Raiffeisen International Bank-Holding AG, a member of the RZB Group headed by Raiffeisen Zentralbank Osterreich AG, continued its course based on organic growth during the first quarter of 2008. Consolidated profit (after tax and minorities) for the first three months increased by 32.1 per cent to 254.4 million euros (Q1/2007: 192.6 million euros). Profit before tax grew by 26.4 per cent and amounted to 369.6 million euros (Q1/2007: 292.5 million euros), and profit after tax advanced by 21.1 per cent to 279.4 million euros (Q1/2007: 230.8 million euros). All data according to International Financial Reporting Standards (IFRS).
Again the best quarterly result in the Group’s history
The consolidated profit for the first quarter of 254.4 million euros is once again a record result, disregarding one-off effects in the previous periods. Net interest income (plus 41 per cent) and net commission income (plus 20 per cent) contributed most. The increase in general administrative expenses (plus 23 per cent) was considerably lower than the one in net interest income. The largest contribution to profit before tax came from the CIS and accounted for 36 per cent (Q1/2007): 27 per cent).
«This quarterly result corroborates our claim that the current environment on the global financial markets has only limited influence on our business model and growth perspective. By covering 17 markets in Central and Eastern Europe and by having an excellent strategic alignment we are again able to achieve significant organic growth and increasing profitability at the same time in 2008,» commented CEO Herbert Stepic on the result.
ROE slightly lower due to capital increase
The return on equity (ROE) before tax declined in the first quarter compared with the full year 2007 by 3.2 percentage points to 22.5 per cent. The ROE turned out lower despite a 26 per cent increase of profit before tax to 370 million euros because the equity base was significantly larger. That was due not only to the capital increase at the beginning of October 2007, but also to high profit retention last year. Average equity consequently grew by 37 per cent to 6,572 million euros.
At 17.7 per cent in the first quarter of 2008, the consolidated ROE (after tax and minorities) declined by a somewhat smaller 2.4 percentage points. Earnings per share in the first quarter improved by 0.30 euros on the comparable period last year to 1.65 euros despite a larger number of shares outstanding.
Own funds, consisting of equity and subordinated capital, amounted to 8.4 billion euros. Their share of the balance sheet total remained unchanged at 11 per cent. Set against that increase, resulting from the profit of the first quarter of 279 million euros and capital contributions from minority shareholders in various Group units of 52 million euros, is a negative exchange rate movement amounting to 131 million euros.
«We have the best equity base of all Western financial institutions in CEE, and our funding is based on several strong pillars. The capital increase of last fall provided us with the necessary leeway to continue our organic growth and react swiftly to market opportunities,» said CFO Martin Grull.
Consistently significant increase in net interest income
The operating result for the first quarter was up 40.6 per cent on the same period of last year at 501 million euros (Q1/2007: 356 million euros).Operating income reached 1,086 million euros, which was 30.3 per cent or 253 million euros up on the comparative period (Q1/2007: 833 million euros). Net interest income as the most important income component increased by 206 million euros to 711 million euros.
Significant increases of net interest income were registered in all regional segments. Group units in the CIS showed the best development with a plus of 49 per cent, mainly due to higher interest margins in Russia. The increase amounted to 35 per cent in Central Europe, and to 39 per cent in Southeastern Europe. The overall interest rate margin improved by 31 basis points on the first quarter of 2007 to 3.83 per cent. That was 3 basis points below the 2007 level, which may be attributed to an increase of funding costs caused by the global financial crisis. Net commission income registered a plus of 20 per cent to 331 million euros. That was somewhat weaker after significant pluses in the previous years, which may be attributed to lower income from securities transactions and other banking services. More significant increases were achieved in the main earnings components. With an increase of 6 per cent, trading profit was below the growth rates of the other operating profit components. It grew by 2 million euros to 38 million euros.
