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These consolidated financial statements (income statement, statement of financial position and notes) and the Group Management Report, as well as the annual financial statements and Management Report for RBI have been audited by KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Vienna. The audit revealed no grounds for objections. All legislative provisions were fully satisfied. Therefore, the unqualified Auditor’s Report was issued.
Ownership structure of the new bank Like Raiffeisen International before, RBI is listed on the Vienna Stock Exchange. While Raiffeisen International's pre-merger free float was around 27.2 per cent, RBI's free float amounted to around 21.5 per cent after the transaction. The 72.8 per cent which RZB indirectly held in Raiffeisen International before the merger therefore increased to around 78.5 per cent. This reflected the fact that 40.8 million new shares were granted to Cembra's sole shareholder Raiffeisen International Beteiligungs GmbH, a 100% subsidiary of RZB, in compensation for the transfer of Cembra's assets to Raiffeisen International in the merger.
When the merger plans were inadvertently leaked to the public, shareholders initially had to stomach a 25 per cent drop in the share price. How did that come about? For us that was definitely the low of 2010. The leaked merger plans meant we were forced early on to disclose our intentions. While we were able to show that both companies – Raiffeisen International and RZB – were in good shape and had come through the difficult year 2009 relatively unscathed, the real problem was the huge uncertainty and skepticism in the market vis-á-vis the banks. In this atmosphere, combined with the early disclosure of the merger details, investors were desperately looking for information – information which we could not immediately provide, primarily for legal reasons. And that was ultimately reflected in the performance of our share price. Only when we went to the public and managed to demonstrate that we were contemplating this move from a stable position did we gradually manage to win back trust.
After it became clear at a very early stage that the deliberations of a merger between Raiffeisen International and RZB’s principal business areas could become public, they were announced on 22 February 2010 together with the provisional 2009 figures for Raiffeisen International. This resulted in brief uncertainty in the market, as it was not possible to present the background and benefits of such a move at that time in as much detail as would have been desirable. The stock price duly fell back from a temporary high of € 42.75 in January, and continued to lose ground against the leading Austrian Traded Index (ATX) over the following days. The closing price of € 30.52 on 4 March was the low for the first quarter.
Renamed Raiffeisen Bank International The merger of Raiffeisen International and RZB’s principal business areas was entered in the commercial register on 10 October 2010. As compensation for the transfer of Cembra’s assets to Raiffeisen International in the course of the merger, including the assets transferred in the previous spin-off, i.e. the corporate banking business and associated shareholdings, new shares (in addition to the stocks previously held by Cembra in Raiffeisen International) were granted to Cembra’s sole shareholder, Raiffeisen International Beteiligungs GmbH, which in turn is a wholly-owned subsidiary of RZB. For this purpose the capital stock of Raiffeisen International was increased from € 471.7 million to € 596.3 million by issuing 40,837,624 new ordinary shares for € 124.6 million.
On 22 February 2010 the market was given initial information about the strategic plans for a possible merger, on the occasion of the announcement of the preliminary figures for 2009. Shortly after this, a telephone conference with over 260 participants provided more background information on the current state of deliberations. The announcement of the final 2009 figures for Raiffeisen International on 23 March 2010 was accompanied by further details on the planned transaction, together for the first time with preliminary pro forma figures for the new bank. Both the analysts’ conference in Vienna and the subsequent telephone conference generated great interest among international analysts and investors.
■ Additionally, the RBI network profits even more strongly from product development know-how that was previously lodged in RZB.
Composition of the Management Board Currently the Management Board consists of seven members: Board member Year of birth Original appointment End of term
■ The Supervisory Board member shall not have, or have had in the previous year, any significant business relationships with the company or a subsidiary. This applies also to business relationships with companies in which the Supervisory Board member has a considerable financial interest, however, not to the performance of functions in management bodies within the company. The approval of individual companies by the Supervisory Board according to L Rule 48 of the ACGC does not automatically lead to a qualification of not independent.
