The FINANCIAL — In the first three quarters of 2015, Raiffeisen Bank International AG (RBI) generated a profit before tax of € 624 million, which represents a year-on-year increase of 24 per cent or € 122 million. While the operating result remained 15 per cent below the previous year’s level due to lower net interest income, 28 per cent lower net provisioning for impairment losses and lower one-off effects than in the previous year (e.g. expenses for The Settlement Act in Hungary) resulted in an improvement in profit before tax. Profit after tax rose 67 per cent year-on-year to € 432 million. Consolidated profit in the reporting period was € 378 million, which corresponds to an increase of 68 per cent or € 152 million.
The average number of shares outstanding in the reporting period was 292.4 million (previous year: 282.7 million). This resulted in earnings per share of € 1.29, according to Raiffeisen Bank International.
“The business development in the first nine months was better than expected despite significant negative one-off effects in the third quarter. The restructuring costs for this year will be lower than initially anticipated. We therefore revised our outlook and expect a small consolidated profit for the full year 2015. I am especially pleased with the good results posted in Central Europe, and our network bank in Russia achieved a strong result once again considering the difficult economic environment. In Ukraine, we recorded a stabilization during the past months. Despite these generally encouraging developments, we keep on working intensely on the implementation of our strategic program,” said RBI-CEO Karl Sevelda.
Net interest income decreased 14 per cent
Operating income declined 12 per cent year-on-year, or € 477 million, to € 3,660 million. This was primarily attributable to strong currency devaluations (mainly the Russian rouble and Ukrainian hryvnia).
In the first nine months of 2015, net interest income fell 14 per cent year-on-year, or € 399 million, to € 2,495 million. Net interest income, largely due to currency-related effects, fell € 133 million in Russia and € 81 million in Ukraine. Loan defaults in Asia reduced net interest income by € 49 million. In addition, net interest income declined € 49 million in Poland due to the continuing low market interest rates. At Group head office, net interest income declined € 45 million, primarily as a result of lower interest income from derivatives.
Net fee and commission income fell 3 per cent year-on-year, or € 40 million, to € 1,129 million and was largely currency related.
Compared to the same period last year, net trading income declined € 51 million to minus € 12 million.
General administrative expenses fell 9 per cent
Compared to the same period last year, general administrative expenses declined € 194 million to € 2,101 million. The cost/income ratio nevertheless increased 1.9 percentage points to 57.4 per cent, notably due to the reduced net interest income.
At 48 per cent, the largest component in general administrative expenses was staff expenses, which fell 12 per cent, or € 141 million, to € 1,008 million.
Net provisioning for impairment losses decrease 28 per cent
Compared to the same period last year, net provisioning for impairment losses fell 28 per cent in total, or € 300 million, to € 783 million. This was due to a € 243 million reduction in individual loan loss provisioning to € 811 million.
In the reporting period, the NPL ratio rose 0.8 percentage points to 12.1 per cent compared to year-end 2014. Loan loss provisions stood at € 5,926 million, resulting in a NPL coverage ratio of 66.6 per cent compared to 67.4 per cent at the year-end.
Common equity tier 1 ratio (fully loaded) of 10.8 per cent
As at 30 September 2015, total capital amounted to € 11,244 million, which represents an increase of € 241 million compared to the 2014 year-end figure.
Based on total risk, the common equity tier 1 ratio (transitional) was 11.4 per cent, while the total capital ratio (transitional) was 16.7 per cent (including half-year results, on account of the review that was carried out, but not third-quarter results).
Excluding the transitional provisions as defined within the Capital Requirements Regulation, the common equity tier 1 ratio (fully loaded) amounted to 10.8 per cent (including half-year results).
Comparison of results with the previous quarter
Compared to the second quarter of 2015, net interest income fell 6 per cent, or € 49 million, to € 813 million in the third quarter of 2015.
Net fee and commission income remained almost unchanged and fell just € 1 million to € 384 million compared to the second quarter of 2015.
Compared to the previous quarter, net trading income was down € 78 million to minus € 14 million.
At € 713 million in the third quarter of 2015, general administrative expenses were up 2 per cent, or € 16 million, from € 697 million in the previous quarter.
Compared to the previous quarter, net provisioning for impairment losses declined 43 per cent, or € 141 million, to € 191 million. This was primarily attributable to developments in corporate customer business at Group head office and in Russia.
Other results fell from minus € 18 million in the second quarter of 2015 to minus € 155 million in the third quarter of 2015, mainly driven by one-off effects from goodwill impairment of € 96 million in relation to the Group unit in Poland as well as provision for the CHF loan conversion in Croatia of € 75 million.
The consolidated profit for the third quarter was at € 90 million, which is a decrease by € 114 million or 55.9 per cent compared to the second quarter 2015.
Outlook
RBI is planning an aggregate gross risk-weighted asset (total RWA) reduction of € 16 billion in selected markets by the end of 2017 (based on total RWA as at 31 December 2014: € 68.7 billion). The bank intends to partly offset the reduction with growth in other business areas.
After the implementation of the new strategic measures, the cost base should be 20 per cent below the level of 2014 (at constant prices and foreign exchange rates; general administrative expenses 2014: € 3,024 million). RBI further aims to achieve a cost/income ratio of between 50 and 55 per cent in the medium term.
RBI aims for a return on equity before tax of approximately 14 per cent and a consolidated return on equity of approximately 11 per cent in the medium term.
RBI currently expects a small consolidated profit for 2015 as the majority of the restructuring costs will be incurred after 2015 (the bank assumes restructuring costs of around € 100 million for 2015).
The bank expects net provisioning for impairment losses to remain elevated in 2015; however, RBI anticipates that the requirement will be below the level of the previous year (2014: € 1,716 million).
RBI targets a CET1 ratio (fully loaded) of 12 per cent and a total capital ratio (fully loaded) of 16 per cent by the end of 2017.
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