Overview of RBI Interview with the Chairman of the Management Board 6 Management Board of RBI 9 Report of the Supervisory Board 10 RBI at a glance 12 RBI‘s strategy 13 RBI in the capital markets 16 Corporate governance report 20 Sustainability management at RBI 30
The challenges in the business environment (e.g. bank-specific taxes, continued subdued economic momentum, tighter supervisory requirements and geopolitical developments in Ukraine) call for ongoing business model adjustments and flexibility within the organization. Stringent, Group-wide capital management is the key criterion for success. Therefore, RBI decided to undertake structural changes in order to strengthen its capital base and to reduce risk. The following package of measures will create capacity for growth in RBI‘s most promising markets: RBI‘s strategy
Internally, the focus is on strengthening cross-border services for global institutional customers, establishing a joint trading platform and harmonizing IT systems.
Bonds benefit from monetary policy Yields on high-grade European government bonds fell steadily throughout 2014. This decline was primarily caused by the ECB’s loose monetary policy and geopolitical tensions that prompted many investors to seek refuge in the presumed security of government bonds. Yields on ten-year German government bonds, for example, dropped below 1 per cent for the first time in history. Bonds from countries such as Italy, Portugal and Spain also benefited from this trend and narrowed their spreads relative to bonds issued by sovereigns with prime credit ratings. Yields on US government bonds shrank during the year despite the prospect of an interest rate turnaround and reduction in bond buying by the US Federal Reserve, but still remained noticeably higher than yields on German government bonds.
Helge Rechberger 2 1967 10 October 2010 Until further notice 1 Effective as of 10 October 2010. 2 Delegated by the Works Council.
■ The Supervisory Board member shall not have been an auditor of the company, nor shareholder or employee of the auditing company in the previous three years.
■ Christian Teufl VK Mühlen AG (listed on the stock exchange until 27 June 2014)
3rd Deputy Chairman 3rd Deputy Chairman 3rd Deputy Chairman 3rd Deputy Chairman
The Supervisory Board held eight 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 of the company’s performance, including the risk position and risk management of the company, and material Group companies, especially in case of important matters.
The following total amounts were paid to the Management Board of RBI: Fixed remuneration 5,101 5,477
Under the SIP, new tranches were last issued in 2011, 2012 and 2013. This means that on the reporting date, contingent shares for these three tranches were allocated. As at 31 December 2014, the number of these contingent shares was 975,955 (of which 212,796 were attributable to the 2011 allocation, 402,209 to the 2012 allocation and 360,950 to the 2013 allocation). The number of contingently allocated shares originally announced changed due to various personnel changes within Group units. It is aggregated in the following table: No shares were repurchased for SIP in 2014.
RBI promotes sustainability issues and ensures compliance with the ten principles of the “United Nations Global Compact (UNGC).”
Net provisioning for impairment losses rose 49 per cent year-on-year, or € 567 million, to € 1,716 million. This resulted from an increase in individual loan loss provisions of € 614 million, to € 1,829 million. For portfolio-based loan loss provisions, there were again net releases totaling € 45 million (decline of € 6 million). This contrasted with € 54 million higher proceeds from the sale of impaired loans, which totaled € 68 million in the reporting year and of which the sale of non-performing loans in Poland accounted for € 61 million.
The portfolio of non-performing loans to customers has increased € 181 million, to € 8,838 million since the beginning of the year; on a currency-adjusted basis there was an increase of € 959 million. This increase occurred mainly in the Group Corporates segment (up € 629 million) and in Ukraine (up € 604 million)and in Russia (up € 195 million) whereas, in Hungary and Bulgaria, the portfolio of non-performing loans to customers significantly declined (down € 181 million and € 187 million, respectively). In addition, currency effects – notably as a result of the devaluation of the Ukrainian hryvnia and Russian rouble – resulted in a decline of € 778 million. Compared to year-end 2013, the NPL ratio increased 0.6 percentage point to 11.3 per cent in the reporting year. Non-performing loans were set against loan loss provisions amounting to € 5,955 million. An improved NPL coverage ratio of 67.4 per cent, up from 63.1 per cent in the previous year resulted from the increase of loan loss provisions of existing non-performing loans.
An internal control system has been in place for many years at RBI, and its parent RZB, which includes directives and instructions on key strategic topics. It includes:  The hierarchical decision-making process for approving Group and company directives, as well as departmental and divisional instructions.
Economic momentum in Austria will probably only increase by a modest amount in 2015 and 2016, and lag behind previous upturns. Domestic demand should drive much of the growth, with private consumption benefitting from the stable employment situation. Furthermore, employment is expected to increase in the second half of 2015, while low energy prices support an increase in purchasing power. However, investment will only gain slight momentum. Due to an improvement in foreign trade conditions, exports are likely to increase; however, imports should rise about as quickly given the assumed increase in domestic demand. Therefore, GDP is expected to grow 0.7 per cent in 2015 and 1.8 per cent in 2016.
