Raiffeisen International Bank-Holding AG, a member of the RZB Group headed by Raiffeisen Zentralbank Osterreich AG, utilized the growth dynamics in Central and Eastern European markets and once again achieved a record result on the back of a strong development of customer business. Consolidated profit (after tax and minorities) surged by 41.7 per cent to 841 million euros (2006: 594 million euros). Profit before tax crossed the 1 billion euros threshold for the first time and amounted to 1.24 billion euros (2006: 891 million euros). Earnings per share rose from 4.17 in 2006 to 5.80 euros. The Managing Board will propose the General Shareholders Meeting to increase the dividend per share for the business year 2007 by 0.22 euros to 0.93 euros (2006: 0.71 euros). Based on that proposal the payout would amount to 143.8 million euros. (All data according to International Financial Reporting Standards (IFRS). All data related to the business year 2006 are displayed without one-off or special effects for reasons of better comparison.)
Herbert Stepic, CEO of Raiffeisen International, said, «Despite the turbulences on the global credit and capital markets we have had an outstanding year 2007. We have very successfully placed our Secondary Public Offering in an extremely challenging market environment and closed the year with yet another record result. The increase in consolidated profit of 247 million euros in 2007 is larger than our total consolidated profit was in 2004, at 209 million euros. This underlines that the traditional customer-focused banking business in our markets is characterized by both strong growth and strong profitability. We have earned confidence by having achieved all strategic and financial goals set at the IPO in 2005 on time.»
In 2007, Raiffeisen International continued to utilize the positive growth environment in CEE and notably extended its customer business. Loans and advances to customers grew by 39.5 per cent to 48.9 billion euros (2006: 35.0 billion euros), while deposits from customers increased by 22.0 per cent to 40.5 billion euros (2006: 33.2 billion euros).
The balance sheet total at year-end 2007 increased almost exclusively organically by 30.2 per cent to 72.7 billion euros. For comparison: At year-end 2002, the balance sheet total amounted to 14.4 billion euros. The average annual growth rate of the balance sheet total was 38 per cent during the past five years.
The operating result of Raiffeisen International has again developed very positively in 2007.
Operating income surged by 32.2 per cent to 3.79 billion euros (2006: 2.87 billion euros). This increase was driven by the two most important customer-related components: interest income and commission income.
Net interest income increased by 37.1 per cent to 2.42 billion euros (2006: 1.76 billion euros). Net commission income advanced by 33.9 per cent to 1.25 billion euros (2006: 0.93 billion euros). Due to the difficult market environment and a special effect in the previous year, trading profit declined by 26.8 per cent to 127.9 million euros (2006: 174.8 million euros).
The increase in general administrative expenses was slightly lower than the increase in operating income, which was primarily due to strict cost management. In total, general administrative expenses rose by 29.0 per cent to 2.18 billion euros (2006: 1.69 billion euros). The resulting profit from operating activities increased by 36.9 per cent to 1.61 billion euros (2006: 1.17 billion euros). The cost/income ratio, which represents general administrative expenses in relation to operating income, thus further improved as planned from 59.1 per cent to 57.6 per cent.
With an increase of 15.6 per cent, allocations to provisioning for impairment losses remained significantly below business volume growth in 2007. New allocations increased by 15.6 per cent to 357.0 million euros (2006: 308.9 million euros). The risk/earnings ratio, i.e. the ratio of provisioning for impairment losses to net interest income, improved from 17.5 per cent in 2006 to 14.8 per cent. The net provisioning ratio — based on the risk-weighted assets of the banking book — decreased by 13 basis points to 0.84 per cent. It amounted to 1.41 per cent (2006: 1.69 per cent) in the retail customer segment, and decreased from 0.70 per cent in 2006 to 0.57 per cent in the corporate customer segment.
More than 60 per cent of provisioning for impairment losses was attributable to the retail customer segment, a total of 218 million euros was allocated to this segment. The corporate customer segment accounted for the balance. In regional terms, the operations in the CIS booked new provisioning for impairment losses with a share of 47 per cent, or 169 million euros, while new allocations in Southeastern Europe were very moderate. That region had a risk/earnings ratio of only 9.2 per cent.
Raiffeisen International increased equity including consolidated profit and minority interests in the reporting year by 44 per cent, or 2,033 million euros. It amounted to 6,622 million euros as of the balance sheet date (2006: 4,590 million euros). The return on equity before tax sank due to the strong increase in average equity by 1.6 percentage points to 25.7 per cent (2006: 27.3 per cent).
