What are your expectations regarding growth in the other Central and Eastern Europe markets over the coming years? Over the coming years, we expect the macroeconomic environment in Central and Eastern Europe to remain very good. In 2017, for example, gross domestic product in Central Europe was up 4.4 per cent and in Southeastern Europe 5.1 per cent. We expect growth rates of 4.1 and 3.6 per cent respectively for 2018 and 2019 in Central Europe and 3.7 and 3.3 per cent in Southeastern Europe. These rates are lower than in the years prior to the financial crisis, though should be more sustainable – provided that there are no external shocks. These forecasts indicate robust economic growth with a corresponding increase in demand for loans in nearly all countries in the region.
Together, the 407 Raiffeisen banks with their branches, the regional Raiffeisen banks and specialist companies, make up a comprehensive and extensive banking network. The Raiffeisen banks are universal banks that provide a full range of banking services and are also the owners of their respective regional bank.
Raiffeisen Bank International RBI regards Austria, where it is a leading corporate and investment bank, as well as Central and Eastern Europe (CEE) as its home market. Subsidiary banks cover 14 markets across the region. In addition, the Group includes numerous other financial service providers active in areas such as leasing, asset management and M&A.
RBI’s markets Assets 2017 in € million Change1 Business outlets Number of staff
■ RBI provides all retail customer segments with comprehensive financial services through the customers’ respective preferred sales and communication channel.
Since the middle of the year, the share price has increasingly outperformed the ATX and the Euro Stoxx Banks. At the end of the year, the stock was trading at € 30.20, up 74 per cent over the course of the year. It therefore outperformed the ATX (up 31 per cent) and the Euro Stoxx Banks (up 11 per cent) by a wide margin and was the best performer in both indices in 2017.
In the second quarter, RBI offered interested investors an opportunity to obtain first-hand information at roadshows and conferences in Amsterdam, Budapest, Copenhagen, Frankfurt, The Hague, London, Madrid, Milan, Paris, Rotterdam, Vienna and Zurich. In July, it was decided to suspend the Initial Public Offering of the Polish subsidiary Raiffeisen Bank Polska S.A. On 10 August, RBI published its final figures for the second quarter. Some 200 international analysts and institutional investors participated in the subsequent conference call.
On 15 January 2018, the Supervisory Board appointed Lukasz Januszweski to the Management Board, subject to approval by the supervisory authority. Upon receiving approval, Lukasz Januszweski is expected to take over the Capital Markets area from Johann Strobl in March 2018.
Raiffeisen Bank Polska S.A., Poland, member Raiffeisen Bank S.A., Romania, member AO Raiffeisenbank, Russia, member Tatra banka, a.s., Slovakia, member Raiffeisenbank a.s., Czech Republic, member Raiffeisen Bank Zrt., Hungary, Chairman Raiffeisenbank Austria d.d., Croatia, Chairman (from 8 June 2017, previously member)
The Working Committee is responsible for all matters referred to it by the Supervisory Board. These include, in particular, the approval of the establishment, closure and liquidation of subsidiaries, as well as the acquisition or disposal of equity participations that exceed a certain amount (up to the ceiling amount for overall Supervisory Board responsibility). Moreover, the Working Committee deals with the execution of functions in the management bodies of other companies by members of the Management Board. Furthermore, the Working Committee approves the assumption of risks arising from banking business and risk limits to third parties above a certain level up to the ceiling amount for overall Supervisory Board responsibility.
Development of the banking sector in CEE Multiple indicators in 2017 confirmed a significant recovery of the CEE banking sector relative to the partly still subdued development of the previous years. New lending and asset growth both continued to accelerate in some CE and SEE countries in 2017 (e.g. in the Czech Republic, Slovakia and Romania). Moreover, a greater number of banking markets (e.g. Hungary, Serbia, Croatia, and Bosnia and Herzegovina) participated in the overall positive regional trend, with significant asset growth reported virtually across the board. In Russia, banks with a sustainable business model benefited from an improving general market environment – despite a further market shakeout driven by the central bank. The necessary nationalization of two major banks in Russia, in the fall of 2017, had no impact either on the overall market or on Western foreign banks operating as niche players. Virtually all banking markets in CEE now show a comfortable loan/deposit ratio (well below 100 per cent for the most part), which represents a solid foundation for future growth. In addition, significant progress was made in 2017 in terms of reducing nonperforming loans (NPLs). In CE and SEE, in particular, the NPL ratio continued to drop in 2017, down from 7.1 per cent to nearly 6 per cent, and is at its lowest level since 2009. Against the backdrop of the positive overall market development, return on equity in the CEE banking sector continued to increase significantly in 2017 to double-digit levels and above the comparable levels in the euro area. At around 15 to 17 per cent, the return on equity before tax of the leading Western European CEE banks has reached its highest level since 2007.
