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Raiffeisen Bank International AG

Annual Report Mar 26, 2010

756_10-k_2010-03-26_266c5e5f-3d03-4c73-b5c9-667c7e923f65.pdf

Annual Report

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Annual Financial Report 2009

Raiffeisen International Bank-Holding AG

Contents

Annual Report 3
Annual Financial Statement 235
Statement by the Board of Management 83

Central and Eastern Europe 2009

Annual Report 2009

Survey of key data

Raiffeisen International

Monetary values in € million 2009 Change 2008 2007 20061 2005
Income statement
Net interest income 2,937 (9.1)% 3,232 2,419 1,764 1,202
Provisioning for impairment losses (1,738) 122.7% (780) (357) (309) (167)
Net fee and commission income 1,223 (18.3)% 1,496 1,250 933 607
Net trading income 186 11.2% 168 128 175 101
General administrative expenses (2,270) (13.8)% (2,633) (2,184) (1,694) (1,163)
Profit before tax 368 (74.3)% 1,429 1,238 891 569
Profit after tax 287 73.4% 1,078 973 686 460
Consolidated profit (after minorities) 212 (78.4)% 982 841 594 382
Statement of financial position
Loans and advances to banks 10,310 14.1% 9,038 11,053 8,202 5,794
Loans and advances to customers 50,515 (12.8)% 57,902 48,880 35,043 24,714
Deposits from banks 20,110 (23.3)% 26,213 19,927 13,814 10,236
Deposits from customers 42,578 (3.7)% 44,206 40,457 33,156 24,890
Equity (including minorities and profit) 7,000 7.4% 6,518 6,622 4,590 3,277
Balance sheet total 76,275 (10.7)% 85,397 72,743 55,867 40,695
Key ratios
Return on equity before tax 5.7% (16.3) PP 22.0% 25.7% 27.3% 21.8%
Return on equity after tax 4.5% (12.1) PP 16.6% 20.2% 21.0% 17.6%
Consolidated return on equity (after minorities) 3.9% (13.5) PP 17.4% 20.1% 21.4% 17.2%
Cost/income ratio 52.5% (1.5) PP 54.0% 57.6% 59.1% 61.6%
Return on assets before tax 0.47% (1.30) PP 1.77% 1.98% 1.90% 1.68%
Net provisioning ratio
(avg. risk-weighted assets, credit risk) 3.19% 1.88 PP 1.32% 0.84% 0.97% 0.81%
Risk/earnings ratio 59.2% 35.1 PP 24.1% 14.8% 17.5% 13.9%
Bank-specific information2
Risk-weighted assets (credit risk) 50,090 (17.1)% 60,388 49,802 38,002 26,582
Total own funds 8,328 19.1% 6,992 6,684 4,513 2,938
Total own funds requirement 5,117 (11.3)% 5,767 4,317 3,284 2,393
Excess cover ratio 62.8% 41.6 PP 21.2% 54.8% 37.4% 22.8%
Core capital ratio (Tier 1), credit risk 14.1% 4.4 PP 9.7% 11.4% 9.8% 9.0%
Core capital ratio (Tier 1), total 11.0% 2.9 PP 8.1% 10.5% 9.0% 8.0%
Own funds ratio 13.0% 3.3 PP 9.7% 12.4% 11.0% 9.8%
Stock data
Earnings per share in € 0.99 (5.40) 6.39 5.80 4.17 2.79
Price on 31 Dec. in € 39.50 104.7% 19.30 103.60 115.51 55.55
High (closing prices) in € 47.86 (56.6)% 110.20 122.50 115.51 59.40 3
Low (closing prices) in € 13.00 (19.9)% 16.23 98.25 55.20 39.25 3
Number of shares on 31 Dec. in million 154.67 154.67 154.67 142.77 142.77
Market capitalization on 31 Dec. 6,109 104.7% 2,985 16,024 16,492 7,931
Dividend per share in € 0.204 (78.5)% 0.93 0.93 0.71 0.45
Resources
Employees on 31 Dec. 56,530 (10.8)% 63,376 58,365 52,732 43,614
Business outlets 3,018 (6.6)% 3,231 3,015 2,848 2,443

1 Excluding one-off effects due to the sales of Raiffeisenbank Ukraine and the minority interest in Bank TuranAlem.

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

25 April 2005 (IPO) to 31 December 2005. 4 Proposal to the Annual General Meeting.

Contents

Preface by the Chairman of the Managing Board 8
Managing Board of Raiffeisen International 10
Report of the Supervisory Board 12
Overview of Raiffeisen International 14
Emerging stronger from the crisis with a sustainable business model 16
Stock and investor relations 19
Corporate governance report 24
Corporate responsibility 33
Group management report
General economic environment 38
Banking sector development in Central and Eastern Europe 40
Performance and financials 41
Detailed review of items in the income statement 46
Statement of financial position 52
Equity 54
Research and development 56
Internal control and risk management system 56
Capital, share, voting, and control rights 59
Funding 61
Risk management 63
Operations and IT 67
Human resources 69
Outlook 71
Events after the balance sheet date 73
Segment reports
Regional segments 74
Central Europe 76
Central Europe 76
Southeastern Europe 85
Russia 96
CIS Other 99
Business divisions 104
Corporate customers 105
Retail customers 107
Treasury 109
Participations and other 110

Consolidated financial statements

Statement of comprehensive income 112
Profit development 115
Statement of financial position 116
Statement of change in equity 117
Statement of cash flows 118
Segment reporting 120
Notes 124
Auditor's report 222
Glossary 226
Addresses 230
Publication details 232

The year. The figures. The facts.

The year 2009 took us on a roller coaster ride. First came the economic slump, but then also the end of the recession. Even in such turbulent times, our solid business model was able to prove itself. We are therefore sticking to our transparent "bread and butter" business. We would like to provide information with a similar transparency in this annual report, with a firm orientation to facts and figures.

To cope successfully with a crisis, a company needs to have a sustainable business model and be flexible towards taking appropriate measures. Based on continuous analysis of the environment, we were able to take the necessary steps immediately. We met discernible risks with appropriate precautions.

Raiffeisen International stands on solid ground today, as it has in the past. Strengthened by the challenges of the crisis, we occupy a good starting position for the coming years. We therefore look to the future with optimism and confidence.

Preface by the Chairman of the Managing Board

Ladies and gentlemen,

While 2008 was an "extraordinary" year for Raiffeisen International, 2009 will be remembered for being "challenging." The global economic crisis and its effects on the comparatively young market economies of Central and Eastern Europe presented our banking group with completely new challenges. We were able to cope with them well thanks to our business model, which is geared to the real needs of businesses and private individuals in 17 countries in the region and has proved to be sustainably robust even in these difficult times.

However, we had to adjust the parameters of our strategy to the difficult conditions. While growth and earnings were previously in the foreground, we focused in 2009 on strengthening capital, managing liquidity and risk, raising efficiency, and lowering costs. We added € 1.25 billion to our capital cushion in the third quarter. The capital inflow occurred in the framework of two issues, which were both fully subscribed by our principal shareholder, Raiffeisen Zentralbank Österreich AG (RZB). This step contributed substantially to bringing our core capital ratio based on credit risk (Tier 1) to an impressive 14.1 per cent at year's end. We strengthened our liquidity primarily by intensifying acquisition efforts on the deposit side, expanding our proven cooperation with supranational institutions, and financing through RZB. Now, the market situation is once again characterized by very good liquidity. More selective lending, extensive restrictions on granting foreign currency loans to private individuals, and targeted strengthening of our loan work out and collection activities have been the highlights of Group risk management. Quick, determined, and consistent action to take advantage of cost-cutting opportunities was also extremely important. That enabled us to improve our cost-income ratio last year by 1.5 percentage points to 52.5 per cent.

