Net interest income after provisioning 2,452 18.9% 2,062 1,455 1,035 666
Net fee and commission income 1,496 19.7% 1,250 933 607 441
Return on equity after tax 16.6% (3.6) PP 20.2% 21.0% 17.6% 17.6%
Core capital ratio (Tier 1), credit risk 9.7% (1.7) PP 11.4% 9.8% 9.0% 11.8%
An exceptional year! 2008 was an exceptional year: The fi nancial crisis unfolded and expanded into an economic crisis with global implications. No fi nancial institution anywhere in the world was left unscathed. Our company has not been entirely spared either. The causes and eff ects of the crisis, which has also swept over Central and Eastern Europe, have been the subject of much debate, reporting, analysis, and speculations, rose-tinted reports and dire forecasts. This is why we have deliberately avoided being too wordy in this annual report. We decided to let the hard facts and numbers speak for themselves. In times like these, the reality is often less horrifying than what is left to the imagination. Judge for yourself.
Offi cial name Czech Republic/ Česká republika Surface area 78,866 km2
Export goods (Top 4) Machinery and transport equipment 54% Iron and steel 8% Chemical products 5% Metal goods 4%
Economy Gross domestic product in US$ billion 112.9 Gross national income per capita US$ 10,870
Export goods (Top 5) Machinery and transport equipment 62% Processed goods 27% Food, beverages, tobacco 6% Energy sources 3% Raw materials 2%
Import goods (Top 5) Machinery and equipment 21% Mineral fuel, petrol, electricity 17% Food, beverages, tobacco 17% Building material and metals 16% Chemical and plastic products 11%
Population Inhabitants per km2 195 Average growth n/a Albanian 92% Serbs 5% Other 3%
Top 5 countries of import Russia 28% Germany 10% Turkmenistan 8% PR China 6% Poland 5%
(World ranking: 1) Inhabitants 142.5 million (World ranking: 9) Capital Moskow/Moskva (10.4 million inhabitants) Other large St. Petersburg, cities Novosibirsk, Yekaterinburg, Nižnij Novgorod, Samara Offi cial language Russian Currency Rouble
The discussions and exchange of information took place both during and between the meetings.
The Supervisory Board held fi ve meetings during the year under review. All members of the Supervisory Board participated in more than half of the meetings. At all the meetings, the Supervisory Board performed the tasks prescribed to it by law in compliance with the Austrian Corporate Governance Code.
At the meeting of 16 September 2008, the effects of the fi nancial crisis on the banking sector and particularly on the liquidity situation of the Group were discussed in detail.
The accompanying consolidated fi nancial statements (income statement, balance sheet, and notes) and the consolidated management report as well as the annual fi nancial statements and management report of Raiff eisen International were audited by KPMG Austria GmbH, Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Vienna. The audit has revealed no reasons for objection, and the statutory requirements have been fully satisfi ed, thus allowing an unconditional auditor’s certifi cate to be issued. After thorough review and discussion of the consolidated fi nancial statements and the annual fi nancial statements in the Audit Committee and in the Supervisory Board, the Supervisory Board has declared its agreement with the proposal regarding the use of profi t and approves the annual fi nancial statements of Raiff eisen International Bank-Holding AG. They have thus been ratifi ed in accordance with Section 125 (2) of the Austrian Stock Corporation Act (AktG).
Have Austria’s banks – including Raiff eisen International – made a mistake with their strong exposure in Eastern Europe, the key word being “cluster risk”?
The opposite is the case. If Austrian banks had not gone to Central and Eastern Europe, their earnings situation would certainly be far weaker and they would probably have been more exposed in investment banking, like other Western European banks. Austrian banks have created a successful business model, with which they can also brave the crisis in diffi cult times. Raiff eisen International does not deal in complicated structured fi nancing instruments. We also have no subprime transactions on our books. Our business model is simple, but abiding. We cover the basic fi nancial needs of almost 14.7 million customers in Central and Eastern Europe.
How have you reacted to the new situation, and what does your funding situation look like?
Altogether, about 137.9 million Raiff eisen International shares were traded in 2008. Turnover amounted to about € 8.7 billion, and average daily trading volume to 551,618 shares.
As one of over 300 Western European blue chips, Raiff eisen International shares are represented in both the DJ Euro Stoxx and the DJ Stoxx 600, which covers the 600 Western European companies with the largest market capitalization.
The Audit Committee prepares the ratifi cation of the annual fi nancial statements, the management report, the consolidated fi nancial statements, and the consolidated management report as well as the proposal concerning the distribution of profi t. It furthermore draws up the proposal for the selection of the auditor. The content of the management letter is also discussed in the Audit Committee.
