The Group of Raiffeisen Zentralbank Osterreich AG (RZB) managed to hold its ground in the first half of 2009 under difficult conditions. RZB’s operating result increased by 17 per cent to EUR 1,426 million. At the same time, provisions for impairment losses were raised six-fold compared to the first six months of 2008. This explains the 47 per cent decline in the pre-tax profit to EUR 463 million.
At roughly EUR 156 billion, the balance sheet total almost unchanged in comparison to the end of 2008, however, the issue of participation capital brought total own funds up by 13.1 per cent to EUR 12.2 billion.
«The earnings trends reflect the changed conditions in the economy. However, they also demonstrate that RZB’s sound core activities are able to counter the negative impacts of the difficult situation on the markets — especially in the CIS markets», said RZB CEO Walter Rothensteiner. «The strong position regarding equity capital also enables RZB to absorb any potential shocks as well as the higher capital requirements expected under Basel II.»
Despite the economic recession, the operating profit achieved by RZB in the first two quarters of 2009 amounted to EUR 1,426 million, which is 17 per cent higher than in the previous year. The second quarter registered a profit of EUR 653 million and therefore trailed the first quarter in this respect, when the operating profit totalled EUR 773 million.
The growth in the operating profit is due to the significantly improved net trading income in the first six months, which rose by 162 per cent to EUR 266 million compared to the previous year. This was primarily attributable to revaluation gains on interest rate derivatives as well as the reversal of impairment losses on financial instruments previously depreciated.
Net interest income was up 3 per cent on the same period of the previous year to EUR 1,792 million. The main downside factor here was the increase in funding costs caused above all by action taken to tie customer deposits.
Operating income rose by 4 per cent to EUR 2.817 billion. General administrative expenses fell 7 per cent to EUR 1,391 million. This was affected not only by cost-cutting programmes but also by the depreciation of local currencies against the reporting currency, the euro. Altogether the operating profit increased by 17 per cent and the cost/income ratio improved 3.4 percentage points to 49.4 per cent.
The difficult economic conditions and the negative exchange rate trends in some markets have led to an expected increase in non-performing loans, where clients fall behind with their repayments. This applies especially to foreign currency loans and struggling financial institutions. Since the beginning of the year, non-performing loans have risen by EUR 2,186 million to EUR 4,501 million, and this has affected practically every single segment of RZB’s business.
As a result, provisions for impairment losses were increased sharply: new provisions rose from EUR 200 million to EUR 1,267 million in comparison to the same period of 2008. This also raised the ratio of provisions for impairment losses to net interest income (Risk/Earnings ratio) by 42.0 percentage points to 70.7 per cent.
Pre-tax profit fell 47 per cent to EUR 463 million on account of the marked increase in provisions for impairment losses. «Nevertheless, RZB still managed to achieve a respectable half-yearly result. It exceeds the one of the first half-year in 2005, when the word of the prevailing crisis hadn’t even crossed anyone's lips», explained Rothensteiner.
After deducting estimated taxes and minority interests, the consolidated profit totals EUR 168 million. This is 57 per cent lower than the first six months in 2008. While the corresponding figure was burdened by mark-to-market valuations of securities and derivative financial instruments, the economic environment in RZB’s home markets was still very benign.
The lower pre-tax profit and the increase in average equity capital are also reflected in the return on equity. At 10.1 per cent, it is significantly lower than the 21.0 per cent recorded in the first half-year of 2008.
Total own funds in accordance with the Austrian Banking Act rose 13 per cent to EUR 12.2 billion in comparison to the end of the year, while the core capital rose 17 per cent to EUR 8.9 billion. The main reason for this was the issue of participation capital subscribed by the Republic of Austria and totalling EUR 1.75 billion. This was part of an issue totalling EUR 2.5 billion. EUR 750 million were subscribed by RZB shareholders in December 2008, of which EUR 500 million were placed with new investors in a public offering in June 2009. This ensured RZB complied with a requirement of the EU competition authorities.
The growth in equity capital following the issue of participation capital was countered somewhat by the depreciation of some currencies in Central and Eastern Europe. However, currency trends did not reduce equity capital to the same extent as in the closing months of 2008. Nevertheless, this factor lowered capital in the first six months of the year by roughly EUR 222 million.
Currency depreciations had a perceptible impact also on RZB's balance sheet total. These effects amounted to a reduction of about EUR 2 billion since the start of the year. Action taken to reduce and optimise the loan portfolio also had an effect and reduced the balance sheet total by roughly another EUR 5 billion.
On the other hand, short to medium-term positions were built up over the reporting period in top-rated securities, primarily government bonds or bonds guaranteed by the state. This increased the balance sheet total by approximately EUR 6 billion. All in all, the balance sheet total remained largely unchanged in the first six months, posting a moderate decline of 0.6 per cent to roughly EUR 156 billion.
RZB’s balance sheet and income statement were compiled in accordance with international accounting standards (IFRS). The 2009 semi-annual report contains more detailed information on the business segments as well as on business trends and RZB’s balance sheet and income statement. This can be downloaded from www.rzb.at by clicking on Company Info and then «Business Performance». Following the same path on www.ri.co.at will lead you to the semi-annual report of Raiffeisen International.