Raiffeisen International Bank-Holding AG, which is part of theRaiffeisen Zentralbank Osterreich AG (RZB) Group, continued its growthduring the first half of 2007 and achieved once again the best quarterlyresult since the Group''s inception– excluding last year''s one-off effects. Consolidated profit (after tax and minorities) rose by 38.8 per cent to 401.4 million euros (first half 2006: 289.2 million euros). Profit before tax for the first half of 2007 went up by 44.1 per cent to 606.6 million euros (first half 2006: 421.0 million euros), while profit after tax for the first six months of 2007 grew by 43.0 per cent to 477.0 million euros (first half 2006: 333.5 million euros). Earnings per share rose from 2.03 euros for the first half of 2006 to 2.82 euros. (All figuresare based on International Financial Reporting Standards (IFRS).)
Raiffeisen International''s business year in 2006 was influenced by twoone-off effects– arising from the sales of Raiffeisenbank Ukraine and the stake in Bank TuranAlem – with a total positive impact on the full year consolidated profit of 588 million euros. To facilitate comparison of the first half of 2007 with last year, these one-off effects are notincluded in the comparison figures for 2006.
Furthermore, changes in the scope of consolidation– the acquisitions of Impexbank in the second quarter of 2006 and eBanka in the fourth quarter of 2006 and the disposal of Raiffeisenbank Ukraine in the fourth quarter of 2006 – had an impact on earnings components. At the beginning of 2007, three asset management companies in Croatia, Slovakia, and Hungary were also included in the scope of consolidation for the first time because of materiality.
Another record result for the second quarter of 2007
Raiffeisen International achieved a consolidated profit (after tax andminorities) of 208.8 million for the second quarter of 2007, which isanother increase of 16.2 million euros or 8.4 per cent over the recordresult of the first quarter (first quarter of 2007: 192.6 millioneuros). Compared to the second quarter of the previous year,consolidated profit was higher by 43.8 million euros or 26.5 per cent(second quarter of 2006: 165.0 million euros).
Herbert Stepic, CEO of Raiffeisen International, commented on thedevelopment of business and the result:"The optimization of ourstructures and our distribution power has been successful. Our continueddynamic growth shows that our customers also appreciate these efforts."
Return on equity of more than 26 per cent stays on high level
Compared with the first quarter, the return on equity (ROE) before taximproved slightly in the first half of 2007 to 26.6 per cent. Comparedwith the full year 2006, when the adjusted ROE amounted to 27.3 percent, this represents a decline by 0.7 percentage points. The reason forthis decline is the very high profit retention due to one-off effectswhich caused average equity to rise by 40 per cent to 4,567 millioneuros.
The consolidated ROE (after tax and minorities) came to 20.3 per centand was 1.1 percentage points below the value for 2006.
The core capital ratio (Tier 1), banking book, which is of significancefor assessing financial strength, amounted to 9.0 per cent (31 December2006: 9.8 per cent). The core capital ratio (Tier 1), including marketrisk, amounted to 8.3 per cent (31 December 2006: 9.0 per cent).
Significant increases in profit from operating activities
Operating results increased in the first half of 2007, in some casessignificantly, compared with the previous quarters. Quarterly operatingprofit amounted to 392 million euros, again the best result in thecompany''s history. That is 98 million euros above the second quarter of2006 and 36 million euros above the first quarter of 2007. In the firsthalf of 2007, operating profit amounted to 749 million euros and thusgrew by 38 per cent compared with 30 June 2006. Changes in the scope ofconsolidation had a net negative impact on earnings of 11 million euros.
Altogether, operating income amounted to 1,751 million euros in theperiod ending 30 June 2007, which represents an increase of 36 per cent,or 465 million euros, compared to the same period in 2006. Netcommission income grew by 38 per cent, or 157 million euros, to 572million euros in the first half of the year. Consistently higher incomefrom fees and commissions for nearly all banking products drove thatincrease."I am satisfied with the development of our lower-riskcommission business. While the share of net commission income in theoverall operating income was only 21 per cent in fiscal year 2005, ithas reached already 33 per cent in the current business year," saidMartin Grull, CFO of Raiffeisen International.
