In this report, Raiffeisen Bank International (RBI) refers to the RBI Group, and RBI AG is used wherever statements refer solely to Raiffeisen Bank International AG. The same applies to RZB and RZB AG.
Our target is a fully loaded CET1 ratio – that is to say excluding the transitional arrangements under Basel III – of at least 12 per cent at the end of 2017. For the total capital ratio – also fully loaded – we are aiming for at least 16 per cent. To achieve these targets, we intend to retain profits and significantly scale back risk-weighted assets in, for example, Russia and Ukraine. Disposals
RBI attaches great importance to responsible and transparent business management in order to maintain the understanding and confidence of its various stakeholders – not least capital market participants. Hence, RBI is committed to adhering to the Austrian Corporate Governance Code (ACGC, or “the Code”) as laid out in the version dated January 2015. The ACGC is publicly available on the Austrian Working Group for Corporate Governance website (www.corporate-governance.at) and on the RBI website (www.rbinternational.com → Investor Relations → Corporate Governance).
Members of the Management Board held seats on the supervisory board or comparable functions in the following domestic and foreign companies that are not included in the consolidated financial statements: ■ Karl Sevelda Oesterreichische Kontrollbank AG, Siemens AG Austria
■ The exercise of functions within the company or merely exercising the function of a board member or senior executive by a Supervisory 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 significant financial 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 RBI Management Board manages the company according to clearly defined goals, strategies and guidelines on its own authority, with a focus on future-oriented business management and in line with modern business principles. In doing so, the Management Board pursues the good of the company at all times and considers the interests of shareholders and employees. Management Board members’ areas of responsibility have been defined by the Supervisory Board, without prejudice to the general responsibility of the Management Board, as follows (as at 31 December 2015): Supervisory Board member
The Supervisory Board held six meetings during the reporting period. In addition, the Management Board fully informed the Supervisory Board on a prompt and regular basis of all relevant matters pertaining to the company’s performance, including the risk position and risk management of the company and material Group companies, particularly in relation to important matters.
Furthermore, protection against occupational disability risk is provided by a pension fund and/or on the basis of an individual pension benefit, which is secured by a reinsurance policy. Contracts for Management Board members are limited to the duration of their respective term in office or a maximum of five years. Regulations regarding severance payments, in the event of the early termination of Management Board mandates, are based on the principles stipulated by the ACGC, as well as on the stipulated maximum limits (a maximum of two years’ total annual remuneration for early termination without serious cause and in any case no longer than the remaining term. No remuneration is paid for premature terminations for serious reasons attributable to the Management Board member).
In order to build on management skills among employees, RBI offers targeted training and continuing education programs, which also proved popular among female employees. For example, approximately 36 per cent of the participants in the group-wide top management program “Execute” were women; in 2015, the proportion of women participating in RBI AG’s advanced leadership training for middle management was 27 per cent.
In the euro area, real GDP increased 1.5 per cent in 2015, with economic growth primarily driven by private consumption. Consumer and business sentiment significantly improved, with some values reaching their highest level in many years. The inflation rate hovered around the zero per cent mark for most of the year due to declining energy prices. On an individual country level, economic growth came in very mixed. Reforms in former crisis countries such as Ireland and Spain bore fruit in terms of strong economic growth. The economic recovery in France, Italy and Austria was comparatively modest due to structural deficits. Although the Austrian economy overcame its stagnation phase in 2015, it experienced only subdued average real GDP growth of 0.3 per cent per quarter. Thus, the real GDP rose 0.9 per cent in 2015; however, it was not enough to generate a sufficient revival in the job market. Employment increased in 2015, but the potential labor force fell more strongly, so that the unemployment rate in Austria in fact rose, contrary to the trend in the euro area. Disappointingly, private consumption in Austria stalled – as opposed to government consumption, which was more dynamic. In contrast, investment activity picked up during 2015, mainly due to investment in equipment while construction investment remained persistently weak. Export growth was also able to improve (as a result of higher demand for goods and services). Exports increased to the US, Switzerland, UK, Poland, and Czech Republic, while there was a reduction in export trade with Russia. Import volumes also increased due to domestic economic momentum, with foreign trade only slightly contributing to GDP growth as a result.