The Tier 1 ratio for the banking book increased by 1.6 percentage points to 11.4 per cent. The Tier 1 ratio including market risk — as measured by total risk assets of 54.0 billion euros — results in a value of 10.5 per cent for 2007 (plus 1.5 percentage points). The own funds ratio rose by 1.4 percentage points to 12.4 per cent. «We have a very sound capital base. This cushion gives us security and additional leeway in case of acquisitions», said Martin Grull, CFO of Raiffeisen International.
Total funding of Raiffeisen International amounted to 64.2 billion euros at year-end 2007. The majority of this came from customer deposits with a share of 63 per cent. About 18 per cent came from short-term refinancing, while medium- and long-term refinancing accounted for 17 per cent of the total volume, 2 per cent was accounted for by subordinated liabilities.
«We are able to cover a high and stable share of funding from customer deposits. This is a real benefit in the current environment. In addition, we have a good reputation in the syndicated loan market, which ensures constant access to long-term funding „, added Grull. The well-established cooperation with supranational institutions like the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) or the World Bank affiliate International Finance Corporation (IFC) provides the company with attractive sources of long-term refinancing. RZB and the Austrian Raiffeisen Banking Group are additional important and reliable funding sources.
In the 4th quarter 2007, Raiffeisen International earned a record net interest income (after provisioning) of 600.2 million euros, representing an increase of 38 per cent compared to the same quarter of the previous year. Net commission income of 354.8 million euros was also significantly — by 30 per cent — above the 4th quarter 2006. Consolidated profit amounted to 215.6 million euros and was 38 per cent up compared to the 4th quarter 2006, and only slightly below the previous quarter. Despite the specifics of the 4th quarter with regard to cost allocation it was the second-best quarterly result in the company’s history.
The branch is still the centre of the relationship with the customer. In addition, it is also a key to position the brand. In the year under review, the already far-reaching branch network was further extended. The number of business outlets operated by Raiffeisen International rose by 167. At the balance sheet date, the entire sales network of Raiffeisen International in CEE comprised 3,015 business outlets in 16 markets. In the meantime, a leasing company was opened in the Republic of Moldova, thus expanding the presence with operative units to 17 markets.
“We have set another milestone in the development of our company with the opening of the 3,000th branch in CEE. We are able to service our customers region-wide like no other international bank. In the high-growth markets of Russia and Ukraine we run by far the largest branch networks of all Western banks. This is a cornerstone of our business success in the future», said Stepic.
Due to the further expansion and optimization of the sales network and thanks to its high service standards as well as products that are closely aligned with demand, Raiffeisen International was again able to attract numerous new customers. The number of customers was 12.1 million at the end of 2006 and rose to 13.7 million by the end of 2007.
These dynamics are also reflected in the development of staff. At the balance sheet date, the company employed 58,365 people, representing an increase of 5,633 or 10.7 per cent.
The integration and transformation projects of the three banks acquired over the past years (Bank Aval in Ukraine in 2005, Impexbank in Russia and eBanka in the Czech Republic, both in 2006) proceed as scheduled. In November 2007, the important legal merger of former ZAO Raiffeisenbank Austria and OAO Impexbank to the new ZAO Raiffeisenbank was completed. The bank that emerged unites Raiffeisen’s tradition with Impexbank’s outstanding distribution network. The legal merger of Raiffeisenbank a.s. and eBanka a.s. is scheduled to be completed in 2008.
Raiffeisen International classifies its business according to customer groups and regional segments.
Raiffeisen International made increases in its customer segments in the business year 2007. The success of its strategy of expanding retail activities is reflected in a clear improvement of results from that business area.
With a 54 per cent share of total earnings, the corporate customer segment is the largest and continues to develop satisfactorily. Earnings before tax rose by 43 per cent to 669 million euros, which was higher than business volume growth. Risk assets allocable to the segment increased by 30 per cent to 24.7 billion euros. With an increase of 39 per cent, net interest income contributed to the good result, as did net commission income, which rose by 26 per cent. General administrative expenses increased by 32 per cent. The cost/income ratio improved by another 0.9 percentage points to 35.8 per cent. Only a moderate increase in provisioning for impairment losses of 17 per cent was registered, which was below the increase in net interest income. Since the equity allocable to the segment rose by 50 per cent, the return on equity fell slightly, by 1.5 percentage points to 30.2 per cent. The average number of employees climbed by 10 per cent to 8,089.
