Banks www.fitchratings.com 23 March 2012 Austria Raiffeisen Bank International AG Full Rating Report Key Rating Drivers Sovereign Support: Raiffeisen Bank International AG‟s (RBI) ratings – except its Viability Rating (VR) – reflect Fitch Ratings‟ view that as an integral part of Austria‟s largest banking group, Raiffeisen Banking Group (RBG), the Austrian financial authorities would be extremely likely to support RBI if need be. Fitch believes that RBG and hence RBI are systemically important in Austria and most adjacent Central and Eastern European (CEE) countries. RBI is a lender to Austria‟s corporates and a major bank in CEE. It is 78.5% owned by Raiffeisen Zentralbank Oesterreich AG (RZB), the Raiffeisen sector‟s central institution. Viability Rating Under Pressure: RBI‟s VR reflects its well-diversified franchise in CEE, its sound domestic corporate franchise and its resilient pre-impairment profitability throughout the financial crisis and the downturn in CEE. However, the quality of RBI‟s capital is below average, containing a considerable share of non-core government (EUR1.75bn) and commercial (EUR1.5bn) hybrid capital, and its core capital ratio is thin for RBI‟s current rating level. Improving Capital a Challenge: While itself not subject to the European Banking Authority (EBA) capital requirements, RBI‟s parent RZB has to make up a sizeable capital shortfall (EUR2.1bn as of end-Q311) by end-H112 to meet the EBA‟s 9% core capital ratio. RZB and RBI jointly aim to improve RZB‟s capitalisation by between EUR2.5bn and EUR3.6bn through a combination of capital optimisation and reduction of risk-weighted assets (RWA), although RBI/RZB may, in Fitch‟s view, find it challenging to achieve this by end-H112. Performance Linked to CEE: Its diversified revenue base has helped RBI to report sound and stable pre-impairment profitability throughout the financial crisis. Operating profitability has stabilised at adequate levels largely as a result of sharply lower loan impairment charges (LICs) and despite a drop in capital market revenue. In 2012, Fitch expects RBI‟s revenue generation to remain subdued and LICs to remain relatively high albeit below levels observed in 2009. Mainly CEE Credit Risk: At end-Q311, 51% of RBI‟s total credit exposure was in CEE. Its loan book, of which around 90% was outside Austria (predominantly in CEE), was largely to corporates with 67% of total loans. Due to its business model, bank counterparty risk is also considerable (19% of end-Q311 assets, around half outside Austria), but this is being reduced. Asset Quality Improvements Stalling: Overall, non-performing loans (NPLs) have stabilised at elevated levels, with negative trends in Hungary and Croatia being offset by improvements in Russia and, to a lesser extent, the Czech Republic. Coverage remains adequate. Moderate market risk largely relates to unhedged capital investments in CEE. Some Capital Market Sensitivity: Safeguarding or expanding its already sound deposit franchise across CEE (aggregate loans/deposits ratio of 113% at end-Q311) is likely to be a key priority for RBI. Still, wholesale funding remains an important secondary funding source. What Could Trigger a Rating Action Weakening Support: The government becoming less able to support Austria‟s large banks (signalled by a change in Austria‟s sovereign rating) or Fitch‟s reassessment of the likelihood of support (eg as a result of legislative changes) could lead to a downgrade of RBI‟s IDRs. CEE: A significant delay in improving capitalisation and/or a worse-than-expected development in CEE, suppressed earnings and increasing LICs could lead to a downgrade of RBI‟s VR. Ratings Foreign Currency Long-Term IDR A Short-Term IDR F1 Viability Rating bbb Support Rating 1 Support Rating Floor A Sovereign Risk Long-Term Foreign-Currency IDR AAA Long-Term Local-Currency IDR AAA Outlooks Long-Term Foreign-Currency IDR Stable Sovereign Long-Term Foreign-Currency IDR Stable Sovereign Long-Term Local-Currency IDR Stable Financial Data Raiffeisen Bank International AG 30 Sep 11 31 Dec 10 Total assets (USDm) 200,334.9 