Members of the Supervisory Board have the following further Supervisory Board mandates or comparable functions in domestic and foreign companies listed on the stock exchange: ■ Walter Rothensteiner: UNIQA Versicherungen AG ■ Erwin Hameseder: AGRANA Beteiligungs-AG, STRABAG SE, UNIQA Versicherungen AG, Südzucker AG ■ Ludwig Scharinger: voestalpine AG ■ Christian Teufl: AGRANA Beteiligungs-AG, VK Mühlen AG ■ Hannes Schmid: UNIQA Versicherungen AG ■ Kurt Geiger: Raiffeisen Bank Aval JSC
The following amounts were paid to the Management Board of RBI: Fixed and performance-related amounts 8,191 4,610
Report on the measures taken by the company for the advancement of women on the Management Board, the Supervisory Board and in management positions (Section 80 of the Austrian Stock Corporation Act [AktG]) pursuant to Section 243b (2) 2 of the Austrian Commercial Code (UGB)
Conflicts of interest Both the Management Board and the Supervisory Board of RBI are required to disclose any potential conflicts of interest.
Compliance and Code of Conduct The topic of compliance is a part of daily business at RBI. At the same time, the entire RZB Group not only adheres to the statutory requirements but with its Best Practice approach has been consciously going above and beyond them for over 15 years.
Overall, the economic situation in CEE can be expected to continue to improve. At the moment, strong exports are primarily responsible for the upturn, but there are also signs of a recovery in domestic demand and investment, even if these are still at relatively low levels. Over the next few years, the growth gap between CEE and the Western European economies is expected to be around 2 percentage points. Management believes that this leaves the process of convergence in the CEE economies intact. However, the convergence path will be significantly flatter than before the crisis, when the growth differential between CEE and Western Europe was around 4 percentage points. A positive side to this is that the convergence process in the CEE economies will be less frenzied, with lower domestic and foreign imbalances, which will benefit the CEE countries and economic players there.
India’s economy did much better than expected up to the fourth quarter of 2010, with real growth running at an annualized rate of 8.2 per cent. This was driven by domestic demand, supported by private consumption. Robust corporate earnings and favorable external financing also supported growth in investment. For 2010 as a whole, real GDP growth in India was assumed to be 8.7 per cent, and a similar figure is expected in 2011.
The Russia segment also showed significantly lower net allocations to loan loss provisions, which fell by 76 per cent or € 245 million to € 77 million. In addition to the improvement in borrower ratings – particularly in the corporate customer business – the reasons were the improved economic environment, lower loss rates and higher collateral in business with private individuals.
The loss on other derivatives is due to valuation losses on derivatives for hedging purposes. Net income from hedge accounting fell by € 3 million on the previous year as a result of valuation losses in the Central Europe and Group markets segments. Net income from credit derivatives was the only category to show a positive trend, rising by € 5 million on the previous year.
Depreciation of tangible and intangible assets rose by € 95 million on the previous year to € 340 million (2009: € 245 million). Of this, € 180 million was on tangible assets, € 128 million on intangible assets and € 32 million on assets from operating leasing business. Besides integration of the principal business areas of RZB, there was mainly depreciation of new core bank systems and other IT applications (particularly in Russia, Ukraine and the Czech Republic).
In the reporting year 2010, the portfolio of financial investments was valued at € 27.7 billion (2009: € 11.0 billion). Since the start of the financial crisis, excess liquidity has been increasingly invested in securities. Through the contributions made by RZB’s principal business areas, the stock of securities (including securities held for trading) has also increased significantly. The new investments of the past year were mainly state or state-guaranteed, top quality securities.
The remaining equity and liabilities items are made up of debt securities issued, provisions, trading liabilities, derivatives and other liabilities. At the end of the year, these totaled € 25.5 billion. Debt securities issued (€ 16.6 billion) mostly came from issued bonds and notes, which were transferred from RZB. In the reporting year, there were no major issues. Trading liabilities amounting to € 5.7 billion arose primarily as a result of the financial instruments that were introduced within the course of the merger. These were mostly composed of derivatives (€ 4.5 billion), especially interest derivatives (€ 3.0 billion).