General administrative expenses dropped 4 per cent year-on-year, or € 110 million, to € 2,914 million. The decline was largely attributable to currency devaluations in Eastern Europe. Following the decision not to pay any bonuses for 2014, the release of bonus provisions in the amount of € 76 million also resulted in a decline. Expenses were increased due to transformation costs in the amount of € 34 million and due to higher expenditures for the implementation of regulatory requirements (SRF and Deposit Guarantee Scheme). The average number of staff was further reduced, down 2,304 year-on-year to 54,092. The number of business outlets decreased 161 year-on-year to 2,705.
Despite the substantial currency devaluations in Eastern Europe, net fee and commission income declined 4 per cent year-onyear, or € 67 million, to € 1,519 million. Net income from the payment transfer business fell 9 per cent, or € 67 million, to € 644 million, primarily as a result of currency effects in Ukraine and Russia, as well as lower income from the credit card and giro business in Poland. Net income from the foreign currency, notes/coins and precious metals business was down 3 per cent, or € 12 million, to € 381 million, due particularly to currency and volume effects in Ukraine and Russia. Net income from the loan and guarantee business also fell – by € 11 million to € 198 million – mainly as a result of developments in Russia and at Group head office. In contrast, net income from the securities business rose 7 per cent, or € 9 million, to € 136 million, most notably in Romania. Net income from other banking services increased 14 per cent, or € 8 million, to € 64 million, primarily attributable to Poland and to Group head office. Net income from the management of investment and pension funds grew 12 per cent, or € 5 million, to € 43 million, predominantly due to developments in Croatia.
In the reporting year, recurring other net operating income increased € 62 million to € 66 million. In particular, allocations and releases of other provisions rose € 20 million, mainly caused by positive developments – primarily in Hungary (lower allocations for litigation and lower provisions for the refunding of the transaction tax). Net income from real estate leasing improved € 12 million due to higher contributions from Hungary and the Czech Republic. Net income from the disposal of fixed assets increased € 6 million, primarily due to developments in Hungary.
The Group’s general administrative expenses fell 4 per cent, or € 110 million, to € 2,914 million during the reporting period, largely attributable to the development of the Russian rouble and Ukrainian hryvnia. The decline was also attributable to the release of bonus provisions totaling € 76 million, following the decision not to pay bonuses for 2014. Ukraine and Romania also reported lower general administrative expenses due to impairments in the previous year. In contrast, there were expenditures relating to the bank resolution fund of € 41 million and transformation expenses of € 34 million. The cost/income ratio deteriorated 2.6 percentage points to 59.1 per cent due to lower operating income.
The largest decline in net provisioning for impairment losses was recorded in Ukraine, where the provisioning requirement fell € 321 million year-on-year to € 212 million. On the one hand, this was due to currency effects; and on the other, to higher allocations for retail and corporate customers that were necessary in the previous year as a result of the adjustment of collateral for existing non-performing loans, as well as the political and economic situation in the Donbass region. In Hungary, the provisioning requirement for loans to retail and corporate customers declined € 73 million to € 56 million. At Group head office, net provisioning for impairment losses for large corporate customers also fell, by € 58 million to € 144 million. Likewise, the credit risk situation improved significantly in the Southeastern Europe countries, where total net provisioning for impairment losses fell € 63 million to € 191 million. The largest declines were recorded in Bulgaria (€ 20 million), Croatia (€ 14 million), Romania (€ 11 million), and Serbia (€ 11 million). At € 297 million (down € 10 million), net provisioning for impairment losses in Asia remained at a high level. Net provisioning for impairment losses in Russia rose € 11 million to € 181 million (the year-on-year rise in local currency was 43 per cent). This was due to the continuing unfavorable underlying economic conditions in Russia as well as sales of loans. Poland recorded a year-on-year rise of € 19 million because non-performing loans were sold with proceeds of € 62 million in the previous year. Without these gains, Poland would have recorded a decline of € 35 million.
