Raiffeisen International core-shareholder RZB Strengthens its Capital Base

 

• 1.75 billion euros in participation capital • Offered for subscription to the Republic of Austria • RZB remains a reliable partner for the economy • Prevents competitive disadvantages vis-à-vis other banks that enjoy state support • Boosts the core capital ratio to 9 per cent and provides a cushion for the economic slowdown and currency depreciations

Raiffeisen Zentralbank Österreich AG (RZB), the mother-company and core-shareholder of Raiffeisen International Bank-Holding AG, intends to significantly reinforce its capital base with the issuance of participation capital amounting to 1.75 billion euros. This participation capital is qualified as core capital and is to be offered for subscription to the Republic of Austria. This decision was reached this afternoon by the Supervisory Board of RZB, which has authorised the Managing Board to conduct in-depth negotiations with the Republic of Austria.

RZB’s shareholders already subscribed 750 million euros of participation capital at the end of 2008, to bolster the position of the bank in today’s radically changed market conditions. The 1.75 billion euros in participation capital being offered to the Republic of Austria brings the overall volume by which RZB is strengthening its equity base to 2.5 billion euros. This move distinguished RZB as the only major Austrian bank to receive a significant injection of capital from its owners and enhanced its ability to bear risks. According to RZB CEO Walter Rothensteiner, “RZB is competing with banks which either have direct support from the state or which are already owned by the state and thus enjoy substantial advantages in terms of refinancing. Issuing participation capital not only reinforces RZB’s equity capital base, it also prevents competitive disadvantages. This move means that RZB is even better prepared to master the challenges going forward.”

RZB is a solid bank with a healthy level of own funds

RZB is a solid bank and was able in 2008 to compensate for the effects of the global financial market crisis using only its own resources, thanks to its outstanding operating business. As of the end of 2008, RZB had core capital of around 8 billion euros, and with a core capital ratio of over 7 per cent (and well over 8 per cent when calculated for credit risk), it has a healthy level of own funds. The mandatory minimum ratio in Austria is 4 per cent.

Nevertheless, as market conditions have changed, higher ratios are now among the new conditions required of large internationally active banks for refinancing operations – and it is only possible to cover the existing volume of credit and originate new loans if the bank has secure access to refinancing. At the same time, customers have now come to view capital ratios as a key indicator of how safe a bank is.

Including the 1.75 billion euros, RZB would have a core capital ratio of around 9 per cent (or well more than 10 per cent calculated with regard to credit risk). Accordingly, its ratio would be in line with the 9 per cent figure that has been taken as an international target since the autumn of 2008. Simultaneously, the participation capital will expand RZB’s cushion in terms of own funds, which will allow the bank to better soften the possible impact of the current economic downturn and volatile developments on the currency markets.

RZB is there as a partner for the economy, especially during turbulent times

“Banks help the lifeblood of the economy to keep flowing. Our capital base, which has already been reinforced by our shareholders, helps support RZB in this function. If we can reach a successful conclusion in our negotiations with the Republic of Austria, our capital base will allow us to do even more in this regard, particularly in Austria,” noted Rothensteiner. “When the going gets tough, RZB and the entire Raiffeisen Banking Group in Austria are there for their customers as a reliable partner and are keenly aware of their responsibility to the economy and the people who live and work in it.”

Within the framework of the Financial Market Stabilisation Act, the Republic of Austria has offered banks measures to bolster their equity capital position. A framework package has already been approved by the European Commission and this package forms the basis for the detailed negotiations with Austria’s Federal Ministry of Finance. Previous contact with the responsible authorities – for example in preparation for the recent issue of government-guaranteed bonds – has shown that they are negotiation partners who are competent and interested in reaching solutions. With this in mind, RZB is confident that solutions acceptable to both parties will be found in respect of the details which have yet to be settled.

A leading bank in Austria and the CEE

As a leading commercial bank and the only Austrian bank with offices on four continents, Raiffeisen Zentralbank is now Austria’s premiere representative in the financial world. Through its listed subsidiary Raiffeisen International Bank-Holding AG, it operates a dense banking network in Central and Eastern Europe (CEE). RZB’s home market extends from Austria to cover almost the entire CEE region. And as business banker for the Top 1,000 Austrian firms and head of the Raiffeisen banking group – the clear market leader in Austria – RZB is a vital part of the country’s banking system.