What mark has the crisis left on the banking sector? Very clearly, a paradigm shift has occurred. While the focus used to be on growth and profitability, the dominant themes in 2009 were capital, liquidity, and risk management. Since the worsening of the crisis we have responded to difficult market requirements by proceeding with even greater awareness of risk and have further improved our liquidity and capital resources. After many years of continuous growth, Raiffeisen International decreased its balance sheet total by 10.7 per cent in 2009. This was largely a result of lower demand, but
Raiffeisen International stock in major indices Raiffeisen International stock is listed in several indices that are important in Austria including the ATX and its subindices, ATX Five and ATX Prime. The company is represented in the three indices with a weight ranging between 7 per cent and 14 per cent. Furthermore, Raiffeisen International is included in the Dow Jones EURO STOXX, the Dow Jones EURO STOXX Banks, and the global Dow Jones STOXX 600. It is also listed in the significantly larger MSCI World.
High/low in 2009 (closing prices) € 47.86 / € 13.00 Earnings per share for 2009 € 0.99 Market capitalization as of 31 December 2009 € 6.1 billion Average daily trading volume in 2009 (single counting) 391,312 shares Stock exchange turnover in 2009 (single counting) € 2.9 billion Free float as of 31 December 2009 27.2%
The management measures that require approval of the Supervisory Board or the responsible Committee are regulated in the bylaws of the Managing Board and the Supervisory Board and its Committees.
Payment to pension plans and pension liability insurance companies 97 79
was greatly curtailed, however, by the global financial crisis, which put an additional burden on the national economies. Countries whose current account deficits had sharply increased in the economic boom years were especially affected.
The measures adopted at the G-20 summit strengthened the confidence of financial market participants that all CEE countries will meet their payment obligations in the foreseeable future. The meeting thus marked the turning point in the development of risk premiums and CEE currencies. The latter have stabilized since then, and some have even recovered. In the fourth quarter of 2009, risk premiums almost returned to the same levels they were at before the collapse of Lehman Brothers in September 2008.
The effects of the global economic situation heavily shaped Raiffeisen International’s development in 2009. That found expression, in particular, in an appreciable decline of business volume and significantly increased provisioning for impairment losses.
by 2 per cent, or 1,268, to 60,186, mainly due to reductions in the CIS Other segment (minus 7 per cent) and Russia (minus 3 per cent). Other administrative expenses were also down, by 13 per cent to € 970 million. Cuts were made in this regard especially in advertising, PR, and promotional expenses (minus 40 per cent) and in internal costs such as traveling expenses and office supplies, while the cost of premises, the largest item with a share of 32 per cent, decreased by 2 per cent.
The unfavorable economic environment was also discernible in the risk/earnings ratio, which is the ratio of provisioning for impairment losses to net interest income. This ratio rose from 24.1 per cent to 59.2 per cent.
The largest net allocations to individual provisions were made in the CIS Other segment. They amounted to € 490 million, of which the Ukrainian network bank alone accounted for € 456 million. Half of individual provisions in the region were due to private individuals, and half to corporate customers. Central Europe registered a net allocation of € 384 million in the reporting year, with the largest amount in Hungary at € 177 million. A further € 76 million was newly added to provisioning in Poland, € 69 million in Slovakia, and € 55 million in the Czech Republic. In Southeastern Europe, provisions were formed for individual loans in the amount of € 352 million, with the emphasis there on Romania (€ 153 million), Bulgaria (€ 74 million), and Croatia (€ 62 million). In Russia, provisioning for impairment losses amounted to € 339 million. Corporate customers accounted for two thirds of net allocations at the Russian network bank, and private individuals for the rest.
Preparation of the consolidated financial statements for Raiffeisen International has been outsourced to RZB. It is performed in RZB’s Group finance department, which is under the direction of the members of RZB’s Managing Board responsible for risk and financial management. The relevant responsibilities are defined Group-wide in the framework of a dedicated function.
Control measures Individual financial statements are prepared according to RZB’s specifications in a decentralized manner in the respective Group units. It is the task of the employees and managers responsible for accounting in the Group units to provide a complete picture and correct valuation of all transactions. Because of divergent reporting dates and different local accounting standards, local financial statements may deviate from the figures provided to RZB. The respective local management must see to it that the prescribed internal control measures, such as separation of duties and the “second-set-of-eyes” principle, are implemented.
Information and communication The consolidated financial statements are based on standardized forms that are uniform across the Group. The accounting and valuation standards involved are defined and explained in the RZB Group accounts manual and are binding in regard to preparing the financial statement data. Instructions to Group units concerning details on valuation measures in the area of credit risk and similar problems are given in the framework of Group directives. Changes in the instructions and standards are communicated in regular training sessions in the relevant units.
In the course of the year, reporting on a consolidated basis is performed monthly, and interim reports that conform to the provisions of IAS 34 are prepared quarterly for the public in accordance with the Austrian Stock Exchange Act. Consolidated financial statements to be published undergo final evaluation by company executives and the Chief Financial Officer before being forwarded to the Audit Committee of the Supervisory Board. Furthermore, analyses regarding the consolidated financial statements are prepared for the management, and accounting forecasts are periodically prepared for the Group. The budgeting process likewise includes preparing Group budgets on a three-year basis.
