Raiffeisen International posts solid profit from operating activities, consolidated profit considerably lower on account of higher provisions for impairment losses

 

• Profit from operating activities rises by 7.1 per cent compared to Q1 2008 to reach 536 million euros

• Provisions for impairment losses up 379 per cent year-on-year to 445 million euros; non-performing loan ratio rises by 2.5 percentage points to 4.8 per cent

• Consolidated profit decreases by 78 per cent to 56 million euros

• Cost/income ratio improves by 2.1 percentage points to 51.7 per cent

• Return on equity before tax declines by 17.2 percentage points to 5.3 per cent

• Balance sheet total shrinks by 6.5 per cent to 79.9 billion euros

• Earnings per share 1.28 euros lower at 0.37 euros

All figures are based on International Financial Reporting Standards (IFRS).

During the first quarter of 2009, Raiffeisen International Bank-Holding AG, a member of the RZB Group headed by Raiffeisen Zentralbank Österreich AG (RZB), posted a consolidated profit (after tax and minorities) of 56 million euros, which represents a decline of 77.9 per cent compared to the same period a year earlier (Q1 2008: 254 million euros). The most significant cause for this decline in consolidated profit lies in the fact that provisions for impairment losses rose by 379 per cent year-on-year to 445 million euros (Q1 2008: 93 million euros).
Profit before tax declined by 77.4 per cent to 84 million euros (Q1 2008: 370 million euros), while the group's profit after tax was 77.2 per cent lower at 64 million euros (Q1 2008: 279 million euros).

Profit from operating activities rises by 7 per cent despite global economic crisis

During the first quarter of 2009, the group's profit from operating activities stood at 536 million euros, marking a 7.1 per cent rise on the same period a year earlier (Q1 2008: 501 million euros). Operating income rose by 2 per cent, or 24 million euros, on the comparable period last year to 1.1 billion euros. This relatively small increase was due not only to currency influences, but also to several effects of the global financial crisis, including considerably increased funding costs. 

"In light of the economic downturn, we have raised our provisions for impairment losses considerably in a number of the countries in which we operate. Nevertheless, in the first quarter, our business model and earning power made it possible for us to once again absorb the impact of the global recession, whose reach now also fully extends to our home market Central and Eastern Europe", said Raiffeisen International's CEO Herbert Stepic.

Net interest income has remained the most important income component in 2009, with growth by 8 per cent on the comparable period last year from 711 million euros to 767 million euros. Because of higher funding costs, this was below the 11 per cent increase of the average balance sheet total. After a long period of growth, the group’s net interest margin therefore fell for the first time by 12 basis points on the comparable period in 2008 to 3.71 per cent.

The economic downswing and currency fluctuations also weighed on net fee and commission income, which fell by 11 per cent to 294 million euros. Lower volumes of foreign exchange transactions (in Slovakia, Hungary, and Poland) and payment transfer business (especially in Ukraine, Russia, and Poland) led to lower fee and commission income. The introduction of the euro in Slovakia added another special effect. Net trading income developed better and, at 46 million euros, was 21 per cent above the comparable period last year. Particularly in interest-related business, the valuation losses that led to lower book values at the end of 2008 due to interest rate fluctuations were made up in part. Income from that business rose from minus 11 million euros in the first quarter of 2008 to 36 million euros.

Marked increase in provisions for impairment losses

In the wake of the economic downswing and the currency situation, there was a significant increase of overdue loans in the first quarter of 2009, especially in the case of foreign currency loans, which meant provisions had to be raised sharply. New allocations to provisions for impairment losses rose by 379 per cent, or 352 million euros, to 445 million euros. The non-performing loans mainly concerned Ukraine, Russia, Hungary, and Serbia. The non-performing loan ratio rose by 1.7 percentage points from the end of the year 2008 to 4.8 per cent.

Return on equity slightly above 5 per cent

The sharply decreased result is also reflected in the return on equity before tax, which came to 5.3 per cent and was thus significantly below the comparable period’s level (22.5 per cent). The average equity underlying the calculation decreased by 3 per cent to 6.3 billion euros due to currency differences.

At 4.2 per cent, the consolidated return on equity (after minorities) was likewise far below past levels, after having still amounted to 17.7 per cent at the end of March 2008. Earnings per share for the period from the beginning of January to the end of March 2009 also fell by 1.28 euros to 0.37 euros. 

Cost reduction program bears fruit: cost/income ratio below 52 per cent

The cost-cutting program, which was intensified when the crisis began, began to show effects by March, although the figures are influenced to some extent by exchange rates. General administrative expenses declined by 2 per cent, or 11 million euros, on the comparable period last year to 574 million euros.

The number of employees declined by 1,485 persons compared with the end of 2008 to 61,891. The decrease in number of employees occurred particularly in Ukraine (448), Russia (376), and Bulgaria (252), whereby in Russia and Bulgaria vacancies caused by the natural departure of employees were not subsequently filled. On the other hand, the average number of employees increased by 6 per cent compared with the first quarter of last year.

Because of the slight increase of operating income by 2 per cent, the cost/income ratio came to 51.7 per cent, which represents an improvement by 2.1 percentage points on the comparable period last year. The ratio for the full year 2008 was 54.0 per cent.

"The significantly improved cost/income ratio shows that the measures we implemented over the past months in order to improve our cost efficiency have taken hold. Together with an even firmer approach to risk management, these measures will provide an important contribution to our success in crisis management", said Raiffeisen International CFO Martin Grüll.

