Raiffeisen Bank International AG

Annual / Quarterly Financial Statement • Apr 8, 2011

RAIFFEISEN BANK INTERNATIONAL. ANNUAL FINANCIAL REPORT 2010.

Overview

Raiffeisen Bank International Group	Raiffeisen Bank International 2010	Change	Raiffeisen Bank International pro forma 2009	Raiffeisen International 2009	2008	2007
Monetary values in € million
Income statement
Net interest income	3,578	9.0%	3,282	2,937	3,232	2,419
Net provisioning for impairment losses	(1,194)	(46.5)%	(2,232)	(1,738)	(780)	(357)
Net fee and commission income	1,491	4.9%	1,421	1,223	1,496	1,250
Net trading income	328	(21.7)%	419	186	168	128
General administrative expenses	(2,980)	9.7%	(2,715)	(2,270)	(2,633)	(2,184)
Profit before tax	1,287	62.9%	790	368	1,429	1,238
Profit after tax	1,177	121.7%	531	287	1,078	973
Consolidated profit	1,087	141.5%	450	212	982	841
Statement of financial position
Loans and advances to banks	21,532	(44.2)%	38,582	10,310	9,038	11,053
Loans and advances to customers	75,657	4.3%	72,566	50,515	57,902	48,880
Deposits from banks	33,659	(31.4)%	49,099	20,110	26,213	19,927
Deposits from customers	57,633	4.0%	55,407	42,578	44,206	40,457
Equity	10,404	11.6%	9,326	7,000	6,518	6,622
Total assets	131,173	(9.9)%	145,638	76,275	85,397	72,743
Key ratios
Return on equity before tax	13.7%	4.2 PP	9.5%	5.7%	22.0%	25.7%
Return on equity after tax	12.5%	6.1 PP	6.4%	4.5%	16.6%	20.2%
Consolidated return on equity	13.0%	5.9 PP	7.1%	3.9%	17.4%	20.1%
Cost/income ratio	55.1%	2.6 PP	52.5%	52.5%	54.0%	57.6%
Return on assets before tax	0.90%	0.37 PP	0.53%	0.47%	1.77%	1.98%
Net provisioning ratio (average risk weighted assets, credit risk)	1.66%	(1.2) PP	2.89%	3.19%	1.32%	0.84%
Bank-specific information1
Risk-weighted assets (credit risk)	75,601	7.2%	70,555	50,090	60,388	49,802
Total own funds	12,608	4.9%	12,019	8,328	6,992	6,684
Total own funds requirement	7,585	6.3%	7,137	5,117	5,767	4,317
Excess cover ratio	66.2%	(2.2) PP	68.4%	62.8%	21.2%	54.8%
Core tier 1 ratio, total	8.9%	0.4 PP	8.5%	9.2%	7.4%	9.6%
Tier 1 ratio, credit risk	12.2%	0.4 PP	11.8%	14.1%	9.7%	11.4%
Tier 1 ratio, total	9.7%	0.3 PP	9.4%	11.0%	8.1%	10.5%
Own funds ratio	13.3%	(0.2) PP	13.5%	13.0%	9.7%	12.4%
Stock data
Earnings per share in €	4.56	3.27	1.29	0.99	6.39	5.80
Price in €	41.00	3.8%	39.50	39.50	19.30	103.60
High (closing prices) in €	42.75	(10.7)%	47.86	47.86	110.20	122.50
Low (closing prices) in €	29.01	123.1%	13.00	13.00	16.23	98.25
Number of shares in million	195.51	0.0%	195.51	154.67	154.67	154.67
Market capitalization in € million	8,016	3.8%	7,722	6,109	2,985	16,024
Dividend per share in € 2	1.05	425.0%	0.20	0.20	0.93	0.93
Resources
Number of employees as of reporting date	59,782	1.0%	59,211	56,530	63,376	58,365
Business outlets	2,961	(2.2)%	3,029	3,018	3,231	3,015

1 Calculated according to the Austrian Banking Act (Bankwesengesetz, BWG). Raiffeisen Bank International as part of the RZB-Group is not subject to the Austrian Banking Act.

2 Proposal to the Annual General Meeting.

Consolidated financial statements 3
Statement of comprehensive income 4
Profit development6
Statement of financial position7
Statement of changes in equity8
Statement of cash flows 9
Segment reporting11
Notes 17
Auditor's report 133
Group management report 135
Market development 135
Development of the banking sector 139
Performance and financials 140
Research and development 153
Internal control and risk management system in regard to the Group accounting process 154
Capital, share, voting and control rights 156
Funding 158
Risk management 159
Human resources 164
Outlook 167
Events after the balance sheet date 169
Annual financial statements 170
Balance sheet 170
Income statement 172
Off-balance sheet items 173
Notes 174
Management Report 199
Economic conditons 199
Development of the banking sector in Austria 203
Business of Raiffeisen Bank International AG 205
Financial performance indicators 211
Non-financial performance indicators 213
Risk management 217
Risks arising from financial instruments (Risk report) 220
Internal control and risk management system for accounting 234
Material events after the balance sheet date 236
Outlook 237
Auditor's Report 238

Consolidated financial statements

Statement of comprehensive income

Income statement

€000	Notes	2010	2009	Change
Interest income		6,364,799	5,588,567	13.9%
Current income from associates		200	2,931	(93.2)%
Interest expenses		(2,786,831)	(2,654,996)	5.0%
Net interest income	(2)	3,578,168	2,936,502	21.9%
Net provisioning for impairment losses	(3)	(1,194,084)	(1,737,882)	(31.3)%
Net interest income after provisioning		2,384,084	1,198,620	98.9%
Fee and commission income		1,753,233	1,441,415	21.6%
Fee and commission expense		(262,441)	(218,358)	20.2%
Net fee and commission income	(4)	1,490,792	1,223,057	21.9%
Net trading income	(5)	328,121	186,340	76.1%
Net income from derivatives and designated liabilities	(6)	(84,185)	8,205	–
Net income from financial investments	(7)	137,223	41,350	231.9%
General administrative expenses	(8)	(2,979,745)	(2,269,726)	31.3%
Other net operating income	(9)	6,297	(20,325)	–
Net income from disposal of group assets	(10)	4,734	76	>500.0%
Profit before tax		1,287,322	367,597	250.2%
Income taxes	(11)	(110,161)	(80,500)	36.8%
Profit after tax		1,177,161	287,097	310.0%
Profit attributable to non-controlling interests		(89,685)	(74,916)	19.7%
Consolidated profit		1,087,475	212,181	412.5%

In the reporting period, the principal business areas of RZB were transferred to Raiffeisen International Bank-Holding AG. The comparable figures for 2009 are the consolidated figures of Raiffeisen International Bank-Holding AG. Details to the merger are stated in the notes under consolidated group.

Transition to total comprehensive income

		Group equity		Non-controlling interests
€000	2010	2009	2010	2009
Consolidated profit	1,087,475	212,181	89,685	74,916
Exchange differences	180,388	(248,871)	8,506	(5,018)
Capital hedge	(11,332)	(12,573)	0	0
Cash flow hedge	38,578	12,588	0	0
Fair value reserve (available-for-sale financial assets)	10,140	8,716	0	0
Deferred taxes on income and expenses directly recognized in equity	(7,680)	(5,001)	0	0
Other comprehensive income	210,094	(245,141)	8,506	(5,018)
Total comprehensive income	1,297,569	(32,960)	98,191	69,898

Other comprehensive income

Capital hedge comprises hedges for investments in economically independent sub-units.

The item fair value reserve (available-for-sale financial assets) contains net valuations of financial investments.

Retained earnings

Items recognized directly in retained earnings developed as follows:

€000	Exchange differences	Capital hedge	Cash flow hedge	Fair value reserve (afs financial assets)
As of 1/1/2009	(1,079,748)	90,998	(50,712)	19,537
Net changes in financial period	(248,871)	(12,574)	12,588	8,716
As of 31/12/2009	(1,328,619)	78,425	(38,124)	28,253
Effects due to the merger	(8,113)	(25,722)	45,440	9,752
As of 1/1/2010	(1,336,732)	52,703	7,316	38,006
Net changes in financial period	180,388	(11,332)	38,578	10,140
As of 31/12/2010	(1,156,344)	41,371	45,894	48,146

Earnings per share

In €	Notes	2010	2009	Change
Earnings per share	(12)	4.56	0.99	3.57

Earnings per share are obtained by dividing adjusted consolidated profit (less dividend for participation capital in the reporting period and participation rights in the previous year) by the average number of common shares outstanding.

There were no conversion rights or options outstanding, so undiluted earnings per share are equal to diluted earnings per share. As of 31 December 2010, the number of common shares outstanding was 194,530 thousand compared with 153,674 thousand as of 31 December 2009.

Profit development

Quarterly results

The quarterly results 2010 represent the pro forma results of RBI:

€000	Q1/2010	Q2/2010	Q3/2010	Q4/2010
Net interest income	858,629	921,476	927,182	870,881
Net provisioning for impairment losses	(324,942)	(282,697)	(305,746)	(280,700)
Net interest income after provisioning	533,687	638,779	621,436	590,181
Net fee and commission income	336,882	378,111	373,272	402,527
Net trading income	126,157	66,198	65,814	69,951
Net income from derivatives and designated
liabilities	(45,209)	(86,338)	4,596	42,766
Net income from financial investments	140,521	(87,853)	83,542	1,013
General administrative expenses	(699,961)	(724,872)	(727,773)	(827,139)
Other net operating income	(4,591)	2,986	(2,942)	10,846
Net income from disposal of group assets	4,659	211	(155)	19
Profit before tax	392,145	187,221	417,791	290,165
Income taxes	(33,202)	(30,584)	(80,422)	34,048
Profit after tax	358,943	156,637	337,369	324,213
Profit attributable to non-controlling interests	(25,238)	(18,157)	(26,368)	(19,923)
Consolidated profit	333,705	138,480	311,001	304,290

€000	Q1/2009	Q2/2009	Q3/2009	Q4/2009
Net interest income	767,118	728,609	728,713	712,062
Net provisioning for impairment losses	(445,179)	(523,363)	(396,461)	(372,879)
Net interest income after provisioning	321,939	205,245	332,252	339,183
Net fee and commission income	293,738	291,035	321,597	316,687
Net trading income	45,606	73,279	27,770	39,685
Net income from derivatives and designated liabilities	(4,911)	23,877	(13,480)	2,720
Net income from financial investments	(2,913)	34,226	12,247	(2,210)
General administrative expenses	(573,637)	(569,471)	(534,832)	(591,787)
Other net operating income	3,688	11,949	(12,618)	(23,343)
Net income from disposal of group assets	73	1	2	1
Profit before tax	83,583	70,141	132,938	80,936
Income taxes	(19,870)	(14,815)	(36,304)	(9,510)
Profit after tax	63,713	55,325	96,634	71,426
Profit attributable to non-controlling interests	(7,539)	(33,478)	(19,038)	(14,862)
Consolidated profit	56,174	21,848	77,596	56,564

Statement of financial position

Assets €000	Notes	31/12/2010	31/12/2009	Change
Cash reserve	(14,35)	4,806,891	4,179,572	15.0%
Loans and advances to banks	(15,35,36)	21,532,406	10,310,101	108.8%
Loans and advances to customers	(16,35,36)	75,657,061	50,514,971	49.8%
Impairment losses on loans and advances	(17)	(4,755,872)	(3,084,023)	54.2%
Trading assets	(18,35,36)	8,068,393	3,709,452	117.5%
Derivatives	(19,35,36)	1,488,036	332,882	347.0%
Financial investments	(20,35,36)	19,630,902	7,270,547	170.0%
Investments in associates	(21,35,36)	4,961	5,437	(8.8)%
Intangible fixed assets	(22,24,35)	1,219,816	971,881	25.5%
Tangible fixed assets	(23,24,35)	1,453,630	1,244,233	16.8%
Other assets	(25,35,36)	2,066,890	820,276	152.0%
Total assets		131,173,114	76,275,329	72.0%
Equity and liabilities	Notes	31/12/2010	31/12/2009	Change
€000
Deposits from banks	(26,35,36)	33,659,182	20,110,170	67.4%
Deposits from customers	(27,35,36)	57,633,113	42,578,249	35.4%
Debt securities issued	(28,35,36)	16,555,382	2,526,651	>500.0%
Provisions for liabilities and charges	(29,35,36)	671,908	311,531	115.7%
Trading liabilities	(30,35,36)	5,741,591	514,199	>500.0%
Derivatives	(31,35,36)	1,263,528	259,433	387.0%
Other liabilities	(32,35,36)	1,243,387	504,629	146.4%
Subordinated capital	(33,35,36)	4,001,098	2,470,285	62.0%
Equity	(34,35)	10,403,925	7,000,182	48.6%
Consolidated equity		8,250,760	5,790,463	42.5%
Consolidated profit		1,087,475	212,181	412.5%
Non-controlling interests		1,065,690	997,538	6.8%
Total equity and liabilities		131,173,114	76,275,329	72.0%

In the reporting period, the principal business areas of RZB were transferred to Raiffeisen International Bank-Holding AG. The comparable figures for 2009 are the consolidated figures of Raiffeisen International Bank-Holding AG. Details to the merger are stated in the notes under consolidated group.

Statement of changes in equity

€000	Subscribed capital	Participation capital/ Participation rights	Capital reserves	Retained earnings	Consolidated profit	Non controlling interests	Total
Equity as of 1/1/2009	468,597	0	2,568,003	1,576,594	981,986	923,026	6,518,206
Capital increases	0	600,000	0	0	0	26,563	626,563
Transferred to retained earnings	0	0	0	839,059	(839,059)	0	0
Dividend payments	0	0	0	0	(142,927)	(57,297)	(200,224)
Total comprehensive income	0	0	0	(245,141)	212,181	69,898	36,938
Own shares/share incentive program	136	0	1,129	0	0	0	1,265
Other changes	0	0	0	(17,914)	0	35,349	17,435
Equity as of 31/12/2009	468,733	600,000	2,569,132	2,152,598	212,181	997,538	7,000,182
Effects due to the merger	124,555	1,900,000	(1,951)	299,757	0	2,898	2,325,259
Equity as of 1/1/2010	593,288	2,500,000	2,567,181	2,452,355	212,181	1,000,436	9,325,441
Capital increases	0	0	0	0	0	3,013	3,013
Transferred to retained earnings	0	0	0	182,044	(182,044)	0	0
Dividend payments	0	0	0	(304,700)	(30,136)	(49,305)	(384,141)
Total comprehensive income	0	0	0	210,094	1,087,475	98,191	1,395,760
Own shares/share incentive program	35	0	693	0	0	0	729
Other changes	0	0	0	49,769	0	13,355	63,124
Equity as of 31/12/2010	593,323	2,500,000	2,567,874	2,589,562	1,087,475		1,065,690 10,403,925

Further details about the above mentioned changes are reported under note (34) equity.

The effects due to the merger amounted to € 2,325,259 thousand and consist of the participation capital amounting to € 2,500,000 thousand and retained earnings of € 299,757 thousand, which were transferred and a capital increase of € 124,555 thousand against a contribution in kind. In the course of the merger, receivables and liabilities of the dispensing and the absorbing company were offset. This was also the case for the participation rights of € 600,000 thousand, which were fully held by RZB AG.

Statement of cash flows

€000	2010	2009
Profit after tax	1,177,161	287,097
Non-cash positions in profit and transition to net cash from operating activities:
Write-downs/write-ups of tangible fixed assets and financial investments	341,948	251,825
Net provisioning for liabilities and charges and impairment losses	1,503,170	1,664,212
Gains (losses) from disposals of tangible fixed assets and financial investments	(11,505)	(5,462)
Other adjustments (net)	132,854	(679,989)
Subtotal	3,143,628	1,517,683
Changes in assets and liabilities arising from operating activities after corrections for non-cash positions:
Loans and advances to banks and customers	13,332,712	6,329,441
Trading assets/trading liabilities (net)	1,829,844	(923,989)
Other assets/other liabilities (net)	(1,894,152)	(958,613)
Deposits from banks and customers	(13,256,519)	(7,762,430)
Debt securities issued	(3,366,047)	(808,404)
Net cash from operating activities	(210,534)	(2,606,312)
Proceeds from sale of:
Financial investments	4,253,340	1,829,907
Tangible and intangible fixed assets	70,471	89,156
Proceeds from disposal of group assets	0	0
Payments for purchase of:
Financial investments	(4,147,648)	(2,885,558)
Tangible and intangible fixed assets	(618,706)	(417,361)
Payments for acquisition of subsidiaries	0	0
Net cash from investing activities	(442,543)	(1,383,856)
Capital increases	3,013	626,563
Inflows/outflows of subordinated capital	(312,759)	785,828
Dividend payments	(384,141)	(200,224)
Net cash from financing activities	(693,887)	1,212,167

€000	2010	2009
Cash and cash equivalents at the end of previous period	4,179,572	7,129,860
Effects due to the merger	1,913,574	0
Net cash from operating activities	(210,534)	(2,596,165)
Net cash from investing activities	(442,543)	(1,394,003)
Net cash from financing activities	(693,887)	1,212,167
Effect of exchange rate changes	60,709	(172,287)
Cash and cash equivalents at the end of period	4,806,891	4,179,572

Payments for taxes, interest and dividends	2010	2009
Interest received	6,486,758	5,865,966
Dividends received	1,172	78
Interest paid	(2,496,266)	(3,016,167)
Income taxes paid	(118,789)	(60,184)

In the reporting period, the principal business areas of RZB were transferred during the merger to Raiffeisen International Bank-Holding AG. The comparable figures for 2009 are the consolidated figures of Raiffeisen International Bank-Holding AG.

The statement of cash flows shows the structure and changes in cash and cash equivalents during the financial year and is broken down into three sections: net cash from operating activities, from investing activities and from financing activities. It was applied retrospectively by analogy with the comments in connection with the merger.

Net cash from operating activities comprises inflows and outflows from loans and advances to banks and customers, from deposits from banks and customers as well as debt securities issued. Further, inflows and outflows from trading assets and liabilities, from derivatives, as well as from other assets and other liabilities are shown in operating activities. The interest, dividend and tax payments from operating activities are separately stated.

Net cash from investing activities shows inflows and outflows from financial investments, tangible and intangible assets, proceeds from disposal of group assets, and payments for acquisition of subsidiaries.

Net cash from financing activities consists of inflows and outflows of equity and subordinated capital. This covers capital increases, dividend payments, and changes in subordinated capital.

Cash and cash equivalents include the cash reserve recognized in the statement of financial position, which consists of cash in hand and balances at central banks due at call. It does not include loans and advances to banks that are due at call, which belong to operating activities.

Segment reporting

Division of the segments

Internal management reporting at RBI is based on the current organizational structure. This is formed in a matrix structure i.e. directors are responsible both for individual countries and specific business activities ("country and functional responsibility" model). Within the Group, a cash generating unit is either a country or a business activity. The RBI management bodies – the Management Board and Supervisory Board – take decisions that determine the resources allocated to each segment in accordance with its financial strength and profitability. Consequently the reporting criteria are an essential component in the decisionmaking process. The segments are also defined in accordance with IFRS 8.

In the CEE area (in which the RBI follows the universal bank approach), segments are formed in accordance with geographic regions which are allocated to Group units according to the location of their head office. Countries that are expected to achieve comparable long-term economic performance and that have similar business structures are grouped together in regional segments. Outside the CEE area, RBI follows a relationship approach in which the segments are classed according to business fields. The segments therefore correspond to the Group organizational structure and are reflected in the internal management reports and in the management approach required under IFRS 8.

In order to achieve maximum transparency and to comply with the IFRS 8 thresholds, seven segments have been defined. This ensures clear reporting. In each case, the quantitative threshold, as specified by IFRS 8, is 10 per cent of reported revenues, profit after tax and segment assets.

The segmentation is based on the Group structure as at 31 December 2010. The Group comprises the following segments:

Central Europe

This segment is made up of five countries in Central Europe: Czech Republic, Hungary, Poland, Slovakia and Slovenia. These constitute the most mature banking markets in the CEE region. They are also the markets in which RBI has been operating longest. Within the segment, the strategic focus is on developing and consolidating market leader positions whilst also ensuring long-term profitability. In terms of products, service and marketing, this represents an opportunity to offer exciting solutions with attractive margins. In Poland, Raiffeisen Bank Polska S.A. provides services to corporate customers, SMEs and a growing number of affluent retail customers. Tatra Banka a.s. in Slovakia is primarily involved in corporate and retail activities, but also has a strong emphasis on looking after affluent retail customers. In Slovenia, the Group is represented by Raiffeisen Banka d.d.. This bank especially concentrates on business with local corporate customers. The Czech Raiffeisenbank a.s. provides traditional banking services together with building society and insurance products in its local market. Raiffeisen Bank Zrt. has an extensive branch network in Hungary which serves retail customers, SMEs and a large number of corporate customers. RBI is also represented by the online ZUNO Bank in Slovakia. Separate leasing companies also operate in each country.

Southeastern Europe

The S.E. Europe segment comprises Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Moldova, Romania and Serbia. The Albanian Raiffeisen Bank Sh.a. provides financial services across all business activities. Its product range is complemented by Raiffeisen Leasing Sh.a. and a private pension fund. Raiffeisen Bank Kosovo J.S.C. and Raiffeisen Leasing Kosovo represent RBI in Kosovo and offer a comprehensive product range. In Bosnia and Herzegovina, Raiffeisen Bank d.d. Bosnia Herzegovina and Raiffeisen Leasing d.o.o. Sarajevo focus on SMEs but also have a broad range of products for retail customers. In Bulgaria, the Group is represented by Raiffeisen (Bulgaria) EAD, Raiffeisen Leasing Bulgaria OOD and asset management companies. The Croatian Raiffeisen Austria d.d. specializes in large and medium-sized corporate customers and also has a substantial retail business. RBI also operates Raiffeisen Leasing d.o.o., capital management companies and an asset management company in Croatia. Raiffeisen Bank S.A. has an extensive branch network in Romania offering top-notch financial services. The Romanian operation also provides a tailored selection of products for corporate customers in Moldova. Moldova is included under Romania in view of its economic ties to Romania and the way it is therefore managed within the Group. RBI has a presence in the Serbian market in the form of Raiffeisen banka a.d., Raiffeisen Leasing d.o.o., two pension funds and an asset management company.

Russia

ZAO Raiffeisen is one of the leading foreign banks in Russia; the bank specializes in corporate and retail customers. The national branch network also offers products tailored for affluent retail customers. The product range in Russia is rounded off by OOO Raiffeisen Leasing.

CIS other

This comprises Belarus, Kazakhstan and the Ukraine. The Group is represented by Priorbank JSC and SOOO Raiffeisen Leasing in Belarus. In Kazakhstan, RBI is represented by Raiffeisen Leasing Kazakhstan LLP and in the Ukraine, Raiffeisen Bank Aval JSC, LLC Raiffeisen Leasing Aval and a capital management company provide a full range of financial services and products via an extensive branch network. Within the Ukrainian Group, the Ukrainian Processing Center PJSC processes the bulk of the card business.

Group corporates

The Group Corporates segment covers Austrian and international (mainly Western European) customers managed by RBI AG in Vienna within the Corporate Customers profit center. These customers include Austria's top 1,000 companies, most of whom have an excellent credit rating. RBI uses the relationship banking model. The segment also comprises the income generated by large corporate business with Central and Eastern European multinationals which is concentrated in the Network Corporate Customers & Support profit center. The Corporate Customers and Network Corporate Customers & Support profit centers also include net income from structured trade financing for commodities dealers, documentary business, project financing and a range of cofinancing solutions with supranational banks. Corporate customer business at the China, Malaysia and Singapore branches is also allocated to this segment, as are operations involving international customers of the Maltese subsidiary, RB International Finance (USA) and RB International Finance (Hong Kong), all of which provide a selection of products for niche market customers.

Group markets

The Group markets segment covers capital market customers and proprietary trading.. The results show income from currency and securities trading, interest-based transactions and structured products for financial institutions, as well as income from proprietary trading.

Proprietary trading and market maker activities are itemized under the Capital Markets and Credit Investments (non–core strategic proprietary trading in securities) profit centers plus the relevant profit centers in the Singapore, China and London branches. Net income from transactions for customers is posted against Financial Institutions & Sovereigns and Raiffeisen Financial Institutions Clients (operations involving Raiffeisen Landesbanks and related financial services providers) profit centers. The profit centers post net income from sales of all banking products and business relationships with banks, institutional customers, governments and local authorities. Raiffeisen Centrobank AG, where securities trading and capital market financing constitute the core business, is also part of this segment. The Mergers & Acquisitions division, which operates via locations in a number of different countries, is also represented in this segment by the subsidiaries of Raiffeisen Investment AG. The segment also includes private banking, reporting net income from Kathrein & Co. Privatgeschäftsbank, which advises on investing private and foundation assets, as well as on inheritance issues.

Corporate center

The Corporate center segment encompasses all the services provided by Group headquarters for various parts of the Group to realize the Group's overall strategy and which are allocated to this segment to ensure comparability. Liquidity management and balance sheet structure management linked to proprietary trading are again included under this segment and posted against the Treasury profit center. Net income from the equity investment portfolio is also recorded against the segment. In addition, the Corporate center segment report covers net income from banking operations carried out by Group headquarters and the Maltese subsidiary in relation to refinancing for Group units. Net income from the Special Customers profit center – customers for whom members of the Management Board are directly responsible – is also posted under this segment, as is income from the Austrian transaction services business operated by Raiffeisen Data Service Center, which offers a wide selection of order processing products and services for financial services providers. The net income of special and holding companies and other companies not directly allocated to a segment is also shown here. Interest costs linked to refinancing using hybrid equity instruments also appear against this segment.

Assessment of segment profit and loss

The segment reporting according to IFRS 8 shows the segment performance on the basis of internal management reporting, supplemented with the reconciliation of the segment results to the group results. In principle, RBI´s management reporting is based on IFRS. Therefore, no differences occur in the recognition and measurement principles between segment reporting and consolidated financial accounts.

The control of the separate segments is based on key indicators, which are assembled of several parameters like profitability, growth, efficency, constraints and the business mix. The target values of the separate key indicators are determined according to the specific market environment and adapted on demand.

The performance of the CGUs is evaluated as follows:

(1)Profitability

The profitability is measured by the return on eyuity (ROE) and return on risk-adjusted capital (RORAC) based on the internal management systems. The return on equity shows the profitability of a CGU and is calculated as the proportion between profit/loss after deduction of non-controlling interests and the average consolidated capital employed. The return on equity reflects the yield of the capital of each segment. The calculation of the RORAC indicates the risk adjusted capital, which reflects the demand of own funds and which has to be brought forward in case of unexpected losses by the bank. In RBI this capital requirement is calculated within the economic capital model for credit, market and operational risk. That ratio shows the interest of the risk-adjusted equity (economic capital), which is no indicator according to IFRS. Within the different countries and business lines the real earned RORAC will be compared with the predetermined minimal value for the RORAC (Hurdle), which reflects the market adequate yield expectations.

(2)Growth

Growth is a very important indicator. Within the risk management certain limits are set for each segment. For this measurement growth rates for the profit after non-controlling interests and total revenues are considered. The diversification of the result is very crucial for the quality and the accordance with the strategic targets.

(3)Efficiency

The cost/income ratio represents the cost efficiency of the segment. The cost/income ratio shows the proportion of the administrative expenses and the operating income, meaning the sum of net interest income, net fee and commission income, net trading income and the other net operating income.

(4)Constraints

In accordance with Basel II framework, specific determining factors have to be considered. The proportion of core tier 1 capital to risk-weighted assets (core tier 1 ratio) is an important indicator if the capital underlying for the business volume is adequate. The industry sector specifics are tending to different risk weights within the calculation of risk-weighted assets according to the Austrian Banking Act (based on Basel II). These factors are crucial for the calculation of the regulatory minimum own funds requirements. Moreover the efficient use of the available capital is calculated internally, whereas the actual usage is brought in proportion to the theoretical available risk coverage capital. The long term liquidity ratios are additionally restrictive and they are defined in accordance with the regulatory guidelines. The performance is also measured with the risk/earning ratio.

(5)Business Mix

The following key performance indicators are relevant for a reasonable and effective business structure, whereas the composition of the results and the indicators are significant. The structure of the prime funding basis for loans and advances to customers are measured using the loan/deposit ratio (proportion of loans and advances to customer to deposits from customers). The share of the result derived from the core business is relevant as well. The proportion of the net fee and commission income to the operating income is also a key performance indicator, which is included in the target setting for the business mix.

The presentation of segment performance is based on the income statement. Income and expenses are attributed to the country in which they are generated. Operating income positions are the net interest income, net fee and commission income, net trading income and the other net operating income. The other results include the net income from financial investments, the net income from derivatives (hedging) and designated liabilities and the net income from disposal of group assets. The segment result is shown till the profit/loss after deduction of non-controlling interests. The segment assets are represented by the total assets and the risk-weighted assets. The item liabilities includes all positions of the liabilities side expect the equity. The reconciliation implies mainly the amounts resulting from the elimination of intra-group results and consolidation between the segments. Finally, financial ratios – usual in the line of business – are added to evaluate the results. The values shown in the segment reporting are also used for the compilation of the consolidated financial statements and are retrieved from the IFRS individual financial statements. In some units profit centre results are taken from the interim management income statement. Differences between local published figures are possible.

Financial year 2010	Central	Southeastern	Russia	CIS other	Group
€000	europe	europe			corporates
Net interest income	1,111,026	897,698	507,164	423,575	370,949
Net fee and commission income	473,413	387,627	214,076	183,272	155,350
Net trading income	41,862	56,228	74,381	23,158	18,934
Other net operating income	(57,777)	37,245	(28,390)	(7,875)	2,009
Operating income	1,568,524	1,378,798	767,231	622,131	547,240
General administrative expenses	(883,347)	(737,901)	(414,943)	(346,301)	(141,772)
Operating result	685,178	640,898	352,287	275,830	405,468
Net provisioning for impairment losses	(408,211)	(335,319)	(76,929)	(213,575)	(129,055)
Other results	(7,824)	(885)	(8,405)	26,903	18,872
Profit/loss before tax	269,143	304,694	266,954	89,157	295,285
Income taxes	(65,305)	(39,157)	(53,215)	(7,169)	(65,431)
Profit/loss after tax	203,838	265,536	213,739	81,988	229,855
Profit attributable to non-controlling interests	(54,393)	(17,212)	(234)	(8,443)	(7)
Consolidated profit/loss	149,445	248,324	213,505	73,545	229,848
Share of profit before tax	17.0%	19.2%	16.9%	5.6%	18.6%
Risk-weighted assets (credit risk)	22,885,702	16,698,004	8,692,338	5,671,068	15,644,778
Total own funds requirement	2,099,495	1,562,652	890,931	558,895	1,301,410
Assets	33,928,326	22,696,524	12,177,759	7,130,917	23,477,902
Liabilities	31,087,480	19,850,740	10,276,908	6,114,129	16,148,276
Net interest margin	3.29%	3.90%	4.14%	6.19%	1.63%
NPL ratio	9.1%	9.0%	8.8%	26.9%	4.3%
Coverage ratio	53.3%	68.2%	94.3%	69.6%	65.2%
Cost/income ratio	56.3%	53.5%	54.1%	55.7%	25.9%
Net provisioning ratio (average risk-weighted assets, credit risk)	1.86%	2.07%	0.96%	4.00%	0.86%
Average equity	2,583,387	1,941,597	1,079,227	664,146	1,593,673
Return on equity before tax	10.4%	15.7%	24.7%	13.4%	18.5%
Business outlets	555	1,167	198	1,028	8

Financial year 2010	Group	Corporate	Reconciliation	Total
€000	markets	center
Net interest income	284,250	290,873	(307,367)	3,578,168
Net fee and commission income	106,806	(17,376)	(12,376)	1,490,792
Net trading income	93,165	20,231	162	328,121
Other net operating income	29,513	132,772	(101,199)	6,297
Operating income	513,734	426,499	(420,778)	5,403,379
General administrative expenses	(240,704)	(306,826)	92,049	(2,979,745)
Operating result	273,031	119,673	(328,731)	2,423,634
Net provisioning for impairment losses	(30,995)	0	0	(1,194,084)
Other results	7,106	(10,601)	32,606	57,772
Profit/loss before tax	249,141	109,073	(296,125)	1,287,322
Income taxes	(62,039)	183,051	(896)	(110,161)
Profit/loss after tax	187,103	292,123	(297,021)	1,177,161
Profit attributable to non-controlling
interests	(795)	(29)	(8,572)	(89,685)
Consolidated profit/loss	186,308	292,095	(305,595)	1,087,475
Share of profit before tax	15.7%	6.9%	–	100.0%
Risk-weighted assets (credit risk)	5,273,302	16,128,878	(15,392,757)	75,601,313
Total own funds requirement	1,086,617	1,366,356	(1,281,505)	7,584,851
Assets	27,217,880	32,878,590	(28,334,784)	131,173,114
Liabilities	26,647,480	40,820,712	(30,176,536)	120,769,189
Net interest margin	0.70%	0.79%	0.00%	2.51%
NPL ratio	5.7%	0.0%	0.0%	9.0%
Coverage ratio	88.9%	0.0%	0.0%	66.3%
Cost/income ratio	46.9%	71.9%	–	55.1%
Net provisioning ratio (average
risk-weighted assets, credit risk)	0.44%	0.00%	–	1.66%
Average equity	1,613,915	2,043,176	(2,119,140)	9,399,981
Return on equity before tax	15.4%	5.3%	–	13.7%
Business outlets	4	1	0	2,961

Financial year 2009	Central	Southeastern	Russia	CIS Other	Reconciliation	Total
€000	europe	europe
Net interest income	985,112	895,635	650,380	488,384	(83,009)	2,936,502
Net fee and commission
income	435,236	398,043	206,533	175,332	7,913	1,223,057
Net trading income	89,252	88,338	(13,302)	17,071	4,981	186,340
Other net operating income	(21,654)	24,165	(18,787)	(2,878)	(1,171)	(20,325)
Operating income	1,487,946	1,406,181	824,824	677,909	(71,286)	4,325,574
General administrative expenses	(801,886)	(740,632)	(364,639)	(294,099)	(68,470)	(2,269,726)
Operating result	686,060	665,549	460,185	383,810	(139,756)	2,055,848
Net provisioning for impairment losses	(487,341)	(413,957)	(322,149)	(514,435)	–	(1,737,882)
Other results	35,777	8,643	14,718	4,940	(14,447)	49,631
Profit/loss before tax	234,496	260,235	152,755	(125,685)	(154,204)	367,597
Income taxes	(51,049)	(34,536)	(28,470)	21,362	12,193	(80,500)
Profit/loss after tax	183,447	225,699	124,284	(104,323)	(142,010)	287,097
Profit attributable to non controlling interests	(56,932)	(16,326)	(253)	921	(2,326)	(74,916)
Consolidated profit/loss	126,515	209,372	124,031	(103,403)	(144,334)	212,181
Share of profit before tax	44.9%	49.9%	29.3%	(24.1)%	–	100.0%
Risk-weighted assets (credit risk)	21,493,238	16,437,435	7,298,249	5,068,419	(207,741)	50,089,600
Total own funds requirement	1,979,122	1,528,839	758,436	485,856	364,563	5,116,816
Assets	33,653,791	23,573,422	11,680,853	6,280,802	1,086,460	76,275,329
Liabilities	31,021,088	20,807,837	10,062,582	5,387,295	1,996,345	69,275,147
Cost/income ratio	53.9%	52.7%	44.2%	43.4%	–	52.5%
Average equity	2,586,596	2,038,429	1,046,056	741,720	(18,856)	6,393,946
Return on equity before tax	9.1%	12.8%	14.6%	–	–	5.7%
Business outlets	549	1,204	215	1,050	–	3,018

Notes

Reporting entity

Raiffeisen Bank International AG (RBI AG) is registered at the Vienna Commercial Court (Handelsgericht Wien) under Companies Register number FN 122.119m. The company is domiciled at Am Stadtpark 9, 1030 Vienna. The consolidated financial statements are lodged in the Companies Register in accordance with Austrian disclosure regulations and published in the official register of the Wiener Zeitung newspaper. Raiffeisen-Landesbanken-Holding GmbH indirectly holds the majority stake in Raiffeisen Bank International AG. The company therefore belongs to the Group of Raiffeisen-Landesbanken-Holding GmbH. Raiffeisen Zentralbank Österreich Aktiengesellschaft is the superordinated credit institution and RBI forms part of this credit institution group.

Business operations

Raiffeisen Bank International (RBI) is a universal bank focusing on corporates and private customers in Central and Eastern Europe (CEE) and Austria. In CEE, RBI consists of a closely-knit network of banks, leasing companies and numerous specialized financial service providers with about 3,000 business outlets. In Austria, RBI serves the top 1,000 corporate customers and it is one of Austria's prominent corporate finance and export and trade finance banks. Cash and asset management and treasury operations are further fields of activity. RBI's focus as a highly specialized financial structurer is on serving Austrian and foreign key accounts, multinationals and providers of financial services. RBI has branches, subsidiaries and representative offices in the world's major financial centers and in Asia, which have selective business with corporate customers and financial institutions.

Merger of the principal business areas of RZB

As of 31 December 2009, the corporate customer business and all associated equity participations of Raiffeisen Zentralbank Österreich Aktiengesellschaft (RZB AG) were transferred to Cembra Beteiligungs AG (Cembra) based on a spin-off and acquisition agreement made between RZB AG and Cembra – a 100 per cent subsidiary of RZB AG – which held 72.8 per cent of Raiffeisen International Bank-Holding AG. Furthermore, Cembra was merged with Raiffeisen International Bank-Holding AG. In order to perform the merger, the subscribed capital was increased by € 124,555 thousand. In addition to the shares that Cembra held in Raiffeisen International to date, these newly issued shares were granted to Cembra's sole shareholder as settlement for the company assets transferred. According to civil law, the merger became effective with the registration in the Companies Register as of 10 October 2010. After the merger, the company possessed a bank license and was renamed Raiffeisen Bank International AG. Raiffeisen International Beteiligungs GmbH, a fully owned subsidiary of RZB AG, now holds 78.5 per cent of RBI AG.

The merger was a transaction under common control and management has decided to show the intra-group vertical integration retrospectively. The company did not provide comparable figures due to impracticability. The changes in the organizational structure can only be approximately shown in the comparable period, as they can not be retrospectively presented in the banking and accounting system. Lack of information regarding decisions on refinancing in the course of the new company structure and allocation of resources guided us to make estimations. The resulting inexactness and lack of details led to the decision to present the previous year figures of Raiffeisen International.

The merger of the principal business areas of RZB with Raiffeisen International was accounted for by carrying over book values according to IAS 8.10. The regulations of IRS 3 were not applicable for intra-group business combinations.

The consolidated financial statements were signed by the Managing Board on 10 March 2011and subsequently submitted to the Supervisory Board for review and notice.

Principles underlying the consolidated financial statements

Policies

The consolidated financial statements for the financial year 2010 and the comparative figures for the financial year 2009 were prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) and the international accounting standards adopted by the EU on the basis of IAS Regulation (EC) 1606/2002 including the interpretations of the International Financial Reporting Interpretations Committee (IFRIC/SIC) that were already applicable. All standards published by the IASB to be applied to financial statements for 2010 and adopted by the EU, have been applied. The consolidated financial statements satisfy the requirements of Section 245a of the Austrian Commercial Code (UGB) and Section 59a of the Austrian Banking Act (BWG) regarding exempting consolidated financial statements that comply with internationally accepted accounting principles.

All standards and interpretations to be applied to financial statements 2010 have been applied. IAS 20, IAS 31, IAS 41, IFRS 4 and IFRS 6 have not been applied as there were no relevant business transactions in the Group.

New application of amended standards and interpretations, which have been mandatory since 2010, i.e. IFRS 3 and IAS 27 (Business Combinations; effective as of 1 July 2009), IAS 39 (Eligible Hedged Items; effective 1 January 2009), IFRS 2 (Sharebased Payment within the Group which are Settled in Cash, effective 1 January 2010), IFRIC 17 (Distribution of Non-Cash Assets to Owners; effective 1 July 2009), IFRIC 18 (Transfer of Assets from Customers, effective 1 July 2009) and changes in the so-called "Improvements Project" –2008 and "Improvements Project –2009" had no material effect on the recognition and measurement methods of the bank.

In March 2010, the EU adopted IFRIC 16 (Hedges of a Net Investment in a Foreign Operation). IFRIC 16 is to be applied at the latest for business years beginning on or after 30 June 2009. RBI applied IFRIC 16 for the business year 2010 for the first time. This interpretation provides guidance on identifying the risk of a net investment in a foreign operation and on where, within a Group, hedging instruments can be held to minimize the risk.

Other relevant standards and interpretations that have been published, but whose application is not yet compulsory, have not yet been adopted. This applies to the amended IFRS 7 (Financial Instruments: Disclosures, effective 1 July 2011), IAS 24 (Related Party Disclosures; effective 1 January 2011), IAS 32 (Classification of Warrants; effective 1 February 2010), IFRIC 14 (The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction; effective 1 January 2011), IFRIC 19 (Extinguishing Financial Liabilities with Equity Instruments; effective 1 July 2010, as well as changes in the so-called "Improvements Project - 2010".

The consolidated financial statements are based on the reporting packages of all fully consolidated Group members, which are prepared according to IFRS rules and uniform Group standards. With the exception of five subsidiaries accounted for with interim financial statements – the reporting date was on 30 June – all fully consolidated companies prepared their annual financial statements as of 31 December. The deviating reporting dates are due to dividend policy reasons and because of seasonal business transactions. Figures in these financial statements are stated in thousands of euros. The following tables may include rounding differences. The previous year's figures are the audited consolidated figures of Raiffeisen International Bank-Holding AG.

A financial asset is recognized when it is probable that the future economic benefits will flow to the enterprise and the acquisition or conversion costs or another value can be reliably measured. A financial liability is recognized when it is probable that an outflow of resources embodying economic benefits will result from the settlement of the obligation and the amount at which the settlement will take place can be measured reliably.

If estimates or assessments are necessary for accounting and measuring under IAS/IFRS rules, they are made in accordance with the respective standards. They are based on past experience and other factors such as planning and expectations or forecasts of future events that appear likely from our current perspective. Basically, this applies to impairment losses on loans and advances, fair value and impairment of financial instruments, deferred taxes, provisions for retirement and similar benefits, the recoverability of goodwill and intangible fixed assets that are recognized in the course of business combinations. The actual figures may deviate from the estimated values.

Deferred taxes were not separately shown in the income statement and on the statement of financial position. Details are provided in the notes (11) income taxes, (25) other assets and (29) provisions for liabilities and charges.

Consolidation methods

All material subsidiaries, in which RBI AG directly or indirectly, holds either more than 50 per cent of the voting rights or otherwise has control over the financial and operating policies are consolidated. In principle, these subsidiaries are firstly integrated on the date when the Group obtains control of the company and are excluded when the Group no longer has control of the company. The Group reviews the adequacy of the decision on which companies to consolidate at least every quarter. Accordingly, changes in ownership but also changes due to existing or newly signed contractual obligations by a unit of the Group are taken into account. Subsidiaries with deviating reporting dates are accounted for with their interim financial statements. The results from subsidiaries that were acquired or disposed of during the year are recorded, in the consolidated income statement, either from the actual date of acquisition or up to the actual date of disposal.

Special purpose entities (SPE) founded for securitization transactions, which are controlled by the group from an economic point of view, are integrated according to SIC 12. To determine whether a special purpose entity is controlled from an economic perspective, a number of factors are to be taken into consideration. These include an investigation into whether the activities carried out by the SPE in favor of the Group are in accordance with its specific business needs so that it can take advantage of the activities of the SPE, whether the Group has the decision-making powers to achieve the majority of the benefits from the SPE, whether in fact the Group receives the majority of the benefits of the activities of the SPE, or the Group retains the majority of the assets associated with the residual or ownership risks in order to benefit from its activities.

In the case that further shares are acquired under existing control or shares are sold without loss of control, such transactions are recognized directly in equity during the course of continuing consolidation.

Intra-group business combinations (transactions under common control) are accounted for by carrying over book values.

Non-controlling interests are shown in the consolidated statement of financial position as part of equity, but separately from Raiffeisen Bank International shareholders' equity. The profit attributable to non-controlling interests is shown separately in the consolidated income statement.

Material interests in associated companies – the Group exerts a significant influence on financial and operating polices of these companies – are valued at equity and reported under investments in associates. Profit or losses occurring in companies valued at equity are shown net in current income from associates. The same rules apply to companies valued at equity (offsetting acquisition costs against proportional fair net asset value) as apply to fully consolidated companies. On principle, IFRS financial statements of associated companies are used. Changes in equity of companies valued at equity are shown in the consolidated accounts in other comprehensive income.

Shareholdings in subsidiaries not included in the consolidated financial statements because of their minor significance and shareholdings in companies that have not been valued at equity are shown under financial investments and are measured at cost.

In the scope of debt consolidation, intra-group balances between parent company and subsidiaries and intra-group balances between subsidiaries are eliminated in the consolidated accounts. Remaining temporary differences are recognized under other assets/other liabilities.

Intra-group income and expenses are eliminated and temporary differences resulting from bank business transactions are shown in net interest income. Other differences were shown in other net operating income.

Intra-group results are eliminated insofar as they had a material effect on the items of the income statement. Bank business transactions between Group members are usually executed in arm's length transaction.

Business combinations

In the course of capital consolidation, all identifiable assets, liabilities and contingent liabilities of the subsidiary are measured at their fair values on the acquisition date according to IFRS 3. The acquisition costs are offset with the proportional net assets. The resulting positive differences are capitalized as goodwill. The goodwill is tested annually for impairment. Negative differences arising within initial consolidation will be recognized immediately in profit.

Impairment test for goodwill

On each reporting date, goodwill is examined with a view to their future economic utility on the basis of cash generating units. A cash generating unit is defined by the management and represents the smallest identifiable group of assets of a company that generates cash inflows from operations. Within RBI, all segments according to segment reporting are determined as cash generating units and within the segments, the legal entities form the cash generating unit for impairment testing of goodwill. The carrying value of the cash generating unit (including any allocated goodwill) is compared with its recoverable value. The recoverable value represents the higher of an item's value in use and the fair value less cost to sell. It is based on the expected profits of the units. They are discounted at an interest rate reflecting the risk involved. The estimation of future earnings requires judgment of the past and actual performance and the expected development in the respective markets and overall macro-economic environment.

The estimation of the future development of the cash generating units starts with macroeconomic facts (gross domestic product, inflation expectations) and considers specific market conditions and the business policy. The data is used to capture the terminal value on a going concern concept. Discounting of the earnings relevant for the measurement (expected dividends) is made on different country-specific equity capital cost rates, which are based on the capital asset pricing model. The individual components (risk-free interest rate, inflation difference, market risk premium, country-specific risks and beta factors) are defined by using external information sources. The annual impairment test for goodwill for 2010 and 2009 did not result in an impairment loss as the recoverable amount for all cash generating units was higher than their respective carrying amount. The planning period is divided into two phases, phase I covers the first ten years, phase II covers the period over ten years.

The material goodwill resulted from the following cash generating units: Raiffeisen Bank Aval JSC, Kiev (AVAL), Ukrainian Processing Center PJSC, Kiev (UPC), ZAO Raiffeisenbank, Moscow (RBRU), Raiffeisen Bank Sh.a., Tirane (RBAL) and Raiffeisenbank a.s, Prague (RBCZ). For calculating the recoverable value the planning period was assumed to be ten years in order to better reflect the mid-term development in the CEE countries.

Cash generating units	AVAL	RBRU	RBCZ	RBAL	UPC
in € million
Goodwill	221	263	42	53	15
Group equity	96.2%	100.0%	51.0%	100.0%	100.0%
Profit after tax	30	170	70	38	4
Method used to calculate the fair value	FV less cost to sell	FV less cost to sell	FV less cost to sell	FV less cost to sell	FV less cost to sell
Discount rates (after tax)	12.9% - 26.7%	12.7% - 18.9%	9.3% - 11.3%	11.4% - 16.8%	14.2% - 26.4%
Growth rates in phase II	5.5%	7.0%	4.5%	4.5%	5.5%
Planning period	10 years	10 years	10 years	10 years	10 years
Impairment	No	No	No	No	No

Sensitivity Analysis

A sensitivity analysis was used to test the robustness of the impairment test for goodwill which was based on the above assumptions. From a number of options for this analysis, three parameters were selected, namely, the cost of equity, the growth assumption in phase II and the reduction of the earnings. The table below shows to what extent an increase in the cost of equity, a reduction in the sustainable growth or a reduction in earnings needs to be made for the fair value of the cash-generating units to equal the carrying value (equity plus goodwill):

Maximum sensitivity1	AVAL	RBRU	RBCZ	RBAL	UPC
Reduction in growth rate	2.4 PP	9.1 PP	16.4 PP	30.7 PP	39.1 PP
Discount rates (after tax)	1.2 PP	4.6 PP	12.5 PP	33.9 PP	112.1 PP
Reduction in earnings	(14.0)%	(45.0)%	(72.0)%	(83.0)%	(93.0)%

1 Only change in terminal value assumptions.

Impairment test for intangible fixed assets

Group companies use brands to differentiate their services from the competition. According to IFRS 3, brands of acquired companies have been recognized separately under the item intangible fixed assets. Brands have an indeterminable useful life and are therefore not subject to scheduled amortization. Brands have to be tested annually for impairment and additionally whenever indications of impairment arise.

The value of brands was determined using the comparable historical cost approach, because neither immediately comparable transactions nor a market with observable prices were available at the time of purchase price allocation. Documentation of brand-related marketing expenses in the previous years was taken as the data base for the historical cost approach.

If customer contracts and associated customer relationships are acquired in a business combination, they must be recognized separately from goodwill, if they are based on contractual or other rights. The acquired companies meet the criteria for a separate recognition of non-contractual customer relationships for existing customers. The customer base is valued using the multiperiod excess earnings method based on projected future income and expenses allocable to the respective customer base. The projections are based on planning figures for the corresponding years.

Consolidated group

The number of fully consolidated companies and companies valued at equity changed as follows:

	Fully consolidated			Equity method
Number of units	2010	2009	2010	2009
As of beginning of period	135	131	1	1
Included in the course of merger	38	0	0	0
Included for the first time in the financial period	6	8	0	0
Merged in the financial period	0	(3)	0	0
Excluded in the financial period	(47)	(1)	0	0
As of end of period	132	135	1	1

Of the 132 entities in the Group, 27 were domiciled in Austria (2009: 11) and 105 abroad (2009: 124). They comprised of 21 banks, 64 financial institutions, 16 companies rendering bank-related ancillary services, 8 financial holding companies and 23 other companies. Because of their minor importance in giving a view of the Group's assets, financial and earnings position 173 subsidiaries were not included in the consolidated financial statements (2009: 92). They were recognized at cost under financial investments. The total assets of the companies not included in the Group came to less than 1 per cent of the Group's aggregated total assets.

A list of fully consolidated companies, companies valued at equity and other equity participations may be found on page 251 ff.

Mergers

In the financial year 2010, the following companies were included in the consolidated financial statements during the course of the merger of the principal business areas of RZB with Raiffeisen International:

Name	Share	Included as of	Reason
Banks
Kathrein & Co. Privatgeschäftsbank Aktiengesellschaft, Vienna (AT)	100.0%	1/1	Merger
Raiffeisen Centrobank AG, Vienna (AT)	100.0%	1/1	Merger
Raiffeisen Malta Bank plc., Sliema (MT)	100.0%	1/1	Merger
Financial institutions
Golden Rainbow International Limited, Tortola (VG)	100.0%	1/1	Merger
Kathrein & Co. Vermögensverwaltung GmbH, Vienna (AT)	80.0%	1/1	Merger
Raiffeisen Investment Aktiengesellschaft, Vienna (AT)	100.0%	1/1	Merger
Raiffeisen Investment Limited, Moscow (RU)	100.0%	1/1	Merger
Raiffeisen Investment (Malta) Limited, Sliema (MT)	99.8%	1/1	Merger
Raiffeisen Investment Polska sp.z.o.o., Warsaw (PL)	100.0%	1/1	Merger
Raiffeisen Investment Romania LLC, Bucharest (RO)	100.0%	1/1	Merger
Raiffeisen-Leasing Österreich Gesellschaft m.b.H., Vienna (AT)	51.0%	1/1	Merger
RB International Finance (Hong Kong) Ltd., Hong Kong (HK)	100.0%	1/1	Merger
RB International Finance LLC, New York (US)	100.0%	1/1	Merger
RZB Finance (Jersey) II Ltd., St. Helier (JE)	0.0%	1/1	Merger
RZB Finance (Jersey) III Ltd., St. Helier (JE)	0.0%	1/1	Merger
RZB Finance (Jersey) IV Ltd., St. Helier (JE)	0.0%	1/1	Merger
ROOF Global Bond CBO 2008-1, Dublin (IR)	0.0%	1/1	Merger
ROOF Global Bond CBO 2008-2, Dublin (IR)	0.0%	1/1	Merger
ROOF Global Loan CLO 2009-1, Dublin (IRL)	0.0%	1/1	Merger
ROOF Global Loan CLO 2009-2, Dublin (IRL)	0.0%	1/1	Merger
Financial holdings
Extra Year Investments Limited, Tortola (VG)	100.0%	1/1	Merger
RZB IB Beteiligungs GmbH, Vienna (AT)	100.0%	1/1	Merger
RZB KI BeteiligungsGmbH, Vienna (AT)	100.0%	1/1	Merger
Companies rendering banking-related ancillary services
RSC Raiffeisen Daten Service Center GmbH, Vienna (AT)	71.9%	1/1	Merger
Other companies
Raiffeisen Property Holding International GmbH, Vienna (AT)	100.0%	1/1	Merger
BAILE Handels- und Beteiligungsgesellschaft m.b.H., Vienna (AT)	100.0%	1/1	Merger
Centrotrade Chemicals AG, Zug (CH)	100.0%	1/1	Merger
Centrotrade Deutschland GmbH, Eschborn (D)	100.0%	1/1	Merger
Centrotrade Holding AG, Vienna (AT)	100.0%	1/1	Merger
Centrotrade Investment AG, Zug (CH)	100.0%	1/1	Merger
Centrotrade Minerals & Metals Inc., Chesapeake (USA)	100.0%	1/1	Merger
Centrotrade Singapore Pte. Ltd., Singapore (SGP)	100.0%	1/1	Merger
F.J. Elsner & Co. Gesellschaft mbH, Innsbruck (AT)	100.0%	1/1	Merger
F.J. Elsner Trading Gesellschaft m.b.H., Vienna (AT)	100.0%	1/1	Merger
Larus Handels- und BeteiligungsgmbH, Vienna (AT)	100.0%	1/1	Merger
P & C Beteiligungs Gesellschaft m.b.H., Vienna (AT)	100.0%	1/1	Merger
Raiffeisen Property International GmbH, Vienna (AT)	100.0%	1/1	Merger
R.L.H. Holding GmbH, Vienna (AT)	100.0%	1/1	Merger

The merger of the principal business areas of RZB with Raiffeisen International shows the following impact on the consolidated financial statement of position as of 1 January 2010:

Assets	Raiffeisen	Merger entries	Raiffeisen Bank
	International		International
€000	31/12/2009		1/1/2010
Cash reserve	4,179,572	1,913,574	6,093,145
Loans and advances to banks	10,310,101	28,271,552	38,581,653
Loans and advances to customers	50,514,971	22,051,392	72,566,363
Impairment losses on loans and advances	(3,084,023)	(1,060,366)	(4,144,389)
Trading assets	3,709,452	4,822,820	8,532,272
Derivatives	332,882	1,475,120	1,808,002
Financial investments	7,270,547	11,208,452	18,478,998
Investments in associates	5,437	0	5,437
Intangible fixed assets	971,881	125,206	1,097,086
Tangible fixed assets	1,244,233	45,817	1,290,050
Other assets	820,276	509,189	1,329,465
Total assets	76,275,329	69,362,753	145,638,082

Equity and liabilities €000	Raiffeisen International 31/12/2009	Merger entries	Raiffeisen Bank International 1/1/2010
Deposits from banks	20,110,170	28,988,655	49,098,825
Deposits from customers	42,578,249	12,828,800	55,407,049
Debt securities issued	2,526,651	17,395,468	19,922,120
Provisions for liabilities and charges	311,531	199,646	511,177
Trading liabilities	514,199	3,877,292	4,391,491
Derivatives	259,433	1,223,016	1,482,449
Other liabilities	504,629	681,044	1,185,673
Subordinated capital	2,470,285	1,843,572	4,313,857
Equity	7,000,182	2,325,259	9,325,441
Total equity and liabilities	76,275,329	69,362,753	145,638,082

The table below shows 2009 pro forma figures which give an indication of the volumes. The business remaining in RZB AG including equity participations has been subtracted from the income statement of RZB in 2009. This was calculated on an aggregated level. Therefore estimations and assumptions were made to the spin-off and merger process respectively. Due to lack of details in systems the comparable figures for the previous year of Raiffeisen International were used.

€000	Raiffeisen International 2009	Change	Raiffeisen Bank International pro forma 2009
Net interest income	2,936,502	345,862	3,282,364
Net provisioning for impairment losses	(1,737,882)	(494,320)	(2,232,202)
Net fee and commission income	1,223,057	(1,042,778)	180,279
Net trading income	186,340	204,262	390,602
General administrative expenses	(2,269,726)	1,982,447	(287,279)
Profit before tax	367,597	422,701	790,298
Profit after tax	287,097	243,895	530,992
Consolidated profit	212,181	238,084	450,265

Included units

In the financial year 2010, the following companies were included into the consolidated financial statements for the first time:

Name	Share	Included as of	Reason
Companies rendering banking-related ancillary services
Centralised Raiffeisen International Services & Payments S.R.L., Bucharest (RO)	100.0%	1/1	Materiality
LLC "ARES Nedvizhimost", Moscow (RU)	50.0%	1/11	Materiality
LLC "R1", Novosibirsk (RU)	100.0%	1/11	Materiality
LLC "R2", Novosibirsk, (RU)	100.0%	1/11	Materiality
LLC "Realty-Invest", Moscow (RU)	50.0%	1/11	Materiality
Tkatskoy OOO, Moscow (RU)	100.0%	1/11	Materiality

Excluded units

In the financial year 2010, the following companies were excluded from the consolidated group:

Name	Share	Excluded as of	Reason
Financial institutions
3 subsidiaries of Raiffeisen Leasing d.o.o., Sarajevo (BiH)		1/1	Immaterial
5 subsidiaries of Raiffeisen Rent DOO, Belgrade (RS)		1/1	Immaterial
12 subsidiaries of Raiffeisen-Leasing Real Estate s.ro.o, Prague (CZ)		1/1	Immaterial
OOO "Raiffeisen Capital" Asset Management Company, Moscow (RU)	100.0%	1/1	Immaterial
Raiffeisen Auto Leasing Bulgaria EOOD, Sofia (BG)	81.1%	1/1	Immaterial
Raiffeisen Capital & Investment S.A., Bucharest (RO)	99.5%	1/1	Immaterial
Raiffeisen Car Leasing Ltd., Budapest (HU)	72.7%	1/1	Immaterial
Raiffeisen Factoring Ltd., Sofia (BG)	100.0%	1/1	Immaterial
Raiffeisen Invest d.o.o., Zagreb (HR)	73.4%	1/1	Immaterial
Raiffeisen Investment Fund Management Zrt., Budapest (HU)	70.3%	1/1	Immaterial
RB Russia Finance Limited, Dublin (IR)	100.0%	1/1	Immaterial
RI FINANCE (JERSEY) PCC, St. Helier (JE)	100.0%	30/11	End of operations
ROOF Global Bond CBO 2008-1, Dublin (IR)	0.0%	31/3	End of operations
ROOF Global Bond CBO 2008-2, Dublin (IR)	0.0%	31/3	End of operations
ROOF Global Loan CLO 2009-1, Dublin (IRL)	0.0%	31/3	End of operations
ROOF Global Loan CLO 2009-2, Dublin (IRL)	0.0%	31/3	End of operations
SCT Investment Ltd., Budapest (HU)	55.1%	1/1	Immaterial
Financial holdings
Extra Year Investments Limited, Tortola (VG)	100.0%	1/1	Immaterial
Companies rendering banking-related ancillary services
2 subsidiaries of Tatra banka a.s., Bratislava (SK)		1/1	Immaterial
GSI Group Software Investment AG, Zug (CH)	100.0%	1/1	End of operations
Other companies
7 subsidiaries Raiffeisen Financial Services Company Zrt., Budapest (HU)		1/1	Immaterial
Raiffeisen Insurance and Reinsurance Broker S.R.L., Bucharest (RO)	75.0%	1/1	Immaterial
Raiffeisen International Liegenschaftsbesitz GmbH, Vienna (AT)	100.0%	1/1	Immaterial

In the reporting period, there was no effect on cash flow resulting from disposal of group assets, as the disposal was mainly due to reasons of immateriality.

Foreign currency translation

Financial statements of fully consolidated companies prepared in foreign currencies were translated into euros employing the modified current rate method in accordance with IAS 21. Equity was translated at its historical exchange rates while all other assets, liabilities and the notes were translated at the prevailing foreign exchange rates as of the reporting date. Differences arising from the translation of equity (historical exchange rates) were offset against retained earnings.

The items of the income statement were translated at the average exchange rates during the year calculated on the basis of month-end rates. Differences arising between the exchange rate as of the reporting date and the average exchange rate applied in the income statement were offset against equity.

In the case of three subsidiaries not headquartered in the euro-area, the euro, and for three subsidiaries, the US dollar was the reporting currency for measurement purposes given the economic substance of the underlying transactions. Roof Russia S.A., Luxemburg, carries out its business transactions and refinancing in US dollars, therefore the functional currency is the US dollar.

Golden Rainbow International Limited, Tortola, converted the functional currency from the euro to the Singapore dollar due to changed refinancing.

The following exchange rates were used for currency translation:

Rates in units per €		2010		2009
	As of 31/12	Average as of 31/12	As of 31/12	Average as of 31/12
Albanian lek (ALL)	138.770	138.041	137.960	131.975
Belarusian rouble (BYR)	3,972.600	3,953.672	4,106.110	3,841.162
Bosnian marka (BAM)	1.956	1.956	1.956	1.956
Bulgarian lev (BGN)	1.956	1.956	1.956	1.956
Croatian kuna (HRK)	7.383	7.295	7.300	7.345
Czech koruna (CZK)	25.061	25.356	26.473	26.525
Great Britain Pound (GBP)	0.861	0.858	0.888	0.895
Hungarian forint (HUF)	277.950	276.039	270.420	280.304
Kazakh tenge (KZT)	195.230	196.093	212.840	203.742
Moldovan leu (MDL)	16.105	16.436	17.625	15.510
Polish zloty (PLN)	3.975	4.013	4.105	4.332
Romanian leu (RON)	4.262	4.218	4.236	4.225
Russian rouble (RUB)	40.820	40.447	43.154	44.068
Serbian dinar (RSD)	105.498	102.903	95.889	93.695
Singapore dollar (SGD)	1.714	1.812	2.019	2.022
Swiss franc (CHF)	1.250	1.379	1.484	1.506
Ukrainian hryvnia (UAH)	10.573	10.550	11.449	10.893
US-dollar (USD)	1.336	1.330	1.441	1.396

Recognition and measurement principles

Financial instruments: Recognition and measurement (IAS 39)

According to IAS 39, financial assets, financial liabilities and derivative financial instruments are to be recognized on the statement of financial position. A financial instrument is defined as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Measurement of financial instruments is effected according to the measurement categories to which they belong. They are defined as follows:

• 1. Financial assets or liabilities at fair value through profit and loss
• a. Trading assets/liabilities
• b. Designated financial instruments at fair value
• 1. Financial assets held-to-maturity
• 1. Loans and advances
• 1. Financial assets available-for-sale
• 1. Financial liabilities

1. Financial assets or liabilities at fair value through profit and loss

a. Trading assets/liabilities

Trading assets/liabilities are acquired or incurred principally for the purpose of generating profit from short-term fluctuations in market prices. Securities (including short selling of securities) and derivative financial instruments held-for-trading are recognized at their fair values. If securities are listed, the fair value is based on stock exchange prices. Where such prices are not available, internal prices based on present value calculations for originated financial instruments and futures or option pricing models for options are applied. Present value calculations are based on an interest curve which consist of money market rates, future rates and swap rates and do not include risk premium. As option price formulas Black-Scholes 1972, Black 1976 or Garman-Kohlhagen are applied depending on the kind of option.

Derivative financial instruments held-for-trading are also shown under trading assets or trading liabilities. Positive fair values including accrued interest (dirty price) are shown under trading assets. Negative fair values are recorded under trading liabilities. Positive and negative fair values are not netted. Changes in dirty prices are recognized in net trading income. Derivatives that are used neither for trading purposes nor for hedging purposes are recorded under the item derivatives. Furthermore, any liabilities from the short selling of securities are shown in trading liabilities.

b. Designated financial instruments at fair value

This category comprises mainly all those financial assets that are irrevocably designated as financial instrument at fair value (so called fair value option) upon initial recognition in the statement of financial position independent of the intention to trade. An entity may use this designation only when doing so results in more relevant information, because a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis.

These instruments are debt securities and other fixed-interest securities or equities and other variable-yield securities. These financial instruments are valued at fair value under IAS 39. In the statement of financial position, they are shown under the item financial investments, current income is shown under net interest income, valuation results and proceeds from disposals are shown in net income from financial investments.

On the other hand, liabilities are designated as financial instruments at fair value to avoid valuation discrepancies with related derivatives. The fair value of financial obligations under the fair value option contains all market risk factors, including those related to the credit risk of the Group. These financial obligations are mainly structured bonds. The fair value of these financial obligations is determined by discounting the contractual cash flows using a credit risk adjusted yield curve, which reflects the level at which a similar financial instrument could be issued at the reporting date. Market risk parameters are evaluated in comparison to similar financial instruments that are held as assets. Valuation results for liabilities that are designated as financial instruments at fair value are reported in net income from derivatives and designated liabilities.

2. Financial assets held-to-maturity

Non-derivative financial assets (securities with fixed or determinable payments and fixed maturities) purchased with the intention and ability to hold them to maturity are reported in the position financial investments. They are recognized at amortized cost and differences are amortized over the term to maturity and recognized in the income statement under net interest income. If impairment occurs it is taken account of when determining the amortized cost and impairment is shown in net income from financial investments. Coupon payments are also recognized under net interest income. A sale of these financial instruments is only allowed in cases as stated in IAS 39.

