What demands will banks face in 2014? The pressure on the financial sector will remain. 2014 will involve further regulatory and organizational changes and will therefore be a crucial year for the European banking sector. The ECB will assume responsibility for European banking supervision – the first important pillar of the joint banking union. Until then, asset quality reviews and stress tests will be conducted for the eurozone’s systemically relevant banks. In other words, the banks will be faced with some uncertainty. Besides the regulatory pressure, we still have to handle the bank levies. For us, these amounted to around 197 million euros in 2013, of which more than half related to Austria. Had there been a strong economy in the last few years, the responsible politicians might have even risked a credit squeeze with such measures. Fortunately, this did not occur, but the burdens are noticeable.
CIS Other Retail and corporate customers in Belarus, Kazakhstan, and Ukraine
RBI rating Last year, RBI was rated by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. In order to ensure accurate assessment, RBI maintained regular contact with rating agency analysts and informed them, and other market actors, on a regular basis about trends in RBI‘s business developments.
Independence of the Supervisory Board In accordance with C Rule 53 of the ACGC, the RBI Supervisory Board prescribed the following criteria for the independence of the members of the company’s Supervisory Board: ■ The Supervisory Board member shall not have been a member of the management board, or a senior executive of the company or one of its subsidiaries, in the past five years.
Internal Audit International IT Investment Banking Products Tax Management Network Corporate
Human Resources Group Project Management Office Institutional Clients Planning & Finance Group Products
General administrative expenses grew 3 per cent, or € 81 million, year-on year to € 3,340 million. This increase was primarily due to the consolidation and integration of Polbank, in May 2012, and to salary increases in Russia, as well as the impairment of a software project in the Czech Republic. A number of countries reported positive effects from ongoing cost reduction programs. The number of business outlets fell by 81 to 3,025 year-on-year, predominantly due to the optimization of the branch network following the merger with Polbank. The cost/income ratio improved 3.2 percentage points to 58.3 per cent due to higher operating income.
1 Excl. impairment of goodwill and bank levies. 2 Adaptation of previous year's values due to retrospective application of IAS 19R. 3 Incl. impairment of goodwill and bank levies.
Deposits from customers remained stable year-on-year at € 66.4 billion. Whereas deposits from corporate customers – notably at Group head office – grew € 2.3 billion (repo business: up € 0.6 billion), deposits from retail customers fell € 1.7 billion and those from the public sector fell € 0.3 billion. The largest declines in deposits from retail customers occurred in Poland, Hungary and the Czech Republic.
The financial institutions sector consists mainly of loans and advances to, as well as securities from Western European banks to, the Austrian Raiffeisen Banking Group (as part of liquidity management within the sector). At the end of the reporting period, this portfolio totaled € 27,370 million, down € 5,355 million year-on-year. This decline was predominantly driven by liquidity optimization and led to less outstanding exposure with rating grade A3 (down € 6,606 million) as a result of fewer repo, swap and money market transactions.
To improve the modeling of risk factors, where the probability of extreme price changes exceeds the probability given by the normal distribution, numerous approaches were integrated into the model. These include the enhancement of scenarios to include extreme events, the consideration of the current volatility levels in generating scenarios, and the application of different time periods in the volatility estimate. This model forms the basis for implementing the strict Basel III requirements into internal models.
Developments in compensation As banks are typical services companies, personnel costs represent a major portion of administrative expenses – at RBI it was unchanged at 49 per cent in 2013 – and cost reduction programs also impact salaries and fringe benefits. Personnel costs for the reporting period rose 2 per cent year-on-year. As part of the performance management process, salary increases or bonuses were only granted to strong performers on the basis of differentiated performance evaluations.
We expect the net provisioning requirement in 2014 to remain at around the same level as in the prior year, however, results may be impacted by the ECB Asset Quality Review process. The developments in Ukraine and their potential effects on the region are hereby also not taken into consideration.
In the course of our cost reduction program, we plan to reduce general administrative expenses to the level of 2012 by 2016. We aim to achieve a cost/income ratio of between 50 to 55 per cent by 2016. We plan to maintain 2014 costs at around the same level as 2013.
Return on equity before tax 2.0% 1.7% 0.3 PP (7.6)% 6.9% –
1 Operating income excl. impairment on goodwill and bank levies. 2 Other results incl. impairment on goodwill and bank levies.