Unsurprisingly, 2009 was also shaped by the sharp rise of non-performing loans and the related increase of provisioning for impairment losses. However, the upward momentum of non-performing loans slowed significantly in the second half of the year, and overall economic conditions improved. Many market observers share our view that this trend will continue in 2010.

The confidence of our customers has been and remains our most important indicator of success. The increase in the number of our customers during the year from 14.7 million to 15.1 million demonstrates that we are able to enjoy this confidence despite, or even because of, the extraordinarily difficult times. Our exceptionally broad position in terms of market coverage and product range was honored again in 2009 by a number of international awards. For example, Euromoney and Global Finance magazines again selected us as "Best Bank" in the CEE region.

We may have passed the worst point of the economic crisis, but 2010 will be another year of great challenges. We therefore consider it extremely important that we continue to focus fully on the agenda set in the crisis year of 2009.

We are firmly convinced that the CEE region will prove to be the driving economic force in Europe again after the crisis. The countries of Central and Eastern Europe suffered some setbacks last year, which were significantly more severe in some cases than those in Western European countries. But the convergence process that started more than two decades ago is still far from over. The continuing need to catch up after about five decades of communism will, according to practically all forecasts, ensure that the region again undergoes stronger growth than Western Europe in the years ahead. Added to that is its comparatively lower penetration rate with respect to banking products. All of this should be a solid basis of renewed successful development for banks operating in the region.

We owe our ability to have coped so well with the past year not least to the support of our shareholders. I would like to make very special mention here of the role played by our principal shareholder RZB and the strong backing that we have received from the entire Raiffeisen Banking Group Austria. My thanks extend equally to all institutional and private investors who have remained loyal to us in the past twelve months. I am also grateful for the trust placed in us by our customers and business partners. It has been particularly gratifying to see our employees meet the challenges of 2009 not only with high motivation, but also with exceptionally great dedication. I would therefore like to thank – also on behalf of my Managing Board colleagues – the 56,530 employees of Raiffeisen International for their contribution to our company's success.

Herbert Stepic Chairman of the Managing Board Raiffeisen International Bank-Holding AG

Managing Board of Raiffeisen International

f.l.t.r.:

Herbert Stepic Chief Executive Officer

Peter Lennkh Member of the Management Board

Aris Bogdaneris Member of the Management Board

Martin Grüll Member of the Management Board (Chief Financial Officer)

Heinz Wiedner Member of the Management Board (Chief Operating Officer)

Rainer Franz Member of the Management Board

MANAGEMENT REPORT SEGMENT REPORTS CONSOLIDATED FINANCIAL STATEMENTS

Report of the Supervisory Board

As in the past, open communication prevailed between the Managing Board and the Supervisory Board in the reporting period. The Managing Board of Raiffeisen International regularly informed the members of the Supervisory Board and its Committees. Reports were made in a timely and comprehensive manner about all relevant aspects of business development, including the risk management of the company and that of material Group entities.

The Managing Board also informed the Supervisory Board in a detailed, timely manner concerning all aspects of the company's strategic orientation, so the Supervisory Board was able to fulfill its monitoring duty diligently and make sound decisions. That enabled the Supervisory Board to discuss the status of the strategy's execution at regular intervals with the Managing Board.

The Supervisory Board held five meetings during the period under review. All members of the Supervisory Board participated in more than half of the meetings. At all of the meetings, the Supervisory Board performed the tasks prescribed to it by law in compliance with the Austrian Corporate Governance Code.

In the meetings and in separate talks, the consequences of the financial and economic crisis, and particularly of the turbulent developments on the capital markets for the company and the Group, were discussed extensively. There were thus regular reports regarding the current earnings position as well as on the liquidity and risk situation of the Group.

The annual financial statements and management report as well as the consolidated financial reports and management report for 2008, were examined at the meeting on 25 March 2009. Pursuant to the Audit Committee's recommendation, the annual financial statements were ratified, and the proposal regarding the use of profit was approved. The Supervisory Board was informed about the management letter. Note was taken of the corporate governance report together with the external examination.

The Supervisory Board joined in the Audit Committee's proposal to appoint Vienna-based KPMG Austria GmbH, Wirtschaftsprüfungs- und Steuerberatungsgesellschaft as (Group) auditor for the fiscal year 2009. It therefore submitted that proposal to the Annual General Meeting.

In the meeting of 25 March 2009, Kurt Geiger was nominated as a new Supervisory Board member, and Patrick Butler and Stewart D. Gager were nominated for reappointment as Supervisory Board members by the Annual General Meeting. All nominees were elected at the Annual General Meeting of 9 June 2009. Their period in office will end at the Annual General Meeting which decides on the discharge of board members for 2013.

At the meeting on 8 June 2009, the compliance report was submitted and discussed in addition to the Managing Board's report on the situation of the company and the Group.

In accordance with the resolution of the Annual General Meeting, the distribution of Supervisory Board remuneration was decided at the meeting on 9 June 2009.

At the meeting of 23 September 2009, the semiannual figures were submitted to the Supervisory Board. Furthermore, the management of risk and non-performing loans and the Group's current liquidity situation were discussed in view of the crisis.

The Group's lending policy and liquidity situation were also the subject of the meeting on 2 December 2009, and the Managing Board reported on measures in that regard. The planning for 2010, the 2010 budget, and the market positioning of Raiffeisen International were discussed. In addition, a status report on the topic of compliance was given. In accordance with the provisions of the Austrian Corporate Governance Code as amended in 2009, the Supervisory Board had an external evaluation of its actions

The Chairs of the Working, Audit, and Personnel Committees reported regularly to the Supervisory Board about the work of the respective committee.

conducted. The results were discussed in detail at the meeting.

The Working Committee dealt primarily with the appointment of officers in the Group and disposition of shareholdings in Group companies.

The Audit Committee monitored the accounting process, the effectiveness of the company's internal controlling system, internal auditing system, and risk management. It furthermore monitored the audit of the annual financial statements and the audit of the consolidated financial statements. Moreover, determining and monitoring the independence of the auditor of the financial statements were also among the Audit Committee's duties. It examined the annual financial statements and the consolidated financial statements and the preparation of their ratification. It dealt with the proposal concerning the use of profit, the management letter, and the corporate governance report. Furthermore, it made a proposal concerning the appointment of the auditor.

The Personnel Committee dealt with matters related to the remuneration of the Managing Board including the bonus arrangements and the directors and officers insurance.

The accompanying consolidated financial statements (income statement, statement of financial position, and notes) and the consolidated management report as well as the annual financial statements and management report of Raiffeisen International were audited by KPMG Austria GmbH, Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Vienna. The audit has revealed no reasons for objection, and the statutory requirements have been fully satisfied, thus allowing an unconditional auditor's certificate to be issued.