175,271.4 Total assets (EURm) 148,368.0 131,173.1 Total equity (EURm) 7,847.0 7,903.9 Fitch core capital (EURm) 6,385.2 6,414.3 Operating profit (EURm) 1,034.0 1,282.6 Published net income (EURm) 759.0 1,177.2 Comprehensive income (EURm) 411.0 1,394.9 Pre-impairment operating ROAE (%) 30.44 33.93 Loan impairment charges/av. loans (%) 1.33 2.12 Operating ROAA (%) 0.99 1.46 Operating ROAE (%) 17.33 17.57 Fitch core capital/ RWA (%) 6.33 6.77 Tier 1 ratio (%) 8.70 9.70 Tangible common equity/tang. assets (%) 4.52 4.95 Equity/assets (%) 5.29 6.03 Related Research 2012 Outlook: Major Austrian Banks (December 2011) Austrian Banks: Capital, the EBA and CEE (January 2011) Analysts Christian Kuendig +44 20 3530 1399 [email protected]Anna Deineko +44 20 3530 1538 [email protected]
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Full Rating Report - Raiffeisen Bank International AG
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Banks
www.fitchratings.com 23 March 2012
Austria
Raiffeisen Bank International AG Full Rating Report
Key Rating Drivers
Sovereign Support: Raiffeisen Bank International AG‟s (RBI) ratings – except its Viability
Rating (VR) – reflect Fitch Ratings‟ view that as an integral part of Austria‟s largest banking
group, Raiffeisen Banking Group (RBG), the Austrian financial authorities would be extremely
likely to support RBI if need be. Fitch believes that RBG and hence RBI are systemically
important in Austria and most adjacent Central and Eastern European (CEE) countries.
RBI is a lender to Austria‟s corporates and a major bank in CEE. It is 78.5% owned by
Raiffeisen Zentralbank Oesterreich AG (RZB), the Raiffeisen sector‟s central institution.
Viability Rating Under Pressure: RBI‟s VR reflects its well-diversified franchise in CEE, its
sound domestic corporate franchise and its resilient pre-impairment profitability throughout the
financial crisis and the downturn in CEE. However, the quality of RBI‟s capital is below average,
containing a considerable share of non-core government (EUR1.75bn) and commercial
(EUR1.5bn) hybrid capital, and its core capital ratio is thin for RBI‟s current rating level.
Improving Capital a Challenge: While itself not subject to the European Banking Authority
(EBA) capital requirements, RBI‟s parent RZB has to make up a sizeable capital shortfall
(EUR2.1bn as of end-Q311) by end-H112 to meet the EBA‟s 9% core capital ratio. RZB and
RBI jointly aim to improve RZB‟s capitalisation by between EUR2.5bn and EUR3.6bn through a
combination of capital optimisation and reduction of risk-weighted assets (RWA), although
RBI/RZB may, in Fitch‟s view, find it challenging to achieve this by end-H112.
Performance Linked to CEE: Its diversified revenue base has helped RBI to report sound and
stable pre-impairment profitability throughout the financial crisis. Operating profitability has
stabilised at adequate levels largely as a result of sharply lower loan impairment charges (LICs)
and despite a drop in capital market revenue. In 2012, Fitch expects RBI‟s revenue generation
to remain subdued and LICs to remain relatively high albeit below levels observed in 2009.
Mainly CEE Credit Risk: At end-Q311, 51% of RBI‟s total credit exposure was in CEE. Its loan
book, of which around 90% was outside Austria (predominantly in CEE), was largely to
corporates with 67% of total loans. Due to its business model, bank counterparty risk is also
considerable (19% of end-Q311 assets, around half outside Austria), but this is being reduced.
Asset Quality Improvements Stalling: Overall, non-performing loans (NPLs) have stabilised
at elevated levels, with negative trends in Hungary and Croatia being offset by improvements in
Russia and, to a lesser extent, the Czech Republic. Coverage remains adequate. Moderate
market risk largely relates to unhedged capital investments in CEE.
Some Capital Market Sensitivity: Safeguarding or expanding its already sound deposit
franchise across CEE (aggregate loans/deposits ratio of 113% at end-Q311) is likely to be a
key priority for RBI. Still, wholesale funding remains an important secondary funding source.
