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Public relations section
All figures are based on International Financial Reporting Standards (IFRS).
Raiffeisen Bank International AG (RBI) generated a profit before tax of € 240 million in the first three months of 2014, a decrease of € 11 million or 4.6 per cent versus the comparable period of the previous year. This decline was due, on the one hand, to higher net provisioning for impairment losses in Ukraine and Russia because of currency devaluations, and to a notable decrease in net trading income (also resulting to a large extent from exchange rate related valuation losses from foreign exchange positions in Ukraine), on the other. General administrative expenses decreased by 4.2 per cent to € 755 million. As the operating income remained practically stable year-on-year, the operating result rose by 5.8 per cent to € 590 million.
"Despite a very challenging political and economic environment, we were able to keep our income stable, while significantly reducing costs and thus achieving a respectable operating result," said RBI's CEO Karl Sevelda. Regarding the business in Ukraine, Sevelda emphasized the strong capitalization of Raiffeisen Bank Aval. The corporate loan portfolio of the 32 closed Crimean branches was transferred to Raiffeisenbank in Russia, the branches themselves sold. In the Donetsk and Lugansk regions, the situation is unclear and requires quick and flexible reactions. "Business in Russia was relatively normal, although the economic development was weaker than in the previous year, and we therefore had to apply stricter standards in extending loans", Sevelda added. He considers a significant toughening of the sanctions unlikely, as these would also have severe impacts on the EU.
In the past few days, RBI registered a pleasing development regarding the participation capital: "Following the successful capital increase in the first quarter of 2014, RBI expects to receive approval from the Financial Market Authority for full repayment of the participation capital in the near future", Sevelda said. "As a first step, we intend to repay the total amount or at least a substantial part of the state-held tranche. The FMA has notified us that the approval will be granted promptly, enabling repayment to take place in the next three to four weeks."
Income tax expense fell by € 10 million to € 67 million compared to the previous year's period, thus profit after tax for the reporting period at € 173 million was almost on par with the level recorded for Q1 2013 (minus 0.7 per cent). As a result of the capital increase carried out at the start of 2014, the average number of shares outstanding rose to 268.1 million in the first quarter of 2014 (Q1 2013: 194.9 million). After deducting profit attributable to non-controlling interests, consolidated profit for the reporting period amounted to € 161 million (Q1 2013: € 157 million). This resulted in earnings per share of € 0.41 (down € 0.14 against € 0.55 in Q1 2013).
Operating income stable despite difficult environment
In the first three months of 2014, net interest income rose 13 per cent, or € 114 million, to € 979 million year-on-year. This positive development was mainly attributable to significantly lower interest expenses for customer deposits, as well as to higher interest income from derivatives, primarily at Group head office (up € 33 million).
Net fee and commission income increased € 1 million to € 376 million year-on-year. Net income from foreign currency, notes/coins and precious metals business grew 8 per cent, or € 6 million, to € 88 million, primarily as a result of higher volumes in Russia and Ukraine. Net income from the payment transfer business posted growth of € 4 million. In contrast, net income from loan and guarantee business fell 9 per cent, or € 6 million.
Compared to the same period last year, net trading income declined € 100 million to minus € 19 million. This was mainly due to a € 110 million decrease in currency-based transactions.
Decline of administrative expenses partly because of lower staff expenses
General administrative expenses declined € 33 million to € 755 million, compared to the same period last year. This reduction was due to lower staff expenses, as well as to reduced depreciation of tangible and intangible assets. The cost/income ratio improved 2.1 percentage points to 56.1 per cent.
The largest component in general administrative expenses was staff expenses at 52 per cent, which decreased 4 per cent, or € 16 million, to € 390 million. This decline was due, on the one hand, to ongoing cost reduction programs – with the largest reductions in the CzechRepublic and Poland, and on the other, to the significant currency devaluations in Russia and Ukraine.
Increase in net provisioning for impairment losses mainly due to crisis in Ukraine
Compared to the same period last year, net provisioning for impairment losses rose 28 per cent, or € 62 million, to € 281 million. Ukraine posted overall significantly higher net provisioning for impairment losses (up € 65 million), above all related to the devaluation of the hryvnia and the resulting need for provisioning for secured US dollar loans in the amount of € 30 million. In Russia, the growing retail portfolio and the devaluation of the rouble led to higher net provisioning for impairment losses (up € 41 million). However, this was still at a moderate level in the first three months of 2014, particularly as net releases of impairment losses were posted in the comparable period of the previous year.
Net provisioning for impairment losses in the Group Corporates segment showed a decline of € 39 million, following a need for higher provisioning in the same period of the previous year. Hungary posted a year-on-year decline of € 17 million.
In the reporting period, the NPL ratio (non-performing loans in relation to total customer loans) was 10.6 per cent compared to 10.7 per cent at the end of 2013 and 9.9 per cent in Q1 2013. The NPL coverage ratio (risk provisions for customer loans in relation to non-performing loans to customers) improved by 2.1 percentage points since year-end 2013 to 65.2 per cent.
Equity increased significantly
Equity including non-controlling interests recorded an increase of € 2.48 billion compared to year-end 2013, or 23.7 per cent, to € 12.82 billion.
The common equity tier 1 ratio (transitional), formerly core tier 1 ratio, total, improved by 3.3 percentage points to 13.9 per cent compared to year-end 2013.
Return on equity before tax fell year-on-year due to the decline of the profit for the period and the increase of average equity by 1.3 percentage points to 7.9 per cent.
RBI expects loans and advances to customers in 2014 to remain at the approximate level of the previous year. The bank anticipates a net provisioning requirement of between € 1,300 million and € 1,400 million in 2014, however, results may be impacted by the ECB Asset Quality Review process and further deterioration of the situation in Ukraine and Russia.
In the course of RBI’s cost reduction program, the bank plans to reduce general administrative expenses to below the level of 2012 by 2016. RBI aims to achieve a cost/income ratio of between 50 to 55 per cent by 2016. Costs in 2014 are expected to be below the level of 2013. RBI aims for a return on equity before tax of approximately 15 per cent and a consolidated return on equity of approximately 12 per cent in the medium term.