Balance sheet total impacted by currency devaluations

The balance sheet total as of 31 March 2009 amounted to 79.9 billion euros and was thus 6.5 per cent, or 5.5 billion euros, below the level at the end of 2008. The decline was largely due to currency devaluation. Changes in the scope of consolidation had no significant impact on the development of the balance sheet total.

On the asset side, loans and advances to customers continued to dominate Raiffeisen International’s balance sheet total. Although they fell by 4 per cent, or 2.2 billion euros, compared with the end of last year, they still accounted for 67 per cent (plus 1 percentage point) of balance sheet assets after provisions. Loans and advances to banks amounted to 7.0 billion euros at the end of the quarter, which meant a decline of 22 per cent, or 2.0 billion euros, compared with the level at the end of 2008.

Deposits from customers fell by 7 per cent, or 3.3 billion euros, compared with the end of 2008 to 40.9 billion euros. Deposits from banks fell by 5 per cent, or 1.2 billion euros, compared with the beginning of the year to 25.0 billion euros. Long-term financing transactions accounted for the most of the decline at 0.9 billion euros.

Currency developments weigh on equity

The turmoil on world markets triggered by the international financial crisis initially resulted in considerable devaluation of some CEE currencies in the fourth quarter of 2008. This affected Raiffeisen International last year by way of valuation losses charged to equity. Declines of exchange rates for the Russian rouble, Polish z³oty, and Hungarian forint burdened Raiffeisen International’s equity in the first quarter of 2009 by about 370 million euros.

The share of the balance sheet total due to own funds, which consist of equity and subordinated capital, went up slightly to 10 per cent (plus 1 percentage point). Subordinated capital increased by 2 per cent on the end of 2008, while equity decreased by 5 per cent, or 0.3 billion euros.

Customer number continues to rise

The number of business outlets was 3,208 at the end of the quarter. This means a net increase of 174 compared with the same period in 2008. Since the beginning of 2009, a net total of 23 outlets has been closed in Raiffeisen International as a result of efficiency-enhancing measures.

The number of customers stood at 14.9 million at the end of quarter, marking a slight rise against the 14.7 million customers Raiffeisen International had as per 31 December 2008. 

Segment reporting

Regional segments

Southeastern Europe achieved the highest profit before tax of all segments at 56 million euros. That result was based on slightly increased net interest income and good net trading income. Higher provisions for impairment losses weighed considerably on earnings, however: They were up by € 84 million from a very low level to € 112 million. Balance sheet assets grew by 6 per cent year-on-year. The region contributed 45 per cent to total profit before tax and was thus 12 percentage points above the level in the comparable period.

Central Europe achieved the second-highest profit before tax at 46 million euros. Increased net trading income contributed positively to the overall result. The development of net interest income was at last year’s level, while net fee and commission income declined. New allocations to provisions for impairment losses rose by 155 per cent to € 105 million, mainly due to allocations in Hungary. The region’s contribution to profit before tax amounted to 38 per cent and was thus 8 percentage points above the level in the comparable period. Balance sheet assets grew by 8 per cent year-on-year.

In Russia, profit before tax fell to 20 million euros despite strong increases in net interest income. This was influenced both by higher provisions for impairment losses (up from 16 million euros in the first quarter of 2008 to 110 million euros) and by negative net trading income. The segment’s earnings contribution thus fell slightly by 2 percentage points to 16 per cent. Its balance sheet assets rose by 3 per cent year-on-year.

In the CIS other region, profit before tax declined to 1 million euros, though it was positively influenced by increases in net interest income and net trading income. The segment’s earnings contribution fell by 18 percentage points to 1 per cent. The more than proportionate reduction of the segment’s share was due to allocations of 126 million euros to provisions for impairment losses. The segment’s balance sheet assets rose by 6 per cent year-on-year.

Central Europe continued to dominate consolidated assets with a share of 41 per cent. The second-largest share was contributed by the Southeastern Europe segment with 31 per cent, followed by Russia with 18 per cent and CIS other with 10 per cent.

Business divisions

The corporate customer division registered an earnings decline in the period under review. Profit before tax fell by 47 per cent to 121 million euros. Operating business continued to develop positively. Altogether, the division’s operating income increased by 2 per cent from 377 million euros to 385 million euros.  General administrative expenses decreased by 8 per cent to 113 million euros, which caused the cost/income ratio to improve by 3 percentage points to 29.2 per cent. Provisions for impairment losses grew significantly to 151 million euros.

Profit before tax in the retail customer division turned negative versus the comparable period and amounted to minus 80 million euros. In the previous year, a positive result of 133 million euros was achieved.  Operating income from this division amounted to 623 million euros and thus remained at the level of the comparable period. General administrative expenses fell slightly, by 1 per cent. The cost/income ratio improved by 1 percentage point to 65.6 per cent. A marked increase of allocations to provisions for impairment losses to 295 million euros was responsible for the decline earnings. 

The treasury division achieved profit before tax of 28 million euros (minus 44 per cent). The result was achieved despite lower net interest income thanks to a 30 per cent improvement of net trading income and the reduction of general administrative expenses. Net income from derivatives amounted to minus 5 million euros. A loss of 2 million euros was made on financial investments and resulted from valuation losses on securities. General administrative expenses developed positively, falling by 13 per cent year-on-year. Operating income developed negatively, declining by 45 per cent to 57 million euros. The cost/income ratio therefore increased by 14.6 percentage points to 39.8 per cent.

Profit before tax in the participations and other division improved on the comparable period to 15 million euros.

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The financial report for the first quarter of 2009 is available at http://qr012009.ri.co.at