The compliance audit performed on the Corporate Governance Report according to section 243b of the Austrian Commercial Code (Unternehmensgesetzbuch) was performed by Univ. Prof. DDr. Waldemar Jud Corporate Governance Forschung CGF GmbH and the concluding results did not give any cause for significant claim.

After thorough review and discussion of the consolidated financial statements and the annual financial statements in the Audit Committee and in the Supervisory Board, the Supervisory Board has declared its agreement with the proposal regarding the use of profit and approves the annual financial statements of Raiffeisen International Bank-Holding AG. They have thus been ratified in accordance with Section 125 (2) of the Austrian Stock Corporation Act (AktG).

Vienna, February 2010

For the Supervisory Board Walter Rothensteiner, Chairman

Overview of Raiffeisen International

Raiffeisen International is one of the leading banking groups in Central and Eastern Europe and operates one of that region's largest bank networks with 3,018 business outlets. Its leading role is furthermore reflected in the good positioning of its network banks in their respective markets. At the end of 2009, 6 Raiffeisen International network banks ranked among the top three banks in their countries.

Raiffeisen entered the Central and Eastern European region more than 20 years ago by founding the first subsidiary bank in Hungary in 1986. While the company's expansion was initially characterized by the establishment of its own banks, acquisitions of existing banks began to predominate in 2000. The successful integration of these banks into the Group was aided by many years of experience. To finance its further growth efficiently, Raiffeisen International went public in April 2005. It issued more shares in the framework of a capital increase in October 2007.

Raiffeisen International concentrates its activities exclusively on the markets of Central and Eastern Europe. Even though the economic crisis is interrupting the catch-up process of those markets, higher growth compared with Western Europe may already be expected in the region as of 2010. The broad diversification of Raiffeisen International has proven advantageous in both regional and business respects in times of crisis, as countries and sectors are affected in differing degrees by the crisis.

As of 31 December 2009, the Raiffeisen International network comprised 15 banks and other financial service enterprises, for example, in the area of asset management. Its 56,530 employees served 15.1 million customers in 17 markets.

Awards in 2009

Raiffeisen International's leading role is reflected in the many prizes that it received from the international financial press in 2009, including some that the banking group had already won in previous years. The most important awards in the reporting period came from Global Finance and Euromoney.

Global Finance selected Raiffeisen International together with RZB as "Best Bank in Central and Eastern Europe" in March 2009. Network banks were also acknowledged with numerous awards by Global Finance. The magazine gave the title of "Best Bank" to the units in Bosnia and Herzegovina, Bulgaria, the Czech Republic, Serbia, and Slovakia.

For the fifth consecutive time, Euromoney named Raiffeisen International together with RZB as "Best Banking Group in Central and Eastern Europe (CEE)" in July 2009. Moreover, the network banks in Albania, Belarus, Bosnia and Herzegovina, Kosovo, Serbia, and Ukraine were awarded the title of "Best Bank".

Data as of
31 December 2009
Balance sheet
total in € million
Change1 Business outlets Employees
Albania 1,842 (10.1)% 104 1,326
Belarus 1,224 (25.6)% 96 2,147
Bosnia and Herzegovina 2,325 (2.9)% 101 1,655
Bulgaria 3,998 (16.1)% 199 3,282
Croatia 5,900 (1.4)% 85 2,225
Czech Republic 7,739 7.5% 111 2,638
Hungary 8,778 (8.3)% 145 3,197
Kazakhstan 74 (23.8)% 1 11
Kosovo 672 12.4% 51 668
Poland 6,241 (12.2)% 124 3,007
Romania (incl. Moldova) 6,164 (6.0)% 563 6,235
Russia 11,681 (21.9)% 215 8,608
Serbia 2,762 (5.2)% 101 1,982
Slovakia 9,324 (15.0)% 152 3,601
Slovenia 1,583 4.9% 17 352
Ukraine 4,983 (20.7)% 953 15,225
Subtotal 75,289 (11.0)% 3,018 56,159
Other/consolidation 986 371
Total, Raiffeisen International 76,275 (10.7)% 3,018 56,530

Markets of Raiffeisen International

Change of balance sheet total versus 31 December 2008. Change expressed in local currencies differs due to fluctuating euro exchange rates.

Emerging stronger from the crisis with a sustainable business model

Interview with Chairman of the Managing Board, Herbert Stepic

The year 2009 was obviously the most difficult in Raiffeisen International's history. What was special about the year for you? I have experienced a great deal in more than three decades as a banker, but nothing compares to the events that occurred after the collapse of Lehman Brothers and then shaped

  1. The international crisis of confidence caused an extreme scarcity of liquidity, which naturally had a disproportionate effect on emerging markets such as Central and Eastern Europe. The convergence process in the CEE region was suddenly interrupted by a crisis that for the first time proceeded from a developed national economy and was not regionally

limited. This put entire government budgets under considerable pressure, as well as the businesses operating there – especially the banks. The risk premiums that had to be paid for CEE financing rapidly grew to many times of that which we had seen in previous years, before reaching roughly the level at which they had been before the collapse of Lehman Brothers in the fourth quarter of 2009. It was extremely positive in this connection that policy-makers and supranational institutions acted quickly and decisively. The European Union proved to be a strong source of backing and the International Monetary Fund left no doubt that it would substantially support countries in distress. This was extremely important because it allowed what was established after the fall of the Iron Curtain, a common Europe, to be preserved. A relapse into division of the continent was prevented.

What mark has the crisis left on the banking sector?

Very clearly, a paradigm shift has occurred. While the focus used to be on growth and profitability, the dominant themes in 2009 were capital, liquidity, and risk management. Since the worsening of the crisis we have responded to difficult market requirements by proceeding with even greater awareness of risk and have further improved our liquidity and capital resources. After many years of continuous growth, Raiffeisen International decreased its balance sheet total by 10.7 per cent in 2009. This was largely a result of lower demand, but

also reflects the devaluation of many CEE currencies. Finally, more selective lending also contributed to this development.

Raiffeisen International has also had to form considerable provisioning for impairment risks. How do you think this situation will develop in the future?

It is true that non-performing loans, that is, loans on which customers are more than 90 days in arrears, increased very sharply. We formed provisions in 2009 accordingly, which are around 123 per cent above the preceding year's level. It is important to emphasize, however, that by no means will all these provisions convert into full write-offs. There are two reasons for that: the improving economic environment and the intrinsic value of our collateral. Moreover, the upward momentum of non-performing loans has been decreasing since the third quarter. That is at least an encouraging sign and suggests that the crisis is subsiding. Although non-performing loans are still rising overall, the strong rates of increase seen in the first half of 2009 appear to be over.

In which markets did economic conditions worsen the most?

It has become very clear this year that Central and Eastern Europe is not a homogeneous region and individual countries have thus been affected quite differently by the crisis. With the exception of Hungary, Central Europe has proven to be relatively crisis-resistant. In Southeastern Europe, the problems have appeared at a significant delay and with characteristics that vary from country to country. Russia was hit relatively hard by the crisis, but has distinguished itself with good crisis management on the part of the government and central bank, quickly furnishing liquidity and thereby limiting the negative consequences for the economy. As a result, the Russian economy managed a comparatively rapid turnaround. Ukraine was one of the countries that suffered the most from the crisis. Among other things, heavy dependence on the commodity markets and domestic political rivalries contributed to that. Consequently, our need for provisioning for impairment losses was very strongly shaped by the development in Ukraine, but provisioning requirements in Hungary heavily burdened our earnings too.