The portfolio of non-performing loans fell € 548 million over the course of the year to € 8,328 million. However, currency effects resulted in a rise of € 212 million. The actual reduction in non-performing loans on a currency-adjusted basis was € 760 million. The largest declines occurred especially in Hungary (€ 539 million, predominantly as a result of the Settlement Act), Poland (€ 139 million), Bulgaria (€ 90 million), Romania (€ 77 million), Slovenia (€ 77 million), and the Czech Republic (€ 58 million). This contrasted with a rise of € 161 million in Asia. The NPL ratio increased 0.5 percentage points to 11.9 per cent during the reporting year. Non-performing loans compared to loan loss provisions amounting to € 5,935 million, resulting in an improved NPL coverage ratio of 71.3 per cent versus 67.5 per cent in the previous year.
In Hungary, adjustments required in connection with the implementation of the Settlement Act (unilateral interest rate changes on consumer loans) led to the € 67 million partial release of a provision formed in the previous year. In the comparable period of the previous year, an allocation of € 251 million was made after the government’s plan was announced.
In September 2015, the Croatian parliament adopted a law to enforce the conversion of loans denominated in Swiss francs at the historical rates at the time of lending. The resulting losses are to be entirely borne by the lending banks. Although RBI took immediate legal measures, a total provision of € 77 million was booked. This reduced consolidated profit by € 61 million. There was an additional expense of € 9 million relating to foreign currency loans in Serbia and Croatia, where regulations fixed installment payments at historical exchange rates.
Income tax expense rose € 32 million quarter-on-quarter to € 83 million, primarily due to higher tax expenses in Russia and at Group head office in the fourth quarter. In contrast, the recognition of deferred tax assets in the third quarter in connection with Swiss franc loans in Croatia reduced expenses.
In addition to the Management Board, the general control system also encompasses middle management (department heads). All control measures constitute part of the day-to-day business processes and are used to prevent, detect and correct any potential errors or inconsistencies in the financial reporting. Control measures range from managerial reviews of the interim results, as well as the specific reconciliation of accounts, through to analyzing ongoing accounting processes.
The Annual General Meeting of 4 June 2014 also authorized the Management Board, under the provisions of § 65 (1) 7 of the AktG, to acquire own shares for the purpose of securities trading, which may also be conducted off market, during a period of 30 months from the date of the resolution (i.e. until 3 December 2016), of up to a maximum of 5 per cent of the company’s respective share capital. The consideration for each share to be acquired must not be less than half the closing price on the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice this closing price. This authorization may be exercised in full or in part or also in several partial amounts by the company, by affiliated enterprises, or by third parties for their account.
This results in the following segments:  Central Europe (Czech Republic, Hungary and Slovakia)  Southeastern Europe (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Romania and Serbia)  Eastern Europe (Belarus, Kazakhstan, Russia and Ukraine)  Group Corporates (business with large Austrian and multinational corporate customers managed from Vienna)  Group Markets (customer and proprietary capital markets related business managed from Vienna)  Corporate Center (central management functions at Group head office and other Group units)  Non-Core (business areas that are being discontinued or reduced: Asia, Poland, Slovenia, USA, and direct bank Zuno)
Net provisioning for impairment losses in the Central Europe segment declined 40 per cent year-to-year, or € 89 million, to € 133 million, compared to the previous year. This included a € 119 million decline in net allocations to individual loan loss provisions to € 117 million, while net allocations to portfolio-based loan loss provisions amounted to € 16 million, compared to a release of € 14 million in the previous year. The reduction in net provisioning for impairment losses was predominantly attributable to Hungary, where it fell € 73 million to € 56 million due to lower net provisioning for loans to retail and corporate customers. In Slovakia, net provisioning for impairment losses declined € 17 million to € 37 million and also related to both retail and corporate customers. In the Czech Republic, net provisioning for impairment losses remained unchanged year-on-year at € 41 million. Here, a significant decrease in individual loan loss provisions, due to improvements in the economic environment and the sale of a large corporate customer’s fully impaired loan, was offset by higher portfolio-based loan loss provisions to reflect new default probability rates for mortgage loans.