Net provisioning for impairment losses (54) (48) 13.2% (21) (10) 102.7%
Net income from derivatives and liabilities was € 8 million lower year-on-year, mainly as a result of valuation losses from interest rate swaps in Croatia.
Net fee and commission income 11 9 24.8% 3 3 (4.4)%
Net provisioning for impairment losses (3) (4) (41.6)% (2) (1) 41.6%
Employees as at reporting date 5,292 5,308 (0.3)% 5,292 5,368 (1.4)%
The share of non-performing loans in the segment's total loan portfolio rose 9.3 percentage points to 33.7 per cent. The segment ’s NPL coverage ratio improved in the reporting period by 14.8 percentage points to 87.0 per cent.
Net fee and commission income declined € 20 million to € 140 million year-on-year. Declines were posted at Group head office and at business outlets in the US and Asia. These were attributable to lower net fee and commission income from bond issues, as well as from real estate, export and investment financing; whereas higher net fee and commission income resulted from the project financing business.
Group Markets in € million 2014 2013 Change Q4/2014 Q3/2014 Change
Items that may be reclassified subsequently to profit or loss (1,280,800) (468,461) (1,264,199) (452,781) (16,601) (15,680)
According to IAS 19R re-valuation of defined benefit plans are to be shown in other comprehensive income. This resulted in other comprehensive income of minus € 13,033 thousand in the reporting year (2013: € 3,820 thousand).
Impairment losses on loans and advances [17, 35] (6,069,233) (5,605,475) 8.3%
Own shares/share incentive program (144) 0 (4,793) 4,937 0 0 0
As a consequence of the adaption of mapping own shares, € 4,937 thousand were reclassified to retained earnings.
The Group Corporates segment covers business with Austrian and international – notably Western European – corporate customers of the RBI AG, which are managed from Vienna and grouped within the Corporate Customers profit center. These customers include Austria's largest companies and multinational customers. The segment also comprises the large corporate business with Central and Eastern European customers as well multinationals with CEE-business, included in the Network Corporate Customers & Support profit center. Corporate customer business in further countries is operated via the Singapore, China and Malaysia branches, which are also included in this segment. Financing companies in USA and Hong Kong, which focus on niche market customers with selected products, are also allocated to this segment.
Accumulated exchange differences are reclassified from other comprehensive income to income statement under net income from disposal of group assets, in the event of disposal of a foreign business operation which leads to loss of control, joint management or significant influence over this business operation.
Fair value is the price received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This applies regardless of whether the price can be directly observed or has been estimated on the basis of a measurement method. In determining the fair value of an asset or liability, the Group takes account of certain features of the asset or liability (e.g. condition and location of the asset or restrictions in the sale and use of an asset) if market participants would also take account of such features in determining the price for the acquisition of the respective asset or for the transfer of the liability at the measurement date. Where the market for a financial instrument is not active, fair value is established using a valuation technique or pricing model. For valuation methods and models, estimates are generally used depending on the complexity of the instrument and the availability of market-based data. The inputs to these models are derived from observable market data where possible. Under certain circumstances, valuation adjustments are necessary in order to account for model risk, liquidity risk or credit risk. The valuation models are described in the notes in the section on financial instruments – Recognition and measurement. In addition, the fair values of financial instruments are shown in note (42) Fair value of financial instruments.
Interest income includes interest income (unwinding) from impaired loans to customers and banks in the amount of € 204,653 thousand (2013: € 201,511 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. The net interest income resulting from the insurance business recognized according to IFRS 4 amounted to € 25,903 thousand (2013: € 5,237 thousand).
(3) Net provisioning for impairment losses Net provisioning for impairment losses on items reported on and off the statement of financial position is as follows: Individual loan loss provisions (1,829,288) (1,215,173)
There are no conversion or option rights outstanding, so undiluted earnings per share is equal to diluted earnings per share.
Cumulative impairment2 0 0 0 1 Calculated with average exchange rate 2 Calculated with period-end exchange rate RBPL: Raiffeisen Bank Polska S.A., Warsaw (PL) AVAL: Raiffeisen Bank Aval JSC, Kiev (UA)
Land and buildings used by the Group for own purpose (265,664) 2,685 (48,944) 568,482
The net deferred taxes result from the following items: Loans and advances to customers 131,842 135,478
For pensions there are different plans: unfunded, partly funded and fully funded. The partly and fully funded plans are all placed by the Valida Pension AG. Valida Pension AG is a pension fund, and is subject in particular to the provisions of the PKG (Pension Act) and BPG (Company Pension Act).