New allocations to provisioning for impairment losses rose by 23 per cent, or 17 million euros, on the comparable period last year to 93 million euros. Of that total, 46 per cent, or 43 million euros, concerned Group units in Central Europe. That means an increase of 23 million euros on the comparable period last year. On the other hand, provisioning declined significantly in the CIS, by 15 million euros to 23 million euros net.
Despite the increase of provisioning for impairment losses, the risk/earnings ratio improved by 1.7 percentage points to 13.1 per cent. More than 70 per cent of all provisioning was formed for retail customers, while corporate customers accounted for the rest. General administrative expenses grew by 23 per cent, or 108 million euros, on the comparable period last year to 585 million euros. Changes in the scope of consolidation had no noteworthy effects. Because of this relatively moderate increase despite continuing capital investment in distribution channel expansion, the cost/income ratio improved by 3.4 percentage points to 53.8 per cent. Compared with the end of 2007, it declined by even 3.8 percentage points.Staff expenses, which accounted for exactly half of general administrative expenses, grew by 26 per cent, or 60 million euros, on the comparable period last year to 294 million euros. Similar increases were registered in all the regions, between 24 per cent (CIS) and 26 per cent (Southeastern Europe). The average number of staff was 12 per cent above the comparable period in 2007 and amounted to 59,435. As of 31 March 2008, 60,050 staff were employed.
Asset growth according to plan
Compared with the end of 2007, the balance sheet total of Raiffeisen International rose by 5 per cent, or 3.7 billion euros, to 76.5 billion euros. That growth was entirely organic, since no material changes occurred in the scope of consolidation. However, significant devaluation of currencies correlated with the US dollar (especially in the CIS) had a negative influence on the balance sheet total of about 1 percentage point, or 0.8 billion euros. Consequently, adjusted growth of the balance sheet total came to about 6 per cent.
In absolute terms, loans and advances to customers grew most, namely by 2.3 billion euros since the beginning of the year. The loan volume surpassed the 50 billion mark for the first time and came in at 51.1 billion euros. Loans to retail customers grew significantly stronger (plus 7 per cent) compared with loans to corporate customers (plus 3 per cent). Loans and advances to banks rose by 19 per cent compared with the end of 2007 to 13.2 billion euros. The increase resulted mainly from short-term investments with internationally operating commercial banks. The share of assets grew by 2 percentage points to 17 per cent.
On the liabilities’ side, deposits from customers increased by 4 per cent or 1.6 billion euros to nearly 42.1 billion euros. The regional focus was in the CIS (plus 16 per cent). Deposits in Central Europe grew by 3 per cent, while they decreased by 3 per cent in Southeastern Europe. Deposits from banks grew by 3 per cent in the period from the beginning of the year to 20.5 billion euros.
More than 14 million customers serviced through 3,034 business outlets
Raiffeisen International’s customer base comprised more than 14 million individuals and companies at the end of the first quarter, which is an increase of approximately 300,000 since year-end 2007. About 47 per cent of the customers are in the CIS, and 38 per cent in Southeastern Europe. The remaining 15 per cent of the customer base is located in Central Europe.
The number of business outlets increased in the first three months by only 19 on balance, because a net 40 branches were closed due to location optimization, especially in Ukraine. The total number thus stood at 3,034. «Expanding our branch footprint still has the highest priority for us. It is the key to a continual dynamic growth in customer numbers. We enjoy a significant competitive advantage by virtue of the largest network of all Western banks in CEE and our strong branch structure in Russia and Ukraine,» said Stepic.
Segment reportingBest quarterly result in the CIS
Of the three regional segments, the CIS registered the highest profit before tax in the first quarter with an increase of 65 per cent to 133 million euros. That was mainly due to strong increases in interest income and low new provisioning needs. Balance sheet assets rose by 33 per cent, which is also the strongest plus of all the segments. The contribution to profit before tax amounted to 36 per cent, which is 8 percentage points above the segment's share in the comparable period.
The region of Southeastern Europe contributed the second-largest share to profit before tax at 34 per cent (Q1/2007: 33 per cent). The segment registered a considerable increase of 30 per cent, or 29 million euros, to 127 million euros. That was largely based on solid growth of net interest and commission income.
