Regional News:
RZB: a successful first half-year
29.8.2012 12:00:00 | Author/Source Limun.hr
During the first half of 2012, the Raiffeisen Zentralbank Österreich AG (RZB) Group – composed of the parent institution of the Raiffeisen Banking Group and its investments, including sub-group Raiffeisen Bank International, the sector-specific institutions and UNIQA insurance – continued to perform well in a persistently difficult economic environment. In the period under review, profit before tax rose from € 877 million to € 931 million (+6.2 per cent), profit after tax increased from € 677 million to € 733 million (+8.3 per cent) and consolidated profit advanced from € 488 million to € 497 million (+1.8 per cent). Operating income amounted to € 2,665 million, representing a decline of 4.5 per cent. Compared to year-end 2011, the balance sheet total rose by 4.8 per cent to around € 157.2 billion. The Core Tier 1 ratio also increased, namely from 9.1 per cent to 10.6 per cent during the period under review.
By the end of the first half of 2012, RZB was required to reach a Core Tier 1 ratio of nine per cent which was abruptly introduced by the European Banking Authority (EBA) in the autumn of 2011. "During the first half-year, one of the challenges was to fulfil the new regulatory requirements in terms of the Core Tier 1 ratio. In doing so, RZB has consistently followed the goal of satisfying the EBA requirements without the help of the state or having to resort to the capital market," explained RZB CEO Walter Rothensteiner.
Rothensteiner went on to add, "With its home market of Austria and Central and Eastern Europe, RZB is active in a region which has good prospects. By focusing on traditional banking business and with the support of its owners, RZB is pursuing a fundamentally solid approach, as is reflected in the results for the first half of 2012."
Profit on the rise
Due to two one-off items, RZB’s results for the first half of 2012 were slightly higher than the figures for the same period of the previous year. A decline was reported in operating income, which fell by 4.5 per cent, as well as in valuation losses on derivatives and liabilities. By contrast, compared to the previous year, net provisioning for impairment losses remained unchanged, along with general administrative expenses, thanks to strict cost management. The drop in operating income was overcompensated by one-off effects amounting to a total of € 272 million. These consisted of sales of securities for a profit of € 159 million and the early redemption of RZB’s hybrid bonds (hybrid Tier 1 capital) for a pre-tax profit of € 113 million. Thanks to these one-off effects, profit after tax for the period increased by 8 per cent compared to the same period in 2011, reaching € 733 million.
Developments in net interest income undermine operating result
Compared to the same period of the previous year, RZB’s operating result dropped 10 per cent or € 127 million to € 1,110 million. For the most part, this decline was due to a fall in net interest income (down € 59 million), which suffered from the mild drop in the interest margin and low volumes.
Net provisioning for impairment losses unchanged
New allocations to provisions for impairment losses amounted to € 407 million, down 1 per cent on the same period of 2011. Due to certain individual cases in Austria, China and Poland, net allocations to individual loan loss provisions were up 15 per cent on the previous year, at € 504 million. With regard to portfolio based loan loss provisions, there was a net release of € 91 million (previous year: € 23 million).
Since the beginning of the year, the stock of non-performing loans has increased by € 1,235 million, with € 478 million of this stemming from the first-time consolidation of Polbank. Above and beyond this, increases were mainly registered for individual cases involving major customers. In Hungary, in addition to corporate loans, NPLs for retail loans increased as well. This resulted in the NPL ratio rising to 9.7 per cent, an increase of 1.1 percentage point since the end of the year. RZB’s total coverage ratio (provisions for impairment losses relative to non-performing loans without taking into account securities ) is at a solid level of 65.2 per cent, down 2.4 percentage points on the level from the previous year.
ROE before tax almost unchanged at 16 per cent
The 6 per cent increase in profit before tax was practically identical to the rise in average equity, which grew by 4 per cent in year-on-year terms to € 11.5 billion, thanks to the reinvestment of profits. As a result, return on equity remained almost unchanged. Return on equity before tax amounted to 16.2 per cent at the end of the first half-year, up 0.4 percentage point on the comparable figure for 2011.
Balance sheet total up 5 per cent
Since the beginning of 2012, RZB’s balance sheet total has increased by 5 per cent or € 7.1 billion to € 157.2 billion. Some € 1.3 billion of this increase stemmed from currency developments, whilst another € 6.0 billion resulted from the first-time consolidation of Polbank at the beginning of May 2012.