At 37 per cent, growth of net interest income was only slightly belowthat of net commission income. Net interest income rose by 289 millioneuros to 1,079 million euros. Interest margins declined slightlyyear-on-year in Central Europe and Southeastern Europe, while anincrease of 18 basis points was registered in the CIS. Groupwide, theinterest margin went up by 14 basis points compared to this year''s firstquarter. Compared with the first half of 2006, trading profit rose by 11per cent, or 8 million euros, to 79 million euros with varyingdevelopment of results in the individual business areas and regions.Income from interest-based business increased significantly, whilecurrency-based business declined slightly due to the exchange ratevolatility of some CEE currencies and the US dollar.
Stable cost/income ratio at 57 per cent
General administrative expenses rose by 35 per cent to 1,003 millioneuros in the first half of 2007 and thus somewhat less than operatingincome.
The cost/income ratio therefore improved by 1.8 percentage pointscompared with the full year 2006 and by 0.6 percentage points comparedwith the first half of 2006 to 57.3 per cent. The share of generaladministrative expenses attributable to staff expenses increased by 2percentage points to 49 per cent, primarily due to higher staff costs inthe CIS.
Balance sheet total over 60 billion euros for the first time
Raiffeisen International''s balance sheet total increased by over 12 percent in the first half of the year. The balance sheet total rose by 6.7billion euros from 55.9 billion euros to 62.6 billion euros.
Lending growth was again mainly responsible for this increase. Loans andadvances to customers rose by 20 per cent from the beginning of the yearto 41.9 billion euros on the reference date. Adjusted for impairmentloss provisioning, lending to customers accounted for 65 per cent of thebalance sheet total. The largest growth of the loan portfolio– in both absolute and relative terms – was recorded in the Group units of the CIS, with a plus of 31 per cent, or 3.1 billion euros. Funding was accomplished by means of customer deposits, on the one hand, which grew by 8 per cent to 35.7 billion euros, and by borrowing from international commercial banks, on the other. These liabilities to banks increased by 23 per cent to 16.9 billion euros.
In the first half of the year, initial consolidations and exchange ratemovements only had insignificant effects on business volume, amountingto just under one per cent of growth.
Largest distribution network of all western banks in CEE
During the period under review, Raiffeisen International furtherexpanded its already extensive and dense distribution network. Thenumber of business outlets went up by 108 units on balance during thefirst half of 2007. As a result, they now total 2,956."On average, weopen four new branch offices every week. We plan to open a furtherapproximately 500 outlets by the end of 2009, primarily in SoutheasternEurope and the CIS," said Stepic.
Raiffeisen International once again significantly expanded its customerbase during the first half of 2007. As compared to year-end 2006, thenumber of customers went up from 12.1 to 12.7 million.
Highest earnings contribution from Southeastern Europe
Southeastern Europe registered by far the largest increase of profitbefore tax, with a plus of 90 million euros to 220 million euros. Thisincrease is due to high cost efficiency in the region and low newallocations to provisioning for impairment losses. ROE before tax rosefrom 25.1 per cent for the first half of 2006 to 32.4 per cent for theperiod under review. At the same time, the cost/income ratio improvedfrom 58.3 per cent to 55.4 per cent.
Earnings also increased significantly in the other segments. In CentralEurope, earnings before tax grew by 41 per cent, or 61 million euros, to212 million euros. ROE before tax increased by 0.9 percentage points to22.3 per cent, and the cost/income ratio went up by 0.6 percentagepoints to 59.4 per cent.
In the CIS, strong organic balance sheet growth as well as theintegration of Impexbank, which was consolidated for the first time inthe second quarter of 2006, was primarily responsible for an earningsincrease of 25 per cent, or 34 million euros; profit before tax reached174 million euros. ROE before tax was 26.8 per cent (first half of 2006:34.1 per cent), and the cost/income ratio amounted to 56.6 per cent(first half of 2006: 56.5 per cent).
