In this report, Raiff eisen Bank International (RBI) refers to the RBI Group, and RBI AG is used wherever statements refer solely to Raiff eisen Bank International AG. The same applies to Raiff eisen International and Raiff eisen International Bank-Holding AG as well as to RZB and RZB AG.
Net provisioning ratio (average risk-weighted assets, credit risk) 1.38% (0.3) PP 1.66% 2.89% 1.32% 0.84% Bank-specifi c information1 Risk-weighted assets (credit risk) 77,150 2.0% 75,601 70,555 60,388 49,802
Looking to the future, what are your plans for 2012? Regionally, the focus will continue to be on our home market, CEE and Austria. Our priority here will still be the Corporate Customers division, which is the backbone of our company. However, we also want to expand our retail business. In all this, our absolute priority is to achieve the EBA ratio by mid-2012. We totally agree with our Raiff eisen core-shareholders that we absolutely want to avoid state infl uence. Thanks to the support within the Raiff eisen Banking Group, which celebrated its 125th anniversary in 2011, and thanks to the profi ts which we are retaining, we are able to increase equity from our own resources. To make sure this continues, we have launched a cost effi ciency program to reduce both personnel and other administrative costs.
The Working Committee dealt primarily with the appointment of executive members in the Group, regulations governing holdings in affi liated companies and business transactions requiring its approval.
■ The focus is on the defi ned home market; an expansion of this sphere of operation is not planned. ■ As far as it is possible, RBI’s business development is organic. Acquisitions are not a strategic objective per se and are only undertaken if the businesses are compatible and synergies can be achieved.
In Poland, the acquisition of Polbank would strengthen RBI’s retail banking business, making it one of the country’s strongest universal banks in terms of market share and presence. In corporate banking, a decreasing interest income is to be off set by expanding service business which is wholly in line with RBI’s strategy of building up capital- and liquidity-light products. This also includes a focus on cash management, which should at the same time help to strengthen customer relationships. In retail banking, the main focus is on the acquisition of affl uent retail customers and on the range of comprehensive solutions (e.g. insurance solutions). The planned merger of Polbank and Raiff eisen Bank Polska would generate synergies in sales and processing. The overall aim is to keep the development of costs stable.
Private Banking The bank introduced the new “Friedrich Wilhelm Raiff eisen” brand to promote the private banking business. It stands for superior advisory services and provides asset management and investment advice for customers with liquid assets of at least € 200,000, depending on the region. This sub-segment, in particular, pursues a discretionary service approach and develops customized solutions (from current accounts to comprehensive capital market investments) for its customers. There are currently around 200 account managers supporting 32,000 such customers in seven countries (Czech Republic, Hungary, Poland, Romania, Russia, Slovakia and Ukraine). In addition, Kathrein Privatbank AG, a wholly owned subsidiary of RBI in Vienna, off ers private banking services.
RBI shares are included in the following indices: ATX, ATX Prime, EURO STOXX, EURO STOXX Banks, STOXX Europe 600, STOXX Europe 600 Banks and MSCI World.
RBI deviates from the following C Rules, but achieves conduct in accordance with the Codex through the following explanations and justifi cations: C Rule 31: RBI deviates from C Rule 31 of the ACGC, which provides for the separate publication of the remuneration, both of the fi xed and performance-based, paid to individual members of the Management Board. Remuneration is published by RBI for the Management Board as a whole. Individual remuneration amounts are not published for reasons of data privacy and out of consideration for the individual Management Board members’ right to privacy.
C Rule 45: RBI deviates from C Rule 45, which provides a non-competition clause for members of the Supervisory Board. RBI is a company of the Raiff eisen Bankengruppe Österreich (RBG), which is also a majority shareholder through its central institution, the RZB. Some members of the Supervisory Board therefore also exercise duties in corporate functions in RBG banks. A number of members of the Supervisory Board have duties in corporate functions in other banks and fi nancial services institutions. In this way, know-how and experience specifi c to the industry are applied in exercising the control function of the Supervisory Board, to the benefi t of the company.