In Central Europe, profit before tax remained at the same high level as in the comparable period. The segment contributed a share of 30 per cent to the total result. That represents a decline of 9 percentage points on last year's level, which was influenced by some special effects. Balance sheet assets grew by 30 per cent in comparison with last year.
The shares of balance sheet assets attributable to the individual segments remained nearly unchanged compared with December 2007. Central Europe continued to dominate consolidated assets with a share of 41 per cent, followed by Southeastern Europe at 31 per cent and the CIS at 28 per cent.
Strong growth in the customer segments
Considerable gains were registered in the corporate customer segment, where profit before tax rose by 59 per cent on the comparable period last year to 227 million euros. The increase was mainly due to operating business, including a rise of net interest income by 58 per cent to 252 million euros. At 26 million euros, provisioning for impairment losses remained at last year's level despite the volume growth. General administrative expenses rose by 22 per cent to 122 million euros, which is why the cost/income ratio improved further to 32.4 per cent. Other operating income includes a contribution of about 7 million euros from operating leasing. The return on equity improved only slightly because of the much larger equity base, by 0.2 percentage points, to 27.6 per cent, which is the best of all the segments. The segment’s contribution to profit before tax was again the highest at 61 per cent.
Profit before tax in the retail customer segment improved by 19 per cent on the comparable period to 132 million euros. The increase was more moderate than in the preceding periods due to 26 per cent higher general administrative expenses totaling 412 million euros and 39 per cent higher new allocations to impairment loss provisioning (67 million euros). The return on equity fell by 3.5 percentage points to 25.8 per cent because of the greatly expanded base resulting from last year's equity increases. Operating income from retail customers rose by 28 per cent to 620 million euros, with the greatest growth coming from net interest income at plus 32 per cent. Despite continuing high general administrative expenses due to expansion, the cost/income ratio improved by another 0.7 percentage points to 66.5 per cent. The share of total earnings attributable to the segment fell by 2 percentage points to 36 per cent.
The treasury segment made a nearly unchanged earnings contribution of 49 million euros (plus 1 per cent). This was achieved despite increased general administrative expenses mainly thanks to an 88 per cent improvement of net interest income. A valuation loss from a position taken to reduce yield curve risk caused earnings to decrease by 28 million euros. The cost/income ratio improved by 2.3 percentage points, while the return on equity was 2.3 percentage points below the figure reported for Q1/2007. The segment’s contribution to profit before tax was 3 per cent.
Outlook and targets unchanged
Building on Raiffeisen International’s successful mid-market strategy, the corporate customers segment will make the largest contribution to profit before tax again in 2008. In the retail business, the company continues to emphasize expansion of the branch network to support the broadening of the customer base. Moreover, it will further develop its product range in the areas of asset management and insurance in the current year.
Raiffeisen International’s goal for consolidated profit in 2008 is about 1 billion euros.
The group aims to grow the balance sheet total by at least 20 per cent per year in the period to 2010, with the strongest increases targeted in the retail customer segment.
Raiffeisen International has set a return on equity (ROE) before tax of more than 25 per cent as a goal for 2010. That does not take account of any acquisitions or capital increases. The cost/income ratio should come to about 56 per cent, and the target risk/earnings ratio is about 15 per cent.
You can download the Interim Report for the first quarter from qr012008.ri.co.at.
Raiffeisen International operates one of the largest banking networks in CEE. 17 markets of Europe’s growth region are covered by subsidiary banks, finance leasing companies and a number of other financial service providers. Over 14 million customers are attended to through more than 3,000 business outlets. Raiffeisen International is a fully consolidated subsidiary of Raiffeisen Zentralbank Osterreich AG (RZB), which owns 68.5 per cent of the common stock. The balance is free float, the shares are traded on the Vienna Stock Exchange. RZB is a leading corporate and investment bank in Austria and the central institution of the Austrian Raiffeisen Banking Group, the country’s largest banking group.