3. Loans and advances

Non-derivative financial assets with fixed or determinable payment for which there is no active market are allocated to this category. They are measured at amortized cost. If impairment occurs it is taken account of when determining the amortized cost. If there is a difference between the amount paid and face value – and this has interest character – the effective interest method is used and the amount is accrued as profit or loss. Profits from the sale of loans are recognized in the income statement item net provisioning for impairment losses. Moreover, debt instruments are also stated there if there is no active market. Derecognition of financial assets within the framework of securitizations is – after checking if the securitized special purpose entity has to be integrated into the consolidated accounts – done on a risk and rewards or control test according to IAS 39 after identifying loss of control over the contractual rights arising from the financial asset.

4. Financial assets available-for-sale

The category of financial assets available-for-sale contains those financial instruments (mainly equity participations for which there is no active market) that did not qualify for any of the other three categories. They are stated at fair value, if a fair value is reliably measurable. Valuation differences are shown in other comprehensive income and only recognized in the income statement under net income from financial investments if there is an objective indication of impairment. For equity instruments impairment exists, among other things, if the fair value is either significantly or for a prolonged period of time below cost.

In the Group, equity instruments classified as available-for-sale are written-off when the fair value over the last six months before the reporting date was consistently more than 20 per cent below carrying value, or in the last twelve months, on average, more than 10 per cent below carrying value. In addition to these quantitative indications (trigger events), qualitative indications from IAS 39.59 are considered. It is not permitted to include the appreciation in value in the income statement for equity instruments classified as available for sale, but rather this should be recognized in other comprehensive income under the item fair value reserve (available-for-sale financial assets). This means that only impairments or disposals are to be shown in the income statement.

Unquoted equity instruments, for which reliable fair values cannot be assessed regularly, are valued at cost less impairment losses and it is not possible to show an appreciation in value.

This kind of financial instruments is reported under financial investments.

5. Financial liabilities

Liabilities are recognized at amortized cost. Discounted debt securities and similar obligations are measured at their present value. Financial liabilities measured at fair value are shown in the category liabilities at fair value through profit and loss.

Reclassification

In accordance with IAS 39.50, non-derivative financial instruments classified as trading assets and available-for-sale financial instruments can be reclassified as financial assets held-to-maturity and loans and advances in exceptional circumstances. In 2010, no use was made of the possibility to reclassify. The effects resulting from the reclassification of previous years are shown in the notes under (20) financial investments.

Fair value

The fair value is the amount for which an asset could be exchanged and liability settled between knowledgeable, willing parties in an arm's length transaction.

Quotation on an active market (level I)

If market prices are available, the fair value is reflected by the market price. This category contains equity instruments traded on the stock exchange, debt instruments traded on the interbank market, and derivatives traded on the stock exchange.

Measurement techniques based on observable market data (level II)

When current bid and asking prices for financial instruments are unavailable, the prices of similar financial instruments provide evidence of the current fair value or are determined by accepted measurement methods enclosing observable prices or parameters (in particular present value calculation or option price model). These methods concern the majority of the OTC-derivates and non-quoted debt instruments.

Measurement techniques not based on observable market data (level III)

If no observable stock exchange prices or prices are available, the fair value will be measured by adequate measurement models. The utilization of these models requires assumptions and estimates of the management. The scope of assumptions and estimates depend on the price transparency of the financial instrument, the market and the complexity of the instrument.

Categories of financial instruments according to IFRS 7

As the nature of the financial instruments is already shown by the classification of the items of the statement of financial position, the formation of categories is built in line with these items, which include financial instruments. Categories of financial instruments on the asset side are cash reserve, loans and advances to banks, loans and advances to customers, trading assets, derivative financial instruments, derivatives for hedge accounting, and financial investments (among this category are separately financial assets not traded on an active market and which are shown at cost). Categories of financial instruments on the liability side are liabilities from trading activities, derivative financial instruments, derivatives for hedge accounting, deposits from banks, deposits from customers, debt securities issued and subordinated capital.

Classes	Fair Value	Measurement Amortized Cost	Others	Category according to IAS 39
Asset classes
Cash reserve			Nominal value	n/a
Trading assets	X			Held-for-trading
Derivatives	X			Held-for-trading
Loans and advances to banks		X		Loans and advances
Loans and advances to customers		X		Loans and advances
of which finance lease business		X		n/a
Financial investments	X			At fair value through profit and loss
Financial investments	X			Available-for-sale
Financial investments		X		Held-to-maturity
of which not traded on an active market			At Cost	Available-for-sale
Positive fair values of derivatives for hedge accounting (IAS 39)	X			n/a
Liability classes
Trading liabilities	X			Held-for-trading
Derivatives	X			Held-for-trading
Deposits from banks		X		Financial liabilities
Deposits from customers		X		Financial liabilities
Subordinated capital		X		Financial liabilities
Debt securities issued		X		Financial liabilities
Debt securities issued	X			At fair value through profit and loss
Negative fair values of derivatives for hedge accounting (IAS 39)	X			n/a

Derivatives

The Group uses derivates including swaps, standardized forward contracts, futures, credit derivatives, options and similar contracts. Within the operating activity, the Group carries out different transactions with derivative financial instruments for trading and hedging purposes. The Group applies derivatives in order to meet the requirements of the clients concerning their risk management, to manage and secure risks and to generate profit in proprietary trading. Derivatives are initially recognized at the time of the transaction at fair value and subsequently revalued to fair value. The resulting valuation gain or loss is recognized immediately in net income from derivatives, unless the derivative is designated as a hedging instrument for hedge accounting purposes and the hedge is effective. Here the timing of the recognition will depend on the type of hedging relationship.

Derivatives, which are used for hedging against market risk (excluding trading assets/liabilities) for a non-homogeneous portfolio, do not meet the conditions for IAS 39 hedge accounting. These are recognized as follows: the dirty price is booked under derivatives in the statement of financial position (positive fair values on the asset side and negative fair values on the liability side). The change in value of these derivatives, on the basis of the clean price, is shown in net income from derivatives and interest is shown in net interest income.

Credit derivatives, the value of which is dependent on future specified credit (non-) events are shown under derivatives (positive fair values on the asset side and negative fair values on the liability side). Changes in valuation are recognized under net income from derivatives.

Hedge Accounting

If derivates are held for the purpose of risk management and if the respective transactions meet specific criteria, the Group uses hedge accounting. The Group designates hedging instruments, primarily derivatives, as either fair value hedge, cash-flow hedge or hedge of a net investment in a foreign operation (capital hedge). At the beginning of the hedging relationship, the relationship between underlying and hedging instrument, including the risk management objectives, is documented. Furthermore, it is necessary to document from the beginning and during the hedging relationship that the fair value or cash flow hedge is effective to a large degree.

a. Fair value hedge

Hedge Accounting according to IAS 39 applies for those derivatives that are used to hedge the fair values of financial assets and liabilities. The credit business is especially subject to such fair value risks if it deals with fixed-interest loans. Interest-rate swaps that satisfy the prerequisites for hedge accounting are contracted to hedge against the interest-rate risks arising from loans. Hedges are formally documented, continuously assessed, and rated to be highly effective. In other words, throughout the term of a hedge, one can assume that changes in the fair value of a hedged item will be nearly completely offset by a change in the fair value of the hedging instrument and that the actual outcome will lie within a band of 80 to 125 per cent.

Derivative instruments held to hedge the fair values of individual items in the statement of financial position (except trading assets/liabilities) are recognized at their fair values (dirty prices) under derivatives (on the assets side: positive dirty prices; on liabilities side: negative dirty prices). Changes in the carrying amounts of hedged items (assets or liabilities) are allocated directly to the corresponding items of the statement of financial position and reported separately in the notes. Both the effect of changes in the carrying values of positions requiring hedging and the effects of changes in the clean prices of the derivative instruments are recorded under net income from derivatives (net income from hedge accounting).

b. Cash flow hedge

Cash flow hedge accounting according to IAS 39 applies for those derivatives that are used to hedge against the risk of fluctuating future cash flows. Variable-interest liabilities are especially subject to such cash flow risks. Interest rate swaps used to hedge against the risk of fluctuating cash flows arising from specific variable interest-rate items, are recognized as follows: The hedging instrument is recognized at fair value, therefore changes in its clean price are recorded as separate item in other comprehensive income.

c. Hedge of a net investment in a foreign operation (capital hedge)

In the Group, hedges of investments in economically independent sub-units (IAS 39.102) were made in order to reduce differences arising from the translation of equity. Liabilities in foreign currency, currency options, currency futures and currency swaps are mainly used as hedging instruments.

Where the hedge is effective the resulting gains or losses from foreign currency translation are recognized and shown separately in other comprehensive income.

Any ineffective part of this hedge relation is recognized in net trading income. The related interest components are shown in net interest income. There were no deferred taxes calculated due to the applied exception regulations according to IAS 12.39.

Offsetting

In the case of identity of borrower and lender, offsetting of loans and liabilities with matching maturities and currencies occurs, only if a legal right, by contract or otherwise, exists and offsetting is in line with the actually expected course of the business.

Cash reserve

The cash reserve includes cash in hand and balances at central banks that are due on call. They are shown with their nominal value.

Impairment losses on loans and advances

At each reporting date an assessment is made as to whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred, when:

• there is objective evidence of impairment as a result of a loss event that occurred after the initial recognition of the asset until the reporting date (a 'loss event'),
• that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets and
• the amount can be reliably estimated.

Credit risk is accounted for by making individual impairment provisions and portfolio-based impairment provisions. The latter comprise impairment provisions for portfolios of loans with identical risk profiles that are compiled under certain conditions. In the retail segment, provisions are built according to product portfolio and past due days. Individual and portfolio-based impairment provisions are not netted against corresponding receivables but are stated separately in the statement of financial position.

For credit risks related to loans and advances to customers and banks, provisions are made in the amount of expected loss according to homogeneous Group-wide standards. Risk of loss is deemed to exist if the discounted projected repayment amounts and interest payments are below the carrying value of the loans, taking collateral into account. Portfolio-based impairments are calculated according to valuation models that estimate expected future cash flows for the loans in the respective loan portfolio based on loss experience history. This is carried out regularly by considering economic conditions. For non-retail portfolios without a documented loss history of their own, peer group benchmark figures serve as a comparative base.

The entirety of the provision for impairment losses arising from loans reported in the statement of financial position (individual loan loss provisions and portfolio-based loan loss provisions) is shown as a separate item on the assets side, below loans and advances to banks and customers. The provision for impairment losses arising from transactions outside the statement of financial position is recorded under provisions for liabilities and charges.

Derecognition of financial assets and liabilities

Derecognition of financial assets

A financial asset is derecognized when the contractual rights to the cash flows arising from a financial asset expire or when the Group has transferred the rights or if the Group has the obligation in case that certain criterion occurs to transfer the cash flows to one or more receivers. A transferred asset is also derecognized if all material risks and rewards of ownership of the assets are transferred.

Securitization transactions

The group securitizes several financial assets from transactions with private customers and business customers by selling them to a special purpose entity that issues securities to investors. The assets transferred are derecognized fully or partly. Rights to securitized financial assets can be retained in the form of junior or subordinated tranches, interest claims or other remaining claims (retained rights).

Derecognition of financial liabilities

The Group derecognizes a financial liability if the obligations of the Group have been paid, expired or revoked.

Genuine sale and repurchase agreements

In a genuine sale and repurchase transaction, the transferor sells assets to a third party and agrees at the same time to repurchase these assets at an agreed price and time. The assets remain on the statement of financial position of the transferor and are measured like the item in the statement of financial position where they are shown. Cash inflows arising from a sale and repurchase transaction are recognized in the statement of financial position as deposits from banks or deposits from customers depending on the counterparty.

Under reverse repurchase agreements, assets are acquired with the obligation to sell them in the future. Cash outflows arising from reverse repurchase agreements are recorded in the statement of financial position under loans and advances to banks or loans and advances to customers.

Interest expense from sale and repurchase agreements and interest income from reverse sale and repurchase agreements are accrued in a straight line over their term to maturity and are shown under net interest income.

Securities lending

Securities lending transactions are shown in the same way as genuine sale and repurchase agreements. This means loaned securities continue to remain in the securities portfolio and are valued according to IAS 39. Borrowed securities are not recognized and not valued. Cash collateral provided for securities-lending transactions are shown as a claim and collateral received are shown as a liability.

Leasing

Leases are classified according to their contractual structure as follows:

Finance leases

When nearly all the risks and rewards of a leased asset are transferred to the lessee, the Group as lessor recognizes a loan to banks or customers. The loan amount is the amount of the net investment. The proceeds from the finance lease are distributed at a constant periodic rate of the outstanding net investment in the leases. Under a finance lease the lessee holds assets that are shown under the relevant tangible fixed asset item, which corresponds to a lease liability.

Operating leases

An operating lease occurs when the risks and rewards of ownership remain with the lessor. The leased assets are allocated to the Group under tangible fixed assets and depreciated in accordance with the principles applicable to the type of fixed assets. Rental income from the corresponding lease object is amortized on a straight-line basis over the term of the leasing contract and reported in other net operating income. Operating expenses for leases are generally amortized on a straight-line basis over the term of leasing contract and reported as administrative expenses.

Equity participations

Shareholdings in subsidiaries not included in the consolidated financial statements because of their minor significance and shareholdings in companies that are not valued at equity are shown under financial investments and are measured at amortized cost if no shares prices are available.

Other shareholdings are categorized as financial assets available-for-sale upon initial recognition. Changes in value are therefore recognized in other comprehensive income. Impairment is shown in net income from financial investments.

Intangible fixed assets

Under this item, internally developed and acquired software, brand rights, acquired customer bases and especially goodwill are stated. Intangible fixed assets acquired in a business combination are reported separately from goodwill and measured at fair value. Goodwill and other intangible fixed assets (e.g. brand rights) without definite useful lives are tested for impairment at each reporting date and also during the year whenever trigger events occur. Whenever events or changes in circumstances indicate that the expected benefit no longer exists, impairment must be made pursuant to IAS 36.

Acquired intangible fixed assets (software, customer base) with determinable useful lives are capitalized at acquisition cost and amortized over their estimated useful lives.

Internally developed intangible fixed assets comprise exclusively of software. Software is capitalized if it is probable that the future economic benefits attributable to the asset will accrue to the enterprise and the cost of the asset can be measured reliably. Expenses for research are recognized as an expense when they are incurred. The useful life of software is between four and six years and may be longer for major software projects. The useful life of the acquired customer base was set at seven years for corporate customers and for the acquired customer base in the retail segment of Raiffeisen Bank Aval JSC at 20 years and for Impexbank (meanwhile merged with ZAO Raiffeisenbank) and eBanka (meanwhile merged with Raiffeisenbank a.s.) at five years.

Tangible fixed assets

Tangible fixed assets are measured at cost of acquisition or conversion less scheduled depreciation. The straight-line method is used for depreciation and is based on the following useful life figures:

Useful life	Years
Buildings	25 – 50
Office furniture and equipment	5 – 10
Hardware	3 – 5

Land is not subject to scheduled depreciation.

Expected useful lives, residual values and depreciation methods are reviewed annually and any necessary future change of estimates are taken into account. If a permanent impairment is to be expected, extraordinary write-downs are carried out. In the event that the reason for the write-down no longer applies, a write-up will take place up to the amount of the amortized cost of the asset.

The resulting gain or loss from the sale of any asset is determined as the difference between the proceeds and the carrying value of the asset and is recognized in other net operating income. When assets are retired, the remaining carrying amount is also recognized in the income statement.

Investment property

This means property that is held to earn rental income and/or for capital appreciation. Investment property is reported at amortized cost using the cost model permitted by IAS 40 and is shown under tangible fixed assets because of minor importance. Income resulting from investment property is shown in other net operating income.

Inventory

Inventories are measured at the lower of cost or net realizable value. Write-downs are made if the acquisition cost is above the net realizable value as of the reporting date or if limited usage or longer storage periods have impaired the value of the inventory.

Non-current assets held for sale and discontinued operations

Non-current assets and discontinued operations are classified as held for sale when the related carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is only considered met if the sale is highly probable and the asset (or discontinued operation) is immediately available for sale and furthermore that the management has committed itself to a sale. Moreover, the sale transaction must be completed within 12 months.

Non-current assets and discontinued operations classified as held for sale are valued at the lower amount of their original carrying value or fair value less costs to sell and are reported under other assets.

Provisions for liabilities and charges

Provisions are recognized when the Group has a present obligation from a past event, where it is likely that it will be obliged to settle, and a reliable estimate of the amount is possible. The level of provisions is the best possible estimate of expected outflow of economic benefits at the reporting date while taking into account the risks and uncertainties underlying the commitment to fulfill the obligation.

Provisions for pensions and similar obligations

All defined benefit plans relating to so-called social capital (provisions for pensions, provisions for severance payments, provisions for anniversary bonuses) are measured using the Projected Unit Credit Method in accordance with IAS 19 – Employee Benefits.

The actuarial calculation of pension obligations for active employees is based on the following assumptions:

Per cent	2010	2009
Interest rate	4.25	4.75
Effective salary increase for active employees	2.5	3.0
Individual career trend for active employees	2.5	2.0
Expected increase in retirement benefits	2.0	2.0
Expected return on plan assets	4.25	4.25

Calculations are based on an assumed retirement accession age of 65 years for men and 60 years for women and are subject to transitional statutory regulations and special arrangements in individual contracts. Actuarial gains or losses calculated for pension obligations are recognized immediately in profit. No use was made of the corridor method according to IAS 19.92.

The actuarial computation of severance payments and anniversary bonuses is based on the following assumptions:

Per cent	2010	2009
Interest rate	4.25	4.75
Average increase in salary	2.5	3.0
Individual career trend	2.5	2.0

The biometrical basis for the calculation of provisions for pensions, severance payments and anniversary bonuses of Austrian companies is provided by AVÖ 2008-P-Rechnungsgrundlagen für die Pensionsversicherung (Computational Framework for Pension Insurance) – Pagler & Pagler, using the variant for salaried employees. In other countries, comparable actuarial parameters are used for calculation.

Other provisions

Other provisions are made to uncertain liabilities against third parties in the amount of the expected claim. These provisions are not discounted because the resulting interest effect is immaterial.

Defined contribution plans

Under defined contribution plans, the company pays fixed contributions into a separate entity (a fund). These payments are recognized as staff expenses in the income statement.

Subordinated capital

The item comprises subordinated capital and supplementary capital. Liabilities documented or undocumented are subordinated if, in the event of liquidation or bankruptcy, they can only be met after the claims of the other – not subordinated – creditors have been satisfied. Supplementary capital contains all paid-in own funds which are available for the company for more than eight years, for which interest is paid only from the profit and which can be repaid in the case of solvency only after all other debtors are satisfied.

Share-based remuneration

The Managing Board of RBI AG obtained Supervisory Board approval to institute a share incentive program (SIP) offering performance-based allotments of company shares for eligible employees at home and abroad for a given period of time. All former Managing Board members and selected upper management personnel of RBI AG and managing board members of affiliated bank subsidiaries and other affiliated companies are eligible to participate.

The number of common shares in RBI AG to be actually transferred will depend on meeting two performance criteria: the targeted average return on equity (ROE) and the total shareholder return (TSR) for RBI AG shares in relation to TSRs of shares in the DJ EURO STOXX BANKS index after a three-year holding period. Moreover, beneficiaries have to be in active service for RBI. SIP participation is voluntary.

All share-based remunerations are recognized according to IFRS 2 (Share-based Payment) as staff expenses and recognized directly against equity.

Net interest income

Interest and similar income mainly includes interest income on loans and advances to banks and customers and from fixedinterest securities. In addition, current income from shares and other variable-yield securities (especially dividends), income from equity participations and from investments accounted for at equity, and similar income calculated as interest are also reported under net interest income. Dividend income is recognized if the entitlement of the owner for payment exists. Interest paid and similar charges mainly include interest paid on deposits from banks and customers and on debt securities issued and subordinated capital. Interest income and interest expenses are accrued in the reporting period.

Net fee and commission income

Net fee and commission income mainly includes income and expenses arising from payment transfers, foreign exchange business and credit business. Fee and commission income and expenses are accrued in the reporting period.

Net trading income

Net trading income comprises the trading margins resulting from the foreign exchange business, results due to foreign exchange revaluations and all realized and unrealized gains and losses from financial assets and liabilities at fair value. In addition, it includes all interest and dividend income attributable to trading activities and related refinancing costs.

General administrative expenses

General administrative expenses include staff and other administrative expenses as well as amortization/depreciation and impairment losses for tangible and intangible fixed assets.

Income taxes

Current taxes are calculated on the basis of taxable income of the current year. The taxable income deviates from the profit of the statement of comprehensive income due to expenses and income which are taxable or tax-deductible in the following years or which are never taxable or tax-deductible. The liability is recognized on the basis of the actual tax rate or the future tax rate which is enacted by the end of the reporting period.

Deferred taxes are recognized and calculated in accordance with IAS 12 applying the liability method. Deferred taxes are based on all temporary differences that result from comparing the carrying amounts of assets and liabilities in the IFRS accounts with the tax bases of assets and liabilities, and which will reverse in the future. Deferred taxes are calculated by using tax rates applicable in the countries concerned. A deferred tax asset should also be recognized on tax loss carry-forwards if it is probable that sufficient taxable profit will be available against which the tax loss carry-forwards can be utilized within the same entity. On each reporting date, the carrying amount of the deferred tax assets is reviewed and impaired if it is not probable that sufficient taxable income is available in order to partly or fully realize the tax assets. Deferred tax assets and deferred tax liabilities within the same entity are netted.

Income tax credits and income tax obligations are recorded separately under other assets and tax provisions respectively.

Current and deferred taxes are recognized as profit or loss. In case that they are linked to items which are recognized in other comprehensive income, current and deferred taxes are also directly recognized in other comprehensive income.

Other comprehensive income

Other comprehensive income comprises all income and expenses directly recognized in equity according to IFRS standards. Other comprehensive income contains currency differences resulting from the translation of equity held in foreign currency, changes resulting from the hedging of a net investment in a foreign entity (capital hedge), the effective part of a cash flow hedge, changes resulting from valuation of available-for-sale financial assets as well as deferred taxes on the mentioned items.

Fiduciary business

Transactions arising from the holding and placing of assets on behalf of third parties are not shown in the statement of financial position. Fees arising from these transactions are shown under net fee and commission income.

Financial guarantees

According to IAS 39, a financial guarantee is a contract under which the guarantor is obliged to make payments that compensate the party to whom the guarantee is issued for a loss arising in the event that a particular debtor does not meet payment obligations on time as stipulated in the original terms of the debt instrument. At the date of recognition of a financial guarantee, the initial fair value corresponds under market conditions to the premium at the date of signature of the contract. For subsequent valuations the credit commitment has to be presented as provision according to IAS 37.

Contingent liabilities and commitments

The Group has contingent liabilities from guarantees, credit guarantees, letters of credit and loan commitments recognized at face value. Guarantees are used in situations in which the Group guarantees payment to the creditor to fulfill the obligation of a third party. Irrevocable credit lines must be reported when a credit risk may occur. These include commitments to provide loans, to purchase securities or to provide guarantees and acceptances. Loan loss provisions for contingent liabilities and irrevocable loan commitments are reported under provisions for liabilities and charges.

Statement of cash flows

The cash flow statement reports the change in the cash and cash equivalents of the company through the net cash from operating activities, investing and financing activities. Cash flows for investing activities mainly include proceeds from the sale, or payments for the acquisition of financial investments and tangible fixed assets. The net cash from financing activities shows all cash flows from equity capital, subordinated debt, and participation capital. All other cash flows are – according to international practices for financial institutions – assigned to cash flows from operating activities.

Segment reporting

Notes on segment reporting are to be found in the chapter segment reports.

Notes to the nature and extent of risks

Information about risks arising from financial instruments is disclosed in the explanatory notes. The risk report contains detailed information in the sections credit risk, country risk, concentration risk, market risk and liquidity risk.

Capital management

Information on capital management, regulatory own funds and risk-weighted assets are disclosed under note (53) capital management and regulatory own funds.

Notes to the income statement

(1) Income statement according to measurement categories

The following table shows income statement according to IAS 39 measurement categories:

€000	2010	2009
Net gains (losses) on financial assets and liabilities held-for-trading	304,784	348,485
Financial assets and liabilities at fair value through profit or loss	364,155	253,136
Interest income	252,385	213,645
Net gains (losses) on financial assets and liabilities at fair value through profit or loss	111,770	39,491
Financial assets available for sale	20,638	6,4741
Interest income	9,666	3,0091
Net realized gains (losses) on financial assets not measured at fair value through profit and loss	15,728	8,540
Impairment on financial assets not measured at fair value through profit and loss	(4,756)	(5,075)
Loans and advances	4,134,392	3,271,232
Interest income	5,342,692	5,009,115
Net realized gains (losses) on financial assets not measured at fair value through profit and loss	2,879	12,652
Impairment on financial assets not measured at fair value through profit and loss	(1,211,179)	(1,750,534)
Financial assets held-to-maturity	452,050	183,816
Interest income	445,896	185,421
Net realized gains (losses) on financial assets not measured at fair value through profit and loss	5,010	3
Impairment on financial assets not measured at fair value through profit and loss	1,144	(1,607)
Financial liabilities	(2,784,131)	(2,645,736)
Interest expenses	(2,784,131)	(2,645,736)
Derivatives (hedging)	(10,324)	(11,642)
Net interest income	(9,718)	(14,083)
Net gains (losses) from hedge accounting	(606)	2,441
Net revaluations from exchange differences	283,481	25,819
Other operating income/expenses	(1,477,723)	(1,063,987)1
Profit before tax from continuing operations	1,287,322	367,597

1 Adaption of previous year figures due to different mapping.

(2) Net interest income

The net interest income position includes income and expenses from items of banking business, dividend income, and fees and commissions with interest-like characteristics.

€000	2010	2009
Interest and interest-like income, total	6,364,799	5,588,567
Interest income	6,334,282	5,578,983
from balances at central banks	84,969	108,972
from loans and advances to banks	447,943	120,786
from loans and advances to customers	4,571,885	4,498,805
from financial investments	696,577	399,036
from leasing claims	221,448	283,266
from derivative financial instruments (non-trading), net	311,460	168,118
Current income	11,369	3,038
from shares and other variable-yield securities	1,703	30
from shares in affiliated companies	5,474	1,473
from other interests	4,192	1,535
Interest-like income	19,148	6,546
Current income from associates	200	2,931
Interest expenses and interest-like expenses, total	(2,786,831)	(2,654,996)
Interest expenses	(2,740,480)	(2,650,285)
on deposits from central banks	(2,700)	(9,259)
on deposits from banks	(678,759)	(827,940)
on deposits from customers	(1,251,006)	(1,593,821)
on debt securities issued	(610,492)	(131,415)
on subordinated capital	(197,523)	(87,850)
Interest-like expenses	(46,351)	(4,711)
Net interest income	3,578,168	2,936,502

The interest margin on the respective averages of the stated base is as follows:

Per cent	2010	2009
Interest margin (total assets)	2.51	3.73
Interest margin (risk-weighted assets, credit risk)	4.97	5.38

Interest income includes interest income (unwinding) from impaired loans to customers and impaired loans to banks in the amount of € 234,803 thousand (2009: € 304,849 thousand). Interest income from impaired loans and advances to customers and banks is recognized with the rate of interest used to discount the future cash flows for the purpose of measuring impairment loss. In the Ukrainian network unit, the method used to calculate interest on impaired loans was changed, which resulted in an effect of € 70,399 thousand, however this does not affect income as an equal and opposite entry was made to net provisioning for impairment losses.

(3) Net provisioning for impairment losses

Net provisioning for impairment losses on items reported on and off the statement of financial position is as follows:

€000	2010	2009
Individual loan loss provisions	(1,196,101)	(1,564,705)
Allocation to provisions for impairment losses	(1,681,809)	(1,774,035)
Release of provisions for impairment losses	530,848	271,455
Direct write-downs	(90,047)	(87,978)
Income received on written-down claims	44,907	25,853
Portfolio-based loan loss provisions	(862)	(185,829)
Allocation to provisions for impairment losses	(390,664)	(474,261)
Release of provisions for impairment losses	389,802	288,432
Gains from loan termination or sale	2,879	12,652
Total	(1,194,084)	(1,737,882)

The change of method in the Ukrainian network unit as described under net interest income led to a reduction of net provisioning for impairment losses of € 70,399 thousand.

Details on risk provisions are shown under note (17) impairment losses on loans and advances.

Ratios	2010	2009
Net provisioning ratio (average risk-weighted assets, credit risk)	1.66%	3.19%
Net provisioning ratio (total loans outstanding)	0.71%	1.95%
Loss rate	0.41%	0.30%
Portfolio rate	2.90%	3.53%

(4) Net fee and commission income

€000	2010	2009
Payment transfer business	599,023	543,283
Loan and guarantee business	281,567	199,835
Securities business	134,553	42,587
Foreign currency, notes/coins, and precious-metals business	329,909	332,878
Management of investment and pension funds	26,337	25,747
Sale of own and third party products	47,176	45,613
Credit derivatives business	2,804	(1,258)
Other banking services	69,423	34,372
Total	1,490,792	1,223,057

(5) Net trading income

The position net trading income also includes interest and dividend income, refinancing costs, commissions and any changes in fair value of trading portfolios.

€000	2010	2009
Interest-based transactions	211,076	116,903
Currency-based transactions	121,171	70,893
Equity-/index-based transactions	9,570	(1,471)
Credit derivatives business	(700)	0
Other transactions	(12,996)	15
Total	328,121	186,340

(6) Net income from derivatives and designated liabilities

€000	2010	2009
Net income from hedge accounting	(605)	2,441
Net income from credit derivatives	2,348	(3,100)
Net income from other derivatives	(63,384)	8,864
Net income from liabilities designated at fair value	(22,544)	0
Total	(84,185)	8,205

Net income from hedge accounting includes on the one hand, a valuation loss from derivatives of € 15,312 thousand (2009: positive result of € 1,564 thousand) and on the other hand, changes in the carrying amount of the fair value hedged items of plus € 14,707 thousand (2009: plus € 877 thousand).

Net income from other derivatives includes valuation results, which are held to hedge against market risks (except trading assets/liabilities). They are based on an inhomogeneous portfolio and do not satisfy the requirements for hedge accounting according to IAS 39.

Net income from liabilities designated at fair value comprises a profit from changes in own credit risk amounting to € 33,000 thousand (2009: € 0) and negative effects from changes in market interest rates.

(7) Net income from financial investments

The position net income from financial investments comprises valuation results and net proceeds from disposal of financial investment portfolio (held-to-maturity), from securities at fair value through profit and loss, and equity participations which include shares in affiliated companies, companies valued at equity, and other companies.

€000	2010	2009
Net income from financial investments held-to-maturity	6,153	(1,605)
Net valuations of financial investments held-to-maturity	1,143	(1,608)
Net proceeds from sales of financial investments held-to-maturity	5,010	3
Net income from equity participations	11,024	3,464
Net valuations of equity participations	(4,704)	(5,076)
Net proceeds from sales of equity participations	15,728	8,540
Net income from securities at fair value through profit and loss	120,046	39,491
Net valuations of securities at fair value through profit and loss	57,869	22,588
Net proceeds from sales of securities at fair value through profit and loss	62,177	16,903
Total	137,223	41,350

(8) General administrative expenses

General administrative expenses contain staff expenses, other administrative expenses and depreciation on tangible and intangible fixed assets. They break down as follows:

€000	2010	2009
Staff expenses	(1,452,948)	(1,054,167)
Wages and salaries	(1,115,001)	(805,599)
Social security costs and staff-related taxes	(265,055)	(207,757)
Other voluntary social expenses	(40,656)	(33,078)
Expenses on severance payments, retirement benefits and anniversary payments	(26,761)	(3,950)
Expenses on share incentive program (SIP)	(5,475)	(3,783)
Other administrative expenses	(1,186,515)	(970,184)
Office space expenses	(332,055)	(308,037)
IT expenses	(202,026)	(143,038)
Communication expenses	(94,886)	(80,833)
Legal, advisory and consulting expenses	(117,535)	(99,883)
Advertising, PR and promotional expenses	(109,662)	(80,303)
Deposit insurance fees	(73,422)	(66,388)
Office supplies	(32,605)	(30,714)
Car expenses	(20,724)	(18,532)
Security expenses	(45,382)	(35,928)
Traveling expenses	(25,080)	(15,964)
Training expenses for staff	(17,915)	(13,029)
Sundry administrative expenses	(115,223)	(77,535)

€000	2010	2009
Depreciation of intangible and tangible fixed assets	(340,282)	(245,375)
Tangible fixed assets	(180,354)	(146,689)
Intangible fixed assets	(128,093)	(68,570)
Leased assets (operating lease)	(31,835)	(30,116)
Total	(2,979,745)	(2,269,726)

Legal, advisory and consulting expenses include audit fees of the Group companies which comprise expenses paid for the audit of financial statements amounting to € 7,345 thousand (2009: € 5,315 thousand) and tax advisory as well as other additional consulting services provided by the auditors amounting to € 2,977 thousand (2009: € 1,954 thousand). T thereof, € 1,651 thousand (2009: € 300 thousand) are accounted for by the group auditor for the audit of the consolidated financial statement and the individual financial statement and € 670 thousand (2009: € 130 thousand) is accounted for the by other consulting services.

Amortization of intangible fixed assets capitalized in the course of initial consolidation amounted to € 5,994 thousand (2009: € 5,687 thousand). This is due to scheduled amortization of the acquired customer base.

(9) Other net operating income

The position other net operating income captures, among other things, sales revenues and expenses from non-banking activities, income and expenses from disposal as well as income from the revaluation of tangible and intangible fixed assets.

€000	2010	2009
Sales revenues from non-banking activities	834,260	118,627
Expenses arising from non-banking activities	(799,028)	(114,522)
Revenues from additional leasing services	91,823	84,502
Expenses from additional leasing services	(94,430)	(88,357)
Rental income from operating lease (vehicles and equipment)	36,468	35,330
Rental income from investment property incl. operating lease (real estate)	12,616	9,167
Net proceeds from disposal of tangible and intangible fixed assets	(9,233)	(3,080)
Other taxes	(73,810)	(51,679)
hereof special bank levies	(41,439)	0
Income from release of negative goodwill	0	28
Net expense from allocation and release of other provisions	(27,208)	(3,951)
Sundry operating income	77,174	33,411
Sundry operating expenses	(42,335)	(39,801)
Total	6,297	(20,325)

(10) Net income from disposal of group assets

In the reporting period, 41 subsidiaries were excluded from the consolidated group due to changed materiality limits. six subsidiaries were excluded due to end of operations. Net income from disposal of group assets amounted to € 4,734 thousand (2009: € 76 thousand).

(11) Income taxes

Income taxes break down as follows:

€000	2010	2009
Current income taxes	(357,066)	(148,722)
Austria	(41,338)	10,745
Foreign	(315,728)	(159,467)
Deferred taxes	246,905	68,222
Total	(110,161)	(80,500)

Raiffeisen Bank International AG and nine of its domestic subsidiaries are members of a joint tax entity headed by Raiffeisen Zentralbank Österreich Aktiengesellschaft. A tax benefit of € 12 thousand (2009: € 13,198 thousand) was granted to RBI AG by RZB AG to balance the tax effects.

The following reconciliation shows the relation between profit before tax and the effective tax burden:

€000	2010	2009
Profit before tax	1,287,322	367,597
Theoretical income tax expense in the financial year based on the domestic income tax rate of 25 per cent	(321,830)	(91,899)
Effect of divergent foreign tax rates	60,901	51,792
Tax decrease because of tax-exempted income from equity participations and other income	102,649	97,436
Tax increase because of non-deductible expenses	(55,781)	(81,243)
Other tax decreases and tax increases	103,900	(56,586)
Effective tax burden	(110,161)	(80,500)
Tax rate in per cent	8.6	21.9

Other tax deductions and tax increases include mainly deferred tax assets built on tax loss carry-forwards and belated tax payments. In the reporting period, the parent company built deferred tax assets on tax loss carry-forwards of € 119,905 thousand based on a new mid-term planning allowing that deferred tax assets can be realized within a reasonable period of time.

(12) Earnings per share

€000	2010	2009
Consolidated profit	1,087,475	212,181
Less dividend for participation capital/participation rights	(200,000)	(60,000)
Adapted consolidated profit	887,475	152,181
Average number of ordinary shares outstanding in thousand	194,530	153,674
Earnings per share in €	4.56	0.99

There were no conversion or option rights outstanding, so undiluted earnings per share are equal to diluted earnings per share. The capital increase by issuing 40,837,624 non-par shares in the course of the merger were considered in the calculation of the average number of ordinary shares outstanding.

Notes to the statement of financial position

(13) Statement of financial position according to measurement categories

The following table shows the statement of financial position according to IAS 39 measurement categories:

Assets according to measurement categories €000	2010	2009
Trading assets	8,631,020	4,020,769
Positive fair values of derivative financial instruments	4,187,699	857,630
Shares and other variable-yield securities	429,905	10,642
Bonds, notes and other fixed-interest securities	4,013,416	3,152,497
Financial assets at fair value through profit or loss	8,070,267	3,233,527
Shares and other variable-yield securities	279,787	197,118
Bonds, notes and other fixed-interest securities	7,790,480	3,036,409
Investments in associates	4,961	5,4371
Financial assets available for sale	393,620	118,9591
Investments in other affiliated companies	233,011	60,447
Other interests	160,609	58,512
Loans and advances	99,267,608	62,709,168
Loans and advances to banks	26,338,989	14,489,573
Loans and advances to customers	75,617,601	50,483,342
Other non-derivative financial assets	2,066,890	820,276
Impairment losses on loans and advances	(4,755,872)	(3,084,023)
Financial assets held-to-maturity	11,206,783	3,949,790
Bonds, notes and other fixed-interest securities	11,167,015	3,918,060
Purchased loans	39,768	31,730
Derivatives (hedging)	925,409	21,565
Positive fair values of derivatives (hedging)	925,409	21,565
Other assets	2,673,446	2,216,114
Intangible and tangible fixed assets	2,673,446	2,216,114
Total assets	131,173,114	76,275,329

1 Adaption of previous year figures due to different mapping.

Equity and liabilities according to measurement categories €000	2010	2009
Trading liabilities	6,528,355	723,606
Negative fair values of derivative financial instruments	5,337,984	719,535
Short-selling of trading assets	405,426	4,071
Certificates issued	784,945	0
Financial liabilities	110,534,766	68,189,984
Deposits from banks	33,659,182	20,110,170
Deposits from customers	57,633,113	42,578,249
Debt securities issued	13,997,986	2,526,651
Subordinated capital	4,001,098	2,470,285
Other non-derivative financial liabilities	1,243,387	504,629
Liabilities at fair value through profit and loss	2,557,396	0
Debt securities issued	2,557,396	0
Derivatives (hedging)	476,764	50,026
Negative fair values of derivatives (hedging)	476,764	50,026
Provisions for liabilities and charges	671,908	311,531
Equity	10,403,925	7,000,182
Total equity and liabilities	131,173,114	76,275,329

(14) Cash reserve

€000	2010	2009
Cash in hand	1,639,507	1,367,591
Balances at central banks	3,167,384	2,811,981
Total	4,806,891	4,179,572

(15) Loans and advances to banks

2009
2,125,688
7,903,797
278,058
208
1,659
691
10,310,101

Of the purchased loans amounting to € 34,510 thousand, € 34,203 thousand are assigned to the measurement category loans and advances (2009: € 107 thousand) and € 307 thousand to held-to-maturity (2009: € 101 thousand).

Loans and advances to banks classified regionally (counterparty's seat) are as follows:

€000	2010	2009
Austria	10,794,273	5,673,192
Foreign	10,738,133	4,636,909
Total	21,532,406	10,310,101

Loans and advances to banks break down into the following bank segments:

€000	2010	2009
Central banks	1,483,988	1,951,611
Commercial banks	20,038,435	8,335,838
Multilateral development banks	9,983	22,652
Total	21,532,406	10,310,101

(16) Loans and advances to customers

€000	2010	2009
Credit business	48,763,542	26,723,556
Money market business	5,000,582	2,148,354
Mortgage loans	16,887,910	17,874,752
Purchased loans	1,138,650	499,425
Leasing claims	3,108,925	3,266,872
Claims evidenced by paper	757,452	2,012
Total	75,657,061	50,514,971

Purchased loans amounting to € 1,099,190 thousand (2009: € 467,796 thousand) are assigned to the measurement category loans and advances. Purchased loans classified as held-to-maturity totaled € 39,460 thousand (2009: € 31,629 thousand).

Loans and advances to customers break down into asset classes according to Basel II definition as follows:

€000	2010	2009
Sovereigns	1,493,464	1,157,831
Corporate customers – large	49,201,202	25,371,785
Corporate customers – small business	3,828,783	3,815,092
Retail customers – private individuals	18,548,815	17,790,107
Retail customers – small and medium-sized entities	2,441,270	2,351,931
Other	143,527	28,225
Total	75,657,061	50,514,971

Loans and advances to customers classified regionally (counterparty's seat) are as follows:

€000	2010	2009
Austria	7,913,930	31,685
Foreign	67,743,131	50,483,286
Total	75,657,061	50,514,971

(17) Impairment losses on loans and advances

Provisions for impairment losses are formed in accordance with uniform Group standards and cover all recognizable credit risks. A table with the development of the impairment losses on loans and advances can be found in the risk report on page 200 Provisions for impairment losses are allocated to the following asset classes according to the Basel II definition:

2010	2009
255,020	3,438
996	2,915
2,431,647	1,364,783
407,459	332,662
1,417,968	1,169,892
242,782	210,333
4,755,872	3,084,023

Loans and advances and loan loss provisions according to Basel II asset classes are shown in the following table:

31/12/2010	Fair value	Carrying amount	Individually impaired	Individual loan loss	Portfolio based	Net carrying amount
€000			assets	provisions	provisions
Banks	21,270,497	21,532,406	271,087	236,579	18,440	21,277,387
Sovereigns	1,404,555	1,493,464	12,489	996	0	1,492,468
Corporate customers – large	46,229,254	49,344,729	3,597,547	2,025,674	405,973	46,913,082
Corporate customers – small
business	3,468,804	3,828,783	670,167	375,802	31,657	3,421,324
Retail customers – private individuals	17,918,352	18,548,815	1,789,377	1,115,494	302,474	17,130,847
Retail customers – small and medium
sized entities	2,379,029	2,441,270	319,913	192,749	50,033	2,198,488
Total	92,670,491	97,189,467	6,660,580	3,947,294	808,577	92,433,596

31/12/2009	Fair value	Carrying amount	Individually impaired	Individual loan loss	Portfolio based	Net carrying amount
€000			assets	provisions	provisions
Banks	10,306,241	10,310,101	4,241	3,430	8	10,306,663
Sovereigns	1,142,721	1,157,831	80,344	2,915	0	1,154,916
Corporate customers – large	24,477,546	25,371,785	2,776,422	1,137,224	227,559	24,007,002
Corporate customers – small business	3,664,984	3,815,092	581,853	279,927	52,735	3,482,430
Retail customers – private individuals	17,595,666	17,790,107	1,192,012	777,874	392,018	16,620,215
Retail customers – small and medium sized entities	2,275,519	2,351,931	270,943	156,639	53,694	2,141,599
Other	28,453	28,224	129	0	0	28,224
Total	59,491,130	60,825,071	4,905,944	2,358,009	726,014	57,741,049

Impaired assets

The following table shows the carrying amount of individually impaired assets, the amount of individually allocated provisions and the corresponding net value of available collaterals:

31/12/2010	Impairments and collaterals
€000	Individually impaired assets	Individual loan loss provisions	Individually impaired assets after deduction of ILLP	Collaterals for individually impaired assets	Interest on individually impaired assets
Banks	271,087	236,579	34,508	0	4,623
Sovereigns	12,489	996	11,493	32	853
Corporate customers – large	3,597,547	2,025,675	1,571,872	1,114,480	104,469
Corporate customers – small business	670,167	375,802	294,365	288,731	26,233
Retail customers – private individuals	1,789,377	1,115,494	673,883	638,964	87,960
Retail customers – small and medium sized entities	319,913	192,749	127,164	95,020	10,664
Total	6,660,580	3,947,295	2,713,285	2,137,228	234,803

31/12/2009	Impairments and collaterals
€000	Individually impaired assets	Individual loan loss provisions	Individually impaired assets after deduction of ILLP	Collaterals for individually impaired assets	Interest on individually impaired assets
Banks	4,241	3,430	811	391	27
Sovereigns	80,344	2,915	77,429	8,099	1,816
Corporate customers – large	2,776,422	1,137,223	1,639,199	1,349,302	121,169
Corporate customers – small business	581,853	279,927	301,926	477,086	40,496
Retail customers – private individuals	1,192,012	777,874	414,138	719,163	118,627
Retail customers – small and medium sized entities	270,943	156,640	114,303	194,501	22,713
Other	129	0	129	0	0
Total	4,905,944	2,358,009	2,547,935	2,748,541	304,849

(18) Trading assets

The trading assets consist of the following securities and derivative instruments held-for-trading:

€000	2010	2009
Bonds, notes and other fixed-interest securities	4,013,416	3,152,498
Treasury bills and bills of public authorities eligible for refinancing	1,083,173	1,300,762
Other securities issued by the public sector	870,387	1,094,950
Bonds and notes of non-public issuers	2,059,856	756,786
Shares and other variable-yield securities	430,428	10,642
Shares	267,613	8,578
Mutual funds	72,323	1,734
Other variable-yield securities	90,492	330
Positive fair values of derivative financial instruments	3,624,549	546,312
Interest-based transactions	2,818,894	333,073
Currency-based transactions	642,939	210,515
Equity-/index-based transactions	95,885	2,710
Credit derivatives business	47,789	0
Other transactions	19,042	14
Total	8,068,393	3,709,452

Pledged securities ready to be sold or repledged by transferee are allocated to the appropriate securities category in the table above. Further details are shown under note (40) genuine sale and repurchase agreements.

(19) Derivatives

€000	2010	2009
Positive fair values of derivatives in fair value hedges (IAS 39)	360,827	21,565
Interest-based transactions	360,827	21,151
Currency-based transactions	0	414
Positive fair values of derivatives in cash flow hedges (IAS 39)	564,583	0
Interest-based transactions	564,583	0
Positive fair values of credit derivatives	9,472	165
Positive fair values of other derivatives	553,154	311,152
Interest-based transactions	453,263	102,901
Currency-based transactions	98,547	203,303
Equity-/index-based transactions	1,344	4,948
Total	1,488,036	332,882

As long as the conditions for hedge accounting according to IAS 39 are fulfilled, derivative financial instruments are measured at their fair values (dirty prices) in their function as hedging instruments. The hedged items in connection with fair value hedges are loans and advances to customers and debt securities issued. The hedged risks are interest rate risks. The changes in carrying amount of the hedged underlying transactions in IAS 39 fair value hedges are included in the respective items of the statement of financial position.

The item also includes the positive fair values of derivative financial instruments that neither are held for trading nor constitute fair value hedging instruments under IAS 39.

(20) Financial investments

This position consists of securities available-for-sale, financial assets at fair value through profit or loss, and securities held-tomaturity as well as strategic equity participations held on a long-term basis.

€000	2010	2009
Bonds, notes and other fixed-interest securities	18,957,495	6,954,469
Treasury bills and bills of public authorities eligible for refinancing	9,886,294	3,345,967
Other securities issued by the public sector	3,687,021	2,429,753
Bonds and notes of non-public issuers	5,363,862	1,178,749
Other	20,318	0
Shares and other variable-yield securities	279,787	197,118
Shares	93,917	433
Mutual funds	182,532	196,685
Other variable-yield securities	3,338	0
Equity participations	393,620	118,960
Interest in affiliated companies	233,012	60,448
Other interests	160,608	58,512
Total	19,630,902	7,270,547

Pledged securities ready to be sold or repledged by the transferee are allocated to the appropriate securities category in the table above. Further details are shown under note (40) genuine sale and repurchase agreements.

As in the previous year, no reclassification was made for securities held-for-trading to the categories held-to-maturity and loans and advances. The carrying amount of the securities reclassified into the category held-to-maturity amounted to € 371,686 thousand at the date of reclassification in 2008. As of 31 December 2010, the carrying amount was € 238,188 thousand and the fair value totaled € 244,238. In 2010, a result from the reclassified securities of € 16,343 thousand (2009: € 13,709 thousand) was shown in the income statement. If the reclassification had not been made, a gain of € 9,042 thousand (2009: € 3,983 thousand) would have arisen.

The carrying amount of the securities reclassified into the category loans and advances amounted to € 1,559,682 thousand at the date of reclassification in 2008. The carrying amount as of 31 December 2010 totaled € 1,316,691 thousand and the fair value was € 1,317,946 thousand. In 2010, a result from the reclassified securities of € 41,306 thousand (2009: 0) was shown in the income statement. If the reclassification had not been made, a gain of € 69,648 0 thousand (2009: € 0) would have arisen.

Equity participations valued at amortized cost for which fair values could not be measured reliably amounted to € 80,549 thousand (2009: € 33,590 thousand).

For the following subsidiaries syndicate contracts between RBI AG and the respective shareholders exist: Raiffeisenbank a.s. (Czech Republic), Tatra banka a.s. (Slovakia), Raiffeisen Bank, Zrt. (Hungary), and Raiffeisen-RBHU Holding GmbH (Austria), and Raiffeisen Banka d.d. (Slovenia), respectively, as well as Raiffeisenbank Austria d.d. (Croatia). These syndicate contracts regulate especially purchase options between direct and indirect shareholders.

The syndicate contracts expire automatically if control over the company changes – also in the case of a takeover bid. The following agreement has been made with the European Bank for Reconstruction and Development (EBRD) regarding Priorbank, OAO (Belarus): If control over the company changes, EBRD has the option to sell all shares held in Priorbank to the company.

(21) Investments in associates

The shares in companies valued at equity are as follows:

€000	2010	2009
Investments in associates	4,961	5,437

Financial information on associated companies is as follows:

€000	Total assets	Total revenues	Profit/loss after taxes	Shareholders' equity
Raiffeisen Banca pentru Locuinte S.A., Bucharest (RO)	75,002	4,519	99	14,886

Further information regarding associated companies is stated on page 252.

(22) Intangible fixed assets

€000	2010	2009
Goodwill	613,681	581,374
Software	479,826	274,912
Other intangible fixed assets	126,309	115,595
Total	1,219,816	971,881

The item software comprises acquired software amounting to € 424,611 thousand (2009: € 274,244 thousand) and developed software amounting to € 55,215 thousand (2009: € 669 thousand).

The carrying amount of goodwill as basis for the impairment test was allocated to the following cash generating units, whereby changes in the carrying amounts are entirely attributable to currency differences:

€000	2010	2009
Raiffeisen Bank Aval JSC, Kiev	220,606	204,622
OOO Raiffeisen-Leasing, Moscow	263,124	248,893
Raiffeisenbank a.s., Prague	42,443	40,758
Raiffeisen Bank Sh.a., Tirane	52,711	53,020
Ukrainian Processing Center PJSC, Kiev	14,977	13,831
Other	19,820	20,250
Total	613,681	581,374

Information about the impairment tests can be found in the chapter business combinations on page 142.

(23) Tangible fixed assets

€000	2010	2009
Land and buildings used by the Group for own purpose	553,590	526,408
Other land and buildings (investment property)	112,730	26,864
Office furniture, equipment and other tangible fixed assets	507,331	479,421
Leased assets (operating lease)	279,979	211,540
Total	1,453,630	1,244,233

The fair value of investment property totaled € 110,630 thousand (2009: € 26,864 thousand).

(24) Development of fixed assets

Tangible and intangible fixed assets developed in the financial year 2010 as follows:

				Cost of acquisition or conversion
€000	As of 1/1/2010	Change in consolidated group	Exchange differences	Additions	Disposals	Transfers	As of 31/12/2010
Intangible fixed assets	1,337,153	273,842	46,985	203,413	(28,322)	3,713	1,836,783
Goodwill	611,140	22	29,152	0	(1,080)	0	639,234
Software	573,774	268,071	7,132	182,583	(25,852)	11,822	1,017,529
Other intangible fixed assets	152,239	5,749	10,701	20,830	(1,390)	(8,109)	180,020
Tangible fixed assets	2,032,101	120,079	37,011	415,293	(157,057)	(3,713)	2,443,714
Land and buildings used by the Group for own purpose	673,711	19,167	17,255	38,625	(15,536)	4,103	737,325
Other land and buildings	32,669	4,757	1,445	83,923	(1,222)	(1,760)	119,812
of which land value of developed land	8,826	4,617	421	37	0	0	13,901
Office furniture, equipment and other tangible fixed assets	1,054,926	96,155	19,493	170,601	(102,628)	(3,693)	1,234,854
Leased assets (operating lease)	270,795	0	(1,182)	122,144	(37,671)	(2,363)	351,723
Total	3,369,254	393,921	83,996	618,706	(185,379)	0	4,280,497

	Write-ups, amortization, depreciation, impairment	Carrying amount
		hereof	hereof
€000	Cumulative	Write-ups	Depreciation	31/12/2010
Intangible fixed assets	(616,967)	1,258	(128,093)	1,219,816
Goodwill	(25,553)	0	0	613,681
Software	(537,703)	0	(118,977)	479,826
Other intangible fixed assets	(53,711)	1,258	(9,115)	126,309
Tangible fixed assets	(990,084)	636	(212,189)	1,453,630
Land and buildings used by the Group for own
purpose	(183,735)	0	(33,304)	553,590
Other land and buildings	(7,082)	0	(4,923)	112,730
of which land value of developed land	0	0	0	13,901
Office furniture, equipment and other tangible
fixed assets	(727,523)	432	(142,127)	507,331
Leased assets (operating lease)	(71,744)	204	(31,835)	279,979
Total	(1,607,051)	1,894	(340,282)	2,673,446

Intangible and tangible fixed assets developed in the financial year 2009 as follows:

				Cost of acquisition or conversion
€000	As of 1/1/2009	Change in consolidated group	Exchange differences	Additions	Disposals	Transfers	As of 31/12/2009
Intangible fixed assets	1,270,718	2,687	(42,838)	133,305	(26,724)	5	1,337,153
Goodwill	640,679	0	(29,539)	0	0	0	611,140
Software	471,224	2,687	(6,404)	125,244	(21,987)	3,010	573,774
Other intangible fixed assets	158,815	0	(6,895)	8,061	(4,737)	(3,005)	152,239
Tangible fixed assets	1,956,706	5,561	(61,854)	284,056	(152,363)	(5)	2,032,101
Land and buildings used by the Group for own purpose	620,278	1,714	(25,526)	61,616	(19,803)	35,432	673,711
Other land and buildings	15,433	2,607	(1,296)	18,179	(3,786)	1,532	32,669
of which land value of developed land	6,304	0	(277)	2,799	0	0	8,826
Office furniture, equipment and other tangible fixed assets	1,053,552	1,240	(35,051)	155,635	(84,067)	(36,383)	1,054,926
Leased assets (operating lease)	267,443	0	19	48,626	(44,707)	(586)	270,795
Total	3,227,424	8,248	(104,692)	417,361	(179,087)	0	3,369,254

	Write-ups, amortization, depreciation, impairment	Carrying amount
		hereof	hereof
€000	Cumulative	Write-ups	Depreciation	31/12/2009
Intangible fixed assets	(365,272)	154	(68,570)	971,881
Goodwill	(29,766)	0	0	581,374
Software	(298,862)	154	(60,535)	274,912
Other intangible fixed assets	(36,645)	0	(8,035)	115,594
Tangible fixed assets	(787,868)	79	(176,805)	1,244,233
Land and buildings used by the Group for own purpose	(147,303)	0	(25,345)	526,408
Other land and buildings	(5,805)	0	(2,191)	26,864
of which land value of developed land	0	0	0	8,826
Office furniture, equipment and other tangible fixed assets	(575,505)	48	(119,154)	479,421
Leased assets (operating lease)	(59,254)	31	(30,115)	211,541
Total	(1,153,140)	233	(245,375)	2,216,114

Additions to intangible and tangible assets did not include major individual investments.

(25) Other assets

€000	2010	2009
Tax assets	494,235	229,472
Current tax assets	31,547	109,403
Deferred tax assets	462,687	120,069
Receivables arising from non-banking activities	140,216	27,199
Prepayments and other deferrals	263,197	220,733
Clearing claims from securities and payment transfer business	356,015	95,942
Lease in progress	82,319	141,438
Assets held for sale (IFRS 5)	5,293	1,820
Inventories	146,973	30,424
Any other business	578,641	73,248
Total	2,066,889	820,276

Deferred taxes break down as follows:

€000	2010	2009
Deferred tax assets	462,688	120,069
Provisions for deferred taxes	(8,368)	(13,234)
Net deferred taxes	454,320	106,835

The net deferred taxes result from the following items:

€000	2010	2009
Loans and advances to customers	97,391	69,914
Impairment losses on loans and advances	120,723	77,483
Tangible and intangible fixed assets	20,339	4,469
Other assets	5,079	8,766
Provisions for liabilities and charges	56,852	29,947
Trading liabilities	4,684	24,961
Other liabilities	77,922	35,445
Tax loss carry-forwards	269,811	79,107
Other items of the statement of financial position	43,715	326
Deferred tax assets	696,516	330,418
Loans and advances to banks	3,170	497
Loans and advances to customers	37,397	38,881
Trading assets	17,690	21,373
Tangible and intangible fixed assets	67,451	51,974
Deposits from customers	887	743
Provisions for liabilities and charges	9,808	9,359
Other liabilities	12,236	9,925
Other items of the statement of financial position	93,557	90,831
Deferred tax liabilities	242,196	223,583
Net deferred taxes	454,320	106,835

In the consolidated financial statements, deferred tax assets are recognized for unused tax loss carry-forwards which amounted to € 269,811 thousand (2009: € 79,107 thousand). The tax loss carry-forwards are mainly without any time limit. The Group did not recognize deferred tax assets of € 56 thousand (2009: € 2,464 thousand) because from current point of view there is no prospect of realizing them within a reasonable period of time.

(26) Deposits from banks

€000	2010	2009
Giro and clearing business	2,326,285	733,283
Money market business	21,168,107	3,145,124
Long-term refinancing	10,164,790	16,231,763
Total	33,659,182	20,110,170

RBI refinances itself periodically with international commercial banks and multinational development banks. These credit contracts contain ownership clauses normally used in business. These clauses give permission to an exceptional termination in the case of change in direct or indirect control over RBI AG, e.g. if Raiffeisen Zentralbank Österreich Aktiengesellschaft loses the majority shareholding in RBI AG. This can lead to increased refinancing costs for RBI in the future.

Deposits from banks classified regionally (counterparty's seat) break down as follows:

€000	2010	2009
Austria	16,046,386	12,735,914
Foreign	17,612,796	7,374,256
Total	33,659,182	20,110,170

Deposits from banks break down into the following bank segments:

€000	2010	2009
Central banks	1,399,269	490,019
Commercial banks	30,948,498	18,772,845
Multilateral development banks	1,311,415	847,306
Total	33,659,182	20,110,170

(27) Deposits from customers

€000	2010	2009
Sight deposits	23,780,971	17,140,431
Time deposits	32,382,372	24,044,766
Savings deposits	1,469,770	1,393,052
Total	57,633,113	42,578,249

Deposits from customers break down analog to Basel II definition as follows:

€000	2010	2009
Sovereigns	1,722,770	1,558,512
Corporate customers – large	26,924,075	14,180,912
Corporate customers – small business	2,489,184	2,330,959
Retail customers – private individuals	22,122,522	21,103,804
Retail customers – small and medium-sized entities	3,672,733	3,129,147
Other	701,829	274,915
Total	57,633,113	42,578,249

Deposits from customers classified regionally (counterparty's seat) are as follows:

€000	2010	2009
Austria	5,718,613	404,630
Foreign	51,914,500	42,173,619
Total	57,633,113	42,578,249

(28) Debt securities issued

€000	2010	2009
Bonds and notes issued	15,917,240	1,925,044
Money market instruments issued	51	112
Other debt securities issued	638,091	601,495
Total	16,555,382	2,526,651

The following table contains debt securities issued exceeding € 200,000 thousand nominal value:

ISIN	Type	Currency	Nominal value	Coupon	Due
XS0426089719	senior government guaranteed	EUR	1,500,000	2.5%	4/5/2011
XS0412067489	senior government guaranteed	EUR	1,500,000	3.6%	5/2/2014
XS0417093753	senior government guaranteed	EUR	1,250,000	3.0%	13/3/2012
XS0371504365	senior public placements	EUR	1,250,000	5.9%	20/6/2011
XS0242395357	senior public placements	EUR	921,610	1.1%	2/2/2011
XS0305474461	senior public placements	EUR	500,000	4.8%	15/6/2012
XS0284781431	senior public placements	EUR	427,165	0.8%	2/2/2012
XS0307006436	senior public placements	EUR	350,000	1.1%	25/6/2012
XS0385075758	senior public placements	EUR	340,000	6.2%	3/10/2011
RU000A0JQ1K7	senior public placements	RUB	244,931	13.5%	3/12/2013
AT000B011804	senior private placements	EUR	200,000	2.5%	28/1/2012
AT000B012000	senior private placements	EUR	200,000	3.0%	16/10/2012
XS0341159316	senior public placements	EUR	200,000	1.6%	21/1/2013
				in €000

RBI … Raiffeisen Bank International AG, Vienna RBRU … ZAO Raiffeisenbank, Moscow

€000	As of 1/1/2010	Change in consolidated group	Allocation	Release	Usage	Transfers, exchange differences	As of 31/12/2010
Severance payments	9,404	44,286	10,516	(1,180)	(748)	(1,508)	60,770
Retirement
benefits	4,960	7,981	961	0	(23)	0	13,879
Taxes	26,156	26,886	79,573	(3,472)	(34,627)	12,615	107,131
Current	12,922	29,772	78,788	(1,052)	(33,910)	12,243	98,763
Deferred	13,234	(2,886)	785	(2,420)	(717)	372	8,368
Contingent liabilities and commitments	69,837	11,840	110,838	(41,764)	(18,947)	615	132,419
Pending legal issues	39,799	34,811	35,765	(3,246)	(164)	790	107,755
Overdue vacation	28,708	13,812	12,358	(5,054)	0	412	50,236
Bonus payments	92,211	37,327	113,183	(4,265)	(92,997)	2,954	148,413
Restructuring	3,202	0	20,713	(65)	(19,052)	239	5,037
Other	37,254	20,931	51,257	(18,593)	(45,527)	948	46,270
Total	311,531	197,874	435,164	(77,639)	(212,085)	17,065	671,910

(29) Provisions for liabilities and charges

RBI is involved in pending legal issues, which may occur in the banking business. RBI does not expect that these legal cases will have a material impact on the financial position of the Group.

In the reporting period, provisions for pending legal issues amounted to € 107,755 thousand. In a Russian network unit, a provisons of € 15,109 thousand was built in connection with the cancellation of a rent agreement by Raiffeisenbank Moscow. In RBI AG, a provision of € 12,000 thousand was built for a legal issue regarding the law suit of customers of a funds management company in connection with the payment transfer done by the former RZB. Moreover, there were no single cases exceeding € 10,000 thousand.

Provisions for severance payments and similar obligations developed as follows:

€000	2010	2009
Defined benefit obligation (DBO) as of 1/1	9,404	8,047
Exchange differences	(285)	(284)
Changes in consolidated group	42,464	453
Service cost	3,107	1,006
Interest cost	1,915	132
Payments	(4,378)	(433)
Actuarial gain/loss	8,543	484
Defined benefit obligation (DBO) as of 31/12 (=provision)	60,770	9,404

Provisions for retirement benefits developed as follows:

€000	2010	2009
Defined benefit obligation (DBO) as of 1/1	4,960	4,769
Changes in consolidated group	16,798	719
Current service cost	886	11
Interest cost	1,039	211
Benefit payments	(31)	0
Actuarial gain/loss	1,221	(749)
Defined benefit obligation (DBO) as of 31/12	24,873	4,960

Plan assets developed as follows:

€000	2010	2009
Plan assets at fair value as of 1/1	0	0
Changes in consolidated group	9,945	0
Expected return on plan assets	433	0
Contributions to plan assets	483	0
Actuarial gain/loss	133	0
Plan assets at fair value as of 31/12	10,994	0

The reconciliation of DBO to provision is as follows:

€000	2010	2009
Defined benefit obligation (DBO)	24,873	4,960
Plan assets at fair value	10,994	0
Provision as of 31/12	13,879	4,960

The structure of plan assets breaks down as follows:

Per cent	2010	2009
Bonds	46%	0%
Equities	38%	0%
Alternative investments	9%	0%
Property	1%	0%
Cash	6%	0%

Actual return on plan assets was as follows:

€000	2010	2009
Actual return on plan assets	566	0

The partition of DBO into wholly/partly funded or wholly unfunded is as follows:

€000	2010	2009
Wholly funded	10,122	0
Partly funded	9,066	0
Wholly unfunded	5,685	4,960
Defined benefit obligation (DBO)	24,873	4,960

(30) Trading liabilities

€000	2010	2009
Negative fair values of derivative financial instruments	4,530,916	510,128
Interest-based transactions	3,019,044	340,066
Currency-based transactions	923,460	167,323
Equity-/index-based transactions	525,677	2,725
Credit derivatives business	43,920	0
Other transactions	18,815	14
Short-selling of trading assets	425,730	4,071
Certificates issued	784,945	0
Total	5,741,591	514,199

(31) Derivatives

€000	2010	2009
Negative fair values of derivatives in fair value hedges (IAS 39)	23,487	5,113
Interest-based transactions	23,487	5,113
Negative fair values of derivatives in cash flow hedges (IAS 39)	453,276	44,913
Interest-based transactions	453,276	44,913
Negative fair values of credit derivatives	18,332	0
Negative fair values of derivative financial instruments	768,433	209,407
Interest-based transactions	479,373	95,755
Currency-based transactions	245,169	108,819
Equity-/index-based transactions	43,891	4,833
Total	1,263,528	259,433

As long as the conditions for hedge accounting according to IAS 39 are fulfilled, derivative financial instruments are measured at their fair values (dirty prices) in their function as hedging instruments. The hedged items in connection with fair value hedges are loans and advances to customers and deposits from banks. The hedged risks are interest rate risks.

(32) Other liabilities

€000	2010	2009
Liabilities from non-banking activities	114,581	62,112
Accruals and deferred items	189,719	111,467
Liabilities from dividends	541	468
Clearing claims from securities and payment transfer business	405,518	168,583
Any other business	533,028	161,999
Total	1,243,387	504,629

(33) Subordinated capital

€000	2010	2009
Hybrid tier 1capital	819,077	1,169,030
Subordinated liabilities	2,576,374	1,209,885
Supplementary capital	605,647	91,370
Total	4,001,098	2,470,285

In the course of the merger with the principal business areas of RZB, the main part of subordinated capital signed by RZB and its subsidiaries as shown in the previous year was offset.