Non-performing loans fell € 182 million from the start of the year to € 1,587 million. The largest declines were in Bulgaria (€ 90 million) and Romania (€ 71 million). The proportion of non-performing loans to non-banks in the segment’s loan portfolio dropped 1.1 percentage points to 12.1 per cent. The NPL coverage ratio increased 5.1 percentage points to 71.6 per cent.
The segment’s general administrative expenses rose 16 per cent, or € 42 million, to € 306 million, mainly due to the booking of Group head office’s contribution of € 24 million to the newly-established bank resolution fund. In addition, staff expenses increased because of higher bonus provisions.
Cash and cash equivalents at the end of period1 13,482,547 6,768,685 1 Cash and cash equivalents at the end of period deviates from the item cash reserve due to the disclosure of Raiffeisen Banka d.d., Maribor, and ZUNO BANK AG,
Loans and advances to banks classified regionally (counterparty domicile) are as follows: Loans and advances to banks break down into the following segments: Multilateral development banks 6,790 5,151
Treasury bills and bills of public authorities eligible for refinancing 9,026,174 7,192,257
The value of the Polbank brand was determined using the relief from royalty method, because neither immediately comparable transactions nor a market with observable prices was available at the time of purchase price allocation. The underlying premise of this method is that the brand has a fair value equal to the present value of the royalty income attributable to it.
Liabilities held for sale in € 000 ZUNO RBSI Others Total
Although the analysis does not take account of the full distribution of cash flows expected under the plan, it does provide an approximation of the sensitivity of the assumptions shown.
The other termination benefits developed as follows: DBO as at 1/1 60,186 51,700
Details on the item “liabilities held for sale” are shown under note (23).
Liabilities from insurance contracts were reduced significantly due to sale of ZAO NPF Raiffeisen, Moscow.
Securitization represents a special form of refinancing and credit risk enhancement under which risks from loans or lease agreements are packaged into portfolios and placed with capital market investors.The objective of the Group’s securitization transactions is to relieve Group regulatory total capital and to use additional refinancing sources.
Synthetic Transaction (JEREMIE) ROOF Slovakia SME 2013(1) Tatra banka a.s., Bratislava (SK)
The table below shows the liabilities corresponding to the assets pledged as collateral and contains liabilities from repo business, securities lending business, securitizations and debentures: Deposits from banks 3,370,649 4,978,526
Repurchase, securities lending & similar agreements (legally enforceable) 225,431 0 225,431 217,366 0 8,065
(40) Fair value of financial instruments In the Group fair value is primarily measured based on external data sources (mainly stock exchange prices or broker quotations in highly liquid markets). Financial instruments which are measured using quoted market prices are mainly listed securities and derivatives and also liquid bonds which are traded on OTC markets. These financial instruments are assigned to Level I of the fair value hierarchy.
Bonds, notes and other fixed-interest securities 2,222,415 3,072,102 64,764 3,430,919 332,688 82,559
Loans and advances to customers 0 15,903,839 47,529,702 63,433,541 63,986,146 (552,606)
(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 Credit Committees are staffed by front office and back office representatives with different participants depending on the customer segment (corporate customers, financial institutions, sovereigns and retail). They decide upon the specific lending criteria for different customer segments and countries and approve all credit decisions concerning them according to the credit approval authority (depending on rating and exposure size).
During the year, the economic capital of the Group decreased to € 5,459,887 thousand. One of the key drivers was the strong decline in market risk. As at year-end 2014, the extremely high volatility of the Russian rouble and the steep interest rate hike carried out by the Russian Central Bank resulted in an unusual increase in economic capital for market risk. Overall, as at the reporting date, credit risk accounted for 62 per cent (2014: 55 per cent) of economic capital. Additionally, a general buffer for other risks, unchanged at 5 per cent of calculated economic capital, is added. In the regional breakdown of economic capital as at 31 December 2015, the largest share of economic capital, at around 41 per cent (2014: 30 per cent), is allocated to Group units located in Central Europe.
