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    RZB Group with sustained earning power in slack environment


    RZB Group, the group of companies headed by Raiffeisen Zentralbank Österreich AG (RZB-Austria), performed quite well in the first half of 2002, considering the economic slowdown in Austria and the euro zone, and the continuing weakness in the equity markets. The Group weathered these tough conditions well and was able to further strengthen its market presence in its most important markets: Austria and Central and Eastern Europe (CEE).

    "Not only has the RZB Group defied the adverse economic situation, but has also expanded its banking network in CEE substantially, intensified customer business in both Austria and CEE and brought its newly structured investment banking division to a good start", says Walter Rothensteiner, RZB-Austria's Chairman of the Management Board.

    The Group's balance sheet total as at 30 June 2002 amounted to EUR 43.9 billion, down by 1.5 per cent compared with the figure at year-end 2001. This slight decline follows this year's overall trend for Austrian banks and is due to the drop in interbank business, which in turn was caused by the business cycle's downswing. On the other hand, the balance sheet portrays an increased volume of customer business.

    Rise in earnings reflects traditional strength in customer business

    "RZB's earning power remains unaffected by this development, all earning indicators show a sustained positive development", says Rothensteiner. The significant rises in net interest income (up 23.5 per cent) and net commission income (up 18.7 per cent) reflect RZB's traditional strength in doing business with customers. In light of the overall market trends, the improvement in trading profit and income from financial investments was also a favourable development.

    Investments into the banking network and IT increase administration expenses

    First-half profit before tax increased by 2.2 per cent to EUR 118.4 million in spite of high investments. Administration expenses were up 20.7 per cent in the first semester, mainly due to these high investments, above all into the continuing expansion of the banking network in CEE and into IT-infrastructure. Due to the poor economic conditions, provisioning for possible loan losses (up 16.7 per cent to EUR 65.4 million) also had a negative impact on profit, as well as the fine of EUR 30.34 imposed on RZB by the European Commission for a violation of European competition law. Provisioning was only formed for a portion of this amount, as such a disproportionately high fine could not have been expected.

    "Window of opportunity" – strategic expansion

    Strong investment activity increased the cost/income ratio from 71.1 to 73.4 per cent and also pushed down return on equity before tax from 13.3 to 12.3 per cent. This is the logical result of RZB's growth strategy. "The strategic guidelines are clear", says Rothensteiner: "With its dynamic growth, RZB is expanding its network and building up market share in a period in which it is still relatively easy to acquire, in turn creating a solid foundation for its long-term business and success." Currently, there is still a window of opportunity for expansion, especially in Austria and in the countries of Central and Eastern Europe, due to market consolidation in Austria and the vast, but largely untapped market potential in the CEE region.

    Banking network in CEE expanded

    In the first semester of 2002, RZB has once again expanded its banking network in CEE. In Slovenia, the ninth-largest bank was acquired and integrated into the network under its new name Raiffeisen Krekova Banka d.d. (RBSI). In Vilnius, Lithuania, another representative office has opened its doors. The merger of the two Romanian entities to Raiffeisen Bank S.A. (RBRO) was completed successfully, the one for the two banks in Bosnia and Herzegovina is scheduled for the second semester. 13 Network Banks, three representative offices and numerous specialized subsidiary companies cover the region almost exhaustively. The network in CEE expanded by 54 branches to 548 banking outlets, whereby RBSI accounts for 16 branches, while a net total of 17 branches was closed in Romania.

    The consolidated balance-sheet total of the RZB network banks and related specialized enterprises in CEE amounted to € 13.1 billion in the first half of 2002, up 14.3 per cent on the year-end figure for 2001. Staff numbers increased strongly again, growing by 11.2 per cent to 12,628 in the Network Banks and affiliated specialized institutions in CEE.

    Return on equity before tax for the subsidiary banks and affiliated specialized institutions in CEE declined from 24.4 per cent in 2001 to 18.8 per cent in the period under review, due to the strong on-going investments in expanding the banking network. Nevertheless, the Network Banks' share on earnings and profit continues to be disproportionately high.

    Business Segments

    “Corporate Business”: Profit up 16.8 per cent

    Corporate business was confronted with tough overall business conditions in the first half of 2002 and a related increase in risk exposure. Compared to end-2001, RZB-Austria's risk-weighted assets increased by 1.8 per cent, and the RZB Group's by more than 15 per cent. Gross income in the field of domestic corporate business was especially pleasing, registering an increase of 18.8 per cent. However, the largest part of provisions for loan losses had also to be attributed to this field. RZB is prudently monitoring its credit risk and managing its loan portfolio according to its internal rating system. In the field of arranging and syndicating loans, RZB-Austria reinforced the leading position it achieved last year, completing eleven major syndicated loan deals in the first half of 2002 and thereby outperforming the competition yet again. Also, leasing business continues to develop favourably.

    “Treasury & Investment Banking” delivering solid earnings

    With an increase of 24.5 per cent, this business segment was the most successful one in terms of first-half profit. Amidst very difficult conditions, the Treasury business contributed most, due not the least to the more favourable rates curve. From the beginning of the year, RZB-Austria's Investment Banking operated within the framework of a new structure, focusing on fixed-income products. RZB-Austria was an active participant in some 30 lead management groups in this field. In addition to this, there were also numerous placement contracts at its subsidiary banks in the CEE region. Raiffeisen Centrobank, a 100 per cent subsidiary of RZB-Austria, now handles equity operations. Although the first semester was characterized by cancellations of scheduled floatations, Raiffeisen Centrobank defied these tough market conditions and, as the co-lead manager and only Austrian bank in the lead-consortium, successfully carried out the capital increase for voestalpine AG.

    Customers in the “Retail Banking” segment up 32 per cent

    The number of retail customers in CEE has grown by 32 per cent to reach 1.45 million. Yugoslavia and Romania registered the highest growth rates. While this segment's result is still influenced by substantial investments – above all into the growing branch network and IT-systems – growth rates regarding net interest income, net commission income and trading profit prove that RZB's Retail Banking is on the right track.

    Transaction Services: return on equity in the three-digit range

    With 148 per cent, although lower than before, Transaction Services is still the business segment showing the highest Return on Equity before tax. Investments into new products and technologies as well as newly integrated group companies curbed the ratio. Additional volumes in Cash Management were almost able to compensate falling euro and US-Dollar interest rates. With its Custody services RZB-Austria's continues to be Austria's leading depositary bank.


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