The segmentation changed as a result of the merger of RZB AG and RBI AG. RBI’s previous segments – Central Europe, Southeastern Europe, Eastern Europe and Corporate Center – were expanded to include the corresponding RZB areas. The Group Corporates & Markets segment was introduced for operating business booked in Austria.
In 2017, loans and advances to banks before deduction of impairment losses (€ 11 million) increased 31 per cent, or € 3,377 million, to € 14,358 million. This was mainly due to an increase in short-term positions (repurchase and securities lending transactions) by a total of € 4,720 million to € 8,094 million in connection with the optimization of the liquidity position, notably in the Czech Republic and Russia.
Based on total risk, the common equity tier 1 ratio (transitional) was 12.9 per cent, with a total capital ratio (transitional) of 17.9 per cent. Excluding the transitional provisions as defined in the CRR, the common equity tier 1 ratio (fully loaded) stood at 12.7 per cent and the total capital ratio (fully loaded) was 17.8 per cent.
The ICS is intended to provide the Management Board with the information needed to ensure effective and continuously improving internal controls for accounting. The control system is designed to comply with all relevant guidelines and regulations and to optimize the conditions for specific control measures.
in accordance with the Annual General Meeting resolution of 26 June 2013, shareholders’ subscription rights may also be excluded in order to issue (own) shares to the holders of these convertible bonds who exercise the conversion or subscription rights granted to them under the terms of the convertible bonds to shares of the company. This authorization may be exercised in whole, in part or in several partial amounts for one or more purposes by the company, a subsidiary (§ 189a 7 UGB) or by third parties for the account of the company or a subsidiary and remains in force for five years from the date of this resolution, i.e. until 15 June 2021.
Other results improved € 19 million to € 27 million. In Romania, provisions of € 21 million were released in connection with the Walkaway Law after related provisions of € 27 million were required in 2016. In Croatia, there was an expense of € 10 million related to the conversion of Swiss franc loans in 2016, but no further expenses in this respect in 2017.
Net provisioning for impairment losses 11 (163) – (12) (1) >500.0%
The segment’s other results were down € 24 million year-on-year to minus € 8 million. This was due to net income from financial investments, which fell € 11 million to almost zero and was driven by lower valuation gains, primarily on fixed income, US dollarindexed government bonds in Ukraine, and to a negative result from derivatives (down € 12 million) resulting from the termination of portfolio fair value hedges due to the derecognition of underlying transactions in Russia.
Specialized financial institution subsidiaries and other 75 147 (48.5)% (13) 35 –
The main units are Raiffeisen-Leasing Gesellschaft m.b.H., Raiffeisen Factor Bank AG, Raiffeisen Bausparkasse Österreich Gesellschaft mbH and Raiffeisen Kapitalanlage-Gesellschaft mit beschränkter Haftung, all headquartered in Vienna. Minority interests valued at equity include mainly UNIQA Insurance Group AG, Vienna and LEIPNIK-LUNDENBURGER INVEST Beteiligungs AG, Vienna.
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. The estimates and underlying assumptions are reviewed on an ongoing basis. Alterations to estimates that affect only one period will be taken into account only in that period. If the following reporting periods are also affected, the alterations will be taken into consideration in the current and following periods. The critical assumptions, estimates and accounting judgments are as follows: Risk provisions for loans and advances
Assessment of which companies are structured entities, and what involvement in such companies actually represents an interest, requires judgments to be made. Details are provided in (52) Group composition, in the section Structured entities.
Net expense from allocation and release of other provisions (25,468) (17,288)
The position Others primarily contains R.B.T. Beteiligungsgesellschaft m.b.H., Vienna, and various specialized companies of the Raiffeisen Leasing Group.
This item also includes the positive fair values of derivative financial instruments which are used for hedging against market risks (excluding trading assets and trading liabilities) for a non-homogeneous portfolio. These derivatives do not meet the conditions for IAS 39 hedge accounting.
Development of goodwill 2017 in € thousand RBCZ RKAG Other Total
Change in consolidated group Exchange differences Additions Disposals Transfers As at 31/12/2017
The net deferred taxes result from the following items: Loans and advances to customers 47,787 28,999
Deposits from banks classified regionally (counterparty domicile) break down as follows:
The following table contains material debt securities issued: Issuer ISIN Type Currency Nominal value in € thousand Coupon Due
The acquisition of own shares mainly serves to cover the obligation of the Group within the framework of the share incentive program (SIP) towards the members of the Management Board and executive employees. These bonus payments are carried out in the form of company shares.