The following table contains borrowings that exceed 10 per cent of the subordinated capital:

Issuer	ISIN	Type	Currency	Nominal value in €000	Coupon1	Due
RFJ4	XS0253262025	Hybrid tier 1capital	EUR	500,000	5.169%	–
RBI	XS0289338609	Subordinated capital	EUR	500,000	4.500%	5/3/2019
RBI	XS0326967832	Supplementary capital	EUR	600,000	5.770%	29/10/2015

1 Current interest rate, interest clauses are agreed.

RBI … Raiffeisen Bank International AG, Vienna

RFJ4 … RZB Finance (Jersey) IV Limited, St. Helier

In the reporting period, expenses on subordinated capital totaled € 193,147 thousand (2009: € 93,850 thousand).

(34) Equity

€000	2010	2009
Consolidated equity	8,250,759	5,790,463
Subscribed capital	593,323	468,733
Participation capital/Participation rights	2,500,000	600,000
Capital reserves	2,567,874	2,569,132
Retained earnings	2,589,562	2,152,598
Consolidated profit	1,087,475	212,181
Non-controlling interests	1,065,690	997,538
Total	10,403,925	7,000,182

Subscribed capital

As of 31 December 2010, the subscribed capital of RBI AG as defined by the articles of incorporation amounted to € 596,291 thousand. The subscribed capital consists of 195,505,124 non-par bearer shares. The subscribed capital was increased by the issuance of 40,837,624 new bearer shares amounting to € 124,555 thousand in order to perform the merger. After deduction of own shares of 972,909, the stated subscribed capital totaled € 593,323 thousand.

Participation capital

The participation capital according to Section 23 (4) and (5) of the Austrian Banking Act (BWG) issued by Raiffeisen Zentralbank Österreich Aktiengesellschaft and transferred during the merger into Raiffeisen Bank International AG amounted to € 2,500,000 thousand. The participation capital is available for the life of the corporation and the participation issuer may not request redemption. The payment of the first tranche amounting to € 750,000 thousand was made as of 30 December 2008. The payment of the second tranche amounting to € 1,750,000 thousand was carried out as of 6 April 2009. The participation certificates were issued at 100 per cent of par value. The participation certificates are linked to an 8 per cent profit entitlement from par value per year. For the business years 2014 and 2015, the profit entitlement will be raised by 50 basis points each year, for the business year 2016 by 75 basis points and for every following business year by 100 basis points. The upper limit is 12 month EURIBOR plus 1,000 basis points.

In the course of the merger, receivables and liabilities of the absorbing and the dispensing company were offset. This was also the case for the participation rights of € 600,000 thousand which were fully held by RZB AG.

Own shares

The Annual General Meeting held on 8 July 2010 authorized the Managing Board to acquire own shares, pursuant to Section 65 (1), item 8 of the Austrian Joint Stock Companies Act (AktG), during a period of 30 months as of the date of the resolution, up to 10 per cent of the subscribed capital of the company and to withdraw if applicable. This authorization may be exercised in one or several installments by the company, by affiliated companies or, for their account, by third parties. The Management Board was further authorized to decide, with the approval of the Supervisory Board, on the sale of own shares by means other than the stock exchange or a public tender excluding the subscription rights of shareholders. This authorization replaces the authorization to buy back and use own shares that was granted in the Annual General Meeting of 10 June 2008. No own shares have been bought since the authorization was issued in July 2010.

The acquisition of own shares mainly serves to cover the obligation of RBI within the framework of the share incentive program (SIP) towards the members of the Managing Board and executive employees. These bonus payments are carried out in the form of company shares.

The Annual General Meeting held on 8 July 2010 also authorized the Managing Board to acquire own shares for the purpose of securities trading in accordance with Section 65 (1), item 7 of the Austrian Joint Stock Companies Act (AktG) during a period of 30 months from the date of the resolution, up to a maximum of 5 per cent of the respective subscribed capital of the company. The consideration for each share to be acquired must not be less than half the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisiton. This authorization may be exercised in one or several installments by the company, by affiliated companies or, for their account, by third parties.

Authorized capital

The Managing Board was authorized by the Annual General Meeting held on 5 June 2007, within five years after registration of the respective change in the articles of incorporation in the Company Register, to increase the share capital up to € 181,437 thousand against contribution in cash and/or in kind by issuing 59,487,500 new common bearer shares with voting rights while preserving the subscription rights of the shareholders, including the indirect subscription by way of a bank pursuant to Section 153 (6) of the Austrian Joint Stock Companies Act, and to determine the offering price and terms of the issue with the approval of the Supervisory Board. The Supervisory Board or a committee authorized for this purpose by the Supervisory Board is entitled to adopt amendments to the articles of association that arise upon issuing shares from the authorized capital.

Convertible bonds

In the Annual General Meeting held on 10 June 2008, the Managing Board was given the authorization pursuant to Section 174 (2) of the Austrian Joint Stock Companies Act to issue – with the approval of the Supervisory Board – convertible bonds, also in several tranches, within five years as of the date of the resolution, for a maximum total nominal amount of € 2,000,000 thousand, to which attaches a conversion or subscription right to obtain a maximum of 15,466,750 ordinary bearer shares of the company with a corresponding pro-rata share in the subscribed capital of a maximum of € 47,174 thousand – and to do so also indirectly by means of a guarantee for an issue of convertible bonds by a subsidiary company, of which the company holds one hundred per cent directly, or indirectly, that entails conversion rights to obtain shares of that company – as well as to determine all further conditions (including the currency of the issue), the issue and the conversion procedure for the convertible bonds. The subscription right of shareholders is excluded.

Contingent capital

Pursuant to Section 159 (2) item 1 of the Austrian Joint Stock Companies Act, the subscribed capital has been increased contingently by a maximum of € 47,154 thousand by issuing a maximum of 15,466,750 common bearer shares (contingent capital). The contingent capital increase would only be carried out to the extent that holders of convertible bonds issued under the resolution of the Annual General Meeting of 10 June 2008 make use of their right to convert such bonds into shares of the Company. No convertible bonds have been issued to date, however.

Dividend proposal

The Managing Board intends to propose at the Annual General Meeting that a dividend of € 1.05 per share be distributed from Raiffeisen Bank International AG's profit for the financial year 2010, which represents a maximum distribution of € 205,280 thousand, and the remaining amount be carried forward.

The statement of changes in equity is shown on page 130.

The number of shares outstanding developed as follows:

Number of shares	2010	2009
Number of shares issued as of 1/1	154,667,500	154,667,500
New shares issued	40,837,624	0
Number of shares issued as of 31/12	195,505,124	154,667,500
Own shares as of 1/1	(984,511)	(1,029,012)
Purchase of own shares	0	(1,446)1
Sale of own shares	11,602	45,947
Less own shares as of 31/12	(972,909)	(984,511)
Number of shares outstanding as of 31/12	194,532,215	153,682,989

1 Return of unused shares from SIP 2005.

Share-based remuneration

In 2010, the second allotment of the share incentive plan (SIP – SIP allotment 2007) matured. In accordance with the terms and conditions (published in the official register of Wiener Zeitung on 30 May 2007) the number of shares shown in the table below was transferred:

Share incentive program (SIP) 2007 Group of persons	Number of due shares	Amount with share price of € 31.91 at the allotment date (9/3/2010)	Number of actually transferred shares
Members of the Managing Board of the company	4,899	156,327	3,971
Members of the managing boards of bank subsidiaries affiliated with the company	7,163	228,571	6,277
Executives of the company and other affiliated companies	2,189	69,851	1,354

In order to avoid legal uncertainties and in accordance with the program's terms and conditions, eligible employees in two countries were given a cash settlement instead of an allotment of shares. In Austria the eligible parties were granted the option of accepting a cash settlement instead of half of the matured shares in order to offset the wage tax payable at the time of transfer. Therefore, the number of actually transferred shares is lower than the number of due shares. The portfolio of own shares was subsequently reduced by the lower number of actually transferred shares.

Under the SIP, a new tranche was previously issued each year. However, because of the merger of Raiffeisen International with the main business areas of RZB, no SIP tranche was issued in 2010. This means that on the reporting date contingent shares for two allotments were assigned. As of 31 December 2010, the contingent allotment of shares came to 473,018 shares (of which 79,909 shares were attributable to the 2008 allotment and 393,109 shares to the 2009 allotment). The originally announced number of contingently allotted shares changed due to various personnel changes within Group units and due to the maturation of the SIP allotment 2007. This is shown on an aggregated level in the following table:

Share incentive program (SIP) 2008 – 2009 Group of persons	Number of contingently alloted shares as of 31/12/2010	Minimum of allotment of shares	Maximum allotment of shares
Members of the Managing Board of the company	147,611	43,061	221,417
Members of the managing boards of bank subsidiaries affiliated with the company	252,269	73,399	378,404
Executives of the company and other affiliated companies	73,168	21,449	109,707

In the financial year 2010, no own shares were bought back for the share incentive program.

(35) Breakdown of remaining terms to maturity

31/12/2010	Due at call or	Up to 3	More than 3	More than 1	More than 5
€000	without maturity	months	months, up to 1 year	year, up to 5 years	years
Cash reserve	4,806,891	0	0	0	0
Loans and advances to banks	2,370,629	14,035,006	2,004,712	2,266,223	855,836
Loans and advances to customers	6,843,035	12,583,218	13,704,026	26,393,446	16,133,336
Impairment losses on loans and advances	(4,755,872)	0	0	0	0
Trading assets	472,371	898,824	1,479,581	3,194,900	2,022,717
Financial investments	651,756	2,947,111	2,383,399	8,040,134	5,608,501
Investments in associates	4,961	0	0	0	0
Sundry assets	3,100,924	1,080,104	562,630	1,120,381	364,334
Total assets	13,494,695	31,544,263	20,134,348	41,015,084	24,984,724
Deposits from banks	2,160,974	14,808,693	6,290,949	7,954,354	2,444,212
Deposits from customers	24,396,045	19,402,108	8,648,147	3,115,763	2,071,050
Debt securities issued	0	1,637,796	4,958,046	9,134,666	824,874
Trading liabilities	412,115	495,096	510,551	2,381,893	1,941,936
Subordinated capital	0	193,923	4,607	790,090	3,012,478
Sundry liabilities	223,768	812,496	245,627	770,423	1,126,509
Subtotal	27,192,902	37,350,112	20,657,927	24,147,189	11,421,059
Equity	10,403,925	0	0	0	0
Total equity and liabilities	37,596,827	37,350,112	20,657,927	24,147,189	11,421,059

31/12/2009	Due at call or	Up to 3	More than 3	More than 1	More than 5
€000	without maturity	months	months, up to 1 year	year, up to 5 years	years
Cash reserve	4,179,572	0	0	0	0
Loans and advances to banks	3,423,779	6,260,802	506,574	78,554	40,392
Loans and advances to customers	4,805,182	7,003,702	9,682,985	15,509,362	13,513,740
Impairment losses on loans and advances	(3,084,023)	0	0	0	0
Trading assets	16,979	947,416	717,447	1,556,483	471,127
Financial investments	162,697	684,523	1,930,259	2,973,594	1,519,474
Investments in associates	5,437	0	0	0	0
Sundry assets	2,214,297	408,112	210,604	284,037	252,222
Total assets	11,723,920	15,304,555	13,047,869	20,402,030	15,796,955
Deposits from banks	902,059	2,805,116	5,474,339	10,040,891	887,765
Deposits from customers	17,886,484	15,359,082	6,892,039	2,330,231	110,413
Debt securities issued	0	371,665	802,315	1,265,635	87,036
Trading liabilities	0	133,491	156,943	171,995	51,770
Subordinated capital	0	5,458	41,030	564,765	1,859,032
Sundry liabilities	411,304	422,118	76,624	134,176	31,371
Subtotal	19,199,847	19,096,930	13,443,290	14,507,693	3,027,387
Equity	7,000,182	0	0	0	0
Total equity and liabilities	26,200,029	19,096,930	13,443,290	14,507,693	3,027,387

(36) Related parties

Companies can carry out business with related parties that may affect the entity's asset, financial and earnings position. The following related companies have been identified mainly as related parties: Parent companies are Raiffeisen-Landesbanken-Holding GmbH, Vienna, and Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna.

Disclosures on Raiffeisen Bank International's relations to key management are reported under note (53) relations to key management. As of 31 December 2010, the transactions with related parties were as follows:

31/12/2010	Parent companies	Affiliated companies	Companies valued at	Other interests
€000			equity
Loans and advances to banks	7,892,302	224,153	274,313	243,860
Loans and advances to customers	0	1,113,360	437,453	353,544
Trading assets	0	17,113	20,260	18,554
Financial investments	0	233,975	2,483	351,572
Investments in associates	0	0	4,961	0
Other assets including derivatives	4,943	19,497	28	52
Deposits from banks	7,151,497	3,386	6,908,279	115,182
Deposits from customers	1,038	527,263	1,950	112,294
Debt securities issued	0	974	0	0
Provisions for liabilities and charges	0	345	0	10
Trading liabilities	0	23,476	25,840	17,756
Other liabilities including derivatives	0	57,305	25	42
Subordinated capital	0	0	0	0
Guarantees given	0	73,637	264,031	4,937
Guarantees received	0	389,086	142,505	998

As of 31 December 2009, the transactions with related parties were as follows:

31/12/2009	Parent	Affiliated	Companies	Other
	companies	companies	valued at	interests
€000			equity
Loans and advances to banks	4,873,278	31,921	0	807
Loans and advances to customers	0	210,856	13,526	34,846
Trading assets	90,473	2,445	0	0
Financial investments	165	60,448	10,517	58,512
Investments in associates	0	0	5,437	0
Other assets including derivatives	192,322	3,148	1	1,075
Deposits from banks	11,698,865	1,253,652	0	94,540
Deposits from customers	71	66,283	2,426	11,434
Debt securities issued	19,265	0	0	0
Provisions for liabilities and charges	3,834	29	0	0
Trading liabilities	87,457	0	0	2,119
Other liabilities including derivatives	121,344	3,083	579	15
Subordinated capital	1,528,720	587,849	0	0
Guarantees given	372,283	10,533	0	13
Guarantees received	242,475	0	0	1,021

(37) Foreign currency volumes

The consolidated financial statements consist of the following volumes of assets and liabilities denominated in foreign currencies:

€000	2010	2009
Assets	59,512,105	43,183,773
Liabilities	45,622,385	36,955,043

(38) Foreign assets/liabilities

Assets and liabilities with counterparties outside Austria are as follows:

€000	2010	2009
Assets	105,181,063	67,784,374
Liabilities	75,992,302	55,021,811

(39) Securitization

RBI as originator

Securitization is the packaging of designated portfolios of loans or leasing claims with an appropriate level of credit enhancement and the redistribution of these portfolios to investors. The objective of Raiffeisen Bank International's securitization is to ease the strain relief on the Group's regulatory own funds and to use additional refinancing sources.

In financial year 2010, no new securitizations were made. Both true sale transactions (Warehousing) ROOF Bulgaria 2008-1 and ROOF Romania 2008-1 already closed in 2008 were not yet transferred to final securitization. The reason for this is the recent developments on the international capital markets, and the resulting liquidity crunch. Nevertheless, the warehousing has been prolonged and the current warehousing structures kept alive by the placement of notes to Group internal investors until further notice. Hence, the portfolio's significant chances and risks remain within the Group as well. At year-end 2010 the nonderecognized loans of ROOF Bulgaria 2008-1 amount to € 104,031 thousand (2009: € 149,588 thousand), those of ROOF Romania 2008-1 came up to € 140,747 thousand (2009: € 167,622 thousand).

Regarding true sale transaction ROOF Poland 2008-1 consisting of car leasing contracts, the total volume of the loans amounts to € 195,020 thousand as of 31 December 2010 (2009: € 131,829 thousand). The replenishment of the already matured portfolio as well as additional investments led to the changed carrying amount.

From a Group view, the non-derecognized loans arising from the true sale transaction ROOF Russia 2007-1 amount to € 53,178 thousand at year-end 2010 (2009: € 117,077 thousand). In this case, the decrease of the carrying value is mainly explained by the maturity of the consumer loan volume in original currency (whereupon the matured portfolio wasn't refilled anymore) as well as the currency translation effect resulting from USD against the euro. Within the space of a year, the consumer loan volume in original currency matured by € 63.899 thousand.

Within the scope of synthetic securitizations ROOF CEE 2006-1, the non-derecognized loans amounted to € 392,616 thousand at year-end (2009: € 364,285 thousand). The differences compared to the volumes at the beginning of the transactions are due to maturing volumes and to changes in currency exchange rates. Furthermore, originators like Raiffeisenbank Polska, S.A., Warsaw (PL), and Raiffeisenbank a.s., Prague (CZ) exercised the option to refill the volumes and hence to exceed slightly the original values.

Up to now the following transactions have been executed with external contractual partners (the indicated amounts represent the transaction volumes at the closing date):

€000	Seller of claims or secured party	Date of contract	End of maturity		Volume Portfolio	Junior tranche
True sale transaction ROOF Poland 2008-1	Raiffeisen-Leasing Polska S.A., Warsaw (PL)	January 2008	December 2014	290,000	Car leasing contracts	1.3%
True sale transaction ROOF Russia 2007-1	ZAO Raiffeisenbank, Moscow (RUS)	May 2007	May 2017		297,000 Car loans	1.9%
Synthetic transaction ROOF CEE 2006-1	Raiffeisen Bank Polska S.A., Warsaw (PL) Raiffeisenbank a.s., Prague (CZ)	March 2006	March 2019	450,000	Company loans	1.8%

RBI as investor

Besides the above-mentioned refinancing and packaging of designated portfolios of loans or leasing claims, RBI acts as investor in ABS-structures. Essentially, this is about investments in Structured Credit Products. The total exposure was brought in due to the merger with the main business areas of RZB. During financial year 2010 market value changes led to a positive valuation result of about € 9 million.

As of 31 December 2010, RBI reported the following investment exposure (excluding CDS):

	Outstanding notional	Carrying amount
€000	amount
Asset-backed securities (ABS)	145,907	145,725
Mortgage backed securities (MBS)	190,193	180,618
Collateralized debt obligation (CDO)	394,519	148,477
Other	29,203	1,466
Total	759,821	476,285

In previous year no corresponding exposure of Structured Credit Products was given.

(40) Genuine sale and repurchase agreements

The following repurchase and redelivery commitments are shown as of the reporting date:

€000	2010	2009
Genuine repurchase agreements as borrower
Deposits from banks	4,976,815	841,724
Deposits from customers	1,342,934	13,488
Total	6,319,750	855,212

€000	2010	2009
Genuine repurchase agreements as lender (reverse repurchase agreement)
Loans and advances to banks	1,457,117	1,234,363
Loans and advances to customers	110,791	38,757
Total	1,567,908	1,273,120

€000	2010	2009
Securities sold in genuine sale and repurchase agreement	5,415,578	1,024,330
hereof sold or repledged	5,355,684	894,255
hereof bonds, notes and other fixed-interest securities	5,355,684	894,255

€000	2010	2009
Securities purchased in a genuine sale and repurchase agreement	1,483,131	8,703,593
hereof sold or repledged	57,059	1,728,444
hereof bonds, notes and other fixed-interest securities	56,433	1,716,637
hereof shares and other variable-yield securities	0	11,248
hereof loans and advances	626	559

Within the framework of securities lending, borrowed securities amounted to € 973,283 thousand (2009: € 4,696 thousand) and loaned securities amounted to € 3,912,527 thousand (2009: 0).

(41) Assets pledged as collateral

The following liabilities are secured by assets shown in the statement of financial position:

€000	2010	2009
Deposits from banks	8,145,418	777,578
Deposits from customers	111,290	13,488
Debt securities issued	21,802	222,368
Other liabilities	157,208	725,651
Contingent liabilities and commitments	2,232	3,530
Total	8,437,949	1,742,615

The following assets are provided as collateral for the above-mentioned obligations:

€000	2010	2009
Loans and advances to banks	4,126,775	212,372
Loans and advances to customers	2632093	722
Trading assets	647,692	652,742
Financial investments	2,032,817	1,454,524
Total	9,439,376	2,320,360

(42) Finance leases

€000	2010	2009
Gross investment value	3,466,303	3,658,891
Minimum lease payments	3,463,930	3,658,891
Up to 3 months	437,505	471,893
More than 3 months, up to 1 year	882,153	950,484
More than 1 year, up to 5 years	1,769,251	1,884,002
More than 5 years	375,021	352,512
Non-guaranteed residual value	2,373	0
Unearned finance income	407,330	460,986
Up to 3 months	49,796	50,099
More than 3 months, up to 1 year	114,246	123,248
More than 1 year, up to 5 years	203,685	241,938
More than 5 years	39,603	45,701
Net investment value	3,058,973	3,197,905

As of 31 December 2010, write-offs on unrecoverable minimum lease payments outstanding totaled € 39,958 thousand (2009: € 46,597 thousand).

Assets under finance leases break down as follows:

€000	2010	2009
Vehicles leasing	1,814,022	2,016,595
Real estate leasing	587,099	530,245
Equipment leasing	657,852	651,065
Total	3,058,973	3,197,905

(43) Operating leases

Operating leases from view of lessor

Future minimum lease payments under non-cancelable operating leases are as follows:

€000	2010	2009
Up to 1 year	46,961	42,686
More than 1 year, up to 5 years	64,388	79,467
More than 5 years	84,068	51,532
Total	195,417	173,685

Operating leases from view of lessee

Future minimum lease payments under non-cancelable operating leases are as follows:

€000	2010	2009
Up to 1 year	92,936	114,668
More than 1 year, up to 5 years	167,327	238,918
More than 5 years	22,356	41,957
Total	282,619	395,543

Risk report

(44) Risks arising from financial instruments

Active risk management is one of the core competencies of Raiffeisen Bank International. In order to effectively identify, measure, and manage risks the Group has implemented a comprehensive risk management system in the past and continues to develop it. Risk management constitutes an integrated part of overall bank management. In particular, in addition to legal and regulatory requirements, it takes into account the nature, scale, and complexity of the business activities and the resulting risks. Risk management in RBI controls the exposure to and ensures professional management of all material risks.

Risk Management Principles

RBI has a system of risk principles and procedures in place for measuring and monitoring risk, with the aim of controlling and managing risks at all banks and specialist companies in the Group. The risk policies and risk management principles are laid out by the Managing Board of RBI. The following risk policies highlight some of the principles:

• (6) Integrated risk management: Credit, country, market, liquidity, participation and operational risks are managed as main risks throughout the Group. For this purpose, risks are measured, limited, aggregated, and compared to available risk coverage capital.
• (7) Standardized methodologies: Risk measurement and risk limitation methods are standardized in order to ensure a consistent and coherent approach to risk management. This is efficient for the implementation of risk management methods. And it is the basis for consistent overall bank management across all countries and business segments in RBI.
• (8) Continuous planning: Risk strategies and risk capital are reviewed and approved in the course of the annual budgeting and planning process, whereby special attention is also paid to risk concentrations.
• (9) Independent control: Clear personal and functional firewalls are in place between business operations and any risk management or risk controlling activities.
• (10) Ex ante and ex post control: Risks are consistently measured within the scope of product selling and in risk-adjusted performance measurement. Thereby it is ensured that business in general is done under risk-return considerations and that there are no incentives for taking high risks.

Individual risk management units of the Group create detailed risk strategies, which set more concrete risk targets and specific standards in compliance with these general principles. The overall risk strategy is derived from the Group's business strategy and adds risk relevant aspects to the planned business structure and strategic development. These aspects include e.g. structural limits and capital ratio targets which have to be met in the budgeting process and which frame upcoming risk related business decisions. More specific targets for individual risk categories are set in detailed risk strategies. The credit risk strategy of RBI, for instance, sets credit portfolio limits for individual countries and segments and defines the credit approval authority for limit applications.

Organization of risk management

The Managing Board of Raiffeisen Bank International ensures the proper organization and ongoing development of risk management. It decides which procedures are to be employed for identifying, measuring, and monitoring risks, and makes steering decisions according to the created risk reports and analyses. The Managing Board is supported in implementing these tasks by independent risk management units and specially appointed committees.

Risk management functions are performed on different levels in the Group. RBI develops and implements the relevant concepts in coordination with RZB AG as the parent credit institution of the Group and in cooperation with its subsidiaries. The central risk management functions are responsible for the adequate and appropriate implementation of the Group's risk management processes. In particular, they establish common risk management principles and set business-specific standards, tools, and practices for all Group entities.

In addition, local risk management units are established in the different Group units of RBI. They implement the risk policies for specific risk types and take active steering decisions within the approved risk budgets in order to achieve the targets set in the business policy. For this purpose, they monitor resulting risks using standardized measurement tools and they send them to central risk management units via defined reporting interfaces.

The central Risk Controlling division assumes the independent risk controlling function required by banking law. Amongst others, this division is responsible for developing the Group-wide framework for overall bank risk management (integrating all risk types) and preparing independent reports on the risk profile for the Managing Board and the heads of individual business units. It also measures required risk coverage capital for different business units and calculates the utilization of the allocated risk capital budgets in the internal capital adequacy framework.

Risk committees

The Risk Management Committee is responsible for ongoing development and implementation of methods and parameters for risk quantification models and for refining steering instruments. The committee also analyzes the current risk situation of the Group with respect to internal capital adequacy and the corresponding risk limits. It approves risk management and controlling activities (like the allocation of risk capital) and advises the Managing Board in these matters.

The Market Risk Committee controls market risks of trading and banking book transactions of RBI and establishes corresponding limits and processes. In particular, it uses treasury results, the amount of risks taken and the limit utilization, as well as the results from scenario analyses and stress tests for market risk controlling.

The Credit Committees are staffed by front office and back office divisions with different participants depending on the customer segment (corporate customers, financial institutions and sovereigns, and retail). They approve limit applications according to the credit approval authority (depending on rating and exposure size) and vote on all credit decisions.

The Group Asset/Liability Committee assesses and manages balance sheet and liquidity risks. In this context it plays an important role for the Group's long term funding planning and the hedging of structural risk positions.

The Credit Portfolio Committees define the credit portfolio strategies for different customer segments. In these committees, representatives from business and risk management divisions together discuss the risks and opportunities of different customer segments (e.g. industries, countries, retail products). Based on the discussion credit portfolio management then develops lending policies and sets limits steering the future credit portfolio.

Quality assurance and auditing

Quality assurance with respect to risk management refers to ensuring the integrity, soundness, and accuracy of processes, models, calculations, and data sources. This should ensure that the Group adheres to all legal requirements and that it can achieve the highest standards in risk management related operations.

All these aspects are coordinated by the central division Organization & Internal Control System, which continuously analyzes the internal control system and keeps it up to date. If actions are necessary for closing any deficiencies this division is also responsible for tracking the closure of any open issues.

Two very important functions in assuring independent oversight are performed by the divisions Internal Audit and Compliance. Independent internal auditing is a legal requirement and a central pillar of the internal control system. Internal audit periodically assesses business processes and contributes considerably to securing and improving them. It sends its reports directly to the Managing Board of RBI, which discusses them on a regular basis in their board meetings.

The Compliance Office is responsible for all issues concerning compliance with legal requirements. It is supplementary to and at the same time an integral part of the internal control system and is responsible for preventing any shortcomings in daily operations.

Moreover, an independent and objective audit, free of potential conflicts, is carried out during the audit of the annual financial statements by the auditing companies.

Overall bank risk management

Maintaining an adequate level of capital is a core objective of risk management at RBI. Capital adequacy is monitored on a quarterly basis based on the actual risk level, which is measured by internal models, taking into account the materiality of risks for choosing appropriate models. This capital adequacy framework incorporates both capital requirements from a regulatory point of view (sustainability and going concern perspective) and from an economic point of view (target rating perspective).

Objective	Description of risk	Measurement technique	Confidence level
Target rating perspective	Risk of not being able to satisfy claims of the Group's senior debt holders	Unexpected losses on an annual basis (economic capital) must not exceed the present value of equity and subordinated liabilities	99.95 per cent as derived from the target rating
Going concern perspective	Risk of not meeting the regulatory capital requirement	Risk-taking capacity (projected earnings plus capital exceeding regulatory requirements) must not fall below the annualized value-at-risk of the Group	99 per cent reflecting the owners' willingness to inject additional own funds
Sustainability perspective	Risk of falling short of a sustainable core capital ratio over a full business cycle	Capital and loss projection for the three-year planning period based on a severe macroeconomic downturn scenario	70-90 per cent based on the management decision that the Group might be required to temporarily reduce risks or raise additional core capital

This concept for overall bank risk management also satisfies the requirement for an internal capital adequacy assessment process (ICAAP) as required by Basel II (Pillar 2) regulations.

Target rating perspective

Risks in the target rating perspective are measured as economic capital presenting a comparable measure across all types of risks. It is calculated as the sum of unexpected losses stemming from different Group units and different risk categories (credit incl. country risk, market, participation, and operational risk). In addition, a general buffer for other risks not explicitly quantified is held on a Group level.

RBI uses a confidence level of 99.95 per cent for calculating unexpected losses for a 1 year horizon. This confidence level is based on the probability of default implied by the target rating. The purpose of calculating economic capital is to determine the amount of capital that would be required for servicing the claims of customers and creditors even in the case of such an extremely rare event.

Economic capital shows – as in the previous year – that credit risk of asset class corporate customers remains the dominant risk category. Its share in total risk is 34 per cent; credit risks in total accounts for 70 per cent of economic capital. Market risk and operational risks account for 9 per cent each and in addition a general risk buffer is allocated for other risks as well.

The overall risk amount is compared to internal capital, which mainly denotes equity and sub-ordinated capital. It serves as a cushion for servicing claims of senior debtors if losses are incurred. Total utilization of available risk capital (the ratio of economic capital to internal capital) was 74.2 per cent at year end.

In the regional break down of economic capital as of 31 Decmber 2010 the largest share is allocated to Group units located in Austria. About 26 per cent of economic capital is allocated there which can be attributed mostly to the head office of RBI. It contributes significantly to the total risk position in particular due to centralized functions (e.g. capital and liquidity management) and its corporate lending business.

Risk contribution of individual risk types to economic capital as of 31/12/2010

Regional allocation of economic capital according to booking unit

Economic capital is an important instrument in overall bank risk management and is used for allocating risk budgets. Economic capital budgets are allocated to business segments during the annual budgeting process and are complemented for day-to-day management by volume, sensitivity, or value-at-risk limits. In RBI this sort of planning is done on a revolving basis for the upcoming three years and incorporates the future development of economic capital as well as available internal capital. Economic capital thus influences the plans for future lending activities and the overall limit for taking market risks.

Risk-adjusted performance measurement also is based on this risk measure. The profitability of business units is set in relation to the amount of economic capital attributed to these units (risk-adjusted return on risk-adjusted capital, RORAC), which yields a comparable performance measure for all business units of the Group. This measure it is used in turn as a key figure for overall bank management, for future capital allocations to business units, and influences performance-oriented compensation of the Group's executive management.

Going concern perspective

Parallel to that procedure, internal capital adequacy also is assessed with focus on the uninterrupted operation of the Group on a going concern basis. In this perspective, risks again are compared to risk taking capacity – now with focus on regulatory capital and minimum capital requirements.

According to this target, risk taking capacity is calculated as the amount of planned profits, expected risks costs, and the excess of own funds (taking into account various limits on eligible capital). This capital amount is compared to the overall value-at-risk (including expected losses). Quantitative models used in the calculation are mostly comparable to the target rating perspective, (albeit on a lower 99 per cent confidence level). Using this perspective the Group ensures adequate regulatory capitalization (going concern) with the given probability.

In this process, regulatory capital requirements are calculated on Group level according to Austrian regulations. Local regulatory capital requirements for individual Group units can be met by adequate structural balance sheet measures. Internal targets for regulatory capital ratios are intentionally set higher than the legal minimum, in order to be able to fulfill regulatory capital requirements at all times and to account for other risks, which are not considered in the regulatory requirements.

Sustainability perspective

The main goal of the sustainability perspective is to ensure that RBI can maintain a sufficiently high core capital ratio for the three year planning period also in a severe macroeconomic downturn scenario. This analysis of the sustainability perspective is based on a multi-year macroeconomic stress test where hypothetical market developments in a severe but realistic economic downturn scenario are simulated. The risk parameters considered are amongst others: interest rates, foreign exchange rates and securities prices, changes in default probabilities and rating migrations in the credit portfolio.

The main focus of this integrated stress test is the resulting core capital ratio for a multi-year period. The minimum amount of core capital is thus determined by the size of the potential economic downturn. In this analysis the need for allocating loan loss provisions, potential procyclical effects that increase minimum regulatory capital requirements, the impact of foreign exchange fluctuations as well as other valuation and earnings effects resulting from the downturn scenario are incorporated.

This perspective thus also complements traditional risk measurement based on the value-at-risk concept, which is in general based on historic data. Therefore it can incorporate exceptional market situations that have not been observed in the past and it is possible to estimate the potential impact of such developments. The stress test also allows for analyzing risk concentrations (e.g. individual items, industries, or geographical regions) and gives insight into the profitability, liquidity situation, and solvability under extreme situations.

The portfolio of RBI has been analyzed as part of RZB Group in a similar exercise for 91 European financial institutions coordinated by the Committee of European Banking Supervisors. The European Banking Authority has taken over its tasks and responsibilities with effect from 1 January 2011. These results were published at the end of July 2010. RBI already initiated several measures in reaction to the financial crisis in 2008 and 2009, e.g. it selectively reduced its portfolio, optimized the composition of its loan portfolio and improved the Group's lending processes. These measures contributed significantly to the high stability of the credit portfolio also under stress scenarios. Risk management in RBI manages portfolio diversification, for example via limits for the total exposure of individual industry segments and countries and through ongoing updates to its lending standards.

Credit risk

Credit risk within RBI stems mainly from default risks that arise from business with retail and corporate customers, other banks and sovereign borrowers. Default risk is defined as the risk that a customer will not be able to fulfill contractual financial obligations. Also migration risks (caused by deteriorations in customers' creditworthiness), concentration risks of creditors, risks in credit risk mitigation techniques, and country risk are also considered.

Credit risk is by far the most important risk category in RBI, as also indicated by internal and regulatory capital requirements. In the Group it is analyzed and monitored both on an individual loan and customer-by-customer basis as well as on a portfolio basis. Credit risk management and lending decisions are based on the respective credit risk policies, credit risk manuals, and the corresponding tools and processes which have been developed for this purpose.

The internal control system for credit risks includes different types of monitoring measures, which are tightly integrated into the work flow – from the customer's initial credit application, to the bank's credit approval, and finally to the repayment of the loan.

Limit application process

No lending transaction is performed in the non-retail segments without running through the limit application process beforehand. This process is also consistently applied – besides new lending – to increases in existing limits, extensions, overdrafts, and if changes in the risk profile of a borrower occur (e.g. with respect to the financial situation of the borrower, the terms and conditions, or collateral) compared to the time the original lending decision was made. In addition it is used when setting counterparty limits in treasury and investment banking operations, other credit limits, and for equity participations.

Credit decisions are made within the context of a hierarchical competence authority scheme depending on the type and size of a loan. It always requires the approval of the business and the credit risk management divisions for individual limit decisions or when performing regular rating renewals. If the individual decision-making parties disagree, the potential transaction will have to be decided upon by the next decision-making level.

The whole limit application process is based on defined uniform principles and rules. Account management of multinational customers, who do business simultaneously with more than one member of RBI, is supported by the Global Account Management System. This is made possible by unique customer identification in non-retail asset classes.

The limit application process in the retail segment is more highly automated due to the high number of applications and lower exposure amount. Limit applications often are assessed and approved in central processing centers based on credit score cards. This process is facilitated by the respective IT system for retail customers in the Group.

Credit portfolio management

Credit portfolio management in RBI is, amongst others, based on the credit portfolio strategy. This strategy limits the exposure amount in different countries, industries or product types and thus prevents undesired risk concentrations. On top of that, analyzing the long-term potential of different markets is a routine activity. This allows for an early strategic repositioning of future lending activities.

The following table translates balance sheet items (bank and trading book positions) into the maximum credit exposure, which is used in portfolio management. It includes on-balance exposures and off-balance sheet exposures before the application of credit-conversion factors. It is not reduced by the effects of credit risk mitigation like for example guarantees and physical collateral, effects that are, however, considered in the internal assessment of credit risks. The maximum credit exposure is used – if not explicitly stated otherwise – for showing exposures in alls subsequent charts in the risk report. The main deviation between IFRS-accounting (group-reporting) and Basel II (regular reporting) figures is due to different loan volumes and valuation methods.

€000	2010	2009
Loans and advances to banks	21,532,406	10,310,101
Loans and advances to customers	75,657,061	50,514,971
Trading assets	8,068,393	3,709,452
Derivatives	8,079,739	3,233,692
Financial investments	11,167,015	3,918,060
Other assets	1,280,748	1,152,993
Contingent liabilities	11,855,528	4,667,660
Commitments	11,755,884	5,395,147
Revocable credit lines	11,992,462	4,646,005
Reconciliation	6,925,077	1,536,862
Total	168,314,313	89,084,944

Reconciliation of figures from the IFRS consolidated financial statements to total credit exposure (according to Basel II)

A more detailed credit portfolio analysis is based on individual customer ratings. Ratings are performed separately for different asset classes using internal risk classification models (rating and scoring models), which are validated by a central organization unit. It should be noted that default probabilities assigned to individual rating grades are estimated for each asset class separately. In other words the default probability of the same ordinal rating grade (e.g. corporates 1.5, financial institutions A3, and sovereigns A3) is not the same for these asset classes.

Rating models in the main non-retail asset classes – corporates, financial institutions, and sovereigns – are uniform in all Group units and rank creditworthiness in ten classes. Country specific scorecards are developed for retail asset classes based on uniform Group standards. Customer rating, as well as validation is supported by specific software tools (e.g. for business valuation, rating and default database).

Credit portfolio – Corporates

The internal rating model for corporates takes into account qualitative factors as well as several business and performance figures (e.g. interest cover, EBT margin, EBTDA margin, equity ratio, return on assets, debt amortization period), which are tailored to the various industries and financial reporting standards.

The following table provides a breakdown of the maximum credit exposure according to the internal rating of corporates (large corporates and small business) in € thousand. In the overall assessment of credit risk collateral and recovery rates are also taken into account:

€000		2010	Share	2009	Share
0.5	Minimal Risk	1,171,229	1.4%	62	< 0.1%
1.0	Excellent credit standing	7,642,774	9.4%	501,463	1.3%
1.5	Very good credit standing	7,729,205	9.6%	2,016,052	5.3%
2.0	Good credit standing	9,959,642	12.3%	3,030,803	7.9%
2.5	Sound credit standing	11,205,972	13.8%	4,801,391	12.6%
3.0	Acceptable credit standing	12,313,993	15.2%	6,998,598	18.3%
3.5	Marginal credit standing	13,182,943	16.3%	7,624,213	20.0%
4.0	Weak credit standing/sub standard	7,663,581	9.5%	6,632,624	17.4%
4.5	Very weak credit standing/doubtful	4,282,039	5.3%	3,003,247	7.9%
5.0	Default (acc. to Basel II definition)	4,287,339	5.3%	2,531,273	6.6%
NR	Not rated (including retail)	1,472,076	1.8%	1,019,873	2.7%
Total		80,910,794	100.0%	38,159,599	100.0%

The maximum credit exposure to corporates amounted to € 80,910,794 thousand at year end 2010. Group Corporates (€ 32,709,551 thousand) is the largest segment, followed by Central Europe (€ 18,410,556 thousand) and Southeastern Europe (€ 11,330,339 thousand). Russia (€ 9,614,875 thousand), CIS Other (€ 4,398,099 thousand), Group markets (€ 3,196,036 thousand) and Corporate center at € 776,118 thousand complete the picture.

Analyzed in terms of internal rating, the portfolio is concentrated in solid rating categories. This concentration mainly results from the credit exposure to customers located in Central and Eastern European growth markets. The contributed business from Raiffeisen Zentralbank Österreich AG improves the average credit portfolio quality, as shown by the increasing share of customers with good and excellent credit standing. This is confirmed by analyzing the average credit portfolio quality as well (according to the exposure weighted average default probability). The new segment Group Corporates shows the lowest average default probability, followed by Russia and CIS other, and the segment Southeastern Europe.

If one takes into account the portfolio that was acquired from RZB during the merger as well, one can clearly see the effects of active credit portfolio management. The credit exposure in all targeted industries (e.g. consumer non-cyclical, energy) increased strongly whereas credit growth to restricted industries such as real estate and materials was weaker, or in some cases declined.

Foreign currency effects also had a significant impact on segment level as well. On overall Group level, however, these effects were mostly compensated for by the diversification in different markets and currencies. The largest impacts were observed in sub-portfolios where the local currency is linked to US-dollar (for example Singapore and China, but also Russia and Ukraine). In these portfolios the credit exposure increased by up to 10 per cent due to the US-dollar appreciating against the euro.

Defaulted exposures (rating 5.0) amounted to 5.3 per cent of the total credit exposure (€ 4,287,339 thousand), with the segment Central Europe affected most with € 1,252,363 thousand. Slightly less than half of the unrated credit exposure is due to small loans, which are loaded into the Group's data warehouse without their rating. The share of unrated exposure against corporates has been further reduced during the reporting period 2010.

Corporates: maximum credit exposure by internal rating and segment

The rating model for project finance has five different grades. The exposure from project finance is shown in € thousand in the table below. Project ratings incorporate both individual default probabilities and collateral provided:

	2010	Share	2009	Share
Excellent project risk profile – very low risk	2,459,758	39.7%	940,405	28.4%
Good project risk profile – low risk	2,035,163	32.8%	1,316,273	39.8%
Acceptable project risk profile – average risk	912,439	14.7%	745,345	22.5%
Poor project risk profile – high risk	369,901	6.0%	219,127	6.6%
Default	365,215	5.9%	61,534	1.9%
Not rated (including retail)	56,824	0.9%	27,805	0.8%
	6,199,300	100.0%	3,310,489	100.0%

The maximum credit exposure in project finance amounted to € 6,199,300 thousand at year end 2010. Projects are rated either in categories 'Excellent project risk profile – very low risk' (rating 6.1) or 'Good project risk profile – low risk' (rating 6.2) account for 72 per cent and thus take the highest share of the portfolio. This reflects mainly the high level of collateralization in specialized lending transactions. Unrated projects make up less 1 per cent (€ 56,824 thousand) of the portfolio.

Credit portfolio – Retail customers

Retail customers are subdivided into private individuals and small and medium-sized enterprises (SME). For retail customers a two-fold scoring system is used – consisting of the initial and ad-hoc scoring based on customer data and behavioral scoring based on account data. The table below provides a breakdown of the maximum retail credit exposure of RBI:

€000	2010	Share	2009	Share
Retail – private individuals	20,301,385	88.3%	19,409,046	88.5%
Retail – SME	2,687,265	11.7%	2,534,436	11.5%
Total	22,988,650	100.0%	21,943,482	100.0%
hereof non-performing loans	2,399,036	10.4%	1,852,042	8.4%
hereof individual loan loss provision	1,308,243	5.7%	934,514	4.3%
hereof portfolio-based loan loss provision	353,230	1.5%	446,579	2.0%

The total exposure shown by RBI segments:

2010 €000	Central europe	Southeastern europe	Russia	CIS other	Group markets	Corporate center
Retail – private
individuals	9,793,983	6,292,846	2,092,568	2,061,706	9,651	50,631
Retail – SME	1,673,386	802,226	20,035	190,823	0	795
Total	11,467,369	7,095,072	2,112,603	2,252,529	9,651	51,426
hereof non performing loans	918,913	544,086	217,852	717,988	196	0
hereof individual loan loss provision	332,314	346,625	177,951	445,441	196	5,716
hereof portfolio-based loan loss provision	198,742	100,996	8,846	44,646	0	0

2009 €000	Central europe	Southeastern europe	Russia	CIS other	Group markets	Corporate center
Retail – private individuals	8,762,722	6,648,863	1,950,408	2,047,053	–	–
Retail – SME	1,464,466	836,075	29,089	204,806	–	–
Total	10,227,188	7,484,938	1,979,497	2,251,859	–	–
hereof non performing loans	652,507	436,800	202,870	559,866	–	–
hereof individual loan loss provision	191,599	255,487	149,615	337,813	–	–
hereof portfolio-based loan loss provision	217,456	115,489	42,771	70,863	–	–

Retail exposure, split by product groups

The size of the retail portfolio remained nearly constant year-on-year at € 22,988,650 thousand. The largest portfolio share is in the segment Central Europe (€ 11,467,369 thousand), which also reported the strongest increase (increasing by € 978,726 thousand). The second largest segment is Southeastern Europe (€ 7,095,072 thousand). In the retail area the business segments which have been newly created due to the merger play a minor role (€ 61,078 thousand; thereof Corporate center € 51,426 thousand).

Changes in the retail portfolio composition also took place due to exchange rate effects and due to the low demand for new loans of small and medium business

customers in the Russia and CIS other segments. Another large change was the reduction of foreign currency loans in the retail asset classes.

2010 €000	Central europe	Southeastern europe	Russia	CIS other	Group markets	Corporate center	Total
Mortgage loans	6,716,428	2,538,609	665,593	1,373,135	160	14,836	11,308,761
Personal Loans	1,500,020	2,610,339	739,796	330,943	0	36,590	5,217,686
Car loans	942,930	452,550	438,858	221,624	0	0	2,055,963
Overdraft	1,362,217	536,725	42	16,637	6,998	0	1,922,619
Credit Cards	649,646	548,257	255,602	179,332	2,493	0	1,635,330
SME Financing	296,128	408,593	12,713	130,857	0	0	848,291
Total	11,467,369	7,095,072	2,112,603	2,252,529	9,651	51,426	22,988,650

2009 €000	Central europe	Southeastern europe	Russia	CIS other	Group markets	Corporate center	Total
Mortgage loans	6,315,414	2,560,075	653,268	1,380,285	–	–	10,909,042
Personal Loans	1,415,354	2,805,627	368,818	328,162	–	–	4,917,960
Car loans	741,845	437,080	699,446	274,222	–	–	2,152,593
Overdraft	749,904	607,041	21	17,672	–	–	1,374,639
Credit Cards	665,932	586,256	199,901	117,065	–	–	1,569,154
SME Financing	338,740	488,860	58,042	134,453	–	–	1,020,094
Total	10,227,189	7,484,938	1,979,497	2,251,859	–	–	21,943,482

The share of foreign currency loans in retail portfolios provides an indication for the potential change in default rates if the exchange rate of the domestic currency changes. The internal risk assessment thus not only takes into account the share of foreign currency loans but also the usually stricter lending criteria at loan distribution and – in several countries – the customers' matching foreign currency income.

€000	2010	Share	2009	Share
Euro	2,765,816	35.4%	2,337,062	28.7%
US dollar	1,738,511	22.3%	2,085,478	25.6%
Swiss franc	3,050,241	39.1%	3,402,256	41.8%
Other foreign currencies	250,561	3.2%	323,624	4.0%
Loans in foreign currencies	7,805,128	100.0%	8,148,420	100.0%
Share of total loans	34.0%		37.1%

The following table shows the maximum credit exposure of this asset class by segment:

2010 €000	Central europe	Southeastern europe	Russia	CIS other	Group markets	Corporate center
Euro	317,662	2,423,713	10,143	14,298	0	0
US dollar	5,007	2,122	382,613	1,348,334	435	0
Swiss franc	2,410,560	638,081	0	104	1,273	222
Other foreign currencies	27,701	222,612	0	248	0	0
Loans in foreign currencies	2,760,930	3,286,528	392,756	1,362,984	1,708	222
Share of total loans	24.1%	46.3%	18.6%	60.5%	17.7%	0.5%

2009 €000	Central europe	Southeastern europe	Russia	CIS other	Group markets	Corporate center
Euro	205,132	2,096,615	14,779	20,536	–	–
US dollar	2,050	124,647	478,516	1,480,265	–	–
Swiss franc	2,423,997	978,039	0	220	–	–
Other foreign currencies	43,105	280,221	0	298	–	–
Loans in foreign currencies	2,674,284	3,479,522	493,295	1,501,319	–	–
Share of total loans	26.1%	46.5%	24.9%	66.7%	–	–

Credit portfolio – Financial Institutions

The financial institutions asset class mainly contains exposures to banks and securities firms. The internal rating model for financial institutions is based on a peer-group approach that takes both qualitative and quantitative information into account. The final rating for financial institutions is capped by the country rating of the respective home country.

Financial Institutions: maximum credit exposure by internal rating and segment

The following table shows the maximum credit exposure by internal rating for financial institutions. Due to the small number of customers (or number of defaults respectively), default probabilities of individual rating grades in this asset class are estimated based on internal and external data.

€000		2010	Share	2009	Share
A1	Minimal risk	245,698	0.8%	35,527	0.3%
A2	Excellent credit standing	2,172,623	6.7%	411,278	3.7%
A3	Very good credit standing	18,250,722	56.4%	8,331,712	75.5%
B1	Good credit standing	4,497,943	13.9%	622,119	5.6%
B2	Average credit standing	3,526,746	10.9%	672,202	6.1%
B3	Mediocre credit standing	1,603,434	5.0%	493,761	4.5%
B4	Weak credit standing	892,881	2.8%	155,176	1.4%
B5	Very weak credit standing	474,075	1.5%	191,052	1.7%
C	Doubtful/high default risk	128,145	0.4%	58,156	0.5%
D	Default	383,262	1.2%	4,919	< 0.1%
NR	Not rated (including retail)	184,876	0.6%	64,626	0.6%
Total		32,360,405	100.0%	11,040,528	100.0%

The maximum credit exposure of these customers is € 32,360,405 thousand. With respect to the rating distribution in this asset class, the rating class A3 contributes € 18,250,722 thousand or a share of 56.4 per cent. The absolute increase results mainly from short-term deposits at other banks and can be mainly attributed to segment Group markets. Taking all rating classes together, the Group markets segment accounts for the largest portfolio share (€ 25,457,128 thousand or 78.7 per cent) followed by the Corporate center segment at € 2,172,623 thousand or 6.2 per cent.

Part of this credit exposure is held against financial institutions that have a shareholder relationship with RBI. Due to the multilayered structure of the Austrian Raiffeisen Banking Group, exposure resulting from liquidity management within the Raiffeisen Banking Group is shown in this asset class as well. Bilateral netting-agreements and joint risk monitoring systems are used as risk mitigation techniques by the Group.

The share of unrated financial institutions was below 1 per cent at year-end 2010. This exposure was mainly caused by shortterm loans to small banks, where the rating process had not yet been completed.

Money market deposits, repurchase agreements, potential future exposures from derivatives, sight deposits, and bonds are the main product categories in this asset class. These exposures therefore have high collateralization levels (e.g. in repo transactions or through netting-agreements) depending on the type of product.

As a result of the economic crisis and the resulting risks for this industry class, the bank's management decided that the exposure in this asset class will not be increased any further. As some existing contracts will not be renewed, the maximum credit exposure will eventually even decrease. Credit business with other financial institutions in the Raiffeisen Banking Group (which are covered by a joint risk monitoring system) is not restricted by this decision.

Credit exposure – Sovereigns

Another asset class is formed by central governments, central banks, and regional municipalities as well as other public sector entities. The table below provides a breakdown of the credit exposure to sovereigns (including central banks) by internal rating. Since defaults in this asset class are historically very rare, default probabilities are estimated using full data sets provided by external rating agencies.

€000		2010	Share	2009	Share
A1	Minimal risk	8,386,362	32.4%	455,342	3.1%
A2	Excellent credit standing	624,248	2.4%	380,171	2.6%
A3	Very good credit standing	3,927,021	15.2%	3,687,206	25.2%
B1	Good credit standing	1,639,803	6.3%	1,061,130	7.3%
B2	Average credit standing	1,398,508	5.4%	653,250	4.5%
B3	Mediocre credit standing	5,951,377	23.0%	5,762,992	39.4%
B4	Weak credit standing	2,097,273	8.1%	1,168,817	8.0%
B5	Very weak credit standing	1,691,510	6.5%	1,373,089	9.4%
C	Doubtful/high default risk	39	0.0%	8,306	0.1%
D	Default	60,035	0.2%	19,232	0.1%
NR	Not rated (including retail)	78,988	0.3%	61,313	0.4%
Total		25,855,164	100.0%	14,630,848	100.0%

The maximum credit exposure to sovereigns amounts to € 25,855,164 thousand and represents 15.4 per cent of the bank's total credit exposure. The highest portfolio share with 32.4 per cent is held in rating class 'Minimal Risk' (rating A1), which results mainly from new securities investments in government bonds.

Average rating grades ('Very good credit standing', rating A3 to 'Mediocre credit standing', rating B3) form 49.9 per cent of the portfolio. The high exposure in these rating categories mainly results from deposits of network banks at local central banks in Central and Eastern Europe. They are mandatory for meeting the respective minimum reserve requirements or used in order to manage excess liquidity on a short-term basis and therefore are intrinsically linked to the banking business in these countries. The exposure in rating class B4 is € 2,097,273 thousand (or 8.1 per cent) and results mainly from short-term deposits at the central banks of Russia and in region CIS other.

Sovereigns: maximum credit exposure by internal rating and segment

Credit risk mitigation

Collateralization is one of the main strategies and an actively pursued measure for reducing potential credit risks. The value of collateral and the effect of other risk mitigation techniques are determined within each limit application. The risk mitigation effect taken into account is the value that RBI expects to receive when selling the collateral within a reasonable liquidation period. Eligible collaterals are defined in the Group's collateral catalogue and evaluation guidelines for collateral. The collateral value is calculated according to specified methods, which include standardized calculation formulas based on market values, predefined minimum discounts, and expert assessments.

Collateral is divided into pledges (e.g. guarantees) and physical collateral. In RBI liens on residential or commercial properties are the main types of collateral used.

Collateral types as of 31/12/ 2010

The maximum credit risk exposure and the market price (fair value) of collaterals are shown in the following table:

31/12/2010		Maximum credit exposure	Fair value of collateral
€000	Net exposure	Commitments/guarantees issued
Banks	21,277,387	1,926,281	4,126,777
Sovereigns	1,492,468	260,259	577,893
Corporate customers – large	46,769,555	29,938,996	35,187,022
Corporate customers – small business	3,421,324	898,743	2,683,142
Retail customers – private individuals	17,130,847	2,201,819	11,294,349
Retail customers – small and medium-sized entities	2,198,479	347,148	1,553,402
Other	143,527	30,902	45,373
Total	92,433,587	35,604,148	55,467,958

31/12/2009		Maximum credit exposure	Fair value of collateral
€000	Net exposure	Commitments/guarantees issued
Banks	10,306,663	890,573	135,775
Sovereigns	1,154,916	384,002	228,464
Corporate customers – large	24,007,002	10,636,275	16,833,872
Corporate customers – small business	3,482,430	741,299	2,900,688
Retail customers – private individuals	16,620,215	1,742,211	12,570,999
Retail customers – small and medium-sized entities	2,141,599	312,526	1,513,847
Other	28,224	1,926	7,319
Total	57,741,049	14,708,812	34,190,964

Collateral ready to be sold or repledged in the absence of default of the debtor amounted to € 16,820,440 thousand (2009: € 15,540,905 thousand).

Default and workout process

The credit portfolio and individual borrowers are subject to constant monitoring. The main purpose of monitoring is to ensure that the borrower meets the terms and conditions of the contract as well as following the obligor's economic development. A review is conducted at least once annually in the non-retail asset classes corporates, financial institutions, and sovereigns. This includes a rating review and the re-evaluation of financial and tangible collateral.

Problem loans (where debtors might run into material financial difficulties, or a delayed payment is expected) need special treatment. In non-retail divisions, problem loan committees in the individual Group units make decisions on problematic exposures. If the need for intensified treatment and workout is identified, then problem loans are assigned either to a designated specialist or to a restructuring unit (workout department). Employees of the workout units are specially trained and have extensive experienced. They typically handle medium-sized to large cases and are assisted by in-house legal departments and/or by external specialists as well. Work-out units play a decisive role in accounting and analyzing as well as booking provisions for impairment losses (write-offs, value adjustments, provisioning). Their early involvement can help reduce losses resulting from problem loans.

Default and workout standards in the retail area comprise the whole restructuring and collection process for private individuals and small enterprises. A restructuring guideline defines the Group's restructuring framework including uniform strategy, organization, methods, monitoring and controlling. In the collection process customers are classified into three categories 'early', 'late' and 'recovery', for which a standardized customer handling process is defined.

The definition of default and the assessment of the expected recovery value are heavily influenced by the number of days payments are late. The following table shows the amount of overdue – not impaired – financial assets for different time bands:

31/12/2010	Current			Overdue			Collaterals
€000		Up to 31 days	More than 31 days, up to 90 days	More than 90 days, up to 180 days	More than 181 days, up to 1 year	More than 1 year	received for assets which are past due
Banks	21,258,320	235	5	0	0	2,759	37
Sovereigns	1,468,988	5,967	5,734	177	0	109	498
Corporate customers – large	44,258,902	1,002,845	401,880	17,470	30,215	35,871	696,622
Corporate customers – small business	2,850,135	182,714	91,671	10,287	6,401	17,408	207,729
Retail customers – private individuals	14,659,312	1,446,949	337,421	198,674	39,278	77,804	1,327,697
Retail customers – small and medium sized entities	1,778,858	231,361	63,091	21,500	12,034	14,513	255,929
Other	0	0	0	0	0	0	0
Total	86,274,515	2,870,071	899,802	248,108	87,928	148,464	2,488,511

31/12/2009	Current			Overdue			Collaterals
€000		Up to 31 days	More than 31 days, up to 90 days	More than 90 days, up to 180 days	More than 181 days, up to 1 year	More than 1 year	received for assets which are past due
Banks	10,305,859	0	0	0	0	0	271
Sovereigns	1,044,812	29,903	2,217	554	1	0	1,867
Corporate customers – large	21,424,631	718,445	385,138	22,228	27,282	17,640	1,083,699
Corporate customers – small business	2,902,280	192,110	107,742	10,830	12,349	7,929	324,143
Retail customers – private individuals	14,253,465	1,407,580	414,313	278,046	111,027	133,663	1,063,926
Retail customers – small and medium sized entities	1,764,539	199,152	76,277	30,300	4,435	6,286	297,741
Other	27,750	227	119	0	0	0	0
Total	51,723,336	2,547,417	985,806	341,958	155,094	165,518	2,771,647

Restructuring of loans

As of 31 December 2010 the carrying amount of loans for which terms were renegotiated in connection with a substantial and immediate loss that would otherwise be past due or impaired amounted to € 588,276 thousand (2009: € 484,089). Split by asset classes € 261,604 thousand is attributable to corporate customers and € 326,672 thousand to retail customers.

Non-performing loans and provisioning

Default is internally defined as the event where a specific debtor is unlikely to pay its credit obligations to the bank from primary sources, or the debtor is overdue more than 90 days on any material credit obligation. RBI has defined twelve default indicators which are used to identify a default event including the insolvency or similar proceedings of a customer, if an impairment provision has been allocated or a direct write-off has been carried out, if credit risk management has judged a customer account receivable to be not wholly recoverable, or the restructuring unit is considering stepping in to help a company restore its financial soundness.

Within the scope of the Basel II project a Group-wide default database has been created for recording and documenting

Breakdown of non-performing loans by segment

customer defaults. The database tracks defaults and the reasons for defaults, which makes it suitable for calculating and validating default probabilities.

Provisions for impairment losses are formed on the basis of Group-wide standards according to IFRS accounting principles and cover all identifiable credit risks. In the non-retail segments, problem loan committees from each Group unit decide on building individual loan loss provisions. In the retail area, provisioning is performed by retail risk departments in individual Group units. They compute loan loss provisions according to defined calculation schemes on a monthly basis. The provisioning amount is then approved by local accounting departments.

The following table shows the exposure of Non Performing Loans in the defined asset classes from statement of financial position item positions loans and advances to banks and loans and advances to customers (excludes off-balance sheet positions):

	As of 1/1/2010	Change in consolidated	Exchange differences	Additions	Disposals	As of 31/12/2010
€000		group
Corporate customers	2,576,245	938,592	124,761	1,698,860	(957,021)	4,381,436
Retail customers	1,850,220	5,434	62,691	981,084	(503,215)	2,396,213
Sovereigns	15,898	0	(136)	19,921	(23,585)	12,098
Total non-banks	4,442,363	944,026	187,316	2,699,864	(1,483,821)	6,789,747
Banks	4,233	572,507	3,470	18,772	(331,147)	267,834
Total	4,446,596	1,516,533	190,785	2,718,636	(1,814,968)	7,057,581

	As of 1/1/2009	Change in consolidated	Exchange differences	Additions	Disposals	As of 31/12/2009
€000		group
Corporate customers	824,049	0	(1,981)	2,284,227	(530,051)	2,576,244
Retail customers	950,744	0	(20,866)	1,304,997	(384,655)	1,850,220
Sovereigns	5,206	0	274	24,386	(13,968)	15,898
Total non-banks	1,780,000	0	(22,573)	3,613,610	(928,675)	4,442,363
Banks	431	0	143	6,181	(2,522)	4,233
Total	1,780,431	0	(22,430)	3,619,792	(931,197)	4,446,596

The following table shows the exposure outstanding in the defined asset classes from statement of financial position item positions loans and advances to banks and loans and advances to customers (excludes off-balance sheet positions) and the corresponding non-performing loans, collateral provided, and loan loss provisions by segment:

2010 €000	Central europe	Southeastern europe	Russia	CIS other	Group corporates	Group markets
Corporate customers
Non-performing loans	1,356,775	785,401	450,382	709,630	872,866	206,382
of which collateralized	496,324	442,635	128,265	232,683	238,920	0
Impairment losses on loans and advances	687,381	458,922	443,391	502,867	563,264	183,281
Loans	14,762,049	7,305,091	5,620,499	3,247,838	20,156,890	3,583,612
NPL ratio	9.2%	10.8%	8.0%	21.8%	4.3%	5.8%
Coverage ratio	50.7%	58.4%	98.4%	70.9%	64.5%	88.8%
Retail customers
Non-performing loans	916,596	543,776	217,852	717,988	0	0
of which collateralized	422,755	165,987	62,240	406,271	0	0
Impairment losses on loans and advances	530,350	447,609	186,797	490,083	5,716	196
Loans	10,158,568	6,713,652	1,942,586	2,058,060	2,032	42,271
NPL ratio	9.0%	8.1%	11.2%	34.9%	–	–
Coverage ratio	57.9%	82.3%	85.7%	68.3%	–	–
Sovereigns
Non-performing loans	11,917	0	182	0	0	0
of which collateralized	0	0	0	0	0	0
Impairment losses on loans and advances	958	0	38	0	0	0
Loans	296,344	762,106	38,339	0	331	294
NPL ratio	4.0%	–	0.5%	–	–	–
Coverage ratio	8.0%	–	20.9%	–	–	–
Banks
Non-performing loans	2,759	0	1,175	187	1,031	262,682
of which collateralized	0	0	0	0	0.0%	0.0%
Impairment losses on loans and advances	2,275	9	421	187	762	251,366
Loans	1,386,771	2,587,424	1,821,233	861,178	2,596,822	14,124,823
NPL ratio	0.2%	0.0%	0.1%	0.0%	0.0%	1.9%
Coverage ratio	82.5%	–	35.8%	100.0%	73.9%	95.7%

2009 €000	Central europe	Southeastern europe	Russia	CIS other
Corporate customers
Non-performing loans	1,073,183	549,985	441,780	511,296
of which collateralized	409,459	339,276	172,491	325,714
Impairment losses on loans and advances	588,475	294,615	408,117	406,238
Loans	14,445,729	7,152,689	4,394,004	3,222,680
NPL ratio	7.4%	7.7%	10.1%	15.9%
Coverage ratio	54.8%	53.6%	92.4%	79.5%
Retail customers
Non-performing loans	650,711	436,773	202,870	559,866
of which collateralized	358,453	113,781	114,112	405,873
Impairment losses on loans and advances	408,227	370,941	192,387	408,670
Loans	9,225,278	6,898,650	1,866,483	2,151,627
NPL ratio	7.1%	6.3%	10.9%	26.0%
Coverage ratio	62.7%	84.9%	94.8%	73.0%
Sovereigns
Non-performing loans	12,935	0	2,964	0
of which collateralized	502	0	0	0
Impairment losses on loans and advances	2,343	0	572	0
Loans	1,060,919	1,724,651	127,696	218,828
NPL ratio	1.2%	–	2.3%	–
Coverage ratio	18.1%	–	19.3%	–
Banks
Non-performing loans	4,057	0	0	176
of which collateralized	0	0	0	0
Impairment losses on loans and advances	3,245	16	0	176
Loans	1,936,906	2,110,331	3,154,166	602,254
NPL ratio	0.2%	–	–	–
Coverage ratio	80.0%	–	–	–

In the division corporate customers, non-performing loans recorded the highest growth, increasing by 70 per cent to € 4,381,436 thousand. The Southeastern Europe segment at 43 per cent, and CIS other at 39 per cent, were especially affected. For these NPL's, € 2,839,106 thousand of loan loss provisions were allocated, an increase of 67 per cent and resulted in a coverage ratio of 65 per cent.

In the retail portfolio, non-performing loans grew to € 2,396,212 thousand. This represents an increase of 30 per cent, the main players were located in the segment Central Europe with 41 per cent followed by CIS other with 28 per cent and Southeastern Europe with 24 per cent. The ratio of non-performing loans to loans and advances to customers increased by 25 percentage points to 11.5 per cent. At the same time, loan loss provisions for retail customers rose by 20 per cent to € 1,660,750 thousand, resulting in a coverage decrease of 7.0 percentage points to 69.3 per cent.

The segment financial institutions was also had non-performing loans of € 267,834 thousand at year-end, for which loan loss provisions of € 255,019 thousand were allocated.

