The Group headed by Raiffeisen Zentralbank Osterreich AG (RZB) mitigated the negative effects of the financial market crisis in the challenging year 2008 through its own earnings power. «RZB conducts traditional banking business, and this bread and butter business with our nearly 15 million customers played a key role in the bank achieving solid results in the turbulent year 2008,» said RZB CEO Walter Rothensteiner. «Our strong operative business along with measures such as increasing our capital base and temporarily curtailing our growth programme put us in an optimal position for the future,» Rothensteiner added.
The growth in the bank's balance sheet total slowed in 2008. Although it increased altogether by 14.2 per cent over the reporting period, currency devaluations in some countries in Central and Eastern Europe (CEE) reduced the balance sheet total by 2.2 billion euros compared to the first half of the year. It amounted to 156.9 billion euros on the reporting date.
RZB's organic growth brought about a welcome increase in the bank's operating profit. In total, operating income grew by 27.0 per cent to 5,905 million euros. Net interest income grew by 36.3 per cent to 4,010 million euros, and net commission income advanced by 16.6 per cent to 1,768 million euros. The decrease in net trading income (19 million euros, down by 79.7 per cent) is evidence of the tough market conditions.
The 17.8 per cent increase in general administrative expenses (to 3,117 million euros) was considerably lower than the increase in operating income. In absolute terms, operating income was up by 1,255 million euros, and administrative expenses increased by 472 millio euros n. This boosted operating profit by 39.1 per cent to 2,788 million euros. «RZB posted the best operating result in its history in 2008. This performance confirms the bank's excellent position on its home market of Austria and Central and Eastern Europe. In spite of the economic slowdown, these markets continue to offer excellent potential that we will continue to utilize,» Rothensteiner explained.
While the operating result hit a record high, the effects of the financial market and bank crisis brought about a decrease in profits. The impacts of the financial market crisis translate into total negative effects of 1,660 million euros for RZB, e.g. by mark-to-market valuations of securities and financial instruments, Lehman and the collapse of Icelandic banks.
As a result, profit before tax fell by 59.8 per cent to 597 million euros, and profit after tax declined by 63.7 per cent to 432 million euros. Consolidated profit (after tax and minorities) fell by 93.8 per cent to 48 million euros. The sharper decline compared to the pre-tax result can be attributed to a higher tax burden, as well as to the fact that minority shareholders primarily hold stakes in the Group's more profitable companies.
Operating income grew at a higher rate than administrative expenses in 2008, allowing the cost/income ratio to improve from 56.9 per cent to 52.8 per cent. The return on equity (ROE) before tax fell from 22.2 to 7.3 per cent because of the lower profit for the period. The return on assets (ROA) before tax contracted from 1.17 per cent in 2007 to 0.40 per cent for 2008. The risk/earnings ratio increased from 10.5 to 28.7 per cent.
The Vienna-based business with Austrian and international corporates was once again a major driver of income for RZB in 2008. Operating income in this segment was up by 19.1 per cent and reached 314 million euros. Profit for the year from this customer category is booked in the segment «Austria» and reached 181 million euros in spite of the increase in risk provisions to 63 million euros.
Business with retail customers, in other words private individuals and small and medium-sized enterprises, also developed very well in 2008. One million new customers were won over the course of the year, bringing the total number to 14.7 million. The number of business outlets increased by 7.1 per cent to 3,251 in 2008. The Group’s retail customer business is conducted primarily in the CEE region.
RZB Group's total own funds increased by 4.9 per cent to 10.8 billion euros during the year under review. RZB's shareholders played a major part in this increase in equity. A routine capital increase took place in autumn 2008 and boosted the bank's subscribed capital by 165 million euros. However, the worsening of conditions at the end of 2008 and the market’s changed perception of risk made it necessary to increase the bank's equity ratio further. To this end, RZB's core shareholders subscribed additional participation capital in the amount of 750 million euros in December 2008. The surplus own funds ratio was 27.0 per cent at the reporting date, while the own funds ratio came in at 10.2 per cent and the Tier 1 ratio (credit risk) stood at 8.4 per cent (calculated for total risk according to Basel II it was 7 per cent).
In order to prevent competitive disadvantages arising from the fact that many of RZB's competitors have received extensive support from their national governments or are state-owned, RZB concluded a contract with the Republic of Austria at the end of March 2009 under which the federal government will subscribe 1.75 billion euros in participation capital. «This additional capital will significantly strengthen RZB's equity position, and therefore its risk-bearing capacity,» Walter Rothensteiner explained.
Following this participation capital issue, RZB’s Tier 1 ratio (credit risk) will increase to 10.4 per cent, and to 8.7 per cent if calculated for total risk according to Basel II. The participation capital will be subject to an interest rate of 8 per cent per annum in the first five years. The federal government will be granted no voting rights, the participation capital cannot be converted into ordinary or preferential shares, and this injection will result in no changes in RZB's ownership structure.
RZB had a total staff of 66,651 at 31 December 2008 (as measured in so-called «full-time equivalents»), of which 3,179 were employed in Austria (plus 11.2 per cent), 63,029 in CEE (plus 10.6 per cent), and 443 in the rest of the world. The total growth rate was 8.6 per cent. The difficult framework conditions will lead the number of staff to decline in 2009.
In spite of the considerable turbulence and the other effects of the global financial crisis, RZB's listed subsidiary Raiffeisen International enjoyed healthy growth and posted a record result for the financial year 2008. Its consolidated profit (after minorities) increased by 16.7 per cent to 982 million euros. Raiffeisen International’s profit before tax came in at 1,429 million euros, while its earnings per share advanced from 5.80 euros in 2007 to 6.39 euros.
Details on RZB's segment reporting, balance sheet and income statement can be found at: ar2008.rzb.at