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RBI: Net Income Up by 13%

Published: November 28, 2012; 13:42 · (Vindobona)

Raiffeisen Bank International posts a profit before tax of more than € 1bn for the first three quarters.

RBI: Net Income Up by 13% / Picture: © Raiffeisen Bank International AG / S. Klimpt

Raiffeisen Bank International AG (RBI) posted a consolidated profit (after tax and non-controlling interests) of € 842m for the first nine months of 2012, which represents an increase of 13 per cent compared to the first nine months of the preceding year (1-9 2011: € 745m). RBI's profit before tax rose by 8 per cent to € 1,115m (1-9 2011: € 1,032m) and thus exceeded the € 1bn mark even more than in the preceding year. Profit after tax amounted to € 889m, an increase of 17 per cent compared to the same period a year earlier (1-9 2011: € 760m). Earnings per share rose from € 3.06 in the first three quarters of 2011 to € 3.55, an increase of 16.1 per cent.

"We achieved a pleasing result in the first three quarters despite the weak economic growth in Europe, the measures to improve our capital ratio and the low interest rate environment weighing on our net interest income. This is on the one hand the result of our diversification, which enables us to counterbalance weaker developments in some markets with good developments in others, such as Russia and Romania. On the other hand, numerous efficiency efforts are taking effect, and we have our costs well under control," said CEO Herbert Stepic.

Net interest income down almost 5 per cent

In the first nine months of 2012, net interest income contracted by 5 per cent or € 128m to € 2,596m year-on-year. At 67 per cent (up 1 percentage point) of total operating income, it remains the largest earnings component. The decrease compared to the same period in the previous year was primarily attributable to lower interest income as a result of sales of securities, lower interest margins – primarily on loans and advances to banks – as well as low returns generated on the investment of excess liquidity at Group head office. Year-on-year, the net interest margin (the ratio of net interest income to average total assets) fell by 29 basis points to 2.32 per cent.

Net fee and commission income decreased slightly compared to the same period of the previous year, by € 4m to € 1,120m. Net trading income declined by 25 per cent or € 72m to € 220m. Regarding the development of profit before tax, the regional segments showed different trends compared to the first three quarters of 2011. Russia increased its profit before tax significantly by 69 per cent to € 485m, already coming from a high starting point. In Southeastern Europe, profit before tax remained almost unchanged at € 261m. In Central Europe, in which high losses in Hungary had led to unusual low earning contributions in the previous year, profits before tax increased significantly to € 152m. CIS Other posted a decline in results by more than 40 per cent to € 82m, which was mainly attributable to a positive one-off item in Belarus in the second quarter of 2011. Despite higher provisions, pre-tax profit of corporate business managed by Vienna head office and comprised in the Group Corporates segment, decreased only by 7 per cent to € 288m year-on-year. The Group Markets segment, which covers RBI's customer and proprietary business related to the capital market, doubled its profit before tax to € 238m compared to the first three quarters of 2011.

Net provisioning for impairment losses down to € 623m

Compared to the same period last year, net provisioning for impairment losses contracted by € 158m to € 623m in the first nine months of 2012. Sharp declines were recorded primarily in Hungary (minus € 226m) where loan loss provisions are, however, still at a high level. Russia posted a significant contraction of € 34m compared to the same period last year. Various individual cases resulted in new allocations to loan loss provisions for corporate customers in Slovakia, Romania, Poland, China and at Group head office. The rise in Poland resulted from the first-time consolidation of Polbank, among other factors.

Non-performing loans (NPL) to non-banks have grown by € 1,285m to € 8,340m since the beginning of the year. At initial consolidation, non-performing loans held by Polbank amounted to € 478m. At this point, Polbank had a coverage ratio (loan loss provisions in relation to NPL without taking collateral into account) of 89 per cent. Currency effects caused a further € 159m growth in the NPL portfolio. The € 621m in growth in NPL – adjusted for Polbank and currency effects – occurred mainly because of individual cases among large customers. Accordingly, the NPL ratio rose by 1.6 percentage points year to date to 10.0 per cent. The coverage ratio declined by 2.6 percentage points to 65.8 per cent.

Return on Equity before tax increases to 14.1 per cent

The return on equity (ROE) before tax for the first nine months of 2012 was 14.1 per cent, based on profit before tax of € 1,115m (up 8 per cent) and average equity of € 10.6bn (up 5 per cent). ROE was therefore 0.4 percentage points higher than in the same period in the previous year.