The following table summarizes the development of impairment losses on loans and advances and off-balance sheet transactions during the fiscal year and shows the underlying balance sheet items:

	As of	Change in	Allocation1	Release	Usage 2	Transfers,	As of
€000	1/1/2010	consolidated group				Exchange differences	31/12/2010
Individual loan loss provisions	2,383,348	983,277	1,726,950	(530,849)	(687,742)	125,308	4,000,292
Loans and advances to banks	3,430	403,133	7,932	(4,733)	(177,363)	4,180	236,579
Loans and advances to customers	2,354,579		568,304 1,665,236	(507,066)	(491,432)	121,095	3,710,716
Off-balance sheet obligations	25,339	11,840	53,782	(19,050)	(18,947)	33	52,997
Portfolio-based loan loss provisions	770,512	88,880	390,664	(389,803)	0	27,746	887,999
Loans and advances to banks	8	0	18,438	(76)	0	71	18,440
Loans and advances to customers	726,006	88,880	315,170	(367,013)	0	27,094	790,137
Off-balance sheet obligations	44,498	0	57,056	(22,714)	0	581	79,422
Total	3,153,860	1,072,157	2,117,614	(920,652)	(687,742)	153,054	4,888,291

1 Allocation including direct write-downs and income on written down claims.

2 Usage including direct write-downs and income on written down claims.

	As of 1/1/2009	Change in consolidated	Allocation1	Release	Usage 2	Transfers, Exchange	As of 31/12/2009
€000		group				differences
Individual loan loss provisions	1,111,914	(2)	1,836,160	(271,456)	(267,063)	(26,205)	2,383,348
Loans and advances to banks	4,050	0	194	(3)	(8)	(803)	3,430
Loans and advances to customers	1,070,121		(2) 1,816,514	(245,139)	(267,054)	(19,861)	2,354,579
Off-balance sheet obligations	37,743	0	19,452	(26,314)	(1)	(5,541)	25,339
Portfolio-based loan loss provisions	598,725	0	474,261	(288,431)	0	(14,043)	770,512
Loans and advances to banks	301	0	121	(283)	0	(131)	8
Loans and advances to customers	566,790	0	442,356	(269,340)	0	(13,800)	726,006
Off-balance sheet obligations	31,634	0	31,784	(18,808)	0	(112)	44,498
Total	1,710,639	(2)	2,310,421	(559,887)	(267,063)	(40,248)	3,153,860

1 Allocation including direct write-downs and income on written down claims.

2 Usage including direct write-downs and income on written down claims.

The following table shows the breakdown of loan loss provisions according to business segments:

	As of 1/1/2010	Change in consolidated	Allocation1	Release	Usage 2	Exchange differences	As of 31/12/2010
€000		group
Individual loan loss provisions	2,383,348	983,277	1,726,950	(530,849)	(687,742)	125,308	4,000,292
Central Europe	759,283	(743)	628,490	(222,897)	(199,275)	14,747	979,605
Southeastern Europe	485,439	(43)	437,706	(102,020)	(100,793)	2,659	722,948
Russia	481,877	0	229,929	(143,368)	(59,711)	27,399	536,126
CIS other	656,749	0	240,763	(4,547)	(84,817)	50,418	858,566
Group corporates	0	583,457	173,182	(54,035)	(55,243)	17,372	664,733
Group markets	0	400,606	16,878	(3,982)	(187,903)	12,715	238,314
Corporate center	0	0	0	0	0	0	0
Portfolio-based loan loss provisions	770,512	88,880	390,664	(389,803)	0	27,746	887,999
Central Europe	274,395	0	165,388	(161,973)	0	8,605	286,415
Southeastern Europe	198,561	(26)	69,906	(69,015)	0	6,374	205,800
Russia	136,492	0	67,113	(76,746)	0	7,912	134,771
CIS other	161,064	0	57,456	(79,275)	0	3,550	142,795
Group corporates	0	88,906	12,701	(2,794)	0	1,305	100,118
Group markets	0	0	18,100	0	0	0	18,100
Corporate center	0	0	0	0	0	0	0
Total	3,153,860	1,072,157	2,117,614	(920,652)	(687,742)	153,054	4,888,291

1 Allocation including direct write-downs and income on written down claims.

2 Usage including direct write-downs and income on written down claims.

€000	As of 1/1/2009	Change in consolidated group	Allocation1	Release	Usage 2	Exchange differences	As of 31/12/2009
Individual loan loss provisions	1,111,914	(2)	1,836,160	(271,456)	(267,063)	(26,205)	2,383,348
Central Europe	449,456	0	515,223	(131,663)	(79,863)	6,130	759,283
Southeastern Europe	238,822	(2)	427,817	(75,699)	(99,766)	(5,733)	485,439
Russia	223,341	0	396,683	(57,278)	(76,608)	(4,261)	481,877
CIS other	200,295	0	496,437	(6,816)	(10,826)	(22,341)	656,749
Portfolio-based loan loss provisions	598,725	0	474,261	(288,431)	0	(14,043)	770,512
Central Europe	165,293	0	184,935	(79,154)	0	3,321	274,395
Southeastern Europe	148,155	0	117,689	(55,814)	0	(11,469)	198,561
Russia	150,009	0	71,317	(78,201)	0	(6,633)	136,492
CIS other	135,268	0	100,320	(75,262)	0	738	161,064
Total	1,710,639	(2)	2,310,421	(559,887)	(267,063)	(40,248)	3,153,860

1 Allocation including direct write-downs and income on written down claims.

2 Usage including direct write-downs and income on written down claims.

Country risk

Country risk includes transfer and convertibility risks as well as political risk. It arises from cross-border transactions and direct investments in foreign countries. RBI is exposed to this risk due to its strong business activities in the Central and Eastern European convergence markets. In these markets political and economic risks to some extent are still seen as significant.

As country risk is closely associated with the risk of sovereign institutions, it is measured based on the same ten-class rating model. This rating model includes a quantitative analysis of the macro-economic risk of a particular country and a quali-

Credit exposure to customers by region

tative analysis of the political risk in a particular country. Country risk management in RBI is based on the country risk policy which is approved semi-annually by the Managing Board. This policy sets a strict limitation on risk exposure to foreign countries.

In day-to-day work, business units have to submit limit applications for the respective countries for all cross-border transactions in addition to the limit applications for a customer. Country risk also is reflected in product pricing as well as in risk-adjusted performance management. Business units therefore can benefit from country risk mitigation by seeking insurance (e.g. from export credit insurance organizations) or guarantors in third countries.

Finally, stress tests simulate the impact of severe crises in selected countries and regions on the Group's financial performance. These stress tests underline the special importance of this topic in risk management in RBI.

Concentration risk

The credit portfolio of RBI is well diversified in terms of geographical region and industry. Single name concentrations are also actively managed (based on the concept of groups of connected customers) by limits and regular reporting. As a consequence portfolio granularity is high. The sum of the maximum credit exposure of the ten largest corporate customers (before taking into account risk mitigation effects) corresponds to 65.9 per cent of core capital. In line with the credit risk policy these customers all have excellent ratings or – given high collateralization (and high fungibility of collateral) – acceptable credit standing.

The regional breakdown of the maximum credit exposure reflects the broad diversification in European markets. The following table shows the regional distribution of the maximum credit exposure by the borrower's home country. The portfolio contributed by Raiffeisen Zentralbank during the merger leads to a strong increase for Austria and Others. "Other" in this table mainly is comprised of credit exposures to customers in Western Europe like Switzerland, Netherlands, and France. And it includes Central and Eastern European countries where RBI operates local network banks (e.g. Slovenia, Belarus,…).

€000	2010	Share	2009	Share
Austria	44,774,923	26.6%	7,420,225	8.3%
Russia	14,452,671	8.6%	9,547,443	10.7%
Czech Republic	10,031,591	6.0%	9,306,854	10.5%
Hungary	9,938,056	5.9%	9,645,335	10.8%
Slovakia	8,610,947	5.1%	10,123,017	11.4%
Poland	8,232,270	4.9%	6,930,303	7.8%
Romania	8,046,808	4.8%	7,225,958	8.1%
Croatia	6,189,578	3.7%	5,793,291	6.5%
Ukraine	6,156,235	3.7%	5,040,303	5.7%
Germany	5,708,349	3.4%	633,486	0.0%
USA	4,368,637	2.6%	466,276	0.0%
Great Britain	3,999,797	2.4%	389,192	0.0%
Bulgaria	3,958,753	2.4%	4,093,188	4.6%
Serbia	2,557,240	1.5%	2,990,563	3.4%
Far East	2,246,547	1.3%	106,315	0.0%
Other	29,041,912	17.3%	2,400,065	2.7%
Total	168,314,313	100.0%	89,084,944	100.0%

In 2010 doubts about the financial sustainability of government deficits resulted in the widening of spreads on government bonds of several countries of the European Monetary Union. RBI does not own any banking subsidiaries that are incorporated in the so-called European periphery countries. Nonetheless, some of the bank's customers are domiciled in these countries, resulting from lending to international corporate customers and investment banking activities. All in all, the bank has almost no exposure to government bonds in these countries (except for the Republic of Italy).

Risk policies and credit assessments in RBI take into account the industry class of customers as well. The credit and insurance industry represents the largest industry class, which is mostly attributed to exposures against members of the Austrian Raiffeisen Sector (central liquidity balancing function). The second largest industry class is private households, primarily retail customers in Central and Eastern European countries. The following table shows the maximum credit exposure by industry classification:

€000	2010	Share	20091	Share
Banking and insurance	48,146,001	28.6%	18,731,314	21.0%
Private households	22,554,206	13.4%	18,918,705	21.2%
Public administration and defence and social insurance institutions	16,182,139	9.6%	8,069,816	9.1%
Wholesale trade and commission trade (except car trading)	15,217,496	9.0%	5,932,211	6.7%
Real estate activities	12,346,591	7.3%	5,985,553	6.7%
Other business activities	6,708,734	4.0%	1,945,479	2.2%
Construction	4,949,963	2.9%	3,403,930	3.8%
Retail trade except repair of motor vehicles	4,087,343	2.4%	1,974,017	2.2%
Electricity, gas, steam and hot water supply	3,516,158	2.1%	1,193,503	1.3%
Manufacture of food products and beverages	2,986,865	1.8%	2,278,475	2.6%
Manufacture of basic metals	2,939,420	1.7%	968,459	1.1%
Other manufacturing	11,900,352	7.1%	5,459,545	6.1%
Land transport, transport via pipelines	2,231,069	1.3%	1,501,776	1.7%
Other transport	2,606,332	1.5%	1,119,421	1.3%
Manufacture of machinery and equipment	1,729,813	1.0%	624,755	0.7%
Mining and quarrying	1,277,371	0.8%	356,375	0.4%
Sale of motor vehicles	1,796,372	1.1%	1,906,112	2.1%
Other industries	7,138,089	4.2%	8,715,498	9.8%
Total	168,314,313	100.0%	89,084,944	100.0%

1 Adjustments of previous year figures due to different mapping and definition.

Structured credit portfolio

The bank's structured credit portfolio was taken over from RZB as a consequence of the merger. RBI 's strategy for this portfolio is to reduce these investments step-by-step. This will be achieved either through repayment at maturity date or through assest sales depending on the market situation. The size of the structured credit portfolio is shown in chapter (39) securitization. More than 85 per cent of this portfolio is rated A or better by external rating agencies. The pools mainly contain exposures to European customers.

Counterparty credit risk

The default of a counterparty in a derivative, repurchase, securities or commodities lending or borrowing transaction can lead to losses from re-establishing the contract with another counterparty. In RBI this risk is measured by the mark-to-market approach where a predefined add-on is added to the current positive fair value of the contract in order to account for potential future changes. For internal management purposes potential price changes, which can affect the fair value of an instrument, are calculated specifically for different contract types based on historical market price changes.

For derivative contracts the standard limit approval process applies, where the same risk classification, limitation, and monitoring process is used as for traditional lending. In doing so, the weighted nominal exposure of derivative contracts is added to the customers' total exposure in the limit application and monitoring process as well as in the calculation and allocation of internal capital.

An important strategy for reducing counterparty credit risk is credit risk mitigation techniques such as netting agreements and collateralization. In general, RBI strives to establish standardized ISDA master agreements with all major counterparties for derivative transactions in order to be able to perform close-out netting and credit support annexes (CSA) for full risk coverage for positive fair values on a daily basis.

The total potential future credit exposure resulting from derivative transactions is included in the exposure tables for each particular asset class.

€000		Fair value Counterparty credit risk	Netting benefits	Netted potential credit exposure	Collateral held	Net credit exposure
Interest rate contracts	1,006,807	5,541,301	3,761,405	1,779,896	192,029	1,587,867
Foreign exchange rate and gold contracts	(222,531)	1,593,004	570,888	1,022,115	60,917	961,198
Equity/index contracts	10,391,210	10,533,055	7,620,146	2,912,909	1,475,224	1,437,685
Credit derivatives	2,278	26,024	12,107	13,917	271	13,646
Commodities	27,841	42,071	31,971	10,100	0	10,100
Total	11,205,604	17,735,454	11,996,517	5,738,937	1,728,440	4,010,496

Participation risk

The banking book also contains risks arising from listed and unlisted equity participations. They are described separately under this risk heading. Risks stemming from subsidiaries that are strategically and operatively controlled by RBI are not considered in this risk category because these risks are precisely measured and reported under the other risk headings during consolidation. Most of the direct and indirect participations of RBI are fully consolidated in the Group's statement of financial position (e.g. network banks, network leasing companies) and therefore subject to the 'look through' approach. Risks arising from such participations are managed by applying controlling-, measurement-, and monitoring-tools as described for the other risk categories.

Breakdown of structured credit portfolio by region

Breakdown of structured credit portfolio by rating

Participation risk and counterparty credit risk have similar roots: a deteriorating financial situation on equity participations is mostly reflected in a rating downgrade (or default) of the respective entity. The methodology of RBI used for measuring value-atrisk and internal capital requirements of equity participations nonetheless is comparable to the methodology used to measure price risk arising from positions in stocks. However, in the light of the longer-term strategic nature of equity participations, annual volatilities based on observation periods of several years (instead of daily price changes) are used in the calculation.

Participations of RBI are managed by the Participations division. This division is responsible for controlling risks arising from long-term equity investments of the parent company (and for returns generated by these investments as well). New investments are made only by the Managing Board of RBI on the basis of individual due diligence. Indirect participations held by different Group units are often managed by local units themselves in coordination with RBI.

Market risk

RBI defines market risk as the risk of possible losses arising from changes in market prices of trading and banking book positions. Market risk estimates are based on changes in exchange rates, interest rates, credit spreads, equity and commodity prices, and other market parameters (e.g. like implied volatilities).

Market risks are transferred to the Group Treasury division by closing internal contracts with customer divisions. Global Treasury is responsible for managing structural market risks and for complying with the Group's overall limit. The Capital Markets division is responsible for proprietary trading, market making, and for customer business with money market and capital market products.

Organization of market risk management

RBI measures, monitors and manages market risks on Group level.

The Market Risk Committee is responsible for strategic market risk management issues. It is responsible for managing and controlling all market risks in the Group. The Group's overall limit is set by the Managing Board on the basis of the risk-taking capacity and income budget. This limit is apportioned to sub-limits in coordination with business divisions according to the strategy, business model and risk appetite.

The Market Risk Management department ensures that the business volume and product range comply with the defined and enacted strategy and risk appetite of the Group. It is responsible for implementing and enhancing risk management processes, manuals, measurement techniques, risk management infrastructure and systems for all market risk categories and secondary credit risks arising from market price changes in derivative transactions. Furthermore this department independently measures and reports market risks on a daily basis.

All products in which open positions can be held are listed in the product catalogue. New products are added to this list only after completing the product approval process successfully. Product applications are investigated thoroughly for any risks. They are approved only if the new products can be implemented in the bank's front- and back-office (and risk management) systems respectively.

Limit system

RBI uses a comprehensive risk management approach for both the trading and banking book (total-return approach). Market risks are managed consistently in the trading and banking book. The following values are measured and limited on a daily basis in the market risk management system:

(11) Value-At-Risk (confidence level 99%, risk horizon 1 day)

Value-at-risk (VaR) is of central importance in the design of the instrument used. It is the main steering instrument in liquid markets and normal market situations. VaR is measured based on a hybrid simulation approach, where 5,000 scenarios are calculated. The approach combines the advantages of a historical simulation and a Monte Carlo simulation and derives market parameters from 500 days historical data. Distribution assumptions include modern features like volatility declustering, random time change, and extreme event containers. This helps in reproducing fat-tailed and asymmetric distributions accurately. The Austrian Financial Market Authority has approved this model such that it can be used for calculating own funds requirements for market risks. Value-at-risk results are not only used for limiting risk but also in the internal capital allocation.

(12) Sensitivities (to changes in exchange rates, interest rates, gamma, vega, equity and commodity prices) Sensitivity limits shall ensure that concentrations are avoided in normal market situations and are the main steering instrument under extreme market situations, in illiquidity markets, and in markets that are structurally difficult to measure.

(13) Stop loss

This limit strengthens the discipline of traders such that they do not allow losses to accumulate on their own proprietary positions but strictly limit them instead.

A comprehensive stress testing concept complements this multi-level limit system. It simulates potential present value changes of defined scenarios for the total portfolio. The results on market risk concentrations shown by these stress tests are reported to the Market Risk Committee and taken into account when setting limits. Stress test reports for individual portfolios are included in daily market risk reporting.

Value-at-risk (VaR)

The following table shows risk figures (VaR 99%, 1d, in € thousand) for individual markets risk categories of the trading and banking book. RBI's VaR mainly results from exchange rate risk out of long-termed equity positions, structural interest rate risks, and credit spread risks of bonds, which are held as liquidity buffer.

Trading book VaR 99% 1d	VaR as of 31/12/2010	Average VaR	Minimum VaR	Maximum VaR	VaR1 as of 31/12/2009
Currency risk	8,215	6,933	1,546	9,621	3,888
Interest rate risk	6,821	7,499	5,262	10,527	6,980
Credit spread risk	2,049	3,784	2,029	13,390	2,734
Share price risk	1,399	2,498	1,327	27,244	3,531
Total	12,622	15,484	9,622	47,965	12,677

Banking book VaR 99% 1d	VaR as of 31/12/2010	Average VaR	Minimum VaR	Maximum VaR	VaR as of 31/12/2009
Interest rate risk	69,753	42,096	15,100	72,203	14,868
Credit spread risk	29,949	43,382	24,996	100,502	43,489
Total	66,081	58,672	37,805	104,124	46,692

Total VaR 99% 1d	VaR as of 31/12/2010	Average VaR	Minimum VaR	Maximum VaR	VaR as of 31/12/2009
Currency risk2	53,021	62,069	45,722	107,679	53,742
Interest rate risk	70,163	43,647	20,377	87,621	20,297
Credit spread risk	31,065	45,868	25,989	108,503	44,139
Share price risk	1,399	2,498	1,327	27,244	3,531
Total	86,932	95,218	66,288	182,552	80,169

1 Values for year end 2009 have been adjusted according to model changes.

2 Exchange rate risk on total bank level also includes equity positions of subsidiaries denominated in foreign currency. The structural exchange rate risk resulting from equity positions is managed mostly independently from short-term trading positions (see also subsequent chapter "Exchange rate risk and capital (ratio) hedge").

Risk measurement approaches in use are verified – besides analysing returns qualitatively – permanently through backtesting and statistical validation techniques. If model weaknesses are be identified, they are fixed accordingly. There were no backtesting violations for Raiffeisen Bank International's trading book as shown in the following chart. This chart compares VaR for exchange and interest rate risk (as calculated for regulatory capital requirements) and theoretical profits and losses on a daily

Value-at-risk and theoretical market price changes of RBI's trading book

basis. VaR is shown as black line and denotes the maximum loss that will not be exceeded with 99 per cent confidence level on the next day. Theoretical profits and losses are shown as yellow line indicating theoretical returns that the bank would have realized according to the actual changes in market parameters. It is possible to see that the model correctly reproduces market volatility regimes and quickly reacts to changed market conditions.

Exchange rate risk and capital (ratio) hedge

Market risk in RBI depends primarily on exchange rate risk, which results from foreign-currency denominated equity investments made in non-domestic Group units and the corresponding hedging positions entered into by the Group Asset/Liability Committee. The following table shows all material open foreign exchange rate positions (larger than € 50 million) as of 31 December 2010 and the corresponding values for the previous year in € thousand. Those numbers include both trading positions as well as equity stakes in subsidiaries with foreign currency denominated statements of financial position.

31/12/2010	31/12/2009
187,135	179,625
167,305	(95,627)
90,655	(311,286)
137,443	115,690
94,341	103,717
133,831	332,370
811,689	806,266
526,303	561,305
781,200	730,488
538,897	536,175
475,253	481,891
2,132,097	1,830,354
1,537,677	1,114,989
(707,173)	(385,978)

In a narrow sense, exchange rate risk denotes the risk that one suffers losses due to open foreign exchange positions. Exchange rate fluctuations also influence current revenues and expenses. However, they also influence regulatory capital requirements of assets denominated in foreign currencies, even if they are refinanced in the same currency and thus do not create an open foreign exchange position.

RBI holds several large participations located outside of the European Monetary Union with their equity denoted in the corresponding local currency. Also, a significant share of risk weighted assets in RBI is denominated in foreign currencies. Changes in foreign exchange rates thus lead to a change of consolidated capital in RBI and they influence own funds requirement for credit risks as well. Basically, there are two different approaches for managing exchange rate risks:

• (14) Preserve equity: With this hedging strategy an offsetting capital position is held on Group level for local currency denominated equity positions. However, the necessary hedging positions cannot be established in all currencies due to the required high volume. And these hedges might be inefficient for some currencies if they carry a high interest rate differential.
• (15) Stable capital ratio: The goal of this hedging strategy is to balance core capital and risk-weighted assets in all currencies according to the targeted core capital ratio (i.e. reduce excess capital or deficits in relation to risk-weighted assets for each currency) such that the core capital ratio remains stable even if foreign exchange rates change.

RBI aims at stabilizing its core capital ratio when managing exchange rate risks. Changes in foreign exchange rates thus lead to changes in consolidated capital amounts; however, the regulatory capital requirements for credit risks stemming from assets denoted in foreign currencies also change correspondingly. This risk is managed on a monthly basis in the Group Asset/Liability Committee based on historical foreign exchange volatilities, exchange rate forecasts, and the sensitivity of the core capital ratio to changes in individual foreign exchange rates.

Interest rate risk in the trading book

The following two tables show the largest present value changes for the trading book of RBI given a one-basis-point interest rate increase for the whole yield curve in € thousand for the reporting dates 31 December 2009 and 31 December 2010. Currencies where the total interest rate sensitivity exceeds € 10 thousand are shown separately. There are only minor changes in the structure of the trading book and risk factors compared to the previous year.

31/12/2010 €000	Total	<3m	3-6m	6-12m	1-2y	2-3y	3-5y	5-7y	7-10y	10- 15y	15- 20y	>20y
ALL	(30)	(1)	(1)	(10)	(4)	(11)	(4)	0	0	0	0	0
BGN	(10)	(1)	0	0	(1)	(1)	(5)	0	0	0	0	0
EUR	453	6	(7)	(7)	(95)	35	208	161	219	7	21	(94)
GBP	(19)	0	0	0	(1)	0	0	0	(5)	(1)	(1)	(11)
HUF	5	4	(1)	24	(23)	10	(15)	(8)	13	3	0	0
RUB	(177)	(4)	(5)	(16)	(38)	(25)	(88)	(1)	(1)	0	0	0
USD	(32)	0	(9)	(4)	(7)	(6)	(4)	1	(1)	0	0	(1)
Other	(11)	(2)	(1)	(7)	2	(5)	9	0	(10)	(1)	0	0

31/12/2009 €000	Total	<3m	3-6m	6-12m	1-2y	2-3y	3-5y	5-7y	7-10y	10- 15y	15- 20y	>20y
ALL	(34)	0	(1)	(7)	(15)	(3)	(8)	0	0	0	0	0
CHF	0	0	0	0	0	0	0	0	0	0	0	0
EUR	(91)	(9)	(5)	(6)	12	(28)	(55)	32	(30)	(2)	0	0
HUF	(16)	0	2	(3)	(15)	1	3	5	(13)	4	0	0
RUB	(109)	(2)	(7)	(4)	(27)	(33)	(35)	(1)	0	0	0	0
USD	(14)	0	(6)	0	0	(4)	(1)	0	(3)	0	0	0
Other	(16)	(1)	3	(1)	(2)	(5)	(3)	(1)	(2)	0	0	0

Interest rate risk in the banking book

Different maturities and repricing schedules of assets and the corresponding liabilities (i.e. deposits and refinancing on debt and capital markets) cause interest rate risk in Raiffeisen Bank International. This risk arises in particular from different interest rate sensitivities, rate adjustments, and other optionality of expected cash flows. Interest rate risk in the banking book is material for euro and US-dollar as major currencies as well as for local currencies of Group units located in Central and Eastern Europe.

This risk is mainly hedged by a combination of on- and off-balance sheet transactions where in particular interest rate swaps and – to a smaller extend – also interest rate forwards and interest rate options are used. Balance sheet management is a core task of the central Global Treasury division and of individual network banks, which receive assistance from asset/liability management committees. They base their decisions on various interest income analyses and simulations that ensure proper interest rate sensitivity in line with expected changes in market rates and the overall risk appetite.

Interest rate risk in the banking book is not only measured in a value-at-risk framework but also managed by the traditional tools of nominal and interest rate gap analyses. Since 2002, interest rate risk has been the subject of quarterly reporting within the scope of the interest rate risk statistics submitted to the banking supervisor. These reports show the change in the present value of the banking book as a percentage of own funds in line with the requirements of Basel II. Maturity assumptions needed in this analysis are defined as specified by regulatory authorities or based on internal statistics and empirical values. In 2010, the changes in present value of banking book positions after an interest rate shock of 200 basis points were always lower than the regulatory reporting threshold of 20 per cent of eligible own funds.

The following table shows the change in the present value of Raiffeisen Bank International's banking book given a one-basispoint interest rate increase for the whole yield curve in € thousand for reporting dates 31 December 2009 and 31 December 2010. Currencies with total interest rate sensitivity exceeding € 10 thousand are shown separately. Interest rate risk in the banking book increased due to investments into securities issued by first class issuers, which are also held to improve the liquidity position.

31/12/2010 €000	Total	<3m	3-6m	6-12m	1-2y	2-3y	3-5y	5-7y	7-10y	10- 15y	15- 20y	>20y
BGN	17	2	3	13	(1)	2	(1)	0	0	0	0	0
BYR	30	(2)	(11)	6	1	1	34	0	0	0	0	0
CHF	(101)	2	(14)	(20)	(2)	3	(1)	(14)	(16)	(22)	(16)
CNY	25	(14)	3	36	0	0	0	0	0	0	0	0
CZK	(42)	(12)	9	39	(82)	(34)	55	16	(17)	(16)	0	0
EUR	(2,026)	189	177	33	(38)	50	(155)	(767)	(1,244)	(210)	35	(96)
HUF	(88)	(22)	(1)	6	2	(12)	(36)	(29)	2	2	0	0
PLN	(17)	(14)	5	(5)		(2)		(1)	0	0	0	0
RON	(167)	5	(4)	(10)	(22)	(29)	(72)	(24)	(11)	0	0	0
RUB	58	(4)	(20)	14	51	45	43	(12)	(16)	(22)	(14)	(7)
UAH	(123)	(1)	5	7	(38)	(31)	(40)	(11)	(7)	(6)	(1)	0
USD	(288)	(23)	30	27	(6)	99	(87)	(98)	(56)	(124)	(35)	(14)
Other	(34)	(18)	(13)	16	(22)	(22)	(28)	47	3	1	1	(1)

31/12/2009 €000	Total	<3m	3-6m	6-12m	1-2y	2-3y	3-5y	5-7y	7-10y	10- 15y	15- 20y	>20y
BGN	8	2	2	6	1	(3)	0	0	0	0	0	0
BYR	8	(2)	(5)	1	5	0	9	0	0	0	0	0
CHF	1	(5)	4	1	2	(1)	0	0	0	0	0	0
CNY	0	0	0	0	0	0	0	0	0	0	0	0
CZK	58	0	(7)	56	(21)	(25)	62	(11)	17	(13)	0	0
EUR	(113)	22	23	(25)	12	(84)	(49)	(10)	(6)	4	0	0
HUF	(54)	12	3	(10)	(15)	(15)	(16)	(19)	(5)	11	0	0
PLN	(8)	(2)	3	(1)	(6)	0	(2)	0	0	0	0	0
RON	(96)	3	(7)	(13)	(10)	(16)	(32)	(17)	(4)	0	0	0
RUB	(100)	(7)	14	(16)	(11)	(14)	29	(12)	(20)	(34)	(29)	0
UAH	(4)	6	(1)	(2)	(4)	(3)	0	0	0	0	0	0
USD	161	18	(3)	(5)	23	75	151	(30)	12	(59)	(21)	0
Other	(65)	(4)	(3)	14	(19)	(15)	(47)	13	(4)	0	0	0

1 Previous year's results adjusted in line with model changes and on a pro-forma basis (unaudited).

Credit spread risk

The market risk management system takes into account time-dependent bond and CDS-spread curves as market risk factors in order to measure credit spread risks. This market risk category thus captures the specific interest rate risk of all securities in the trading and banking book. The value-at-risk report covers Raiffeisen Bank International AG in this risk category, where a major part of securities positions are booked. The roll out of this system to all Group units is being planned.

Liquidity risk

Banks perform maturity transformation as an important role for international financial markets. The need for maturity transformation arises from the needs of depositors to access their funds within short notice and the opposite need of borrowers for longterm loans. This function constantly results in positive or negative liquidity gaps for different maturities that are managed through transactions with other market participants under normal market conditions.

Liquidity management, i.e. ensuring that the Group maintain it's ability to pay at all times, is performed both centrally by the Global Treasury division in Vienna and on a decentralized basis by local banking subsidiaries. Cash flows are calculated and analyzed by currency on a weekly basis in an internal monitoring system. Based on this data, the Group creates liquidity balances, and analyzes whether the Group conforms to legal regulations on liquidity positions and defined internal liquidity limits. Liquidity analyses also include simulations on defined market or name specific liquidity crises in scenario-based cash flow forecasts. All these analyses are discussed in the Group's Asset/Liability Committee.

Regulatory changes

The Austrian liquidity risk management directive, which implements the principles developed by the Committee of European Banking Supervision (CEBS) in Austria, became effective on 31 December 2010. RBI had already established the now mandatory instruments for liquidity risk management (amongst others a sufficiently large liquidity buffer, stress tests based on different scenarios, and liquidity contingency plans). Additional regulatory changes in the liquidity risk area will be defined in Basel III. As far as it is possible to estimate, the new liquidity ratios based on the still preliminary rules, Raiffeisen Bank International appears to be well prepared for the new regulations.

Short-term liquidity risk

The following table shows excess liquidity and the ratio of cash inflows plus counterbalancing capacity to cash outflows (liquidity ratio) for select maturities on a cumulative basis, taking into account balance sheet items and off-balance-sheet transactions. Based on expert opinions, statistical analyses and country specifics, this calculation also incorporates estimates on the prolongation of defined assets, the so-called sediment of customer deposits, and the liquidity counterbalancing capacity (in particular, assets that are eligible for refinancing at central banks and that can be used as collateral in repo transactions). Excess liquidity has been increased significantly as a result of the increased balance sheet due to the merger. The prudential liquidity risk profile also is reflected in the high liquidity ratio.

€000		2010			2009
Maturity	1 week	1 month	1 year	1 week	1 month	1 year
Liquidity gap	15,996,552	13,132,935	5,994,321	9,024,377	10,229,915	1,607,660
Liquidity ratio	172%	126%	105%	207%	165%	103%

Internal limits have been established in each Group unit in order to limit liquidity risk. They require a positive short-term liquidity gap based on the internal liquidity model. In addition the Group holds sizeable positions in liquid securities and favors assets eligible in tender transactions in the lending business in order to ensure liquidity in various currencies. In the case of a liquidity shortage in the Group, contingency plans would come into force. Such prioritized action lists for handling short-term liquidity needs (also with regard to the publicity impact) exist for all major Group units.

Funding liquidity risk

Funding liquidity risk is mainly driven by changes in the risk appetite of lenders or by a rating downgrade of a bank that needs external funding. Funding rates and supply rise and fall with credit spreads, which change due to the market- or bank-specific situation.

As a consequence, long term funding depends on restoring confidence in banks and the increased effort in collecting customer deposits. RBI's banking activities are refinanced by combining wholesale funding and the retail franchise of deposit-taking network banks. RBI is the central liquidity balancing agent for the local Group units in Central and Eastern Europe.

In RBI's funding plans, special attention is paid to a diversified structure of funding to mitigate funding liquidity risk. In the Group, funds are not only raised by RBI as the Group's parent institution, but also individually by different banking subsidiaries. Those efforts are coordinated and optimized through a joint funding plan. Moreover, Raiffeisen Bank International enables medium-term and long-term borrowing activities of its subsidiaries through syndicated loans, bilateral funding agreements with banks, and financing facilities of supranational institutions. These funding sources are based on long-term business relationships.

For managing and limiting liquidity risks, the medium term targets for loan-/deposit ratios (the ratio of customer loans to customer deposits) have been revised for individual network banks taking into account expected Basel III regulations. The limits incorporate planned future business volumes as well as the feasibility for increasing customer deposit in different countries. On the one hand, this initiative reduces external funding requirements. On the other hand, it also reduces the need for internal funding operations and the risk associated with such liquidity transfers.

The following table shows a breakdown of cash flows according to the contractual maturity of financial liabilities:

31/12/2010	Carrying	Contractual	Upt to 3	3 - 12	More than	More than
	amount	cash flows	months	months	1 year, up	5 years
€000					to 5 years
Non-derivative liabilities	114,302,837	126,753,218	65,467,730	22,721,280	26,830,333	11,733,874
Deposits from banks	33,659,182	38,603,453	17,055,997	7,762,122	10,830,875	2,954,459
Deposits from customers	57,633,113	60,580,197	43,865,734	9,123,427	3,736,599	3,854,435
Debt securities issued	16,555,382	18,891,313	1,486,420	5,551,382	9,741,404	2,112,107
Other liabilities	2,454,062	4,193,176	3,009,533	181,791	853,683	148,170
Subordinated capital	4,001,098	4,485,079	50,046	102,558	1,667,772	2,664,703
Derivative liabilities	5,794,444	13,341,347	6,259,396	2,671,943	2,924,899	1,485,107
Derivatives in the trading
book	4,530,916	10,751,156	5,200,176	2,130,544	2,320,808	1,099,627
Hedging derivatives	476,764	574,063	12,979	19,907	219,898	321,278
Other derivatives	768,432	1,998,047	1,044,143	516,696	373,679	63,529
Credit derivatives	18,332	18,081	2,098	4,796	10,514	673

31/12/2009	Carrying amount	Contractual cash flows	Upt to 3 months	3 - 12 months	More than 1 year, up	More than 5 years
€000					to 5 years
Non-derivative liabilities	68,194,055	68,872,666	39,683,093	12,709,399	13,270,300	3,209,871
Deposits from banks	20,110,170	19,577,262	4,032,782	5,157,533	9,347,284	1,039,663
Deposits from customers	42,578,249	43,198,192	34,615,528	6,533,424	1,860,708	188,531
Debt securities issued	2,526,651	2,763,853	382,558	881,960	1,287,110	212,225
Other liabilities	508,700	718,383	639,587	75,627	3,139	28
Subordinated capital	2,470,285	2,614,976	12,638	60,855	772,059	1,769,424
Derivative liabilities	769,560	7,642,210	4,634,541	2,102,380	781,904	123,384
Derivatives in the trading
book	510,127	4,311,777	2,202,506	1,600,674	442,235	66,363
Hedging derivatives	50,026	107,399	6,992	38,592	61,957	(143)
Other derivatives	209,407	3,223,034	2,425,043	463,114	277,712	57,164
Credit derivatives	0	0	0	0	0	0

Operational risk

Operational risk is defined as the risk of unexpected losses resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. In this risk category internal risk drivers like unauthorized activities, fraud or theft, execution and process errors, or business disruption and system failures are managed. External factors such as damage to physical assets or consciously conducted human fraud are managed and controlled as well.

This risk category is analyzed and managed on the basis of own historical loss data and the results of self assessments. Another management tool is the incentive system implemented in internal capital allocation. This system rewards high data quality and low expected operational risk costs of individual business units. Generally speaking, RBI implements a centralized - decentralized system for operational risk management. In this process, a central operational risk management function defines all basic principles and minimum requirements, which then are implemented risk type specific in the individual local units.

As with other risk types the principle of firewalling between risk management and risk controlling is also applied to operational risk in RBI. Operational risk controlling units are mainly responsible for the implementation and refinement of methods for operational risk management in different Group units (e.g. performing self assessment, defining and monitoring key risk indicators, etc.) and for reporting to the central operational risk controlling function. Business line managers are responsible for controlling and mitigating operational risks. They decide on pro-active operational risk steering actions such as buying insurance and the use of further risk mitigating instruments.

Operational risks are reported in a comprehensive manner to the Group Risk Committee on a quarterly basis. The distribution of losses in the Group by event type is shown below:

Risk identification

An important task for controlling operational risks is identifying and evaluating risky areas that might endanger the Group's existence if a loss occurs (but where losses are highly unlikely to be realized) and also areas where losses are more likely to happen frequently (but cause only smaller losses).

Operational risk self-assessment is executed in a structured and Group-wide uniform manner, where all operational risk categories and business functions are assessed in a two-dimensional matrix (per business line or product group). This applies to new products as well. All Group units grade the impact of high probability/low impact events and low probability/high impact incidents according to their estimation of the loss potential for the next year and in the next ten years in relation to profits. Low probability/high impact events are quantified by a Group-wide scenario analysis framework that includes the simulation of up to ten specific scenarios. Individual Group units furthermore run additional scenarios depending on their individual risk profile and local specifics.

Monitoring

In order to monitor operational risks, key risk indicators (KRIs) are used as measurable indicators that allow promptly identifying and mitigating operational risks. They are specifically tailored to individual Group units as well. A common catalogue of key risk indicators, which is defined by the head office for internal benchmarking purposes, is mandatory for all Group units.

Loss data is collected in a central database called ROCO (Raiffeisen Operational Risk Controlling) in a structured manner and on a Group-wide basis according to the event type for each business line. Collecting losses stemming from operational risks is a prerequisite for implementing a statistical loss distribution model and a minimum requirement for implementing the regulatory Standardized Approach. Furthermore, loss data (and near misses) is used to create and validate operational risk scenarios and for exchange with international data pools to develop advanced operational risk management tools. In 2010 RBI became a member of the ORX consortium, a reputable international data pool.

Operational losses in Raiffeisen Bank International mainly are caused by external fraud in the lending business, and thus are taken into account when building loans loss provisions. The increase in the category internal fraud results from active investigative actions in particular in the CIS region, where corresponding preventive actions already have been taken.

Quantification and mitigation

RBI currently calculates regulatory capital requirements for operational risks according to Basel II using the Standardized Approach. This approach applies to all major Group units.

Operational risk reduction is initiated by business managers who decide on preventive actions like risk mitigation or risk transfer. Progress and success of these actions is monitored by risk controlling. The former also define contingency plans and nominate responsible persons or departments for initiating the defined actions if these events occur. In addition, several dedicated organizational units provide support to business units for reducing operational risks. An important role, for instance, is planed by fraud management which reduces potential fraud related losses through proactive monitoring and preventive actions. RBI also executes an extensive staff training program and has different emergency plans and back-up systems in place.

Breakdown of operational loss events by loss amount (before risk mitigation)

Breakdown of operational loss events by number of events

Other disclosures

(45) Derivative financial instruments

The total volume of unsettled financial instruments as of 31 December 2010 breaks down as follows:

		Nominal amount by maturity			Fair values
	Up to 1 year	More than	More than	Total	Positive	Negative
€000		1 year, up to 5 years	5 years
Total	89,949,792	109,694,268	70,929,143	270,573,203	5,112,586	(5,794,443)
Interest rate contracts	44,859,461	98,821,793	67,760,699	211,441,953	4,197,567	(3,975,179)
OTC products
Interest rate swaps	37,810,244	93,944,351	62,697,041	194,451,636	4,106,879	(3,866,061)
Interest rate futures	4,980,163	269,833	0	5,249,996	4,726	(5,330)
Interest rate options – purchased	743,393	2,236,711	1,738,547	4,718,651	81,841	0
Interest rate options – sold	672,707	2,107,298	2,170,300	4,950,306	0	(103,388)
Products trading on stock exchange
Interest rate futures	652,954	263,600	1,154,811	2,071,364	4,121	(400)
Foreign exchange rate and gold contracts	42,618,739	7,734,681	1,794,526	52,147,948	741,486	(1,168,629)
OTC products
Cross-currency interest rate swaps	2,992,522	6,362,482	1,766,434	11,121,439	263,086	(654,385)
Forward foreign exchange
contracts	36,965,659	932,590	0	37,898,249	436,796	(446,719)
Currency options – purchased	1,150,438	197,053	1,476	1,348,968	39,095	0
Currency options – sold	1,318,885	238,606	1,599	1,559,091	0	(42,389)
Gold commodity contracts	5,290	3,950	25,017	34,256	899	(23,982)
Products trading on stock exchange
Currency contracts (futures)	185,945	0	0	185,945	1,609	(1,154)
Equity/index contracts	1,550,606	699,170	240,233	2,490,007	97,230	(569,568)
OTC products
Equity-/index-based options - purchased	135,052	333,586	125,799	594,437	72,764	0
Equity-/index-based options - sold	132,693	138,419	37,224	308,336	0	(148,200)
Other similar equity/index contracts	376,439	186,508	75,912	638,858	3,803	(408,641)
Products trading on stock exchange
Equity/index futures –
forward pricing	498,142	0	1,298	499,439	11,316	(1,319)
Equity/index futures	408,280	40,657	0	448,937	9,347	(11,408)
Commodities	404,694	100,657	15,276	520,627	17,398	(3,024)
Credit derivatives	495,178	2,337,967	1,102,740	3,935,885	57,261	(62,252)
Precious metals contracts	21,114	0	15,669	36,783	1,644	(15,791)

The surplus of negative market values for security-based transactions is offset by shares purchased for hedging purposes. These shares are recorded under trading assets and are not shown in the above table.

The total volume of unsettled financial instruments as of 31 December 2009 breaks down as follows:

		Nominal amount by maturity			Fair values
€000	Up to 1 year	More than 1 year, up to 5 years	More than 5 years	Total	Positive	Negative
Total	32,189,420	12,412,503	2,599,107	47,201,030	879,195	(769,560)
Interest rate contracts	16,387,543	9,738,833	2,537,566	28,663,942	457,125	(485,847)
OTC products
Interest rate swaps	10,506,999	9,176,583	2,537,566	22,221,148	444,300	(468,898)
Interest rate futures	5,566,874	511,278	0	6,078,152	9,849	(16,385)
Interest rate options – purchased	0	45,372	0	45,372	534	(534)
Products trading on stock exchange
Interest rate futures	313,670	5,600	0	319,270	2,442	(30)
Foreign exchange rate and gold contracts	15,660,923	2,511,959	60,506	18,233,388	414,232	(276,141)
OTC products
Cross-currency interest rate swaps	2,346,544	1,799,700	60,506	4,206,750	142,420	(116,516)
Forward foreign exchange contracts	10,223,927	425,593	0	10,649,520	229,313	(111,304)
Currency options – purchased	764,235	143,293	0	907,528	36,754	0
Currency options – sold	749,436	143,373	0	892,809	0	(37,555)
Other similar currency contracts	1,518,184	0	0	1,518,184	5,404	(10,118)
Products trading on stock exchange
Currency contracts (futures)	58,597	0	0	58,597	341	(648)
Equity/index contracts	140,471	61,712	1,035	203,218	7,659	(7,558)
OTC products
Equity-/index-based options - purchased	20,742	31,233	0	51,975	7,394	(7,278)
Other similar equity/index contracts	119,729	30,479	0	150,208	38	(136)
Products trading on stock exchange
Equity/index futures	0	0	1,035	1,035	227	(144)
Commodities	482	0	0	482	14	(14)
Credit derivatives	0	100,000	0	100,000	165	0

(46) Fair value of financial instruments not reported at fair value

Fair values which are different from the carrying amount are calculated for fixed-interest loans and advances to and deposits from banks or customers, if the remaining maturity is more than one year. Variable-interest loans and advances and deposits are taken into account if they have an interest rollover period of more than one year. The fair value of loans and advances is calculated by discounting future cash flows and using interest rates at which similar loans and advances with the same maturities could have been granted to customers with similar creditworthiness. Moreover, the specific credit risk and collaterals are considered for the calculation of fair values for loans and advances.

		2010			2009
€000	Fair value	Carrying amount	Difference	Fair value	Carrying amount	Difference
Assets
Cash reserve	4,806,891	4,806,891	0	4,179,572	4,179,572	0
Loans and advances to banks	21,270,497	21,532,406	(6,890)	10,306,241	10,306,663	(422)
Loans and advances to customers	71,399,994	71,156,209	243,785	49,184,889	47,434,386	1,750,503
Financial investments	11,641,567	11,485,536	156,032	4,030,932	4,017,536	13,397
Intangible and tangible fixed assets	2,671,347	2,673,446	(2,100)	2,217,538	2,216,114	1,424
Other assets	2,066,890	2,066,890	0	820,276	820,276	0
Liabilities
Deposits from banks	33,774,445	33,659,182	115,263	20,082,264	20,110,170	(27,906)
Deposits from customers	57,934,072	57,633,113	300,959	42,609,218	42,578,249	30,969
Debt securities issued	16,646,729	16,555,382	91,347	2,535,415	2,526,651	8,764
Subordinated capital	3,866,338	4,001,098	(134,760)	2,470,481	2,470,285	196
Other liabilities	1,243,387	1,243,387	0	504,629	504,629	0

(47) Fair value of financial instruments reported at fair value

		2010			2009
€000	Level I	Level II	Level III	Level I	Level II	Level III
Trading assets	3,599,448	5,031,317	255	2,635,957	1,351,878	32,934
Positive fair values of derivatives 1	69,408	4,117,769	0	85,846	768,055	3,729
Shares and other variable yield securities	320,380	110,048	0	9,364	1,278	0
Bonds, notes and other fixed interest securities	3,209,660	803,501	255	2,540,747	582,545	29,205
Financial assets at fair value through profit or loss	5,613,367	2,301,548	155,352	2,338,151	895,371	5
Shares and other variable yield securities	146,778	131,714	1,294	40,084	157,029	5
Bonds, notes and other fixed-interest securities	5,466,589	2,169,834	154,058	2,298,067	738,342	0
Financial assets available for sale	80,060	0	0	24,921	0	0
Other interests2	80,060	0	0	24,921	0	0
Derivatives (hedging)	0	925,409	0	0	21,565	0
Positive fair values of derivatives from hedge accounting	0	925,409	0	0	21,565	0

1 Including other derivatives.

2 Includes only companies traded on the stock exchange.

Level I: Quoted market prices

Level II: Valuation techniques based on market data

Level III: Valuation techniques not based on market data

		2010			2009
€000	Level I	Level II	Level III	Level I	Level II	Level III
Trading liabilities	1,575,769	4,952,538	48	98,041	625,565	0
Negative fair values of derivatives financial
instruments 1	555,680	4,761,952	48	93,969	625,565	0
Call/time deposits from trading purposes	0	0	0	4,072	0	0
Short-selling of trading assets	424,912	818	0	0	0	0
Certificates issued	595,177	189,769	0	0	0	0
Liabilities at fair value through profit and loss	0	2,557,396	0	0	0	0
Debt securities issued	0	2,557,396	0	0	0	0
Derivatives (hedging)	0	476,764	0	0	50,026	0
Negative fair values of derivatives from hedge accounting	0	476,764	0	0	50,026	0

1 Including other derivatives.

Level I: Quoted market prices

Level II: Valuation techniques based on market data

Level III: Valuation techniques not based on market data

Gains and losses resulting from financial instruments of the level III fair value hierarchy amounted to € 20,196 thousand (2009: € 40,954 thousand).

(48) Contingent liabilities and commitments

€000	2010	2009
Contingent liabilities	11,855,528	4,667,660
Acceptances and endorsements	32,119	1,031
Credit guarantees	6,662,119	1,582,764
Other guarantees	2,266,742	2,606,104
Letters of credit (documentary business)	2,875,765	457,999
Other contingent liabilities	18,782	19,762
Commitments	11,992,462	5,395,147
Irrevocable credit lines and stand-by facilities	11,992,462	5,395,147
Up to 1 year	4,546,505	3,028,976
More than 1 year	7,445,957	2,366,171

The following table contains revocable credit lines which are unweighted according to Basel II:

€000	2010	2009
Revocable credit lines	11,755,884	4,646,005
Up to 1 year	9,686,820	1,763,424
More than 1 year	2,069,064	2,882,581

RBI AG is member of Raiffeisen-Kundengarantiegemeinschaft Österreich. The members of this association have a contractual obligation to guarantee jointly the punctual fulfillment of the entirety of an insolvent association member's commitments arising from customer deposits and its own issues up to the limit of the sum of the individual capacities of the remaining association members. The individual capacity of an association member is measured on the basis of its freely available reserves subject to the pertinent provisions of BWG.

(49) Fiduciary business

Fiduciary business not recognized in the statement of financial position was concluded with the following volumes:

€000	2010	2009
Loans and advances to banks	9,442	8,006
Loans and advances to customers	385,666	6,512
Financial investments	31,285	157
Other fiduciary assets	48,891	37,109
Fiduciary assets	475,284	51,784
Deposits from banks	143,303	305
Deposits from customers	276,545	16,286
Other fiduciary liabilities	55,436	35,193
Fiduciary liabilities	475,284	51,784

Fiduciary income and expenses break down as follows:

€000	2010	2009
Fiduciary income	8,723	4,066
Fiduciary expenses	1,489	962

The following table contains the funds managed by RBI:

€000	2010	2009
Retail investment funds	5,148,417	2,906,574
Equity-based and balanced funds	3,031,164	718,747
Bond-based funds	1,684,183	227,330
Money market funds	373,362	589,771
Other	59,708	1,370,726
Special funds	922,181	188,897
Property-based funds	63,286	237,070
Total	6,133,884	3,332,541

(50) Capital management and regulatory own funds

The most crucial bank steering instrument is equity. RBI as an international Group considers several control parameters. From a regulatory view, RBI is part of the RZB credit institution group. Moreover, RBI – on an individual basis – has to adhere to the legal own funds regulations.

Regulatory values are defined for RBI on a partly consolidated and on an individual basis by the Austrian Banking Act based on adequate guidelines of the EU. There are also – often deviating with regard to content – guidelines in the several countries in which RBI operates. Such guidelines have to be adhered to by the local Group units.

RBI uses target values for internal regulation, which comprises all risk types (including trading book, currency risk and operational risk). The current discussions are shaped by the developments in Basel and Brussels regarding the advancement of own funds regulations. Parallel to the development of these regulations, RBI will introduce new target values, which are sufficiently above the 7 per cent tier 1 capital in order to avoid regulatory limitations regarding management decisions (e.g. amount of dividend).

Control on a Group level is exerted in cooperation between the departments Treasury, Planning & Finance and Group Strategy. The individual Group units are responsible for the observation of the targets in coordination with central departments responsible for the participation management of the respective unit.

The main focus is on the core tier 1 ratio. Besides that, the risk taking capacity is calculated in the framework of regulatory limits. It is defined as the maximum loss, which the bank or the banking group may encounter during the current calendar year without exceeding the regulatory minimum capital values. Accordingly, the mixture of capital instruments (several kinds of tier-1, tier-2, tier-3 ratios) has an important role due to the complex mutual consideration limits.

The current regulatory discussions and publications of the Basel Committee, EU Committees and the Austrian Regulatory Authority in connection with the new regulatory guidelines (Basel III) are demonstrated in scenario calculations by Planning & Finance and Risk Controlling. The effects are immediately considered in planning and control in case of a certain occurrence probability.

The determination of the target values in relation to the compulsory minimum requirements needs additional internal control calculations. The department Risk Controlling calculates the value-at-risk in comparison with the risk taking capacity. Moreover, a balance between economic capital and the respective cover is drawn. The economic capital is integral part of the planning and control of RBI. Further details regarding this calculation are stated in the risk report.

RBI has no credit institution group on its own according to the Austrian Banking Act (BWG) and is thus not subject to regulatory provisions on a consolidated basis as it is part of the RZB credit institution group. The following figures are for information purposes only.

The own funds of RBI according to Austrian Banking Act (BWG) 1993/Amendment 2006 (Basel II) break down as follows:

€000	2010	2009
Paid-in capital	4,913,878	3,637,865
Earned capital	2,958,229	1,512,054
Non-controlling interests	1,003,313	1,061,571
Hybrid tier 1-capital	800,000	1,150,000
Intangible fixed assets	(469,346)	(289,483)
Core capital (tier 1 capital)	9,206,074	7,072,007
Deductions from core capital	(14,845)	(13,059)
Eligible core capital (after deductions)	9,191,229	7,058,948
Supplementary capital according to Section 23 (1) 5 BWG	599,792	91,001
Provision excess of internal rating approach positions	230,555	7,883
Hidden reserves	55,400	0
Long-term subordinated capital	2,480,171	1,003,079
Additional own funds (tier 2 capital)	3,365,918	1,101,963
Deduction items: participations, securitizations	(14,845)	(13,059)
Eligible additional own funds (after deductions)	3,351,073	1,088,904
Deduction items: insurance companies	(3,817)	(964)
Tier 2 capital available to be redesignated as tier 3 capital	69,078	181,581
Total own funds	12,607,563	8,328,469
Total own funds requirement	7,584,851	5,116,816
Excess own funds	5,022,712	3,211,653
Excess cover ratio	66.2%	62.8%
Core tier 1 ratio, total	8.9%	9.2%
Tier 1 ratio, credit risk	12.2%	14.1%
Tier 1 ratio, total	9.7%	11.0%
Own funds ratio	13.3%	13.0%

The total own funds requirement is as follows:

€000	2010	2009
Risk-weighted assets according to section 22 BWG	75,601,313	50,089,600
of which 8 per cent minimum own funds for the credit risk according to sections 22a to 22 h BWG	6,048,105	4,007,168
Standardized approach	2,974,035	2,861,668
Internal rating approach	3,074,070	1,145,500
Settlement risk	27	17
Own funds requirement for position risk in bonds, equities and commodities	326,655	136,189
Own funds requirement for open currency positions	385,622	399,109
Own funds requirement for operational risk	824,442	574,333
Total own funds requirement	7,584,851	5,116,816

Risk-weighted assets for the credit risk according to asset classes break down as follows:

€000	2010	2009
Risk-weighted assets according to section 22 BWG on standardized approach	37,175,443	35,770,850
Central governments and central banks	3,712,388	2,604,738
Regional governments	95,175	126,675
Public administration and non-profit organizations	41,638	38,425
Banks	1,013,263	1,683,763
Corporates	18,800,172	17,545,988
Retail (including small and medium-sized entities)	10,088,583	11,450,513
Mutual funds	124,513	122,925
Securitization position	18,050	2,713
Other positions	3,281,663	2,195,110
Risk-weighted assets on internal rating approach	38,425,875	14,318,750
Central governments and central banks	878,513	679,911
Banks	5,047,688	1,669,613
Corporates	29,586,425	11,816,963
Retail (including small and medium-sized entities)	2,464,663	0
Equity exposures	313,500	152,263
Securitization position	135,088	0
Total	75,601,318	50,089,600

(51) Average number of staff

The average number of staff employed during the financial year (full-time equivalents) breaks down as follows:

Full-time equivalents	2010	2009
Salaried employees	58,148	59,105
Wage earners	1,040	1,081
Total	59,188	60,186

Full-time equivalents	2010	2009
Austria	2,637	361
Foreign	56,551	59,825
Total	59,188	60,186

(52) Expenses on severance payments and retirement benefits

€000	2010	2009
Members of the Managing Board and senior staff	4,129	1,122
Other employees	20,624	2,828
Total	24,753	3,950

The same regulations for employees are in principle valid for six members of the Managing Board. These regulations provide a basic contribution to a pension fund from the company and an additional contribution if the employee pays own contributions of the same amount. One member of the Managing Board has a defined benefit plan. Four members of the Managing Board additionally have individual retirement benefits, which are funded by reinsurance.

In the event of termination of function or employment contract and retirement from the company, of the remaining members of the Managing Board – two were retired during 2010 - two members of the Managing Board are in principle entitled to severance payments according to the Salaried Employees Act (Angestelltengesetz), two members of the Managing Board according to contractual agreements and three members of the Managing Board according to the Company Retirement Plan Act (Betrieblichen Mitarbeitervorsorgegesetz). The entitlement to receive severance payments according to the Salaried Employee Act or according to contractual agreements lapses with the exemption of one member of the Managing Board in case of termination by the employee. Moreover, three members of the Managing Board are entitled by contract to receive additional severance payments at the end of their functional period or their terminable employment. In 2010, € 967 thousand were paid due to retirement of two members of the Managing Board.

Moreover, protection against the risk of occupational invalidity exists which is covered by a pension fund and/or by individual pension agreements secured through reinsurance. The contracts are concluded for the functional duration or limited to a maximum of five years.

(53) Relations to key management

Group relations of key management

Key management refers to the members of the Managing Board and the Supervisory Board of Raiffeisen Bank International AG, the parent company and Raiffeisen Zentralbank Österreich Aktiengesellschaft, the major shareholder. Relations of key management to Raiffeisen Bank International are as follows (respective fair values):

€000	2010	2009
Sight deposits	26	194
Bonds	1,291	588
Shares	6,032	8,557
Time deposits	101	320
Leasing claims	67	0

The following table shows relations of close family members of key management to Raiffeisen Bank International:

€000	2010	2009
Shares	92	63

Moreover, as of 31 December 2010 guarantees for a loan granted to a member of the Managing Board amounted to € 765 thousand (2009: € 765 thousand). There is no compensation agreed between the company and their members of the Managing Board and Supervisory Board or employees in the case of a takeover bid.

Remuneration of members of the Managing Board

The members of the Managing Board of Raiffeisen Bank International AG are remunerated as follows:

€000	2010	2009
Fixed and performance-based remunerations	8,191	4,610
Payments to pension funds and business insurances	183	97
Share-based payments (performance-based)	156	267
Total	8,530	4,974

The table contains fixed and performance-based remuneration, remunerations for membership of boards of affiliated subsidiaries, bonus paymentss, and benefits in kind. In the financial year, the share of performance-based remuneration components was 1.9 per cent (2009: 5.5 per cent).

Performance-based remuneration components of the Managing Board normally consist of bonus payments that are linked to achieve the objectives regarding profit after tax, return on risk adjusted capital, cost/income ratio and to achieve the personal objectives that are agreed annually and of the amount of allotment regarding SIP (see page 192 share-based remuneration). For the year 2009, all members of the Managing Board waived the right for bonus payments. The value of the distributed shares in 2010 is as in the previous year 100 per cent of the performance-based remuneration. There were no material changes in principle for profit sharing against the previous year. A cash retention bonus promise of € 768 thousand payable in 2013 was granted to the former members of the Managing Board of Raiffeisen Bank International. The payment is linked to the development of RBI's share price.

It should be noted that the figures of the remuneration of the Managing Board for 2010 is not directly comparable with that of 2009 as the merger of Raiffeisen International and the principal business areas of RZB and withdrawals during the year led to a change in the composition of the Managing Board.

Remuneration of members of the Supervisory Board

The members of the Supervisory Board are remunerated as follows:

€000	2010	2009
Supervisory board	380	305

The Annual General Meeting held on 8 July 2010 decided an annual remuneration for the members of the Supervisory Board of € 380 thousand and transferred the distribution to the Board itself. The members of the Supervisory Board settled the distribution in their meeting on 8 July 2010 as follows: Chairman € 70 thousand, Deputy Chairman € 60 thousand, members of the Supervisory Board € 50 thousand. Session fees were not paid.

In the financial year, € 380 thousand was paid to the members of the Supervisory Board. In the previous year, the members of the Supervisory Board received remunerations of € 305 thousand.

Moreover, no contracts subject to approval in the meaning of Section 95 (5) items 12 Austrian Joint Stock Company Act (AktG) were concluded with members of the Supervisory Board in the financial year 2010.

(54) Boards

Managing Board

The Managing Board of Raiffeisen Bank International AG is as follows:

	First assignment	End of period
Herbert Stepic, Chairman	14 June 2001	13 June 2011
Karl Sevelda, Deputy Chairman	22 September 20101	10 March 2012
Aris Bogdaneris	1 October 2004	25 September 2014
Patrick Butler	22 September 20101	10 March 2012
Martin Grüll	3 January 2005	1 January 2015
Peter Lennkh	1 October 2004	25 September 2014
Johann Strobl	22 September 20101	10 March 2012
Heinz Wiedner	14 June 2001	1 December 2010

1 Assignment effective with registration of the merger in the Companies Register as of 10 October 2010.

From 1 January 2010 until the legally effective registration of the merger in the Companies Register on 10 October 2010, the Managing Board of Raiffeisen International Bank-Holding AG was as follows:

	First assignment	End of period
Herbert Stepic, Chairman	14 June 2001	13 June 2011
Martin Grüll	3 January 2005	1 January 2015
Aris Bogdaneris	1 October 2004	25 September 2014
Peter Lennkh	1 October 2004	25 September 2014
Heinz Wiedner	14 June 2001	1 December 2010
Rainer Franz	20 January 2003	30 June 2010

The members of the Managing Board had mandates in the Supervisory Board or similar functions in companies at home and abroad which are not included in the consolidated group:

• Herbert Stepic: OMV AG, Österreichische Kontrollbank AG
• Karl Sevelda: Bene AG, Raiffeisen Factor Bank AG (until 24 December 2010)
• Johann Strobl: Oesterreichische Clearingbank AG
• Patrick Butler: Raiffeisen Wohnbaubank AG, Wiener Börse AG

Individuals older than 68 years of age are not eligible to be elected as a member of the Managing Board and may not be appointed for another functional period.

Supervisory Board

The Supervisory Board of Raiffeisen Bank International AG is as follows:

	First assignment	End of period
Walter Rothensteiner, Chairman	11 May 2001	AGM 2011
Erwin Hameseder, 1st Deputy Chairman	8 July 20101	AGM 2015
Ludwig Scharinger, 2nd Deputy Chairman	8 July 20101	AGM 2015
Markus Mair, 3rd Deputy Chairman	8 July 20101	AGM 2015
Stewart D. Gager	24 January 2005	AGM 2013
Kurt Geiger	9 June 2009	AGM 2013
Hannes Schmid	8 July 20101	AGM 2015
Johannes Schuster	8 July 20101	AGM 2015
Friedrich Sommer	8 July 20101	AGM 2015
Christian Teufl	8 July 20101	AGM 2015
Martin Prater2	10 October 2010	Until further notice
Rudolf Kortenhof2	10 October 2010	Until further notice
Peter Anzeletti-Reikl2	10 October 2010	Until further notice
Sabine Chadt2	10 October 2010	Until further notice
Helge Rechberger2	10 October 2010	Until further notice

1 Assignment effective with registration of the merger in the Companies Register as of 10 October 2010. 2 Staff council delegates

From 1 January 2010 until the legally effective registration of the merger in the Companies Register on 10 October 2010, the Supervisory Board of Raiffeisen International Bank-Holding AG was as follows:

	First assignment	End of period
Walter Rothensteiner, Chairman	11 May 2001	AGM 2011
Manfred Url, Deputy Chairman	11 May 2001	10 October 2010
Patrick Butler	28 September 2004	10 October 2010
Stewart D. Gager	24 January 2005	AGM 2013
Kurt Geiger	9 June 2009	AGM 2013
Karl Sevelda	11 May 2001	10 October 2010
Johann Strobl	10 June 2008	10 October 2010

The members of the Supervisory Board had further mandates in the Supervisory Board or similar functions in quoted companies in Austria and abroad:

• Walter Rothensteiner: UNIQA Versicherungen AG
• Erwin Hameseder: AGRANA Beteiligungs-AG, STRABAG SE, UNIQA Versicherungen AG
• Ludwig Scharinger: voestalpine AG
• Christian Teufl: AGRANA Beteiligungs-AG
• Hannes Schmid: UNIQA Versicherungen AG
• Kurt Geiger: Raiffeisen Bank Aval JSC

All members of the Supervisory Board declared themselves to be independent in the meaning of the criteria of independence agreed by the Supervisory Board and in conformity with the Austrian Corporate Governance Codex. None of the members hold more than a 10 per cent share in the company.

Raiffeisen Zentralbank Österreich Aktiengesellschaft is entitled to send up to one third of the members of the Supervisory Board insofar as it has a shareholding in the company. Individuals older than 75 years of age are not eligible to be elected as a member of the Supervisory Board and may not be appointed for another functional period. In addition, individuals having more than eight mandates in Supervisory Boards of quoted companies may not be elected. The chairmanship in the Supervisory Board of a quoted company is counted twice.

Committees of the Supervisory Board

The committees of the Supervisory Board of Raiffeisen Bank International AG are as follows:

Members of the Supervisory Board	Working Committee	Audit Committee	Personnel Committee
Walter Rothensteiner	Chairman	Chairman	Chairman
Erwin Hameseder	1st Deputy Chairman	1st Deputy Chairman	1st Deputy Chairman
Ludwig Scharinger	2nd Deputy Chairman	2nd Deputy Chairman	2nd Deputy Chairman
Markus Mair	3rd Deputy Chairman	3rd Deputy Chairman	3rd Deputy Chairman
Johannes Schuster	Member	Member	Member
Martin Prater	Member	Member	–
Rudolf Kortenhof	Member	Member	–
Peter Anzeletti-Reikl	Member	Member	–

From 1 January 2010 until the legally effective registration of the merger in the Companies Register on 10 October 2010, the committees of the Supervisory Board of Raiffeisen International Bank-Holding AG were as follows:

Members of the Supervisory Board	Working Committee	Audit Committee	Personnel Committee
Walter Rothensteiner	Chairman	Chairman	Chairman
Manfred Url	Deputy Chairman	Deputy Chairman	Deputy Chairman
Johann Strobl	–	Member	–

(55) Subsequent events

Acquisition of a majority stake in Polbank

On 3 February 2011 RBI closed an agreement with the Greek EFG Eurobank Ergasias S.A. (Eurobank EFG) about the acquisition of a majority 70 per cent stake in its business unit Polbank EFG (Polbank). Polbank is the Polish banking network of Eurobank EFG, which, prior to implementation of the acquisition, is set to be converted into an independent legal entity with a Polish banking license. RBI will pay € 490 million for the 70 per cent stake when the agreement is closed. The acquisition is still dependent on the successful closing of the agreement and the approval of the EU Commission as well that of the Greek and Polish regulatory authorities. The transaction is expected to close in the fourth quarter of 2011 or the first quarter of 2012.