As of the end of 2011, around 55 per cent of the functions with staff responsibility in RBI Group are held by women; in the case of Tier 2 and Tier 3 management, this fi gure equals around 47 per cent. Training and continuing education programs are specifi cally off ered to promote management skills and meet with a favorable response. 27 per cent of the participants in the Group-wide top-management program “Execute” were women. Female employees accounted for 49 per cent of the restructured Advanced Leadership Training program for middle management.
The Annual General Meeting selected KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Vienna as its external auditor and bank auditor for the 2011 fi nancial year. KPMG has confi rmed to RBI that it has the certifi cation of a quality auditing system. It has also declared that there are no grounds for disqualifi cation or prejudice. The auditor prepares the statutory audit report and is responsible for exercising its disclosure obligations. The auditor also prepares a management letter to the Management Board, which includes details of weaknesses within the company. The management letter and the report on the effi ciency of the risk management is presented to the Chairman of the Supervisory Board, who shall ensure that the management letter is addressed by the Audit Committee and is reported on in the Supervisory Board.
Market development Sluggish growth in Europe and US 2011 started off well but from spring onwards the eurozone economy became increasingly sluggish. In the fi rst quarter, real gross domestic product (GDP) was still rising at a rate of 0.8 per cent, while in each of the following two quarters it increased only by approximately 0.2 and 0.1 per cent, respectively. In the fourth quarter, the eurozone even slipped into recession. For 2011 as a whole, GDP growth of 1.5 per cent is expected. At an average 2.7 per cent, the infl ation rate in 2011 was signifi cantly higher than the ECB’s offi cial target. The main cause for the rise in infl ation was an increase in energy prices.
Net provisioning for impairment losses dropped sharply – in total by 11 per cent or € 131 million – in most countries with the exception of Hungary as a result of the ongoing improvement in the economic environment and actively managed measures to stabilize the loan portfolio. While signifi cantly fewer loan loss provisions had to be allocated in many
countries, net provisioning for impairment losses in Hungary rose as a result of its economic and political situation by € 282 million to € 478 million, thus making up almost half of the loan loss provisioning throughout the Group. Net provisioning for individual loan losses at RBI stood at € 1,177 million, representing a year-on-year decline of around 2 per cent. Owing to releases of provisions for Russia, Hungary, Ukraine and Slovakia, there was a net release of portfolio-based loan loss provisions in the reporting year amounting to € 105 million. The net provisioning ratio based on average credit riskweighted assets fell by 28 basis points to 1.38 per cent. The NPL ratio – the proportion of non-performing loans in the loan portfolio – improved, falling for the fi rst time in several years by 0.3 percentage points to 8.65 per cent.
Compared to profi t after tax, profi t attributable to non-controlling interests fell to a sharply disproportionate extent by 93 per cent to minus € 6 million. This decline was primarily due to the losses in Hungary in which non-controlling interests had a share of around 30 per cent. In addition, the rises in earnings were largely attributable to Group units with few noncontrolling interests, if any. After deducting profi t attributable to non-controlling interests, the consolidated profi t accounted for by RBI amounted to € 968 million, which represents a decline of 11 per cent or € 120 million year-on-year.
Depreciation of intangible and tangible fi xed assets (372) (340) (31) 9.2%
After currency eff ects, the value of non-performing loans was up € 266 million at € 7,056 million, with the biggest rises recorded in Hungary and Bulgaria. The NPL ratio, the ratio of non-performing loans to total customer loans, improved 0.3 percentage points to 8.6 per cent. Non-performing loans were covered by provisioning totaling € 4,826 million. This results in a coverage ratio of 68.4 per cent, an improvement of 2.1 percentage points against year-end 2010.
Net income from equity participations dropped € 109 million year-on-year. This was mainly linked to converting a Bulgarian loan recognized in Austria to an equity participation, which was then written off . As the associated loan loss provision was released at the same time, the transaction had no eff ect on consolidated profi t.
Net income from credit derivatives business decreased quarter-on-quarter by € 13 million.