Ukraine in particular is associated with the topic of "foreign currency loans." Where are things headed there?

In Ukraine, servicing of foreign currency loans has become a problem, especially for many private individuals because of the sharp decline of the local currency. But one should not make the mistake of condemning foreign currency loans in general for that reason. They were necessary in the past for putting together long-term financing, and will be justified in that business area in the future. However, banks will generally proceed much more restrictively, and we will limit ourselves to the euro and US dollar and only offer such loans to customers with relatively high incomes.

Looking back on 2009, is there anything that you judge positively?

Despite this extraordinarily great burden, we managed to make a profit in 2009, which is by itself very positive in light of the economic environment. A crucial factor for our success in the crisis was that we were able to reduce total costs despite high capital investments in the previous years. For me, that is one of the most important accomplishments. Keep in mind that we have had growth rates of more than 20 per cent in the past years. In 2009, we reduced our costs by around 14 per cent. This considerable result was achieved in part by programs to enhance efficiency and reduce costs, for example, in the context of negotiating tenancy agreements and centralized procurement. Regrettably, it was not possible to avoid layoffs in the pursuit of efficiency enhancement. Despite acting in a socially responsible manner, this was a painful process for us. We have cut about 6,800 jobs since the beginning of the crisis, but are still at the level of the third quarter of 2007. I also consider it a success that we have slightly expanded our customer base. Customers perceive us as quality providers even more than before and entrust their money to us. This shows that the Raiffeisen brand continues to emanate strong appeal and our employees are doing an excellent job.

How will Central and Eastern Europe develop in the near future?

I am convinced that the region will continue to be the European market of the future, but we will see more moderate growth figures than before the crisis. After the GDP decline of 2009, which for the entire region came to about

6.0 per cent, Raiffeisen Research's analysts forecast real GDP growth of 2.6 per cent for 2010. Another positive factor is that budget deficits have been reduced in most of the countries due to diminished imports. Parallel to this, we can observe a great slowing of inflation. That and the resurgence of industrial production make me very confident. Furthermore, Central and Eastern Europe have long offered plenty of economic incentives for exporters and investors. To illustrate this point, I would just mention the region's well-educated residents, who yearn for success. Overall, I am convinced that the convergence process will continue.

What will Raiffeisen International's emphases be in 2010?

We are in the fortunate position that we do not have to change our business model. As a universal bank, we provide our customers with "bread and butter" products, that is, transparent products geared to customer needs. The environment will be more buoyant, but the situation overall will con-

tinue to be strained. That means we will still face considerable need to provision for impairment losses and find ourselves in stiff competition for customers with good credit standing. We will therefore put special emphasis on risk and portfolio management in addition to a moderate adjustment of lending conditions. Continuing strict cost management will also be very important. We will therefore work with great determination on further enhancing our efficiency. I believe that we have become a better organization because of the enormous challenges we have faced, and we intend to continue working on that. It remains our goal to emerge from this crisis stronger with the help of our sustainable business model. If our corporate and retail customers notice this effort, then we have already achieved the most important thing.

What can one expect of Raiffeisen International's business development?

It is still nearly impossible to give reasonable forecasts. However, I generally expect there to be a resurgence in demand, and thus our lending volume should also increase slightly. While we will continue to keep a close eye on costs, we intend to strengthen the income side by means of a targeted increase in cross-selling. Liquidity is no longer the determining factor, as the liquidity situation on the markets is now good again. We now know from experience, however, that this can change very quickly. We will therefore keep an eye on strengthening our primary deposits in any case.

The direct bank1 , whose founding you announced a few months ago, can also be viewed in this context. What lies ahead in that regard?

We are in the process of significantly improving our product range for private individuals. The focus there is on high-income customer groups, but also on those who intensively use the internet and online services. We want to reach the latter with the direct bank. We received the license for that in late autumn and want to launch this bank – which will offer only deposit products at first – in the current year in selected markets. The bank will further strengthen our liquidity position and will offer the best evidence that we intend to continue innovating and investing in the region.

And how did the CEE Charity you founded develop in 2009?

Very well, considering the difficult environment. The goal of the initiative is to help children, youth, and young women in disadvantaged regions. There are now seven projects in Ukraine, Serbia, Bulgaria, and Bosnia and Herzegovina. I hope that we will soon manage to have at least one project running in every Central and Eastern European country in which Raiffeisen operates. Donations are gladly accepted!

1 Raiffeisen International Direct Bank AG

Stock and investor relations

Mild market rally from the end of the first quarter

The beginning of 2009 on international stock markets was still heavily shaped by the economic crisis. Stock prices, particularly those of banks with Central and Eastern European exposure, declined worldwide to multi-year lows. That was accompanied by partial nationalizations and rating downgrades of some banks. In addition, there was a steady stream of negative economic data from many countries and pessimistic forecasts from economic research institutes. Nevertheless, the spread of stimulus packages and government guarantees which started in 2008 in several countries caused a mild market recovery toward the end of the first quarter.

That continued in the second quarter, when major US banks did unexpectedly well in stress tests and released surprisingly strong figures for the first quarter of 2009. Good economic data, especially from the United States and China, further contributed to the recovery. The lowering of key interest rates by the European Central Bank (ECB) in April and May by 25 basis points each to 1 per cent also had a positive influence on the stock markets. That the US central bank left its key interest rate at almost 0 per cent from the end of 2008 onward had a similar effect. However, the lack of better fundamental data in the United States dampened the mood, as did negative economic forecasts by the International Monetary Fund (IMF) and the World Bank.

Good half-year results from US companies – including many banks – and the statement by the Federal Reserve Chairman that the US economy has probably overcome the recession stimulated the stock markets appreciably in the third quarter. Better than expected economic data in various countries also contributed to that.

Following unexpectedly weak consumer confidence, positive economic news came with increasing frequency toward year's end. That prompted Europe's largest central banks to announce their intention to reduce the high level of liquidity in 2010. Set against that, however, were demands for stricter capital requirements on banks raised at the G-20 summit meeting in Pittsburgh and by the Bank for International Settlements. A further burden on the capital markets was the suspension of debt service by sovereign wealth fund Dubai World at the end of November. This was intensified when the Dubai government announced it would not undertake any guarantee to repay the debts, as the possibility that governments will not back their financially troubled concerns in the future became more likely with that announcement.

Raiffeisen International benefits from growing confidence in CEE banks

In the beginning of the year, Raiffeisen International stock declined significantly at first in a difficult market environment and closed at its all-time low of € 13 on 17 February. However, in the course of a general market rally, the stock advanced appreciably when shortly thereafter very good earnings were reported for the year 2008.

In the second quarter, bank stocks in particular benefited from conjectures that the recession had reached its worst point. Further positive impetus, especially for banks with CEE exposure,

Price performance since 25 April 2005 compared with ATX and DJ EURO STOXX Banks

came from the IMF's Financial Stability Report, which corrected estimates of the funding requirements of Central and Eastern European countries downward. Aided by these factors, Raiffeisen International stock neared the € 30 mark several times. However, because of the subsequently released negative forecasts by the IMF and World Bank, banks and hence Raiffeisen International had to give up part of their previously achieved gains at around mid-year.