The credit exposure with good credit standing to minimal risk credit profiles decreased € 3,060,213 thousand representing a share of 45.5 per cent (2014: 44.7 per cent). The share of exposure with marginal credit standing to very weak/doubtful credit profiles decreased from 13.6 per cent (€ 10,209,546 thousand) to 13.3 per cent (€ 8,871,644 thousand). The share of defaulted exposure according to CRR (rating 10) amounted to 8.4 per cent, or € 5,619,165 thousand (2014: € 5,920,901 thousand) of total credit exposure to corporate customers.
Retail customers are subdivided into private individuals and small and medium-sized entities (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 the Group: in € thousand 2015 Share 2014 Share
Retail customers – small and medium-sized entities 3,225,167 11.6% 3,347,157 11.7%
The share of foreign currency loans in the retail portfolio provides an indication of the potential change in default rates if the exchange rate of the domestic currency changes. The internal risk assessment thus takes into account the share of foreign currency loans but also the usually stricter lending criteria when granting the loan and – in several countries – the customers’ matching foreign currency income.
In the reporting year, four backtesting exceedings arose from the strong movements in the foreign exchange market. The strong devaluation of the euro against the Swiss franc of approximately 20 per cent in the middle of January 2015, the devaluation of the Chinese renminbi due to turbulence on the Chinese stock market and the high Russian rouble volatility contributed to the exceedings.
The presentation of currencies changed year-on-year depending on the absolute amount of interest rate sensitivity.
Regulatory values are defined on an individual and subgroup basis by the BWG and the applicable regulation of the European Parliament (CRR) based on corresponding EU guidelines. There are also – often deviating with regard to content – guidelines in the individual countries in which the Group operates. Such guidelines have to be adhered to by the local Group units.
Further expected regulatory changes and developments are monitored, and included and analyzed in scenario calculations undertaken by Planning & Finance as well as Risk Controlling on an ongoing basis. Potential effects are promptly taken into account in planning and governance, if necessary.
Other liabilities including derivatives 5 27,752 2 549 2015 in € thousand Parent companies Affiliated companies
Centralised Raiffeisen International Services & Payments S.R.L., Bucharest (RO) 100.0% 1/1 Immaterial
The above entities are consolidated as they are either special purpose vehicles (SPV) or funds set up by the Group. The Group is exposed to variability in returns from the vehicles from activities such as holding securities in the vehicles or issuing financial guarantees and the Group has the power to influence the relevant activities of these entities. These entities primarily run on ‘auto-pilot’ with the day to day business activities being performed by the Group by way of a Service Agreement.
Floreasca City Center Verwaltung Kft., Budapest (HU) 41,000 HUF 100.0% FI
Raiffeisen Mandatory and Voluntary Pension Funds Management Company Plc., Zagreb (HR) 143,445,300 HRK 100.0% FI
The Group establishes securitization vehicles which purchase diversified pools of assets, including fixed income securities, conpany loans, and asset-backed securities (predominantly commercial and residential mortgage-backed securities and credit card receivables). The vehicles fund these purchases by issuing multiple tranches of debt and equity securities, the repayment of which is linked to the performance of the assets in the vehicles.
The Group did not provide financial support during the year to non-consolidated structured entities.
Raiffeisen Investment (Bulgaria) EOOD – in liquidation, Sofia (BG) 60,050 BGN 100.0% FI
 The ability exists to reliably determine the expenditure incurred during the development of the intangible fixed asset.
Variable remuneration including a deferred portion is only allocated, paid or transferred if the following criteria are met:  This is not prohibited at the level of RZB/ RBI and/or RBI AG on the basis of a decision by the competent supervisory authority (e.g. by the European Central Bank for RZB/ RBI).
Amendments to IFRS 10/IAS 28 (Sale or contribution of assets between an investor and its associate or joint venture; entry into force January 1, 2016)
[EPS] Earnings per share – Consolidated profit divided by the average number of ordinary shares outstanding in the reporting period.
Loan to local stable funding ratio (LLSFR) – The sum of total loans and advances to customers less impairment losses on loans and advances to customers, divided by the sum of deposits from non-banks, funding from supranational institutions, capital from third parties and the total outstanding bonds (with an original maturity of at least one year issued by a subsidiary bank to investors outside the bank s̀ consolidated group).