Bonds are primarily measured using prices that can be realized in the market. If no quotations are available, the securities are measured using the discounted cash flow model. The measurement parameters used here are the yield curve and an adequate credit spread. The credit spread is calculated using comparable financial instruments which are available on the market. For a small part of the portfolio, a conservative approach was selected and credit default spreads were used for measurement. External measurements by third parties are also taken into account, all of which are indicative in nature. Items are assigned to levels at the end of the reporting period.
(42) Risks arising from financial instruments Active risk management is a core competency of the Group. In order to effectively identify, measure, and manage risks the Group continues to develop its comprehensive risk management system. Risk management is an integral part of overall bank management. In particular, in addition to legal and regulatory requirements, it takes into account the nature, scale, and complexity of the business activities and the resulting risks. The risk report describes the principles and organization of risk management and explains the current risk exposures in all material risk categories. The comparable figures for year-end 2016 correspond to the published figures for RBI prior to the merger with RZB.
Risk of not being able to satisfy claims of the Group´s senior lenders
Credit decisions are made within the context of a competence authority hierarchy based on the size and type of a loan. It always requires the approval of the business and the credit risk management divisions for individual limit decisions or when performing regular rating renewals. If the individual decision-making parties disagree, the potential transaction is decided upon by the next higher-ranking credit authority.
The following table provides a breakdown by country of risk of the total credit exposure for corporate customers and project finance structured by regions: in € thousand 2017 Share 2016 Share
Central Europe recorded a € 1,656,684 thousand increase to € 22,578,775 thousand due to the merger-related integration of Raiffeisen stavebni sporitelna a.s., Prague, and to an increase in loans and advances to customers in Slovakia in the fourth quarter. Austria reported the largest increase of € 3,811,753 thousand to € 16,708,635 thousand. This was due to the merger-related integration of the Raiffeisen Leasing Group and of Raiffeisen Bausparkasse Gesellschaft m.b.H., Vienna, and to credit financing. In addition, Austria reported an increase in facility financing. Western Europe reported a € 1,144,916 thousand increase to 12,116,568 thousand, which was mainly the result of credit financing. The € 123,597 thousand increase in Eastern Europe to € 12,445,014 thousand mainly resulted from an increase in the bonds portfolio in Russia. This was, however, partly offset by sales of non-performing loans. The € 641,268 thousand decline in Asia to € 1,302,472 thousand was mainly due to derecognitions and sales of non-performing loans.
For mortgage and personal loans, and also for SME financing, the merger-related integration of Raiffeisen Bausparkasse Gesellschaft m.b.H., Vienna, and of Raiffeisen stavebni sporitelna a.s., Prague, resulted in an increase in the credit exposure. In addition, personal loans recorded an increase in Poland, Romania and Russia, but this was partly offset by currency effects.
Collateral is divided into pledges (e.g. guarantees) and physical collateral. In the Group liens on private or commercial properties are the main types of collateral used.
In the financial year 2017 two synthetic transactions were terminated by RBI AG: ROOF Real Estate 2015, referencing real estate loans originated by RBI AG, and ROOF Infrastructure 2014 referencing a portfolio of corporate and project finance loans principally originated by RBI AG.
2017 Current Overdue Collateral in € thousand Up to 30 days 31 days, up to 90 days 91 days, up to 180 days 181 days, up to 1 year
The following table shows the share of non-performing loans (NPL) in the defined asset classes loans and advances to customers and loans and advances to banks as reported in the statement of financial position (excluding items off the statement of financial position): NPL NPL ratio NPL coverage ratio in € thousand 2017 2016 2017 2016 2017 2016
in € thousand 2017 2016 Maturity 1 month 1 year 1 month 1 year
Irrevocable credit lines 10,174,261 10,615,520 4,701,813 1,074,241 4,426,760 412,706 1 Adaptation of previous year figures
Operational risk controlling units are responsible for reporting, implementing the framework, developing control measures and monitoring compliance with requirements. Within the framework of the annual risk management cycle, they also coordinate the participation of the relevant second line of defense departments (Financial Crime Management, Compliance, Vendor Management, Outsourcing Management, Insurance Management, Information Security, Physical Security, BCM, Internal Control System) and all first line of defense partners (Operational Risk Managers).
Future minimum lease payments under non-cancelable operating leases are as follows: More than 1 year, up to 5 years 125,091 125,060
Short-term employee benefits shown in the above table contain salaries and benefits in kind and other benefits, remuneration for membership of boards in affiliated companies and those parts of the bonuses which become due in the short term. Furthermore, it also includes changes possibly arising from the difference between the bonus provision and the bonus later awarded. Postemployment benefits comprise payments to pension funds and payments according to Retirement Plan Act (Mitarbeitervorsorgegesetz ), severance payments, leave compensation as well as net allocations to provisions for retirement benefits and severance payments.
In the financial year 2017, no contracts subject to approval within the meaning of Section 95 (5) 12 of the Austrian Stock Corporation Act (AktG) were concluded with members of the Supervisory Board.