General administrative expenses slightly up

General administrative expenses rose by € 49m to € 2,336m compared to the same period in the previous year. Excluding Polbank, a reduction would have been achieved. The cost/income ratio rose by 4.4 percentage points to 60.1 per cent due to lower income.

The largest item under general administrative expenses was staff expenses, accounting for 50 per cent, and rising in total by 3 per cent or € 37m to € 1,178m. While staff expenses grew in Russia due to salary increases, they declined in Hungary, the Czech Republic and Romania. Other administrative expenses remained on the same level as the previous year's period at € 884m. The largest declines were in advertising, PR and promotional expenses (minus 26 per cent), legal, advisory and consulting expenses (minus 11 per cent) and communications expenses (minus 4 per cent). By contrast, the largest increases were in IT expenses (up 12 per cent) and office space expenses (up 4 per cent). The consolidation of Polbank also resulted in an increase in other administrative expenses in Poland.

Total assets constant

RBI's total assets amounted to € 147.1bn as of 30 September 2012, slightly above the value at year-end 2011. The loan/deposit ratio (i.e. loans and advances to customers divided by customer deposits) improved by 4 percentage points to 118 per cent compared to year-end 2011.

Tier 1 ratio near 11 per cent

RBI's equity on the statement of financial position, consisting of consolidated equity, consolidated profit and the capital of non-controlling interests, rose by 2 per cent or € 200m to € 11,136m compared with year-end 2011.

As of 30 September 2012, RBI's core tier 1 ratio (total risk) was 10.2 per cent. Including retained earnings and less pro rata dividends for the first three quarters (based on the dividend for 2011), it was 10.9 per cent. The tier 1 ratio (total risk) amounted to 10.7 per cent. The own funds ratio increased to 14.8 per cent.

Number of business outlets grew due to acquisition of Polbank

The number of business outlets as of 30 September 2012 was 3.115, an increase of 6.4 per cent compared with 31 December 2011. This increase was mainly caused by the acquisition of Polbank. The average number of staff increased year-on-year by 1,639 to 61,645. Excluding Polbank, a reduction of staff of 1,671 would have been achieved. As of 30 September 2012, the customer base stood at around 14.1m.

Declining consolidated profit in Q3

Compared to the second quarter 2012, net interest income decreased by 6 per cent or € 52m to € 834m in the third quarter. The net interest margin contracted quarter-on-quarter by 12 basis points to 2.23 per cent. This was attributable to lower interest income as a result of the sale of securities at Group head office as well as lower interest income from loans and advances to customers in Romania. However, margins in Russia improved. Net fee and commission income increased compared to the second quarter of 2012 by € 25m to € 400m. Increasing volumes led to a rise in payment transfer business of € 8m and in net income from agency services for own and third-party products of € 4m. Net trading income fell by 37 per cent or € 31m to € 54m compared to the second quarter. This was primarily due to valuation losses on foreign currency swaps at Group head office and in Hungary. At € 818m, general administrative expenses in the third quarter 2012 were € 54m higher than in the previous quarter at € 764m. Compared to the previous quarter, consolidated profit declined by 11.5 per cent or € 18m to € 141m.

Outlook

In the context of the expected overall economic developments, particularly in CEE, RBI is aiming, with the inclusion of the acquisition of Polbank, for a return on equity before tax of around 15 per cent in the medium term. This is excluding future acquisitions, any capital increases, as well as unexpected regulatory requirements from today's perspective.

In 2012, RBI expects a stable business volume due to the economic environment and restrictive regulatory requirements. From the customer standpoint, the bank plans to retain its Corporate Customers division as the backbone of its business and in the medium term to expand the proportion of business volume accounted for by the Retail Customers division.

Against the backdrop of a permanently changing regulatory environment and further strengthening of the balance sheet structure, RBI is continuously evaluating the level and structure of its regulatory capital to be able to act promptly and flexibly. Depending on market developments, a capital increase also continues to be a possible option.

In light of the economic prospects, the situation remains tense in several markets. RBI therefore expects a slight increase in the volume of non-performing loans in the next months, driven primarily by higher defaults in Hungary, but also in the Southeastern European countries. Overall, the net provisioning ratio is expected to remain stable or increase slightly.

In 2012, RBI expects higher bank levies than in the previous year. In Austria and CEE, this will presumably result in a negative earnings effect of some € 160m.

The funding requirement for 2012 is fully covered.

In 2012, RBI will once again pay increased attention to cost development and has therefore implemented Group-wide cost efficiency programs. Without taking Polbank into account, the bank expects a flat cost development at Group level, whilst including Polbank it expects a slight cost increase.

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