(5) There is no control on voting rights in case of a participation in capital by employees.
(7) The Managing Board is authorized 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, 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 of the articles of association that arise upon issuing shares from the authorized capital.
(9) There are no indemnification agreements between the company and its Managing Board and Supervisory Board members or employees for the case of a public takeover bid.
Funding Liquidity situation significantly eased Banks usually fund themselves by means of their own funds, customer deposits, and other external sources such as the capital and interbank markets. Because of the financial crisis, funding by means of external sources, so-called wholesale funding, was still severely affected again in 2009.
A coordinated funding package involving the EIB, the EBRD, and the International Finance Corporation (IFC) is in preparation and will contribute importantly to providing long-term funds to network units in the coming years.
Of the USD 5 billion euro medium-term note (EMTN) program of ZAO Raiffeisenbank in Russia, registered in February 2008, the first tranche of USD 340 million was placed with an institutional investor in 2009.
Depending on the respective classification, the bank and customer jointly develop measures to minimize the risks. Moreover, depending on the risk status, the client responsibility changes within the bank from account managers to workout specialists in dealing with and supporting the customer further. In the framework of expanding the workout process and ensuring optimal support, personnel capacities were roughly doubled in the past year. By means of training programs developed especially for Raiffeisen International with the support of well-known international training companies, employees were quickly prepared for the new tasks and correspondingly deployed. Additionally created incentive systems ensure high result quality and efficiency.
Compared with 2008, when personnel reached the highest level in company history, the number of employees had to be reduced Group-wide by around 11 per cent to 56,530 at the end of 2009. Personnel and cost reduction was stepped up especially in countries that were hit hardest by the crisis and capacity buildup occurred in the years of strong growth, including Ukraine, Russia, and Hungary. In those countries alone, almost 4,600 jobs were cut, which represents around 67 per cent of the overall reduction.
Expanded full-time equivalent reporting on the basis of job groups is used in many projects in different areas of the Group to measure and improve their efficiency and productivity.
The transition countries in Southeastern Europe (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania, and Serbia) will probably continue to be forced to reduce their current account deficits, which are in some cases still high. Unlike before 2009, the financial sector is unlikely to be able to stimulate domestic consumer demand substantially. The state of public finances will probably also hardly allow any expansion of government capital spending. The region’s average GDP growth in 2010 should thus come to only about 0.7 per cent (2009: minus 5.6 per cent).
Net income from derivatives of minus € 1 million derived almost exclusively from hedging transactions in Hungary and the Czech Republic, which were used to adjust the currency structure. However, a loss in the Czech Republic was almost entirely offset by valuation gains in Hungary.
Slovakia The national economy of Slovakia, which became the second new EU member state to join the euro area on 1 January 2009, was hard hit by the global slump in demand because of the great importance of its export industry and strong orientation to the automotive sector. Real GDP shrank in 2009 by 4.7 per cent year-on-year. However, the country overcame the recession in the second quarter of 2009 and achieved the strongest GDP growth of all EU member states with a plus of 1.1 per cent on the preceding quarter. In addition to the “cash-for-clunkers” programs set up in a number of Western European countries and a notable easing of fiscal policy, the switch to the euro and a robust banking sector also contributed to that. Total lending in the Slovakian banking sector showed a slight increase as of 30 September 2009. Set against a significant expansion of lending to private individuals was a slight decline of lending to corporate customers.
Tatra banka outsourced its back office to Presov in 2009 with the aim of streamlining business processes, and it plans to implement the concept of outsourcing in other areas as well to improve its cost-income ratio.
thereof foreign currency loans in per cent 13.6% 19.8% (6.2) PP
Bosnia and Herzegovina Since its introduction in 1997, the convertible mark has been pegged to the Deutsche Mark and subsequently to the euro. The country’s banking sector was thus not affected by currency devaluation in the economic crisis in contrast to other Central and Eastern European countries. Bosnia and Herzegovina drew financial assistance from the IMF in July 2009. As of 30 September 2009, the total amount of outstanding loans was practically unchanged in comparison with the end of 2008. Real GDP registered a decline of around 4.0 per cent for the full year 2009.
Subsidiaries OOO Raiffeisen Leasing, OOO Raiffeisen Capital Asset Management Company, and NPF Raiffeisen (pension funds) round out the product range.
Belarus The Belarusian economy is the last planned economy in Europe. Nevertheless, the country was not able to fully decouple from the economic crisis. Belarus is an exception among Central and Eastern European countries in respect to the development of the banking sector, which also registered impressive credit growth in 2009. Above all, the total amount of lending to corporate customers increased, since state-owned banks financed production operations of state-owned enterprises in the crisis by means of loans. The Belarusian rouble was devalued at the beginning of 2009, after the country had received financial assistance from the IMF. Since then, it has been oriented to a basket of currencies consisting of the euro, US dollar, and Russian rouble.