Supported by the positive assessment of domestic banks regarding their capitalization by the Oesterreichische Nationalbank (Austrian National Bank) and returning confidence in banks with Central and Eastern European exposure, Raiffeisen International stock surpassed the € 30 mark in the third quarter and later the € 40 mark.

This upward trend of Raiffeisen International stock continued in the fourth quarter and led to an intraday high for the year of € 48.55 on 20 October. However, the stock fell below € 40 at the end of October. It did recover later, but only registered sideways movement in the course of the fourth quarter. When the Austrian stock market suffered in mid-December from the nationalization of Hypo Group Alpe Adria AG, Raiffeisen International stock dropped below the € 40 mark again, where it stayed for the remainder of the year.

Price performance since 1 January 2009 compared with the ATX and DJ EURO STOXX Banks

The result was an increase of the stock price by 105 per cent from € 19.30 at the end of 2008 to € 39.50 on 31 December 2009. Raiffeisen International thus beat Austria's most important stock index, the Austrian Traded Index (ATX), and the benchmark index for European banks, the Dow Jones EURO STOXX Banks, in 2009.

Raiffeisen International stock reached its high for the year on 19 October at € 47.86 (closing price). At the end of 2009, Raiffeisen International's market capitalization stood at € 6.1 billion with 154.7 million shares issued. As of the editorial deadline for this report on 1 March 2010, the stock stood at € 33.58 which represents a decrease of 15 per cent compared with the end of 2009.

In 2009, 97 million Raiffeisen International shares were traded. In the process, total turnover of € 2.9 billion and average daily trading volume of 391,312 shares were achieved.

Raiffeisen International stock in major indices

Raiffeisen International stock is listed in several indices that are important in Austria including the ATX and its subindices, ATX Five and ATX Prime. The company is represented in the three indices with a weight ranging between 7 per cent and 14 per cent. Furthermore, Raiffeisen International is included in the Dow Jones EURO STOXX, the Dow Jones EURO STOXX Banks, and the global Dow Jones STOXX 600. It is also listed in the significantly larger MSCI World.

Austria. Institutional investors, whose stake in Raiffeisen International decreased by about 9 percentage points compared with the end of 2008, are geographically more diversified with only 17 per cent orginating from Austria. About 30 per cent of the institutional investors are in the United States, about 37 per cent in continental Europe, and about 13 per cent in Great Britain. The remaining roughly 3 per cent of the institutional investors come from other countries such as Japan, China, the United Arab Emirates and Singapore.

Capital market communication in times of crisis

Active communication with the capital market is indispensable for Raiffeisen International, especially in economically difficult times. With that in mind, the Managing Board and the Investor Relations team again attended various international investor events in London, Zurich, Paris, and New York.

In Austria, the company participated in an investor event in the resort town of Zürs in 2009. Investors and analysts were furthermore invited to a meeting with the Managing Board at the company's Vienna headquarters in December 2009. The management talked with private shareholders after its presentation of the company at a trade fair held in Vienna in October by the Austrian business magazine Gewinn. The Managing Board also spoke at a roadshow for private investors at the Oesterreichische Kontrollbank in Vienna.

Shareholder structure

With 72.8 per cent, RZB is the majority shareholder in Raiffeisen International, with the remaining 27.2 per cent in free float. Institutional investors own about 18 per cent of the company's stock, and private individuals about 9 per cent. The proportion of private shareholders underwent a significant increase of about 6 percentage points versus the end of 2008 to about 9 per cent at the end of the reporting period. The majority of private investors are in

Shareholder structure of Raiffeisen International

Expansion of analyst coverage

Despite the crisis, which led to the merging of some banks and hence reduced the number of potential covering institutions, analyst interest in Raiffeisen International rose in 2009. At year's end, there were 25 firms that were regularly publishing recommendations. In August, the 500th study on Raiffeisen International since the IPO in April 2005 was published, and 207 analyses appeared in 2009 alone. As of 31 December 2009, 21 per cent of the analysts recommended buying Raiffeisen International stock, and 38 per cent holding it, while 42 per cent advised selling. Current analyst recommendations may be viewed online at www.ri.co.at → Investor Relations → RI Share → Analyst Reports.

Equal treatment of institutional and private shareholders

Raiffeisen International relies primarily on the internet to ensure that institutional and private shareholders are simultaneously informed about important developments. For that purpose, it offers investors and other interested parties the possibility of signing up for an e-mail information service on its website at www.ri.co.at → Investor Relations → Ordering and E-mail Service.

About 800 participants at the Annual General Meeting

Raiffeisen International's Annual General Meeting on 9 June 2009, held at the Austria Center Vienna, was likewise geared to private shareholders. With about 800 participants, it was one of the best-attended shareholder's meetings in Austria. The Annual General Meeting approved an unchanged dividend of € 0.93 per share and an anticipatory resolution for the issuance of participation rights with equity characteristics totaling up to € 2 billion within five years.

On the basis of that resolution, Raiffeisen International issued participation rights amounting to € 600 million in mid-July, in addition to € 650 million in hybrid Tier 1 capital. Both issues were completely subscribed by RZB. These issues were accompanied by a conference call like the ones Raiffeisen International usually conducts when publishing results. The presentations from the conference calls may be found online at www.ri.co.at → Investor Relations → Raiffeisen International Share → Financial Reports & Figures → Presentations.

Dividend proposal

The shareholders of Raiffeisen International are cordially invited to the Annual General Meeting for 2009 which is expected to take place on 8 June 2010 in the Austria Center Vienna. The Managing Board will propose a dividend of € 0.20 per share at the event. If the Annual General Meeting approves this proposal, the total dividend payment will come to € 30.9 million. Raiffeisen International shows continuity regarding the relation between the dividend payout to profit, with a payout ratio that has remained unchanged at 14.6 per cent in comparison to the preceding year. The dividend is expected to be paid out on 16 June 2010, which will also be the ex-dividend date.

Details regarding the Annual General Meetings for 2008 and 2009 are available online at www.ri.co.at → Investor Relations → Events.

Index information

Index (selection) Number of
companies
in the index
Weight of
Raiffeisen
International
in the index
ATX 20 8.5%
ATX Five 5 14.5%
ATX Prime 48 7.1%
Dow Jones EURO STOXX 313 < 1%
Dow Jones EURO STOXX Banks 38 < 1%
Dow Jones STOXX 600 600 < 1%
MSCI World 1,656 < 1%

Share data

Price on 31 December 2009 € 39.50
High/low in 2009 (closing prices) € 47.86 / € 13.00
Earnings per share for 2009 € 0.99
Market capitalization as of 31 December 2009 € 6.1 billion
Average daily trading volume in 2009 (single counting) 391,312 shares
Stock exchange turnover in 2009 (single counting) € 2.9 billion
Free float as of 31 December 2009 27.2%

Share details

ISIN AT0000606306
Ticker symbols RIBH (Vienna Stock Exchange)
RIBH AV (Bloomberg)
RIBH.VI (Reuters)
Market segment Prime Market
Issue price per share at IPO (25 April 2005) € 32.50
Issue price per share at capital increase (5 October 2007) € 104.00
Number of shares issued as of 31 December 2009 154,667,500
Average number of shares in 2009 153,673,832

Investor Relations

E-mail: [email protected]
Internet: www.ri.co.at → Investor Relations
Tel.: +43-1-717 07 2089
Fax: +43-1-717 07 2138

Raiffeisen International Bank-Holding AG, Investor Relations Am Stadtpark 3, 1030 Vienna, Austria

Corporate governance report

Raiffeisen International places great value on responsible and transparent management to establish and maintain a trusting relationship with its various stakeholders, including especially capital market participants. It therefore agrees to comply with the Austrian Corporate Governance Code (ACGC) as amended in January 2009. The ACGC is publicly available at the websites of the Austrian Working Group for Corporate Governance (www.corporate-governance.at) and Raiffeisen International (www.ri.co.at → Investor Relations → Corporate Governance). Raiffeisen International's corporate governance report is organized as prescribed by Section 243b of the Austrian Commercial Code (UGB) and is oriented to the structure set forth in Appendix 2 of the ACGC.