It has been agreed that RBI shall, in a first stage, acquire a 70 per cent stake in Polbank and, in a second transaction stage immediately afterwards, Eurobank EFG and RBI shall invest their respective shares (Eurobank EFG: 30 per cent, RBI: 70 per cent) in Raiffeisen Bank Polska S.A in exchange for new shares of Raiffeisen Bank Polska S.A. As a result, Eurobank EFG will retain a 13 per cent stake in the Polish Raiffeisen Bank. The purchase price is based on guaranteed equity of at least € 400 million for Polbank and € 750 million for Raiffeisen Bank Polska. The implicit price-book value ratio stands at 1.7 but may change when the agreement is closed because of the equity requirements which are yet to be definitively determined. In addition, both parties agreed , on the one hand, on a put option for Eurobank EFG permitting it to sell its stake in the merged Polish unit to RBI at a price that is dependent on business developments, but for a figure of at least € 175 million plus interest. On the other hand, RBI shall receive an analog call option which will be exercisable from 31 March 2016.

(56) List of fully consolidated companies

The following table shows a selection of companies of the consolidated group. The complete list of the equity participations of RBI AG is deposited with the Group parent's headquarters.

Company, domicile (country)	Subscribed capital in		Share	Type1
		local currency
Centralised Raiffeisen International Services & Payments
S.R.L., Bucharest (RO)	6,800,000 RON		100.0%	BR
Centrotrade Chemicals AG, Zug (CH)	5,000,000 CHF		100.0%	OT
Centrotrade Deutschland GmbH, Eschborn (DE)	410,000 EUR		100.0%	OT
Centrotrade Minerals & Metals Inc., Chesapeake (US)	3,002,000 USD		100.0%	OT
Centrotrade Singapore Pte. Ltd., Singapore (SG)	500,000 SGD		100.0%	OT
F.J. Elsner & Co. Gesellschaft mbH, Innsbruck (AT)	436,037 EUR		100.0%	OT
F.J. Elsner Trading Gesellschaft m.b.H., Vienna (AT)	35,000 EUR		100.0%	OT
Golden Rainbow International Limited, Tortola (VG)		1 USD	100.0%	FI
ICS Raiffeisen Leasing s.r.l, Chisinau (MD)	8,307,535 MDL		87.2%	FI
JLLC "Raiffeisen-leasing", Minsk (BY)	4,300,250,000 BYR		83.9%	FI
Kathrein & Co. Privatgeschäftsbank Aktiengesellschaft, Vienna (AT)	20,000,000 EUR		100.0%	BA
Kathrein & Co. Vermögensverwaltung GmbH, Vienna (AT)	125,000 EUR		80.0%	FI
OOO Raiffeisen-Leasing, Moscow (RU)	1,071,000,000 RUB		87.5%	FI
Priorbank JSC, Minsk (BY)	412,279,277,350 BYR		87.7%	BA
Raiffeisen Bank Aval JSC, Kiev (UA)	3,002,774,908 UAH		96.2%	BA
Raiffeisen Bank d.d. Bosna i Hercegovina, Sarajevo (BA)	237,388,000 BAM		97.0%	BA
Raiffeisen Bank Kosovo J.S.C., Pristina (RS)	58,000,000 EUR		100.0%	BA
Raiffeisen Bank Polska S.A., Warsaw (PL)	1,218,687,210 PLN		100.0%	BA
Raiffeisen Bank S.A., Bucharest (RO)	1,196,258,639 RON		99.5%	BA
Raiffeisen Bank Sh.a., Tirane (AL)	9,926,092,686 ALL		100.0%	BA
Raiffeisen Bank Zrt., Budapest (HU)	59,099,140,000 HUF		70.3%	BA
Raiffeisen banka a.d., Belgrade (RS)	27,466,157,580 RSD		100.0%	BA
Raiffeisen Banka d.d., Maribor (SI)	16,355,847 EUR		86.3%	BA
Raiffeisen Centrobank AG, Vienna (AT)	47,598,850 EUR		100.0%	BA
Raiffeisen Energy Service Ltd., Budapest (HU)	20,000,000 HUF		72.7%	OT
Raiffeisen Equipment Leasing Kft., Budapest (HU)	50,200,000 HUF		72.7%	FI
Raiffeisen Factoring Ltd., Zagreb (HR)	15,000,000 HRK		73.6%	FI
Raiffeisen Insurance Agency Sp.z.o.o., Warsaw (PL)	200,000 PLN		87.5%	BR

1 Company type: BA…Bank, BR…Company rendering banking-related ancillary services, FI…Financial institution, OT…Other companies

Company, domicile (country)	Subscribed capital in		Share	Type1
		local currency
Raiffeisen Leasing d.o.o., Sarajevo (BA)	19,009,433 BAM		85.8%	FI
Raiffeisen Leasing IFN S.A., Bucharest (RO)	14,935,400 RON		87.2%	FI
Raiffeisen Leasing Kosovo LLC, Pristina (RS)	642,857 EUR		92.5%	FI
Raiffeisen Leasing sh.a., Tirane (AL)	123,000,000 ALL		93.8%	FI
Raiffeisen Lizing Zrt., Budapest (HU)	50,200,000 HUF		72.7%	BA
Raiffeisen Malta Bank plc., Sliema (MT)	340,000,000 EUR		100.0%	BA
Raiffeisen Mandatory Pension Fund Management d.d., Zagreb (HR)	110,000,000 HRK		73.6%	FI
Raiffeisenbank (Bulgaria) EAD, Sofia (BG)	603,447,952 BGN		100.0%	BA
Raiffeisenbank a.s., Prague (CZ)	6,564,000,000 CZK		51.0%	BA
Raiffeisenbank Austria d.d., Zagreb (HR)	3,698,932,000 HRK		73.6%	BA
Raiffeisen-Leasing d.o.o., Zagreb (HR)	30,000,000 HRK		74.3%	FI
Raiffeisen-Leasing Österreich Gesellschaft m.b.H., Vienna (AT)	35,000 EUR		51.0%	FI
Raiffeisen-Leasing Polska S.A., Warsaw (PL)	150,003,800 PLN		87.5%	FI
Raiffeisen-Leasing Real Estate, s.r.o., Prague (CZ)	10,000,000 CZK		69.0%	FI
Raiffeisen-Leasing, spolecnost s.r.o., Prague (CZ)	50,000,000 CZK		63.0%	FI
RB International Finance (Hong Kong) Ltd., Hong Kong (HK)	10,000,000 HKD		100.0%	FI
RB International Finance (USA) LLC, New York (US)	1,510,000 USD		100.0%	FI
Regional Card Processing Center s.r.o., Bratislava (SK)	539,465 EUR		100.0%	BR
RI Eastern European Finance B.V., Amsterdam (NL)	400,000 EUR		100.0%	FI
RSC Raiffeisen Daten Service Center GmbH, Vienna (AT)	2,000,000 EUR		71.9%	BR
RZB Finance (Jersey) II Ltd, St. Helier (JE)	100,000,002 EUR		0.0%	FI
RZB Finance (Jersey) III Ltd, St. Helier (JE)	200,001,000 EUR		0.0%	FI
RZB Finance (Jersey) IV Limited, St. Helier (JE)	500,002,000 EUR		0.0%	FI
Tatra Asset Management sprav.spol., a.s., Bratislava (SK)	1,659,696 EUR		65.7%	FI
Tatra banka a.s., Bratislava (SK)	54,554,928 EUR		65.7%	BA
Tatra Leasing spol. s r.o., Bratislava (SK)	6,638,784 EUR		70.6%	FI
TOO Raiffeisen Leasing Kazakhstan, Almaty (KZ)	85,800,000 KZT		75.0%	FI
Ukrainian Processing Center PJSC, Kiev (UA)	180,000 UAH		100.0%	BR
ZAO Raiffeisenbank, Moscow (RU)	36,711,260,000 RUB		100.0%	BA
ZUNO BANK AG, Vienna (AT)	5,000,000 EUR		100.0%	BA

1 Company type: BA…Bank, BR…Company rendering banking-related ancillary services, FI…Financial institution, OT… Other companies

(57) List of equity participations

The following tables show a selection of equity participations. The complete list of the equity participations of Raiffeisen Bank International AG is deposited with the Group parent's headquarters.

Companies valued at equity

Company, domicile (country)	Subscribed capital in local currency	Share	Indirectly held1	Type2
Raiffeisen Banca pentru Locuinte S.A., Bucharest (RO)	131,074,560 RON	33.3%	0.0%	BA

1 Equity participations held via companies that are not included in the consolidated financial statements

2 Company type: BA…Bank, BR…Company rendering banking-related ancillary services, FI…Financial institution, OT…Other companies, , VV… Insurance, WP … Securities firms

Other non-consolidated subsidiaries and equity participations

Company, domicile (country)	Subscribed capital in	local currency	Share	Indirectly held1	Type2
CREDEX FINANTARI IFN SA, Bucharest (RO)	15,112,500 RON		30.0%	0.0%	FI
ELIOT, s. r. o., Bratislava (SK)	1,613,556 EUR		100.0%	99.5%	BR
Interbank Crimea Currency Exchange, Simferopol (UA)	440,000 UAH		4.5%	0.0%	WP
LLC "Insurance Company 'Raiffeisen Life", Moscow (RUS)	60,000,000 RUB		2.6%	0.0%	VV
OOO "Raiffeisen Capital" , Moscow (RU)	225,000,000 RUB		100.0%	0.0%	FI
Österreichische Raiffeisen-Einlagensicherung eGen, Vienna (AT)	3,100 EUR		40.7%	0.0%	OT
Raiffeisen Asset Management (Bulgaria) EAD, Sofia (BG)	250,000 BGN		100.0%	0.0%	FI
Raiffeisen BROKERS doo, Sarajevo (BA)	1,000,000 BAM		100.0%	0.0%	FI
Raiffeisen Capital & Investment S.A., Bucharest (RO)	1,600,000 RON		100.0%	0.0%	FI
Raiffeisen consulting d.o.o., Zagreb (HR)	14,900,000 HRK		100.0%	0.0%	FI
Raiffeisen Datennetz Gesellschaft m.b.H., Vienna (AT)	145,346 EUR		4.7%	0.0%	OT
Raiffeisen Factoring Ltd., Sofia (BG)	1,000,000 BGN		100.0%	0.0%	FI
Raiffeisen Financial Services Polska Sp. z o.o., Warsaw (PL)	3,847,500 PLN		100.0%	0.0%	FI
RAIFFEISEN FUTURE AD, Belgrade (RS)	157,804,549 RSD		100.0%	0.0%	FI
Raiffeisen Insurance and Reinsurance Broker S.R.L, Bucharest (RO)	180,000 RON		100.0%	0.0%	BR
Raiffeisen Invest a.d., Belgrade (RS)	101,798,259 RSD		100.0%	0.0%	FI
Raiffeisen Invest d.o.o., Zagreb (HR)	8,000,000 HRK		100.0%	0.0%	FI
Raiffeisen Investment Fund Management JSC, Budapest (HU)	100,000,000 HUF		100.0%	0.0%	FI
Raiffeisen Non-Government Pension Fund, Moscow (RU)	313,000,000 RUB		100.0%	0.0%	FI
Raiffeisen Pension Insurance d.o.o., Zagreb (HR)	14,400,000 HRK		100.0%	0.0%	FI
Raiffeisen Pensions Sh.A., Tirane (AL)	109,648,000 ALL		100.0%	0.0%	FI
Raiffeisen stavebni sporitelna, a.s., Prague (CZ)	650,000,000 CZK		1.0%	0.0%	BA
RAIFFEISEN TRAINING CENTER LTD., Zagreb (HR)	20,000 HRK		100.0%	20.0%	BR
Raiffeisen Voluntary Pension Fund Management d.o.o., Zagreb (HR)	33,445,300 HRK		100.0%	0.0%	FI
RLKG Raiffeisen-Leasing GmbH, Vienna (AT)	40,000 EUR		0.7%	0.0%	FI
Tatra Group Servis spol.s.r.o., Bratislava (SK)	12,281,750 EUR		100.0%	0.5%	BR
The Zagreb Stock Exchange Ltd., Zagreb (HR)	40,408,000 HRK		41.5%	0.0%	WP

1 Equity participations held via companies that are not included in the consolidated financial statements

2 Company type: BA…Bank, BR…Company rendering banking-related ancillary services, FI…Financial institution, OT…Other companies, , VV… Insurance, WP … Securities firms

Vienna, 10 March 2011

The Managing Board

Herbert Stepic Karl Sevelda

Aris Bogdaneris Patrick Butler

Martin Grüll Peter Lennkh Johann Strobl

Auditor's report

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Raiffeisen Bank International AG, Vienna, for the year from 1 January 2010 to 31 December 2010. These consolidated financial statements comprise the consolidated balance sheet as of 31 December 2010, the consolidated statement of comprehensive income, the consolidated cash flow statement and the consolidated statement of changes in equity for the year ended 31 December 2010 and a summary of significant accounting policies and other explanatory notes.

Management's Responsibility for the Consolidated Financial Statements and for the Accounting System

The Company's management is responsible for the group accounting system and for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor's Responsibility and Description of Type and Scope of the Statutory Audit

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with laws and regulations applicable in Austria and in accordance with International Standards on Auditing, issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). Those standards require that we comply with professional guidelines and that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Group's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

Our audit did not give rise to any objections. In our opinion, which is based on the results of our audit, the consolidated financial statements comply with legal requirements and give a true and fair view of the financial position of the Group as of 31 December 2010 and of its financial performance and its cash flows for the year from 1 January to 31 December 2010 in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU.

Report on the Management Report for the Group

Pursuant to statutory provisions, the management report for the Group is to be audited as to whether it is consistent with the consolidated financial statements and as to whether the other disclosures are not misleading with respect to the Company's position. The auditor's report also has to contain a statement as to whether the management report for the Group is consistent with the consolidated financial statements and whether the disclosures pursuant to Section 243a UGB (Austrian Commercial Code) are appropriate.

In our opinion, the management report for the Group is consistent with the consolidated financial statements. The disclosures pursuant to Section 243a UGB (Austrian Commercial Code) are appropriate.

Vienna, 11 March 2011

KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft

Wilhelm Kovsca Wirtschaftsprüfer

Bernhard Mechtler Wirtschaftsprüfer

(Austrian Chartered Accountants)

Group management report

Market development

Gradual economic recovery

After the global economy suffered its worst recession in 2009 since 1945, 2010 was a year of economic recovery. Economic activity picked up all around the world, often supported by massive fiscal and monetary policy moves. After a collapse of 11.0 per cent in the previous year, world trade grew 11.4 per cent in 2010.

In the US, the recession ended in June 2009, as defined by the National Bureau of Economic Research (NBER). In the fourth quarter of 2009 and the first quarter of 2010, the US economy posted an impressive recovery, with annualized GDP growth of 4.4 per cent. However, this momentum proved unsustainable, and in the second and fourth quarters of 2010 growth slowed to an average annualized rate of 2.4 per cent quarter-on-quarter. The biggest problems with the US economy remained the high level of unemployment, which was still 9.0 per cent at the end of 2010, some 3 percentage points above the long-time average, and the ongoing difficult state of the real estate market. Although massive tax incentives brought about a temporary stabilization in the housing market in spring 2010, the slide in construction and prices resumed once this program expired. Given the weak state of economic growth, there was a significant slowdown in consumer prices over the course of the year. For example, US inflation fell from 2.6 per cent year-on-year in January 2010 to just over 1.0 per cent in November. It has lately risen again slightly, due to higher energy and food prices. The core rate – inflation excluding energy and food prices – remained significantly below the US Federal Reserve's target level, at 1.0 per cent for the year.

Economic recovery in the eurozone was similarly weak. With the exception of the second quarter of 2010, real GDP growth was consistently below its potential level (growth at normal capacity utilization) of just under 0.5 per cent quarter-on-quarter. Full-year growth in the eurozone was 1.7 per cent. It should be noted that growth rates diverged sharply between member states. While Germany, Austria and Finland moved into recovery, Spain, Greece and Ireland were still deep in recession. Unemployment averaged 10.1 per cent for the eurozone as a whole. Inflation remained below its long-term trend in 2010 at 1.6 per cent, but rose again from the middle of the year, not least because of increases in taxes on consumption in several member states.

Stabilization in CEE

While the dependence on exports of the countries of Central and Eastern Europe (CEE) had been a serious problem in the crisis, in some cases producing significant decreases in GDP, it proved an advantage in 2010. The CEE nations benefited from the clear upturn in GDP, particularly in Germany, with the export sector functioning as a significant driver. Even though much of the current growth comes from exports, increasing support can be expected in the course of 2011 from domestic demand, with the first signs of recovery already apparent. Even so, the relative low level of domestic savings means that the CEE states, and particularly those in Southeastern Europe, are dependent on capital imports, primarily from Western Europe. After a sharp decrease during the crisis, capital inflows into CEE – including through the banking sector – are recovering, although they are still significantly below their pre-crisis level.

Poland had already distinguished itself in the crisis by its dynamic economy, and it again outperformed the other Central European EU member states (Czech Republic, Hungary, Slovakia, Slovenia) in 2010. The only nation to top this was Slovakia, which rebounded from a 4.8 per cent decrease in GDP in 2009 to growth of 4.2 per cent in 2010. In contrast to Slovakia, however, Polish growth came mainly from consumption and gross investment in plant and machinery, rather than from exports. While the Czech Republic reported growth of 2.3 per cent year-on-year in 2010, with domestic demand comparatively strong, Hungary (1.2 per cent GDP growth) and Slovenia (0.9 per cent) lagged somewhat behind the average for Central Europe of 3.0 per cent in 2010, following a decrease of 2.0 per cent in 2009.

The Southeastern European transition countries had shown the highest growth before the crisis in 2008, although this was at the expense of domestic and foreign imbalances, such as very high inflation rates and substantial current deficits in some cases. Financing these imbalances had not been a problem, but the crisis led to a collapse in capital flows and investment in the region, meaning that current deficits also fell, for lack of finance. This resulted in a decrease in GDP in both 2009 and 2010, although the decline in 2010 is set to come in at 0.5 per cent, significantly smaller than in 2009 (decline of 5.5 per cent in real GDP).

The sharpest decrease in GDP in the 2009 crisis year was in the Commonwealth of Independent States (CIS), falling 8.2 per cent. In Ukraine, GDP fell significantly by 14.8 per cent, while the Russian economy shrank by 7.9 per cent. However, the increase in commodity prices from an existing high level, strong exports, and positive baseline effects meant that the CIS was able to post a strong recovery in 2010, with economic growth of 4.1 per cent.

Overall, the economic situation in CEE can be expected to continue to improve. At the moment, strong exports are primarily responsible for the upturn, but there are also signs of a recovery in domestic demand and investment, even if these are still at relatively low levels. Over the next few years, the growth gap between CEE and the Western European economies is expected to be around 2 percentage points. Management believes that this leaves the process of convergence in the CEE economies intact. However, the convergence path will be significantly flatter than before the crisis, when the growth differential between CEE and Western Europe was around 4 percentage points. A positive side to this is that the convergence process in the CEE economies will be less frenzied, with lower domestic and foreign imbalances, which will benefit the CEE countries and economic players there.

Austrian economy growing

Austrian GDP, which had peaked in the second quarter of 2008, fell by a total of 5.4 per cent in real terms over four quarters in the course of the economic collapse in 2008/2009. While it has been growing again since the third quarter of 2009, GDP is still 1.4 per cent below its previous high. As a result, Austria will probably not regain the level of real GDP before the crisis until sometime in 2011.

In the fourth quarter of 2010, the Austrian economy grew 0.8 per cent, above its long-term average. Much of this growth was from the sharp rise in exports (1.2 per cent per quarter) and investment (2.8 per cent per quarter). Capacity utilization for the economy as a whole also returned to its long-term average, at 86 per cent. The high level of foreign demand gave Austrian industry solid order books, and also led to a level of capacity utilization in the Austrian industrial sector which was the highest in the entire eurozone. Together with the low interest rate environment, high corporate earnings, and intact growth prospects, this spells an upbeat investment climate. Investment in plant and equipment should accordingly make a substantial contribution to Austrian GDP growth in the next few quarters. The savings ratio of private households probably fell to 10.7 per cent in 2010, compared with 12 per cent in 2008. As the employment rate is also continuing to rise and inflation remains moderate, private consumption is likely to remain stable in the next few quarters, despite the cuts from the budget measures for 2011 to 2014, particularly since tax increases and expenditure cuts are very minor compared with the rest of Europe. After an initial recovery driven particularly by exports, the Austrian economy should move into a sustainable growth phase in 2011, supported by investment and private consumption.

China as Asia's motor for growth

The Asian economy grew 8.0 per cent in 2010, with almost all Asian countries making the transition from public-sector growth stimulus to firming private sector demand. The motor driving growth was China, where expenditure programs and credit expansion fueled domestic demand. Rising retail sales and positive sentiment in the service sector pointed to firming consumer demand, and GDP grew 10.3 per cent in real terms in 2010. This vigorous growth also benefited countries exporting commodities and capital goods. However, the restrictive monetary policy and measures to cool the real estate market can be expected to result in a slight decrease in the pace of economic growth in Asia in 2011.

India's economy did much better than expected up to the fourth quarter of 2010, with real growth running at an annualized rate of 8.2 per cent. This was driven by domestic demand, supported by private consumption. Robust corporate earnings and favorable external financing also supported growth in investment. For 2010 as a whole, real GDP growth in India was assumed to be 8.7 per cent, and a similar figure is expected in 2011.

In contrast to the major western economies, the central banks of several Asian countries have already reversed their monetary policy, faced by rising food and energy prices, which seemed to be fueling inflation. Asian currencies appreciated massively in 2010, mainly as a result of the expansionary monetary policy in the USA, which led to large capital inflows to the region. The resulting currency gains – undesired by the governments involved – prompted a range of countermeasures on the capital front. As a result of its lead in growth, predictable risks, and higher returns, Asia as a region will likely remain attractive to foreign investors in 2011.

Sovereign debt crisis

The main topic for the international financial markets in 2010 was the rise in sovereign borrowing by a number of eurozone countries. This started with Greece, which had to admit at the start of the year that the figures for deficits and sovereign debt it had been reporting to Brussels were significantly understated. This was followed by growing doubt in financial markets that Greece was in any position to service its debt. The risk premium for Greek sovereigns compared with German bonds rose massively, making it increasingly difficult for the country to refinance in the capital markets. Concerns about Greek solvency spilled over to the euro, leading to significant depreciation, particularly against the US dollar and the Swiss franc.

When the situation threatened to get out of hand at the end of April and start of May, the EU and IMF intervened. First, Greece was given a credit line of € 110 billion, which meant that it does not have to borrow further on the capital markets until the start of 2012. In addition, the European Financial Stability Facility (EFSF) was created to provide a rescue package to assist countries with financing problems in future. The fund has a total volume of € 750 billion, contributed by the eurozone member states and the IMF. However, despite the politicians' hopes, this step did not bring lasting calm to the markets. By November, Ireland had become the second country to run into difficulties. In this case, it was the collapse of the banking system that brought the nation to the brink of insolvency. The financial injections required to save domestic banks sent the country's budget deficit for 2010 soaring to an enormous 32 per cent of GDP. After suffering a massive deterioration in refinancing terms, Ireland requested assistance from the EFSF at the end of November. It is due to receive € 85 billion in aid up to 2013.

Global currencies

The euro exchange rate in 2010 was dominated by the eurozone debt crisis. After starting the year at around USD 1.45, the euro rapidly lost ground as a result of the Greek situation, only stabilizing when the EU and IMF agreed the € 750 billion rescue package for troubled eurozone countries in May. By then the euro had lost 17 per cent against the US dollar, reaching a low for the year at USD 1.20. Between June and October, the debate about eurozone debt receded into the background to some extent, and the exchange rate was determined by US monetary policy, as the slowdown in the US economy early in the year revived fears that it could slip into recession. The Federal Reserve responded in September and November by further easing monetary policy, announcing it would buy more US bonds. As a result of these measures, the US dollar came under significant pressure, with the effect that the euro recovered to USD 1.42 by the start of November, when the focus returned to the eurozone debt crisis. After Ireland was forced to seek financial aid, concern grew that the problems could spread to Spain, and the euro duly slid back to USD 1.30.

The refinancing problems of Greece and Ireland showed clearly in 2010 that the Swiss franc is an alternative to investing in the euro for many investors, primarily European ones. As a result, the Swiss franc gained more than 12 per cent against the euro over the course of 2010, as investors became increasingly skeptical.

CEE currencies

After depreciating significantly at the end of 2008 and start of 2009, the CEE currencies stabilized in the subsequent months. The CEE central banks tried to counter the depreciations with (in some cases massive) key rate increases, and several countries also approached the IMF and EU for financial assistance. Following the interest rate cuts in the eurozone, the key rate hikes were reversed in several CEE countries at the start of 2009, e.g., Poland, Russia, the Czech Republic, and Hungary. The trend towards higher key rates was maintained in countries with weaker fundamentals, to compensate investors for the higher risk.

In the recovery phase from the end of the first quarter of 2009, the Polish zloty in particular experienced a relatively sharp appreciation. Even during the crisis, Poland was able to grow its economy and impress with stable fundamentals. Nevertheless, the Polish zloty was under particularly heavy pressure in the crisis, due to the higher level of liquidity in the Polish market. The Czech koruna, Russian rouble, and Hungarian forint also gained significant ground against the euro after their lows in the course of 2009. The delayed recovery in Southeastern Europe was also reflected in the movements of local currencies. Serbia in particular saw its currency weaken further against the euro in 2009. The same happened to Romania and Albania, although to a lesser extent.

In the year under review, most CEE currencies drifted sideways after the recovery phase in 2009 and in the first half of 2010. In some cases, they experienced strong volatility against the euro, driven by the shifts in global risk movements. In the second half of 2010, for example, the attitude to risk was influenced primarily by worries about the debt situation in the eurozone.

Development of the banking sector

The shortage and higher cost of external financing for banks and governments and the lower demand for credit, both due to banks' tighter lending policies, resulted in stagnant credit growth in the CEE during the crisis.

Total assets of the banking sector in local currencies grew significantly more slowly in 2009 throughout the CEE region than before the crisis. While the Central Europe region (CE) had reported annual growth of around 15 per cent in the five years before the crisis, it barely grew at all in 2009. There was finally a return to growth in 2010, although increases were still lower than in the pre-crisis period. Growth in total assets of the banking sector is expected to remain moderate at around 5 to 8 per cent a year for the next few years.

In Southeastern Europe (SEE), where total assets of banks had risen even faster before the crisis at over 30 per cent a year, the increase in 2009 was only just under 3 per cent as a result of the crisis, and probably remained at that level in 2010 due to a further slowdown in growth. The recovery in SEE is somewhat sluggish, like the economy as a whole, so growth is not expected to return to around 10 per cent until 2012.

The CIS region had the fastest growth in total assets in the years 2004 to 2008, averaging almost 40 per cent a year. However, as in the other regions, there was no growth here again in 2009, although the economic recovery in 2010 probably led to a return to at least 15 per cent.

Non-performing loans rose further in 2010 as a result of the economic crisis. The main reasons for this were the increase in unemployment and the weakness of many CEE currencies, which posed an additional burden on many borrowers due to the high share of foreign currency loans in the region. The situation in the banking sector stabilized in the closing months of 2010 and is likely to continue to improve. However, the situation remains difficult in several countries, particularly Ukraine and Romania, but also – specifically due to the bank levy – in Hungary.

The positive trend in Poland resulted in growth in total lending, which was also the case in the Czech Republic. By contrast, lending fell in 2009 in Romania, Russia, and Ukraine as a result of the weak economies in these countries. However, GDP grew sharply in 2010 in Russia and Ukraine, not least because of the strong baseline effect after the sharp drop in the previous year. This stabilization was helped by financial assistance from the IMF, EU and World Bank, and the commitment by the banking sector to stay engaged in the region.

Financing environment for CEE states and banks

The financing environment for CEE states had already significantly improved in the second half of 2009, securing both refinancing and new issues of sovereign debt on the local and global bond markets (Eurobonds). This positive trend continued in 2010. The financing environment for CEE countries and banks benefited from both the committed implementation of aid and support programs under IMF leadership as well as the emerging signs of stabilization in government borrowing in the Czech Republic and Poland. Yields on local sovereigns trended sideways in this period, due to the continuing expansionary monetary policy and the decline in risk premiums. At the same time, the market took a very differentiated view of the individual CEE countries, with bond prices reflecting risk factors such as indebtedness, budget deficits, and political uncertainty. A financing environment like this will continue to benefit the reformist CEE nations. Currently, risk premiums for many CEE countries are lower than those for eurozone economies such as Spain or Italy.

Performance and financials

Introduction and scope of consolidation

The consolidated financial statements of RBI are prepared in accordance with the International Financial Reporting Standards (IFRS). RBI AG also prepares separate financial statements in accordance with the Austrian Commercial Code (UGB) in conjunction with the Austrian Banking Act (BGW), which provide the formal basis of assessment for calculating dividend distributions and taxes. For more information on the disclosures required by the UGB and BWG, please see the relevant sections of this Group management report, including the notes section.

The majority of RBI is indirectly held by RZB, which makes it part of the RZB Group. RZB held a stake of around 78.5 per cent at the end of the year 2010; the remaining shares were free float. The merger between Raiffeisen International and the principal business areas spun off by RZB took effect on being entered in the commercial register of the Commercial Court in Vienna on 10 October 2010. Raiffeisen International, renamed Raiffeisen Bank International after the merger took effect, was granted a banking license in the course of the merger. The formal legal merger was completed on 10 October 2010 as a transaction under common control. The management decided to make the Group's internal vertical integration retroactive. The income statement for the whole financial year of 2010 is shown with the new organizational structure. Book value accounting (analogous to IAS 8.10) was used for the principal business areas of RZB transferred to Raiffeisen International.

As of 31 December 2010, RBI's scope of consolidation comprised 132 Group units, including 21 banks and a number of financial institutions and bank-related service providers. For information about the change in the scope of consolidation, please refer to page 144 in the notes section. RZB's principal business areas added 38 fully consolidated companies to the scope of consolidation. The merger places some restrictions on any proper comparison of the figures for 2010 with the figures of Raiffeisen International for the previous year.

Pro forma performance comparison

For reasons of transparency and comparability, this section compares performance and financials with RBI's unaudited pro forma figures for the year 2009. Raiffeisen International's figures for the previous year are used as comparative figures in other sections of the Group management report.

Profit after tax rises in the year of the merger

RBI's operating result in 2010 fell by 1 per cent to € 2,424 million as a result of higher general administrative expenses and the Hungarian bank levy, which comes under other net operating income.

There were positive developments in the area of credit risk. Due to a decline in defaults and workout measures, provisioning for impairment losses fell by 47 per cent or € 1,038 million to € 1,194 million, having been extremely high across all segments in the previous year as a result of the impact of the financial and economic crisis.

However, this positive trend was partially offset by lower net income from financial investments and derivatives, which fell by € 518 million. These components of net income were dominated in 2009 by recoveries. In 2010, conditions on most financial markets stabilized and, as a result, there were only very few revaluations.

A one-off effect can be seen for income taxes. This item was lower in spite of a 58 per cent rise in net income due, in particular, to deferred tax income arising from the recognition of tax loss carry-forwards in Austria (€ 120 million) and changes to tax legislation in Ukraine (€ 26 million).

The consolidated profit after tax thus amounted to € 1,177 million, a rise of 122 per cent or € 646 million over the figure for the previous year.

In € million	RBI 2010	Change	RBI pro forma 2009	Raiffeisen International 2009
Net interest income	3,578	9.0%	3,282	2,937
Net fee and commission income	1,491	4.9%	1,421	1,223
Net trading income	328	(21.7)%	419	186
Other net operating income	6	(86.0)%	45	(20)
Operating income	5,403	4.6%	5,167	4,326
Staff expenses	(1,453)	8.3%	(1,342)	(1,054)
Other administrative expenses	(1,187)	9.3%	(1,086)	(970)
Depreciation	(340)	18.6%	(287)	(246)
General administrative expenses	(2,980)	9.8%	(2,715)	(2,270)
Operating result	2,424	(1.2)%	2,452	2,056

Operating result shows year-on-year stability

Operating income up 5 per cent due to higher interest margins

While individual income components showed differing trends, operating income remained relatively constant quarter by quarter in 2010. The 5 per cent year-on-year increase was primarily due to higher net interest income and growth in net fee and commission income, while net trading income and other net operating income showed negative development.

Net interest income rose by 9 per cent or € 296 million, representing the biggest increase of any earnings component. Part of this growth was due to higher business volume as a result of a slight rise in credit growth in some markets in 2010 following the dip in 2009 brought about by the financial crisis. The level of business in securities remained relatively constant. The majority of the growth in income, however, was the result of a rise of 32 basis points in the net interest margin to 2.51 per cent. This improvement was primarily due to the more favorable refinancing situation, particularly with regard to customer deposits. In addition, higher prices were gained on the asset side in some markets. While interest margins rose in virtually all segments, they fell in Russia as a result of strong competitive pressures. In the CIS other segment, the decline was due to a change in how interest on impaired loans and advances is calculated in Ukraine. This trend can also be seen in the results for different business divisions; the rise in net interest income is evident, above all, in the Capital markets & treasury business division.

The increase of 5 per cent or € 70 million in net fee and commission income was a clear sign that the overall economic situation has improved in RBI's home markets. This growth was primarily driven by the Central Europe and Group corporates segments; at the level of the business divisions, it was largely generated by the Corporate customers segment. This increase was due, in particular, to income from credit and guarantee business, payment transfers and securities business. By contrast, income from foreign exchange transactions was down due to lower demand, particularly as a result of a decline in foreign exchange lending business and a slight fall in the number of international payment transfers.

Net trading income was 22 per cent or € 91 million lower than the previous year. The main reason for this decline was the positive trend in 2009, a year that saw a strong recovery in the value of interest rate products, which contributed to above-average net income. This resulted in a drop of around € 150 million in net income from interest-related trading,

Development of operating income

which fell to € 211 million. The fluctuations in the other components of net trading income were much lower. Net income from currency-related trading was up by around € 15 million, while net income from equity instruments fell by around € 20 million.

Other net operating income fell by € 39 million to € 6 million, largely as a result of the Hungarian bank levy of € 41 million charged to RBI.

General administrative expenses up by almost 10 per cent

Following a 14 per cent decline in 2009 due to cost-cutting measures and currency effects, general administrative expenses grew by 10 per cent or € 264 million to € 2,980 million in the year under review. In contrast to the previous year, currency appreciation in 2010 partly contributed to a rise in general administrative expenses.

Market-related changes in salary structures and reinstated

Development of cost/income ratio

in € milion

bonus payments led to an 8 per cent increase in staff expenses. The average number of staff fell by 6 per cent or 3,692 to 59,188, primarily as a result of cutbacks in Ukraine, Russia and Romania. Other administrative expenses rose by 9 per cent, largely due to higher IT costs, the costs of the merger with RZB's principal business areas and the costs of launching the direct bank ZUNO.

The number of business outlets fell by 68 to 2,961 in the year under review. That figure includes the five branches of RBI AG.

Higher general administrative expenses, which grew by 10 per cent and thus by more than operating income, which was up 5 per cent, were the main reason for the increase in the cost/income ratio by 2.6 percentage points to 55.1 per cent. This ratio of general administrative expenses to operating income is a key measure of a bank's efficiency.

Profit up sharply due to a decrease in provisioning for impairment losses

Provisioning for impairment losses fell by 47 per cent or € 1,038 million to € 1,194 million following a difficult year in 2009. This was a consequence of an improvement in the overall situation in most markets, which led to a reduction in the growth of non-performing loans, particularly in the second half of the year. About half of this reduction was offset by lower net income from financial investments and derivatives, which posted significant write-ups in 2009 due to the recovery of the markets. Overall, this resulted in a rise in profit before tax of 63 per cent or € 497 million to € 1,287 million.

	RBI 2010	Change	RBI pro forma 2009	Raiffeisen International
In € million				2009
Operating result	2,424	(1.2)%	2,452	2,056
Net provisioning for impairment losses	(1,194)	(46.5)%	(2,232)	(1,738)
Other results	58	(89.8)%	570	50
Profit before tax	1,287	62.9%	790	368
Income taxes	(110)	(57.5)%	(259)	(81)
Profit after tax	1,177	121.6%	531	287
Profit attributable to non-controlling interests	(90)	10.7%	(81)	(75)
Consolidated profit	1,087	141.6%	450	212

Provisioning for impairment losses down in several markets

Due to the improvement in overall economic conditions and the measures taken to stabilize the loan portfolio, provisioning for impairment losses in 2010 fell by 47 per cent or € 1,038 million to € 1,194 million. Net allocations to individual loan loss provisions of € 1,196 million were down by 43 per cent, while net allocations to portfolio-based loan loss provisions in the year under review only amounted to € 1 million due to the release of portfolio provisioning to impairment losses in Hungary, Ukraine as well as Bosnia and Herzegovina (a fall of € 175 million). The net provisioning ratio based on average credit riskweighted assets also fell significantly by 123 basis points to 1.66 per cent. By contrast, the NPL ratio, which is the nonperforming loan ratio in the loan portfolio, rose by 1.56 percentage points to 9.0 per cent. This followed an increase of 4.5 percentage points in the previous year. The strongest growth in 2010 was in business with large corporates and private individuals.

The decline in provisioning for impairment losses was most pronounced in the Retail customers division (down 41 per cent to € 601 million), but there were also marked declines in the Corporate customers division (down 37 per cent to € 564 million) and the Financial institutions & public sector division (down 93 per cent to € 23 million). As far as the segments are concerned, much of the new provisioning for impairment losses was in Central Europe, which accounted for a share of 34 per cent or € 408 million (down 16 per cent), dominated by Hungary, and in Southeastern Europe, which accounted for 28 per cent or € 335 million (down 19 per cent) and where there were increases in Bulgaria and Bosnia and Herzegovina. Provisioning for impairment losses fell sharply in Russia (down 76 per cent to € 77 million), in the CIS other segment (down 59 per cent to € 214 million) as a result of the favorable trend in Ukraine, and in Group markets (down 91 per cent to € 31 million) due to higher depreciation/amortization/write-downs of loans and advances to banks in the previous year.

Tax rate at only 9 per cent due to special effects

Despite a clear increase in profit after tax, income taxes fell by 58 per cent to € 110 million. While current taxes rose in line with performance, deferred taxes were responsible for the decline in the effective tax rate, which fell from 32.8 per cent to 8.6 per cent. While a release of deferred taxes resulted in an extremely high tax rate in 2009, the opposite was true in the year under review. Due to the higher earnings expectations based on the latest medium-term planning, tax loss carry-forwards that were unused to date were to be recognized at Group headquarters on the basis of the tax allocation agreement with RZB AG ( € 120 million). As a result of a change in tax legislation in Ukraine enacted in December 2010, there was a positive effect of € 26 million on deferred taxes. Adjusted for the special effects, the effective tax rate would have been 19 per cent. Not including the Corporate center segment, where there was tax income, the tax rate was highest in the Group markets segment (at 25 per cent) and lowest in the Southeastern Europe segment (at 13 per cent).

Consolidated profit of over € 1 billion

Compared to profit before tax, profit after tax rose disproportionately by 122 per cent from € 531 million to € 1,177 million. With the operating result remaining relatively stable, this growth was due to a 47 per cent reduction in provisioning for impairment losses as well as the tax-related effects.

Compared to profit after tax, income from non-controlling interests rose only slightly by 11 per cent to € 90 million. The increase in profit was achieved primarily at RBI as well as in Group units with little or no non-controlling interests. After deducting this income from non-controlling interests, the consolidated profit accounted for by RBI amounted to € 1,087 million, which represents an increase of 142 per cent or € 637 million year-on-year.

Earnings per share of € 4.56

As a result of the merger between Raiffeisen International and RZB's principal business areas and the associated capital increase, the average number of shares outstanding rose by 40.8 million to 194.5 million. Earnings per share would have been € 1.29 in the previous year. Not including the merger effects, Raiffeisen International reported earnings per share of € 0.99 in 2009. In 2010, not only was there a significant increase in net income; earnings per shares rose sharply as well from € 3.28 to € 4.56. The Management Board will propose to the Annual General Meeting in June 2011 that a dividend of € 1.05 per share be paid for 2010. That would result in a total payment of € 204 million.

ROE before tax rises to 13.7 per cent

The return on equity (ROE) before tax rose year-on-year by 4.2 percentage points to 13.7 per cent, primarily due to a reduction in provisioning for impairment losses. Average equity, on which this calculation is based, was up 13 per cent year-on-year at € 9,400 million. The growth in capital was accounted for by retained earnings and the participation capital issued in the second quarter of 2009. Due to the aforementioned taxrelated effects, consolidated ROE – based on the capital attributable to RBI shareholders – grew even more sharply by 5.9 percentage points to 13.0 per cent.

Equity up 12 per cent to € 10.4 billion

As a result of the merger with RZB's principal business areas, equity (primarily comprised of participation capital and retained earnings) rose by € 2,325 million. The merger also entailed a capital increase from own funds. As a result, subscribed capital rose by € 125 million to € 596 million (not including own shares of € 593 million).

After taking the merger into account, RBI's equity – including the capital of non-controlling interests – rose year-on-year by 12 per cent or € 1,078 million to € 10,404 million as at the reporting date.

Total comprehensive income increased equity by € 1,396 million. This includes profit after tax of € 1,177 million. Other profit/loss, which consists of earnings components recognized directly in equity, amounted to € 219 million. This was primarily accounted for by currency differences, including the corresponding hedging transactions (€ 178 million), as a result of the appreciation of several local currencies in the CEE region. The appreciation of currencies pegged to the US dollar, in particular the Ukrainian hryvnia (up 8 per cent) and the Russian rouble (up 5 per cent), had the greatest impact year-on-year. Most currencies in the Central European region also gained in value, in particular the Czech koruna (up 5 per cent).

Equity decreased by a total of € 384 million due to dividend payments. € 30 million of that went to Raiffeisen International shareholders, corresponding to a dividend of € 0.20 per share, and € 49 million to outside shareholders of Group companies. In addition, € 105 million was for divi-

Development of profit and return on equity

Composition of consolidated equity

dends as a result of the merger with RZB's principal business areas. Dividends on participation capital came to € 200 million.

Increase in tier 1 ratio to 9.7 per cent

Regulatory own funds rose by 5 per cent year-on-year to € 12,608 million. In addition to the described changes in equity, resulting in a 10 per cent increase in core capital (tier 1), additional own funds (tier 2, down 1 per cent) and short-term additional own funds (tier 3, down 76 per cent) fell as a result of maturing issues. The own funds requirement increased by 6 per cent to € 7,585 million as a result of a slight rise in credit and securities volumes as well as higher default probabilities and lower ratings. The tier 1 ratio (total risk) increased by 0.3 percentage points to 9.7 per cent, while the core tier 1 ratio rose by 0.4 percentage points to 8.9 per cent. The own funds ratio fell by 0.2 percentage points to 13.3 per cent.

Total assets decline by 10 per cent to € 131 billion

With the merger of Raiffeisen International and RZB's principal business areas shown retroactively, the total assets increased by € 69.4 billion at the start of the year 2010. It fell year-on-year by € 14.5 billion to € 131.2 billion at year-end. This fall was largely due to interbank business. As a result of the appreciation of the US dollar and most CEE currencies, the total assets

Structure of assets on the statement of financial position

Structure of liabilities on the statement of financial position

increased by approximately € 2.4 billion. Adjusted for these effects, there was an organic reduction of the total assets of around 12 per cent or € 16.9 billion.

The interbank business, primarily with the RBG, declined toward the end of the year. In addition, unneeded liquidity was reduced. Loans and advances to banks fell as a result by 44 per cent to € 21.5 billion. By contrast, loans and advances from credit business rose. Taking into account the increase in provisioning for impairment losses, loans and advances to customers grew by 3 per cent or € 2.5 billion. This increase was largely driven by business with large corporates, although lending to private individuals also grew again slightly by 4 per cent. The biggest rises were seen in Russia (plus 18 per cent) and Central Europe (plus 5 per cent). Customer deposits rose by 4 per cent to € 57.6 billion, which meant that the loan/deposit ratio remained unchanged at 131 per cent.

Detailed review of items in the income statement

As with the presentation in the consolidated annual report, the audited figures for Raiffeisen International in 2009 are used for comparison with the previous year.

As a result of the merger of Cembra Beteiligungs AG – which incorporated the principal business areas of RZB – with Raiffeisen International, the figures shown cannot be directly compared with those for the previous year. Changes are primarily due to the integration of the principal business areas of RZB and – to a relatively minor extent – the organic growth or contraction of the Group units in CEE.

Net interest income

Net interest income grew by 22 per cent or € 642 million to € 3,578 million in the year under review. This represents a share of 66 per cent of operating income. The increase was due to the integration of the principal business areas of RZB. The new segments Group corporates, Group markets and Corporate center earned net interest income of € 946 million in 2010. The net interest margin (calculated on average total assets) was 2.51 per cent.

In Central Europe net interest income improved by 13 per cent or € 126 million to € 1,111 million. Poland showed the sharpest increase in net interest income, which rose by 45 per cent or € 55 million. The reasons for this were the increase in customer margins, improved refinancing costs and the appreciation of the Polish zloty. In the Czech Republic, net interest income grew 15 per cent or € 37 million because of the increased volume of mortgage lending and loans to private individuals, together with improved customer margins. Net interest income in Slovakia also benefited from lower refinancing costs, rising by 11 per cent or € 28 million. The net interest margin improved by 39 basis points to 3.29 per cent.

In Southeastern Europe net interest income totaled € 898 million, slightly above the previous year's figure. This reflects, on the one hand, the improved net interest income in Croatia, which grew by 15 per cent or € 22 million due to lower refinancing costs with banks and lower interest expense on customer deposits. On the other hand, net interest income fell in Serbia by 15 per cent or € 18 million as a result of relatively weak new business, tighter margins with customers with good credit ratings, lower income from investments with central banks, and the sharp depreciation of the currency. The net interest margin in the segment was 3.90 per cent at year-end (up 20 basis points).

In Russia, net interest income fell by 22 per cent or € 143 million to € 507 million, primarily because of interest income on loans and advances to customers, which dropped by 28 per cent because of lower volumes in the retail and corporate divisions, lower new business and heavy competition. The net interest margin in this segment fell by 82 basis points to 4.14 per cent.

Net interest income in the CIS other segment fell by 13 per cent or € 65 million to € 424 million. In the fourth quarter of 2010 there was a non-recurring effect in Ukraine of approximately € 70 million, due to a change in the method of calculating interest on impaired loans and advances. However, this change does not influence the result, as impairment losses on loans and advances were reduced to the same extent. The net interest margin fell by 103 basis points, and together with the positive trend in margins (plus 38 basis points) the overall result was a decrease of 65 basis points to 6.19 per cent.

Net provisioning for impairment losses

The improved economic environment and measures initiated during the financial and economic crisis to stabilize the credit portfolio showed their effects in 2010. In the year under review there were significantly lower net allocations to provisioning for impairment losses (the balance of allocations and reversals of provisions for the lending business and direct write-offs on the one hand and income in the form of amounts recovered on written-off loans and advances on the other hand). These totaled € 1,194 million, a decrease of € 544 million or 31 per cent. This item also includes income from the sale of loans totaling € 3 million.

The CIS other segment showed the highest decrease in net allocations to provisioning for impairment losses in comparison to the previous year in absolute terms. Net allocations fell by 58 per cent or € 301 million to € 214 million, of which a net € 200 million was allocated in Ukraine. This amount is already reduced by € 70 million due to the adjustment in methodology described above. Significantly lower growth of non-performing loans, improved portfolio quality, active measures for loan restructuring and improved repayment ratios were responsible for the positive trend in net provisioning for impairment losses in Ukraine.

The Russia segment also showed significantly lower net allocations to loan loss provisions, which fell by 76 per cent or € 245 million to € 77 million. In addition to the improvement in borrower ratings – particularly in the corporate customer business – the reasons were the improved economic environment, lower loss rates and higher collateral in business with private individuals.

In the segment Central Europe, the decrease was less marked, with net allocation for provisioning for loan losses falling by 16 per cent or € 79 million to € 408 million. In Hungary, net allocations totaled € 196 million, € 76 million less than in the previous year, due to the positive influence of lower loss rates and restructuring measures on loan loss provisioning. In the Czech Republic, by contrast, net allocations rose by € 22 million to € 94 million as a result of additional individual loan loss provisions du to higher loss rates as well as greater portfolio-based loan loss provisioning. Net allocations in Slovakia fell by € 13 million to € 49 million because of the more favorable economic environment and improved payment record in retail business.

Net allocations in the segment Southeastern Europe fell by 19 per cent or € 79 million to € 335 million. The decrease was particularly marked in Romania, amounting to € 94 million, due primarily to improved ratings for customers in the real estate sector and restructuring and sale of non-performing loans. With the exception of Bulgaria as well as Bosnia and Herzegovina, where net allocations increased because of new non-performing loans in the corporate customer business, net allocations were slightly down on the previous year in all other markets in this segment.

In the Group corporates segment, net allocations to provisioning for impairment losses totaled € 129 million in the year under review, which compares with € 31 million in the Group markets segment.

The net provisioning ratio – i.e. the ratio of net allocations to average credit risk-weighted assets – was 1.66 per cent. The loss rate – i.e. the ratio of charged-off loans to total lending – was 0.41 per cent.

Net fee and commission income

Net fee and commission income rose by 22 per cent or € 268 million to € 1,491 million, and accounted for 28 per cent of operating income. This increase was mostly the result of the new segments Group corporates and Group markets.

Income from payment transfers – which grew by € 56 million to € 599 million – was the biggest contributor to net fee and commission income, accounting for 40 per cent. The new segments made a significant contribution of around € 20 million to this increase, with further growth in Central Europe and CIS other segments. Net income from payment transfer business rose by € 14 million as a result of the improved economic situation and the resulting increase in transactions in Central Europe, mostly in Slovakia and the Czech Republic. Higher volume also led to an increase of € 12 million in Ukraine.

In the loan and guarantee business, net income rose by € 82 million to € 282 million. The biggest contributions here were from the Group corporates and Group markets segments (from letters of credit, guarantees and export financing). Net income in Central Europe rose by € 15 million due to the good result in Slovakia and the Czech Republic.

Net income from the securities business showed the greatest increase at € 92 million as a result of the new Group corporates (from lead arrangements and treasury products) and Group markets segments. In the Central Europe segment, net income rose by € 6 million, partly due to the improved result in Slovakia.

Income from the foreign currency, notes/coins and precious-metals business decreased by € 3 million. Together with the Central Europe segment, the new segments made a positive contribution to this result. In Central Europe, Slovakia and the Czech Republic boosted the result due to the increase in transactions, reflecting the improved economic situation. In Hungary, net income from the foreign currency, notes/coins and precious-metals business fell, due to a decline in new business in foreign currency loans. In Southeastern Europe there was a reduction because of decreasing business activity in Serbia and Romania as well as fewer arbitrage opportunities as a result of the stable local currency in Croatia.

Net income from management of investment and pension funds rose by 2 per cent to € 26 million.

Net income from the sale of own and third-party products rose by 3 per cent or € 2 million to € 26 million as a result of increased insurance activities in Southeastern Europe.

Net income from credit derivatives business was € 3 million, all of it from the Group corporates, Group markets and Corporate center segments.

Net income from other banking services doubled to € 69 million. Income in this position increased as a result of the new segments and higher income from various services in Russia, e.g. collection services for corporate customers.

Net trading income

Net trading income rose by 76 per cent or € 142 million to € 328 million. The new segments Group corporates, Group markets and Corporate center contributed € 132 million.

Net income from interest-based transactions grew by 81 per cent or € 94 million to € 211 million. The Group markets segment was a major contributor to this, while net income from interest-related business decreased in Central Europe, mainly due to valuation losses from interest rate swap transactions in Slovakia. In Southeastern Europe it rose because of an increase in the fixed-interest securities portfolio in Albania. In the CIS other segment, net income rose as a result of an improved sovereign rating for Ukrainian government bonds. In Russia, net income was unchanged from the previous year.

Net income from currency-based transactions grew by 71 per cent or € 50 million to € 121 million. The new segments contributed approximately € 25 million to this. The result in Russia improved by € 87 million to € 14 million, due to valuation gains on foreign currency transactions for hedging measures. In Central Europe, by contrast, it fell due to valuation losses on foreign currency positions and derivatives in Hungary. In Southeastern Europe, the result declined as a result of valuation losses on foreign currency futures contracts in Romania and limited foreign currency trading in Croatia. In the CIS other segment, it was roughly unchanged from the previous year.

The result of equity-based transactions turned around from a loss of € 1 million in the previous year to a profit of € 10 million. The rise was the result of the Group markets segment, which incorporates Raiffeisen Centrobank AG, a specialist in equity products.

There was a net loss of € 14 million on other transactions, due entirely to valuation losses on capital guarantees given in the Group markets segment.

Net income from derivatives and designated liabilities

Net income from derivatives and designated liabilities decreased from € 8 million in 2009 to minus € 84 million. The main reason for this was the loss on other derivatives (€ 72 million) and on liabilities designated at fair value (minus € 23 million), as the spreads on RBI issues tightened. The losses were predominantly in the Group markets segment.

The loss on other derivatives is due to valuation losses on derivatives for hedging purposes. Net income from hedge accounting fell by € 3 million on the previous year as a result of valuation losses in the Central Europe and Group markets segments. Net income from credit derivatives was the only category to show a positive trend, rising by € 5 million on the previous year.

Net income from financial investments

The capital market was heavily affected in the year under review by the recurring debates over the euro and the solvency of a number of EU states. This led to fluctuations in the individual quarters in the fair value of securities.

Net income from securities at fair value through profit or loss, consisting of income from valuations and proceeds from sales, totaled € 120 million in full year 2010. Of this, € 58 million was from valuation gains due to reversals of impairments on fixed-interest securities. In the first quarter of 2010, a clear recovery emerged, with net valuation income of € 132 million. However, the second quarter was adversely impacted by debate over the euro, prompted by concerns about Greek solvency, ultimately leading to valuation losses of € 109 million. The third quarter was again positive, with valuation gains of € 65 million, but the deterioration in the sovereign debt crisis in Ireland led to valuation losses in the fourth quarter of € 30 million. Net proceeds from sales of securities at fair value through profit or loss totaled € 62 million, with the fourth quarter accounting for the highest income at € 22 million.

Net income from equity participations includes profit on sales of € 16 million and valuation losses of € 5 million, giving a balance of € 11 million in the year under review. In the Corporate center segment, shares in a real estate developer were sold at a profit of € 13 million.

Net income from securities held-to-maturity includes profit of € 6 million on the sale of an insignificant part of the portfolio. In the previous year there was a loss of € 2 million, caused by an issuer classified as non-performing.

General administrative expenses

General administrative expenses rose by 31 per cent or € 710 million to € 2,980 million in the year under review. The main reason for this sharp rise was the merger with the principal business areas of RZB. The cost/income ratio was 55.1 per cent (2009: 52.5 per cent).

Staff expenses

With a share of 49 per cent, staff expenses accounted for the biggest share of general administrative expenses. Staff expenses rose by 38 per cent or € 399 million on the previous year to € 1,453 million. The main reason for this sharp rise was the integration of the principal business areas of RZB into Raiffeisen International. Staff expenses also rose because of salary increases and the resumption of bonus payments in individual countries, which had been minimal in the previous year. Broken down by segment, staff expenses rose most in the CIS other and Russia segments (18 per cent in each) as well as Central Europe (13 per cent). In Southeastern Europe on the other hand, staff expenses fell by 2 per cent.

The average number of staff employed in the Group (full-time equivalents) fell by 2 per cent or 998 to 59,188. While the integration of the principal business areas of RZB increased the average number of staff by 2,694, the regional segments in CEE predominantly showed decreases. The average number of staff in the CIS other segment fell by 7 per cent or 1,214, in Southeastern Europe by 6 per cent or 1,177, in Russia by 9 per cent or 882, and in Central Europe by 3 per cent or 439. Operating income per employee rose from € 72,000 to € 91,000.

Other administrative expenses

Other administrative expenses rose by 22 per cent or € 216 million to € 1,187 million. Almost all categories of expenses were affected by this increase, but the largest rises were in IT expenses (up 41 per cent), advertising, PR and promotional expenses (up 37 per cent) as well as legal, advisory and consulting expenses (up 18 per cent).

The reason for the increase in premises and other operating expenses was primarily the integration of the principal business areas of RZB. The increase in legal, advisory and consulting expenses was in connection with the merger. IT expenses rose because of the new Group units and higher service costs of software systems. Advertising, PR and promotional expenses rose mainly as a result of integrating the new Group units, but also because of a new marketing campaign in Russia.

The number of business outlets fell by 57 to 2,961 at the year-end. The biggest decreases here were in Ukraine (21), Romania (20) and Russia (18).

Depreciation of tangible and intangible fixed assets

Depreciation of tangible and intangible assets rose by € 95 million on the previous year to € 340 million (2009: € 245 million). Of this, € 180 million was on tangible assets, € 128 million on intangible assets and € 32 million on assets from operating leasing business. Besides integration of the principal business areas of RZB, there was mainly depreciation of new core bank systems and other IT applications (particularly in Russia, Ukraine and the Czech Republic).

In the year under review investment in the Group totaled € 619 million. Of this, 47 per cent (€ 293 million) was on Group tangible assets. Intangible assets accounted for 33 per cent of investment, predominantly for software systems. The rest was in assets for operating leasing business.

Other net operating income

Other net operating income turned around from minus € 20 million to € 6 million. Various components were responsible for this. Net income from non-banking activities rose by € 31 million to € 35 million, due primarily to additional non-banking activities from the merger of the principal business areas of RZB. Other taxes increased by € 22 million to € 74 million. The decision of the Hungarian Parliament to impose a levy on banks and financial service providers led to additional expenses of € 41 million in Hungary.

The result in the year under review of allocation and release of other provisions was a loss of € 27 million (2009: minus € 4 million). This was primarily due to allocations to provisions for current litigation in Russia and Slovakia. Net proceeds from other operating income and expenses rose by € 41 million to € 35 million. This was predominantly due to the merger with the principal business areas of RZB.

Net income from disposal of Group assets

In the year under review net income from disposal of Group assets totaled € 5 million. In all, 47 subsidiaries were dropped from the consolidation, 41 of them due to a change in the materiality limits. The companies are primarily active in leasing, investment and financial services, or provide ancillary services. Seven subsidiaries were dropped from consolidation following closure.

Statement of financial position

As of 31 December 2010, RBI's total assets was € 131.2 billion. Without the principal business areas transferred from RZB, the comparable figure was € 76.3 billion. The merger that took place led to a € 69.4 billion increase in the Group's total assets.

Assets

On the assets side of RBI's statement of financial position, the figures at the end of 2010 were as follows: With a 54 per cent share, the majority was made up of loans and advances to customers (after the deduction of loan loss provisions). Loans and advances to banks accounted for 16 per cent of the Group's total assets. The overall volume of financial investments (including those held for trading) amounted to 21 per cent, with other asset items representing a share of 9 per cent.

Compared with € 50.5 billion in the previous year, loans and advances to customers accounted for € 75.7 billion (before deduction of loan loss provisions) in the period under review. On the one hand, this rise came from contributions made by the principal business areas of RZB, and on the other hand, from slight growth in lending recorded in CEE in 2010. A significant increase arose as a result of enhanced market demand and an active acquisition policy, particularly in Russia and the Czech Republic. Of the overall loans and advances to customers, credit business represented € 48.8 billion or 64 per cent and mortgage loans represented € 16.9 billion or 22 per cent. Credit business with corporate customers amounted to € 53.0 billion, of which large corporate customers represented € 49.2 billion. Loans to retail customers totaled € 21.0 billion and of this, private individuals accounted for € 18.5 billion. At the end of 2010, the loan/deposit ratio (the ratio of customer loans to customer deposits) was 131 per cent.

Loans and advances to banks totaled € 21.5 billion on 31 December 2010. Compared with the previous year (€ 10.3 billion) this means an increase of € 11.2 billion, which primarily arose as a result of contributions made by RZB's principal business areas. The loans were predominantly awarded to domestic and foreign commercial banks and were mostly of a shortterm nature.

At the end of the year, the impairment losses on loans and advances reached € 4.8 billion. Of this, € 4.5 billion represented provisions for loans and advances to customers and € 0.3 billion represented loans and advances to banks. € 2.8 billion of the customer provisions were related to corporate customers and € 1.7 billion affected retail customers. With € 1.3 billion, most of the loan loss provisions were attributed to Central Europe. The CIS other segment accounted for € 1.0 billion of loan loss provisions, Southeastern Europe and Russia accounted for € 0.9 billion and € 0.7 billion, respectively.

In the reporting year 2010, the portfolio of financial investments was valued at € 27.7 billion (2009: € 11.0 billion). Since the start of the financial crisis, excess liquidity has been increasingly invested in securities. Through the contributions made by RZB's principal business areas, the stock of securities (including securities held for trading) has also increased significantly. The new investments of the past year were mainly state or state-guaranteed, top quality securities.

Other assets of € 11.0 billion were made up of cash reserves (€ 4.8 billion), tangible and intangible fixed assets of € 2.7 billion, derivatives (€ 1.5 billion) and the remaining item other assets.

Equity and liabilities

Equity and liabilities were dominated by deposits from customers, which accounted for a share of 44 per cent. Deposits from banks accounted for a 26 per cent share. Equity and subordinated capital represented 11 per cent of the equity and liabilities side of the statement of financial position and the remaining equity and liabilities totaled 19 per cent.

At the end of the year, deposits from customers reached € 57.6 billion and as such, represent a solid source of funding for the Group (51 per cent of the refinancing was achieved by means of customer deposits). The deposits from corporate customers came mainly from large corporates – and accounted for 51 per cent or € 29.4 billion. The deposits from retail customers came mainly from private individuals – and accounted for 45 per cent or € 25.8 billion. The rise of € 15.0 billion mainly came from RZB's principal business areas. In addition, slight growth was recorded in CEE – particularly in Russia, with a € 1 billion increase.

Refinancing volumes via banks – primarily commercial banks – amounted to € 33.7 billion, of which less than a third was of a long-term nature. The increase over the previous year was exclusively due to the contributions made by RZB's principal business areas.

The remaining equity and liabilities items are made up of debt securities issued, provisions, trading liabilities, derivatives and other liabilities. At the end of the year, these totaled € 25.5 billion. Debt securities issued (€ 16.6 billion) mostly came from issued bonds and notes, which were transferred from RZB. In the reporting year, there were no major issues. Trading liabilities amounting to € 5.7 billion arose primarily as a result of the financial instruments that were introduced within the course of the merger. These were mostly composed of derivatives (€ 4.5 billion), especially interest derivatives (€ 3.0 billion).

Equity

Equity on the statement of financial position

As at 31 December 2010, RBI's equity, including consolidated profit and non-controlling interests, amounted to € 10,404 million. As a result of the merger, equity grew by € 2,325 million, primarily attributable to the € 1,900 million contribution made by the participation capital (balanced value after subtracting the outstanding participation rights), the € 300 million retained earnings and a € 125 million capital increase carried out within the framework of the merger.

Paid-in capital is made up of the subscribed capital, participation capital and capital reserves. Through the issuing of 40,837,624 new bearer shares in order to carry out the merger, the subscribed capital rose by € 125 million to € 596 million. After deducting own shares, this amounted to € 593 million. The € 2,500 million participation capital issued by RZB AG was transferred to RBI AG. In the course of the merger, the receivables and liabilities of the transferring and receiving company have been calculated. This also affected the € 600 million outstanding participation rights which had been earmarked in full by RZB AG.

The capital gained from consolidated profit and retained earnings amounted to € 3,678 million. In the year under review, the Group reported consolidated profit of € 1,087 million. From the previous year's result, € 182 million was added to the retained earnings. Dividend payments amounted to € 335 million, of this, dividends for shareholders represented € 135 million and dividends for the participation capital represented € 200 million. The other comprehensive income led to an increase in the retained earnings of € 210 million. In this respect, key components were the positive currency differences, which (including Capital Hedge) amounted to € 169 million. The cash flow hedge yielded € 39 million. Through assessment changes for financial assets available for sale, retained earnings rose by € 10 million. Deferred taxes on income and expenses directly recognized in equity reduced this by € 8 million.

The equity of the non-controlling interests amounted to € 1,066 million. The € 90 million share in the profit (owing to this) had a particularly uplifting effect. The dividend payments decreased non-controlling interests by € 49 million.

Own funds pursuant to the Austrian Banking Act (BWG)

RBI does not form an independent credit institution group (Kreditinstitutsgruppe) as defined by the Austrian Banking Act (BWG) and therefore is not subject to the regulatory provisions on a consolidated basis. This is because it is part of the RZB Group. The majority of credit risk is calculated using the standardized approach in accordance with Section 22 of the BWG. Credit risk for most non-retail business at RBI AG and its subsidiaries in Croatia, Malta, Romania, Slovakia, the Czech Republic, Hungary and the USA is measured using the internal ratings based approach (foundation IRB approach). Since April 2010, a large share of the loans and advances to retail customers in Slovakia has been calculated for the first time using this approach. Since July 2010, the IRB approach has also been introduced for loans and advances to retail customers in Hungary. Market risk is predominantly calculated according to the standard approach in accordance with Section 22 of the BWG. Since August 2010, RBI AG has carried out the calculation in part according to the internal model. The consolidated values (shown below) have been worked out according to the provisions of the BWG and are assumed in the calculation of the RZB-Kreditinstitutsgruppe.

On 31 December 2010, the total own funds in accordance with the BWG amounted to € 12,608 million. Of this, € 9,206 million was accounted for by core capital, € 3,366 million by additional own funds and € 69 million by short-term subordinated capital. The total deductions relating to participations, securitization and insurance companies amounted to € 34 million. Currency appreciations against the euro (especially the Ukrainian hryvnia, the Russian rouble, the Polish zloty, the Czech koruna and the Belarusian rouble) had a positive effect on the core capital. The devaluations of the Serbian dinar and the Hungarian forint decreased the core capital.

The additional own funds amounted to € 3,366 million. This consists of the long-term subordinated capital of which the largest part fell to RBI AG at € 2,176 million, supplementary capital of RBI AG (€ 600 million), the provision excess of IRB-positions ( € 231 million) and hidden reserves (€ 55 million).

Own funds faced an own funds requirement of € 7,585 million. The own funds requirement for credit risk was € 6,048 million, of which € 2,974 million related to the standardized approach and € 3,074 million related to the IRB approach. The requirement for the item position risk in bonds, equities and commodities was € 327 million. For open currency positions this was € 386 million and for operational risk this was € 824 million.

This resulted in an excess cover ratio of 66.2 per cent or € 5,023 million.

The tier 1 ratio – based on credit risk – was 12.2 per cent. Based on total risk, this resulted in a core tier 1 ratio of 8.9 per cent and a tier 1 ratio of 9.7 per cent. The own funds ratio reached 13.3 per cent.

Research and development

As a universal bank, RBI is not involved in research and development in the strictest sense of the term.