Net income from fi nancial investments Net income from fi nancial investments rose quarter-on-quarter by € 162 million to € 5 million. There was an increase here in net income from securities held-to-maturity due to a profi t of € 94 million on the sale of government bonds. This sale was connected to the increase in regulatory own funds requirement by the European Banking Authority (EBA). Valuation gains from securities were stable in the fourth quarter, following signifi cant losses in the third quarter due to the turbulence in the fi nancial market.
For RZB, this results in an additional need for roughly € 2.1 billion according to EBA calculations published in December 2011. RBI itself was not covered by the EBA study, as RZB acts as a superordinate banking institution. RZB is taking the necessary measures to comply with the new requirements without resorting to state funds.
The Group produces consolidated quarterly reports. Statutory interim reports are produced that conform to the provisions of IAS 34 and are also published quarterly in accordance with the Austrian Stock Corporation Act. Before publication, the consolidated fi nancial statements are presented to senior managers and the Chief Financial Offi cer for fi nal approval and then submitted to the Supervisory Board’s Audit Committee. Analyses pertaining to the consolidated fi nancial statements are also provided for the management, as are preliminary Group fi gures at regular intervals. The fi nancial budgeting system includes a three-year Group budget.
(3) RZB holds around 78.5 per cent of the shares in the Company indirectly through its wholly owned subsidiary Raiff eisen International Beteiligungs GmbH, Vienna. The remaining shares are free fl oat, containing no direct or indirect participations in the capital amounting to 10 per cent or more.
The EBA in this case defi ned a core capital ratio of 5 per cent (core tier 1 capital ratio pursuant to CRD III) as a target over a two-year period after the onset of the crisis scenarios. RBI clearly exceeded this level with 7.8 per cent. In addition, the only minimal decline in the capital ratio of 0.3 percentage points over the stress period showed RBI’s ability to withstand the crisis compared to the scenarios presented.
The following table shows the volume of foreign currency mortgage loans to retail customers in Hungary: In € million 2011 Share 2010 Share
In addition to the measures already taken in connection with the new Basel III regulations, risk management focused in 2011 on the ongoing implementation of the advanced Basel II approach. The Basel II related activities included the implementation of the internal ratings-based approach (IRB) in the retail- and non-retail sector in the subsidiaries in the CEE region, further development of the internal market risk model as well as the introduction of the standardized approach to operational risk throughout the Group.
■ The pension benefi ts are in line with the business strategy, objectives, values and long-term interests of the institution. If the employee leaves the company before retirement, discretionary pension benefi ts will be held for a period of fi ve years in the form of the equity/non-cash instruments. In case of an employee reaching retirement, discretionary pension benefi ts shall be paid to the employee in the form of equity instruments subject to a 5-year retention period.
Current forecasts predict a distinctive economic downturn at the end of 2011/beginning of 2012. Owing to the high fi nancing costs, fi scal counter steering is nearly impossible in most countries. On the contrary, persistent restrictive fi scal policies are to be expected for the majority of eurozone countries in 2012. Furthermore, the political environment will remain turbulent. Budget cutbacks and structural changes on the national, as well as bail-out packages on the European level will most likely be accompanied by criticism and protests. In light of these circumstances, a noticeable recession is anticipated from year-end 2011 until mid-2012. On the eurozone demand side this will be characterized by a decline in the demand for investments and public consumption. It is likely that some eurozone countries will experience a decline in their economic performance: Austria (0.3 per cent), Belgium (minus 0.2 per cent), Finland (0.0 per cent), France (0.1 per cent), Germany (0.0 per cent), Ireland (minus 0.7 per cent), Italy (minus 1.8 per cent) and Spain (minus 1.2 per cent). The largest GDP declines are forecast for Greece (minus 5.5 per cent) and Portugal (minus 3.8 per cent).
China will remain the motor for growth in Asia in 2012, even though economic growth will be noticeably slower due to the worldwide decline in demand for exports, as well as internal imbalances in the real estate market. Decreasing infl ation enables monetary countermeasures. At the same time, it is expected that fi scal policy will not interfere quite as strongly as it did in 2009 (strong increase in investments), but that smaller measures, geared towards stimulating consumption and supporting low income households, will be taken. In general, the government’s targeted growth of 7.5 per cent in 2012 will be exceeded. India also faces a signifi cant slow-down in economic growth that will reach its low in the fi rst half of 2012. For 2012 the growth forecast stands at an average of 7.0 per cent.