At € 2,482 million, the division’s operating income was down by 12 per cent on the comparable period. Net interest income fell by 10 per cent to € 1,669 million, mainly as a result of declines in customer deposit business and margin reductions in some countries. The Group units in Ukraine and Romania were especially affected by that. Net fee and commission income decreased by 17 per cent to € 801 million, also mainly because of the business decline at the Group units in Ukraine and Romania.
Special purpose entities (SPE) founded for securitization transactions, which are controlled by the group from an economic point of view, are integrated according to SIC 12. To determine whether a special purpose entity is controlled from an economic perspective, a number of factors are to be taken into consideration. These include an assessment of whether the activities performed by the SPE in favor of the Group are in accordance with its specific business needs so that it can benefit from SPE´s activities, whether the Group has the decision-making power to profit from the majority of the SPE´s benefits, whether the Group receives the majority of the benefits of the SPE´s operations or the Group retains the majority of the assets associated with the actually residual or ownership risks in order to benefit from its activities.
If customer contracts and associated customer relationships are acquired in a business combination, they must be recognized separately from goodwill, if they are based on contractual or other rights. The acquired companies meet the criteria for a separate recognition of non-contractual customer relationships for existing customers. The customer base is valued using the multiperiod excess earnings method based on projected future income and expenses allocable to the respective customer base. The projections are based on planning figures for the corresponding years.
SCTAI Angol Iskola Kft, Budapest (HU) 56.9% 22/9 Start of operations
Derivative instruments held to hedge the fair values of individual items of the statement of financial position (except trading assets/liabilities) are recognized at their fair values (dirty prices) under derivatives (on the assets side: positive dirty prices; on liabilities side: negative dirty prices). Changes in the carrying amounts of hedged items (assets or liabilities) are allocated directly to the corresponding items of the statement of financial position and reported separately in the notes. Both the effect of changes in the carrying values of positions requiring hedging and the effects of changes in the clean prices of the derivative instruments are recorded under net income from derivatives (net income from hedge accounting).
Derecognition of financial assets A financial asset is derecognized when the contractual rights to the cash flows arising from a financial asset expire or when the Group has transferred the rights or if the Group has the obligation in case that certain criterion occurs to transfer the cash flows to one or more receivers. A transferred asset is derecognized if all material risks and rewards of ownership of the assets are transferred.
Notes to the statement of financial position (13) Statement of financial position according to measurement categories
Of the purchased loans amounting to € 208 thousand, € 101 thousand are assigned to the measurement category held-tomaturity (2008: 0). Purchased loans classified as loans and advances totaled € 107 thousand (2008: € 2,098 thousand).
The syndicate contracts expire automatically if control over the company changes – also in the case of a takeover bid. The following agreement has been made with the European Bank for Reconstruction and Development (EBRD) regarding Priorbank, OAO (Belarus): If control over the company changes, EBRD has the option to sell all shares held in Priorbank to the company.
Intangible and tangible fixed assets developed in the financial year 2008 as follows: Write-ups, amortization, depreciation, impairment Carrying amount €000 Cumulative Write-ups Depreciation As of 31/12/2009
The Credit Committee, which is staffed by front office and back office divisions (account management and risk management), decides on credit transactions according to the credit approval process (depending on rating, exposures size, and duration) and approves all credit decisions that must be made by the Managing Board.
Organization Market risk at Raiffeisen International is monitored and managed by RZB within the scope of a service level agreement (SLA). The rules and procedures for the management of market risks are defined by RZB on a Group-wide basis and endorsed by the Managing Board of Raiffeisen International. All network banks of Raiffeisen International have market risk management departments. Those departments are responsible for day-to-day limit monitoring and weekly reporting to RZB.
Operational risk self-assessment is executed in a structured and Group-wide uniform manner, where all operational risk categories and business functions are assessed in a two-dimensional matrix (per business line). All Group units grade each combination of operational risk category and business function according to their estimation of the total annual loss for high probability /low impact events and low probability/high impact incidents. Low probability/high impact events are quantified by a Group-wide scenario analysis framework that includes the simulation of up to ten specific scenarios. Each entity is furthermore required to run additional scenarios depending on the individual risk profile and local specifics.
Gains and losses resulting from financial instruments of the level III fair value hierarchy amounted to € 40,954 thousand (2008: € 15,502 thousand).
Earnings per share (EPS) – Profit attributable to ordinary equity holder (profit adjusted by dividends to preference shareholders ) divided by the weighted average number of ordinary shares outstanding during the period.
IRB (Internal Ratings-Based approach) – Method of evaluating the capital backing of credit risks in accordance with Basel II. By using the IRB approach, the capital backing is determined according to internal credit ratings. In the process, features specific to the borrower and the loan are taken into account. The ratings must be made by an independent source.
Operating profit/loss – In IFRS-compliant financial statements, it consists of operating income net of general administrative expenses. Operating income comprises net interest income, net commission income, trading profit/loss and other operating profit/loss. General administrative expenses comprise staff expenses and other administrative expenses and depreciation on intangible and tangible fixed assets.
Slovakia Tatra banka, a.s. Hodžovo námestie 3 81106 Bratislava 1 Tel.: +421-2-5919 1111 Fax: +421-2-5919 1110 SWIFT/BIC: TATRSKBX www.tatrabanka.sk