Transparency of corporate governance is of special importance to Raiffeisen International. The ACGC is organized into L rules and C rules. L rules are based on compulsory legal requirements. C rules are to be complied with, and any divergence must be explained and justified to achieve conduct in conformity with the Code.

In the period under review, all L rules and – with two exceptions – all C rules of the ACGC were fulfilled. Raiffeisen International diverges from C Rule 31 of the ACGC, which provides for individual publication of the fixed and performance-based remuneration granted to Managing Board members in 2009. Disclosure of the remuneration is made for the entire Managing Board. Individual amounts of remuneration are not published for reason of data privacy law and out of consideration for the individual Managing Board members' right to privacy. Raiffeisen International also diverges, from a formal point of view, from the C Rule 45, which stipulates that members of the supervisory board are not to assume duties in the corporate bodies of other enterprises which are in competition with the Company. The Supervisory Board member, Kurt Geiger, has been holding a seat in the Board of Directors of TBIF Financial Services B.V. since the autumn of 2009. This company provides financial services in Romania, Bulgaria, Ukraine, and Russia. Since TBIF's market share in these countries is very marginal, no competitive relationship in fact exists. Due to this economic irrelevance, the Supervisory and Management Boards of Raiffeisen International decided to make an exception to the prohibition of the C Rule 45 in this singular case.

Following regulation 62 of the ACGC, the Company commissioned an external evaluation by Univ.-Prof. DDr. Waldemar Jud Corporate Governance Forschung GmbH. The report about this external evaluation is available to the public on the Raiffeisen International website (www.ri.co.at → Investor Relations → Corporate Governance → Declaration regarding CG Code).

Composition of the Managing Board

The Managing Board currently consists of 6 members:

Managing Board Year of birth Date first
appointed
End of term
Herbert Stepic, Chairman 1946 14 June 2001 13 June 2011
Martin Grüll 1959 3 January 2005 1 January 2015
Aris Bogdaneris 1963 1 October 2004 25 September 2014
Rainer Franz 1943 20 January 2003 30 June 2010
Peter Lennkh 1963 1 October 2004 25 September 2014
Heinz Wiedner 1953 14 June 2001 13 June 2011

The members of the Managing Board have seats on the supervisory boards or comparable functions in the following domestic and foreign companies not included in the consolidated financial statements:

■ Herbert Stepic: OMV AG

Oesterreichische Kontrollbank AG Raiffeisen Centrobank AG

Composition of the Supervisory Board

The Supervisory Board currently has 7 members:

Supervisory Board Year of birth Date first
appointed
End of term
Walter Rothensteiner,
Chairman
1953 11 May 2001 Regular Annual Gen
eral Meeting 2011
Manfred Url, 1956 11 May 2001 Regular Annual Gen
Deputy Chairman eral Meeting 2011
Patrick Butler 1957 28 September 2004 Regular Annual Gen
eral Meeting 2013
Karl Sevelda 1950 11 May 2001 Regular Annual Gen
eral Meeting 2011
Stewart D. Gager 1940 24 January 2005 Regular Annual Gen
eral Meeting 2013
Johann Strobl 1959 10 June 2008 Regular Annual Gen
eral Meeting 2013
Kurt Geiger 1946 9 June 2009 Regular Annual Gen
eral Meeting 2013

Independence of the Supervisory Board

The Supervisory Board of Raiffeisen International stipulates the following criteria for the independence of supervisory board members of a company in the meaning of Rule 53 of the ACGC:

■ The supervisory board member shall not have served as member of the management board or as management-level staff of the company or one of its subsidiaries in the past 5 years.

  • The supervisory board member shall not maintain or have maintained in the past year any business relations with the company or one of its subsidiaries to an extent of significance for the member of the supervisory board. This shall also apply to relationships with companies in which a member of the supervisory board has considerable economic interest. The approval of individual transactions by the supervisory board pursuant to L Rule 48 of the ACGC does not automatically mean the person qualifies as not independent.
  • The supervisory board member shall not have acted as auditor of the company or have owned a share in the auditing company or have worked there as an employee in the past 3 years.
  • The supervisory board member shall not be a member of the management board of another company in which a member of the management board of the company is a supervisory board member.
  • The supervisory board member shall not be a close relative (direct offspring, spouse, life partner, parent, uncle, aunt, sibling, nephew, or niece) of a member of the management board or of persons who hold one of the aforementioned positions.

The exercise of functions within the group or the mere exercise by a supervisory board member of duties as a member of the management board or as a managing director shall not result in the relevant enterprise being considered an "enterprise in which the supervisory board member has a substantial economic interest" unless the circumstances give reason to believe that the supervisory board member draws an immediate personal benefit from such enterprise.

All members of the Supervisory Board of Raiffeisen International meet the criteria applying to the independence of supervisory board members.

As members of the Supervisory Board, Stewart D. Gager and Kurt Geiger are neither shareholders with a stake of more than 10 per cent nor represent such shareholders and are therefore "free float representatives" in the meaning of C Rule 54 of the ACGC 2009.

Members of the Supervisory Board have the following supervisory board seats or comparable functions in domestic and foreign companies:

  • Walter Rothensteiner: UNIQA Versicherungen AG
  • Karl Sevelda: Bene AG
  • Kurt Geiger: Raiffeisen Bank Aval JSC.

Members of the Committees

The bylaws of the Supervisory Board regulate its organization and assign certain tasks to the Working, Audit, and Personnel Committees, respectively. The Committees are composed as follows:

Supervisory Board member Working
Committee
Audit
Committee
Personnel
Committee
Walter Rothensteiner Chairman Chairman Chairman
Manfred Url Deputy Deputy Deputy
Johann Strobl Member

Meeting participation

All members of the Supervisory Board participated personally in more than half of the Supervisory Board meetings last year.

Contracts subject to approval

No contracts subject to approval as defined by the Austrian Stock Corporation Act were made with Supervisory Board members in 2009.

Working method of the Managing Board and Supervisory Board

Assignment of duties and working method in the Managing Board

The Managing Board of Raiffeisen International manages the Company according to clearly defined goals, plans, and guidelines with a forward-looking orientation and relying on modern principles of entrepreneurship. In the process, it constantly takes into account the interests of the shareholders and employees.

The area of responsibility of the Managing Board members have been defined by the Supervisory Board without prejudice to the Managing Board's overall responsibility as follows:

"Learning & Development" reports functionally to Rainer Franz.