The segment’s net interest income increased 2 per cent year-on-year to € 1,068 million. As a result of the consolidation of Polbank, Poland reported an increase of 35 per cent, or € 81 million, which fully offset declines in other countries in this segment. In Slovakia, higher margins in new retail business, as well as repricing of existing deposits, resulted in a rise in net interest income. Hungary posted the largest decline in interest income as a result of reduced credit volumes, lower market interest rates, decreased income from derivative financial instruments, and a fall in income from securities. Moreover, a decline in retail and corporate customer business in the Czech Republic had a negative impact. The segment's net interest margin improved to 2.92 per cent, with the largest rise in interest margins being recorded in Slovakia and the largest decline in Hungary. Total assets were down 6 per cent, or € 2.4 billion, to € 38.4 billion year-on-year due to the optimization of liquidity and weak demand for credit. Creditrisk -weighted assets also decreased 5 per cent from € 22.0 billion to € 20.9 billion.
Detailed results of individual countries: Czech Republic in € million 2013 2012 Change Q4/2013 Q3/2013 Change
Employees as of reporting date 2,603 2,865 (9.1)% 2,603 2,715 (4.1)%
Net fee and commission income 33 31 4.9% 10 9 11.0%
hereof foreign currency % 67.2% 75.0% (7.7) PP 67.2% 71.6% (4.3) PP
Employees as of reporting date 2,965 3,119 (4.9)% 2,965 3,029 (2.1)%
hereof foreign currency % 54.3% 51.8% 2.4 PP 54.3% 52.5% 1.7 PP
Net interest income in Russia declined 4 per cent, or € 26 million, year-on-year to € 722 million. Interest income from derivative financial instruments used for foreign currency denominated loan exposure hedges decreased € 108 million as a result of the reclassification of the interest portion in new business to the trading book. Increased expenses for customer deposits also had a negative effect. In contrast, interest income from loans rose as a result of higher volumes in new business. The segment’s net interest margin fell 49 basis points to 4.80 per cent year-on-year, mainly due to lower income from derivative financial instruments. Total assets remained relatively stable year-on-year at € 15.6 billion. Despite increased lending in the retail business (credit cards and consumer loans), credit risk-weighted assets fell 10 per cent to € 9.2 billion as a consequence of a sharp drop in lending in nonretail business. The retail business share of the total lending volume rose considerably from 36 to 44 per cent.
The share of non-performing loans in the segment’s total loan portfolio fell 3.8 percentage points. This development was supported by the writing off of foreign currency loans in the Ukranian retail customer business. At 24.4 per cent it was still high compared to the other segments, whereby at 0.6 per cent the NPL ratio in Belarus was the lowest in the Group. The NPL coverage ratio improved 2 percentage points to 72.2 per cent.
Net income from disposal of group assets [10] (6,465) 12,137 –
In the reporting year, IAS 19R was implemented which required retrospective application. The required re-evaluation of defined benefit plans resulted in other comprehensive income of € 3,820 thousand in the reporting year. Retrospectively, the previous year was adapted by minus € 5,747 thousand.
Net interest margin (average interest-bearing assets) 2.85% 4.21% 5.29% 7.12% 1.93%
The amendments to IFRS 7 require entities to disclose information about rights to offset and related arrangements for financial instruments under an enforceable master netting agreement or similar arrangement. Apart from the additional information under note (41) Offsetting of financial assets and liabilities, the application of IFRS 7 has no material impact on RBI’s consolidated financial statements.
Annual Improvements to IFRS – 2010–2012 cycle (entry into force on July 1, 2014)
Intra-group results are eliminated insofar as they have a material effect on the income statement items. Bank business transactions between Group members are usually executed on an arm's length basis.
Fully consolidated Equity method Number of units 31/12/2013 31/12/2012 31/12/2013 31/12/2012
Derivative financial instruments held-for-trading are shown under the item "trading assets" or "trading liabilities". Positive fair values including accrued interest (dirty price) are shown under trading assets. Negative fair values are recorded under trading liabilities. Positive and negative fair values are not netted. Changes in dirty prices are recognized in net trading income. Derivatives that are used neither for trading purposes nor for hedging purposes are recorded under the item "derivatives". Furthermore, any liabilities from the short-selling of securities are shown in "trading liabilities".