The performance-based components of the Managing Board’s remuneration consist of bonus payments linked to the achievement of Company objectives for profi t after tax, return on riskadjusted capital, and cost/income ratio and to the achievement of annually agreed personal objectives and the value of an allotment of shares in the framework of the share incentive program. The value of the allotted shares corresponds to 65.7 per cent of the performance-based remuneration components. There were no material changes in the principles for profi t-sharing compared with the preceding year.
As in the preceding years, the driver of growth was net interest income, which rose by one-third to € 3,232 million. Both business divisions contributed to that with corporate customers up by 39 per cent, and retail customers by 28 per cent. The regional emphasis was in the CIS, which registered the largest increase at over 40 per cent. That raised the Group’s interest margin again by 13 basis points on an annual basis to 3.99 per cent. The share of net interest income in operating income was 2 percentage points above the preceding year’s level and amounted to 66 per cent.
Net trading income from interest rate and credit products normally plays a minor role for Raiff eisen International, because the limits approved by management are relatively small and only used selectively. However, individual network banks are being forced to hold securities – primarily government bonds – for the purpose of investing surplus liquidity and sometimes also in order to comply with statutory regulations. Because of the severe interest rate fl uctuations in the second half of 2008, a loss resulted in this item of € 88 million after a profi t of € 27 million in the year before. The largest valuation losses were registered in the CIS (particularly Russia) at € 50 million and in Central Europe (particularly the Czech Republic and Hungary) at € 27 million. In Southeastern Europe the loss was € 11 million.
The negative result from other derivative instruments included in this item was greatly reduced in 2008 (minus € 16 million versus minus € 34 million in the preceding year). The main reason was that cash fl ow hedge accounting was implemented in Russia in the course of the year. Interest rate swaps were used to hedge interest rate risk from variable-rate liabilities, and changes in their market value were initially recorded in equity without aff ecting income. They are charged to the income statement only if the cash fl ow hedge becomes at least partly ineff ective. Moreover, valuation losses from interest rate swaps in the amount of € 26 million had negatively infl uenced the earnings of the Russian Raiff eisenbank in the preceding year.
Loans to corporate customers (excluding micro businesses) totaled € 34.6 billion at year’s end. That means an increase of 15 per cent, or € 4.4 billion. Loans to retail customers registered a signifi cantly larger increase of 26 per cent, or € 4.5 billion, to € 22.1 billion.
The signifi cant increase in deposits from banks by € 6.3 billion to € 26.2 billion is mainly attributable to expansion of long-term fi nancing. Funding arrangements by way of international commercial banks and supranational institutions were expanded by 25 per cent to € 24.9 billion. Money market dealings were down by 5 per cent to € 6 billion as of the balance sheet date. The share of funding to banks through the RZB Group amounted to about 61 per cent at the end of 2008.
Equity according to the Austrian Banking Act Raiff eisen International is not a separate banking group within the meaning of the Austrian Banking Act (BWG) and therefore is not itself subject as a group to the regulatory provisions for banks. Since the beginning of 2008, the solvency calculation has been performed in accordance with Basel II. Credit risk and market risk are calculated according to the Standardized Approach pursuant to Section 22 of the BWG. In December 2008, the fi nancial market supervisory authority authorized RZB to calculate the risk-weighted assets (credit risk), in certain countries for certain product groups, according to the Internal Ratings-Based (IRB) approach. For Raiff eisen International, that concerned the network banks in Slovakia, the Czech Republic, and Hungary, which have been calculating loans and advances to
The Group’s training center for the former Yugoslavian countries, the Raiff eisen Training Center (RTC) in Zagreb, increased its training volume signifi cantly in 2008. The number of RTC rose by
E-learning programs make it possible to help a large number of employees with their educational needs directly, comprehensively, promptly, and effi ciently. In 2008, Raiff eisen International successfully continued on the path taken some years ago to use this modern learning method to ensure optimal qualifi cation of its employees. As an important medium in the qualifi cation of Raiffeisen International’s employees, e-learning has now become a key component of the learning methods used at all levels.
Individual Central and Eastern European countries constitute the smallest Cash Generating Units – CGU. Countries that expect a similar long-term economic development and exhibit a similar economic profi le are grouped together as regional segments. Four regional segments have been determined in consideration of the threshold values required by IFRS 8, whereby transparent and clearly represented reporting is achieved. The threshold values as defi ned by IFRS 8 are 10 per cent of certain parameters; these are operating income, profi t after tax, and segment assets.
Income taxes rose by 4 per cent on the comparable period to € 91 million. Profi t after tax and minority interests amounted to € 261 million.
Based on an innovative and extensive product range, total lendings to customers rose by 13.3 per cent in 2008 to € 7.2 billion. At the same time, customer deposits increased by 16.4 per cent on annual comparison to € 5.7 billion.
