Group management report Market development 42 Significant events in the reporting period 47 Earnings and financial performance 48 Research and development 55 Internal control and risk management system 56 Capital, share, voting, and control rights 59 Risk management 61 Corporate Governance 61 Consolidated non-financial report 61 Human Resources 61 Outlook 62 Events after the reporting date 63
No management functions at RBI AG’s material subsidiaries were undertaken by Supervisory Board members.
 The Group Competence Center for Capital Markets Corporate/Retail Sales was renamed Group Capital Markets Corporate & Retail Sales, taking its function into account.
The Nomination Committee also reviews the Management Board’s policy with regard to the selection of executives and supports the Supervisory Board in preparing recommendations for the Management Board. As part of its responsibility, the Nomination Committee evaluates the selection of key function holders, the guiding principles of executive selection and development, succession planning and the policies and steps taken for filling upper management positions.
A new remuneration model for the Supervisory Board was adopted at the Annual General Meeting on 21 June 2018. Under the new model, elected Supervisory Board members are paid the following annual remuneration starting in the 2017 financial year as long as the General Meeting does not pass any future resolutions to the contrary:  For the Chairman of the Supervisory Board: € 120,000
These and other requirements and rules of conduct are covered by a corporate policy that contains the duties required by law and by the ACGC. The policy also gives due consideration to the European Banking Authority’s (EBA) guidelines on internal governance, the joint European Securities and Markets Authority/EBA guidelines to assess the suitability of members of management bodies and key function holders, the European Central Bank’s guide to fit and proper assessments and the Basel Committee on Banking Supervision’s corporate governance principles for banks.
RBI considers the comprehensive protection of all data that is either transmitted to it or made available to it, in particular data relating to natural persons (e.g. customers and employees), to be an integral part of its business activities. As such, RBI attaches great importance to data protection. In the collection, storage, processing and transmission of personal data relating to natural persons, in addition to observing the mandatory legal requirements RBI maintains internal policies and procedures which must be adhered to, embedded in an organizational and operational structure specifically for data protection. Compliance with these requirements, policies and procedures is managed by the organizational units Group Data Privacy & Quality Governance, Group Information & Cyber Security and Group Business Continuity Management & Physical Security. Compliance is also monitored and supervised by the data protection officer.
The year 2019 was marked by new developments in the field of sustainable financing. The European Commission's Green Deal aims to make Europe the first climate neutral continent by 2050. Various measures will be introduced, ranging from effective CO2 pricing and mechanisms to adjust CO2 limits for selected sectors, to cleaner energy and the mobilization of industry for a clean and circular economy. The financial sector has also been called upon to support these objectives. Sustainable financing is a central theme for 2020 and the coming years. The integration of climate and environmental risks into the EU supervisory framework will be a significant issue over the coming years in the financial sector, in addition to increased transparency and disclosure requirements for financial products.
In addition, foreign exchange movements also increased risk-weighted assets, primarily due to the Russian ruble. The changes in market risk reduced risk-weighted assets, while the change in settlement risk increased them marginally.
Impairment losses on financial assets (38) (122) (68.8)% (59) (12) 407.1%
Net interest income for the segment was down 14 per cent year-on-year, or € 135 million, to € 830 million. Without the sale of the Polish core banking operations, net interest income would have increased € 57 million or 7 per cent. In the Czech Republic, higher market interest rates and increased customer loan volumes led to a rise of € 57 million in net interest income. In Slovakia, net interest income increased € 5 million due to higher volumes. In Hungary, net interest income fell € 6 million, mainly as a result of higher interest expenses for customer deposits. While the net interest margin in the Czech Republic rose 26 basis points to 2.37 per cent due to higher market interest rates, the overall segment’s net interest margin declined by 18 basis points to 2.09 per cent due to the sale of the Polish core banking operations.
Levies and special governmental measures (25) (11) 128.5% (10) 1 –
Return on equity before tax 18.9% 21.4% (2.5) PP 17.9% 17.0% 1.0 PP
Employees as at reporting date (full-time equivalents) 1,746 1,829 8,819 8,998 7,791 7,923
Net trading income and fair value result 35 22 55.9% 20 15 41.2%
The segment's NPE ratio was 1.7 per cent as at 31 December 2019. The NPE coverage ratio was 55.9 per cent.
Current income from investments in associates1 166 61 173.0% 120 12 >500.0%
The expense for levies and special governmental measures reported in the segment increased € 5 million to € 57 million. At € 47 million, the expenses for bank levies remained almost unchanged compared to the same period in the previous year. The € 163 million one-off payment stipulated by law for the Austrian bank levy is spread over four years – with € 41 million booked in the reporting period – and is allocated to the Corporate Center segment. The head office contributions to the resolution fund allocated to the segment increased € 5 million to € 10 million.