What Could Trigger a Rating Action
Weakening Support: The government becoming less able to support Austria‟s large banks
(signalled by a change in Austria‟s sovereign rating) or Fitch‟s reassessment of the likelihood of
support (eg as a result of legislative changes) could lead to a downgrade of RBI‟s IDRs.
CEE: A significant delay in improving capitalisation and/or a worse-than-expected development
in CEE, suppressed earnings and increasing LICs could lead to a downgrade of RBI‟s VR.
Ratings
Foreign Currency
Long-Term IDR A
Short-Term IDR F1 Viability Rating bbb Support Rating 1 Support Rating Floor A Sovereign Risk Long-Term Foreign-Currency IDR AAA Long-Term Local-Currency IDR AAA
Outlooks
Long-Term Foreign-Currency IDR Stable Sovereign Long-Term Foreign-Currency IDR
Stable
Sovereign Long-Term Local-Currency IDR
Stable
Financial Data
Raiffeisen Bank International AG
30 Sep 11 31 Dec 10
Total assets (USDm) 200,334.9 175,271.4 Total assets (EURm) 148,368.0 131,173.1 Total equity (EURm) 7,847.0 7,903.9 Fitch core capital (EURm)
Subordinated debt 4,091 O/w Tier 2 3,279 Total non-equity 138,020 100 a As % of total non-equity funding
Source: RBI; Fitch
Good customer deposit franchise throughout CEE.
Efforts to contain wholesale funding requirements for CEE.
Thin core capital ratios.
Meeting EBA capital ratio requirements feasible, but challenging given market conditions.
Banks
Raiffeisen Bank International AG
March 2012 9
2011 and should therefore not be overly detrimental to business opportunities in CEE. The
bank does not intend to raise capital externally. Fitch views RZB‟s and RBI‟s capital-
strengthening plan as challenging, especially given the currently difficult operating environment.
In late January 2012, RBI/RZB stated that around two-thirds of the required additional capital
had already been raised.
Compared to many peers‟, RBI‟s core Tier 1 capitalisation is thin, reflected in a low Fitch core
capital ratio (see Figure 10), as RBI‟s Tier 1 capital contains a large proportion of privately-
placed hybrid and participation capital, and EUR1.75bn of government participation capital
injected in late-2008 and 2009. Both forms of participation capital are considered core Tier 1
capital by the Austrian regulator but have been reclassified as hybrid capital (100% equity
credit) by Fitch.
To limit the impact of FX on RBI‟s capital ratios, the bank partly hedges its non-euro capital
investments in CEE and elsewhere. Nonetheless, RBI‟s capital ratios remain sensitive to FX
volatility, as witnessed in 9M11 when FX effects had a significant negative impact on capital
ratios (20bp in Q311 alone).
Figure 10 RBI Capital Structure End-Q311 (EURm)
Core Tier 1 capital 5,506 Hybrid capital 800 Private part cap 750 Government par cap 1,750 Tier 2 capital 3,260 Total RWA 100,863 O/w credit 80,438 O/w market 10,575 O/w operational 9,850 (%)
Fitch core capital 6.3 RBI core Tier 1 7.9 Tier 1 8.7 Total capital ratio 12.1
Source: RBI; Fitch
Banks
Raiffeisen Bank International AG
March 2012 10
Annex
Group Structure and Support Mechanism
The Raiffeisen group has a cross-guarantee support mechanism in place. While there has
always been a voluntary support mechanism, a legally binding mechanism was established in
the early 2000s. The voluntary support scheme remains in place but has been enhanced by an
“ultimate payment guarantee” through the setting up of a fund (Raiffeisen ‐
Kundengarantiegemeinschaft Österreich). The regional cross-guarantee systems are also part
of the Raiffeisen-Kundengarantiegemeinschaft, with the exception of the regions of Salzburg
and Carinthia. Consequently, around 81% of all group banks are members of the guarantee
scheme, including RBI, resulting in around 90% of deposits being guaranteed.