2 Outsourced to RZB.

The Managing Board conducts the company's business in accordance with the laws, the articles of association, and the Managing Board's bylaws. The Chairman of the Managing Board convenes and presides over the weekly Managing Board meetings, which serve the purpose of mutual information and decision-making in all matters that require the body's approval. The bylaws of the Supervisory Board and of the Managing Board contain the Managing Board's duties to inform and report and a catalog of measures that require Supervisory Board approval.

Decision-making powers of the Committees

The management measures that require approval of the Supervisory Board or the responsible Committee are regulated in the bylaws of the Managing Board and the Supervisory Board and its Committees.

The Working Committee is responsible for all matters assigned to it by the full Supervisory Board. It is thus called upon to approve the transactions and measures not reserved to the Supervisory Board. Those include, in particular, the establishment and dissolution of subsidiaries as well as the acquisition of shareholdings up to a certain book value amount, the making or dissolution of syndication or voting trust agreements with co-shareholders, the assumption of duties in the corporate bodies of other enterprises by Managing Board members, or the appointment of persons to managing boards and supervisory bodies of Group lending institutions. The Working Committee furthermore approves the extension of loans and credits to Group enterprises from a certain amount upward.

The Personnel Committee concerns itself with the matters of remuneration of the Managing Board members and the employment contracts of the Managing Board members. It is specifically responsible for approving the bonus allotment and the allocation of shares from the share incentive program to the Managing Board members.

The Audit Committee monitors the accounting process and the effectiveness of the Company's internal control system, the internal auditing system, and the risk management system. The Committee's tasks include monitoring the audit of the financial statements and the audit of the consolidated financial statements and examining and monitoring the independence of the auditor of the consolidated financial statements, particularly in respect to additional services rendered to the audited company. The Committee examines the annual financial statements, the management report, the consolidated financial statements, and the Group management report as well as the preparation of its ratification; it furthermore examines the proposal concerning the distribution of profit and the corporate governance report. It reports to the Supervisory Board concerning the results of its examinations. It is furthermore its duty to prepare the Supervisory Board's proposal for the selection of the auditor of the annual and consolidated financial statements. The content of the management letter is also discussed in the Audit Committee.

Number of meetings

The Supervisory Board convened for 5 meeting in the reporting period. In addition, the Managing Board regularly informed the Supervisory Board in a timely and comprehensive manner about all issues relevant to business development, including the risk situation and risk management of the Company and material Group entities, and particularly about events of major significance.

The Audit Committee met twice. As a rule, the Working and Personnel Committees made their decisions in writing on a circulating basis, with important decisions being dealt with orally in advance.

Disclosure concerning Managing Board and Supervisory Board remuneration

Remuneration of the Managing Board

The remuneration of the Managing Board is reported according to fixed and performance-based components including remuneration for membership in corporate bodies of subsidiaries, bonuses, and payments in kind.

For the duration of the Managing Board contract, payments are made to pension funds on the basis of a contribution-oriented system. On the whole, the same rules apply to the Managing Board members as apply to employees. They provide that a basic contribution to a pension fund and an additional contribution be made by the Company if the employee makes contributions in the same amount. Individual retirement benefits that are funded by pension liability insurance additionally apply to 3 Managing Board members.

Furthermore, there is protection against the risk of occupational disability, likewise arranged by means of a pension fund or based on an individual pension commitment secured by pension liability insurance.

The following amounts of remuneration were paid to the Managing Board of Raiffeisen International:

in € 000 2009 2008
Fixed and performance-based remuneration 4,876 9,219
Payment to pension plans and pension liability insurance companies 97 79
Total 4,973 9,298

These figures contain fixed and performance-based amounts, including remuneration for service in the corporate bodies of associated enterprises, bonuses, and payments in kind. In the year under review, the share of performance-based remuneration components amounted to 5.5 per cent (2008: 60.7 per cent).

The performance-based components of the Managing Board's remuneration normally consist of bonus payments linked to the achievement of Company objectives for profit after tax, return on risk-adjusted capital, and cost/income ratio and to the achievement of annually agreed personal objectives and the value of an allotment of shares in the framework of the share incentive program. The entire Managing Board waived payment of an annual bonus for 2008. The value of the allotted shares corresponds to 100 per cent of the performance-based remuneration components. There were no material changes in the principles for profit-sharing compared with the preceding year.

In 2006, bonus commitments were made in connection with acquisitions to the Managing Board in the amount of € 4,750 thousand. Although the objectives set as conditions for payment were achieved by the subsidiaries in the years from 2006 to 2008 and hence bonus payments became payable in 2009, the Managing Board has waived any payment on this account.

The Chairman of the Managing Board continues in his function as a member of the Managing Board of RZB. The stated remuneration also includes income from that function.

Share incentive program

The share incentive program (SIP) is a stock-based remuneration program for the Managing Board, members of the managing boards of network banks, and executive personnel with a term of three years per tranche. At the beginning, a number of shares are conditionally allotted to beneficiaries that correspond in value to a fixed percentage of the basic annual remuneration. The number of shares actually allotted at the end of the term is geared to two equally weighted performance parameters – the average return on equity achieved during the term in comparison with a target value fixed per tranche and the TSR (total shareholder return) ranking in comparison with the banks listed in the Dow Jones EURO STOXX Banks subindex.

It is a prerequisite for participation in the SIP that the beneficiaries make an investment of their own and hold a number of Raiffeisen International shares during the term that corresponds to at least 30 per cent of the number of conditionally allotted shares.

The second tranche of the remuneration program matured in 2009 (the 2006 SIP tranche). In accordance with the terms of the program (published in the Amtsblatt zur Wiener Zeitung on 28 July 2006), the number of shares shown in the following table was actually transferred.

SIP 2006

Group of persons Number of
shares due
Value at share
price of € 15.70 on
allotment day
(4 March 2009) in €
Number
of shares
actually
transferred
Members of the Managing Board
of Raiffeisen International Bank-Holding AG
16,986 266,680 10,761
Members of the managing boards of
bank subsidiaries affiliated with
Raiffeisen International Bank-Holding AG
30,380 476,966 27,807
Executives of Raiffeisen International
Bank-Holding AG and other affiliated companies
11,234 176,374 7,379

To avoid legal uncertainties, a severance indemnity was paid in cash instead of a transfer of shares in 2 countries in accordance with plan terms and conditions for qualifying employees. In Austria, the possibility was granted to qualifying persons likewise to receive a cash settlement instead of half of the shares due in order to pay from that the wage tax due at the time of transfer. That results in the lower number of shares actually transferred in comparison with the number of shares due. The total number of own shares was reduced by the lower number of actually transferred shares.