We plan to raise around € 4.6 billion in long-term wholesale funding (maturity of more than one year) for the RBI Group in 2012. In the capital markets we intend to raise € 2.1 billion in wholesale funding, of which around € 1.3 billion had already been placed as of mid-March.
Performance varied across the regional and functional segments in the year under review. However, the problems in Hungary and the impairment of goodwill in Ukraine were more than compensated for by other markets and areas.
Central Europe In Central Europe, profi t before tax in 2011 was € 33 million, down 88 per cent on the previous year. Although operating income rose by 6 per cent, the sharp increase in provisioning in Hungary and the rise in administrative expenses, in particular, accounted for this decline. Return on equity before tax fell by 9.2 percentage points to 1.2 per cent.
hereof foreign currency % 75.9% 72.5% 3.3 PP 75.9% 71.3% 4.5 PP
Return on equity after tax 9.5% 3.0% 6.4 PP – 13.1% –
Net fee and commission income 66 72 (8.8)% 16 18 (13.1)%
Number of employees as of reporting date 720 693 3.9% 720 717 0.4%
Net provisioning for impairment losses (18) (32) (43.5)% (4) (4) (9.7)%
The table below provides an overview of the country results for Russia. Any discrepancies with regard to the values specifi ed for the Russia segment are the result of equity being allocated diff erently: The income fi gures in the country overview are based on the balance sheet equity; at segment level, the equity used in the calculation is based on actual equity used.
Net interest margin 6.10% 6.19% (0.09) PP 5.91% 6.79% (0.89) PP
Profi t after deduction of non-controlling interests declined by 31 per cent to € 51 million.
Return on equity after tax 6.2% 3.8% 2.4 PP 2.3% 13.5% (11.2) PP
Net provisioning for impairment losses declined by 11 per cent to € 116 million, mainly due to net allocations to individual loan loss provisions for loans and advances to corporate customers at Group headquarters, which were lower thanks to improved credit conditions. By contrast, RBI AG’s branches in Asia posted higher net provisioning for impairment losses as a side eff ect of signifi cant loan portfolio growth. The share of non-performing loans in the loan portfolio stood at 3.0 per cent at the end of the year under review and was therefore relatively low compared to the other segments.
Other results in the segment fell year-on-year by € 23 million to minus € 4 million, mainly due to the absence of positive valuation gains from mark-to-market valuations of corporate bonds. Due to the deconsolidation of a leasing company for materiality reasons, the segment showed a net loss from disposal of group assets of € 1 million.
Balance sheet assets in this segment fell by 6 per cent year-on-year to € 25.7 billion, mainly due to a reduction in business volume, as well as the sale of parts of the securities portfolio held-to-maturity and of various risk positions at Group headquarters, which had become necessary on account of regulatory requirements. The segment’s net interest margin increased by 14 basis points to 0.85 per cent, while its risk-weighted assets declined by 3 per cent to € 5.1 billion. However, this decline was mitigated by an increase in off -balance-sheet items.
Total Group equity Non-controlling interests hereof unrealized net gains (losses) of the period (349,606) 188,893 (302,230) 180,388 (47,376) 8,506
In order to achieve the maximum possible transparency and clear lines of reporting, seven segments were defined in compliance with the IFRS 8 thresholds. IFRS 8 establishes a 10 per cent threshold for the key figures of operating income, result after tax and segment assets.
Intra-group results are eliminated insofar as they had a material effect on the items of the income statement. Bank business transactions between Group members are usually executed in arm’s length transaction.
Of the 135 entities in the Group, 29 are domiciled in Austria (2010: 27) and 106 abroad (2010: 105). They comprise 21 banks, 60 financial institutions, 19 companies rendering bank-related ancillary services, 10 financial holding companies and 25 other companies. Because of their minor importance in giving a view of the Group’s assets, financial and earnings position 231 subsidiaries were not included in the consolidated financial statements (2010: 173). They are recognized at cost under financial investments. The total assets of the companies not included came to less than 1 per cent of the Group’s aggregated total assets.