RBI’s home market consists of Austria, where it does business as a leading commercial and investment bank, as well as Central and Eastern Europe (CEE). As at the balance sheet date, subsidiary banks cover 13 markets in CEE. The Group also contains many other financial service companies specializing in sectors such as leasing, clearing, settlement and payment services and asset management. In total, RBI’s nearly 47,000 employees serve 16.7 million clients at more than 2,000 business outlets located mostly in CEE.
The consolidated financial statements are lodged with the Companies Register in accordance with Austrian disclosure regulations and published in the official journal of the Wiener Zeitung. They were signed by the Management Board on 28 February 2020 and subsequently submitted for the notice of the Supervisory Board.
Net gains/losses reclassified to income statement 0 63,495 13,869 13,417 0
Items that may be reclassified subsequently to profit or loss 0 316,172 (51,089) 3,101 44,576
Previously, RBI determined at contract inception whether an arrangement is or contains a lease under IFRIC 4. Under IFRS 16, RBI assesses whether a contract is or contains a lease based on the definition, as explained in the section Recognition and measurement principles in the chapter Leasing. On transition to IFRS 16, RBI elected to apply the practical expedient to grandfather the assessment of which transactions are leases. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered or changed on or after 1 January 2019.
IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Under this standard, a lessor continues to classify its leases as operating leases or finance leases and to account for those two types of leases differently. If subleases exist (i.e. intragroup lease agreements), the sub-lessor must examine all subleases classified as operating leases to determine whether they should be classified as operating leases or finance leases under IFRS 16. In the case of subleases which were accounted for as operating leases in accordance with IAS 17 but are classified as finance leases under IFRS 16, the sub-lessor must account for the leases in the same way as for a new finance lease contract concluded as of that date.
Financial assets - fair value through other comprehensive income 131,147 118,318
The charges from banking business due to governmental measures increased € 3,111 thousand as a result of the conversion of Swiss franc loans in Serbia.
Significant influence over UNIQA Insurance Group AG, Vienna, exists as a result of a syndicate agreement with the other core shareholders that governs the right to appoint members of the Supervisory Board, among other things. Significant influence over Oesterreichische Kontrollbank AG, Vienna, exists as a result of two permanent positions on the Supervisory Board.
RKAG RKAG is one of the leading Austrian fund enterprises with a managed consolidated volume of € 38.3 billion as at year-end 2019 and a market share of 19.3 per cent. RKAG has been active in international markets for years and is a well-known player in numerous European countries.
The item fair value adjustments of the hedged items in portfolio hedge of interest rate risk changed by € 26,658 thousand compared to year-end 2018, from minus € 62,274 thousand to minus € 35,616 thousand. This was mainly due to the fair value development of the hedged liabilities in portfolio hedges of Raiffeisenbank a.s., Prague, with rising interest rates.
Future salary growth (0.5 per cent change) 762 (759) 735 (712)
The other termination benefits developed as follows: Defined benefit obligation as at 1/1 89,290 82,988
The following table shows the actuarial assumptions used to calculate the other termination benefits: in per cent 2019 2018
Level III inputs are input factors which are unobservable for the asset or liability (IFRS 13.86). The fair value is measured using the valuation method.
According to IFRS 13 it is necessary to disclose information that helps users of its financial statements assess recurring fair value measurements using significant unobservable inputs (Level III) and disclose separately the effect of the measurements on profit or loss and other comprehensive income for the period. This means for recurring fair value measurements categorized within Level III of the fair value hierarchy of financial assets and financial liabilities, if changing one or more of the unobservable inputs to reflect reasonably possible alternative assumptions would change fair value significantly, an entity shall state that fact and disclose the effect of such changes.
1 The gross carrying amount follows the definition under FINREP in Annex V 1.34(b).
The following table contains details of the maximum exposure from financial assets not subject to impairment and the financial assets subject to impairment and reconciles these to the loans and advances non-trading which is the basis of the collateral disclosures below: 2019 Maximum exposure to credit risk in € thousand Not subject to impairment Subject to impairment hereof loans and advances non-trading, loan commitments, financial guarantees and other commitments
RBI employs a range of policies to mitigate credit risk, the most common of which is the acceptance of collateral for loans and advances provided. The eligibility of collateral is defined on a RBI Group basis to ensure uniform standards of collateral evaluation. A valuation of collateral is performed during the credit approval process. This is then reviewed periodically using various validation processes. The main types of collateral which are accepted in RBI Group are residential and commercial real estate collateral, financial collateral, guarantees and movable goods. Long-term financing is generally secured and revolving credit facilities are generally unsecured. Debt securities are mainly unsecured, and derivatives can be secured by cash or master netting agreements. Collateral from leasing business is also included in the table. Items shown in cash and cash equivalents are considered to have negligible credit risk.
