Substantial group transformation program launched in early 2015 Exit from Poland and Slovenia as well as sale of direct banking unit ZUNO
Targets CET1 of 12% by year-end 2017 and a medium-term consolidated RoE of 11%
With reported aggregated assets of EUR 78.7 bn in CEE and a presence in 15 regional markets, Raiffeisen Bank International (RBI) ranks No. 4 in CEE. While RBI’s regional footprint remained unchanged over the past years, its man- agement revealed a revised strategy in February 2015. The clear group tar- get is to further raise capital buffers (target CET1 ratio, fully loaded, of 12% by year-end 2017 compared to 10% at year-end 2014). The measures to be imple- mented include the sale of the operations in Poland and Slovenia as well as its direct banking unit ZUNO. The rationale for exiting the Polish market was that a further participation in the ongoing market consolidation would require substan- tial additional capital resources, whereas a market exit is calculated in resulting in a EUR 7.7 bn RWA relief. The reason for the sale of the Slovenian operations is the limited strategic relevance of the market for RBI’s overall CEE network. As part of the drive to further increase the group’s focus on the CEE region, it is planned to significantly scale back or exit niche player operations in Asia and the US.
In addition, RBI’s management plans to rescale its operations in Russia and tar- gets an RWA reduction of 20% in EUR-terms based on a footprint optimization (e.g. exit of six regions in the far east of Russia) and focus on top-tier corporates, trade finance and affluent retail banking. A reduction in exposure is also fore- seen in Ukraine, where RWAs will be decreased by about 30% in EUR-terms by year-end 2017. In Hungary, a further optimization of the operation will be under- taken with focus on corporate and affluent retail banking. Overall, the targeted gross RWA reduction of about EUR 16 bn from 2015 to 2017 should give room for further growth in core CEE markets (EUR 7 bn business growth in RWA tar- geted for the next three years).
The aggregated lending volume of RBI’s CEE entities decreased by 4.2% due to LCY depreciation and more restrictive lending in Ukraine and Russia. It was partly offset by volume growth in Slovakia (retail and corporates) and Poland (corporates). The local funding improved evidenced by an aggregated L/D ratio in CEE of 107% in 2014 compared to 109% in 2013. In the majority of coun- tries, the asset quality (NPL ratio) improved in 2014 (especially in Bulgaria, the Czech Republic, Hungary, Poland and Romania), while Ukraine (NPL ratio: 46%) and to a much lower extent also Russian operations (NPL ratio: 5.9%) have seen a weakening in credit quality. Overall, RBI managed to increase the NPL cover- age in the CEE region by 810 bp to 71.5%.
Key business position indicators in CEE
2010 2011 2012 2013 2014
Total assets (EUR mn) 76,189 78,949 84,041 80,936 78,667
Number of countries in CEE 15 15 15 15 15
Market share in CEE (% of total assets) 3.8% 3.5% 3.4% 3.2% 3.3%
Number of branches in CEE 2,947 2,914 3,093 3,010 2,851
Source: company data, calculation by RBI/Raiffeisen RESEARCH 46 48 50 52 54 56 58 60 2012 2013 2014 Loans Deposits
Loans and deposits in CEE*
* EUR bn, aggregated data of CEE subsidiaries Source: company data
10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 2010 2011 2012 2013 2014 NPL Ratio (r.h.s.)
Annual provisioning/Gross loans Asset quality in CEE*
* aggregated data of CEE subsidiaries
Source: company data, calculation by RBI/Raiffeisen RESEARCH
RBI’s 2014 results (EUR 493 mn net loss on group level, EUR 221 mn net profit in CEE) have been character- ized by negative one-offs of about EUR 780 mn (EUR 306 mn goodwill impairments in Russia, Poland and Al- bania; EUR 251 mn impact from re- tail government measures in Hungary; EUR 196 mn deferred tax asset write- down and EUR 30 mn intangibles im- pairment in Ukraine). On a group level, the net interest margin slightly widened by 13 bp to 3.24% on re- pricing initiatives and higher margins in Russia, Ukraine and Belarus. Risk costs, however, jumped from 139 bp
in 2013 to 210 bp driven by higher provisioning in Ukraine, Asia and Russia. On contrast, CE/SEE markets saw lower risk costs.
For 2015 and H2 in particular, RBI’s management still expects net provisioning to remain elevated, but below the levels of 2014. The consolidated result might still be negative, as the majority of restructuring costs (around EUR 550 mn) are ex- pected to be booked in 2015. After the implementation of the above mentioned strategic measures, RBI’s cost base should be 20% below the level of 2014 (at constant FX rates) and the RoE is targeted at about 11% in the medium-term (14% pre-tax RoE).
Financial analysts: Text: Stefan Maxian, Raiffeisen Centrobank Data: Jovan Sikimic, Raiffeisen Centrobank
Market players in CEE
Key performance indicators CEE business (aggregated data of CEE subsidiaries, all indicators in EUR)
2010 2011 2012 2013 2014
Assets and loans
Asset growth (% yoy) 1.3% 3.6% 6.4% -3.7% -2.8%
Loans/total assets (%) 69% 69% 70% 70% 69%
Retail loans/total loans (%) 47% 45% 50% 52% 51%
Corporate loans/total loans (%) 52% 53% 48% 46% 47%
Credit risk
Growth customer loans (% yoy)* 4.7% 3.7% -2.2% -2.8% -4.2%
Gross non-performing loans (% of total loans) 10.8% 11.4% 12.0% 12.3% 11.9%
Loan loss reserves/non-performing loans (%) 55% 65% 65% 66% 71%
Annual provisioning/customer loans (%) 2.0% 1.8% 1.5% 1.6% 2.2%
Funding
Customer deposits/total assets (%) 59% 63% 64% 65% 65%
Customer loans/customer deposits (%) 118% 110% 108% 109% 107%
Deposit growth (% yoy) 5.2% 11.3% 8.7% -3.2% -2.3%
Profi tability and capitalization**
Cost/Income (%) 55% 56% 58% 57% 57%
NII/total assets (%) 3.9% 3.8% 3.7% 3.9% 3.9%
Return on Assets (pre-tax proportional, %) 1.08% 1.20% 1.23% 1.42% 0.52%
Profit before tax (EUR mn, proportional) 823 948 1,034 1,148 411
Total CAR ratio (%), at the group level 13.3% 13.5% 15.6% 15.9% 16.0%
Tier-1 ratio (%), at the group level 9.7% 9.9% 11.2% 11.2% 10.9%
Core Tier-1 ratio (%), at the group level 8.9% 9.0% 10.7% 10.7% 10.9%
* adjusted for M&A
** 2013; 2014 transitional acc. to Basel 2.5
Source: company data, calculation by RBI/Raiffeisen RESEARCH
Countries of signifi cant presence in CEE (% of total assets)
Banks’ market share (%) Overall market data
Market share foreign- owned banks (%) Market share Top 5 banks (%) 2009 2014 2009 2014 2014 Poland 2.3 2.3 62.9 59.5 49.0 Hungary* 7 6.7 69.2 60.8 50.0 Czech Republic 4.9 3.9 87.1 83.5 63.0 Slovakia 17.6 16.6 98.8 98.5 63.2 Romania 7.1 7.9 85.3 89.9 54.1 Bulgaria 11 7 83.5 76.3 54.3 Serbia 8.3 7.3 74.3 74.5 50.0 Bosnia a.H. 21.6 16.7 95.0 90.0 64.5 Russia** 1.4 1.1 8.6 7.6 56.4
* foreign-owned banks excl. OTP ** 100% of foreign-owned banks