The following exchange rates were used for currency translation: Rates in units per € 2011 2010
b. Designated financial instruments at fair value This category comprises mainly all those financial assets that are irrevocably designated as financial instrument at fair value (so- called fair value option) upon initial recognition in the statement of financial position independent of the intention to trade. An entity may use this designation only when doing so results in more relevant information for the user of the financial statements. This is the case for those financial assets, which belong to a portfolio, which is managed and its performance evaluated on a fair value basis.
Under reverse repurchase agreements, assets are acquired with the obligation to sell them in the future. 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.”
Other comprehensive income comprises all income and expenses directly recognized in equity according to IFRS standards. Other comprehensive income contains currency differences resulting from the translation of equity held in foreign currency, changes resulting from the hedging of net investments in a foreign entity (capital hedge), the effective part of a cash flow hedge, changes resulting from valuation of available-for-sale financial assets as well as deferred taxes on the mentioned items.
Interest and interest-like income, total 6,614,417 6,364,799 from balances at central banks 61,796 84,969 from loans and advances to banks 441,781 447,943 from loans and advances to customers 4,743,939 4,571,885 from financial investments 770,497 696,577 from leasing claims 222,377 221,448 from derivative financial instruments (non-trading), net 288,841 311,460 from shares and other variable-yield securities 2,544 1,703 from shares in affiliated companies 44,853 5,474 from other interests 3,586 4,192
Positive fair values of derivatives in cash flow hedges (IAS 39) 0 564,583
The acquisition of own shares mainly serves to cover the obligation of RBI within the framework of the share incentive program (SIP) towards the members of the Management Board and executive employees. These bonus payments are carried out in the form of company shares. In fiscal year 2011 29,138 own shares were allocated to eligible executives and board members on 12 April 2011.
Authorized capital The Management Board was authorized by the Annual General Meeting held on 8 June 2011, within 5 years after registration of the respective change in the articles of incorporation in the Company Register, to increase the share capital up to € 298,145 thousand against contribution in cash and/or in kind by issuing 97,752,562 new common bearer shares with voting rights while preserving the subscription rights of the shareholders, including the indirect subscription by way of a bank pursuant to Section 153 (6) of the Austrian Joint Stock Companies Act (AktG), and to determine 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 entitled to adopt amendments to the articles of association that arise upon issuing shares from the authorized capital.
In the financial year 2011, no own shares were bought back for the share incentive program.
The following assets are provided as collateral for the obligations: Loans and advances to banks 3,569,940 4,126,775
The Credit Committees are staffed by front office and back office divisions with different participants depending on the customer segment (corporate customers, financial institutions and sovereigns, and retail). They decide upon the specific lending criteria for different customer segments and countries. And they approve all credit decisions concerning them according to the credit approval authority (depending on rating and exposure size).
Unexpected losses on an annual basis (economic capital) must not exceed the present value of equity and subordinated liabilities 99.95 per cent as derived from the default probability implied by the target rating
The maximum credit exposure to corporates in 2011 amounted to € 89.165.748 thousand. Group Corporates (€ 37.283.636 thousand) is the largest segment, followed by Central Europe (€ 18.649.280 thousand) and Southeastern Europe (€ 11.230.092 thousand). Russisa (€ 10.795.370 thousand), CIS Other (€ 4.093.986 thousand), Group Markets (€ 6.185.496 thousand) and Corporate Center at € 927.888 thousand complete the picture.
The following table provides a breakdown by county of risk of the maximum credit exposure for corporate customers structured by regions: The table below provides a breakdown of the maximum credit exposure for corporates and project finance selected by industries: in € million
The following table shows the maximum credit exposure of this asset class by segment: Central Europe Southeastern Europe
Problem loan management standards in the retail area comprise the whole restructuring and collection process for private individuals and small enterprises. A restructuring guideline defines the Group’s restructuring framework including uniform strategy, organization, methods, monitoring and controlling. In the workout process customers are classified into three categories “early,” “late,” and “recovery,” for which a standardized customer handling process is defined.
