Raiffeisen Bank International nine-month profit before tax exceeds € 1 billion

Autor: Bancherul.ro
2011-11-24 14:48

* Profit before tax rises 3.5 per cent year-on-year to € 1,032 million (1-9 2010: € 997 million)
* Consolidated profit declines by 4.8 per cent to € 745 million (1-9 2010: € 783 million)
* Net trading income increases 13.5 per cent to € 293 million (1-9 2010: € 258 million)
* Net provisioning for impairment losses drops 14.4 per cent to € 782 million (1-9 2010: € 913 million)
* Non-performing loan ratio improves by 0.6 percentage points against year-end 2010 to 8.4 per cent
* Coverage ratio improves by 4.2 percentage points against year-end 2010 to 70.5 per cent
* Return on equity before tax declines by 0.5 percentage points year-on-year to 13.6 per cent
* Cost/income ratio 2.6 percentage points higher year-on-year to 55.8 per cent
* Core Tier 1 Ratio (total) declines by 1.0 percentage points against year-end 2010 to 7.9 per cent
* Tier 1 ratio (total) falls by 1.0 percentage points against year-end 2010 to 8.7 per cent
* Measures to comply with the EBA's capital requirements will yield capital equivalents in the RZB Group of € 2.5 billion to € 3.6 billion
* Slightly changed outlook

The figures in this press release for the first three quarters of 2010 are the comparable figures for the RBI structure after applying the merger retrospectively to 1 January 2010, said the bank in a press release.

Raiffeisen Bank International AG (RBI) posted a consolidated profit (after tax and non-controlling interests) of € 745 million for the first nine months of 2011, which represents a slight decline of 4.8 per cent against the same period a year earlier (1-9 2010: € 783 million). In contrast, RBI's profit before tax rose by 3.5 per cent to € 1,032 million (1-9 2010: € 997 million). However, income taxes rose by € 128 million to € 272 million. This increase was primarily driven by higher earnings in the Group units, but deferred tax expenses on valuation gains increased as well. Only a small proportion of deferred tax assets could be recognized to offset the losses in Hungary. This led to a profit after tax of € 760 million, a decrease of 10.9 per cent against the comparable figure for the preceding year (1-9 2010: € 853 million). Earnings per share declined by 6 per cent, from € 3.25 in the first three quarters of 2010 to € 3.06.

"Against the backdrop of a clear deterioration in the economic environment and the continuing crisis involving the eurozone's peripheral states, we managed to post respectable results in the third quarter as well. This development is based on our sustainable business model and our broad diversification with regard to markets, products and customers groups," said Herbert Stepic, CEO of RBI.

Operating result down 4 per cent due to bank levies

Despite stable net interest income and a positive trend in net trading as well as fee and commission income, the operating result for the first nine months of 2011 fell by 4 per cent or € 84 million to € 1,813 million. Reasons for the decrease were the 6 per cent rise in general administrative expenses (particularly as a result of salary adjustments in several markets) and the bank levies in Austria and Hungary totaling € 95 million (previous year's comparable period: € 31 million).

Net interest income advanced by 1 per cent or € 16 million to € 2,724 million in the first nine months of 2011, compared to the same period in 2010, and constituted again the largest contributor to operating income at 67 per cent.

Net fee and commission income improved by 3 per cent or € 36 million over the prior year period to € 1,125 million. The largest contribution came from net income from the payment transfer business amounting to € 453 million, up € 14 million year-on-year.

Net trading income improved by 14 per cent or € 35 million year-on-year to € 293 million. Net income from currency-based transactions doubled to € 163 million. The steepest rise in net income was recorded by the CIS other segment, which posted a € 31 million increase, most of which stemmed from Belarus. This reflected € 30 million in valuation gains arising from a strategic currency position taken in part to hedge equity and was caused by the sharp devaluation of the Belarusian rouble.

"When looking at the regional distribution of our profit before tax, Russia was the strongest contributor, raising its share by 56 per cent to € 286 million. Southeastern Europe's pre-tax result remained stable at € 260 million, while the CIS other region more than compensated the sharp drop in Central Europe's results caused by Hungary," said RBI CFO Martin Grüll.

Net provisioning for impairment losses decline overall, but impacted by Hungary

Although most markets saw a sharp decrease in net provisioning for impairment losses as the market environment improved, in Hungary provisioning had to be doubled year-on-year to € 373 million. Nevertheless, provisioning declined by 14 per cent to € 782 million across the Group.

"The third quarter saw the NPL ratio continue to decline slightly, namely to 8.4 per cent. What is especially gratifying is the fact that our coverage ratio --- the ratio of provisions to non-performing loans --- rose to above 70 per cent at the group level and amounts to nearly 67 per cent in Hungary," said Johann Strobl, RBI's Chief Risk Officer.

The improved provisioning requirements were reflected in the net provisioning ratio (the ratio of net provisioning for impairment losses to average credit risk-weighted assets), which declined by 31 basis points year-on-year to 1.36 per cent. The ratio at 31 December 2010 stood at 1.66 per cent.

Non-performing loans as of 30 September amounted to € 6,821 million. Including currency movements, this was € 31 million higher than the figure as of 31 December 2010. The NPL ratio, the ratio of non-performing loans to total loans and advances to customers, improved by 0.6 percentage points to 8.4 per cent, due to higher volumes.