In terms of assets, there were only minor changes in RZB’s balance sheet structure. The bulk of assets is accounted for by receivables from customers, which – after provisions for impairment losses – comprised 52 per cent of the balance sheet total. An increase of 3 per cent to € 81.8 billion was registered for this item, specifically due to the addition of € 5.2 billion from Polbank. Sales of securities lowered the item Securities and participations by 9 per cent to € 15.6 billion. The volume of cash and cash equivalents remains high: cash reserves, which primarily consist of demand deposits at central banks, increased by 25 per cent to € 16.2 billion.
In terms of liabilities, the balance sheet was marked by higher deposits of customers (increase of 8 per cent or € 5.2 billion) and credit institutions (increase of 9 per cent or €3.4 billion). By contrast, the item Other liabilities evidenced by paper fell 13 per cent or € 1.8 billion, in particular due to the February 2012 redemption of the second of three government-guaranteed bonds issued in 2009 with a volume of € 1.25 billion.
Equity of € 12 billion
Compared to the beginning of the year, equity (including non-controlling interests) increased by 5 per cent or € 579 million to € 12,068 million. Numerous capital measures were carried out during the first half of the year in order to satisfy the EBA requirements. Participation capital in the amount of € 592 million was repaid. At the same time, a capital increase of € 833 million was carried out at RZB AG, and preference shares were transformed into ordinary shares. As a result, all of the paid-up capital items are eligible as Core Tier 1 capital, both pursuant to the Austrian legal regulations and the new rules of the EBA.
In terms of total risk, the Core Tier 1 ratio was thus 10.6 per cent, and the core capital ratio amounted to 11.1 per cent. The own funds ratio rose to 14.3 per cent from 12.8 per cent at end-2011.
EBA requirements achieved
In the autumn of 2011, the sovereign debt crisis prompted the EBA to introduce stricter equity capital ratios for around 70 systemically relevant banks in the EU, and a Core Tier 1 ratio of 9 per cent was defined as the target. This requirement had to be met by 30 June 2012. RZB significantly exceeded the required ratio well before the deadline.
As of end-September 2011, the EBA calculated a Core Tier 1 ratio of 7 per cent and a capital requirement of € 2.127 billion for the RZB credit institution group. This calculation took into account the retained earnings for the first three quarters of 2011, whereas the privately placed participation capital was not accepted as Core Tier 1 capital. Ultimately, RZB satisfied the required ratio using only its own resources, without resorting to state support or raising capital on the markets.
The measures implemented to this end included the transformation of the privately subscribed participation capital of RZB AG into ordinary shares recognised as capital by the EBA, adaptation of the methodology for calculating own funds to the international standards by shifting from Austrian accounting regulations to IFRS, transformation of Upper Tier 2 capital into Core Tier 1 capital, as well as the reduction of risk-weighted assets mainly by way of a "capital clean-up" and adjusting data and calling collateral.
By the end of the first half of 2012, RZB was required to reach a Core Tier 1 ratio of nine per cent which was abruptly introduced by the European Banking Authority (EBA) in the autumn of 2011. "During the first half-year, one of the challenges was to fulfil the new regulatory requirements in terms of the Core Tier 1 ratio. In doing so, RZB has consistently followed the goal of satisfying the EBA requirements without the help of the state or having to resort to the capital market," explained RZB CEO Walter Rothensteiner.
Rothensteiner went on to add, "With its home market of Austria and Central and Eastern Europe, RZB is active in a region which has good prospects. By focusing on traditional banking business and with the support of its owners, RZB is pursuing a fundamentally solid approach, as is reflected in the results for the first half of 2012."
Profit on the rise
Due to two one-off items, RZB’s results for the first half of 2012 were slightly higher than the figures for the same period of the previous year. A decline was reported in operating income, which fell by 4.5 per cent, as well as in valuation losses on derivatives and liabilities. By contrast, compared to the previous year, net provisioning for impairment losses remained unchanged, along with general administrative expenses, thanks to strict cost management. The drop in operating income was overcompensated by one-off effects amounting to a total of € 272 million. These consisted of sales of securities for a profit of € 159 million and the early redemption of RZB’s hybrid bonds (hybrid Tier 1 capital) for a pre-tax profit of € 113 million. Thanks to these one-off effects, profit after tax for the period increased by 8 per cent compared to the same period in 2011, reaching € 733 million.
Developments in net interest income undermine operating result
Compared to the same period of the previous year, RZB’s operating result dropped 10 per cent or € 127 million to € 1,110 million. For the most part, this decline was due to a fall in net interest income (down € 59 million), which suffered from the mild drop in the interest margin and low volumes.