(7) The Management Board has been authorized since the Annual General Meeting of 5 June 2007 to increase the capital stock by up to € 181,436,875 by issuing up to 59,487,500 new common bearer shares with voting rights against contributions in cash and/or in kind within five years after recording the relevant amendment to the articles of association in the commercial register, while preserving the right of subscription to which the law entitles shareholders, including the right of indirect subscription by way of a bank pursuant to Section 153 (6) of the Austrian Stock Corporation Act (AktG), and to fix the offering price and terms of the issue with the approval of the Supervisory Board. The Supervisory Board or a committee authorized for this purpose by the Supervisory Board is authorized to adopt amendments to the articles of association that arise upon issuing shares from the authorized capital.
The Company’s Share Incentive Program (SIP) provides the following upon a change in corporate control: ■ “If a change in corporate control or a merger occurs during the vesting period without the combination being exclusively concerned with subsidiaries, all contingent shares will lapse without replacement at the time of acquiring the shares of Raiffeisen International and the investor’s actual possibility of disposing of them, or at the time of the merger. An indemnification payment will be made for these contingent shares. The indemnity sum calculated will be paid out with the next possible salary payment.”
A similar picture was observed for banks in the CEE region in 2010. Financial institutions with an investment grade rating in particular were able to refinance themselves in the market with greater ease. There were a number of bond issues with above average coupons as compensation for sub-investment grade ratings. Demand for these issues was partly due to low prevailing rates in the broader market and the resulting low funding costs for banks and partly due to the declining risk aversion of investors.
The first RBI benchmark bond was issued in January 2011 – € 1 billion senior fixed-rate bond with a three-year maturity. It was placed at 145 basis points over mid-swaps, with a coupon of 3.625 per cent. The issue was significantly oversubscribed.
The model uses a hybrid approach, i.e. a combination of historical and Monte Carlo simulations with around 5,000 scenarios, to calculate value at risk (VaR) for changes in the risk factors of foreign exchange, interest changes, credit spreads for bonds, Credit Default Swaps and equity indices. To improve modeling of risk factors where the probability of extreme price changes exceeds the probability given by the normal distribution, the model incorporates numerous add-ins, such as adding extreme events to the scenarios, or taking into account current volatility in scenario generation, together with various time horizons in volatility estimation. This model approach offers a suitable basis for implementing the strict Basel III requirements in internal models.
Optimizing IT Prompt availability of comprehensive and quality assured data is of central importance in risk management. As a result, central processes of data collection and processing – particularly in the areas of credit and liquidity risk – were subjected to comprehensive improvement in the year under review, in order to reduce processing times. Procedures were significantly improved, so that individual transactions for key Group members can be forwarded to Group headquarters daily, except for the retail segment, where data is aggregated by product. Together with the high reporting frequency, these processes ensure timely and very modern management of risk positions.
An important component for equality is the reconcilability of family and career. That is why RBI offers flexible hours, parttime working models and teleworking for parents in almost all countries in which it operates, within the framework of the relevant statutory provisions. Moreover, additional initiatives also exist within the various Group companies, e.g. Raiffeisenbank Polska S.A.'s "Mother Care" program, which supports women from the start of their pregnancy up to their baby's first birthday.
Net income from specialized and holding companies as well as all other companies that do not fall directly under another segment is also included in the segment report. Interest expenses linked to refinancing using hybrid equity instruments are also reported in this segment. RBI's liquidity borrowing costs are posted against the relevant segment in accordance with the internal contracts referred to in each profit center line item. Net income from treasury and balance sheet structure management controlling is also included in this segment.
After a loss in the previous year (2009), the CIS other segment generated a profit before tax of € 89 million. Lower net provisioning for impairment losses were key factor in the rise of profit before tax. Total assets in this segment were 14 per cent up year-on-year.
Total assets gained 14 per cent year-on-year or € 0.9 billion to € 7.1 billion. The net interest margin fell by 65 basis points to 6.19 per cent. The change in the calculation method used in Ukraine resulted in a reduction of 103 basis points of the net interest margin, but this effect was partly offset by improved margins (up 38 basis points). Risk-weighted assets (credit risk) increased by 13 per cent to € 5.7 billion. In Ukraine, this increase was linked to the expansion of the public sector securities and investments portfolio, whilst Belarus increased exposure in nearly all asset classes.