As expected, the retail customer segment had the strongest growth of earnings before tax of all segments in the reporting year with a plus of 85 per cent, or 223 million euros, to 487 million euros. Investments in new business outlets and products made in the last few years contributed to that good result. However, that this investment program is still not completed is also reflected in
30 per cent higher general administrative expenses. For that reason, the cost/income ratio of 68.3 per cent in the reporting period was still relatively high, but was 4.0 percentage points below the preceding year's figure.
The risk assets allocable to retail customers rose by 34 per cent to 19.0 billion euros. The higher volume also required more extensive provisioning for impairment losses, which nevertheless only increased by 14 per cent to 218 million euros. The return on equity rose significantly, from 24.8 per cent to 29.5 per cent. The average number of employees in this segment increased, from 38,677 to 44,582.
Earnings in the treasury segment declined in the reporting period. At 188 million euros, earnings before tax were 22 per cent, or 53 million euros, below the preceding year's high level. The 2006 result had been influenced by a favourable currency environment for the Group and by a special effect of 33 million euros due to a positive valuation result from an open position taken in connection with the Impexbank acquisition. Derivative instruments were used to reduce yield curve risk. That gave rise to a valuation result of minus 30 million euros in 2007. Excluding those effects, earnings development in the treasury segment would be positive.
Risk assets in the segment increased by 10 per cent to 5.9 billion euros. General administrative expenses grew moderately by only 19 per cent. The return on equity fell by 11.8 percentage points on the preceding year to 32.9 per cent. The average number of employees rose by 17 per cent in the reporting year to 1,244.
The one-off effects in 2006 (sales of Raiffeisenbank Ukraine and the minority stake in Bank TuranAlem) were booked in the participations and other segment, which had a positive result of 507 million euros. Adjusted for these one-off effects, the segment's result in 2006 were minus
81 million euros.
This figure in 2007 was minus 106 million euros. The result is negative because in addition to net income from equity holdings and non-banking activities, the segment includes the costs of central group management. Those remain in the segment and are not distributed to the other business areas. It also includes the computational results from the investment of equity.
Earnings grew significantly in the region of Central Europe in the reporting period. With an increase of 112 million euros, or 36 per cent on the preceding year, an impressive increase was registered in profit before tax. Initial consolidation of asset management companies in Slovakia and Hungary resulted in an additional contribution to annual earnings in the amount of 20 million euros. The return on equity before tax for Central Europe fell slightly, by 1.7 percentage points to 21.7 per cent. The main reason for that was an increase of equity by 46 per cent on the comparable period.
Group assets in Central Europe rose on the preceding year by 28 per cent, or 6.5 billion euros, to 29.7 billion euros. Volume growth was somewhat lower than the increase of net interest income by 36 per cent to 821 million euros. The net interest margin rose by 3 basis points to 3.17 per cent despite the competitive market environment. The risk-weighted assets increased less than balance sheet assets, by 26 per cent from 17.2 billion euros to 21.6 billion euros. Provisioning for impairment losses rose by 31 per cent to 122 million euros, to a smaller extent than net interest income. New allocations to portfolio-based provisions in some of the region's group units accounted for 30 per cent of that increase.
The risk/earnings ratio for the entire region improved on the comparable period by
0.6 percentage points to 14.9 per cent. The share of the credit portfolio attributable to non-performing loans increased on the preceding year by 0.35 percentage points to 2.64 per cent.
Net commission income rose by 127 million euros to 471 million euros. That increase is based on constantly growing transaction volumes and amounted to 152 million euros in payment transfers and account services. In absolute terms, the Hungarian and Slovakian group units achieved the highest results. Net commission income in foreign exchange and notes/coins business rose to 183 million euros, to which Raiffeisenbank Polska made the largest contribution. The asset management companies newly consolidated in 2007 contributed 14 million euros to this good result. Their assets under management amounted to 2.3 billion euros at year's end. The share of operating income attributable to business affecting commission income was the highest of all segments at 35 per cent.
Central Europe's trading profit amounted to 52 million euros. The item's increase by 11 million euros in the reporting period was largely due to an improved result on currency-related business, which contributed 39 million euros to trading profit. Income in interest-related business improved in the reporting year by about 10 million euros to 13 million euros in view of rising interest rates in some countries of Central Europe.
Southeastern Europe registered the highest earnings growth of all three regional segments in the reporting period. Thanks to the good market position of group units in this region, profit before tax grew by 55 per cent to 442 million euros. The return on equity before tax likewise improved significantly from 28.2 per cent before to 30.2 per cent.