Bosnia and Herzegovina Bosnia and Herzegovina achieved real GDP growth of 5.5 per cent in 2008. The national currency, the convertible mark, has been pegged fi x to the euro (previously the German mark) since 1997. Nevertheless, the infl ation rate reached 7.4 per cent on average in 2008 due to increased energy and food prices. In relation to GDP per capita, the banking sector in Bosnia and Herzegovina shows a high rate of market penetration. On a euro basis, the banking sector’s total assets grew by about 10 per cent in 2008 on annual comparison.
Serbia Growth of Serbia’s GDP amounted to 6.5 per cent in the reporting period, while infl ation averaged 12.8 per cent in 2008 due to the rise of energy and food prices. After revaluing until about mid-year, the Serbian dinar came under devaluation pressure in the second half because of the global fi nancial market crisis. Serbia’s total bank assets increased by about 11 per cent in 2008. They remained nearly unchanged on a euro basis, however, due to the dinar’s devaluation.
Net income from fi nancial investments also amounted to minus € 8 million. A positive earnings contribution of € 10 million derived from the sale of other participations of the Russian network bank. On the other hand, the valuation losses of the securities portfolio, which were incurred primarily at the Group’s Ukrainian subsidiary, had a negative eff ect.
Despite the signifi cantly worsened economic situation, Raiff eisen International registered good business development in 2008 in the area of small businesses. That was attributable in particular to non-interest-bearing business. Deposit business again benefi ted from higher margins. Business with self-employed persons (businesses with sales of less than € 1 million) was further expanded by means of extensive marketing initiatives and measures in the product, process, and risk areas.
Net income from disposal of group assets (10) 7,860 26,517 (70.4)%
Net provisioning for liabilities and charges and impairment losses 948,903 321,236
The reconciliation implies the amounts resulting from the elimination of intra-group results, the consolidation between the segments and headquarters’ results. It also includes the refinancing of the participations in the holding company. Finally, financial ratios – usual in line of business – are added to evaluate the results.
Return on equity before tax 16.9% 25.8% 39.3% 26.7% – 22.0%
Share of profit after tax 33.2% 37.1% 18.1% 11.6% – 100.0%
IFRS 8 (Operating Segments) published in November 2006 by the IASB replaces IAS 14 and defines the segment reporting on the basis of operative segments. According to IFRS 8, segments are components of an entity. Financial information is disclosed for each segment which is controlled by the chief operating decision maker on a regular basis (management approach). IFRS 8 has to be applied for periods beginning on or after 1 January, 2009. But the Group applies IFRS 8 starting with the year end 2008. In order to ensure comparability, the figures for the year 2007 were adapted and reported according to operating segments.
A finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset to the lessee. Pursuant to IAS 17, the present value of all future lease payments and any residual values are shown as loans and advances to banks or customers in the balance sheet of the lessor. The lessee recognizes the assets as tangible fixed assets to which refer a corresponding leasing liability.
All share-based remunerations are recognized according to IFRS 2 (Share-based Payment) as staff expenses and booked directly against equity.
from balances at central banks 206,147 120,250 from loans and advances to banks 298,548 418,011 from loans and advances to customers 4,902,210 3,529,643 from financial investments 263,702 235,229 from leasing claims 354,957 241,458 from derivative financial instruments (non-trading), net 139,064 55,565 from shares and other variable-yield securities 1,188 279 from shares in affiliated companies 2,829 545 from other interests 5,121 326
Net valuations of securities at fair value through profit and loss (44,997) (8,637)
Income taxes break down as follows: Raiffeisen International Bank-Holding AG and two of its domestic subsidiaries are members of a joint tax entity headed by Raiffeisen Zentralbank Österreich Aktiengesellschaft. This enables them to allocate Group member losses to the Group parent’s tax income. As tax apportionment, Raiffeisen International Bank-Holding AG received a tax equalization of € 28,682 thousand (2007: € 11,344 thousand) from Raiffeisen Zentralbank Österreich Aktiengesellschaft.
Treasury bills and bills of public authorities eligible for refinancing 831,657 766,851
Intangible and tangible fixed assets developed in the financial year 2008 as follows: Cost of acquisition or conversion
Of total subordinated capital, Raiffeisen Zentralbank Österreich Aktiengesellschaft and other subsidiaries of RZB provided € 1,434,766 thousand (2007: € 1,356,525 thousand). The following table contains borrowings which exceed 10 per cent of the subordinated capital.
Subscribed capital The subscribed capital of Raiffeisen International Bank-Holding AG as defined by the articles of incorporation amounted to € 471,736 thousand as of 31 December 2008. It comprises 154,667,500 no-par bearer shares. Excluding own shares of 1,029,012 the stated subscribed capital totalled € 468,597 thousand.