In the context of financial engineering, however, RBI does develop customized solutions for investment, financing or risk hedging. Financial engineering encompasses not only structured investment products but also structured financing: financing concepts which go beyond the application of standard instruments and are used in acquisition or project financing, for example. By the same token, RBI also develops individual solutions to hedge a broad spectrum of risks, from interest rate risk and currency risk through to commodity price risk.

At RBI, customers are the number one priority. Compliance with risk management guidelines is also vital.

Internal control and risk management system in regard to the Group accounting process

Balanced and comprehensive financial reporting is a priority for RBI and its governing bodies. Naturally, these reports must comply with all relevant statutory requirements. The Management Board is responsible for establishing and defining a suitable internal control and risk management system that encompasses the entire accounting process. The internal control system is intended to provide the management with the information needed to ensure effective internal controls for accounting, which are constantly being improved. The control system is designed to comply with all relevant guidelines and regulations and to optimize the conditions for specific control measures.

The consolidated financial statements are prepared in accordance with the relevant Austrian laws, notably the Austrian Banking Act (BWG) and Austrian Commercial Code (UGB), which govern the preparation of consolidated annual financial statements. The accounting standards used to prepare the consolidated financial statements are the International Financial Reporting Standards (IFRS) as adopted by the EU, which RBI has been using since 2000 – initially on a voluntary basis.

Control environment

An internal control system has been in place for many years at RBI and its parent, the RZB Group, which includes directives and instructions on key strategic topics. The system comprises

• the hierarchical decision-making process for approving Group and company directives and departmental and divisional instructions
• process description for the preparation, quality control, approving, publishing, implementing and monitoring directives and instructions
• rules on revising and repealing directives and instructions.

The management in each Group unit is responsible for implementing Group-wide instructions. Compliance with Group rules is monitored as part of the audits performed by internal and local auditors.

The consolidated financial statements are prepared by the Group Financial Reporting department, which reports to the Chief Financial Officer. The relevant responsibilities are defined Group-wide in the framework of a dedicated function.

Risk assessment

Significant risks relating to Group accounting process are evaluated and monitored by the Management Board. Complex accounting standards can increase the risk of errors, as can the use of different valuation standards, particularly in relation to the Group's principal financial instruments. A difficult business environment can also increase the risk of significant financial reporting errors. For the purpose of preparing the consolidated financial statements, estimates have to be made for asset and liability items for which no market value can be reliably determined. This is particularly relevant for credit business, social capital, and the intrinsic value of securities, participations and goodwill.

Control measures

The preparation of individual financial statements is decentralized and carried out by each Group unit in accordance with the RZB Group guidelines. The Group unit employees and managers responsible for accounting are required to provide a full presentation and accurate valuation of all transactions. Differences in reporting dates and local accounting standards can result in inconsistencies between the individual financial statements and the figures submitted to RBI. The local management is responsible for ensuring compliance with mandatory internal control measures, such as the separation of functions and the principle of dual control.

Consolidation

The financial statement data, which are are examined by an independent auditor and are then usually entered directly in the Cognos Controller consolidation system by the end of January each year. The IT system is kept secure by limiting access rights.

The plausibility of each Group unit's financial statements is initially checked by the relevant key account manager within the Group Financial Reporting department. The subsequent consolidation steps are then performed using the Cognos Controller consolidation system, including capital consolidation, expense and income consolidation, and debt consolidation. Lastly, possible intra-Group gains are eliminated. At the end of the consolidation process, the notes to the financial statements are prepared in accordance with IFRS, the BWG and UGB.

The general control system encompasses both the Management Board and middle management (department heads). All control measures constitute part of the day-to-day business processes and are used to prevent, detect, and correct any potential errors or inconsistencies in the financial reporting. Control measures range from managerial reviews of the interim results to the specific reconciliation of accounts through to analyzing ongoing accounting processes.

The consolidated financial statements and management report are reviewed by the Audit Committee of the Supervisory Board and are also presented to the Supervisory Board for information. The consolidated financial statements are published on the Company's website and in the Wiener Zeitung's official register and are filed with the commercial register as part of the annual report.

Information and communication

The consolidated financial statements are prepared using Group-wide standard forms. The accounting and valuation standards are defined and explained in the RZB Group Accounts Manual and must be applied when preparing the financial statements. Detailed instructions for the Group units on measuring credit risk and similar issues are provided in the Group directives. The relevant units are kept abreast of any changes to the instructions and standards through regular training courses.

Group Financial Reporting is responsible for compiling the consolidated results to produce the final consolidated financial statements. In addition, the management summary (Group management report) provides verbal comments of the consolidated results in accordance with the statutory requirements. Both the consolidated financial statements and the management report are examined by an independent auditor.

The Group produces consolidated quarterly reports. Statutory interim reports are produced that conform with the provisions of IAS 34 and are also published quarterly in accordance with the Austrian Stock Corporation Act. Before publication, the consolidated financial statements are presented to senior managers and the Chief Financial Officer for final approval and then submitted to the Supervisory Board's Audit Committee. Analyses pertaining to the consolidated financial statements are also provided for the management as are preliminary Group figures at regular intervals. The financial budgeting system includes a three-year Group budget.

Monitoring

The Management Board and Controlling department are responsible for ongoing internal monitoring. In addition, the relevant department heads are charged with monitoring their areas, including performing regular controls and plausibility checks.

Internal audits also constitute an integral part of the monitoring process. Group audit at RZB is responsible for auditing. All internal auditing activities are subject to the Group audit standards, which are based on the Austrian Financial Market Authority's minimum internal auditing requirements and international best practices. Group audit's internal rules also apply (notably the audit charter).

Group audit regularly and independently verifies compliance with the internal rules within the RZB Group units. The head of Group audit reports directly to the RZB and RBI Management Boards.

Capital, share, voting and control rights

The following disclosures cover the provisions of Section 243a (1) of the Austrian Commercial Code (UGB):

(1) The Company's capital stock amounts to € 596,290,628 and is divided into 195,505,124 voting common bearer shares. Of those, 972,909 are own shares, which means that 194,532,215 shares were outstanding as of the balance sheet date. Please consult the notes to this report (page 190 onwards) for more information.

(2) The articles of association contain no restrictions concerning voting rights or the transfer of shares. The Management Board is not aware of any restrictions arising from agreements among shareholders.

(3) RZB holds around 78.5 per cent of the shares in the Company indirectly through its wholly owned subsidiary Raiffeisen International Beteiligungs GmbH, Vienna. The remaining shares are free float, containing no direct or indirect participations in the capital amounting to 10 per cent or more.

(4) Pursuant to the Company's articles of association, RZB is granted the right to delegate up to one third of the Supervisory Board members to be elected by the Annual General Meeting, as long as it holds a participation in the capital stock. Moreover, there is no special right of control associated with holding shares.

(5) There is no control of voting rights in the case of a participation in capital by employees.

(6) Pursuant to the articles of association, a person who is 68 years or older may not be appointed as a member of the Management Board or be reappointed for another term in office. The rule for the Supervisory Board is that a person who is 75 years or older may not be elected as a member of the Supervisory Board or be elected for another term in office. Furthermore, there are no regulations regarding the members of the Management Board and the Supervisory Board beyond the provisions of the relevant laws.

(7) The Management Board has been authorized since the Annual General Meeting of 5 June 2007 to increase the capital stock by up to € 181,436,875 by issuing up to 59,487,500 new common bearer shares with voting rights against contributions in cash and/or in kind within five years after recording the relevant amendment to the articles of association in the commercial register, while preserving the right of subscription to which the law entitles shareholders, including the right of indirect subscription by way of a bank pursuant to Section 153 (6) of the Austrian Stock Corporation Act (AktG), and to fix the offering price and terms of the issue with the approval of the Supervisory Board. The Supervisory Board or a committee authorized for this purpose by the Supervisory Board is authorized to adopt amendments to the articles of association that arise upon issuing shares from the authorized capital.

Pursuant to Section 159 (2) 1 of the Austrian Stock Corporation Act, the capital stock has been increased contingently by up to € 47,173,587.50 through the issue of up to 15,466,750 common bearer shares (contingent capital). The contingent capital increase would only be carried out to the extent that holders of convertible bonds issued under the resolution of the Annual General Meeting of 10 June 2008 make use of their right to convert such bonds into shares of the Company. No convertible bonds have been issued to date, however.

The Annual General Meeting of 8 July 2010 authorized the Management Board to acquire own shares, under the provisions of Section 65 (1) 8 of the Austrian Stock Corporation Act, during a period of 30 months from the date of the resolution, up to a maximum of 10 per cent of the Company's respective capital stock and, if deemed appropriate, to retire them. This authorization may be exercised in one or several installments by the Company, by affiliated enterprises or, for their account, by third parties. The Management Board was further authorized to decide, with the approval of the Supervisory Board, on the sale of own shares by means other than the stock exchange or a public tender, to the exclusion of shareholders' subscription rights. This authorization replaces the authorization to buy back and use own shares that was granted in the Annual General Meeting of 10 June 2008. No own shares have been bought since the authorization was issued in July 2010.

The Annual General Meeting of 8 July 2010 also authorized the Management Board to acquire own shares for the purpose of securities trading, under the provisions of Section 65 (1) 7 of the Austrian Stock Corporation Act, during a period of 30 months from the date of the resolution, up to a maximum of 5 per cent of the Company's respective capital stock. The consideration for each share to be acquired must not be less than half the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition. This authorization may be exercised in one or several installments by the Company, by affiliated enterprises or, for their account, by third parties.

The Annual General Meeting of 9 June 2009 authorized the Management Board of the Company to issue, in one or more tranches, participation rights having equity characteristics pursuant to Section 174 of the Austrian Stock Corporation Act in a total nominal amount of up to € 2 billion within five years from the date of the resolution with the approval of the Supervisory Board in accordance with the terms for participation rights to be set by the Management Board and to the exclusion of shareholders' subscription rights. It should be noted that, under the provisions of the relevant laws, participation rights confer no voting rights or other membership rights. Issuing participation rights therefore entails no change of ownership structure from the standpoint of stock corporation law and shareholders' voting rights. The Company decided on 15 July 2009 to strengthen its capital by issuing participation rights in the amount of € 600 million based on the authorizing resolution of June 2009. In the course of the merger with effect from 10 October 2010, the mutual loans and liabilities of the receiving and transferring companies were wiped out. The same is true of the participatory rights in the amount of € 600 million, which had been subscribed in full by RZB. No further participation rights have been issued to date. Please consult the notes to this report on page 190 for more information.

In the course of the merger, the RZB issue "Raiffeisen-Partizipationskapital 2008/2009" in the amount of € 2.5 billion was transferred to RBI on unchanged terms.

(8) The following material agreements to which the company is a party and which take effect upon a change of control in the company as a result of a takeover bid exist in the context of the D&O insurance and the Share Incentive Program (SIP) of the company:

• "If the insured, RBI, comes under new control due to a change in the management or control in respect to the management or control over a subsidiary or if it merges with another enterprise, the insurance will only cover events of loss due to wrongful acts occurring prior to the change in control and management and only for events of loss up to the end of the period of insurance."

The Company's Share Incentive Program (SIP) provides the following upon a change in corporate control:

• "If a change in corporate control or a merger occurs during the vesting period without the combination being exclusively concerned with subsidiaries, all contingent shares will lapse without replacement at the time of acquiring the shares of Raiffeisen International and the investor's actual possibility of disposing of them, or at the time of the merger. An indemnification payment will be made for these contingent shares. The indemnity sum calculated will be paid out with the next possible salary payment."

(9) There are no indemnification agreements between the company and its Management Board and Supervisory Board members or employees for the case of a public takeover bid.

Funding

Banks essentially refinance themselves using their own funds, their customer deposits and various capital and interbank market tools. Due to the financial and economic crisis, funding of banks, especially in the area of wholesale funding thus via financial markets, was once again difficult in 2010.

Improved funding opportunities on the capital markets

The financing environment for CEE sovereigns improved significantly in the second half of 2009, enabling both funding and new issues of sovereign debt on the local and global bond markets (Eurobonds). This positive trend continued in 2010. With regard to the yield levels of local sovereign bonds, a slight downward trend was observed, partly due to the continued expansive monetary policy and partly to the decreasing risk premiums. At the same time markets, distinguished between individual countries and incorporated risk factors such as government debt, budget deficits and political uncertainty into the relevant terms and prices.

A similar picture was observed for banks in the CEE region in 2010. Financial institutions with an investment grade rating in particular were able to refinance themselves in the market with greater ease. There were a number of bond issues with above average coupons as compensation for sub-investment grade ratings. Demand for these issues was partly due to low prevailing rates in the broader market and the resulting low funding costs for banks and partly due to the declining risk aversion of investors.

In Western Europe, funding options also improved compared to the previous two years. However, banks continued to pay higher risk premiums than before the crisis.

The government rescue package for Austrian banks was once again available in 2010 but was not used by RZB or RBI. The reason for this was that the liquidity situation of both banks was adequate, and sufficient funding could be raised on the capital markets.

The ECB also continued to provide banks with sufficient liquidity. This resolved the liquidity crunch prevalent during the financial crisis, as did the simultaneous decline in the demand for loans.

Funding measures

Upon entry of the merger of Raiffeisen International with RZB's principal business areas on 10 October 2010 into the commercial register, RBI (entity resulting from the merger) replaced RZB as the bond issuing entity. As a result, two new issue programs, the "EUR 25,000,000,000 Debt Issuance Program" and the "EUR 20.000.000.000 Emissionsprogramm der Raiffeisen Bank International AG", were launched. Under these programs, bonds can be issued in different currencies and with different structures.

The first RBI benchmark bond was issued in January 2011 – € 1 billion senior fixed-rate bond with a three-year maturity. It was placed at 145 basis points over mid-swaps, with a coupon of 3.625 per cent. The issue was significantly oversubscribed.

Due to the less frequent maturities of refinancing funds, the funding needs of the Group headquarters in 2010 was limited and could easily be met, although the merger of Raiffeisen International with the principal business areas of RZB meant that for legal reasons no issues from the corresponding programs were possible for a while. Overall, RZB/RBI AG senior issues totaled € 750 million in 2010. € 163 million were retail issues successfully placed with Austrian retail customers, thereby forming a stable funding source.

Furthermore, subordinated bonds in the amount of € 297 million were issued, which served as substitution for the subordinated issue called in September 2010. In addition to issues on the capital markets, RZB and RBI used secured financing in which bonds and loans were used as collateral.

Market conditions remained volatile in 2010, however. When it came to wholesale funding, the network banks in 2010 focused on loans from RBI, loans from local and supranational banks, local private placements and individual lending transactions (club deals).

Strong funding sources

RBI funding is made up of two different components: At the end of 2010, customer deposits accounted for the largest share at 51 per cent or € 57.6 billion, with wholesale funding contributing the remaining 49 per cent or € 54.2 billion.

36 per cent of the wholesale funding was raised by the network banks, while 64 per cent came from Group headquarters. As Group headquarters wants to make greater use of the wholesale funding markets in 2011 again, it is expected that this year the headquarters and the network banks will each provide half of the wholesale funding. The fact that the current maturity profile offers a great deal of scope with respect to the structuring of maturity dates for new issues is advantageous in the prevailing market environment. To achieve the long-term wholesale funding volume for 2011 of around € 6.5 billion that has to be placed in the capital markets, of which € 2.3 billion had already been successfully placed by the beginning of March, the Group headquarters will primarily source funding through unsecured public senior issues, private placements and structured products. Network units will cover the remaining funding requirement through local and international bonds, supranational loans, standard loans and other instruments, such as structured products. The direct bank ZUNO BANK AG, still in the process of being set up, will initially contribute only a small percentage to the funding of RBI.

The diversification of sources is important for RBI's financing. A significant part of the network units' financing in 2010 was replaced with medium- and long-term transactions from various sources. International funding opportunities are also of considerable importance for RBI. The Group accordingly has a range of different funding sources.

The European Investment Bank (EIB), the EBRD and other supranational investors are also important partners for RBI in CEE with regard to long-term funding. The volume of owing debt, mainly long-term funding, raised by RBI as at the end of 2010 stood at € 1.7 billion. RBI intends to continue collaborating with the above mentioned supranational institutions in future.

In addition, RBI benefits from the Raiffeisen Banking Group Austria (RBG) as an important funding partner. This longstanding partnership aids in the procurement of liquidity via the RBG and with the placement of the RBG's funding instruments with its customers.

Risk management

The start of 2010 was still dominated by uncertainty due to the continuing financial and economic crisis that began in 2008. Markets were suffering from the combination of low economic growth and a continuing high level of loan defaults as well as high volatility in risk premiums and exchange rates. However, the trend finally turned during the year under review, and the global economy picked up more and faster than originally anticipated. Even so, the general uncertainty and the gap between countries in terms of the sustainability of the economic recovery remained. Risk premiums in parts of the eurozone also rose further as a result of the sovereign debt crises in Greece and Ireland.

In this environment, RBI's risk management used a combination of new and existing instruments to deal with the increased market volatility and enable an early response to changes in general economic circumstances. At the same time, business activity was expanded in non-cyclical sectors, existing loans to governments and financial institutions in the affected markets were scaled back, and lending policies were modified, particularly for foreign currency loans. These measures helped further reduce the vulnerability of the RBI credit portfolio to the prevailing market volatility.

Management of non-performing loans

Despite the continuing crisis, new allocations to provisioning for impairment losses in 2010 was however significantly lower than in 2009. The non-performing loan portfolio continued to rise during the period under review, comprehensive provisions were made for this. The decrease in new allocations to provisioning for impairment losses accordingly reflected the decrease since year-end 2009 in the number of defaulting borrowers in RBI's key portfolios.

Successful management of non-performing loans was one of the core functions of risk management in 2010. Besides the reorganization of the division involved, further progress was made with the introduction of minimum standards for workout management that began in 2009. The standards were introduced at all network banks and leasing companies, and now ensure sustainable and comprehensive management with adequate resources throughout the entire Group. Early recognition of nonperforming loans allows more time for them to be assigned to experienced workout managers with their extensive portfolio of measures.

An early warning system for the Corporate and Retail business divisions has been introduced (in some cases since 2009) in numerous countries. Work will continue on implementing this system, to ensure early identification of risks at the level of the individual customer as part of active risk management, so that measures can be taken which are appropriate for the specific customer segment.

Non-performing loans of loans and advances to customers and banks

	NPL		NPL ratio		Coverage ratio
	RBI	RBI pro forma	RBI	RBI pro forma	RBI	RBI pro forma
in € thousands	31/12/2010	31/12/2009	31/12/2010	31/12/2009	31/12/2010	31/12/2009
Corporate customers	4,381,436	3,514,836	8.01%	6.64%	64.80%	67.71%
Retail customers	2,396,213	1,855,654	11.46%	9.16%	69.31%	74.76%
Public sector	12,098	15,898	1.10%	0.45%	8.23%	18.33%
Customers	6,789,747	5.386,388	8.97%	7.42%	66.29%	69.39%
Banks	267,834	576,740	1.15%	1.81%	95.22%	70.49%
Total	7,057,581	5,963,128	7.05%	5.49%	67.39%	70.04%

Risk management integration through the merger

The creation of a fully integrated risk management was always a compelling argument in favor of the merger carried out during the year under review of Raiffeisen International and the principal business areas of RZB. All risk management functions were consolidated under the Chief Risk Officer with some reorganization. As part of this reorientation, the concept of risk committees with decision-making authority was modified for the new structure. Through the participation of a number of board members these committees were upgraded. In addition, the risk management processes of Raiffeisen International and RZB were consolidated.

The resulting structure with its new elements forms the basis for risk management – identifying, measuring, aggregating, limiting and reporting – for both the individual types of risk and the overall risk for RBI.

The departments in both companies for credit risk management for large corporates were consolidated, with a realignment on industry lines. The newly created Credit Management Corporates division was given four departments dealing with specific target industries (construction & real estate, cyclical industries & manufacturing, non-cyclical industries, energy & commodities). The goal of the alignment by industry is to establish the individual departments as competence centers for industry information. As a result, the departments in credit risk management for large corporates also analyze the potential and risks for the individual industries, in close cooperation with internal and external specialists, such as economists, industry consultants and trend analysts.

In combination with the reorganization of credit risk management for large corporates by industry, credit portfolio management was given a regional dimension by consolidating country and credit portfolio risk management in a new department. This has the function of making uniform risk assessment for both countries and RBI portfolios possible. The conclusions and resulting measures are determined in close consultation with the responsible customer segments, and are being implemented within the existing management instruments (lending guidelines, portfolio limits, etc.).

In view of the problems facing many customers as a result of the economic crisis – particularly in Central and Eastern Europe – a unit was established at Group headquarters for managing non-performing loans to corporate customers and financial institutions. Its staff has many years of experience in workout management in both Western Europe and CEE, and is directly involved in the decision-making processes where key non-performing loans are involved. The emphasis is on central management of complex problem cases, advising local workout management departments and ongoing monitoring of returns. In addition, this unit handles all RBI AG non-performing loans and negotiates with its customers, bank syndicates and potential investors. A particular focus is coordinating international problem cases affecting a number of RBI units, by developing and implementing strategies to optimize results on a Group basis.

Stress tests

The results of the stress tests by the Committee of European Banking Supervisors (CEBS) were published in July 2010, and reduced some of the uncertainty in the markets. The publication of detailed information in connection with the stress tests on bank sovereign lending in particular gave the financial markets key information for risk assessment. At the time of publication, RZB's loans to European peripheral states were very low in international comparison, and have been further reduced since. In the process, risk management lowered the limits and the existing risk contributions, in order to counter negative effects from the Greek and Irish sovereign debt crises, even though RZB had not invested in government bonds issued by these countries.

The CEBS stress tests simulated the effects of various scenarios for economic developments for 91 European financial institutions. Specific attention was paid to the direct and indirect influences of predetermined crisis scenarios on future capital requirements, necessary provisioning for impairment losses as well as earnings and capital components, based on variables like GDP growth rates, exchange rates and risk premiums. RZB clearly passed this test, showing capitalization well above the recommended minimum ratio even in a simulated continuing crisis. This was despite the fact that the risk scenarios used for the Austrian banks, developed specially by the Austrian National Bank (OeNB) were significantly more rigorous than the original CEBS scenarios.

In addition to the stress tests for external purposes, like those of the CEBS and OeNB, internal studies were carried out in 2010 for further scenarios and potential risk drivers. Close cooperation with all the risk management areas and including other experts from the network banks made consideration of a large number of risk factors in the internal stress tests possible. Besides the increased capital requirement and rising provisions for credit portfolio impairments in the stress scenario, market risks, operational risks, increased financing costs and numerous other capital and earnings components were incorporated into the integrated consideration. The results of the stress tests and their analysis were reported regularly to the Management Board, making it possible to quickly adopt countermeasures for any threatening scenarios.

Market risk

The sophisticated market risk management system developed since March 2008 on the basis of an internal model was implemented at the start of 2010. Since then, market risk management has been based on the figures from this internal model.

The model uses a hybrid approach, i.e. a combination of historical and Monte Carlo simulations with around 5,000 scenarios, to calculate value at risk (VaR) for changes in the risk factors of foreign exchange, interest changes, credit spreads for bonds, Credit Default Swaps and equity indices. To improve modeling of risk factors where the probability of extreme price changes exceeds the probability given by the normal distribution, the model incorporates numerous add-ins, such as adding extreme events to the scenarios, or taking into account current volatility in scenario generation, together with various time horizons in volatility estimation. This model approach offers a suitable basis for implementing the strict Basel III requirements in internal models.

The model passed the review process of both the FMA and OeNB, and has been used since 30 August 2010 to calculate own funds requirements for foreign currency and general interest rate risk in the trading book for Group headquarters. Daily management includes RBI's trading and bank books based on VaR for a one-day holding period, a 99 per cent confidence interval, and sensitivity limits. The market risk position, limit process and presentation of all capital market activities in the income statement are some of the regular items on the agenda for the weekly Market Risk Committee meetings.

To ensure the quality of the model, it is subject to a daily backtesting. The results of these tests have always been within the range of model expectations, and have not shown any substantial flaws even in the last few months. Based on these good results, the internal model is placed in the best regulatory category ("green light").

Liquidity risk

Within liquidity risk management, the crisis scenarios used in risk measurement and management were further refined. Besides results from recent years, the initial assumptions of Basel III have been integrated into the underlying scenarios. The emphasis here has been on attracting customer deposits, and the associated measures have focused primarily on reducing liquidity and transfer risks. Other initiatives in the year under review aimed at diversifying the refinancing basis.

Simulating net interest income

RBI's net interest income is a significant component in earnings and makes a substantial contribution towards strengthening its capital. To reflect this importance, a separate unit was established in risk management to simulate this earnings component in various scenarios. In close cooperation with the market units, RBI is preparing itself for various developments in the markets, so that it can respond rapidly to adverse trends.

Optimizing IT

Prompt availability of comprehensive and quality assured data is of central importance in risk management. As a result, central processes of data collection and processing – particularly in the areas of credit and liquidity risk – were subjected to comprehensive improvement in the year under review, in order to reduce processing times. Procedures were significantly improved, so that individual transactions for key Group members can be forwarded to Group headquarters daily, except for the retail segment, where data is aggregated by product. Together with the high reporting frequency, these processes ensure timely and very modern management of risk positions.

Basel III – regulatory changes

In the year under review, RBI was closely concerned with the impending regulatory changes in capital requirements under the Basel III rules. The potential influence of the new and modified statutory regulations on RBI was analyzed in detail. In addition, the Group participated in the Quantitative Impact Study, organized and analyzed by the CEBS and the Bank for International Settlements (BIS). The results of the studies showed that RBI already met the capital ratios for 2019 in 2010.

Basel II – credit risk and operational risk

Besides the preparations already initiated in connection with the new Basel III regulations, RBI risk management focused on the ongoing implementation of the revised Basel II approach. The Basel II related activities include implementing the internal ratingsbased (IRB) approach in the retail and non-retail segments of the subsidiaries in CEE, further development of the internal market risk modes, and Group-wide introduction of the standard approach for operational risk. The following table shows an overview of the current status of these projects. In addition, the roll-out of the IRB approach in CEE subsidiaries will be continued in 2011.

		Credit risk	Market	Operational
Unit	Non Retail	Retail	risik	risik
Raiffeisen Bank International AG, Vienna (Austria)	IRB1	n.a.	Internal model2	STA
RB International Finance (USA) LLC, New York (USA)	IRB	STA3	STA	STA
Raiffeisenbank a.s., Prague (Czeck Republic)	IRB	STA	STA	STA
Raiffeisen Bank Zrt., Budapest (Hungary)	IRB	IRB	STA	STA
Raiffeisen Malta Bank plc., Sliema (Malta)	IRB	STA	STA	STA
Tatra banka a.s., Bratislava (Slovakia)	IRB	IRB	STA	STA
Raiffeisen Bank S.A., Bucharest (Romania)	IRB	STA	STA	STA
Raiffeisenbank Austria d.d., Zagreb (Croatia)	IRB4	STA	STA	STA
All other units	STA	STA	STA	STA

IRB = internal ratings-based approach.

Only for risks of open foreign exchange positions and general interest rate risk on the trading book.

3 STA = Standard approach.

4 Only at consolidated level.

The regulatory authorities approved the modification of the IRB approach for RZB in the year under review, which was necessary because of the merger-related transfer of assets from RZB to Raiffeisen International. As a newly created bank, RBI successfully completed the mandatory IRB approval process with a very low number of new conditions.

The concept for Group-wide introduction of Basel II was systematically implemented in 2010. In Slovakia and Hungary, the application to implement the IRB approach for the retail asset class (specifically private individual customers) was approved.

Currently the standard approach is being used to calculate capital conditions for operational risk under Basel II. After an implementation phase lasting several years, Raiffeisen Bank Aval JSC in Ukraine has used this approach since 1 January 2010, so that all key Group units are now aligned with at least the Standard Approach.

Human resources

A year shaped by the merger

In 2010, work in the Human resources department, especially in Vienna, was dominated by the managerial and accompanying measures related to the merger of Raiffeisen International with the principal business areas of RZB. At the same time, the department had to respond to the occasionally substantial changes that took place in the business environment in Central and Eastern Europe. While the improving economic situation in Russia meant that competition for employees almost reached the pre-crisis level, the situation in several Southeastern European countries remained difficult. For RBI this meant a variety of different measures, ranging from staff reductions to redeployment and selective recruitment.

Following the merger, the number of employees on 31 December 2010 was 59,782 employees (measured on a full-time equivalent basis). The number of employees accordingly remained stable year-on-year in most of the network banks. The average age of employees is still relatively low at 34.4 years, and thus corresponds to the image of RBI as a young and dynamic bank. Graduates accounted for 75 per cent of employees, indicating a highly skilled workforce. 67 per cent of employees were women.

An opportunity for the future

The change processes initiated by mergers always represent a particular challenge for organizations. The quantitative aspects are relatively straightforward:

The principal business areas of RZB were split off and merged with Raiffeisen International. 356 employees of Raiffeisen International were brought together with 1,774 employees from RZB, who together now form RBI. 80 employees remained in the new RZB, which as a holding company primarily has a control function. The result was not a shift in the number of employees amongst the two companies, rather a complete restructuring of many of the units. Ensuring that this reorganization was also reflected in all personnel-related IT systems by the time of the merger represented a considerable challenge.

A systematically designed change process

In addition to the accomplishment of these technical "hard" facts, there was and still is a need to work on the so-called "soft" issues, in particular on the consolidation of the different cultures of Raiffeisen International and RZB. The Management Board therefore decided to set up an accompanying change process. Its main aims were

• to include all employees in order to obtain their consent to the planned changes,
• to establish a new, shared corporate culture and
• to support managers who have to deal with new management responsibilities as part of the integration process.
• Furthermore, the merger process was designed and overseen by a team of internal and external change experts.

At the beginning of the change process, a comprehensive diagnosis was carried out using an employee survey and a large number of focus groups. The findings from the survey were presented and discussed in various workshop constellations. Special attention was paid to differences in corporate culture. The initial cornerstones of the new culture were then developed in dialog with employees at various levels, based on the new leadership principles worked out by the Management Board. Organizational units especially affected by the changes were supported with tailor-made workshops. At the same time, targeted support measures such as team building, conflict mediation and coaching were also implemented. A strong emphasis was placed on communicating with employees, with numerous meetings, dialog sessions with the management and information events on specific themes being held, and an integration newsletter being published on a regular basis.

Although employees and managers – as in the case of every merger – had to cope with many changes and the resulting strains and stresses, a feeling of optimism regarding the merger set in relatively early, and confidence in the company was perceptible. At the start of October, for example, shortly before the official merger date, more than 80 per cent of participating employees

responded positively to the following question in an employee survey: "How confident are you that RBI/the new RZB are heading towards a successful future?"

Immediately after the merger, "Building the New Bank workshops" were held for each executive division to discuss the new company's strategic direction as well as any specific issues and challenges for the respective division. Finally, a "Merger Celebration Event" was held under the motto "Together through Change to New Strength". All employees were invited to the event, with the entertainment being almost exclusively provided by them, representing a remarkable creative achievement.

Structured job evaluation

Besides working on these employee-related issues, Human resources also implemented fundamental measures relating to the organizational structure of the new bank. As part of a job evaluation project, an objective and systematic evaluation of all positions within the company was conducted, based on the internationally proven Watson Wyatt Global Grading System, which in future will form the basis for standard personnel management processes and tools. A market-based and objective wage and title structure as well as development plans and career paths will be drawn up on the basis of each position evaluation. Another project to introduce a new remuneration structure based on this system was started as early as the fourth quarter of 2010. This project will include salary ranges and bonus systems being drawn up and implemented that already meet the new guidelines of the Austrian Banking Act on the principles of remuneration policies and practices. The project is set to be completed within the first three months of 2011.

The other key personnel topics in 2010

Management potential for the future – talent management and management development

Talent management and loyalty management were major focal points for the RBI Human resources team in 2010. The process for promoting top talent, successfully launched in previous years, was continued and intensified. For the first time all key positions were included in succession planning, and a standardized potential analysis method for refilling these positions made mandatory. Also accelerated were the efforts to promote the mobility and flexibility of employees through horizontal career opportunities and job rotation. This has already been very successfully implemented in some countries, and helps prepare top talent for future management tasks and strengthens their loyalty to the Group.

Further skills development was also promoted for managers, both locally and with company-wide offers. Following the successful introduction of a Group-wide leadership training architecture in 2009, many programs in network banks – and, because of the merger, also in Vienna – were adapted or created during the reporting period. They all build on a shared values and skills base and meet the development needs of all management levels. In the Russian ZAO Raiffeisenbank, for example, tailor-made leadership training courses for more than 800 managers were held based on a self-assessment by the managers concerned and an evaluation by their respective superiors.

Overall there is a strong tendency towards individual development measures. Managers are making increasing use of tools such as coaching, mentoring and mediation to ensure security and develop new options, especially in times of change and new challenges. The concentration on change issues in Learning & Development in 2010 was reflected in the implementation and monitoring of various team-building processes and workshops, the main aim of which was to ensure that newly formed units were well-prepared for their future tasks.

Eual treatment

To promote the equal treatment of women, selection procedures are applied within RBI that ensure compliance with uniform, gender-neutral standards at the time of hiring. As a result, the percentage of female employees within RBI is 67 per cent. Women in existing employments are also targeted for promotion.

An important component for equality is the reconcilability of family and career. That is why RBI offers flexible hours, part-time working models and teleworking for parents in almost all countries in which it operates, within the framework of the relevant statutory provisions. Moreover, additional initiatives also exist within the various Group companies, e.g. Raiffeisenbank Polska S.A.'s "Mother Care" program, which supports women from the start of their pregnancy up to their baby's first birthday.

Executive development

Under the motto "Change Mastery – Managing Efficiency AND New Growth", the training focus in executive development lay on costs and efficiency programs as well as on change management. The more than 200 top management level participants were especially interested in alternative training formats such as learning visits, coaching and self-assessment tools.

Professional development ensures core business success

The new, consolidated, Group-wide training package incorporates "the best of both worlds", i.e. in each case the most attractive modules of Raiffeisen International and RZB. It encompasses a wide range of seminars and personal development training courses for staff at all locations. These courses are based on the company's strategy and the current challenges posed by the market. In 2010, this meant a considerable number of training initiatives on topics such as lean management and operations, risk management and affluent customers.

Special emphasis was placed in 2010 on professional training for risk management. The impact of the financial and economic crisis led to a rapid increase in the number of employees in related areas, including in the early warning system and in the management of non-performing loans. Many employees acquired the specialist knowledge and skills required for these areas in next to no time, with target-group oriented training programs being developed and introduced at both Group level and locally. Massive sums were invested in this area, especially in markets such as Ukraine and Romania.

eLearning too is becoming more and more important, and is already a fundamental component of ongoing training for RBI and its subsidiary banks. Along with simulation training, eLearning is increasingly used to convey information interactively, while online tests are also very popular for determining training outcomes.

Performance management

Within RBI's performance management area, the focus in 2010 was on the further standardization of the target and skills structure and of the rating scale to ensure a solid basis for variable remuneration structures. In each network bank, all management levels are included in the performance management system, and in many units all sales functions are included as well.

As a result of the merger, the performance management systems for the Vienna-based organizational units were also standardized within the space of just a few months, so that a common, automation-supported performance management process has been available since early 2011. This change was accompanied by a major training initiative to further increase the quality and sustainability of the target-setting process.

Remuneration – always a topic

At the end of 2009, the Group-wide guideline "Total Rewards Management" was revised and introduced in accordance with international guidelines. In 2010, the focus was on implementing these guidelines in each country and on checking or amending the position evaluations, salary structures and variable pay schemes. In Hungary, Bosnia and Herzegovina, Serbia and Kosovo position evaluations were introduced or reviewed and the pay systems evaluated and, where necessary, revised. In the other network banks, the variable pay systems were evaluated and revised in individual projects.

In 2011 the focus will be on adapting "Total Rewards Management" to the occasionally very detailed remuneration provisions in the new Austrian Banking Act, and on implementing the latter within the Group.

Personnel marketing in a difficult environment

Last year, RBI continued its ongoing personnel marketing activities in order to consolidate its strong position as an attractive employer and attract young talent to the company. For this reason, RBI and numerous subsidiary banks once again attended various job fairs. Sponsorship activities and forms of cooperation with universities and colleges were also continued. RBI has a solid and long-standing relationship with the Banking and Finance Department of the Vienna University of Economics and Business, and accordingly took part in the reaccreditation process for the Master's degree course in Banking and Finance.

Outlook

Economic prospects

Central and Eastern Europe

CE

Current forecasts are for the CEE economies to benefit in 2011 from stable growth in their export markets (particularly Germany) and their generally high level of linkage with several core eurozone economies (Austria, France, Germany, Netherlands). Poland in particular is expected to continue expanding strongly, with year-on-year GDP growth of 4.0 per cent in 2011 and 4.5 per cent in 2012. Similar growth is forecast for Slovakia, which is significantly more dependent on exports than Poland, and hence on development in Germany. While Hungary will probably show a slower recovery in 2011 with growth of 2.5 per cent (plus 1.3 percentage points year-on-year), GDP is predicted to increase by 3.5 per cent in 2012. Like Slovenia, the Czech Republic is lagging somewhat behind the region as a whole on economic growth, but here again a positive development is expected in both 2011 and 2012.

In Hungary, the new government introduced a bank levy in 2010, which is expected to generate revenue of € 700 million per year. This is intended to achieve the budget goal of net new borrowing of no more than 3 per cent of GDP in 2011. A uniform income tax rate is planned in parallel with the introduction of this levy. A structural reform package aimed at abiding by planned new borrowing in the medium term was announced. However, in the absence of an exact timetable for implementing the package, investors remain skeptical. There is reason to fear that these measures will be used to avoid reforms that would be urgently needed to attain fiscal sustainability in the medium to long term. There has already been talk of halving the bank levy in 2012, after initial proposals to abolish it entirely in 2012. However, it remains to be seen how far Hungary can do without this revenue.

SEE

Southeastern Europe was still in recession in 2010, due to the economic situation in Romania, Bulgaria and Croatia, but is expected to recover in 2011 with forecast economic growth of 1.9 per cent. This is forecast to rise to an annualized rate of 3.4 per cent in 2012. However, the weak baseline for this growth should not be ignored. Overall, SEE is still vulnerable, due to the economic links with countries in the south of the eurozone which have economic problems of their own.

CIS

The Commonwealth of Independent States (CIS) suffered the sharpest decline within CEE as a result of the financial and economic crisis. The recovery in 2010 was correspondingly marked, not least due to the recovery in primary commodity prices and the low baseline. As long as domestic inflation stays under control, Russia and Ukraine in particular can continue to benefit from the signs of emerging high food and commodity prices. In 2011, growth in the region is likely to continue to increase again to 4.5 per cent. The background to this is faster growth in Russia, which accounts for much of the GDP of the CIS as a whole. After Russia grew by 4 per cent in the previous year, growth of 4.5 per cent seems within reach in 2011.

Eurozone

Current forecasts again predict two-speed growth in Europe in 2011. While growth prospects for internationally competitive nations are still promising, other countries are still suffering from the results of the crisis, for example burst real estate bubbles, high current account deficits, and tough savings measures in the public sector. Year-on-year GDP growth is likely to be significantly higher in Germany (2.5 per cent), Finland (2.5 per cent), Austria (2.5 per cent) and Belgium (1.8 per cent) than in Italy (0.9 per cent), Spain (0.4 per cent) and Portugal (0.4 per cent). Sharp decreases are currently expected in Greece (minus 3 per cent) and Ireland (minus 0.6 per cent).

In December 2010, the Austrian parliament adopted a bank levy under the Stability Levy Act. The levy was introduced on 1 January 2011, and is intended to bring in € 500 million a year to improve the budget. Graduated taxation of total assets is expected to generate € 340 million and with € 160 million from the tax on derivatives transactions.

Outlook for RBI

Now that the crisis is tailing off and amidst mounting signs of an overall economic recovery, we are aiming in the medium term, with the inclusion of the acquisition of Polbank, for a return on equity before tax of 15 to 20 per cent. This is excluding future acquisitions, any capital increases, as well as unexpected regulatory requirements from today's perspective.

In 2011, we plan to notably increase growth in customer lending volumes relative to the previous year (2010: 4.3 per cent). In terms of regions, we are seeking the highest absolute growth in lending to customers in CEE.

From the customer standpoint, we plan to retain our Corporate customers division as the backbone of our business and in the medium term to expand the proportion of Group lending to customers accounted for by our Retail customers division. Following the successful conclusion of the acquisition of Polbank, the Central European segment will continue to gain importance in terms of customer lending volumes.

In terms of credit risk, we expect to witness a further decline in the net provisioning ratio (provisioning for impairment losses in relation to the average credit risk-weighted assets) over the medium term. Based on current market forecasts, we assume that the non-performing loan ratio at Group level will peak in the second half of 2011.

The bank levies in Austria and Hungary will lead to an anticipated reduction in our 2011 result of some € 130 million (approximately € 90 million for Austria and € 40 million for Hungary).

In 2011, we plan to raise around € 6.5 billion in long-term wholesale funding in the capital markets, of which € 2.3 billion had already been successfully placed as of beginning of March.

The number of Group outlets is to remain fairly stable in 2011, although there may continue to be some optimization of our network in some countries.

Events after the balance sheet date

Acquisition of a majority stake in Polbank

On 3 February 2011, RBI closed an agreement with the Greek EFG Eurobank Ergasias S.A. (Eurobank EFG) concerning the acquisition of a majority 70 per cent stake in its business unit Polbank EFG (Polbank). Polbank is the Polish banking network of Eurobank EFG, which, prior to implementation of the acquisition, is set to be converted into an independent legal entity with a Polish banking license. RBI will pay € 490 million for the 70 per cent stake when the agreement is closed. The acquisition is still dependent on the successful closing of the agreement and the approval of the EU Commission as well that of the Greek and Polish regulatory authorities. The transaction is expected to close in the fourth quarter of 2011 or the first quarter of 2012.

It has been agreed that RBI shall, in a first stage, acquire a 70 per cent stake in Polbank and, in a second transaction stage immediately afterwards, Eurobank EFG and RBI shall invest their respective shares (Eurobank EFG: 30 per cent, RBI: 70 per cent) in Raiffeisen Bank Polska S.A in exchange for new shares of Raiffeisen Bank Polska. As a result, Eurobank EFG will retain a 13 per cent stake in the Polish Raiffeisen Bank. The purchase price is based on guaranteed equity of at least € 400 million for Polbank and € 750 million for Raiffeisen Bank Polska. The implicit price-book value ratio stands at 1.7 but may change when the agreement is closed because of the equity requirements which are yet to be definitively determined. In addition both parties agreed, on the one hand, on a put option for Eurobank EFG permitting it to sell its stake in the merged Polish unit to RBI at a price that is dependent on business developments, but for a figure of at least € 175 million plus interest, at any time. On the other hand, RBI shall receive a call option which will be exercisable from 31 March 2016 to ambient terms.

With its keen focus on private customers, Polbank ideally complements Raiffeisen Bank Polska, which is very well positioned in business with corporate customers. Consequently, RBI expects to see a marked strengthening of its position in Poland as a result of the acquisition of Polbank. The merged unit consisting of Raiffeisen Bank Polska and Polbank will likely be Poland's sixth largest universal bank based on assets; measured against customer loans it may even occupy fourth place. In addition, thanks to the merger, the strategically perfect add-on not only involves estimated cost synergies of € 60 million annually but also substantial revenue synergies.

Polbank, which enjoys a high level of customer awareness on the Polish market, commenced operations in 2006. It owns a network of around 350 business outlets and has around 2,900 employees, looking after around 800,000 customers. Its total assets as at 31 December 2010 came to € 5.7 billion.

RBI has been active on the Polish market with the present Raiffeisen Bank Polska since 1991. Total assets from the Polish Group activities amounted to € 6.9 billion at the end of 2010. In Poland, RBI employs around 3,100 people in 123 business outlets serving over 240,000 customers.

Annual financial statements

Balance sheet

	ASSETS	31/12/2010	31/12/20091
		in €	in € 000
1.	Cash in hand and balances with central banks	588,708,851	2
2.	Treasury bills and other bills eligible for refinancing with central banks	4,662,197,227	0
3.	Loans and advances to credit institutions	23,959,622,463	446,776
	a) Repayable on demand	794,874,530	244,596
	b) Other loans and advances	23,164,747,933	202,180
4.	Loans and advances to customers	24,617,522,873	0
5.	Debt securities and other fixed-income securities	7,028,253,064	0
	a) issued by public bodies	59,289,219	0
	b) issued by other borrowers	6,968,963,845	0
	hereof: own debt securities	85,650,617	0
6.	Shares and other variable-yield securities	235,687,753	60
7.	Participating interests	27,929,756	680
	hereof: in credit institutions	0	0
8.	Shares in affiliated untertakings	6,381,168,277	5,392,356
	hereof: in credit institutions	5,382,507,227	5,004,042
9.	Intangible fixed assets	99,442,711	1,033
10.	Tangible assets	13,287,543	1,365
	hereof: land and buildings occupied by a credit insitution for its own activities	0	0
11.	Own shares	34,721,265	37,348
12.	Other assets	4,940,944,726	47,570
13.	Prepayments and accrued income	93,033,889	7,122
	Total assets	72,682,520,397	5,934,312

	LIABILITIES	31/12/2010	31/12/20091
		in €	in € 000
1.	Liabilities to credit institutions	29,944,617,281	818,210
	a) Repayable on demand	2,511,184,868	86,092
	b) With agreed maturity dates or periods of notice	27,433,432,413	732,118
2.	Liabilities to customers (non-banks)	12,676,359,400	0
	a) Savings deposits	0	0
	a) Other liabilities	12,676,359,400	0
	aa) Repayable on demand	3,679,617,635	0
	bb) With agreed maturity dates or periods of notice	8,996,741,765	0
3.	Securitised liabilities	14,610,917,992	0
	a) Debt securities issued	13,217,478,225	0
	b) Other securitised liabilities	1,393,439,767	0
4.	Other liabilities	5,458,303,289	115,857
5.	Accruals and deferred income	169,487,635	6,805
6.	Provisions	201,154,878	35,119
	a) Provisions for severance payments	34,116,340	2,352
	b) Provisions for pensions	11,479,957	4,960
	c) Provisions for taxation	45,890,724	0
	d) Other Provisions	109,667,858	27,807
7.	Subordinated liabilities	2,211,843,350	0
8.	Supplementary capital	1,400,000,000	1,150,000
9.	Participation capital/ Participation rights	2,500,000,000	600,000
10.	Subscribed capital	596,290,628	471,736
11.	Capital reserves	1,949,658,503	1,949,658
	a) Committed	1,852,592,104	1,852,592
	b) Uncommitted	97,066,399	97,066
12.	Retained earnings	404,485,081	755,427
	a) Legal reserve	5,500,000	5,000
	b) Other reserves	398,985,081	750,427
	hereof: reserves for own shares	34,721,265	0
13.	Liability reserve pursuant to Article 23 (6) BWG	351,442,000	0
14.	Net profit for the year	207,960,361	31,500
15.	Untaxed reserves	0	0
	a) Valuation reserve due to special depreciation	0	0
	b) Other untaxed reserves	0	0
	Total liabilities	72,682,520,397	5,934,312

Income statement

		2010	20091
		in €	in € 000
1.	Interest receivable and similar income	2,185,317,594	1,309
	hereof: from fixed-income securities	411,438,479	0
2.	Interest payable and similar expenses	(1,587,623,343)	(86,517)
I.	NET INTEREST INCOME	597,694,251	(85,208)
3.	Income from securities and participating interests	363,309,440	277,798
	a) Income from shares and other variable-yield securities	50,793,091	2
	b) Income from participating interests	782,767	10
	c) Income from shares in affiliated undertakings	311,733,581	277,786
4.	Commissions receivable	214,740,752	7,790
5.	Commissions payable	(66,143,090)	(1,787)
6.	Net profit or net loss on financial operations	39,057,567	12,983
7.	Other operating income	85,559,322	95,097
II.	OPERATING INCOME	1,234,218,242	306,673
8.	General administrative expenses
	a) Staff costs	(249,140,609)	(50,310)
	aa) Wages and salaries	(189,599,489)	(39,579)
	bb) Expenses for statutory social contributions and compulsory contributions related to wages and salaries	(38,202,216)	(7,195)
	cc) Other social expenses	(5,456,139)	(1,077)
	dd) Expenses für pensions and assistance	(4,341,096)	(783)
	ee) Allocation to provision for pensions	(371,553)	(30)
	ff) Expenses for severance payments and contributions to severance funds	(11,170,116)	(1,646)
	b) Other administrative expenses	(247,832,229)	(105,926)
9.	Value adjustments in respect of asset items 9 and 10	(31,126,853)	(1,164)
10.	Other operating expenses	(16,398,299)	0
III.	OPERATING EXPENSES	(544,497,989)	(157,400)
IV.	OPERATING RESULT	689,720,253	149,273
11./ 12.	Net income/expenses from the disposal and valuation of loans and advances and specific securities	(179,440,981)	18,144
13./ 14.	Net income/expenses from the disposal and valuation of securities evaluated as financial investments and of shares in affiliated companies and participating interests	(40,062,986)	(270,425)
V.	PROFIT ON ORDINARY ACTIVITIES	470,216,286	(103,008)
15.	Extraordinary income	0	0
16.	Extraordinary expenses	0	0
VI.	EXTRAORDINARY RESULT	0	0
17.	Tax on profit or loss	(62,441,649)	10,750
18.	Other taxes not reported under Item 17	(75,358)	0
VII.	PROFIT FOR THE YEAR AFTER TAX	407,699,279	(92,258)
19.	Changes in reserves	(500,000)	182,353
	hereof: allocation to liability reserve	(351,442,000)	0
VIII.	NET INCOME BEFORE DISTRIBUTION ON PARTICIPATION CAPITAL/PARTICIPATION RIGHTS	407,199,279	90,095
20.	Interest cost for Participation rights	0	(60,000)
21.	Distribution on participation capital	(200,000,000)	0
IX.	NET INCOME AFTER DISTRIBUTION ON PARTICIPATION CAPITAL/PARTICIPATION RIGHTS	207,199,279	30,095
22.	Profit brought forward	761,082	1,405
X.	NET PROFIT FOR THE YEAR	207,960,361	31,500

Off-balance sheet items

	ASSETS	31/12/2010	31/12/20091
		in €	in € 000
1.	Foreign assets	44,048,507,680	5,145,178
	LIABILITIES	31/12/2010	31/12/20091
		in €	in € 000
1.	Contingent liabilities	9,922,556,077	2,352,457
	Guarantees and assets pledged as collateral security	9,922,556,077	2,352,457
2.	Commitments	11,415,053,872	404,416
	hereof: commitments arising from repurchase transactions	0	0
3.	Commitments arising from agengy services	370,586,857	0
4.	Eligible capital pursuant to Article 23 (14) BWG	9,479,823,000	0
	hereof: own funds pursuant to Article 23 (14) no. 7 BWG	65,000,000	0
5.	Capital requirement pursuant to Article 22 (1) BWG	3,162,574,000	0
	hereof: capital requirement pursuant to Article 22 (1) nos. 1 and 4
	BWG	2,926,689,000	0
6.	Foreign liabilities	22,702,010,246	1,184,604

Notes

Company

Restructuring (spin-off and merger)

At the annual general meeting on 7 July 2010 of Raiffeisen Zentralbank Österreich Aktiengesellschaft (RZB), the transferring company, and Cembra Beteiligungs AG (Cembra), the acquiring company, it was decided to spin off RZB's corporate banking business together with the affiliated companies and participations prior to a merger. The spin-off took place by universal succession with the tax advantages conferred by Article VI of the Reorganization Tax Act (UmgrStG) with effect from 31 December 2009.

The corporate banking division that was spun off was allocated all of the receivables and liabilities associated with the banking activities of RZB, as well as the rights, obligations, contractual relationships and legal positions, including all charges and obligations of a non-contractual nature that were not part of the sector business division or the investment management division. The assets transferred were entered in the transfer balance sheet as of 1 January 2010 and described in detail in the spin-off and takeover agreement.

At the Annual general meetings on 7 July 2010 and 8 July 2010 of Cembra, the transferring company, and Raiffeisen International Bank-Holding AG (RI), the acquiring company, the merger was authorized with effect from 31 December 2009 by universal succession. RI took over the assets of Cembra (including the assets transferred to Cembra in the spin-off) with the tax advantages conferred by Article I of the Reorganization Tax Act (UmgrStG) at their book values.

When the merger took effect in civil law on 10 October 2010 (when it was entered in the commercial register), RI changed its name to Raiffeisen Bank International AG (RBI). It received a banking license at the same time.

For the merger, RI (now RBI) increased its capital stock by € 124,554,753.20 from € 471,735,875.00 to € 596,290,628.20 by issuing 40,837,624 new common bearer shares. The capital was increased as compensation for the transfer of Cembra's assets to RI in the merger.

As at 31 December 2010, RZB holds 153,509,225 shares (78.52 per cent of the total capital) indirectly through Raiffeisen International Beteiligungs GmbH. The rest of the shares are free floating (20.98 per cent) or own shares (0.50 per cent).

Service relationships between RZB and RBI

There are mutual service relationships between RZB and RBI that are covered by service level agreements (SLAs). On the basis of a framework agreement and an SLA template, which regulate the rights and obligations of the contracting parties and the settlement modalities between them, there are a variety of SLAs covering dealings between RZB and RBI in different areas. These are subject to an annual review process based on the services actually provided.

On the reporting date there were 23 SLAs regulating services provided by RBI. The most important of these are:

• Treasury
• Credit management
• Payment transfer business
• Risk controlling
• Accounting, Taxes
• Legal and Compliance

In return, RZB provides services that represent group guidelines, such as group management instruments. These are regulated in six SLAs concerning RZB group corporate responsibility, risk strategy, public relations and marketing.

Accounting and valuation methods

General principles

The annual financial statements for the year ending 31 December 2010 were prepared in accordance with the Austrian Commercial Code (UGB), taking into account the special provisions of the Austrian Banking Act (BWG). In accordance with the principles of proper accounting, and taking into account standard practice as described in Section 222 (2) of the Austrian Commercial Code (UGB), to the best of our knowledge the annual financial statements give a true and fair view of the company's net assets, financial position and earnings.

As a result of the transfer of RZB's principal business areas to RI (since renamed RBI), the company's business model has changed significantly, which limits the comparability of the figures in the current annual financial statements with those for the previous year. Furthermore, the balance sheet and income statement are structured in accordance with the forms contained in Annex 2 to Section 43 of the Austrian Banking Act (BWG), with the dividend on participation capital shown as a separate item in the income statement.

Assets and liabilities are valued on the principle of individual valuation and on the assumption that the company will continue to exist. The principle of prudence is applied, taking into account the special characteristics of the banking business.

Stock market prices are used to determine the fair value of listed products. If stock market prices are not available, prices for original financial instruments and forward transactions are determined based on the calculated present value. The prices for options are determined based on suitable option price models. The calculation of present value is based on a yield curve composed of money-market, futures and swap rates and does not include a credit spread. Option pricing formulas as described by Black-Scholes 1972, Black 1976 and Garman-Kohlhagen are used together with other common models for the valuation of structured options.

Amounts in foreign currencies

Assets and liabilities in foreign currencies are converted at the ECB's reference exchange rates as at 31 December 2010 pursuant to Section 58 (1) of the Austrian Banking Act (BWG).

Financial instruments in the banking book

Securities intended to serve business purposes on a permanent basis (investment portfolio) are valued as fixed assets. The difference between the purchase cost and repayment amount is written off or recognized pro rata over the residual term.

The securities under other current assets are recognized at fair value. Exchange-traded derivatives in the banking book are also recognized at fair value. These are recognized in item 11/12 of the income statement: "Net income/expenses from the disposal and valuation of loans and advances and specific securities".

Interest rate derivatives (interest rate swaps, options and forwards) and exchange rate derivatives (cross-currency interest rate swaps and forward foreign exchange transactions) are reported based on the accrued-interest method.

The banking book also includes portfolios that contain derivatives which do not meet the criteria of a trading book. The focus is not on short-term gains but on making profits through positioning based on medium- to long-term market opinion. Derivatives in this clearly-defined portfolio are valued on a mark-to-market basis.

Credit derivatives (credit default swaps) appear in the income statement as follows: The paid or received margins (including accruals/deferrals) are shown under fees and commissions; the valuations of these instruments (based on the clean present value method) are shown in item 11/12 of the income statement: "Net income/expenses from the disposal and valuation of loans and advances and specific securities".

Financial instruments in the trading book

The securities in the trading portfolio are valued on a mark-to-market basis. All derivatives transactions in the trading book are also recognized at fair value.

Risks in the lending business

When the loan portfolio is valued, appropriate value adjustments or provisions are made for all identifiable risks, and the principle of prudence is observed. In addition, a general loan loss provision (portfolio-based provision) is recorded on the basis of the respective averages of the historic default rates of the last five years in each rating category, with linear weighting for corporates. In the 2010 financial year, no use was made of the scope for valuation as per Section 57 (1) of the Austrian Banking Act (BWG) for loans and advances to banks or customers or for securities with the exception of those that are valued as fixed assets or are part of the trading portfolio. In the course of the merger, € 55.4 million was transferred from RZB to Raiffeisen Bank International.

Investments and shares in affiliated companies

The investments and shares in affiliated companies are valued at the cost, provided sustained losses or reduced equity do not necessitate depreciation of the equity, income value or market price.

If there are exchange rate hedges for investments in the form of valuation units, the individual valuation principle is applied at the level of the valuation unit.

Tangible fixed assets

Intangible fixed assets and tangible fixed assets are valued at acquisition or production cost less scheduled depreciation. Scheduled depreciation is on a straight-line basis.

Scheduled depreciation is based on the following periods of use (in years):

Buildings	50	Software	4 to 10
Office equipment	5 to 8	Hardware	3 to 4
Office fixtures and fittings	5 to 10	Business equipment	5 to 10
Vehicles	5	Tenancy rights	10
Goodwill	5

Low-value fixed assets are written off in full in the year of acquisition.

Own shares

These are essentially valued at acquisition cost less depreciation if the market price on the reporting date is below the acquisition cost. Own shares intended for the share incentive program (SIP) are written off on a straight-line basis over the residual term of the program (the term is three years in each case).

To bind key employees to the company and reward loyalty, the Management Board of RBI, with the approval of the Supervisory Board, has decided to introduce a share incentive program (SIP). Based on essentially similar agreements, a performancebased allocation of shares in the company to its top executives is planned after a qualifying period of three years in each case.

The share incentive program applies for the Management Board of the former RI and members of the Management Board of the bank's subsidiaries as well as selected executives of the former RI. Top executives had to make their own investment and purchase shares in RI in order to benefit from the program. Shares purchased in this way have to remain in the possession of the manager concerned for a period of three years.

Shares are allocated based on two equally weighted performance indicators. One is the performance of RBI compared to the ROE target, calculated as the average value over the qualifying period. The other is the total shareholder return of the RBI share compared to all banks included in the Dow Jones Euro Stoxx Banks index.

One tranche of the program (SIP tranche 2007) matured in the 2010 financial year. In accordance with the terms of the program, the maximum number of shares to be allocated was not reached because the performance criteria were not met.

The shares required for the SIP are obtained from own shares included in the repurchase program. As at 31 December 2010 a total of 972,909 (31/12/2009: 984,511) own shares were held (worth € 2,967,000 and representing 0.498 per cent of the total capital stock), of which 473,018 (31/12/2009: 536,736) were used for the SIP. 79,909 shares were allocated in 2008 and 393,109 in 2009. A write-up of € 727,076.50 was allocated to the SIP in 2007. As a result of the merger of RI with the principal business areas of RZB, however, a SIP tranche was not issued in 2010.

Issue costs

Issue and management fees and premiums or discounts for bonds issued are distributed over the given term. Other issue costs are expensed immediately.

Pension and severance payment obligations

The provisions for pension and severance payment obligations are determined in accordance with IAS 19 (Employee Benefits) based on the projected unit credit method. The corridor method is not used.

The actuarial calculation of pension obligations for active employees is based on an interest rate of 4.25 per cent a year and an effective salary increase of 2.5 per cent a year or an individual career trend of 2.5 per cent a year. The parameters for retired employees are a capitalization rate of 4.25 per cent a year and an expected increase in retirement benefits of 2.0 per cent a year. The calculations are based on an assumed retirement age of 60 for women and 65 for men, subject to transitional statutory requirements and special arrangements contained in individual contracts.

The actuarial calculation of severance payment and long-service bonus obligations is also based on an interest rate of 4.25 per cent a year, an average salary increase of 2.5 per cent a year and an individual career trend of 2.5 per cent a year.

The biometric basis for the calculation of provisions for pensions, severance payments and long-service bonuses is provided by AVÖ 2008-P Rechnungsgrundlagen für die Pensionsversicherung (Computational Framework for Pension Insurance) by Pagler & Pagler, using the variant for salaried employees and taking a long-life factor into account.

Other provisions

Other provisions are recorded at the level at which they are likely to be required. They take into account all identifiable risks and liabilities, the level of which is not yet known.

Liabilities

These are recognised at the higher of the nominal value or the repayment amount. Zero-coupon bonds, on the other hand, are recognized at their pro rata annual values.

Notes on individual balance sheet items

Breakdown of maturities

The loans and advances to credit institutions and loans and advances to customers that are not due on a daily basis break down by their residual terms as follows:

values in € million	31/12/2010	31/12/2009
Loans and advances to credit institutions
Up to 3 months	10,033.2	0.0
More than 3 months, up to 1 year	4,779.2	202.2
More than 1 year, up to 5 years	6,762.1	0.0
More than 5 years	1,590.3	0.0
Loans and advances to costumers
Up to 3 months	6,740.9	0.0
More than 3 months, up to 1 year	4,286.0	0.0
More than 1 year, up to 5 years	10,406.2	0.0
More than 5 years	2,055.4	0.0

The deposits from banks and deposits from customers that are not due on a daily basis break down by their residual terms as follows:

values in € million	31/12/2010	31/12/2009
Liabilities to credit institutions
Up to 3 months	13,480.8	0.0
More than 3 months, up to 1 year	5,315.9	168.2
More than 1 year, up to 5 years	6,670.4	650.0
More than 5 years	1,966.3	0.0
Liabilities to customers
Up to 3 months	4,739.9	0.0
More than 3 months, up to 1 year	1,809.4	0.0
More than 1 year, up to 5 years	477.2	0.0
More than 5 years	1,970.2	0.0

Bonds and other fixed-interest securities worth € 1,967.3 million (31/12/2009: € 0.0 million) will become due in the next financial year.

Bonds and notes issued worth € 5,202.3 million (31/12/2009: € 0.0 million) will become due in the next financial year.

Securities

Bonds and other fixed-interest securities that have the characteristics of financial investments and are therefore valued as fixed assets amount, including deferred interest, amount to € 5,579.0 million (31/12/2009: € 0.0 million).

Difference between the acquisition cost and the repayment amount for securities (except zero-coupon bonds) in the investment portfolio (banking book):

The difference between the amortized costs and the repayment amounts is made up of € 116.2 million (31/12/2009: € 0.0 million) to be recognized in the future as expenditure and € 84.7 million (31/12/2009: € 0.0 million) to be recognized as income.

In the case of securities recognized at fair value that do not have the characteristics of financial investments, the difference between the higher of the acquisition cost and the fair value is € 83.5 million (31/12/2009: € 0.0 million).

The item "Loans and advances to credit institutions" contains own bonds that are not admitted for public trading worth € 8.8 million (31/12/2009: € 0.0 million).

Securities worth € 4,178.3 million (31/12/2009: € 0.0 million) are the subject of genuine repurchase transactions on the reporting date, whereby RBI is the seller and the securities continue to be recognised on the balance sheet.

The volume of RBI's trading book pursuant to Section 22q (2) of the Austrian Banking Act (BWG) is € 230,303.3 million (31/12/2009: € 0.0 million), with € 978.1 million (31/12/2009: € 0.0 million) accounted for by securities and € 229,325.3 million (31/12/2009: € 0.0 million) accounted for by other financial instruments.

All shares and other variable-yield securities admitted for public trading and all bonds and other fixed-interest securities admitted for public trading are listed as at 31 December 2010.

Investments and shares in affiliated companies

The list of investments is shown separately in Note 3. There are no cross-shareholdings and no profit and loss transfer agreements as at 31 December 2010.

In the past, RI concluded exchange rate hedging transactions with RZB to hedge the currency risk represented by the equity of the following companies held in local currency:

• OAO Priorbank, Minsk
• Raiffeisen banka a.d., Belgrade
• Raiffeisenbank a.s., Prague
• Raiffeisenbank Austria d.d., Zagreb
• Raiffeisen Bank Polska S.A., Warsaw
• RI-RBHU Holding GmbH, Vienna (Raiffeisen Bank Zrt., Budapest)
• Tatra banka a.s., Bratislava
• Ukrainian Processing Center JSC, Kiev
• VAT Raiffeisen Bank Aval, Kiev
• ZAO Raiffeisenbank, Moscow

In 2010, following a change to the hedging strategy, the currency risk was hedged only for Raiffeisenbank a.s., Prague.

Valuation units were created for the relevant participations, with the result that the contrary movement of the relevant foreign currency between the hedged transaction (participation) and the hedge is compensated. The review of hedge efficiency takes local currency movements into account. Highly correlated currencies can also be used for the hedge. The changes in value are recorded, on the one hand, for the participating interest (for the hedged transaction) and, on the other, in the deposits (for hedges from spot transactions) and under other assets or other liabilities (for hedges with derivatives). After the hedge is completed, the book value of the participation, including the booked change from the valuation unit, is used.

As long as a hedge is effective, there is no impact on the income statement.

Loans and advances to and deposits from affiliated companies and companies linked by virtue of a participating interest:

values in € million	31/12/2010	31/12/2009
Loans and advances to credit institutions
to affiliated companies	17,081.9	446.8
to companies linked by virtue of a participating interest	492.7	0.0
Loans and advances to costumers
to affiliated companies	6,347.9	0.0
to companies linked by virtue of a participating interest	738.6	0.0
Bonds, notes and other fixed-interest securities
to affiliated companies	4.5	0.0
to companies linked by virtue of a participating interest	183.1	0.0
Liabilities to credit institutions
from affiliated companies	9,379.3	818.2
from companies linked by virtue of a participating interest	6,991.4	0.0
Liabilities to customers
from affiliated companies	580.8	0.0
from companies linked by virtue of a participating interest	101.7	0.0

Fixed assets

The statement of fixed assets is shown separately in Note 1.

RBI was not directly involved in the leasing business as a lessor in 2010.