Net interest income in the region grew by 28 per cent, or 158 million euros, to 718 million euros, although the net interest margin declined slightly, by 6 basis points to 3.48 per cent. Balance sheet assets rose by 23 per cent to 23.2 billion euros. The risk-weighted assets increased somewhat more strongly, by 30 per cent from 12.6 billion euros before to 16.4 billion euros.
Positive development characterized provisioning for impairment losses. Low levels of new allocations to provisions for impairment losses were necessary, an increase of only 26 per cent or 22 million euros, despite a stark increase in business volume in comparison to the previous year. The total amount of provisions for impairment losses fell to 66 million euros. It was possible to lower provisioning in some group units thanks to a solid customer base and good development of the risk structure. That resulted in a substantial reduction of the risk/earnings ratio, from 15.8 per cent to 9.2 per cent.
The region's net commission income rose strongly, by 44 per cent from 268 million euros before to 386 million euros. The largest increase was achieved by the group unit in Romania thanks to a pronounced retail orientation and solid customer base. Good development in payment transfers and account services at 167 million euros and in foreign exchange and notes/coins business at 82 million euros were critical for this increase. The asset management unit in Croatia newly consolidated in the reporting year contributed 12 million euros to net commission income. Assets under management reached 0.6 billion euros.
The Southeastern Europe segment made trading profit of 35 million euros. That result is largely based on currency-related business and was 31 per cent below the preceding year's value. Valuation losses of about 10 million euros from hedging transactions in Croatia, used to minimize the currency risk of certain credit portfolios, were the main reason for that. Income from interest-related business likewise declined due to the rising interest rate level in the region.
The CIS segment registered strong growth of its loan portfolio and income, in line with strategy. Profit before tax increased in the reporting year by 27 per cent, or 78 million euros, to
369 million euros despite the deconsolidation of Raiffeisenbank Ukraine in the preceding year. The return on equity fell by 5.6 percentage points to 26.7 per cent because of the significantly larger equity base (plus 53 per cent) and absence of Raiffeisenbank Ukraine, which did not tie up very much capital. Regarding the region's development, it should be noted that Impexbank was only included for five months of the comparable period and some special effects were also registered.
The region's net interest income was the highest of all the segments. It rose by 47 per cent, or 280 million euros, to 880 million euros and thus developed even more dynamically than balance sheet assets, which increased more than usual by 6.0 billion euros to 19.9 billion euros thanks to a significant growth of lending business. The group unit in Russia achieved especially strong expansion. That led to improvement of the net interest margin by 13 basis points to 5.13 per cent. The risk-weighted assets developed analogously to the growth of balance sheet assets and rose by 42 per cent to 15.9 billion euros.
Provisioning for impairment losses increased in the reporting period from 127 million euros before to 169 million euros. This increase by one-third was a result of the strong expansion of business volume in both the retail and corporate customer segments and was largely attributable to the two already merged Russian banks. The risk/earnings ratio improved by 2.0 percentage points to 19.2 per cent.
Net commission income registered an increase of 72 million euros to 393 million euros. At
220 million euros, payment transfers contributed the most, which was largely due to the group unit in Ukraine. Foreign exchange and notes/coins business contributed 98 million euros.
Trading profit declined from 83 million euros to 41 million euros. The result on interest-related transactions fell by 23 per cent to 16 million euros, and the result on currency-related business was down significantly. Another factor for the decline was a foreign exchange position taken in connection with the acquisition of Impexbank, which had led to a positive valuation result of
33 million euros in 2006. Adjusted for that special effect in the comparable period, development of trading profit was stable in the reporting year.
Building on its successful mid-market strategy, the corporate customer segment will make the largest contribution to profit before tax again in 2008. In the retail business, Raiffeisen International continues to emphasize expansion of the branch network to support the broadening of its customer base. Moreover, the company will further develop its product range in the areas of asset management and insurance in the current year.
The management has set the goal for consolidated profit in 2008 of about 1 billion euros. It is aimed to grow the balance sheet total by at least 20 per cent per year in the period to 2010, with the strongest increases targeted in the retail customer segment.
Raiffeisen International has set a return on equity (ROE) before tax of more than 25 per cent as a goal for 2010. That does not take into account any acquisitions or capital increases. The cost/income ratio should come to about 56 per cent. The company’s target risk/earnings ratio is about 15 per cent.