The following table contains subordinated borrowings that exceed 10 per cent of the subordinated capital: Issuer ISIN Type Currency Nominal value in € thousand Coupon1 Due
The Annual General Meeting held on 4 June 2014 authorized the Management Board to acquire own shares, pursuant to Section 65 (1), item 4 and 8 of the Austrian Joint Stock Companies Act (AktG), during a period of 30 months as of the date of the resolution (i.e. by 3 December 2016), up to 10 per cent of the subscribed capital of the company and to withdraw if applicable. This authorization may be exercised in full or in part or also in several installments and for one or more purposes – with the exception of securities trading – by the company, by affiliated companies or, for their account, by third parties. The acquisition price for repurchasing the shares may be no lower than € 1.00 per share and no higher than 10 per cent above the average unweighted closing price over the 10 trading days prior to exercising this authorization. The Management Board was further authorized pursuant to Section 65 (1b) of the Austrian Joint Stock companies Act, 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, to the full or partial exclusion of shareholders’ subscription rights. This authorization applies for a period of five years from the date of the resolution (i.e. until 3 June 2019). Shareholders’ subscription rights may only be excluded if the own shares are used to pay for a contribution in kind, to acquire enterprises, businesses or branches of activity of one or several companies in Austria or abroad, or for the purpose of implementing the company’s Share Incentive Program (SIP) for executives and members of the Management Boards of the company and affiliated enterprises. In addition, if convertible bonds are issued 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 them under the terms of the convertible bonds to shares of the company. This authorization replaces the authorization to purchase and use own shares that was granted in the Annual General Meeting of 20 June 2012. No own shares have been bought since the authorization was issued in June 2014.
Due to RBI AG‘s loss, dividends on shares and participation capital will not be paid for the financial year 2014.
(38) Transferred assets The Group enters into transactions that result in the transfer of trading assets, financial investments and loans and advances to customers. The transferred financial assets continue to be recognized in their entirety or to the extent of the Group’s continuing involvement, or are derecognized in their entirety. The Group transfers financial assets that are not derecognized in their entirety or for which the Group has continuing involvement primarily through sale and repurchase of securities, securities lending and securitization activities
The following products restrict the Group in the use of its assets: repurchase agreements, securities lending contracts as well as other lending contracts, for margining purposes on derivative liabilities, securitizations and various insurance activities. The table below shows assets pledged as collateral and otherwise restricted assets with a corresponding liability. These assets are restricted from usage to secure funding, for legal or other reasons.
Equity/index futures - forward pricing 626,012 55 0 626,067 1,081 (2,082)
Positive fair values of derivatives1 158,754 4,938,594 72,603 59,118 3,481,137 88,009
Liabilities at fair value through profit and loss 0 2,595,682 0 0 2,612,277 0
Fair values which are different from the carrying amount are calculated for fixed-interest loans and advances to and deposits from banks or customers, if the remaining maturity is more than one year. Variable-interest loans and advances and deposits are taken into account if they have an interest rollover period of more than one year. The fair value of loans and advances is calculated by discounting future cash flows and using interest rates at which similar loans and advances with the same maturities could have been granted to customers with similar creditworthiness. Moreover, the specific credit risk and collaterals are considered for the calculation of fair values for loans and advances.
Loans and advances to customers 0 20,300,351 50,495,181 70,795,532 71,970,803 (1,175,271)
Central and local risk management functions and committees ▪ for all risk categories ▪ for all Group units
The Operational Risk Management Committee comprises representatives of the business divisions (retail, market and corporate customers) and representatives from Compliance, Fraud Management, IKS, Operations, HR, Security and Risk Controlling, under chairmanship of the CRO. This committee is responsible for controlling operational risk of the Group. It derives and sets the operational risk strategy from the risk profile and the business strategy and also makes decisions regarding measures and risk acceptance.
Parallel to the target rating perspective, internal capital adequacy is assessed with focus on the uninterrupted operation of the Group on a going concern basis. In this perspective, risks again are compared to risk taking capacity – with a focus on regulatory capital and total capital requirements.
In the Group, credit risk stems mainly from default risks that arise from business with retail and corporate customers, other banks and sovereign borrowers. It is by far the most important risk category in the Group, as also indicated by internal and regulatory capital requirements. Credit risk thus is analyzed and monitored both on an individual loan and customer basis as well as on a portfolio basis in the Group. Credit risk management and lending decisions are based on the respective credit risk policies, credit risk manuals, and the corresponding tools and processes which have been developed for this purpose.
The credit portfolio of the Group is well diversified in terms of geographical region and industry. Single name concentrations are also actively managed (based on the concept of groups of connected customers) by limits and regular reporting. As a consequence portfolio granularity is high.
and income budget. This limit is apportioned to sub-limits in coordination with business divisions according to the strategy, business model and risk appetite.