Income taxes grew by 24 per cent year-on-year to € 62 million. The tax rate in the segment was 25 per cent, up 6 percentage points on the previous year. Profit after the deduction of non-controlling interests was € 186 million.
General administrative expenses were up by 16 per cent or € 41 million to € 307 million year-on-year, primarily as a result of costs in connection with the merger. The business outlet recognized in this segment is RBI AG Group headquarters in Vienna. The segment’s cost/income ratio rose by 28.1 percentage points to 71.9 per cent due to the decline in operating income.
Participations & other also includes costs from central Group management which increased over the period under review as a result of the merger. According to internal guidelines, these costs remain in this business division and are not distributed among other divisions.
Income statements 126 Profit development 128 Statement of financial position 129 Statement of changes in equity 130 Cash flow statement 131 Segment reporting 133 Notes 139 Audit opinion 255
Cash and cash equivalents at the end of period 4,806,891 4,179,572
Financial investments X Held-to-maturity of which not traded on an active market At Cost Available-for-sale
In the case of identity of borrower and lender, offsetting of loans and liabilities with matching maturities and currencies occurs, only if a legal right, by contract or otherwise, exists and offsetting is in line with the actually expected course of the business.
Net gains (losses) on financial assets and liabilities at fair value through profit or loss 111,770 39,491
Interest income includes interest income (unwinding) from impaired loans to customers and impaired loans to banks in the amount of € 234,803 thousand (2009: € 304,849 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. In the Ukrainian network unit, the method used to calculate interest on impaired loans was changed, which resulted in an effect of € 70,399 thousand, however this does not affect income as an equal and opposite entry was made to net provisioning for impairment losses.
Net income from securities at fair value through profit and loss 120,046 39,491
Theoretical income tax expense in the financial year based on the domestic income tax rate of 25 per cent (321,830) (91,899)
Land and buildings used by the Group for own purpose 620,278 1,714 (25,526) 61,616 (19,803) 35,432 673,711 of which land value of developed land 6,304 0 (277) 2,799 0 0 8,826
Land and buildings used by the Group for own purpose (147,303) 0 (25,345) 526,408 of which land value of developed land 0 0 0 8,826
The partition of DBO into wholly/partly funded or wholly unfunded is as follows: Defined benefit obligation (DBO) 24,873 4,960
Securitization is the packaging of designated portfolios of loans or leasing claims with an appropriate level of credit enhancement and the redistribution of these portfolios to investors. The objective of Raiffeisen Bank International’s securitization is to ease the strain relief on the Group’s regulatory own funds and to use additional refinancing sources.
RBI as investor Besides the above-mentioned refinancing and packaging of designated portfolios of loans or leasing claims, RBI acts as investor in ABS-structures. Essentially, this is about investments in Structured Credit Products. The total exposure was brought in due to the merger with the main business areas of RZB. During financial year 2010 market value changes led to a positive valuation result of about € 9 million.
The following assets are provided as collateral for the above-mentioned obligations: Loans and advances to banks 4,126,775 212,372
Risk-adjusted performance measurement also is based on this risk measure. The profitability of business units is set in relation to the amount of economic capital attributed to these units (risk-adjusted return on risk-adjusted capital, RORAC), which yields a comparable performance measure for all business units of the Group. This measure it is used in turn as a key figure for overall bank management, for future capital allocations to business units, and influences performance-oriented compensation of the Group’s executive management.
A more detailed credit portfolio analysis is based on individual customer ratings. Ratings are performed separately for different asset classes using internal risk classification models (rating and scoring models), which are validated by a central organization unit. It should be noted that default probabilities assigned to individual rating grades are estimated for each asset class separately. In other words the default probability of the same ordinal rating grade (e.g. corporates 1.5, financial institutions A3, and sovereigns A3) is not the same for these asset classes.