Raiffeisen International operates one of the largest banking networks in CEE. 17 markets of Europe’s growth region are covered by subsidiary banks, finance leasing companies and a number of other financial service providers. About 14 million customers are attended to through more than 3,000 business outlets. Raiffeisen International is a fully consolidated subsidiary of Raiffeisen Zentralbank Osterreich AG (RZB), which owns 68.5 per cent of the common stock. The balance is free float, the shares are traded on the Vienna Stock Exchange. RZB is a leading corporate and investment bank in Austria and the central institution of the Austrian Raiffeisen Banking Group, the country’s largest banking group.
You can access the web-version of Raiffeisen International’s annual report on http://ar2007.ri.co.at/. The English printed version can be subscribed to on that site.
|Survey of Key Data|
|Raiffeisen International Group
Monetary Values in ˆ million
|Net interest income after provisioning||2,062||41.7%||1,455||1,035||666||476|
|Net commission income||1,250||33.9%||933||607||441||333|
|General administrative expenses||(2,184)||29.0%||(1,694)||(1,163)||(823)||(659)|
|Profit before tax||1,238||38.9%||891||569||341||277|
|Profit after tax||973||41.9%||686||460||270||227|
|Consolidated profit (after minorities)||841||41.7%||594||382||209||179|
|Loans and advances to banks||11,053||34.8%||8,202||5,794||4,779||3,521|
|Loans and advances to customers||48,880||39.5%||35,043||24,714||16,242||11,707|
|Deposits from banks||19,927||44.3%||13,814||10,236||6,620||5,320|
|Deposits from customers||40,457||22.0%||33,156||24,890||18,169||12,083|
|Equity (incl. minorities and profit)||6,622||44.3%||4,590||3,277||2,177||1,379|
|Balance sheet total||72,743||30.2%||55,867||40,695||28,907||20,063|
|Return on equity (ROE) before tax||25.7%||(1.6) pp||27.3%||21.8%||22.2%||24.1%|
|Return on equity (ROE) after tax||20.2%||(0.8) pp||21.0%||17.6%||17.6%||19.8%|
|Consolidated return on equity||20.1%||(1.3) pp||21.4%||17.2%||17.0%||19.4%|
|Cost/income ratio||57.6%||(1.5) pp||59.1%||61.6%||63.5%||64.7%|
|Return on assets (ROA) before tax||1.98%||0.08 pp||1.90%||1.68%||1.40%||1.61%|
|Net provisioning ratio (risk-weighted assets)||0.84%||(0.13) pp||0.97%||0.81%||0.98%||0.86%|
|Risk/earnings ratio||14.8%||(2.7) pp||17.5%||13.9%||17.1%||15.5%|
|Risk-weighted assets, incl. market risk||53,964||31.5%||41,052||29,914||19,638||12,802|
|Total own funds||6,684||48.1%||4,513||2,938||2,359||1,463|
|Own funds requirement||4,317||31.5%||3,284||2,393||1,571||1,024|
|Excess cover||54.8%||17.4 pp||37.4%||22.8%||50.2%||42.8%|
|Core capital ratio (Tier 1), banking book||11.4%||1.6 pp||9.8%||9.0%||11.8%||10.0%|
|Core capital ratio (Tier 1), incl. market risk||10.5%||1.5 pp||9.0%||8.0%||10.1%||9.4%|
|Own funds ratio||12.4%||1.4 pp||11.0%||9.8%||12.0%||11.4%|
|Earnings per share in ˆ||5.80||39.1%||4.17||2.79||1.93||1.79|
|Price in ˆ||103.60||(10.3)%||115.51||55.55|
|High (closing prices) per share in ˆ||122.50||6.1%||115.51||59.40|
|Low (closing prices) per share in ˆ||98.25||78.0%||55.20||39.253|
|Number of shares outstanding||154.67||8.3%||142.77||142.77|
|(Proposed) Dividend per share in ˆ||0.93||0.22||0.71||0.45||0.16||0.33|
|Number of employees on balance sheet date||58,365||10.7%||52,732||43,614||22,851||18,386|
1 Excluding one-off effects due to the sales of Raiffeisenbank Ukraine and a minority stake in Bank TuranAlem.
2 Calculated according to the Austrian Banking Act (Bankwesengesetz, BWG). Raiffeisen International as part of the RZB-Group is not subject to the Austrian Banking Act.
3 25 April 2005 (IPO) until 31 December 2005