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RIBH – a bank in Central Eastern Europe prepares for the worst

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RaiffeisenchartMar09                                         RIBH chart Mar. 10, 2009

Raiffeisen International (RIBH) is a bank holding company that does all its business in Central Eastern Europe (CEE). This region was particularly hard hit when the economic crisis stopped capital flows into CEE. The different national economies are still in the grip of a severe contraction, but the worst outcome seems to be averted at least for now.

Economists and financial experts thought financial institutions with strong exposure to CEE could suffer huge losses. If national economies were in danger of defaulting on their balance of payments accounts the only way out would be a steep currency devaluation.

This would drive foreign currency loans into default and financial institutions towards insolvency. Luckily this horror scenario has been avoided so far. Regional currencies have stabilized and the decline of CEE economies has slowed. Though the situation still bears significant risks.

Today Herbert Stepic, CEO of Raiffeisen International (RIBH), presented operative results of his company for the first half of 2009. RIBH about the size of a large regional bank in the US with a balance sheet of about €77 billion does all its business in CEE and therefore serves as litmus test for the credit performance of this part of Europe.

Stepic himself pointed out that the firm was resilient in light of economic headwinds and offered €78 million profit as proof. This was down about 86% from last year mostly on currency effects, a global recession and massive increases in loan loss provisions.

All regions, Central Europe, Southeastern Europe, and Russia reported lower net income and higher provisions. For the first time results were negative for GUS Others (Belarus, Kazakhstan, Ukraine). Provisions were particularly interesting because of continuing concerns about credit quality in CEE countries.

Certainly an increase of 380 percent in provisions for loan losses is nothing to be proud of, total allowance has now reached €2.5 billion, but RIBH seems to deal with the situation which is bad yet not out of control. The continuing involvement from international institutions like the IMF, EU, WB and EBRD has certainly helped to alleviate some of the worst fears for CEE and its major debtors.

RIBH financial highlights in 1H 2009 (vs. 1H08):

  • balance sheet €77.9 billion, down 9% on currency devaluation and lower lending activity
  • Deposits from customers down 4% to €42.3 billion, with corporate down 13% or €2.3 billion
  • ratio of customer loans to deposits up 4% to 127% (from Dec. 31, 2008)
  • shares of own funds (equity plus subordinate capital) at 10% of total assets
  • equity at €6.2 billion, down 5%
  • net trading income increased 29% to €119 million
  • income from investment and pension funds declined €9 million or 44%
  • risk weighted assets corporate €27.7, retail €17.3, total €54.7 billion
  • NPL at 6.8%
  • allowance for impairment losses 2.5 billion, up 52% from Dec 31, 2008
  • loan loss provisions increased to €969 million or 380% from €201 million
  • provisions corporate €386 (45), retail €579 (155), total €969 (201) million
  • total write downs €25.6 million (27.1)
  • loans and advances to banks, money market business €5.25 (4.34) billion
  • direct loans to banks €753 million (3.0 billion)
  • loans and advances to retail customers, credit €24.4 (27.8), money market €7.6 (8.0), mortgage loans €17.4 billion (17.2)
  • deposits with central banks particularly in CEE down 55% to €2.0 billion
  • total derivatives (credit and others) €589 million (€865 million, Dec 31, 2008)
  • derivatives at fair value €555 million (€843 million, Dec 31, 2008)
  • net income from derivatives (including hedge accounting) €19 million (€72 million, Dec 31, 2008)
  • liabilities in the form of derivatives (hedging) €42 million (€51 million, Dec 31, 2008)

RIBH1H09-2RIBH1H09-1

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