Credit risk is accounted for by making individual impairment provisions and portfolio-based impairment provisions. The latter comprise impairment provisions for portfolios of loans with identical risk profiles that are compiled under certain conditions. Assessment was refined and a parallel standardized application of Group-wide uniform default rates achieved for calculating portfolio-based impairment provisions as a result of splitting rating models for commercial clients into "large" and "regular" and increasing the number of rating categories from 10 to 27 (for corporate clients) and 16 (for small and medium-sized entities). In the retail segment, provisions are built according to product portfolio and past due days and partly taking historical default rates into account. Individual and portfolio-based impairment provisions are not netted against corresponding receivables but are stated separately in the statement of financial position.
Retail customers – small and medium-sized entities 2,666,858 2,945,655 421,110 259,699 108,808 2,577,148
The item “software” comprises acquired software amounting to € 464,773 thousand (2012: € 485,979 thousand) and developed software amounting to € 80,553 thousand (2012: € 79,654 thousand).
Reduction of the growth rates in phase III 9.7 PP 3.9 PP 3.2 PP 9.5 PP 1 The respective maximum sensitivity refers to the change of the perpetuity.
Change in consolidated group Exchange differences Additions Disposals Transfers As of 31/12/2012
Other land and buildings (23,777) 0 (4,719) 149,950 of which land value of developed land (6) 0 0 13,536
Severance and similar payments include provisions for anniversary bonuses and other payments in the amount of € 16,954 thousand (2012: € 15,393 thousand) and obligations from other benefits due to termination of employment according to IAS 19R in the amount of € 51,700 thousand (2012: € 50,153 thousand).
For pensions there are different plans: 100 per cent unfunded, partly funded and 100 per cent funded. The partly and fully funded plans are all funded 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).
In the financial year 2013, no shares were bought back for the share incentive program.
 Finally, an external placement of diversified payments rights of ZAO Raiffeisenbank, Moscow, amounting to € 126,894 thousand is worth mentioning. The change in carrying amounts compared to the previous year is due to fluctuating currency exchange rates. The maturity of the tranche 2012-A ends in May 2017, those of 2012-B and 2012-C end in May 2019.
Synthetic Transaction (JEREMIE) ROOF Bulgaria SME 2011-1 Raiffeisenbank (Bulgaria) EAD, Sofia (BG)
During the year, the economic capital of RBI decreased to € 7,867,722 thousand. The highest decreases were reported due to methodical changes in credit risk of the asset class private individuals and in credit risk of the asset class sovereigns. The highest risk of RBI is now in credit risk of the asset class corporate customers which accounts for around 31 per cent (2012: 26 per cent) of total risk. In total, credit risk is responsible for about 67 per cent (2012: 66 per cent) of economic capital. Market risk and operational risk account for 17 per cent (2012: 17 per cent). In addition, a general risk buffer for other risks of unchanged 5 per cent of the calculated economic capital is added. In the regional breakdown of economic capital as of 31 December 2013 the largest share, at around 38 per cent (2012: 37 per cent), is allocated to Group units located in Central Europe.
Rating models in the main non-retail asset classes – corporates, financial institutions, and sovereigns – are uniform in all Group units and rank creditworthiness in 27 grades for corporate customers and 10 grades for financial institutions and sovereigns. For retail asset classes, country specific scorecards are developed based on uniform Group standards. Customer rating, as well as validation is supported by specific software tools (e.g., for business valuation, rating and default database).
2012 € 000 Central Europe Southeastern Europe Russia CIS Other Group Markets
Time deposits, repurchase agreements, potential future exposures from derivatives, sight deposits, and bonds are the main product categories in this asset class. These exposures therefore have high collateralization grades (e.g., in repo transactions or through netting-agreements) depending on the type of product.
A1 A2 A3 B1 B2 B3 B4 B5 C D NR
(53) Related parties Companies can carry out business with related parties that may affect the entity’s asset, financial and earnings position. Information about related parties refers to the top of the consolidated group of Raiffeisen-Landesbanken-Holding GmbH.
Heinrich Schaller1 2nd Deputy Chairman 2nd Deputy Chairman 2nd Deputy Chairman 2nd Deputy Chairman
Basel III – Basel-II regulations, broadened with the experiences and insights of the financial and economic crisis to harmonize incurred risks and the bank’s risktaking capacity (deduced from the equity’s amount and quality).
Consolidated ROE – Return on Consolidated Equity, i.e. the equity attributable to the shareholders of RBI. It is calculated by consolidated profit in relation to average equity on the statement of financial position. Average equity is based on month-end figures excluding non-controlling interest and does not include current year profit.