Net provisioning for impairment losses unchanged
New allocations to provisions for impairment losses amounted to € 407 million, down 1 per cent on the same period of 2011. Due to certain individual cases in Austria, China and Poland, net allocations to individual loan loss provisions were up 15 per cent on the previous year, at € 504 million. With regard to portfolio based loan loss provisions, there was a net release of € 91 million (previous year: € 23 million).
Since the beginning of the year, the stock of non-performing loans has increased by € 1,235 million, with € 478 million of this stemming from the first-time consolidation of Polbank. Above and beyond this, increases were mainly registered for individual cases involving major customers. In Hungary, in addition to corporate loans, NPLs for retail loans increased as well. This resulted in the NPL ratio rising to 9.7 per cent, an increase of 1.1 percentage point since the end of the year. RZB’s total coverage ratio (provisions for impairment losses relative to non-performing loans without taking into account securities ) is at a solid level of 65.2 per cent, down 2.4 percentage points on the level from the previous year.
ROE before tax almost unchanged at 16 per cent
The 6 per cent increase in profit before tax was practically identical to the rise in average equity, which grew by 4 per cent in year-on-year terms to € 11.5 billion, thanks to the reinvestment of profits. As a result, return on equity remained almost unchanged. Return on equity before tax amounted to 16.2 per cent at the end of the first half-year, up 0.4 percentage point on the comparable figure for 2011.
Balance sheet total up 5 per cent
Since the beginning of 2012, RZB’s balance sheet total has increased by 5 per cent or € 7.1 billion to € 157.2 billion. Some € 1.3 billion of this increase stemmed from currency developments, whilst another € 6.0 billion resulted from the first-time consolidation of Polbank at the beginning of May 2012.
In terms of assets, there were only minor changes in RZB’s balance sheet structure. The bulk of assets is accounted for by receivables from customers, which – after provisions for impairment losses – comprised 52 per cent of the balance sheet total. An increase of 3 per cent to € 81.8 billion was registered for this item, specifically due to the addition of € 5.2 billion from Polbank. Sales of securities lowered the item Securities and participations by 9 per cent to € 15.6 billion. The volume of cash and cash equivalents remains high: cash reserves, which primarily consist of demand deposits at central banks, increased by 25 per cent to € 16.2 billion.
In terms of liabilities, the balance sheet was marked by higher deposits of customers (increase of 8 per cent or € 5.2 billion) and credit institutions (increase of 9 per cent or €3.4 billion). By contrast, the item Other liabilities evidenced by paper fell 13 per cent or € 1.8 billion, in particular due to the February 2012 redemption of the second of three government-guaranteed bonds issued in 2009 with a volume of € 1.25 billion.
Equity of € 12 billion
Compared to the beginning of the year, equity (including non-controlling interests) increased by 5 per cent or € 579 million to € 12,068 million. Numerous capital measures were carried out during the first half of the year in order to satisfy the EBA requirements. Participation capital in the amount of € 592 million was repaid. At the same time, a capital increase of € 833 million was carried out at RZB AG, and preference shares were transformed into ordinary shares. As a result, all of the paid-up capital items are eligible as Core Tier 1 capital, both pursuant to the Austrian legal regulations and the new rules of the EBA.
In terms of total risk, the Core Tier 1 ratio was thus 10.6 per cent, and the core capital ratio amounted to 11.1 per cent. The own funds ratio rose to 14.3 per cent from 12.8 per cent at end-2011.
EBA requirements achieved
In the autumn of 2011, the sovereign debt crisis prompted the EBA to introduce stricter equity capital ratios for around 70 systemically relevant banks in the EU, and a Core Tier 1 ratio of 9 per cent was defined as the target. This requirement had to be met by 30 June 2012. RZB significantly exceeded the required ratio well before the deadline.
As of end-September 2011, the EBA calculated a Core Tier 1 ratio of 7 per cent and a capital requirement of € 2.127 billion for the RZB credit institution group. This calculation took into account the retained earnings for the first three quarters of 2011, whereas the privately placed participation capital was not accepted as Core Tier 1 capital. Ultimately, RZB satisfied the required ratio using only its own resources, without resorting to state support or raising capital on the markets.
The measures implemented to this end included the transformation of the privately subscribed participation capital of RZB AG into ordinary shares recognised as capital by the EBA, adaptation of the methodology for calculating own funds to the international standards by shifting from Austrian accounting regulations to IFRS, transformation of Upper Tier 2 capital into Core Tier 1 capital, as well as the reduction of risk-weighted assets mainly by way of a "capital clean-up" and adjusting data and calling collateral.
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