finance has five different grades which provide both individual default probabilities and collateral. The project finance volume is composed as shown in the table below: 6.1 Excellent project risk profile – very low risk 2,846,811 33.6% 2,459,758 39.7%
6.2 Good project risk profile – low risk 3,265,276 38.6% 2,035,163 32.8%
6.4 Poor project risk profile – high risk 675,624 8.0% 369,901 6.0%
The maximum credit exposure in project finance amounted to € 8,465,817 thousand at year end 2011. Projects rated either in categories Excellent project risk profile – very low risk (rating 6.1) or Good project risk profile – low risk (rating 6.2) account for 72 per cent and thus represent the highest share of the portfolio. This reflects mainly the high level of collateralization in specialized lending transactions. Unrated projects decreased to 0.2 per cent (€ 17,504 thousand) year-on-year.
Credit portfolio – Retail-customers Retail customers are subdivided into private individuals and small and medium-sized enterprises (SME). For retail customers a two-fold scoring system is used – consisting of the initial and ad-hoc scoring based on customer data and of the behavioral scoring based on account data. The table below provides a breakdown of the maximum retail credit exposure of RBI: Retail customers – small and medium-sized entities 2,567,762 11.0% 2,687,265 11.7%
Retail customers – small and medium-sized entities 1,527,542 845,700 48,052 146,376 92 hereof individual loan loss provision 457,106 371,882 184,542 480,336 126 hereof portfolio based loan loss provision 173,915 65,334 7,433 28,156 0
Compared to year end 2010 the retail credit portfolio increased by € 357,429 thousand to € 23,346,079 thousand. The highest amount (€ 11,186,960 thousand) is booked in segment Central Europe. This is a reduction by € 280,409 thousand compared to last year, mainly caused by negative exchange rate developments of the Hungarian forint and the Polish zloty. The second largest segment is Southeastern Europe with € 7,258,423 thousand. Compared to the previous year the exposure increased by € 163,351 thousand in this segment. This is mainly due to higher exposure against private individuals in Romania.
Another strong increase was achieved in the asset class private individuals in Russia which rose by approximately one third mainly due to consumer loans. On the other hand in segment CIS Other, the retail credit portfolio declined due to hyperinflation in Belarus..
While loans in Swiss franc and US-Dollar decreased, euro loans showed a slight increase.