Concentration risk The credit portfolio of RBI 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. The sum of the ten largest corporate credit exposures of the corporate customer division (before taking into account risk mitigation effects) corresponds to 62.7 per cent of core capital. In line with the credit risk policy these customers all have excellent ratings or – in exceptional cases and given high collateralization (and high fungibility of collateral) – acceptable credit standing.
Electricity, gas, steam and hot water supply 3,448,995 1.8% 3,516,158 2.1%
The Market Risk Management department ensures that the business volume and product range comply with the defined and enacted strategy of the Group. It is responsible for implementing and enhancing risk management processes, manuals, measurement techniques, risk management infrastructure and systems for all market risk categories and secondary credit risks arising from market price changes in derivative transactions. Furthermore this department independently measures and reports market risks on a daily basis.
Interest rate risk in the trading book The following two tables show the largest present value changes for the trading book of RBI given a one-basis-point interest rate increase for the whole yield curve in € thousand for the reporting dates 31 December 2011 and 31 December 2010. Currencies where the total interest rate sensitivity exceeds € 10 thousand are shown separately. There are only minor changes in the risk factors compared to the previous year.
CCredit spread risk The market risk management framework uses time-dependent bond and CDS-spread curves as risk factors in order to measure credit spread risks. This market risk category thus captures the specific interest rate risk of all securities in the trading and banking book. The value-at-risk report covers RBI AG in this risk category, where a major part of securities positions of the Group are booked. The rollout of this system to all Group units is being planned.
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 by generic business processes and event types (per business line or product group). This applies to new products as well. All Group units grade the impact of high probability/low impact events and low probability/high impact incidents according to their estimation of the loss potential for the next year and in the next ten years in relation to profits. Low probability/high impact events are quantified by a Group-wide analytical tool with specific scenarios. Individual Group units furthermore run additional scenarios depending on their individual risk profile and local specifics. In 2011 RBI also participated in an exchange of scenario definitions within the ORX consortium, of which it is a member since 2010.
Monitoring In order to monitor operational risks, key risk indicators (KRIs) are used that allow promptly identifying and mitigating operational risks. These are also specifically tailored to individual Group units.A common cataloge of key risk indicators, which is defined by the head office for internal benchmarking purposes, is mandatory for all Group units.
Operational risk reduction is initiated by business managers who decide on preventive actions like risk mitigation or risk transfer. Progress and success of these actions is monitored by risk controlling. The former also define contingency plans and nominate responsible persons or departments for initiating the defined actions if losses in fact occur. In addition, several dedicated organizational units provide support to business units for reducing operational risks. An important roleis taken on by fraud management which reduces potential fraud related losses through proactive monitoring and preventive actions. RBI also executes an extensive staff training program and has different emergency plans and back-up systems in place.
€ 000 Fair value Carrying amount Difference Fair value Carrying amount Difference
F.J. Elsner & Co. Gesellschaft mbH, Innsbruck (AT) 436,037 EUR 100.0% OT
Glossary Affi liated companies – Entities over which the investor has applicable control (i.e. power to govern the fi nancial and operating policies).
Cost/income ratio – Indicator of an entity’s cost effi ciency 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 fi xed assets) with operating income (net interest income, net fee and commission income, net trading income and other net operating income).
Cross-selling – Marketing strategy in which additional products and services are actively off ered to existing customers.
SEE – The Southeastern Europe segment. For RBI this segment comprises Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Romania (incl. Moldova) and Serbia.
Bulgaria Raiff eisen Leasing Bulgaria OOD Mladost 4, Business Park Sofi a Building 7B, 4th fl oor 1504 Sofi a Phone: +359-2-491 9191 Fax: +359-2-974 2057 www.rlbg.bg
Kosovo Raiff eisen Leasing Kosovo Gazmend Zajmi n.n., Sunny Hill 10000 Pristina Phone: +381-38-222 222 Fax: +381-38-203 03011 www.raiff eisen-leasing-ks.com
UK RBI London Branch 10, King William Street London EC4N 7TW Phone: +44-20-7929 2288 Fax: +44-20-7933 8099