Convertible bonds In the Annual General Meeting held on 10 June 2008, the Managing Board was given the authorization pursuant to Section 174 (2) of the Austrian Joint Stock Companies Act to issue – with the approval of the Supervisory Board – convertible bonds, also in several tranches, within five years as of the date of the resolution, for a maximum total nominal amount of € 2,000,000 thousand, to which attaches a conversion or subscription right to obtain a maximum of 15,466,750 ordinary bearer shares of the company with a corresponding pro-rata share in the subscribed capital of a maximum € 47,174 thousand – and to do so also indirectly by means of a guarantee for an issue of convertible bonds by a subsidiary company, of which the company holds one hundred per cent directly or indirectly, that entails conversion rights to obtain shares of that company – as well as to determine all further conditions (including the currency of the issue), the issue and the conversion procedure for the convertible bonds. The subscription right of shareholders is excluded.
The economic capital measure shows – as in the last year – that credit risk due to corporate customers remains the dominant risk category. Its share in total risk (31 per cent), however, is decreasing steadily. This comes at no surprise as the share of the retail credit portfolio also increased by a similar amount in the last year. Credit risk in total makes up 64 per cent of economic capital. Market and operational risks account for 16 and 9 per cent respectively of economic capital, and in addition, a general risk buffer is allocated for other risks as well.
In case of default, customers are recorded in the Group-wide default database which has been created within the scope of the Basel II project. The database tracks recoveries and workout costs as well, which makes it possible to calculate and validate PDs and LGDs (the probability of default, PD, and loss given default, LGD, both are parameters in the regulatory Internal Ratings-Based approach and the internal risk quantification models).
The following table shows the corresponding loans outstanding in the defined asset classes within loans and advances to banks and loans and advances to customers on the balance sheet and the corresponding proportion of non-performing loans, collateral provided for these loans, and loan loss provisions split by region: For the corporate customers the NPL ratio was highest in Central Europe in the year 2008. There the ratio yielded 3.1 per cent after 2.5 per cent in the previous year. Overall the NPL ratio increased from 1.7 per cent to 2.4 per cent in this business field. In absolute figures, the amount of nonperforming loans reached € 824 million. For these loans € 852 million in loan loss provisions have been allocated and € 518 million of collateral have been provided.
Raiffeisen International approves, measures, monitors and manages all market risks by setting a variety of limits in consultation with the RZB Group. The overall limit is set by the Managing Board on the basis of the bank’s risk-bearing capacity and income budgeting. This limit is apportioned on the basis of a coordinated proposal made by the treasury department, market risk management, and the responsible member of the Managing Board in the bank’s weekly market risk committee. The individual limits set at book level vary according to the different risk factors. Besides value-at-risk (VaR) limits, those limits may include volume and position limits as well as sensitivity limits (basis-point value, delta, gamma, vega) and stop-loss limits, depending on the type of transaction. All treasury products in which open positions can be held by the bank are listed in the product catalogue. New products are added to this list only after running through the Product Approval Process (PAP). Options may only be entered into by appropriately trained dealers.
Internal limits have been established for each Group unit to limit liquidity risk. They require a positive short- and medium-term liquidity gap (subject to conservative assumptions regarding the saleability of liquid assets and withdrawals on the liabilities side of the balance sheet). In addition the Group maintains extensive holdings of liquid securities to ensure liquidity in various currencies and favour assets eligible in tender transactions in the credit business. In the case of a liquidity shortage, emergency plans come into force. In particular, prioritised action lists for handling liquidity shortages (also with regard to the publicity impact) exist for all major Group members.
Additionally, the specific credit risk and collaterals are considered for the calculation of fair values for loans and advances.
Shares and other variable-yield securities 64,275 – 2,842 99,158 – 2,568
Negative fair values of other derivative financial instruments1 958,708 1,267,180 4,681 337,213 308,213 2,077
In the case of termination of function or employment contract, two members of the Managing Board are entitled to receive severance payments according to the Salaried Employee Act (Angestelltengesetz ), two members of the Managing Board according to contractual agreements and two members of the Managing Board according to the Company Retirement Plan Act (Betriebliches Mitarbeiter- und Selbständigenvorsorgegesetz). The entitlement to receive severance payments according to the Salaried Employee Act (Angestelltengesetz) and according to contractual agreements lapses with the exemption of one member of the Managing Board in case of termination by the employee.
The Chairman of the Managing Board is furthermore still working for the board of Raiffeisen Zentralbank. Remuneration stated in the above table covers also this position.
In the financial year 2008, € 330 thousand were paid to the Supervisory Board. In the previous year, the members of the Supervisory Board received a remuneration of € 330 thousand.
Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Associated companies – Entity over which the investor has signifi cant infl uence.