Retail customers are subdivided into private individuals and small and medium-sized enterprises (SME). For retail customers a two-fold scoring system is used – consisting of the initial and ad-hoc scoring based on customer data and behavioral scoring based on account data. The table below provides a breakdown of the maximum retail credit exposure of RBI: hereof individual loan loss provision 1,308,243 5.7% 934,514 4.3%
The size of the retail portfolio remained nearly constant year-on-year at € 22,988,650 thousand. The largest portfolio share is in the segment Central Europe (€ 11,467,369 thousand), which also reported the strongest increase (increasing by € 978,726 thousand). The second largest segment is Southeastern Europe (€ 7,095,072 thousand). In the retail area the business segments which have been newly created due to the merger play a minor role (€ 61,078 thousand; thereof Corporate center € 51,426 thousand).
Part of this credit exposure is held against financial institutions that have a shareholder relationship with RBI. Due to the multilayered structure of the Austrian Raiffeisen Banking Group, exposure resulting from liquidity management within the Raiffeisen Banking Group is shown in this asset class as well. Bilateral netting-agreements and joint risk monitoring systems are used as risk mitigation techniques by the Group.
Within the scope of the Basel II project a Group-wide default database has been created for recording and documenting customer defaults. The database tracks defaults and the reasons for defaults, which makes it suitable for calculating and validating default probabilities.
Portfolio-based loan loss provisions 770,512 88,880 390,664 (389,803) 0 27,746 887,999
1 Adjustments of previous year figures due to different mapping and definition.
Foreign exchange rate and gold contracts (222,531) 1,593,004 570,888 1,022,115 60,917 961,198
Banking book VaR 99 % 1d VaR as of 31/12/2010 Average VaR Minimum VaR Maximum
Liquidity management, i.e. ensuring that the Group maintain it’s ability to pay at all times, is performed both centrally by the Global Treasury division in Vienna and on a decentralized basis by local banking subsidiaries. Cash flows are calculated and analyzed by currency on a weekly basis in an internal monitoring system. Based on this data, the Group creates liquidity balances, and analyzes whether the Group conforms to legal regulations on liquidity positions and defined internal liquidity limits. Liquidity analyses also include simulations on defined market or name specific liquidity crises in scenario-based cash flow forecasts. All these analyses are discussed in the Group’s Asset/Liability Committee.
Derivatives in the trading book 510,127 4,311,777 2,202,506 1,600,674 442,235 66,363
The current regulatory discussions and publications of the Basel Committee, EU Committees and the Austrian Regulatory Authority in connection with the new regulatory guidelines (Basel III) are demonstrated in scenario calculations by Planning & Finance and Risk Controlling. The effects are immediately considered in planning and control in case of a certain occurrence probability.
LLC "Insurance Company 'Raiffeisen Life", Moscow (RUS) 60,000,000 RUB 2.6% 0.0% VV
Tatra Group Servis spol.s.r.o., Bratislava (SK) 12,281,750 EUR 100.0% 0.5% BR
The Company’s management is responsible for the group accounting system and for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the consolidated 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.
CE – Central Europe. For RBI it is defined as the Czech Republic, Hungary, Poland, Slovakia and Slovenia.
Cost/income ratio – Indicator of an enterprise’s cost efficiency based on the ratio of expenses to earnings. It is calculated by comparing general administrative expenses (comprising staff expenses and other administrative expenses and depreciation on intangible and tangible fixed assets) with operating income (net interest income, net fee and commission income, net trading income and other net operating income).
Own shares – Repurchased equity instruments (shares) held by the issuing entity itself or by its subsidiaries.
Subprime loans – Mortgage loans given to borrowers who do not qualify for the prime market interest rate due to their low credit-worthiness. Subprime loans are characterized by a relatively high risk of loss.
Russia OOO Raiffeisen leasing Stanislavskogo St. 21/1 109004 Moscow Phone: +7-495-721 9980 Fax: +7-495-721 9901 www.rlru.ru
Serbia Raiffeisen leasing d.o.o. Milutina Milankovica 134a 11070 Belgrade Phone: +381-11-2017 700 Fax: +381-11-3130 081 www.raiffeisen-leasing.rs