The largest part of consolidated profit before tax came for the firsttime from Group units in Southeastern Europe, with a share of 36 percent (plus 5 percentage points). Central Europe was the second-largestearnings source with a 35 per cent share. The CIS accounted for 29 percent of earnings.
The shares of balance sheet assets attributable to the individualregional segments remained unchanged in comparison with June 2006. Thebalance sheet assets of Central Europe continue to dominate with a 40per cent share of Group assets. That region is followed by SoutheasternEurope with 32 per cent, and the CIS with 28 per cent. Compared toyear-end 2006, however, the CIS increased its share by 3 percentagepoints.
Strong earnings increase in Retail Customers segment
Earnings before tax in the Retail Customers segment improved by 74 percent to 223 million euros in the first half of 2007. This increase wasdue to significantly higher operating income. Net interest income roseby 41 per cent to 658 million euros. Net commission income from customerbusiness with private individuals and with small and medium-sizedbusinesses similarly contributed 39 per cent more to segment earningsand amounted to 363 million euros. The increase was due to a broadercustomer base, which partly resulted from the acquisition of Impexbankin the first half of 2006 and associated growth of business volume. Thesegment''s share of total earnings rose to 37 per cent (first half of2006: 30 per cent). The return on equity came to 29.1 per cent, whichrepresents a plus of 4.0 percentage points.
Compared with the first quarter of 2007, earnings improved again in theCorporate Customers segment and were 34 per cent above last year''slevel, amounting to 321 million euros at the end of the first half. Thatthis increase could be achieved despite higher provisioning forimpairment losses (plus 34 per cent) was due to improved operatingprofit. The cost/income ratio improved again by 1.1 percentage points to34.7 per cent.
At 92 million euros, the Treasury segment was only slightly below lastyear''s result (minus 4 per cent). That was due to increased generaladministrative expenses and essentially unchanged operating income.
Outlook and Targets
Corporate customer business is again expected to make the largestcontribution to overall profit in 2007. Raiffeisen International intendsto intensify the focus on the mid-market segment this year. The focuswithin the fast developing retail division will be on further expansionof the Group''s network of branch offices, the development of alternativedistribution channels and the accelerated sale of asset management andinsurance products.
For 2007, Raiffeisen International targets a consolidated profit of atleast 750 million euros.
For the period to 2009, Raiffeisen International targets annual growthof its balance sheet total by at least 20 per cent. The largestincreases should continue to come from the CIS despite the absence ofRaiffeisenbank Ukraine.
For the year 2009, the management has set the goal to achieve a returnon equity (ROE) before tax of more than 25 per cent, a cost/income ratioof below 58 per cent and a risk/earnings ratio of about 15 per cent.
To further strengthen its capital base to support additional growth,Raiffeisen International is currently evaluating the possibility of acapital increase. Depending on prevailing market conditions, a capitalincrease could be implemented within the next six months.
*Raiffeisen International segments its business activities by bothbusiness fields (Retail Customers, Corporate Customers, Treasury, andParticipations and Other) and regions (Central Europe, SoutheasternEurope and CIS).
Raiffeisen International''s semi-annual report can be accessed underhttp://qr022007.ri.co.at.You can also order a printed copy there.
Raiffeisen International operates the largest banking network in CEE. 18markets of Europe''s growth region are covered by subsidiary banks,finance leasing companies, two representative offices and a number ofother financial service providers. About 12.7 million customers areattended to through more than 2,950 business outlets. RaiffeisenInternational is a fully consolidated subsidiary of RaiffeisenZentralbank Osterreich AG (RZB), which owns 70 per cent of the commonstock. The remaining 30 per cent is free float, the shares are traded onthe Vienna Stock Exchange. RZB is a leading corporate and investmentbank in Austria and the central institution of the Austrian RaiffeisenBanking Group, the country''s largest banking group.
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Key financial data