Raiffeisen Bank International | Annual Report 2019 2018 Gross carrying amount Accumulated impairment ECL Coverage Ratio in € thousand Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 1 Austria mainly includes the business of the head office and Raiffeisen Bausparkasse. Other also includes any consolidation effects.
 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 and it forms the basis for consistent overall bank management across all countries and business lines in RBI.
The regulatory component is addressed by complying with the reporting requirements under Basel III (Liquidity Coverage Ratio, Net Stable Funding Ratio, and Additional Liquidity Monitoring Metrics) as well as by complying with the regulatory limits. In addition some Group units have additional liquidity and reporting requirements set by their local supervisory authorities.
RBI faces customer lawsuits in connection with consumer protection matters. Most claims relate to terms of contract that are alleged to breach consumer protection or other laws. The legal risk associated with such claims is heightened by the danger of politically motivated legislation that increases the degree of unpredictability.
As the lawsuits have been filed by a number of customers, the provision is based on a statistical approach that takes into account both static data, where relevant, and expert opinions. Possible decision scenarios have been estimated together with the expected loss rates per scenario. The expected impact is based on loans from customers who have filed or indicated that they will file a lawsuit against the bank. To calculate the financial impact per scenario, the claim amount is multiplied by the estimated financial outflow in the scenario and the probability that the bank will ultimately have to pay compensation to the customer. An appropriate discount rate is applied to outflows that are not expected to arise within one year. The financial impacts of the individual scenarios are weighted on the basis of expert opinions. The resulting provision has been increased to € 49,336 thousand.
The Management Board as at 31 December 2019 was as follows: Members of the Management Board First assignment End of period
BUILDING BUSINESS CENTER DOO NOVI SAD, Novi Sad (RS) 100.0% 1/1 Materiality
A structured entity often has some or all of the following features or attributes:  Restricted activities  A narrow and well-defined objective  Insufficient equity to permit the structured entity to finance its activities without subordinated financial support  Financing in the form of the issue of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).
INVESTOR COMPENSATION FUND, Bucharest (RO) 344,350 RON 0.4% OT 1 Company type: BA Bank, BR Company rendering banking-related ancillary services, FH Financial holding, FI Financial institution, OT Other companies, VV Insurance,
OCTANOS Raiffeisen Immobilien Leasing Gesellschaft m.b.H., Vienna (AT) 36,400 EUR 50.0% OT
No direct transitional provisions have been used for RBI as at 31 December 2019 reporting date, for which reason they do not impact the common equity tier 1 ratio. Only the tier 1 ratio and the total capital ratio are affected due to capital instruments (in additional tier 1 capital) that are no longer eligible.
Risk-weighted assets for credit risk by asset classes broke down as follows: Risk-weighted assets according to standardized approach 25,281,464 22,718,655
Recognition and measurement principles Classification and measurement of financial assets and financial liabilities
Once RBI determines that the business model of a specific portfolio is to hold the financial assets to collect the contractual cash flows (or to both collect contractual cash flows and sell financial assets), it must then assess whether the contractual terms of the financial asset give rise on specific dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. For this purpose, interest is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin. This assessment will be carried out on an instrument-by-instrument basis on the date of initial recognition of the financial asset.
In accordance with IFRS 9, these financial instruments are measured at fair value. Interest income is shown in net interest income; valuation results and proceeds from disposals are shown in net trading income and fair value result. For financial liabilities designated at fair value through profit or loss, changes in fair value attributable to a change in own credit risk is not reported in the income statement but in other comprehensive income.
When quoted prices for financial instruments are not available, the prices of similar financial instruments are used to determine the current fair value or accepted measurement methods utilizing observable prices or parameters (in particular present value calculations or option price models) are employed. These methods concern the majority of the OTC-derivatives and non-quoted debt instruments.
Investments in subsidiaries not included in the consolidated financial statements because of their minor significance, and investments in associated companies that are not valued at equity are shown in investments in subsidiaries and associates.
Consolidated return on equity – Consolidated profit less dividend on additional tier 1 capital in relation to average consolidated equity ( i.e. the equity attributable to the shareholders of RBI). Average consolidated equity is based on month-end figures excluding non-controlling interests and does not include current year profit.
NPE – Non-performing exposure. It contains all non-performing loans and debt securities according to the applicable definition of the EBA document Implementing Technical Standards (ITS) on Supervisory Reporting (Forbearance and non-performing exposures ).
We have been the Group’s auditors since the company's first listing on the stock exchange in 2005.