Trading book VaR 99% 1d VaR as at Average VaR Minimum VaR Maximum VaR VaR as at in € thousand 31/12/2014 31/12/2013
Other liabilities including derivatives 158 23,145 367 77 2014 in € thousand Parent companies
Centro Asset Management Limited, St Helier (JE) 10,000 GBP 100.0% FI
Raiffeisen Investment (Bulgaria) EOOD - in liquidation, Sofia (BG) 60,050 BGN 100.0% FI
Raiffeisen Investment s.r.o. - in liquidation, Prague (CZ) 200,000 CZK 100.0% FI
Raiffeisen Torony Ingatlanfejlesztő és Ingatlanhasznosító Kft., Budapest (HU) 3,000,000 HUF 83.0% OT
Public Joint Stock Company Sumy Enterprise Agrotechservice, Sumy (UA) 1,545,000 UAH 0.6% OT
Positive fair values of derivatives for hedge accounting (IAS 39) X n/a
Under reverse repurchase agreements, assets are acquired with the obligation to sell them in the future. The purchased securities on which the financial transaction is based are not reported in the statement of financial position and accordingly not measured. Cash outflows arising from reverse repurchase agreements are recorded in the statement of financial position under "loans and advances to banks" or "loans and advances to customers."
All amounts related to these subsidiaries and shown in other comprehensive income are recognized as this would be done in case of sale of group assets. This means the amounts are reclassified to income statement or directly transferred to retained earnings.
If the consideration transferred includes a contingent consideration, this is measured at the acquisition-date fair value. Changes in the fair value of the consideration transferred within the measurement time are adjusted retroactively and are booked against goodwill. Adjustments within the measurement time are corrections to reflect additional information about facts and circumstances already existing at the acquisition date. The measurement time may not exceed one year after the acquisition date.
 The capability exists to reliably determine the expenditure incurred during the development of the intangible fixed asset.
The amount at which an internally developed intangible fixed asset is initially capitalized is the sum of all expenses incurred beginning from the day on which the aforementioned conditions are initially met. If an internally developed intangible fixed asset cannot be capitalized, or if there is as yet no intangible fixed asset, the development costs are reported in the income statement for the reporting period in which they are incurred.
This means property that is held to earn rental income and/or for capital appreciation. Investment property is reported at amortized cost using the cost model permitted by IAS 40 and is shown under tangible fixed assets because of minor importance. Straight line depreciation is applied on the basis of useful life. The normal useful life of investment property is identical with that of buildings recognized under tangible fixed assets. Depreciation is recorded under item "General administrative expenses".
These types of provision are reported in the statement of financial position under item "Provisions". Allocation to the various types of provision is booked through different line items in the income statement depending on the nature of the provision. Allocation of loan loss provisions for contingent liabilities are recorded under net provisioning for impairment losses, restructuring provisioning, provisioning for legal risks and other employee benefits are recorded in general administrative expenses. Provision allocations that are not assigned to a corresponding general administrative expense are as a matter of principle booked against other net operating income.
 additionally, in Group units at local level, achieving the legally required local minimum "common equity tier 1 ratio excluding buffers," and
Liabilities arising from insurance contracts change depending on changes in interest rates, income from investments and expenses for pension agreements for which future mortality rates cannot be reliably predicted. IFRS 4 must be applied to the reporting of liabilities resulting from the existence of mortality rate risks and discretionary participation features. All assets associated with pension products are reported in accordance with IAS 39. Liabilities are recorded under other liabilities Please refer to the notes under (32) Other liabilities for more information on insurance contracts.
According to these amendments, IAS 16 is applicable for biological assets which are no longer subject to obvious biological changes; therefore they can be recognized as tangible fixed assets. .
IFRIC – International Financial Reporting Interpretations Committee. Committee responsible for the official interpretation of the International Financial Reporting Standards.
Belarus JLLC “Raiffeisen-Leasing” V. Khoruzhey 31-A 220002 Minsk Phone: +375-17-28 9-9394 Fax: +375-17-28 9-9974 www.rl.by
RBI Xiamen Branch Unit B, 32/F, Zhongmin Building, No. 72 Hubin North Road, Xiamen, Fujian Province 361013, P.R. China Phone: +86-592-26 2-3988 Fax: +86-592-26 2-3998
Singapore RBI Singapore Branch One Raffles Quay #38-01 North Tower Singapore 048583 Phone: +65-63 05-6000 Fax: +65-63 05-6001
Austria Am Stadtpark 9 1030 Vienna Phone: +43-1-26 216-0 Fax: +43-1-26 216-1715 www.rzb.at