Abura Immobilienleasing GmbH & Co. Projekt Seniorenhaus Boppard KG, Eschborn (DE) 6.0% 1/1 Merger
Park City real estate Holding d.o.o., Novi Sad (RS) 63,708 RSD 100.0% BR
Raiffeisen-Rent Immobilienprojektentwicklung Gesellschaft m.b.H. Objekt Wallgasse 12 KG, Vienna (AT) 4,886,449 EUR 37.1% OT
"Zentrum Puntigam" Errichtungs- und Betriebsgesellschaft m.b.H., Vienna (AT) 35,000 EUR 50.0% OT
O.Ö. Leasing für öffentliche Bauten Ges.m.b.H., Linz (AT) 510,000 ATS 16.7% FI
If voting rights are relevant, the Group has control over an entity in which it directly or indirectly holds more than 50 per cent of the voting rights; except when there are indicators that another investee has the ability to determine unilaterally the relevant activities of the entity. One or more of the following points may be such an indicator:  Another investor has control over more than half of the voting rights due to an agreement with the Group,  Another investor has the ability to control financial policy and operational activities of the equity participation due to legal provisions or an agreement,
Non-current assets and disposal groups classified as held for sale are valued at the lower amount of their original carrying value or fair value less costs to sell and are reported under other assets. Income from non-current assets held for sale and discontinued operations is reported under other net operating income. If the impairment expense of the discontinued operations exceeds the carrying value of the assets which fall under the scope of IFRS 5 (Measurement), there is no special provision in the IFRS on how to deal with this difference. This difference is recognized as other provisions in the item provisions for liabilities and charges in the statement of financial position.
Early application of IFRS 9 Presentation of gains and losses on liabilities designated at fair value
All other financial assets – i.e. financial assets that do not meet the criteria for classification as subsequently measured at either amortized cost or FVOCI – are classified as subsequently measured at fair value, with changes in fair value recognized in profit or loss. In addition, RBI has the option at initial recognition to irrevocably designate a financial asset as at FVTPL if doing so elimi-
The estimation of credit exposure for risk management purposes is complex and requires the use of models, as the exposure varies with changes in market conditions, expected cash flows and the passage of time. The assessment of credit risk of a portfolio of assets entails further estimations as to the likelihood of defaults occurring, of the associated loss ratios and of default correlations between counterparties. RBI measures credit risk using probability of default (PD), exposure at default (EAD) and loss given default (LGD). This is the predominant approach used for the purposes of measuring expected credit losses under IFRS 9.
RBI has not used the low credit risk exemption for any lending business, however it selectively uses the low credit risk exemption for debt securities.
 Retail mortgages and other retail lending the loss given default is generated by stripping the downturn adjustments and other margins of conservatism from the regulatory loss given default. Forward looking information is incorporated into the loss given default using various satellite models.
Exposure at default is based on the amounts RBI expects to be owed at the time of default, over the next twelve months or over the remaining lifetime. The twelve-month and lifetime EADs are determined based on the expected payment profile, which varies by product type. For amortizing products and bullet repayment loans, this is based on the contractual repayments owed by the borrower over a twelve-month or lifetime basis. Where relevant early repayment/refinance assumptions are also considered in the calculation.
These economic variables and their associated impact on the probability of default, loss given default and exposure at default vary by category type. Expert judgment has also been applied in this process. Forecasts of these economic variables (the “base economic scenario”) are provided by Raiffeisen Research on a quarterly basis and provide the best estimate view of the economy over the next three years. After three years, to project the economic variables out for the full remaining lifetime of each instrument, a mean reversion approach has been used, which means that economic variables tend to either a long run average rate or a long run average growth rate until maturity. The impact of these economic variables on the probability of default, loss given default and exposure at default has been determined by performing statistical regression to understand the impact changes in these variables have had historically on default rates and on the components of loss given default and exposure at default.
In 2017, RBI launched a group-wide preliminary study to analyze the impact of IFRS 16 on existing leases. In the context of this preliminary study, contracts (rental and leasing contracts) were analyzed on the basis of the extent to which the existing lease agreements were to be recorded as rights of use and lease liabilities on the balance sheet, and on the other hand, group-wide accounting guidelines were drafted. The analysis has shown that as of 1 January 2019, usage rights and leasing liabilities of around € 500 million are expected to be recognized. An effect on equity is not expected. The implementation of the requirements will take place in 2018.
For the purpose of the analysis and description of the performance and the financial position these ratios are commonly used within the financial industry. The special items used below to calculate some alternative performance measures arise from the nature of Group’s business, i.e. that of a universal banking group. However it is to mention that the definitions mostly vary between companies. Please find the definitions of these ratios below.