Revenue by Region
Figure 12
Group markets
8%
Corporate centre
8%
SEE
22%Russia
14%
CEE
27%
Group corporates
10%
CIS other
11%
Revenue by Region(9M11)
Source: RBI; excluding consolidation effects
Figure 11
Raiffeisen Banking Group, RZB AG and RBI – Simplified Organisational Chart
a Legal merger with Polbank expected in Q112
Source: RBI
1.6m Members (Mainly Private Individuals in Austria) ZAO Raiffeisenbank Moscow (100%)
8 Regional Raiffeisen Banks (Raiffeisenlandesbanken) and Zveza
Bank (Klagenfurt)
Raiffeisen Zentralbank Oesterreich Ag (RZB AG)
Raiffeisen Bank International AG
Ra
iffe
ise
n B
an
kin
g G
rou
p (
RB
G)
Raiffeisen Bank Zrt. Budapest (73.24%)
Raiffeisenbank a.s. Prague (51.0%)
Tatra banka a.s. Bratislava (70.6%)
Raiffeisen Bank Polska S.A. Warsaw (100%)a
Raiffeisen Bank S.A. Bucharest (99.5%)
Raiffeisenbank Austria d.d. Zagreb (75.0%)
Raiffeisen Bank Aval JSC Kiev (96.2%)
Raiffeisenbank (Bulgaria) EAD Sofia (100%)
Raiffeisen Bank d.d. Bosnia I Herce. (97.0%)
Raiffeisen Bank Sh.a. Tirana (100%)
Raiffeisen banka a.d. Belgrade (100%)
Raiffeisen Banka d.d. Maribor/Slovenia (86.3%)
Priorbank JSC Minsk (87.7%)
Other subsidiaries in CEE and elsewhere
Banks
Raiffeisen Bank International AG
March 2012 11
Total Credit Exposure and Loan Book
Figure 13
0
10
20
30
40
50
60
70
80
CZE HUN POL SVK SVN ALB BIH BGR HRV KOS ROM SER RUS BLR UKR
Corporate loans FX loans (total)
CEE - Lending by Type and Currency(End-Q311)
(%)
Source: RBI
Figure 14 Total Exposure by Type (EUR186.0bn; End-Q311) (%)
Trade 12.3 Manufacturing 11.3 Real estate 5.3 Financial intermediation 4.7 Construction 4.1 Transport & communication 2.0 Other corporates 12.1 Total corporates 51.9 Residential mortgages 6.4 Car loans 1.0 Consumer loans 2.7 Credit cards 1.0 SME loans 0.3 Retail overdrafts 1.0 Total retail 12.4 FI – A1 to A3 rating (A to AAA) 15.1 FI – B1 to B3 rating (BB to A-) 5.7 FI – rated B4, below B4 or NR (BB- and below) 1.2 Total financial institutions 22.0 Sovereign – A1 to A3 rating 7.2 Sovereign – B1 to B3 rating 4.3 Sovereign – rated B4 or below 2.3 Total sovereigns 13.7 Total 100.0
Source: RBI, Fitch
Banks
Raiffeisen Bank International AG
March 2012 12
Figure 15 CEE Funding Gap End-H111 LDR (%)
a Gap
b
Czech Rep. 113.2 -795 Hungary 121.2 -1,036 Poland 130.5 -1,249 Slovakia 92.9 501 Slovenia 333.8 -940 Albania 46.5 985 Bosnia 85.2 238 Bulgaria 137.8 -803 Croatia 120.9 -659 Kosovo 72.6 159 Romania 117.2 -646 Serbia 118.3 -209 Russia 99.4 51 Belarus 115.9 -120 Ukraine 163.5 -1,615 Total CEE 112.5 -6,138 a Loans/deposits ratio
b Deposits minus loans in EURm
Country data as reported by the bank; source: RBI, Fitch
Banks
Raiffeisen Bank International AG
March 2012 13
Figure 16 RBI – Peer Group Comparison
RBI* UniCredit Bank Austria AG Erste Group Bank AG
*2010 figures are not fully comparable due to the October 2010 merger of RI with RZB‟s corporate and investment banking business to form RBI. Source: Banks‟ financial statements
Banks
Raiffeisen Bank International AG
March 2012 14
Raiffeisen Bank International AG
Income Statement
9 Months - 3rd Quarter 9 Months - 3rd Quarter As % of Year End As % of Year End As % of Year End As % of Year End As % of
The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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