Non-performing loans were matched by impairment losses for loans and advances amounting to € 4,811 million. This resulted in a coverage ratio of 70.5 per cent, an improvement of 4.2 percentage points on the year-end 2010.

Return on equity before tax almost unchanged year-on-year

The return on equity before tax for the first nine months of 2011 remained almost unchanged year-on-year at 13.6 per cent (down 0.5 percentage points). Average equity underlying the return on equity calculation rose by 7 per cent as a result of the addition of retained earnings to € 10.1 billion.

General administrative expenses 6 per cent higher

General administrative expenses rose by 6 per cent or € 134 million compared with the same period in 2010 to € 2,287 million. As a result, the cost/income ratio increased by 2.6 percentage points to 55.8 per cent.

Staff expenses, which were the largest item in general administrative expenses, accounting for 50 per cent, rose by 8 per cent or € 84 million year-on-year.

The average number of staff amounted to 60,006, a rise of 963 persons compared with the first nine months of 2010.

Other administrative expenses rose by 4 per cent or € 31 million on the previous year's comparable period. The largest increases were in advertising, PR and promotional expenses (plus 18 per cent), deposit insurance fees (plus 16 per cent) and IT expenses (plus 13 per cent).
Total assets up 13 per cent boosted by liquidity

Total assets grew 13 per cent or € 17.2 billion to € 148.4 billion in the first nine months of the year, although currency effects reduced total assets by around 1 per cent. The growth in assets reflected higher short-term loans to banks, partly as a result of repo transactions, leading to an increase of € 6.8 billion in loans and advances to banks. On the liabilities side, the increase was due mainly to an increase in the volume of deposits from customers by € 11.3 billion, the majority of which (€ 9.4 billion) was attributable to institutional and corporate customers.

Balance sheet equity decreases by 1 per cent

Compared to year-end 2010, the bank’s balance sheet equity (consisting of the consolidated equity, consolidated net profit and non-controlling interests) fell by 1 per cent or € 56 million to € 10,348 million.

The tier 1 ratio (total risk) fell by 1.0 percentage points to 8.7 per cent, and the core tier 1 ratio by 1.0 percentage points to 7.9 per cent. The own funds ratio was also down, falling by 1.2 percentage points to 12.1 per cent.

Measures to reach the EBA's capital requirements

At the end of October, the European Banking Authority (EBA) stipulated a core tier 1 capital ratio of 9 per cent for the RZB Group, of which RBI is the largest sub-group. The RZB Group must already reach this target by 30 June 2012. According to the guidelines and methodology established by the European Banking Authority (EBA) and based on the RZB Group's figures as per 30 September 2011, the RZB Group expects its additional capital requirement to amount to approximately € 2.5 billion. The EBA has not yet published the exact figure. RZB, with the involvement of RBI, has established around 20 work streams -- in three main areas – that will contribute to reaching the target ratio by yielding between € 2.5 billion and € 3.6 billion. Around four-fifths of the measures for achieving the target ratio are not connected to the reduction of business activities.

Number of business outlets declines slightly

The number of business outlets as of 30 September 2011 was 2,933, a decrease of 31 compared to the prior-year period. The largest reductions were in Ukraine (minus 16), Serbia (minus 13), Russia (minus 10) and Poland (minus 9). By contrast, there were increases in the Czech Republic (plus 18) and Romania (plus 2). The customer base stood at around 13.7 million as per the end of the third quarter of 2011.

Consolidated profit in third quarter amounts to € 130 million

In the third quarter of 2011, RBI posted net interest income after provisioning of € 566 million, which represents a decline of 8.9 per cent compared to the same quarter a year earlier (Q3 2010: € 621 million) and of 19.2 per cent compared to the second quarter of 2011 (Q2 2011: € 700 million). The quarter's net provisioning for impairment losses increased markedly to € 377 million, of which € 258 million were attributable to Hungary alone. Net provisioning for impairment losses was thus € 71 million or 23.2 per cent higher than during the same quarter in 2010. The net provisioning for impairment losses in the third quarter of 2011 was also 91.4 per cent higher than it had been during the second quarter of 2011, when it had amounted to € 197 million.

The consolidated profit for the third quarter was impacted by the rise in net provisioning for impairment losses and, above all, the € 152 million loss in Hungary. Compared to the third quarter of 2010, the consolidated profit in the same period of 2011 was 58.2 per cent lower at € 130 million (Q3 2010: € 311 million).This also marks a decline of 62.3 per cent compared to the second quarter of 2011, for which RBI had posted a consolidated profit of € 345 million.

Slightly changed outlook

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

Due to current developments in the economic and political environment, it is not possible to accurately predict whether RBI has reached the peak as far as non-performing loans are concerned. However, forecasts of a further slowdown in the economy leads RBI to expect a slight increase in the net provisioning ratio, although it does not foresee a significant rise in non-performing loan volumes.

Goodwill values will be appraised as part of the annual medium-term planning process. An impairment of goodwill on the investment in the bank in Ukraine (current goodwill: € 215 million) cannot be ruled out in view of current economic developments at the present time. The result of the medium-term planning process could also have an impact on the valuation of deferred tax assets (tax loss carry-forwards recognized). Neither of these potential outcomes would affect our regulatory capital ratios.

In several countries (Bosnia and Herzegovina, Croatia, Czech Republic, Hungary, Kosovo, Romania, Serbia, Slovenia, Ukraine and Austria) cost-cutting measures were undertaken and already implemented in parts.

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