The obligations from the use of tangible assets not recognised in the balance sheet amount to € 27.5 million for the following financial year (31/12/2009: € 4.8 million). Total obligations for the following five years amount to € 147.0 million (31/12/2009: € 26.1 million).

The balance sheet item "Intangible fixed assets" contains goodwill worth € 28.7 million (31/12/2009: € 0.0 million), which was created as follows: In the course of the merger of the principal business areas of RZB with RI, the compensation (the capital increase of € 124.5 million used to complete the merger) exceeded the assets and liabilities brought into RI at amortized book values by € 246.8 million. Pursuant to Section 202 (2) 3 of the Austrian Commercial Code (UGB), the difference was allocated as restructuring added value to the participations in the amount of € 8.5 million and to the shares in affiliated companies in the amount of € 209.6 million. A residual amount of € 28.7 million was recognized as goodwill.

The goodwill is written off over a period of five years. This is recognised under other operating expenses.

acquired from affiliated companies.

Own shares

The item "Own shares" in the amount of € 34.7 million (31/12/2009: € 37.3 million) contains 972,909 (31/12/2009: 984,511) own shares, of which 473,018 (31/12/2009: 536,736) are used for the share incentive program (SIP).

The balance sheet item "Intangible fixed assets" contains intangible assets worth € 4.5 million (31/12/2009: € 0.0 million)

11,602 own shares were required for the payout of the SIP in 2007, of which 5,325 were allocated to members of the Management Board and selected executives of the former RI, and 6,277 were allocated to executives of network banks. These claims were fulfilled by the use of shares intended for the SIP (11,602 shares). The sale of the shares allocated to the executives of subsidiaries (6,277 shares) to the corresponding network companies resulted in a loss of € 49,130.07.

Own shares (972,909 shares, representing 0.498 per cent of the capital stock) increased in value by € 727,076.50 and was recognized at the lower of the market price as at 31 December 2010 of € 41.00 or the amortized value based on the SIP terms and conditions.

Other assets

Breakdown of other assets:

Other assets amounted to € 4,940.9 million (31/12/2009: € 47.5 million) as at 31 December 2010. This item contains receivables from treasury transactions in the amount of € 4,426.3 million (31/12/2009: € 0.3 million). Receivables from capital guarantees for funds in the amount of € 98.7 million (31/12/2009: € 0.0 million) were recognised. This item also contains dividends receivable in the amount of € 127.1 million (31/12/2009: € 0.0 million) and receivables from payroll accounting in the amount of € 26.9 million (31/12/2009: € 0.7 million).

Income that does not become available as cash until after the reporting date:

values in € million	31/12/2010	31/12/2009
Interest for interest-rate and cross-currency swaps	361.2	0.3
Participation income	127.1	0.1

Other liabilities

Breakdown of other liabilities:

Other assets amounted to € 5,458.3 million (31/12/2009: € 96.6 million) as at 31 December 2010. This item also contains liabilities from treasury transactions in the amount of € 4,781.6 million (31/12/2009: € 21.2 million) and interest for participation capital in the amount of € 200.0 million (31/12/2009: € 0.0 million). Capital guarantees for funds are valued at € 167.7 million (31/12/2009: € 0.0 million).

Expenditure that does not become available as cash until after the reporting date:

values in € million	31/12/2010	31/12/2009
Interest for interest-rate and cross-currency swaps	153.1	0.6
Interest for supplementary capital of RBI	25.1	0.0
Expenditure for participations	9.5	0.0

Provisions

Provisions are valued at € 201.2 million, a year-on-year increase of € 166.1 million.

The provisions amount to € 34.1 million for severance payments (an increase of € 31.7 million), € 11.5 million for pensions (an increase of € 6.6 million), € 37.0 million for corporation tax (an increase of € 37.0 million), € 8.9 million for income tax at the Singapore branch and € 109.7 million for other provisions (an increase of € 81.9 million).

The increase in provisions for personnel is primarily due to the increase in the number of employees as a result of the merger. The increase in other provisions is primarily the result of increased provisions for staff bonuses and – also as a result of the merger – a need for guarantee loan provisions, process risk provisions and provisions for operational risk.

Breakdown of other provisions in € million	31/12/2010
Provisions for bonus payments	24.5
Provisions for process risks	16.1
Provisions for audit costs	0.8
Provisions for anniversary payments	7.8
Provisions for overdue vacation	13.0
Provisions for guarantee loans	15.6
Provisions for Supervisory Board fees	0.4
Provisions for other expenses/outstanding invoices	10.3
Provisions for operational risk/losses/other	21.2
Total	109.7

Equity

Subscribed capital

For the merger, the company's capital stock was increased by € 124,554,753.20 from € 471,735,875.00 to € 596,290,628.20 through the issue of 40,837,624 new no-par value shares (bearer shares). Subscription rights pursuant to Section 153 of the Austrian Stock Corporation Act (AktG) are not applicable pursuant to Section 223 (1) AktG. Thus as at 31 December 2010, the capital stock consists of 195,505,124 no-par value shares (bearer shares).

At the annual general meeting of 5 June 2007, the Management Board was authorized, with the approval of the Supervisory Board, to increase the capital stock by a total of no more than € 217,724,250.00 within five years of the relevant amendment to the articles of association being recorded in the commercial register by issuing up to 71,385,000 new common bearer shares with voting rights against contributions in cash and/or in kind (authorized capital). In a capital increase on 5 October 2007 (secondary public offering), € 36,287,375.00 (11,897,500 no-par value shares) of this was used. As at 31 December 2010, the unused authorized capital amounts to € 181,436,875.00.

At the annual general meeting on 10 June 2008, the Management Board was authorized, pursuant to Section 174 (2) of the Austrian Stock Corporation Act (AktG), to issue, with the approval of the Supervisory Board and in one or more tranches, convertible bonds with a total nominal amount of up to € 2,000,000,000.00 within five years of the date of the resolution. The convertible bonds have associated conversion or subscription rights to up to 15,466,750 common bearer shares in the company with a proportionate share of the capital stock of up to € 47,173,587.50. Due to the guarantee for issues of a convertible bond, it can also be issued indirectly through a wholly-owned subsidiary (directly or indirectly) with conversion rights to shares in the company. The Management Board was also authorized to set all further conditions for the issue (including the issue currency) and the applicable conversion method for the convertible bonds. The subscription rights of shareholders are excluded.

At the same annual general meeting, the capital stock was increased on a conditional basis (contingent capital) by up to € 47,173,587.50 through the issue of up to 15,466,750 common bearer shares pursuant to Section 159 (2) 1 of the Austrian Stock Corporation Act (AktG). The contingent capital increase may only be carried out to the extent that the holders of convertible bonds make use of their right to convert such bonds into shares in the company. The issue amount and conversion ratio are to be determined by means of recognized financial methods and by means of the current price of the shares in the company in a recognized pricing method. The issue amount must not be under the proportionate amount of the capital stock. The newly issued shares of the contingent capital increase have a dividend entitlement that corresponds to that of the shares in the company traded at the time of the issue. The Management Board is authorized, with the approval of the Supervisory Board, to specify further details in relation to the execution of the conditional capital increase, and the Supervisory Board can approve corresponding amendments to the articles of association.

The name of the Raiffeisen International Bank-Holding AG (RI) share was changed to Raiffeisen Bank International AG (RBI) at the Vienna Stock Exchange on 13 October 2010.

Participation rights

At the annual general meeting on 9 June 2009, the Management Board was authorized, pursuant to Section 174 of the Austrian Stock Corporation Act (AktG), to issue, with the approval of the Supervisory Board and in one or more tranches, participation rights with the characteristics of equity in a total nominal amount of up to € 2,000,000,000.00 within five years of the date of the resolution.

On 4 August 2009 and with the prior approval of the Supervisory Board, RI (now RBI) issued participation rights pursuant to Section 174 of the Austrian Stock Corporation Act with the nominal amount of € 600,000,000.00. The participation rights were subscribed in full by Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna. With effect from 31 December 2009, the participation rights were spun off from Raiffeisen Zentralbank to Cembra and were lost in the course of the merger.

Participation capital

Raiffeisen Zentralbank Österreich Aktiengesellschaft issued participation capital pursuant to Section 23 (4) and (5) of the Austrian Banking Act (BWG) with a nominal amount of € 2,500,000,000.00 with subscription rights of shareholders being excluded. The capital is available for as long as the company remains in existence and may not be terminated by the supplier of the participation capital. The capital was issued in two tranches. The first tranche with a nominal amount of € 750,000,000.00 was paid on 30 December 2008. The second tranche with a nominal amount of € 1,750,000,000.00 was paid on 6 April 2009. The participation certificates were issued for 100 per cent of the nominal value. The participation certificates are associated with a dividend entitlement of 8 per cent a year of their nominal value. For each of the financial years 2014 and 2015, the participation dividend will increase by 50 basis points, for the financial year 2016 by 75 basis points and for each subsequent financial year by 100 basis points. The upper limit is the 12-month EURIBOR plus 1,000 basis points.

The participation capital was transferred from Raiffeisen Zentralbank Österreich Aktiengesellschaft to Cembra in the course of the spin-off and subsequently to RBI in the merger by universal succession.

Capital reserves

The appropriated capital reserves amounting to € 1,852,592,104.11 and the unappropriated capital reserves totalling € 97,066,398.80 did not change at all during the financial year.

Retained earnings and liability reserves

The retained earnings consist of statutory reserves of € 5,500,000.00 (31/12/2009: € 5,000,000.00) and other free reserves amounting to € 398,985,080.83 (31/12/2009: € 750,427,000). The free retained earnings amounting to € 351.4 million were released during the financial year and used to form the liability reserves as required by Section 23 (6) of the Austrian Banking Act (BWG) for the first time.

Additional own funds from own issues in own inventory

Subordinated bonds

values in € million	31/12/2010	31/12/2009
Raiffeisen FRN Medium Term Note 2006-2016	1.0	0
0 % Raiffeisen Garant 2008-2020/PP/10	1.1	0
0 % Raiffeisen Garant 2008-2020/PP/11	0.5	0
0 % Raiffeisen Garant 2008-2018/PP/14	0.9	0
0 % Raiffeisen Garant 2008-2020/PP/15	0.1	0
0 % Raiffeisen Garant 2008-2023/PP/16	0.4	0
0 % Raiffeisen Garant 2009-2020/PP/19	0.7	0
0 % Raiffeisen Garant 2009-2023/PP/20	0.2	0

Supplementary capital

values in € million	31/12/2010	31/12/2009
Raiffeisen FLR Medium Term Note 2007-2015	0.2	0

Subordinated liabilities

List of subordinated loans that exceed 10 per cent of the total subordinated liabilities of € 3,611.8 million (i.e. that exceed € 361.2 million):

Name	Nominal value in € million	Maturity date	Interest rate
Subordinated Supplementary Capital Fixed FRCN Serie 74	600	29/10/2015	5,770%
Deposit of RZB Finance Jersey IV	500	16/05/2016	5,182%
Callable Subordinated Capital FRN Serie 38	365	22/06/2016	1,352%
Subordinated Capital Fixed FRCN Serie 54	500	05/03/2019	4,500%

The modalities for the listed subordinated liabilities and all other subordinated liabilities are in accordance with Section 23 (8) of the Austrian Banking Act (BWG).

Expenses for subordinated liabilities

The expenses for subordinated liabilities in the financial year amount to € 227.2 million (2009: € 36.0 million).

Additional information

Notes on liability arrangements:

In the government-promoted, subsidized forward private planning scheme, RBI has issued capital guarantee obligations in accordance with Section 108 (1) 3 of the Income Tax Act (EStG). In this context, the bank guarantees that in the event of transferring the capital into a perpetual annuity the payment amount available for this annuity is not less than the sum of the contributions made by the taxpayer plus the premiums credited to this taxpayer pursuant to Section 108g EStG.

As at 31 December 2010, the volume of these guarantees was € 1,583 million (2009: € 0.0 million).

Furthermore, as at 31 December 2010 RBI issued capital guarantees in connection with structured financial products with a guarantee volume of € 346 million (2009: € 0.0 million).

RBI is a member of the Raiffeisen-Kundengarantiegemeinschaft Österreich (Deposit Guarantee Association of Austria). Members of the Association assume contractual liability under which they jointly guarantee the timely honouring of all customer deposits and securities issues of an insolvent member of the Association up to an amount equalling the sum of the individual financial strength of the other member institutions. The individual financial strength of a member institution is determined based on its available reserves, taking into account the relevant provisions of the Austrian Banking Act (BWG).

The liability was met by inserting a noted below-the-line item of one euro on the balance sheet, as it is not possible to determine the exact amount of RBI's potential liability in connection with the cross-guarantee system.

Network bank Eligible bank		Exchange	Outstanding amount in € million
Raiffeisen-Leasing, spolecnost s.r.o., Prag	RLB OÖ	CZK	500.0
Raiffeisen banka a.d., Belgrad	Europäische Bank für Wiederaufbau und Entwicklung, London	EUR	22.5
Raiffeisen Leasing d.o.o.,Belgrad	International Finance Corporation, Washington	EUR	30.0
Raiffeisen Bank S.A., Bukarest	KfW Frankfurt am Main	EUR	30.0
Raiffeisenbank (Bulgaria) EAD	KfW Frankfurt am Main	EUR	21.7
Raiffeisen banka a.d., Belgrad	KfW Frankfurt am Main	EUR	10.0
Raiffeisen banka a.d., Belgrad	DEG - Deutsche Investitions- und EntwicklungsgmbH, Köln	EUR	30.0
	DEG - Deutsche Investitions- und
Raiffeisen Leasing d.o.o., Sarajevo	EntwicklungsgmbH, Köln	EUR	10.2
Raiffeisen Leasing d.o.o., Sarajevo	ABS Banka dd, Sarajevo	BAM	1.1
Raiffeisen Leasing d.o.o., Sarajevo	DZ Bank AG, Frankfurt	EUR	18.8
Raiffeisen Rent DOO, Belgrad	WGZ-Bank	EUR	13.5
Raiffeisen Rent DOO, Belgrad	LRP Landesbank Rheinland-Pfalz	EUR	17.5

As at 31 December 2010, the following soft letters of comfort had been issued:

Open capital commitments on share capital in the amount of € 4.0 million (31/12/2009: € 1.6 million) essentially consist of € 4.0 million (31/12/2009: € 1.6 million) vis-a-vis European Investment Fund S.A., Luxembourg.

As at 31 December 2010, € 9,918.3 million (31/12/2009: € 2,350.8 million) in contingent liabilities was reported below the line. Of this, € 7,588.5 million was attributable to guarantees and € 2,250.4 million to letters of credit. As at 31 December 2009, contingent liabilities consisted of guarantees to affiliated companies in the amount of € 2,070.0 million and guarantees to third parties in the amount of € 280.8 million.

As at 31 December 2010, € 11,415.1 million (31/12/2009: € 404.4 million) in credit risks was reported under liabilities below the line. In the reporting year, credit risks are fully attributable to unused, irrevocable credit lines.

There are no other transactions with considerable risks or benefits that are not reported in the balance sheet or in a below-theline item.

Total assets and liabilities in foreign currency:

values in € million	31/12/2010	31/12/2009
Assets in foreign currency	17,672.5	52.3
Liabilities in foreign currency	12,393.7	110.7

Subordinated assets contained under assets:

values in € million	31/12/2010	31/12/20091
Loans and advances to credit institutions	1,056.6	-
hereof to affiliated companies	1,055.0	-
hereof to companies linked by virtue of a participating interest	1.6	-
Loans and advances to costumers	9.3	-
hereof to affiliated companies	9.3	-
hereof to companies linked by virtue of a participating interest	0.0	-
Debt securities and other fixed-income securities	2.0	-
hereof to affiliated companies	0.0	-
hereof to companies linked by virtue of a participating interest	2.0	-
Shares and other variable-yield securities	1.0	-
hereof to affiliated companies	0.0	-
hereof to companies linked by virtue of a participating interest	1.0	-

¹ As the BWG structure was not applicable last year, no previous-year values are available for this chart.

Open forward transactions as at the balance sheet date are listed in Annex 2 to the Notes.

The derivative financial instruments listed in Annex 2 are recognized in the balance sheet at fair value:

Derivatives		Positive fair values		Negative fair values
values in € million	31/12/2010	31/12/2009	31/12/2010	31/12/2009
Derivatives in the trading book
a) Interest rate contracts	3,155.9	0.0	3,246.2	0.0
b) Foreign exchange rate contracts	799.2	0.0	832.3	0.0
c) Share and index contracts	9.1	0.0	98.3	0.0
d) Credit derivatives	47.9	0.0	43.9	0.0
e) Other derivatives	19.0	0.0	18.8	0.0
Derivatives in the banking book
a) Interest rate contracts	367.7	3.5	399.2	0.0
b) Foreign exchange rate contracts	0.0	0.0	0.0	0.0
c) Share and index contracts	0.9	0.0	43.2	0.0
d) Credit derivatives	6.2	0.2	6.0	0.0

As at the balance sheet date, there were restrictions related to asset availability (in accordance with Section 64 (1) 8 BWG):

values in € million	31/12/2010	31/12/2009¹
Indemnification for securities lending transactions	297.8	-
Loans assigned to OeKB	6,500.6	-
Indemnification for OeNB tender	0.0	-
Loans assigned to EIB	187.1	-
Trust deposit for domestic credit institutions	21.2	-
Trust deposit for foreign credit institutions	77.0	-
Cover pool for partial debentures issued	23.0	-
Treasury call deposits for contractual netting agreements	1,072.0	-
Total	8,178.7	-

¹ As the BWG structure was not applicable last year, no previous-year values are available for this chart.

For the following financial instruments within financial assets, the fair value is lower than the book value:

	Financial investments	Carrying amount	Fair value	Carrying amount	Fair value
	values in € million	31/12/2010	31/12/2010	31/12/2009	31/12/2009
1.	Treasury bills and other bills eligible for refinancing with centralbank	276.0	272.9	0.0	0.0
2.	Loans and advances to credit institutions	258.5	247.5	0.0	0.0
3.	Loans and advances to costumers	252.5	251.7	0.0	0.0
4.	Debt securities and other fixed-income securities
	a) issued by public bodies	4.7	4.6	0.0	0.0
	b) issued by other borrowers	2,737.5	2,650.6	0.0	0.0
5.	Shares and other variable-yield securities	20.0	17.8	0.0	0.0
	Total	3,549.2	3,445.1	0.0	0.0

An unscheduled writedown (in accordance with Section 204 (2) 2 of the Austrian Commercial code [UGB]) is not accounted for as the assessment of the credit rating of the security borrower is such that scheduled interest payments and repayments are expected to be made.

Notes to the income statement

Breakdown of income by geographic market in accordance with Section 64 (1) 9 BWG:

A regional allocation to segments according to the business outlets' registered offices results in the following distribution:

values in € million	Total	Austria	Asia
Interest receivable and similar income	2,185.3	2,021.6	163.7
Hereof: from fixed-income securities	411.5	401.6	9.9
Income from variable-yield securities and participations	363.3	363.3	0.0
Commissions receivable	214.7	186.0	28.7
Net profit or loss in financial operations	39.1	33.7	5.4
Other operating income	85.5	84.0	1.5

Other net operating income includes reimbursements for services provided to the sector in the amount of € 57.1 million as well as staff and administrative expenses passed on for other non-banking services totalling € 24.3 million.

Expenses for severance payments and benefits for occupational employee pension funds include € 9.7 million. (2009: € 1.2 million) in expenses for severance payments.

The company has been a Group member of Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna in accordance with Section 9 of the Corporation Tax Act (KStG) since 2005.

In the reorganization process, tax losses that may be carried forward were transferred from RZB to RBI amounting to € 1,098 million. As a result of Group taxation, these transferred losses less the 2010 annual tax profit were attributed to RBI amounting to € 74 million and as at 31 December 2010 were reallocated to RZB in the amount of € 1,024 million.

The allocation agreement between RZB and RBI was amended so that RBI does not receive a negative tax assessment in connection with the losses that may be carried forward which were transferred during the reorganization – provided they are not non-Group-related losses – and that these losses are recognized as an "internal loss carryforward". This means that RBI does not need to pay any tax assessments as long as its tax profits are covered by the internal loss carryforward.

Other

The company did not conclude any significant transactions with related companies or persons at unfair market conditions.

In the 2010 financial year the company had an average of 1,989 employees (2009: 351).

Expenses for severance payments and pensions can be broken down as follows:

Values in € 000		Pension expenditure		Severance payments
	2010	2009	2010	2009
Members of the managing board and senior staff	1,157	97	1,800	1,122
Employees	3,309	721	9,370	524
Total	4,466	818	11,170	1,646

The company's Management Board consisted of the following members in 2010:

• Dr. Herbert Stepic, chairman
• Dr. Karl Sevelda, deputy chairman (from 10 October 2010)
• Aris Bogdaneris
• Patrick Butler (from 10 October 2010)
• Martin Grüll
• Peter Lennkh
• Dr. Johann Strobl (from 10 October 2010)
• Heinz Wiedner (until 1 December 2010)
• Rainer Franz (until 30 June 2010)

The Supervisory Board consisted of the following elected members in 2010:

• Dr. Walter Rothensteiner, chairman
• Erwin Hameseder, first deputy chairman (from 10 October 2010)
• Manfred Url, deputy chairman (until 10 October 2010)
• Dr. Ludwig Scharinger, second deputy chairman (from 10 October 2010)
• Markus Mair, third deputy chairman (from 10 October 2010)
• Patrick Butler (until 10 October 2010)
• Stewart Gager
• Dr. Kurt Geiger
• Dr. Hannes Schmid (from 10 October 2010)
• Dr. Johannes Schuster (from 10 October 2010)
• Dr. Karl Sevelda (until 10 October 2010)
• Dr. Friedrich Sommer (from 10 October 2010)
• Dr. Johann Strobl (until 10 October 2010)
• Christian Teufl (from 10 October 2010)
• Martin Praterą (from 10 October 2010)
• Rudolf Kortenhof¹ (from 10 October 2010)
• Peter Anzeletti-Reikl¹ (from 10 October 2010)
• Sabine Chadt¹ (from 10 October 2010)
• Helge Rechberger¹ (from 10 October 2010)

¹ Delegated by the Works Council.

The following remuneration was paid to the Management Board of RBI:

Values in € 000	2010	2009
Fixed and performance-based remunerations	8,191	4,610
hereof remuneration from affiliated companies (SB remuneration)	732	0
Payments to pension funds and reinsurance policies	183	97
Share-based payments (performance-based)	156	267
Total	8,530	4,974

The table contains fixed and performance-related remuneration, including fees for performing executive functions at affiliated companies, bonus payments and benefits in kind. The share of performance-related remuneration components in the reporting year was 1.9 per cent (2009: 5.5 per cent).

Performance-related components of the Management Board's remuneration usually consist of bonus payments that are tied to the achievement of corporate objectives for after-tax profit, return on risk-adjusted capital, cost/income ratio and the achievement of annually agreed personal goals, in addition to the value of an allotment of shares under the SIP. As in the previous year, the value of allotted shares in 2010 corresponded to 100 per cent of the performance-related components of the Management Board's remuneration. There were no significant changes to the principles of profit sharing compared to the previous year. A commitment was made to give retention bonuses, i.e. bonuses designed to retain managers in view of the merger, to the former Management Board of Raiffeisen International amounting to € 768,000, payable in 2013. The amount of the payment is tied to the RBI share price.

It should be noted that the figures for the Management Board's remuneration in 2010 are not directly comparable with those in 2009, because the merger of Raiffeisen International Bank-Holding AG with the main business areas of RZB and the fact that individuals left the company during the year resulted in a change in the composition of the Management Board.

As at 31 December 2010, there were loan claims on a member of the Management Board amounting to € 765,000 (31/12/2009: € 765,000).

Share Incentive Program

The second tranche of the Share Incentive Program (2007 tranche) matured in 2010. Pursuant to the SIP's requirements (published in the Wiener Zeitung's official journal on 30 May 2007) the number of shares actually transferred is listed in the table below:

Share Incentive Program (SIP) 2007	Number of due shares	Amount with share price of € 31,91 at the allotment day (3/9/2010) in €	Number of effective distributed shares
Members of the Managing Board of RBI	4,899	156,327	3,971
Members of the managing boards of RBI bank subsidiaries affiliated with the company	7,163	228,571	6,277
Executives of RBI and other affiliated companies	2,189	69,851	1,354

In order to avoid legal uncertainties and in accordance with the program requirements, eligible employees in two countries received a cash settlement in lieu of a share transfer. In Austria, eligible employees were also given the option to receive a cash settlement in lieu of half of the mature shares, which could be used to settle the income tax at the time of the transfer. For these reasons, the number of shares actually transferred is lower than the number of mature shares. As a result, the number of own shares was reduced by the lesser amount of shares actually transferred.

To date, a new tranche has been issued every year under the SIP. However, due to the merger of RI with the main business areas of RZB, no new SIP tranche was issued in 2010. This means that as at the balance sheet date, contingent shares were only allotted to two tranches. As at 31 December 2010, the number of contingent shares amounted to 473,018 (of which 79,909 shares were allotted in 2008 and 393,109 were allotted in 2009).

Share Incentive Program (SIP) 2008 - 2009	Number of contingently alloted shares as of 31/12/2010	Minimum of allotment of shares	Maximum allotment of shares
Members of the Managing Board of RI	147,611	43,061	221,417
Members of the managing boards of RI bank subsidiaries affiliated with the company	252,269	73,399	378,404
Executives of RI and other affiliated companies	73,138	21,449	109,707

No shares were repurchased for the SIP in 2010.

Supervisory Board remuneration

On 8 July 2010 the annual general meeting authorized compensation for the Supervisory Board members amounting to € 380,000 and assigned its distribution to the Supervisory Board. At its meeting on 8 July 2010, the Supervisory Board decided on the following distribution: chairman € 70,000, deputy chairman € 60,000, Supervisory Board member € 50,000. Attendance fees were not paid.

Therefore, the Supervisory Board received remuneration of € 380,000 in 2010. In 2009, the Supervisory Board received remuneration of € 305,000.

In 2010, no agreements were concluded with members of the Supervisory Board which required approval in accordance with Section 95 (5) 12 of the Austrian Stock Corporation Act (AktG).

The company has a corporate group relationship with Raiffeisen-Landesbanken-Holding GmbH, Vienna (top-level parent company) and its affiliated companies and is a fully-consolidated member. The consolidated financial statements are stored at the company's registered office. In addition, the company is included in the consolidated financial statements of Raiffeisen Zentralbank Österreich AG, Vienna.

As shares in the company are traded on a regulated market as defined by Section 2. 37 BWG, Raiffeisen Bank International must also prepare consolidated financial statements in accordance with Section 245 (5) UGB, which comply with the International Financial Reporting Standards.

Vienna, 9 March 2011

The Management Board

Dr. Herbert Stepic Dr. Karl Sevelda

Aris Bogdaneris, M. A. Patrick Butler M. A.

Mag. Martin Grüll Mag. Peter Lennkh Dr. Johann Strobl

Annex 1: Statement of fixed assets in 2010 financial year

Each column contains the amount of all assets valued as fixed assets in € thousands.

								Cost of acquisition or conversion
		As of 1/1 financial year1	Merger
Item	Description of fixed assets	As of 1/1 financial year1	As of 1/1 financial year2	Exchange differ ences	Additions	Disposals	Reclassifi cation	As of 31/12 of financial year
			1	2	3	4	5	6
1.	Treasury bills and other bills eligible for refinancing with central banks	0	4,294,204	0	127,480	(33,722)	0	4,387,962
2.	Loans and advances to credit institutions	0	613,669	9,755	33,466	(394,879)	(44,961)	217,051
3.	Loans and advances to costumers	0	405,817		55,479 1,252,873	(1,557,049)	0	157,120
4.	Debt securities and other fixed-income securities	0	7,449,248	98,673	392,909	(2,262,644)	44,961	5,723,149
a)	issued by public bodies	0	15,161	219	0	(1,004)	0	14,377
b)	own debt securities	0	0	0	0	0	0	0
c)	issued by other borrowers	0	7,434,087	98,454	392,909	(2,261,640)	44,961	5,708,772
5.	Shares and other variable-yield securities	68	23,200	0	0	(3,268)	0	20,000
6.	Participating interests	680	25,456	0	2,216	0	0	28,352
7.	Shares in affiliated untertakings	5,712,568	946,330	0	150,265	(1,659)	0	6,807,504
8.	Intangible fixed assets	3,380	230,116	5	20,023	(3,597)	0	249,928
9.	Tangible assets	2,367	68,295	755	4,564	(13,103)	0	62,878
10.	Other assets	0	0	0	0	0	0	0
	Total	5,719,063	14,056,335	164,667	1,983,796	(4,269,921)	0	17,653,944

1 RI acquisition costs

2 Acquisition costs of Cembra and spin-off of RZB

		Carrying amount
		Merger
Item	Cumulative depreciaton and amortiza tion as at 1 January2	Cumulative depreciaton and amortiza tion as at 1 January3	Exchange differences	Cumulative deprecia tion and amortiza tion disposal	Write-ups	Deprecia tion	Cumulated deprecia tion as of 31/12	As of 31/12 of financial year	As of 31/12 of last year
		7	8	9	10	11	13	14	15
1.	0	6,468	0	(722)	4,014	(20,275)	(10,516)	4,377,446	0
2.	0	(19,933)	0	20,442	373	0	882	217,933	0
3.	0	(4,475)	0	1,709	229	(966)	(3,504)	153,616	0
4.	0	(221,519)	0	1,783	19,935	(34,528)	(234,328)	5,488,819	0
a)	0	373	0	4	260	0	638	15,014	0
b)	0	0	0	0	0	0	0	0	0
c)	0	(221,892)	0	1,779	19,675	(34,528)	(234,966)	5,473,805	0
5.	(8)	0	0	8	0	0	0	20,000	60
6.	0	(423)	0	0	0	0	(423)	27,930	680
7.	(384,797)	(31,425)	0	0	0	(10,113)		(426,336) 6,381,1681	5,392,3561
8.	(2,347)	(120,555)	(5)	2,313	0	(29,890)	(150,485)	99,443	1,033
9.	(1,002)	(54,156)	(470)	12,925	99	(6,987)	(49,590)	13,288	1,365
10.	0	0	0	0	0	0	0	0	0
	(388,154)	(446,018)	(475)	38,458	24,650	(102,759)	(874,300)	16,779,643	5,395,494

1 After accounting for the effects of valuation units 2 Cumulative depreciation and amortization RI

3 Cumulative depreciation and amortization Cembra and RZB disposal

Annex 2: Open forward transactions as at 31 December 2010

			Nominal amount by maturity in € 000				Market value
		More than 1
		year, up to 5	More than 5
Name	Up to 1 year	years	years	Total	hereof trading book	positive	negative
Total open forward transactions	77,227,356	110,829,554	72,248,281	260,305,191	225,104,443	5,157,432	(5,125,974)
a) Interest rate contracts	40,745,056	98,094,147	68,196,829	207,036,032	175,529,140	4,191,366	(3,857,139)
OTC products
Interest rate swaps	37,436,747	93,489,432	63,146,356	194,072,535	164,053,014	4,101,949	(3,749,939)
Floating Interest rate swaps	0	0	0	0	0	0	0
Interest rate futures	1,195,949	0	0	1,195,949	1,195,949	3,332	(3,386)
Interest rate options - buy	793,651	2,256,711	1,738,547	4,788,909	4,718,909	82,095	0
Interest rate options - sell	669,526	2,120,304	2,171,826	4,961,656	4,744,285	0	(103,414)
Other similar interest rate contracts	0	0	0	0	0	0	0
Exchange-traded products
Interest rate futures	649,183	227,700	1,140,100	2,016,983	816,983	3,990	(400)
Interest rate options	0	0	0	0	0	0	0
b) Foreign exchange rate contracts	35,436,900	10,327,090	1,702,365	47,466,355	45,140,915	880,036	(1,050,284)
OTC products
Cross-currency interest rate
swaps	2,929,176	9,332,568	1,699,290	13,961,034	11,906,457	499,244	(639,926)
Forward foreign exchange
contracts	31,249,170	710,022	0	31,959,192	31,688,327	363,523	(389,301)
Currency options – purchased	594,401	121,479	1,476	717,356	717,357	17,269	0
Currency options – sold	664,153	163,021	1,599	828,773	828,774	0	(21,057)
Other similar interest rate contracts	0	0	0	0	0	0	0
Exchange-traded products
Currency contracts (futures)	0	0	0	0	0	0	0
Currency options	0	0	0	0	0	0	0
c) Securities-related
transactions	193,437	0	1,246,347	1,439,784	1,282,054	9,786	(137,515)
OTC products
Securities-related forward transactions	0	0	0	0	0	0	0
Equity/Index options -buy	55,042	0	555,149	610,191	573,002	9,786	0
Equity/Index options -sell	138,395	0	691,198	829,593	709,052	0	(137,515)
Exchange-traded products	0	0	0	0	0	0	0
Exchange-traded products
Equity/Index futures
	0	0	0	0	0	0	0

			Nominal amount by maturity in € 000			Market value
		More than 1 year, up to 5	More than 5
Name	Up to 1 year	years	years	Total	hereof trading book	positive	negative
d) Commodity contracts	356,785	70,350	0	427,135	427,134	18,983	(18,784)
OTC products
Commodity forward transactions	356,613	70,350	0	426,963	426,962	18,983	(18,783)
Exchange-traded products
Commodity futures	172	0	0	172	172	0	(1)
e) Credit derivative contracts	495,178	2,337,967	1,102,740	3,935,885	2,725,200	57,261	(62,252)
OTC products
Credit default swaps	495,178	2,337,967	1,102,740	3,935,885	2,725,200	57,261	(62,252)

Annex 3: List of investments of Raiffeisen Bank International Aktiengesellschaft

Affiliated companies

			Direct share of	Additio nal	Equity in	Result in	From annual financial
Company, registered office (country)	Total nominal value in currency		RBI	indirect1	€ 0002	€ 0002	statements3
Kathrein & Co. Privatgeschäftsbank Aktiengesellschaft, A(1010) Vienna	20,000,000	EUR	0%	79%	28,297	5,112	31/12/2010
BAILE Handels- und Beteiligungsgesellschaft m.b.H., A(1030) Vienna	40,000	EUR	100%	0%	89,547	(7)	31/12/2010
RSC Raiffeisen Daten Service Center GmbH, A(1190) Vienna	2,000,000	EUR	72%	0%	2,229	44	31/12/2010
Raiffeisen Malta Bank plc., M-Sliema, SLM16074	340,000,000	EUR	100%	0%	354,261	60,719	31/12/2010
RB International Finance (USA) LLC, USA-NY 10036 New York4	1,510,000	USD	100%	0%	12,164	14,188	31/12/2010
R.L.H. Holding GmbH, A(1030) Vienna	35,000	EUR	100%	0%	6,503	6,015	31/12/2009
RZB IB Beteiligungs GmbH, A(1030) Vienna	35,000	EUR	0%	79%	49	29,312	31/12/2010
RZB KI Beteiligungs GmbH, A(1030) Vienna	48,000	EUR	100%	0%	4,765	(22)	31/12/2009
EUGENIA Bay Group Limited (in Liquidation), VG-Tortola, British Virgin Islands4	1	USD	100%	0%	0	0	31/12/2009
RL Leasing Gesellschaft m.b.H., D(65760) Eschborn4	50,000	DEM	25%	18%	561	(50)	31/12/2009
Extra Year Investments Limited, VG-Tortola4	50,000	USD	100%	0%	2,030	(5,247)	31/12/2010
RB International Finance (Hong Kong) Ltd., HK-Hong Kong4	10,000,000	HKD	100%	0%	1,543	6,023	31/12/2010
Golden Rainbow International Limited, VG-Tortola4	1	USD	100%	0%	118,510	15,024	31/12/2010
RLI Holding Gesellschaft m.b.H., A(1030) Vienna	40,000	EUR	75%	0%	80,921	(8)	31/12/2010
Eastern European Invest Holding GmbH, A(1030) Vienna	35,000	EUR	100%	0%	37,139	(7)	31/12/2010
Raiffeisen International Invest Holding GmbH, A(1030) Vienna	35,000	EUR	100%	0%	45,368	(49)	31/12/2010
RI-RBHU Holding GmbH, A(1030) Vienna	35,000	EUR	100%	0%	215,369	(7)	31/12/2010
Tatra Leasing spol. s r.o., SK(811) 06 Bratislava4	6,638,784	EUR	1%	61%	23,904	616	31/12/2010
Raiffeisen Bank Polska S.A., PL(00,549) Warsaw4	1,218,687,210	PLN	100%	0%	620,321	59,520	31/12/2010
Raiffeisenbank a.s., CZ(140) 78 Prague 44	6,564,000,000	CZK	51%	0%	487,933	70,326	31/12/2010
Raiffeisenbank (Bulgaria) EAD, BG(1504) Sofia4	603,447,952	BGN	100%	0%	450,979	22,471	31/12/2010
Raiffeisenbank Austria d.d., HR(10,000) Zagreb4	3,698,932,000	HRK	73%	0%	740,207	44,689	31/12/2010
ZAO Raiffeisenbank, RUS-Moscow4	36,711,260,000	RUB	100%	0%	1,661,254	170,122	31/12/2010
Raiffeisen Bank d.d. Bosna i Hercegovina, BiH(71000) Sarajevo4	237,388,000	BAM	97%	0%	228,985	6,581	31/12/2010
Raiffeisen Bank S.A., RO(011857) Bucharest 14	1,196,258,639	RON	99%	0%	484,911	82,615	31/12/2010
Raiffeisen Bank Sh.a., AL-Tirana4	9,926,092,686	ALL	100%	0%	166,423	38,346	31/12/2010
Raiffeisen Bank Aval JSC, UA(01011) Kiev4	3,002,774,908	UAH	96%	0%	742,636	29,936	31/12/2010
Priorbank JSC, BY(220002) Minsk4	412,279,277,350	BYR	88%	0%	176,605	47,502	31/12/2010
Raiffeisen Bank Kosovo J.S.C., SRB(10000) Pristina4	58,000,000	EUR	100%	0%	81,025	10,277	31/12/2010
Raiffeisen banka a.d., SRB(11070) Belgrade4	27,466,157,580	RSD	100%	0%	447,125	27,175	31/12/2010
Raiffeisen Banka d.d., SLO(2000) Maribor4	16,355,847	EUR	86%	0%	72,043	2,131	31/12/2010
Central Eastern European Finance Agency B.V., NL(1076) AZ Amsterdam4	2,000,000	EUR	100%	0%	268	192	31/12/2010
Centralised Raiffeisen International Services & Payments S.R.L., RO(020335) Bucharest 24	6,800,000	RON	100%	0%	(801)	(1,060)	31/12/2010
RCR Ukraine LLC, UA-Kiev 010114	282,699	UAH	100%	0%	16	(8)	31/12/2009
REH Limited, CY(3036) Limassol4	45,453	USD	100%	0%	24,602	(3,726)	31/12/2010
RI Eastern European Finance B.V., NL(1076) AZ Amsterdam4	400,000	EUR	100%	0%	14,271	5,718	31/12/2009
Regional Card Processing Center s.r.o., SK(81106) Bratislava4	539,465	EUR	100%	0%	(11,198)	643	31/12/2010
RAIFFEISEN TRAINING CENTER LTD., HR(10,000) Zagreb4	20,000	HRK	20%	52%	174	30	31/12/2009
Tatra banka a.s., SK(811) 06 Bratislava 14	54,554,928	EUR	66%	0%	711,390	91,307	31/12/2010
Ukrainian Processing Center PJSC, UA(04073) Kiev4	180,000	UAH	100%	0%	(5,408)	3,650	31/12/2010
ZHS Office- & Facilitymanagement GmbH, A(1030) Vienna4	36,336	EUR	1%	99%	115	34	31/12/2010

Company, registered office (country)	Total nominal value in	currency	Direct share of RBI	Additio nal indirect1	Equity in € 0002	Result in € 0002	From annual financial statements3
Raiffeisen Research GmbH, A(1030) Vienna	55,000	EUR	51%	0%	66	46	31/12/2009
FARIO Handels- und Beteiligungsgesellschaft m.b.H., A(1030) Vienna	40,000	EUR	100%	0%	4,831	(3)	31/12/2009
Ferrokonstrukt-Bauerrichtungen Ges.m.b.H., A(1020) Vienna	4,000,000	ATS	100%	0%	(256)	(5)	31/12/2009
Kuredu Handels- und Beteiligungs GmbH, A(1030) Vienna	35,000	EUR	100%	0%	30	(3)	31/12/2009
LOTA Handels- und Beteiligungs-GmbH, A(1030) Vienna	35,000	EUR	100%	0%	687	(2,204)	31/12/2009
CP Projekte Muthgasse Entwicklungs GmbH, A(1010) Vienna	40,000	EUR	0%	79%	(566)	(294)	31/12/2009
P & C Beteiligungs Gesellschaft m.b.H., A(1030) Vienna	36,336	EUR	100%	0%	6,461	(3,816)	31/12/2010
RZB PE Handels- und Beteiligungs GmbH, A(1030) Vienna	150,000	EUR	100%	0%	44,438	(780)	31/12/2009
RZB Consultants Pte. Ltd., SGP-Singapore (048624)	30,000	SGD	100%	0%	379	(9)	31/12/2009
RPP Holding GmbH, A(1030) Vienna	35,000	EUR	100%	0%	35	(4)	31/12/2009
Rail-Rent-Holding GmbH, A(1030) Vienna	40,000	EUR	60%	8%	170	156	31/12/2009
RIRE Holding B.V., NL(1076) AZ Amsterdam	2,000,000	EUR	100%	0%	1,859	(128)	31/12/2010

1 The indirect share in per cent corresponds to the indirect holding in the company (the share attributable to the RZB Group).

2 The result (in part from the consolidated financial statements) in € 000 corresponds to the annual profit/loss; equity is reported in accordance with Section 224 (3) lit a UGB including untaxed reserves (lit b).

3 The 2010 annual financial statements are provisional financial statements.

4 For the fully consolidated foreign companies, the equity and annual profit figures are accounted for in accordance with the International Financial Reporting Standards (IFRS).

Management Report

Economic conditons

Gradual recovery in global economy

After the global economy suffered its worst recession in 2009 since 1945, the economy began to recover in 2010. Economic activity picked up all around the world, often supported by massive fiscal and monetary policy measures. In the USA the recession ended in June 2009. By the end of 2009 and the first quarter of 2010, the US economy was already staging an impressive recovery, although its pace slowed somewhat over the course of the year.

Europe's economies display different trends

Full-year GDP (gross domestic product) growth in the eurozone was 1.7 per cent. Economic performance varies from one member state to another. While Germany, Austria and Finland moved into recovery mode, Spain, Greece and Ireland were still deep in recession, as shown by their unemployment rates, which ranged from 4.8 to 8.0 per cent in the first group, rising to 12.2 to 20.7 per cent in the latter. Unemployment averaged 10.1 per cent for the eurozone as a whole. At 1.6 per cent, inflation remained below the long-term average in 2010 and started to rise in the second half-year due to rising taxes on consumption in some member states.

Economic growth in Austria vs. the eurozone (real, % p.a.)

Austrian economy growing again

The mood in Austria improved in the course of the year. In the third quarter of 2010 the Austrian economy grew 0.9 per cent, above its long-term average. Much of this growth came from the sharp rise in exports (3.4 per cent a quarter) and investment (0.9 per cent a quarter). Capacity utilization for the economy as a whole also returned to its long-term average at 82 per cent.

The economy will continue to grow in 2011 as will the activity rate, while inflation remains moderate. Despite the cuts from budgetary measures for 2011 to 2014, private consumption should stabilize.

Tax increases and expenditure cuts are likely to be very minor compared to the rest of Europe. After an initial recovery driven particularly by exports, the Austrian economy should move into a sustainable growth phase in 2011, supported by investment and private consumption. The debt situation in Austria is less dramatic than the average for the rest of the eurozone.

Stabilization in CEE

While the dependence on exports of the countries of Central and Eastern Europe (CEE) had been a serious problem during the crisis, in some cases producing significant decreases in GDP, it proved to be an advantage in 2010. The CEE nations benefited from the clear upturn in growth, particularly in Germany, with the export sector functioning as a significant driver.

Even though much of the current growth is derived from exports, increasing support can be expected in the coming months from domestic demand. Even so, the CEE countries remain dependent on capital imports from Western Europe. After a sharp decrease during the crisis, capital inflows to CEE are recovering, although they are still significantly below their previous level.

Poland already had a dynamic economy during the crisis, and it outperformed the other Central European EU member states again in 2010. The only nation to top this was Slovakia, which rebounded from a decrease in GDP of 4.7 per cent in 2009 to growth of 4.2 per cent in the reporting period. In contrast to Slovakia, however, growth in Poland came mainly from consumption and gross fixed capital formation, rather than from exports.

The sharpest decrease in GDP in the 2009 crisis year was in the Community of Independent States (CIS), falling 8.2 per cent. However, commodity prices rose once again, exports increased and the positive baseline effect enabled the CIS to generate economic growth of 4.2 per cent in 2010.

China as Asia's motor for growth

According to current estimates, the Asian economy grew 7.9 per cent in 2010. During this year, almost all Asian countries made the transition from public-sector growth stimulus to firming up private demand. China was the country driving growth as the country's spending programs and credit expansion fuelled domestic demand. Rising retail sales and solid industrial production are boosting consumer demand. Real GDP growth is likely to be 10.2 per cent in 2010. This vigorous growth also benefited countries exporting commodities and capital goods.

In 2010, the Asian currencies gained ground over the US dollar, mainly as a result of the expansionary monetary policy in the USA, which led to large capital inflows to the region. The resulting currency appreciation – unwanted by the respective governments – prompted a range of countermeasures.

Sovereign debt crisis

The main topic for the international financial markets in 2010 was the rise in sovereign borrowing by a number of eurozone countries. It all started with Greece, which had to admit at the start of the year that the figures for deficits and sovereign debt it had been reporting to Brussels were significantly understated. This was followed by growing doubts in the financial markets that Greece was in any position to service its debt. The risk premium for Greek sovereigns compared with German bonds rose sharply, making it increasingly difficult for the country to refinance in the capital markets.

Concerns about Greek solvency spilled over to the euro leading to a significant depreciation, particularly against the US dollar and the Swiss franc.

When the situation threatened to get out of hand at the end of April and start of May, the EU and International Monetary Fund (IMF) intervened. First of all, Greece was given a credit line of € 110 billion, which meant that it does not have to borrow further on the capital markets until the start of 2012. In addition, the European Financial Stability Facility (EFSF) was created to provide a rescue package to assist countries with financing problems in future.

The fund has a total volume of € 750 billion, contributed by the eurozone member states and the IMF. However, despite the politicians' hopes, this step has not brought lasting calm to the markets. By November, Ireland had become the second country to run into difficulties. Here, it was the collapse of the banking system that brought the nation to the brink of insolvency. The financial injections required to save domestic banks boosted the country's budget deficit for 2010 to an enormous 32 per cent of GDP.

After suffering a massive deterioration in refinancing terms, Ireland requested assistance from the EFSF at the end of November. It is due to receive € 85 billion in aid up to 2013.

Global currencies

The euro exchange rate in 2010 was dominated by the eurozone debt crisis. After starting the year at around USD 1.45, the euro tumbled rapidly as a result of the Greek situation, only stabilizing when the EU and IMF agreed the € 750 billion rescue package for troubled eurozone countries in May. By then the euro had lost 17 per cent against the US dollar, reaching a low for the year at just under USD 1.20 per euro.

Exchange rates USD and GBP vs. EUR

Between June and October the focus shifted somewhat from the debt problems in the eurozone. The US Federal Reserve loosened its monetary policy again by purchasing additional US souvereign bonds.

Exchange rates JPY and CHF vs EUR

Source: Thomson Reuters, Raiffeisen RESEARCH

As a result of these measures, the US dollar came under significant pressure with the effect that the euro recovered to USD 1.42 by the start of November, when the focus returned to the eurozone debt crisis. After Ireland was forced to seek financial aid, concern grew that the problems could spread to Spain, and the euro duly slid back to USD 1.30.

The refinancing problems of Greece and Ireland clearly showed in 2010 that the Swiss franc is an alternative to investing in the euro for many investors, primarily European ones. As a result, the Swiss franc gained more than 12 per cent against the euro from the start of 2010, as investors became increasingly skeptical.

CEE currencies

While the EUR key interest rate has remained steady at 1.0 per cent over the past several months, the CEE countries' central banks have tried to counter the depreciation from recent years with what were to some extent massive key rate hikes. Several countries also approached the IMF and EU for financial assistance.

The delayed recovery in southeastern Europe was also reflected in the movements of local currencies. In some cases, they experienced strong volatility against the euro, driven by the shifts in global risk movements.

Key interest rates

Development of the banking sector in Austria

The second quarter of 2010 was particularly affected by concerns regarding the default of individual eurozone countries and the possible impact on the stability of the banking sector. The combination of these fears and regulatory changes in US money market funds led to new tensions in the interbank market in May and June. There was also a shift in market focus back to the adequate capitalization of banks. This is why the London-based Committee of European Banking Supervisors (CEBS) was commissioned to carry out expanded stress tests for the banking system in the EU. The results published in July showed that almost all the banks included in the tests are adequately capitalized for the various stress scenarios.

Operating business also suffered from concerns over sovereign insolvencies. In May, for example, the Bank's trading activities were significantly affected. By contrast, provisions for impairment losses continued to decline in the second quarter. It is likely that credit defaults are at or past their peak in many national banking markets.

Low external exposure of the Austrian banking sector

Foreign lending by the Austrian banking sector is equivalent to 137 per cent of Austria's GDP (2010: € 285 billion). This is in line with the European average, so the Austrian banking sector is not more heavily committed abroad than the French or Dutch banking sector for example.

In strongholds of the financial industry like Ireland (292 per cent), the UK (348 per cent) and Switzerland (398 per cent), loans and advances from banks to foreign borrowers are at least twice as high. As a result, the domestic market accounts for a larger share of the core business of Austrian banks than is the case for British or Irish banks.

Exposure of European banks (€ billion)

Slower credit growth in CEE

The shortage and higher cost of external financing for banks and governments and the lower demand for credit, both due to the banks' tighter lending policy, resulted in flat credit growth in the CEE during the crisis. Total assets of the banking sector in local currencies grew significantly more slowly in 2009 throughout the CEE region than before the crisis. Only in the reporting year there was a return to significant growth, although at around 7 per cent it was still slower than in the period before the crisis.

Growth in total assets of the banking sector is expected to remain moderate at around 6 to 8 per cent a year for the next few years. In Southeastern Europe (SEE), where total assets of banks had risen even faster before the crisis at over 30 per cent a year, growth in 2009 was only 7 per cent as a result of the crisis, and probably fell again to 5 per cent in 2010 due to a further slowdown in growth. In SEE the recovery in the banking sector is somewhat sluggish, just like the economy as a whole, and so a return to growth of around 10 per cent is not expected until 2012.

The CIS region had the fastest growth in total assets in the years 2004 to 2008, averaging almost 40 per cent a year. However, as in the other regions, growth here fell in 2009 to 4 per cent, although the economic recovery in 2010 probably led to a return to at least 17 per cent.

Non-performing loans rose further in 2010 as a result of the economic crisis. The main reasons for this were the increase in unemployment and the weakness of many CEE currencies, which posed an additional burden on many borrowers due to the high share of foreign currency loans in the region.

The situation in the banking sector stabilized again in the closing months of 2010. However, conditions remain difficult in some countries, particularly Ukraine and Romania, but also – and specifically due to the bank levy – in Hungary. The positive trend in Poland resulted in growth in total lending, a trend also reflected in the Czech Republic. By contrast, lending fell compared to 2009 in Romania, Russia and Ukraine as a result of the weak economies in these countries.

Bank levy in Austria

In December 2010 the Austrian parliament adopted a bank levy as part of the Stability Levy Act. The levy was introduced on 1 January 2011 and is intended to bring in € 500 million a year to improve the budget. The graduated taxation of total assets is expected to generate € 340 million, with € 160 million from the tax on derivatives business. This weakens the banks' ability to build up the required regulatory capital from current earnings.

Financing environment for CEE states and banks

The financing climate for CEE countries had already significantly improved in the second half of 2009, ensuring access to both refinancing and new issues of sovereign debt on the local and global bond markets (Eurobonds). This positive trend continued in 2010. Yields on local sovereigns trended sideways in this period, due to the continuing expansionary monetary policy and the decline in risk premiums. At the same time, the market took a very different view of the individual countries, with bond prices reflecting risk factors such as indebtedness, budget deficits and political uncertainty.

Business of Raiffeisen Bank International AG

Capital, share, voting and control rights

The following disclosures cover the provisions of Section 243a (1) of the Austrian Commercial Code (UGB):

• The Company's capital stock amounts to € 596,290,628 and is divided into 195,505,124 voting common bearer shares. Of those, 972,909 are own shares, which means that 194,532,215 shares were outstanding as of the balance sheet date. Please consult the notes to this report (page 18 onwards) for more information.
• The articles of association contain no restrictions concerning voting rights or the transfer of shares. The Management Board is not aware of any restrictions arising from agreements among shareholders.
• Raiffeisen Zentral Bank AG (RZB) holds around 78.5 per cent of the shares in the Company indirectly through its wholly owned subsidiary Raiffeisen International Beteiligungs GmbH, Vienna. The remaining shares are free float, containing no direct or indirect participations in the capital amounting to 10 per cent or more.
• Pursuant to the Company's articles of association, RZB is granted the right to delegate up to one third of the Supervisory Board members to be elected by the annual general meeting, as long as it holds a participation in the capital stock. Moreover, there is no special right of control associated with holding shares.
• There is no control of voting rights in the case of a participation in capital by employees.
• Pursuant to the articles of association, a person who is 68 years or older may not be appointed as a member of the Management Board or be reappointed for another term in office. The rule for the Supervisory Board is that a person who is 75 years or older may not be elected as a member of the Supervisory Board or be elected for another term in office. Furthermore, there are no regulations regarding the members of the Management Board and the Supervisory Board beyond the provisions of the relevant laws.
• The Management Board has been authorized since the annual general meeting of 5 June 2007 to increase the capital stock by up to € 181,436,875 by issuing up to 59,487,500 new common bearer shares with voting rights against contributions in cash and/or in kind within five years after recording the relevant amendment to the articles of association in the commercial register, while preserving the right of subscription to which the law entitles shareholders, including the right of indirect subscription by way of a bank pursuant to Section 153 (6) of the Austrian Stock Corporation Act (AktG), and to fix the offering price and terms of the issue with the approval of the Supervisory Board. The Supervisory Board or a committee authorized for this purpose by the Supervisory Board is authorized to adopt amendments to the articles of association that arise upon issuing shares from the authorized capital.

Pursuant to Section 159 (2) 1 of the Austrian Stock Corporation Act, the capital stock has been increased contingently by up to € 47,173,587.50 through the issue of up to 15,466,750 common bearer shares (contingent capital). The contingent capital increase would only be carried out to the extent that holders of convertible bonds issued under the resolution of the annual general meeting of 10 June 2008 make use of their right to convert such bonds into shares of the Company. No convertible bonds have been issued to date, however.

The annual general meeting of 8 July 2010 authorized the Management Board to acquire own shares, under the provisions of Section 65 (1) 8 of the Austrian Stock Corporation Act, during a period of 30 months from the date of the resolution, up to a maximum of 10 per cent of the Company's respective capital stock and, if deemed appropriate, to retire them. This authorization may be exercised in one or several installments by the Company, by affiliated enterprises or, for their account, by third parties. The Management Board was further authorized to decide, with the approval of the Supervisory Board, on the sale of own shares by means other than the stock exchange or a public tender, to the exclusion of shareholders' subscription rights. This authorization replaces the authorization to buy back and use own shares that was granted in the annual general meeting of 10 June 2008. No own shares have been bought since the authorization was issued in July 2010.

The annual general meeting of 8 July 2010 also authorized the Management Board to acquire own shares for the purpose of securities trading, under the provisions of Section 65 (1) 7 of the Austrian Stock Corporation Act, during a period of 30 months from the date of the resolution, up to a maximum of 5 per cent of the Company's respective capital stock. The consideration for each share to be acquired must not be less than half the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition and must not exceed twice the closing price at the Vienna Stock Exchange on the last day of trading preceding the acquisition. This authorization may be exercised in one or several installments by the Company, by affiliated enterprises or, for their account, by third parties.

The annual general meeting of 9 June 2009 authorized the Management Board of the Company to issue, in one or more tranches, participation rights having equity characteristics pursuant to Section 174 of the Austrian Stock Corporation Act in a total nominal amount of up to € 2 billion within five years from the date of the resolution with the approval of the Supervisory Board in accordance with the terms for participation rights to be set by the Management Board and to the exclusion of shareholders' subscription rights. It should be noted that, under the provisions of the relevant laws, participation rights confer no voting rights or other membership rights. Issuing participation rights therefore entails no change of ownership structure from the standpoint of stock corporation law and shareholders' voting rights. The Company decided on 15 July 2009 to strengthen its capital by issuing participation rights in the amount of € 600 million based on the authorizing resolution of June 2009. In the course of the merger with effect from 10 October 2010, the mutual loans and liabilities of the receiving and transferring companies were wiped out. The same is true of the participatory rights in the amount of € 600 million, which had been subscribed in full by RZB. No further participation rights have been issued to date. Please consult the notes to this report on page 18 for more information.

In the course of the merger, the RZB issue "Raiffeisen-Partizipationskapital 2008/2009" in the amount of € 2.5 billion was transferred to RBI on unchanged terms.

• The following material agreements to which the company is a party and which take effect upon a change of control in the company as a result of a takeover bid exist in the context of the D&O insurance and the Share Incentive Program (SIP) of the company:

"If the insured, RBI, comes under new control due to a change in the management or control in respect to the management or control over a subsidiary or if it merges with another enterprise, the insurance will only cover events of loss due to wrongful acts occurring prior to the change in control and management and only for events of loss up to the end of the period of insurance."

The Company's Share Incentive Program (SIP) provides the following upon a change in corporate control: "If a change in corporate control or a merger occurs during the vesting period without the combination being exclusively concerned with subsidiaries, all contingent shares will lapse without replacement at the time of acquiring the shares of Raiffeisen International and the investor's actual possibility of disposing of them, or at the time of the merger. An indemnification payment will be made for these contingent shares. The indemnity sum calculated will be paid out with the next possi-

• There are no indemnification agreements between the company and its Management Board and Supervisory Board members or employees for the case of a public takeover bid.

ble salary payment."

Business development

The 2010 financial year was dominated by the merger of Raiffeisen International Bank-Holding AG (RI) with the principal business areas of Raiffeisen Zentralbank Österreich AG AG (RZB) to form Raiffeisen Bank International AG (RBI). As the acquiring company RBI entered by universal succession into all rights and obligations of the spun-off principal business areas of RZB, and at the same time received a banking licence, there was no change in the business relationships with customers.

As in the past, the key factor for the good performance in 2010 was RBI's ability to offer its customers banking products of all kinds in a focused, solution-oriented manner. The solid risk result also made a substantial contribution to this good performance.

Gross profit (total of net interest income, net fee and commission income and net trading income) on RBI customers served from Vienna (not including profit from financing network banks) was around € 525 million in 2010. This year was characterized by improved margins while we also generated higher sales in individual service areas, e.g. arranging and placing corporate bonds of Austrian and international issuers.

Outstanding loans and advances to customers as of 31 December 2010 totalled around € 24.6 billion.

Corporate Customers 2010

The merger enabled the development of a joint corporate banking strategy for Head Office and the network banks, with a particular focus on optimizing customer service throughout the entire network.

In addition, as part of the new corporate banking strategy a new structure was created in the "Corporate" executive division at Head Office, clearly distinguishing between areas with group functions focusing on support functions and know-how transfer, and an operating business division for which a selective industry focus was introduced. The "Austrian Corporate Customers" and "Multinational Corporate Customers" areas were also merged in a "Corporate Customers" segment.

Key elements of the new strategy:

• group-wide introduction of a differentiated service model, depending on the size and need of the customer segment in question;
• continuation and further development of relationship banking, with a special focus on a holistic and cross-border approach to customers and cross selling;
• improved and structured know-how transfer throughout the Group;
• boosting efficiency by continuing with process optimization measures.

On the customer side, there was a positive turnaround in broad areas in 2010. Sales generally improved significantly in most sectors, particularly in Austria and Germany, but also in Poland, the Czech Republic, Slovakia, Russia, Ukraine and Asia. In addition, many companies used the crisis to improve their cost structure, whilst responding rapidly to changing market conditions. At the same time, the risk situation eased in the areas listed above, resulting in reversals (some of them considerable) of individual impairment loss provisions recorded in earlier years.

All together this resulted in a further improvement in gross earnings in the Corporate Customers segment, totalling € 369 million at year-end.

Treasury

The small amount of long-term financing needed at RBI in 2010 was easily covered through private placements of various maturities in the first two quarters of 2010.

At the short end RBI used the existing short-term issuing programme (commercial paper) to raise funds in Europe and the USA. After the merger of RZB and RI, both the short-term and long-term issue programmes at RZB were transferred to the new entity RBI.

Interbank trading with short-term liquidity continued to improve by comparison with the previous year, but remained volatile. Besides the good supply of liquidity through short-term and longer-term secured money market transactions, increasing use was made of unsecured funds at the short end.

Investment banking

Despite volatile markets and the debt crisis among European peripheral nations, the Markets business division reported strong earnings in 2010.

Customers took advantage of the favourable financing conditions in repo transactions with RBI. In the FX business, demand for hedging by customers rose at the start of the year, resulting in demand for FX options. In the second quarter of 2010 there was increased demand for gold as a result of the challenging economic situation. The recovery in the economy from the third quarter had a positive effect on banknotes trading through the increase in tourism. The reorientation of bond trading was continued with a clear focus on trading on behalf of customers and the core markets. Austrian and state-guaranteed bonds were in particular demand during bond trading.

While concerns about the US economy were largely soothed by the stimulus measures and the significant upward revision of growth forecasts, the eurozone debt crisis continues to trouble and will remain one of the main themes in 2011 as well. Equities markets showed strong gains in 2010 worldwide, in both established and emerging markets. One exception was the peripheral European stock exchanges, which suffered significant losses as a result of the debt crisis and lower growth prospects. There were record volumes registered in segments of the market for European corporate bonds. All in all, issues totalled € 191 billion in 2010. Particularly impressive was the high volume of high-yield corporate bonds, which reached some € 41 billion in 2010.

In an environment characterized by high volatility, RBI succeeded in arranging major transactions in all areas of investment banking. In the capital market, RBI was mandated by the Republic of Slovakia as lead manager for its € 2 billion government bond and by KA Finanz AG for its € 1 billion state-guaranteed Eurobond. In the corporate bond segment, Eurobonds were managed for OMV (€ 500 million), Heidelberg Cement (€ 650 million) and Phoenix Group (€ 506.2 million). RBI has a reputation as an experienced credit arranger for both developed and emerging markets, and proved its competence again in 2010. Outstanding deals included the € 2 billion guaranteed credit line for STRABAG SE and the USD 900 million export financing for SUEK – Siberian Coal Energy Co.

Notable deals in the Mergers & Acquisitions segment were advising Kosovo's privatization board on the sale of "Sharr Cement" to the multinational cement company Titan Group, and the merger of Danone and Unimilk, one of the biggest Russian dairy groups where the buyer was advised by Lazard and Raiffeisen Investment AG (RIAG), with a transaction volume of roughly € 2 billion.

Although there were no IPOs in Austria in 2010, there were four capital increases for cash on the domestic primary market with a total transaction volume of around € 1.3 billion. Raiffeisen Centrobank maintained its leading position through its involvement in all four of these transactions, and made a major contribution to their success.

Dominated by the sovereign debt crisis, 2010 also posed great challenges for analysis, and further increased the need for solid information. In 2010 Raiffeisen Research published 1,086 analyses and 655 current briefings on capital market developments and gave 776 presentations for internal and external customers.

Branches and representative offices

RBI has 5 branches in London, Singapore, Beijing and Xiamen and (new in 2010) Labuan, Malaysia.

RBI also has representative offices in Frankfurt, Paris, Milan, Stockholm, Madrid, Moscow, New York, Teheran, Mumbai, Seoul, Ho Chi Minh City, Hong Kong, Zhuhai and Harbin.

The RBI branches in Asia – Beijing and Xiamen (China), Singapore and Labuan (Malaysia) – were extremely successful again in 2010, and significantly improved results on the previous year. Profit before tax in Asia amounted to approximately € 91.0 million. There were extensive organisational and operational innovations, such as the centralization of the functions of internal audit and compliance in Asia and the start of investment banking.

Cross-border business between China and Russia was further strengthened through the representative office in Harbin and cooperation with the CEE network banks. The RBI representative offices in Seoul, Hong Kong and Zhuhai also arranged a number of profitable transactions.

Besides their communication function, the European representative offices continued to be an important source of business for the entire network in CEE, while the Asian representative offices primarily served the Asian branches. As part of the treasury strategy, the London branch supports capital market sales.

Merger of Raiffeisen International with the principal business areas of RZB

On 22 February 2010, Raiffeisen International Bank-Holding AG (RI) and Raiffeisen Zentral Bank AG (RZB) announced that a merger of RI with RZB's principal business areas was a possible strategic option. On 19 April 2010, the boards of the two companies announced their decision to present a resolution proposing a merger to the two companies' shareholders. At the annual general meetings of Raiffeisen Zentral Bank AG and its 100 per cent subsidiary Cembra Beteiligungs AG (Cembra) on 7 July and the annual general meeting of Raiffeisen International Bank-Holding AG on 8 July, the shareholders approved the spin-off preceding the merger and the merger itself with the requisite three-quarters majority. The spin-off was recorded in the commercial register on 9 October and the merger on 10 October. The spin-off and the merger were carried out with retrospective effect on the target date 31 December 2009, 12 o'clock p.m. (contractual spin-off- and merger-due-day); the transaction was made effective with the entry into the commercial register. With effect from this registration Raiffeisen International Bank-Holding AG was renamed Raiffeisen Bank International AG (RBI). The Vienna Stock Exchange changed the share's ticker symbol from RIBH to RBI on 13 October.

The merger brought together RI, which is focused on the markets of Central and Eastern Europe, with RZB's principal business areas. These include the corporate banking business, i.e. significant portions of its banking operations, together with related participations. RZB's activities relating to its function as the central institution of the Raiffeisen Banking Group Austria (RBG), such as liquidity balancing, were excluded from the merger. The benefits of the merger range from unrestrained access to the capital markets to the up-to-date streamlined product range in the Central and Eastern European markets to the ability to allocate resources selectively to the most attractive market opportunities.

The stages of the merger

In the first stage the business segments of RZB that were to be merged were spun off and transferred to Cembra in preparation for the merger. Immediately after this transfer Cembra was merged with RI, which was renamed RBI once the merger took effect.

RZB received 40.8 million new common shares in RBI through its wholly-owned subsidiary Raiffeisen International Beteiligungs GmbH – together with the shares in RI previously held by Cembra – as compensation for the transfer of assets by Cembra in the merger. The issue of these shares increased RBI's share capital by € 124.6 million to € 596.3 million.

The exchange ratio for the merging companies was fixed as follows: 30.701845 bearer shares in RI were granted for each bearer share in Cembra. The exchange ratio was based on the valuation of the companies RI and Cembra on 8 July 2010. These valuations were confirmed by two independent auditing companies who were appointed by the two companies as independent assessors.

The court-appointed merger auditor TPA Horwath Wirtschaftsprüfung GmbH also produced a report under Section 220b of the Austrian Stock Corporation Act on the methods used to calculate the exchange ratio and the appropriateness of the proposed exchange ratio. To increase transparency further three international investment banks were requested to deliver reports on the fairness of the proposed exchange ratio, which they confirmed (so-called fairness opinions).

Ownership structure of the new bank

Like Raiffeisen International before, RBI is listed on the Vienna Stock Exchange. While Raiffeisen International's pre-merger free float was around 27.2 per cent, RBI's free float amounted to around 21.5 per cent after the transaction1 . The 72.8 per cent which RZB indirectly held in RI before the merger therefore increased to around 78.5 per cent. This reflected the fact that 40.8 million new shares were granted to Cembra's sole shareholder Raiffeisen International Beteiligungs GmbH, a 100% subsidiary of RZB, in compensation for the transfer of Cembra's assets to RI in the merger.

¹ figures including proprietary possession

RBI's Management Board and Supervisory Board

RBI's Management Board contains members of both the pre-merger RI and RZB boards and there is therefore a high degree of continuity in terms of its composition and personnel. Herbert Stepic remains Chairman. Karl Sevelda, responsible for Corporate Banking, was appointed Deputy Chairman following the merger. Martin Grüll remains Chief Financial Officer and Johann Strobl was appointed Chief Risk Officer. Aris Bogdaneris and Patrick Butler also continue to exercise their previous board responsibilities in Retail banking and Markets respectively. Peter Lennkh is responsible for Network management.

The Supervisory Board was expanded in the merger. Walter Rothensteiner, who was Chairman of the Raiffeisen International Supervisory Board will stay on as Chairman of the new Supervisory Board. While Patrick Butler, Karl Sevelda, Johann Strobl and Manfred Url stepped down from the Supervisory Board with the entry of the merger in the commercial register, new members were elected to replace them and the number of shareholder representatives on RBI's Supervisory Board was increased from seven to ten.

Financial performance indicators

In light of the reorganisation measures and the change of business structure the significance of comparisons with the previous year is much reduced, and therefore trends since the previous year are not presented.

Balance sheet

Notes to the balance sheet

Total assets of Raiffeisen Bank International AG (RBI) at the balance sheet date of 31 December 2010 were € 72.7 billion.

Cash in hands and balances with central banks were carried at € 0.6 billion at year-end, including an amount of roughly € 0.3 billion with the Austrian National Bank.

As of 31 December 2010 treasury bills and other bills eligible for refinancing with centralbanks were recognised at roughly € 4.7 billion, primarily comprising Republic of Austria government bonds totalling € 3.8 billion.

Loans and advances to credit institutions amounted to € 24.0 billion, of which 60 per cent were to foreign banks.

Loans and advances to customers were shown as of the balance sheet date at € 24.6 billion, representing the largest share of total assets at around 34 per cent, of which 70 per cent were to foreign customers.

Debt securities and other fixed-income securities amounted to roughly € 7.0 billion as at 31 December 2010, divided between banks (€ 4.9 billion) and corporates (€ 2.0 billion).

Shares and other variable-yield securities totalled € 0.2 billion as at the balance sheet date.

Shares in affiliated undertakings amounted to € 6.4 billion as of 31 December 2010, and included investments in network banks in CEE of € 5.3 billion, while the total value of investments from the corporate banking business spun off by RZB AG was € 0.2 billion.

Under liabilities to credit institutions totalled € 29.9 billion. These represent the largest share of RBI's refinancing base, at 41 per cent of the balance sheet total. Deposits from banks were split between Austrian banks (53 per cent) and foreign banks (47 per cent).

Liabilities to customers (non-banks) amounted to € 12.7 billion as at the balance sheet date, with a 59 per cent share of deposits from foreign customers.

Securitised liabilities, subordinated liabilities and supplementary capital together amounted to € 18.3 billion in the reporting year, while placements of new issues in 2010 totalled € 1.2 billion.

The balance sheet item participation capital /participation rights amounted to € 2.5 billion as at 31 December 2010 and included the participation capital of € 1.75 billion subscribed by the Republic of Austria in 2009 under the Financial Market Stability Act.

The own funds requirement as of 31 December 2010 was € 3.2 billion, of which € 2.8 billion was for credit risk.

Eligible core capital (Tier I) amounted to € 5.7 billion as at 31 December 2010, while eligible additional own funds (Tier II) totalled € 3.8 billion as of the same date.

Deducting bank and insurance company participations leaves total own funds of € 9.5 billion, resulting in excess own funds of 200 per cent or € 6.3 billion.

The core capital ratio related to total risk was 14.3 per cent in 2010, while the own funds ratio as at 31 December 2010 was 24.0 per cent.

Earnings

In the 2010 financial year Raiffeisen Bank International AG (RBI) reported net interest income of € 597.7 million, where total interest and similar income of € 2,185.3 million includes income from fixed-interest securities of € 411.4 million.

Income from securities and participating interests of € 363.3 million was primarily from income from shares in affiliated companies (€ 311.7 million).

The balance of commissions receivable and commissions payable showed a net income of € 148.6 million, with the largest share (43 per cent) derived from income from the securities business (€ 63.7 million).

The net profit in financial positions as of the balance sheet date showed net income of € 39.1 million.

Other operating income amounted to € 85.6 million, including income from services to network units (73 %) and the holding company RZB AG (11 per cent)

RBI operating income totalled € 1,234.2 million.

Total operating expense was € 544.5 million.

Staff costs were reported at € 249.1 million.

Other administrative expenses of € 247.8 million comprised mainly on IT expenses (27 per cent) and fees for legal and other advisory services and audits (21 per cent).

Value adjustments of asset (depreciation on tangible assets) amounted to € 31.1 million.

Other operating expenses at RBI in 2010 totalled € 16.4 million, of which € 5.7 million was for impairment on the goodwill of the Cembra investment, created in the course of the merger.

After deducting operating expense from operating income, RBI reported an operating result of € 689.7 million for the 2010 financial year.

This resulted in a cost/income ratio of 44.1 per cent.

Net income from the disposal and valuation of loans and advances and specific securities showed a loss of € 179.4 million in 2010; the total expense of € 227.2 million was largely resulted from impairments on loans and advances of € 190.7 million.

Net income from the disposal and valuation of securities evaluated as financial investments and of shares in affiliated companies and participating interests showed a loss of € 40.1 million, with the revaluation loss on securities totalling € 41.4 million, or 78 per cent of the total expense of € 52.9 million.

This resulted in a profit on ordinary acitivities of € 470.2 million for the past financial year, giving a return on equity before tax of 8.1 per cent.

Tax on profit amounted to € 62.5 million, including a provision for the current tax office audit. The segment's return on equity after tax came in at 7.0 per cent.

The profit for the year after tax as of 31 December 2010 totalled € 407.7 million. Holders of participation certificates received a dividend from this amount of € 200.0 million.

Proposed distribution of profit

The Management Board will propose the distribution of a dividend of € 1.05 per ordinary share to the annual general meeting, or € 205.3 million.

Non-financial performance indicators

Staff

Raiffeisen Bank International AG (RBI) was created by a merger between Raiffeisen International Bank-Holding AG (RI) and the principal business activities of Raiffeisen Zentralbank AG (RZB). All the following figures relate to the new company, for which there are no comparable figures from the previous year.

As at 31 December 2010 RBI had 2,054 employees (full-time equivalent). The traditionally very high proportion of female employees remained at 45.6 per cent. In the interests of an optimal life-work balance, RBI offers variable working hours without core time, telecommuting and a range of part-time options. There is still strong demand for parental leave and so the share of employees in part-time employment as of the balance sheet date was 11.3 per cent in all.

Despite the staff reassignments during the merger, critical positions still had to be filled on account of normal staff turnover. During the reporting period the staff turnover rate was 8.1 per cent.

Merger, an opportunity for the future

The change processes instigated by mergers always represent a particular challenge for organizations. In addition to getting to grips with these organizational hard facts, there was and is a need to work on the so-called soft issues, in particular on combining the different cultures of RI and RZB. This is why the Management Board decided to set up a change process. Its main aims were to

• involve all employees to obtain their consent to the planned changes to establish a new, common corporate culture, and
• support managers who in the course of the integration process have to deal with new management responsibilities.

The merger process was therefore designed and overseen by a team of internal and external change experts.

At the beginning of the change process, a comprehensive diagnosis was carried out using an employee survey and a large number of focus groups. The findings from the survey were presented and discussed in workshops of various compositions. In this context special attention was paid to differences in corporate culture. The initial cornerstones of the new culture were then worked out in dialogue with employees at various levels, based on the new leadership principles worked out by the Board. Organizational units particularly affected by the changes were supported with tailor-made workshops. At the same time, targeted support measures such as team building, conflict mediation and coaching were also implemented. Strong emphasis was placed on communicating with employees in numerous meetings, dialogue sessions with the management and information events on specific topics, as well as an Integration Newsletter published on a regular basis.

Although employees and managers had to cope with many changes and the resulting strains and stresses – as in the case of every merger – a feeling of optimism regarding the merger set in relatively early coupled with tangible confidence in the company. At the start of October, for example, shortly before the official merger date, more than 80 per cent of participating employees responded positively in an employee survey to the question: "How confident are you that RBI/the new RZB is heading towards a successful future?"

Potential for the future – training and human resource development

A high level of staff qualification is a key requirement for RBI's successful business development. As a result, hiring activities have focused primarily on graduates, resulting in an overall share of 58.5 per cent. In addition there were measures implemented for the ongoing training and further training of existing employees. On average, each of them spent 4.3 days on training and further training events in the reporting year. Following the successful introduction of a Group-wide leadership training architecture, many programmes were adapted or newly created in Vienna too. They all build on shared values and competencies and meet the development needs of all management levels.

Performance management

As a result of the merger, the performance management systems for the Vienna-based organizational units were also standardized within the space of just a few months, so that since early 2010 there has been a common, automation-supported performance management process. This change was accompanied by a major training initiative to further increase the quality and sustainability of the goal-setting process.

Structured job evaluation

Besides working on these employee-related issues, Human Resources also implemented fundamental measures relating to the organizational structure of the new bank. As part of a job evaluation project, an objective and systematic evaluation of all positions within the company was conducted, based on the internationally proven Watson Wyatt Global Grading System, which in the future will form the basis for standard personnel management processes and tools. Among other things a marketbased and objective wage and title structure as well as development plans and career paths will be drawn up on the basis of each position evaluation. Another project to introduce a new remuneration structure was started as early as the fourth quarter of 2010. This project will include salary ranges and bonus systems being drawn up and implemented that already meet the new guidelines of the Banking Act on the principles of remuneration policies and practices. The project is set to be completed within the first quarter of 2011.

Corporate Responsibility

Corporate responsibility in a time of change

The basis of today's corporate responsibility (i.e. the social responsibility) of the Raiffeisen family can be found in Friedrich Wilhelm Raiffeisen's concept of "helping people to help themselves", embodying a balance of economic, social and environmental needs. RBI builds upon this and is a responsible and reliable partner for clients, investors and staff.

For RBI, corporate responsibility is a central part of its self-image as well as an actively practiced element of the corporate culture. In essence, it is a commitment to social responsibility and environmental sustainability. At the same time, the general aim is a responsible form of corporate action that extends above and beyond individual measures.

Raiffeisen principles

The following five principles have been laid down at RBI in order to define and communicate the term "corporate responsibility":

• A future always needs a past

This principle is dedicated to the company's own history and tradition. If nothing else, the strength of RBI is based on Raiffeisen's excellent reputation and values. It is easy to have trust in a partner with a history of success stretching back over 100 years.

• We are here to stay

This principle expresses RBI's responsibility to the regions of Central and Eastern Europe and their people. It also attests to a long-term strategy that is geared towards sustainability.

• The best become better with us

This approach emphasizes the interaction between the staff's commitment to performance and the social involvement of the employer.

• Our clients' success defines our own success A successful business is the primary aim of RBI and the basis for responsible dealings with its customers.
• A strong cultural mix

RBI's commitment to diversity is aimed towards a strong cultural mix. An extensive presence in Central and Eastern Europe produces economic and social benefits and creates new opportunities.

Embedding corporate responsibility into the organization

The importance of sustainability in the Raiffeisen Group has been strengthened in 2010. This has been achieved with the further development of strategic and organizational measures in the area of corporate responsibility. Decision-making powers for the agendas in this field continue to rest with the Management Board. However since January 2010, strategic and organizational planning has rested with a newly created team that supports the decision makers in corporate responsibility issues.

In 2010, the so-called Extended Corporate Responsibility Committee (CR Committee) held its meetings on a half-yearly basis. The body is composed of important stakeholder representatives, including owners, non-profit organizations and network banks. The CR Committee has the task of informing the Management Board about current corporately relevant trends from the respective business areas of its members which are of relevance to the company. Consequently, it makes an important contribution to RBI's commitment to social responsibility in CEE including Austria.

Compliance and Code of Conduct

The topic of compliance is a part of daily business at RBI. At the same time, the entire RZB Group not only adheres to the statutory requirements but with its Best Practice approach has been consciously going above and beyond them for over 15 years.

The foundation of sustainable business policy

The Group's Code of Conduct forms a framework for implementing statutory requirements and represents the key basis for corresponding measures and ethical attitudes in the course of banking business. In particular, this also defines the correct way to deal with customers, business partners and staff.

In addition, the Code of Conduct contains provisions for handling market-sensitive information and preventing money laundering, the financing of terrorism, fraud and corruption.

As the rules affecting the reputation of the company as a whole have to be adhered to as uniformly as possible, the Code of Conduct and the key compliance rules are obligatory for the whole Group.

The Code of Conduct can be accessed on the RBI homepage.

The first RZB Group Stakeholder Council

As part of its structured sustainability management, the RZB Group has made open dialog one of its goals. In this spirit, on 27 October 2010 it convened a multi-stakeholder dialog with representatives from all key stakeholders for the first time. The result was an active and equitable exchange of opinions.

RBI's social commitment

As a company that is conscious of its responsibility, RBI is also actively involved in areas that are not directly related to its original business purpose.

Help for the earthquake victims of Haiti

On 12 January 2010, Haiti was struck by a devastating earthquake. After this, polluted drinking water, catastrophic hygienic conditions and the acute lack of medical supplies threatened the health of the earthquake region's inhabitants. As a result, the RZB Group set up a donation account with the Austrian Red Cross (ÖRK) and invited all colleagues, including those in CEE, to make a donation to this account. This call for donations raised over € 90,000.

H. Stepic CEE Charity – opportunity for a better life

Together with its cooperation partners – including Caritas, Hilfswerk Austria International and ÖRK – the H. Stepic CEE Charity carries out numerous social aid projects in the CEE region.

Thanks to the dedicated work of many volunteers, it was possible to achieve these projects in a relatively short period. Examples include a home for orphans in Charkov (Ukraine), holiday accommodation for children in Jablunitsa (Ukraine), a home for war widows and their children in Illijas (Bosnia) as well as the procurement of a handicapped accessible minibus for a children's hospice in Minsk (Belarus).

In 2010 another project was started in Albania with the help of Caritas. Here, the H. Stepic CEE Charity is involved in converting a former health center into a daycare center for disabled people aged between 8 and 25, who will then benefit from living space and professional care.

At the moment, a new project is just taking shape in the Ukraine: Together with "Kleine Herzen" and Caritas, the H. Stepic CEE Charity is setting up an orphanage for ten children in Pnikut. It is expected to open in 2011.

Information about all of H. Stepic CEE Charity's projects can be found at www.stepicceecharity.org.

Dealing with staff responsibly

Even during the merger and the related reorientation, handling staff fairly is something that is very important to RBI. In addition to initiatives that address the issue of a healthy work-life balance, a focus is put on comprehensive diversity management. This pursues the aim of having positive intercultural cooperation across the entire Group.

As a result of the merger, further emphasis was put on structured communication about the new bank. This primarily addressed the differences in corporate culture that had been dealt with in workshops. Further details regarding this can be found in the chapter: Human resources.

Detailed information concerning corporate responsibility at RBI will be published in the next corporate responsibility report. It is anticipated that it will be published in the second quarter of 2011.

Risk management

The start of 2010 was still dominated by uncertainty due to the continuing financial and economic crisis that started in 2008. Markets were suffering from the combination of low economic growth and a continuing high level of defaults, as well as high volatility in risk premiums and exchange rates. However, the trend finally turned during the reporting year and the global economy picked up more and faster than originally anticipated. Even so, the general uncertainty and the gap between countries in terms of the sustainability of the economic recovery remain. Risk premiums also widened further as a result of the sovereign debt crises in Greece and Ireland.

In this environment, risk management at Raiffeisen Bank International AG (RBI) used a combination of new and existing instruments to deal with the increased market volatility and make it possible to respond early to changes in general economic circumstances. At the same time, business activity was expanded in non-cyclical sectors, existing loans to governments and financial institutions in the affected markets were scaled back, and lending policies were modified, particularly for foreign currency loans. These measures helped to bolster the resilience of the RBI credit portfolio in the face of the prevailing market volatility.

Despite the continuing difficult market situation, newly formed provisions for impairment losses in 2010 were kept low as a result. Even so, managing non-performing loans was one of the core functions of risk management in 2010. Besides the reorganization of the area involved, further progress was made with introducing minimum standards for the restructuring process. The standards were introduced at all network banks and leasing companies, and now ensure sustainable and comprehensive management with adequate resources throughout the entire Group. The early recognition of problem loans means that more time is available to assign them to experienced restructuring managers with their extensive portfolio of measures.

Risk management integration through the merger

The creation of a fully integrated risk management system was always a compelling argument in favour of the merger during the reporting year of Raiffeisen International Bank-Holding AG (RI) and the spun-off principal business areas of Raiffeisen Zentralbank AG (RZB). All risk management functions were consolidated under the Chief Risk Officer, who is also a Member of the Management Board, and partly reorganized. In the context of this partial reorientation, the concept of risk committees with decision-making authority was modified for the new structure. These committees were upgraded with the addition of a number of board members. In addition, the risk management processes of RI and RZB were consolidated.

The resulting structure with its new elements forms the basis for risk management – identifying, measuring, aggregating, limiting and reporting – for both individual types of risk and the overall risk for RBI.

The departments in both companies for credit risk management for large customers were consolidated, with a realignment on industry lines. The newly created Credit Management Corporates area was given four departments dealing with specific target industries (construction & real estate, cyclical industries & manufacturing, noncyclical industries, energy & commodities). The goal of the alignment by industry is to establish the individual departments as competence centres for industry know-how. As a result, the departments in credit risk management for major customers also analyze the potential and risks for the individual industries, in close cooperation with internal and external specialists such as economists, industry consultants and trend analysts.

In combination with the reorganization of credit risk management for major customers by industry, Credit Portfolio Management was given a regional dimension by consolidating country risk and credit portfolio management in a new department. This has the function of enabling uniform risk assessment for both RBI countries and portfolios. The conclusions and resulting measures are determined in close consultation with the responsible customer segments, and are being implemented within the existing management instruments (lending guidelines, portfolio limits, etc.).

In view of the problems facing many customers as a result of the economic crisis – particularly in Central and Eastern Europe – a unit was established at Group Head Office for managing problem loans to corporate customers and financial institutions. Its staff have many years of experience in restructuring management in both Western Europe and CEE, and are directly involved in the decision-making processes where key non-performing loans are involved. The emphasis is on central management of complex problem cases, advising local restructuring management departments and ongoing monitoring of recoveries. In addition, this unit handles all the RBI problem loans and negotiates with its customers, bank syndicates and potential investors. Particular attention is paid to coordinating international problem cases affecting a number of RBI units, by developing and implementing strategies to optimize results on a group basis.

Market risk

The market risk management system developed since March 2008 on the basis of an internal model was implemented at the start of 2010. Since then, market risk management has been based on the figures from this internal model.

The model uses a hybrid approach, i.e. a combination of historical and Monte Carlo simulation with around 5,000 scenarios to calculate value at risk (VaR) for changes in the risk factors of foreign exchange, interest changes, credit spreads for bonds, credit default swaps and equity indices. To improve the modeling of risk factors where the probability of extreme price changes is higher than under normal distribution, the model incorporates numerous add-ins, such as adding extreme events to the scenarios, or taking current volatility into account in scenario generation, together with various time horizons in volatility estimation. This model approach offers a suitable basis for implementing the strict Basel III requirements in internal models.

The model passed the review process of both the Austrian Financial Market Authority (FMA) and Oesterreichische Nationalbank (OeNB), and has been used since 30 August 2010 to calculate capital requirements for the foreign currency and general interest rate risk in the trading book for RBI. Daily management includes RBI's trading and bank books based on VaR for a oneday holding period, a 99 per cent confidence interval, and sensitivity limits. The market risk position, limit process and presentation of all capital market activities in the income statement are some of the regular items on the agenda for the weekly Market Risk Committee meetings.

To ensure the quality of the model, it is subjected to an ex post daily comparison, or backtesting. The results of these tests have always been within the range of model expectations, and have not shown any material flaw even in the last few months. Based on these good results, the internal model should be placed in the best regulatory category ("green status").

RBI's net interest income is a significant component in earnings and makes a material contribution towards strengthening its capital. To reflect this importance, a separate unit was established in risk management to simulate this earnings component in various scenarios. In close cooperation with the market units, RBI is preparing itself for various developments in the markets so that it can respond rapidly to adverse trends.

Liquidity risk

Within liquidity risk management, the crisis scenario analyses used in risk measurement and management were further refined. Besides results from recent years, the initial assumptions of Basel III have been integrated into the underlying scenarios, and the associated measures have focused primarily on reducing liquidity and transfer risks. Other initiatives in the reporting year were aimed at diversifying the refinancing basis.

Basel II and Basel III

In the reporting year RBI worked closely on the impending regulatory changes in capital requirements under the Basel III rules. The potential influence of the new and modified statutory regulations on RBI was analyzed in detail. In addition, the Group participated in the Quantitative Impact Study, organized and analyzed by the CEBS and the Bank for International Settlements (BIS).

Besides the preparations already initiated in connection with the new Basel III regulations, RBI risk management focused on the ongoing implementation of the advanced Basel II approach. The activities related to Basel II include implementing the Internal Rating-Based approach (IRB) in the retail and non-retail segments of the subsidiaries in CEE, further developing the internal market risk model, and the Group-wide introduction of the Standard Approach for operational risk. The activities in individual Group subsidiaries were coordinated and assisted by the RBI risk management units.

The supervisory authorities approved the modification of the IRB approach for RZB in the reporting year, which was necessary because of the merger-related transfer of assets from RZB to RI. As a newly created bank, RBI successfully completed the mandatory IRB approval process with a very low number of new requirements.

Risks arising from financial instruments (Risk report)

Active risk management is one of the core competencies of Raiffeisen Bank International AG (RBI). In order to effectively identify, measure, and manage risks the bank already implemented a comprehensive risk management system in the past and continues to develop it. In doing so risk management constitutes an integrated part of overall bank management. In particular, in addition to legal and regulatory requirements, it takes into account the nature, scale, and complexity of the business activities and the resulting risks. Risk management in Raiffeisen Bank International controls the exposure to and ensures professional management of all material risks.

Risk Management Principles

RBI has a system of risk principles and procedures in place for measuring and monitoring risks, with the aim to control and manage risks at all banking and specialist subsidiaries of the bank. The risk policies and risk management principles are laid down by the Managing Board of Raiffeisen Bank International. The following risk policies highlight some of these principles:

• Integrated risk management

Credit, country, market, liquidity, participation and operational risks are managed as main risks throughout the Group. For this purpose, risks are measured, limited, aggregated, and compared to available risk coverage capital.

• Standardized methodologies

Risk measurement and risk limitation methods are standardized in order to ensure a consistent and coherent approach to risk management. This is efficient for the implementation of risk management methods. And it is the basis for consistent overall bank management across all countries and business segments in RBI.

• Continuous planning

Risk strategies and risk capital are reviewed and approved in the course of the annual budgeting and planning process, whereby special attention is also paid to risk concentrations.

• Independent control

Clear personal and functional firewalls are in place between business operations and any risk management or risk controlling activities.

• Ex ante and ex post control

Risks are consistently measured within the scope of product selling and in risk-adjusted performance measurement. Thereby it is ensured that business in general is done under risk-return considerations and that there are no incentives for taking high risks.

Organization of risk management

The Managing Board of RBI ensures the proper organisation and ongoing development of risk management. It decides which procedures are to be employed for identifying, measuring, and monitoring risks, and makes steering decisions according to the created risk reports and analyses. For implementing these tasks, the Managing Board is supported by independent risk management units and specially appointed committees.

Basically, risk management functions are performed on different levels in the Group. RBI develops and implements the relevant concepts in coordination with RZB as as the parent credit institution of the Group and in cooperation with its subsidiaries. Risk management functions in RBI thus often carry two sets of responsibilities: on the one hand they ensure the adequate and appropriate implementation of risk management processes in the Group; on the other hand, they implement the risk policies for specific risk types and take active steering decisions within the approved risk budgets for RBI itself.

The central Risk Controlling division assumes the independent risk controlling function required by banking law. Amongst others, this division is responsible for developing the Group-wide framework for overall bank risk management (integrating all risk types) and preparing independent reports on the risk profile for the Managing Board and the heads of individual business units.

Risk committees

The Risk Management Committee is responsible for ongoing development and implementation of methods and parameters for risk quantification models and for refining steering instruments. The committee also analyzes the current risk situation of the Group with respect to internal capital adequacy and the corresponding risk limits. It approves risk management and controlling activities (like the allocation of risk capital) and advises the Managing Board in these matters.

The Market Risk Committee controls market risks of trading and banking book transactions of RBI and establishes corresponding limits and processes. In particular, it uses treasury results, the amount of risks taken and the limit utilization, as well as the results from scenario analyses and stress tests for market risk controlling.

The Credit Committees are staffed by front office and back office divisions with different participants depending on the customer segment (corporate customers, financial institutions and sovereigns, and retail). They approve limit applications according to the credit approval authority (depending on rating and exposure size) and vote on all credit decisions.

The Group Asset/Liability Committee assesses and manages balance sheet and liquidity risks. In this context it plays an important role for the Group's long term funding planning and the hedging of structural risk positions.

Credit Portfolio Committees finally define the credit portfolio strategies for different customer segments. In these committees, representatives from business and risk management divisions together discuss the risks and opportunities of different customer segments (e.g. industries, countries, customer segments). Based on that, credit portfolio management then develops lending policies and sets limits steering the future credit portfolio.

Overall bank risk management

Maintaining an adequate level of capital is a core objective of risk management at RBI. Capital adequacy is monitored on a quarterly basis based on the actual risk level which is measured by internal models, taking into account the materiality of risks for choosing appropriate models. This capital adequacy framework incorporates both, capital requirements from a regulatory point of view (sustainability and going concern perspective) and from an economic point of view (target rating perspective).

Objective	Description of risk	Measurement technique	Confidence level
Target rating perspective	Risk of not being able to satisfy claims of the Group's senior debt holders	Unexpected losses on an annual basis (economic capital) must not exceed the present value of equity and subordinated liabilities	99.95 per cent as derived from the target rating
Going concern perspective	Risk of not meeting the regulatory capital requirement	Risk taking capacity (projected earnings plus capital exceeding regulatory requirements) must not fall below the annualized value at-risk of the Group	99 per cent reflecting the owners' willingness to inject additional own funds
Sustainability perspective	Risk of falling short a sustainable core capital ratio over a full business cycle	Capital and loss projection for the three-year planning period based on a severe macroeconomic downturn scenario	70-90 per cent based on the management decision that the Group might be required to temporarily reduce risks or raise additional core capital

This concept for overall bank risk management also satisfies the requirement for an internal capital adequacy assessment process (ICAAP) as required by Basel II (Pillar 2) regulations.

Target rating perspective

Risks in the target rating perspective are measured as economic capital presenting a comparable measure across all types of risks. It is calculated as the sum of unexpected losses stemming from different risk categories (credit incl. country risk, market, participation, and operational risk). Risks of all subsidiaries that are operatively controlled by RBI are shown separately in participation risk as well. In addition, a separate buffer for other risks not explicitly quantified is held on overall bank level.

Risk contribution of individual risk types to economic capital for Raiffeisen Bank International as of 31/12/2010

RBI uses a confidence level of 99.95 per cent for calculating unexpected losses for a 1 year horizon. This confidence level is based on the probability of default implied by the target rating of RBI. The purpose of calculating economic capital is to determine the amount of capital that would be required for servicing the claims of customers and creditors even in the case of such an extremely rare event.

Economic capital shows that credit risk of asset class corporate customers remains the dominant risk category. Its share in total risk is 35 per cent; credit risks in total account for 50 per cent of economic capital. Market risk accounts for 15 per cent and in addition a general risk buffer is allocated for other risks as well. The risk contribution of subsidiaries is shown in participation risk. Their operations and risks, however, are managed using a look-through approach and are controlled in each individual risk category based on Group standards.

Economic capital is an important instrument in overall bank risk management and is used for allocating risk budgets. Economic capital budgets are allocated to business segments during the an-nual budgeting process and are complemented for day-to-day management by volume, sensitivity, or value-at-risk limits. In RBI this sort of planning is done on a revolving basis for the upcoming three years and incorporates the future development of economic capital as well as available internal capital. Economic capital thus influences the plans for future lending activities and the overall limit for taking market risks.

Risk-adjusted performance measurement also is based on this risk measure. The profitability of business units is set in relation to the amount of economic capital attributed to these units (risk-adjusted return on risk-adjusted capital, RORAC) which yields a comparable performance measure for all business units of the bank. This measure it is used in turn as a key figure for overall bank management, for future capital allocations to business units, and influences performance-oriented compensation of executive management.

Going concern perspective

Parallel to that procedure, internal capital adequacy also is assessed with focus on the uninterrupted operation on a going concern basis. In this perspective, risks again are compared to risk taking capacity – now with focus on regulatory capital and minimum capital requirements.

According to this target, risk taking capacity is calculated as the amount of planned profits, expected risks costs, and the excess of own funds (taking into account various limits on eligible capital). This capital amount is compared to the overall value-at-risk (including expected losses). Quantitative models used in the calculation mostly are comparable to the target rating perspective, (albeit on a lower 99 per cent confidence level). Using this perspective the bank ensures adequate regulatory capitalization (going concern) with the given probability. Internal targets for regulatory capital ratios are intentionally set higher than the legal minimum, in order to be able to fulfill regulatory capital requirements at all times and to account for other risks which are not considered in the regulatory requirements.

Sustainability perspective

The main goal of the sustainability perspective is to ensure that RBI can maintain a sufficiently high core capital ratio for the three year planning period also in a severe macroeconomic downturn scenario. This analysis of the sustainability perspective is based on a multi-year macroeconomic stress test where hypothetical market developments in a severe but realistic economic downturn scenario are simulated. The risk parameters considered are amongst others: interest rates, foreign exchange rates and securities prices, changes in default probabilities and rating migrations in the credit portfolio.

The main focus of this integrated stress test is the resulting core capital ratio for a multi-year period. The minimum amount of core capital thus is determined by the size of the potential economic downturn. In this analysis the need for allocating loan loss provisions, potential procyclical effects that increase minimum regulatory capital requirements, the impact of foreign exchange fluctuations as well as other valuation and earnings effects resulting from the downturn scenario are incorporated.

This perspective thus also complements traditional risk measurement based on the value-at-risk concept, which is in general based on historic data. Therefore it can incorporate exceptional market situations that have not been observed in the past and it is possible to estimate the potential impact of such developments. The stress test also allows analyzing risk concentrations (e.g. individual items, industries, or geographical regions) and gives insight into the profitability, liquidity situation, and solvability under extreme situations.

Credit risk

Credit risk within Raiffeisen Bank International AG (RBI) stems mainly from default risk that arises from business with corporate customers, other banks and sovereign borrowers. Default risk is defined as the risk that a customer will not be able to fulfill contractually agreed financial obligations. Also migration risks (caused by deteriorations in customers' creditworthiness), concentration risks of creditors, risks in credit risk mitigation techniques, and country risk are considered.

Credit risk is analyzed and monitored both on an individual loan and customer-by-customer basis as well as on a portfolio basis. Credit risk management and lending decisions are based on the respective credit risk policies, credit risk manuals, and the corresponding tools and processes which have been developed for this purpose. The internal control system for credit risks includes different types of monitoring measures which are tightly integrated into the work flow – from the customer's initial credit application, to the bank's credit approval, and finally to the repayment of the loan.

No lending transaction is performed without running through the limit application process beforehand in the non-retail segments. This process is also consistently applied – besides new lending – to increases in existing limits, extensions, overdrafts, and if changes in the risk profile of a borrower occur (e.g. with respect to the financial situation of the borrower, the terms and conditions, or collateral) compared to the time an original lending decision was made. In addition it is used when setting counterparty limits in treasury and investment banking operations, other credit limits, and for equity participations.

Credit decisions are made within the context of a hierarchical competence authority scheme depending on the type and size of a loan. It always requires the approval of the business and the credit risk management divisions for individual limit decisions or when performing regular rating renewals. If the individual decision-making parties disagree, the potential transaction will have to be decided upon by the next decision-making level.

Credit portfolio management

Credit portfolio manaagement in RBI is amongst others based on the credit portfolio strategy. This strategy limits the exposure amount in different countries, industries or product types and thus prevents undesired risk concentrations. On top of that, analysing the long-term potential of different markets is a routine acticity. This allows for an early strategic repositioning of future lending activities.

The credit portfolio of RBI is well diversified in terms of geographical region and industry. The regional breakdown of the maximum credit exposure reflects the broad diversification in European markets. The following table shows the regional distribution of the maximum credit exposure by the borrower's home country (countries with exposure larger than € 2 billion are shown as separate items).

in € 000	2010	Percentage
Austria	37,452,772	39.8%
Germany	4,904,336	5.2%
Far East	4,543,899	4.8%
Russia	3,987,371	4.2%
Great Britain	3,596,069	3.8%
USA	3,569,132	3.8%
Netherlands	3,013,764	3.2%
Ukraine	2,549,181	2.7%
Romania	2,352,522	2.5%
Poland	2,144,293	2.3%
Swiss	2,037,187	2.2%
Others	23,874,699	25.4%
Total	94,025,226	100.0%

Risk policies and credit assessments in RBI take into account the industry class of customers as well. The banking and insurance industry represents the largest industry class which is to a large extent attributed to exposures against members of the Raiffeisen Sector (liquidity balancing function). The exposure in industry class is public sector is mainly explained by bond positions with the Republic of Austria as issuer. The following table shows the maximum credit exposure by industry class:

in € 000	2010	Percentage
Financial Intermediation	51,115,979	54.4%
Real estate, renting and business activities	13,251,409	14.1%
Manufacturing	7,184,988	7.6%
Wholesale and retail trade; repair of motor vehicles, motorcyles and personal and household goods	6,910,234	7.3%
Public administration and defence, compulsory social serecurity	6,360,135	6.8%
Transport, storage and communication	1,616,917	1.7%
Electricity, gas and water supply	1,567,290	1.7%
Construction	1,152,369	1.2%
Agriculture, hunting and forestry; fishing; mining and quarrying	922,491	1.0%
Education; health and social work; other community, social and personal service activities	701,226	0.7%
Others	3,242,189	3.4%
Total	94,025,226	100.0%

A detailed credit portfolio analysis is based on individual customer ratings. Ratings are performed separately for different asset classes using internal risk classification models (rating and scoring models) which are validated by a central organization unit. It should be noted that default probabilities assigned to individual rating grades are estimated for each asset class separately. Rating models in the main non-retail asset classes – corporates, financial institutions, and sovereigns – are uniform in all Group members and rank creditworthiness in ten classes. Customer rating as well as validation is supported by specific software tools (e.g. for business valuation, rating and default database).

Collateralization is one of the main strategies and an actively pursued measure for reducing potential credit risks. The value of collateral and the effect of other risk mitigation techniques are determined within each limit application. The risk mitigation effect taken into account is the value that RBI expects to receive when selling the collateral within a reasonable liquidation period. Eligible collaterals are defined in the collateral catalogue and evaluation guidelines for collateral. The collateral value is calculated via specified methods, which include standardized calculation formulas based on market values, predefined minimum discounts, and expert assessments.

Default and workout process

The credit portfolio and individual borrowers are subject to constant monitoring. The main purposes of monitoring are to ensure that the borrower is meeting the terms and conditions of the contract as well as following the obligor's economic development. A review is conducted at least once annually in the non-retail asset classes corporates, financial institutions, and sovereigns. This includes a rating review and the re-evaluation of financial and tangible collaterals.

Problem loans (where debtors might to run into material financial difficulties or a delayed payment is expected) need special handling. In non-retail divisions, problem loan committees of each Group member make decisions on problematic exposures. If a need for intensified handling and workout is identified, then problem loans are assigned either to a designated specialist or to a restructuring unit (workout department). Employees of workout units are specially trained and experienced. They typically handle medium-sized to large cases and are assisted by in-house legal departments and/or by external specialists as well. Work-out units play a decisive role in accounting and analysing as well as booking provisions for impairment losses (write-offs, value adjustments, provisioning). Their early involvement can help reducing losses resulting from problem loans.

Default is internally defined as the event where a specific debtor is unlikely to pay its credit obligations to the bank from primary sources, or the debtor is overdue more than 90 days on any material credit obligation. Raiffeisen Bank International has defined twelve default indicators which are used to identify a default event including the insolvency or similar proceedings of a customer, if an impairment provision has been allocated or a direct write-off has been carried out, if credit risk management has judged a customer account receivable to be not wholly recoverable, or the restructuring unit is considering stepping in to help a company restore its financial soundness.

Within the scope of the Basel II project a default database has been created for recording and documenting customer defaults. The database tracks defaults and the reasons for defaults, which makes it suitable for calculating and validating default probabilities. Provisions for impairment losses are formed on the basis of Group-wide standards according to IFRS accounting principles and cover all identifiable credit risks. In the non-retail segments, problem loan committees of each Group member decide on building individual loan loss provisions.

Country risk

Country risk includes transfer and convertibility risks as well as political risk. It arises from cross-border transactions and direct investments in foreign countries. RBI is exposed to this risk due to its strong business activities in the Central and Eastern European convergence markets. In these markets political and economic risks to some extent still are seen as significant.

As country risk is closely associated with the risk of sovereign institutions, it is measured based on the same ten-class rating model. This rating model includes a quantitative analysis of the macro-economic risk of a particular country and a qualitative analysis of the political risk in a particular country. Country risk management in RBI is based on the country risk policy which is approved semi-annually by the Managing Board. This policy sets a strict limitation of risk exposure to foreign countries.

In day-to-day work, business units have to submit limit applications for the respective countries for all cross-border transactions in addition to the limit applications for a customer. Country risk also is reflected in product pricing as well as in risk-adjusted performance management. Business units therefore can benefit from country risk mitigation by seeking insurance (e.g. from export credit insurance organizations) or guarantors in third countries.

Stress tests finally simulate the impact of severe crises in selected countries and regions on the bank's financial performance. These stress tests underline the special importance of this topic in risk management in RBI.

Counterparty credit risk

The default of a counterparty in a derivative, repurchase, securities or commodities lending or borrowing transaction can lead to losses from re-establishing the contract with another counterparty. In RBI this risk is measured by the mark-to-market approach where a predefined add-on is added to the current positive fair value of the contract in order to account for potential future changes. For internal management purposes potential price changes, which can affect the fair value of an instrument, are calculated specifically for different contract types based on historical market price changes.

For derivative contracts the standard limit approval process applies, where the same risk classification, limitation, and monitoring process is used as for traditional lending. In doing so, the weighted nominal exposure of derivative contracts is added to the customers' total exposure in the limit application and monitoring process as well as in the calculation and allocation of internal capital.

An important strategy for reducing counterparty credit risk is credit risk mitigation techniques like netting agreements and collateralization. In general, RBI strives to establish standardized ISDA master agreements with all major counterparties for derivative transactions in order to be able to perform close-out netting and credit support annexes (CSA) for full risk coverage for positive fair values on a daily basis.

Participation risk

The banking book also contains risks arising from listed and unlisted equity participations. They are described separately under this risk heading. Most of the direct and indirect participations of RBI are fully consolidated in the Group's balance sheet (e.g. network banks, network leasing companies) and therefore subject to the 'look through' approach. Risks arising from such participations are managed by applying controlling-, measurement-, and monitoring-tools as described for the other risk categories.

Participation risk and counterparty credit risk have similar roots: a deteriorating financial situation on equity participations is mostly reflected in a rating downgrade (or default) of the respective entity. The methodology used for measuring value-at-risk and internal capital requirements of equity participations nonetheless is comparable to the methodology used to measure price risk arising from positions in stocks. However, in the light of the longer-term strategic nature of equity participations, annual volatilities based on observation periods of several years (instead of daily price changes) are used in the calculation.

Participations of Raiffeisen Bank International are managed by the Participations division. This division is responsible for controlling risks arising from long-term equity investments and for returns generated by these investments as well. New investments are made only by the Managing Board of Raiffeisen Bank International on the basis of individual due diligence.

Market risk

Raiffeisen Bank International defines market risk as the risk of possible losses arising from changes in market prices of trading and banking book positions. Market risk estimates are based on changes in exchange rates, interest rates, credit spreads, equity and commodity prices, and other market parameters (e.g. like implied volatilities).

Market risks are transferred to the Group Treasury division by closing internal contracts with customer divisions. Global Treasury is responsible for managing structural market risks and for complying with the overall limit. The Capital Markets division is responsible for proprietary tading, market making, and for customer business with money market and capital market products.

Organisation of market risk management

RBI measures, monitors and manages market risks on total bank level.

The Market Risk Committee is responsible for strategic market risk management issues. It is responsible for managing and controlling all market risks. The overall limit is set by the Managing Board on the basis of the risk taking capacity and income budget. This limit is apportioned to sublimits in coordination with business divisions according to the strategy, business model, and risk appetite.

The Market Risk Management department ensures that the business volume and product range comply with the defined and enacted strategy and risk appetite. It is responsible for implementing and enhancing risk management processes, manuals, measurement techniques, risk management infrastructure and systems for all market risk categories and secondary credit risks arising from market price changes in derivative transactions. Furthermore this department independently measures and reports market risks on a daily basis.

All products in which open positions can be held are listed in the product catalogue. New products are added to this list only after completing the product approval process successfully. Product applications are investigated thoroughly for any risks. They are approved only if the new products can be implemented in the bank's front- and back-office (and risk management) systems respectively.

Limit system

RBI uses a comprehensive risk management approach for both the trading and banking book (total-return approach). Market risks are managed consistently in the trading and banking book. The following values are measured and limited on a daily basis in the market risk management system:

• Value-At-Risk (confidence level 99%, risk horizon 1 day)

Value-at-risk (VaR) is of central importance in the design of the instrument used. It is the main steering instrument in liquid markets and normal market situations. VaR is measured based on a hybrid simulation approach, where 5000 scenarios are calculated. The approach combines the advantages of a historical simulation and a Monte Carlo simulation and derives market parameters from 500 days historical data. Distibution assumptions include modern features like volatiliy declustering, random time change, and extreme event containers. This helps reproducing fat-tailed and asymmetric distributions accurately. The Austrian Financial Market Authority has approved this model such that it can be used for calculating own funds requirements for market risks. Value-at-risk results are not only used for limiting risk but also in the internal capital allocation.

• Sensitivities (to changes in exchange rates, interest rates, gamma, vega, equity and commodity prices) Sensitivity limits shall ensure that concentrations are avoided in normal market situations and are the main steering instrument under extreme market situations, in illiquity markets, and in markets that are structurally difficult to measure.
• Stop loss

This limit strengthens the discipline of traders such that they do not allow losses to accumulate on their own proprietary positions but strictly limit them instead.

A comprehensive stress testing concept complements this multi-level limit system. It simulates potential present value changes of defined scenarios for the total portfolio. The results on market risk concentrations shown by these stress tests are reported to the Market Risk Commmittee and taken into account when setting limits. Stress test resports for individual portfolios are included in daily market risk reporting.

Value-at-risk (VaR)

The following table shows risk figures (VaR 99%, 1d, in € thousand) for individual markets risk categories of the trading and banking book. RBI's VaR mainly results from exchange rate risk out of long-termed equity positions, structural interest rate risks, and credit spread risks of bonds which are held as liquidity buffer.

Banking book		Avg	Maximum	Minimum
VaR 99% 1d	31/12/2010	2010	2010	2010
Interest rate risk	23,121	17,429	38,949	6,466
Credit spread risik	29,949	43,373	100,502	24,996
Total	28,129	43,275	96,432	27,634

Trading book		Avg	Maximum	Minimum
VaR 99% 1d	31/12/2010	2010	2010	2010
Currency risk	2,523	1,050	5,714	420
Interest rate risk	4,694	4,612	7,612	934
Credit spread risik	2,049	3,784	13,390	2,029
Total	7,263	8,692	16,040	4,953

Total		Avg	Maximum	Minimum
VaR 99% 1d	31/12/2010	2010	2010	2010
Currency risk	2,523	1,042	5,714	418
Interest rate risk	19,611	13,106	31,853	3,135
Credit spread risik	31,065	45,868	108,503	25,989
Total	28,668	45,955	109,718	27,802

The following chart compares VaR and theoretical profits and losses on a daily basis for the trading book of RBI. VaR is shown as blue line and denotes the maximum loss that will not be exceeded with 99 per cent confidence level on the next day. Theoretical profits and losses are shown as red line indicatig theoretical returns that the bank would have realized according to the actual changes in market parameters.

It is possible to see that the model correctly reproduces market volatility regimes and quickly reacts to changed market conditions. Risk measurement approaches in use are verified – besides analysing returns qualitatively – permanently through backtesting and statistical validation techniques. If model weaknesses are be identified, they are fixed accordingly. There were 3 backtesting violations for RBI's trading book (in this analysis the portfolio of RZB contributed as result of the merger is being used). They are mostly explained by large jumps in the euro yield curve.

Value-at-risk and theoretical market price changes of Raiffeisen Bank International's trading book

Present value change
		0 - 3	3 - 6	6 -12	1 - 2	2 - 3	3 - 5	5 - 7	7 - 10	10 - 15	15 - 20	> 20
31/12/2010	total	months	months	months	years	years	years	years	years	years	years	years
CHF	1	3	0	- 1	2	- 1	3	0	- 3	- 1	0	- 1
CZK	- 1	0	0	- 1	2	- 2	0	0	0
EUR	478	12	- 22	- 7	- 56	37	199	167	212	9	21	- 94
GBP	- 18	0	0	0	- 1	0	0	0	- 5	0	- 1	- 11
HUF	- 3	- 1	2	1	- 1	- 1	- 2	1	- 2
JPY	- 1	- 1	0	0	0	0	0	- 1	1	0	0	0
NOK	1	1	0	0	0	0	0
PLN	5	- 1	0	1	1	0	3	1	0
SGD	0	- 1	0	1	0
USD	- 13	0	- 3	- 3	- 3	1	- 4	1	- 1	0	0	- 1

Interest rate risk in the trading book

The following two tables show the largest present value changes for the trading book given a one-basis-point interest rate increase for the whole yield curve in € thousand.

Interest rate risk in the banking book

Different maturities and repricing schedules of assets and the corresponding liabilities (i.e. deposits and refinancing on debt and capital markets) cause interest rate risk in RBI. This risk arises in particular from different interest rate sensitivities, rate adjustments, and other optionality of expected cash flows. Interest rate risk in the banking book is material for euro and US-dollar as major currencies as well as for local currencies of Group members located in Central and Eastern Europe.

This risk is mainly hedged by a combination of on- and off-balance sheet transactions where in particular interest rate swaps and – to a smaller extend – also interest rate forwards and interest rate options are used. Balance sheet management is a core task of the central Global Treasury division, which receive assistance from the Group Asset/Liability Committee. It bases its decisions on various interest income analyses and simulations that ensure proper interest rate sensitivity in line with expected changes in market rates and the overall risk appetite.

Interest rate risk in the banking book is not only measured in a value-at-risk framework but also managed by traditional tools for nominal and interest rate gap analyses. Since 2002, interest rate risk has been the subject of quarterly reporting within the scope of the interest rate risk statistics submitted to the banking supervisor. These reports show the change in the present value of the banking book as a percentage of own funds in line with the requirements of Basel II. Maturity assumptions needed in this analysis are defined as specified by regulatory authorities or based on internal statistics and empirical values. In 2010, the changes in present value of banking book positions after an interest rate shock of 200 basis points were always lower than the regulatory reporting threshold of 20 per cent of eligible own funds.

The following table shows the change in the present value of RBI's banking book given a one-basis-point interest rate increase for the whole yield curve in € thousand for reporting date 31/12/2010.

Present value change
		0 - 3	3 - 6	6 -12	1 - 2	2 - 3	3 - 5	5 - 7	7 - 10	10 - 15	15 - 20	> 20
31/12/2010	total	months	months	months	years	years	years	years	years	years	years	years
AUD	- 4	- 4	0	0	0	0	0
CAD	- 2	- 1	- 1	0	0	0
CHF	- 76	- 6	- 1	0	- 2	3	- 2	- 14	- 16	- 22	- 16
CNY	24	- 14	3	35
EUR	- 1814	133	152	41	- 75	193	- 96	- 712	- 1184	- 205	35	- 96
GBP	- 3	- 2	0	0	0	0	0	0	0	0	0	- 1
JPY	- 4	- 2	- 2	0	0	0	0
PLN	- 1	- 1	0	0	0	0	0
SEK	2	0	- 1	0	0	0	- 1	- 1	4	1
SGD	- 8	- 4	- 1	0	- 1	1	- 3
USD	- 90	- 43	- 11	6	3	- 6	- 4	- 15	- 12	6	- 6	- 8

Credit spread risk

The market risk management system takes into account time-dependent bond and CDS-spread curves as market risk factors in order to measure credit spread risks. This market risk category thus captures the specific interest rate risk of all securities in the trading and banking book.

Liquidity risk

Banks perform maturity transformation as an important role for international financial markets. The need for maturity transformation arises from the needs of depositors to access their funds within short notice and the opposite need of borrowers for longterm loans. This function constantly results in positive or negative liquidity gaps for different maturities that are managed through transactions with other market participants under normal market conditions.

Liquidity management, i.e. ensuring that the bank keeps is ability to pay at all times, is performed by the Global Treasury division in Vienna. Cash flows are calculated and analysed by currency on a daily basis in an internal monitoring system. Based on this data, the bank creates liquidity balances, and analyses whether it always conforms to legal regulations on liquidity positions and defined internal liquidity limits. Liquidity analyses also include simulations on defined market or name specific liquidity crises in scenario-based cash flow forecasts. All these analyses are discussed in the Group Asset/Liability Committee.

Short-term liquidity risk

The following table shows excess liquidity and the ratio of cash inflows plus counterbalancing capacity to cash outflows (liquidity ratio) for select maturities on a cumulative basis, taking into account balance sheet items and off-balance-sheet transactions. Based on expert opinions, statistical analyses and country specifics, this calculation also incorporates estimates on the prolongation of defined assets, the so-called sediment of customer deposits, and the liquidity counterbalancing capacity (in particular, assets that are eligible for refinancing at central banks and that can be used as collateral in repo transactions).

in € 000	31/12/2010
Maturity	1 week	1 month	1 year
Liquidity gap	6,353,883	4,201,575	656,282
Liquidity ratio	145%	113%	101%

Internal limits have been established in order to limit liquidity risk. They require a positive short-term liquidity gap based on the internal liquidity model. In addition the bank holds sizeable positions in liquid securities and favors assets eligible in tender transactions in the lending business in order to ensure liquidity in various currencies. In the case of a liquidity shortage, contingency plans would come into force.

Funding liquidity risk

Funding liquidity risk is mainly driven by changes in the risk appetite of lenders or by a rating downgrade of a bank that needs external funding. Funding rates and supply rise and fall with credit spreads, which change due to the market- or bank-specific situation.

As a consequence, long term funding depends on restoring confidence in banks and the increased effort in collecting customer deposits. RBI's banking activities are refinanced by combining wholesale funding and it acts as the central liquidity balancing agent for the local Group members in Central and Eastern Europe.

In RBI's funding plans, special attention is paid to a diversified structure of funding to mitigate funding liquidity risk. In the Group, funds are not only raised by RBI as the Group's parent institution, but also individually by different banking subsidiaries. Those efforts are coordinated and optimized through a joint funding plan. Moreover, RBI enables medium-term and long-term borrowing activities of its subsidiaries through syndicated loans, bilateral funding agreements with banks, and financing facilities of supranational institutions. These funding sources are based on long-term business relationships.

Operational risk

Operational risk is defined as the risk of unexpected losses resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. In this risk category internal risk drivers like unauthorized activities, fraud or theft, execution and process errors, or business disruption and system failures are managed. External factors such as damage to physical assets or consciously conducted human fraud are managed and controlled as well.

This risk category is analyzed and managed on the basis of own historical loss data and the results of self assessments. Another management tool is the incentive system implemented in internal capital allocation. This system rewards high data quality and low expected operational risk costs of individual business units.

As with other risk types the principle of firewalling between risk management and risk controlling is also applied to operational risk in RBI. The operational risk controlling unit is mainly responsible for the implementation and refinement of methods for operational risk management (e.g. performing self assessment, defining and monitoring key risk indicators, etc.). Business line managers are responsible for controlling and mitigating operational risks. They decide on pro-active operational risk steering actions such as buying insurance and the use of further risk mitigating instruments.

Risk identification

An important task for controlling operational risks is identifying and evaluating risky areas which might endanger the bank's existence if a loss occurs (but where losses are highly unlikely to be realized) and also areas where losses are more likely to happen frequently (but cause only smaller losses).

Operational risk self-assessment is executed in a structured manner, where all operational risk categories and business functions are assessed in a two-dimensional matrix (per business line or product group). This applies to new products as well. All business units grade the impact of high probability/low impact events and low probability/high impact incidents according to their estimation of the loss potential for the next year and in the next ten years in relation to profits. Low probability/high impact events are quantified by a scenario analysis framework that includes the simulation of up to ten specific scenarios.

Monitoring

In order to monitor operational risks, key risk indicators (KRIs) are used as measurable indicators that allow promptly identifying and mitigating operational risks.

Loss data is collected in a central database called ROCO (Raiffeisen Operational Risk Controlling) in a structured manner according to the event type for each business line. Collecting losses stemming from operational risks is a prerequisite for implementing a statistical loss distribution model and a minimum requirement for implementing the regulatory Standardized Approach. Furthermore, loss data (and near misses) is used to create and validate operational risk scenarios and for exchange with international data pools to develop advanced operational risk management tools. In 2010 Raiffeisen Bank International has become member of the ORX consortium, a reputable international data pool.

Operational risks are reported in a comprehensive manner to the Group Risk Committee on a quarterly basis.

Quantification and mitigation

RBI currently calculates regulatory capital requirements for operational risks according to Basel II using the Standardized Approach.

Operational risk reduction is initiated by business managers who decide on preventive actions like risk mitigation or risk transfer. Progress and success of these actions is monitored by risk controlling. The former also define contingency plans and nominate responsible persons or departments for initiating the defined actions if these events occur. In addition, several dedicated organizational units provide support to business units for reducing operational risks. An important role, for instance, plays fraud

management which reduces potential fraud related losses through proactive monitoring and preventive actions. Raiffeisen Bank International also executes an extensive staff training program and has different emergency plans and back-up systems in place.

Internal control and risk management system for accounting

Introduction

For Raiffeisen Bank International AG (RBI), establishing and structuring an appropriate internal control and risk management system for accounting is a matter of crucial importance.

The annual financial statements of RBI are prepared in the Financial Accounting department, which is in the CFO's executive department. Foreign branches supply financial statements to Head Office, for which they are directly responsible.

The Group's annual financial statements are drawn up on the basis of Austrian laws governing the preparation of consolidated financial statements, primarily the Austrian Banking Act (BWG).

At RBI the general ledger is kept on GEBOS, which handles the sub-ledger function of credit and deposit processing (GIRO) too. There are also a number of other sub-ledgers, specifically:

• Wall Street Systems (Treasury)
• GEOS (securities processing)
• NIKOS (nostro securities management)
• Payment transfer business
• Banktrade (guarantees and L/Cs)
• UBIX (securities derivatives)
• SAP (debtors, creditors, investment accounting)

The accounting process can be described as follows:

• Current accounting the accounting records are entered both directly in GEBOS (loan and deposits processing) and indirectly through various sub-ledgers (subsystems). In the latter case, the (aggregated) entries are forwarded through interfaces to the general ledger (GEBOS).
• Individual financial statements for RBI in accordance with the Austrian Commercial Code (UGB), Austrian Banking Act (BWG) and IFRS: based on the trial balance from GEBOS, a large number of supplementary entries are made. This is then the basis used to prepare the balance sheet and income statements in accordance with UGB/BWG.

Control system

The RZB Group Directive Database can be used to call up all instructions. For accounting purposes the Group Accounts Manual is particularly important, which includes a description of the following:

• General accounting rules
• Valuation methods
• Necessary (quantitative) information in the Notes
• Accounting rules for special transactions (e.g. leasing, ABS, tax issues, etc)

In addition, there are guidelines which only affect RBI or intradepartmental functions. As examples for accounting, guidelines can be cited which govern the process for settling incoming invoices or managing clearing accounts.

Risk assessment

The assessment of risks of incorrect financial reporting are based on various criteria. Valuations of complex financial instruments can lead to an increased risk of error. In addition, the assets and liabilities must be measured in preparing the annual financial statements, where there is a risk in the impairment testing of receivables, securities and equity investments based on estimates of future developments.

Control measures

The key control measures cover a number of reconciliation processes. Examples include reconciliations between the general ledger and sub-ledgers and the reconciliation of results between Financial Accounting and Midoffice Treasury.

The functions assigned to the individual offices are documented in writing and continuously updated. Particular importance is given to efficient deputization and ensuring that an individual absence does not lead to a failure to keep an appointment.

The annual financial statements and management report are reviewed by the Audit Committee of the Supervisory Board and are also approved by the Supervisory Board. They are published in the Wiener Zeitung and entered in the commercial register.

Information and communication

There is an ongoing exchange of information between the departments about the booking and accounting of products. In Treasury, for example, there are regular monthly meetings where the accounting of complex products is covered. Regular departmental meetings ensure that staff constantly receive training on new features in UGB accounting.

As part of the reporting procedure, the Management Board receives a monthly report analysing RBI's results.

Monitoring

The Management Board and the mid-office departments are responsible for ongoing company-wide internal monitoring. The quality of the ongoing monitoring is ensured by the activities of the Internal Audit department.

The consolidated financial statements for publication are submitted to senior managers and the CFO for final approval and then submitted to the Supervisory Board's Audit Committee.

Material events after the balance sheet date

Acquisition of a majority stake in Polbank

On 3 February 2011, Raiffeisen Bank International AG (RBI) closed an agreement with the Greek EFG Eurobank Ergasias S.A. (Eurobank EFG) concerning the acquisition of a majority 70 per cent stake in its business unit Polbank EFG (Polbank). Polbank is the Polish banking network of Eurobank EFG, which, prior to implementation of the acquisition, is set to be converted into an independent legal entity with a Polish banking license. RBI will pay € 490 million for the 70 per cent stake when the agreement is closed. The acquisition is still dependent on the successful closing of the agreement and the approval of the EU Commission as well that of the Greek and Polish regulatory authorities. The transaction is expected to close in the fourth quarter of 2011 or the first quarter of 2012.

It has been agreed that RBI shall, in a first stage, acquire a 70 per cent stake in Polbank and, in a second transaction stage immediately afterwards, Eurobank EFG and RBI shall invest their respective shares (Eurobank EFG: 30 per cent, RBI: 70 per cent) in Raiffeisen Bank Polska S.A in exchange for new shares of Raiffeisen Bank Polska. As a result, Eurobank EFG will retain a 13 per cent stake in the Polish Raiffeisen Bank. The purchase price is based on guaranteed equity of at least € 400 million for Polbank and € 750 million for Raiffeisen Bank Polska. The implicit price-book value ratio stands at 1.7 but may change when the agreement is closed because of the equity requirements which are yet to be definitively determined. In addition both parties agreed, on the one hand, on a put option for Eurobank EFG permitting it to sell its stake in the merged Polish unit to RBI at a price that is dependent on business developments, but for a figure of at least € 175 million plus interest, at any time. On the other hand, RBI shall receive a call option which will be exercisable from 31 March 2016 to ambient terms.

With its keen focus on private customers, Polbank ideally complements Raiffeisen Bank Polska, which is very well positioned in business with corporate customers. Consequently, RBI expects to see a marked strengthening of its position in Poland as a result of the acquisition of Polbank. The merged unit consisting of Raiffeisen Bank Polska and Polbank will likely be Poland's sixth largest universal bank based on assets; measured against customer loans it may even occupy fourth place. In addition, thanks to the merger, the strategically perfect add-on not only involves estimated cost synergies of € 60 million annually but also substantial revenue synergies.

Outlook

Now that the crisis is tailing off and amidst mounting signs of an overall economic recovery, in our group we are aiming in the medium term, with the inclusion of the acquisition of Polbank, for a return on equity before tax of 15 to 20 per cent. This is excluding future acquisitions, any capital increases, as well as unexpected regulatory requirements from today's perspective.

In 2011, we plan to notably increase growth in customer lending volumes relative to the previous year (2010: 4.3 per cent). In terms of regions, we are seeking the highest absolute growth in lending to customers in CEE.

From the customer standpoint, we plan to retain our Corporate customers division as the backbone of our business and in the medium term to expand the proportion of Group lending to customers accounted for by our Retail customers division. Following the successful conclusion of the acquisition of Polbank, the Central European segment will continue to gain importance in terms of customer lending volumes.

In terms of credit risk, we expect to witness a further decline in the net provisioning ratio (provisioning for impairment losses in relation to the average credit risk-weighted assets) over the medium term. Based on current market forecasts, we assume that the non-performing loan ratio at Group level will peak in the second half of 2011.

The bank levies in Austria and Hungary will lead to an anticipated reduction in our 2011 result of some € 130 million (approximately € 90 million for Austria and € 40 million for Hungary).

In 2011, we plan to raise around € 6.5 billion in long-term wholesale funding in the capital markets, of which € 2.3 billion had already been successfully placed as of beginning of March.

The number of Group outlets is to remain fairly stable in 2011, although there may continue to be some optimization of our network in some countries.

Auditor's Report

Report on the Financial Statements

We have audited the accompanying financial statements, including the accounting system, of

Raiffeisen Bank International AG, Vienna, Austria,

for the year from 1 January 2010 to 31 December 2010. These financial statements comprise the balance sheet as of 31 December 2010, the income statement for the year ended 31 December 2010 and the notes.

Management's Responsibility for the Financial Statements and for the Accounting System

The Company's management is responsible for the accounting system and for the preparation and fair presentation of these financial statements in accordance with Austrian Generally Accepted Accounting Principles. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors' Responsibility and Description of Type and Scope of the Statutory Audit

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with laws and regulations applicable in Austria and Austrian Standards on Auditing. Those standards require that we comply with professional guidelines and that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

Our audit did not give rise to any objections. In our opinion, which is based on the results of our audit, the financial statements comply with legal requirements and give a true and fair view of the financial position of the Company as of 31 December 2010 and of its financial performance for the year from 1 January 2010 to 31 December 2010 in accordance with Austrian Generally Accepted Accounting Principles.

Report on Other Legal Requirements (Management Report)

Pursuant to statutory provisions, the management report is to be audited as to whether it is consistent with the financial statements and as to whether the other disclosures are not misleading with respect to the Company's position. The auditor's report also has to contain a statement as to whether the management report is consistent with the financial statements and whether the disclosures pursuant to Section 243a UGB (Austrian Commercial Code) are appropriate.

In our opinion, the management report is consistent with the financial statements. The disclosures pursuant to Section 243a UGB (Austrian Commercial Code) are appropriate.

Vienna, 10. March 2011

KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft

Mag. Wilhelm Kovsca Wirtschaftsprüfer

Mag. Bernhard Mechtler Wirtschaftsprüfer

(Austrian Chartered Accountants)

This report is a translation of the original report in German, which is solely valid.

Publication of the financial statements together with our auditor's opinion may only be made if the financial statements and the management report are identical with the audited version attached to this report. Section 281 paragraph 2 UGB (Austrian Commercial Code) applies.

Statement of the Board of Management pursuant to Art. 82 (4) Austrian Stock Exchange Act

We confirm to the best of our knowledge that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group as required by the applicable accounting standards and that the Group management report gives a true and fair view of the development and performance of the business and the position of the Group, together with a description of the principlal risks and uncertainties the Group faces.

We confirm to the best of our knowledge that the separate finacial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the parent company as required by the applicable accounting standards and that the management report gives a true and fair view of the development and performance of the business and the position of the company, together with a description of the principal risks and uncertainties the company faces.

Vienna, March 2011

The Managing Board

Herbert Stepic

Chief Executive Officer responsible for Internal Audit, Legal & Compliance, Human Resources, Management Secretariat, Organisation & Internal Control System, Group Strategy and PR, Marketing and Event Management

Aris Bogdaneris Chief Operating Officer responsible for Information Technology, Operations & Productivity Management, Credit Services, Transaction Services, Retail CRM, Premium & Private Banking, Lending & Cards, Sales, Distribution & Service and

SME Banking

Martin Grüll

Chief Financial Officer responsible for Tax Management, Treasury, Planning and Finance and Investor Relations

Peter Lennkh Member of the Managing Board for Network Management responsible for International Business Units and Participations

Karl Sevelda Deputy to the Chief Executive Officer responsible for Corporate Customers, Group Products, Network Corporate Customers & Support and Corporate Sales Management & Develeopment

Patrick Butler Member of the Managing Board for Global Markets responsible for Credit Markets, Raiffeisen Research, Capital Markets and Institutional Clients

Johann Strobl Chief Risk Officer responsible for Risk Controlling, Financial Institutions and Country Risk & Group Portfolio Man-

agement, Credit Management Retail, Credit Management Corporates, Workout and Risk Excellence & Projects