A new tranche has heretofore been issued in the framework of the SIP every year. That means that conditional shares are allotted respectively for three tranches as of the balance sheet date. The number of those conditional shares amounted to 536,736 as of 31 December 2009 (the 2007 allotment accounted for 50,905 of those, the 2008 allotment for 83,368, and the 2009 allotment for 402,463). The originally disclosed number of conditionally allotted shares changed as a result of various personnel changes in Group units and the maturing of the 2006 SIP tranche, and it is presented in the following table as an aggregate:

Group of persons Number of
contingently allotted
shares as of
31 December 2009
Minimum
allotment
of shares
Maximum
allotment
of shares
Member of the Managing Board of
Raiffeisen International Bank-Holding AG 164,849 47,371 247,274
Members of the managing boards of
bank subsidiaries affiliated with
Raiffeisen International Bank-Holding AG 285,280 81,905 427,920
Executives of Raiffeisen International
Bank-Holding AG and other affiliated companies 86,607 25,031 129,911

SIP 2007 to 2009

Severance rights of the Managing Board

In respect to cessation of duties or employment and departure from the company, it is generally the case that 2 members of the Managing Board have rights to severance benefits in accordance with the Austrian Salaried Employees Act, 2 members in accordance with contractual stipulations, and 2 members in accordance with the Austrian Company Pension Fund Act. The severance rights according to the Salaried Employees Act or to contractual stipulations generally lapse upon notice of termination by the employee except in the case of a Managing Board member. Furthermore, 4 Managing Board members have a contractual right to severance benefits at the end of their current term in office or at the end of their limited employment contract.

The contracts of Managing Board members are made for the duration of the terms in office or limited to at most 5 years.

If there is no important reason for the termination of these contracts then these are to be paid out in the event that a member of the Managing Board is dismissed.

Furthermore, no compensation agreements are to be made between the company and the members of its Managing or Supervisory Boards in the event of a public take-over bid.

Remuneration of the Supervisory Board

The Annual General Meeting resolved on 9 June 2009 to pay the Supervisory Board members total remuneration of € 305,000 and assigned to the Supervisory Board the task of distributing that amount. Fees for meeting attendance were not paid.

in € 2009
Supervisory Board Chairman 70,000
Deputy Supervisory Board Chairman 60,000
Member of the Supervisory Board1 50,000

1 As a member of the Supervisory Board, Johann Strobl was paid remuneration of € 25,000 instead of € 50,000 because he was a member of the Supervisory Board for only half a year in 2008.

D & O insurance

Directors and officers (D & O) property damage and liability insurance was taken out again last year for the Managing Board and Supervisory Board with UNIQA Sachversicherung AG.

Annual General Meeting

The Annual General Meeting for 2008 was held on 9 June 2009 at the Austria Center in Vienna. The next Annual General Meeting for the past year is expected to take place on 8 June 2010. Its convening will be made known at the latest on the 28th day before the Regular Annual General Meeting in electronic form and in the Amtsblatt zur Wiener Zeitung.

As owners of the Company, the shareholders exercise their rights by voting at the Annual General Meeting. The voting proceeds according to the one-share-one-vote principle. Accordingly, there are no voting right restrictions, and all shareholders have entirely equal rights. Every unit share issued confers one vote, and no registered shares have been issued. The shareholders can exercise their voting right themselves or through proxies.

The opening comments and speeches by the Managing Board are broadcast live on the internet at www.ri.co.at → Investor Relations → Events → Annual General Meeting and may also be viewed there later. This creates the greatest possible transparency for all shareholders who were unable to attend the Annual General Meeting.

Conflicts of interest

The obligation to disclose all and any conflicts of interest applies to both the Managing Board and the Supervisory Board of Raiffeisen International.

Managing Board members must disclose material personal interests in transactions of the Company and Group enterprises and other conflicts of interest to the Supervisory Board. Moreover, the obligation exists to inform the other Managing Board members. Managing Board members who perform management functions for other enterprises are obligated to work towards achieving a fair balance of the interests of the enterprises involved.

Supervisory Board members must inform the Chairman of the Supervisory Board of any conflicts of interest without delay. If the Chairman himself gets into a conflict of interest, he must disclose that to the Deputy Chairman without delay. The Supervisory Board's approval is required for contracts between the Company and members of the Supervisory Board that obligate the members to performance in relation to the Company or a subsidiary (Section 228 (3)), apart from their activity in the Supervisory Board, for more than merely negligible compensation. That also applies to contracts with enterprises in which a Supervisory Board member has a considerable economic interest.

The Company did not enter into any such contracts in 2009.

Accounting and financial statement auditing

The Raiffeisen International Group's accounting is performed according to the provisions of the International Financial Reporting Standards (IFRS). The annual financial statements of Raiffeisen International are prepared according to the provisions of the Austrian Commercial Code. The consolidated financial statements are published within the first 3 months of the financial year following the reporting period, and interim reports at the latest 45 days after the end of the respective reporting period.

The Annual General Meeting appointed KPMG Austria GmbH, Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Vienna as auditor for 2009. KPMG received compensation of € 30,750 for other services ordered by the Company. Further consulting services beyond the previous year's extent have not yet been agreed for the current year. KPMG has confirmed that it has a certificate from a quality assurance system. It has likewise been declared to Raiffeisen International that there are no grounds for exclusion or a charge of partiality. The auditor of the financial statements prepares the legally prescribed audit report and is responsible for performing the auditor's duty to report. The auditor writes a management letter to the Managing Board that also contains references to weaknesses in the Company. The letter is brought to the attention of the Chairman of the Supervisory Board, who ensures that it is dealt with in the Audit Committee and a report of that is made to the Supervisory Board.

Vienna, 26 February 2010

The Managing Board

Herbert Stepic Martin Grüll Aris Bogdaneris

Rainer Franz Peter Lennkh Heinz Wiedner

Corporate responsibility

Corporate responsibility in a difficult environment

Corporate responsibility, the commitment to social responsibility and environmental sustainability is an integral part of Raiffeisen International's corporate identity. In its implementation, this means a mindset and a management method that focus on harmonizing economic, social, and environmental demands. The goal at Raiffeisen International is therefore responsible corporate conduct that transcends individual measures.

The commitment to corporate responsibility is reflected in the modern Raiffeisen principles, which originated in the concept of "helping people to help themselves" developed by Friedrich Wilhelm Raiffeisen. These principles make Raiffeisen International a reliable partner for customers, investors, and employees, and demonstrate a dedication to responsibility especially in difficult economic times.

Raiffeisen principles

■ A future always needs a past.

This principle is dedicated to the origin, tradition, and history of Raiffeisen. Strategies and business activity derive directly from it.

■ We are here to stay.

This principle expresses Raiffeisen International's responsibility to the regions of Central and Eastern Europe and their people. This principle also attests to a long-term strategy aimed at sustainability.

■ The best become better with us.

The object here is the interplay between the commitment to performance of the employees and the social commitment of the employer.

■ Our clients' success defines our own success.

Economic success is Raiffeisen International's primary corporate goal and the basis for dealing responsibly with customers.

■ A strong cultural mix.

Raiffeisen International's commitment to diversity aims at a strong cultural mix. The development into a multicultural banking group with extensive presence in Central and Eastern Europe entails economic and social opportunities and advantages.

Sustainability program for 2009/2010

In 2009, Raiffeisen presented an overview of the Group's numerous social and environmental activities, particularly in Central and Eastern Europe, with its first corporate responsibility report (CR Report). At the same time, a comprehensive sustainability program was also developed. Examples of the Raiffeisen International Group's far-reaching corporate responsibility activities are presented in the report. A two-year reporting cycle is planned, so the next CR Report will appear in 2011. The current report is available online at www.ri.co.at → Company Info → Corporate Responsibility.

Organizational anchoring of corporate responsibility

The significance of sustainability for Raiffeisen International was reinforced in 2009 through further development of the strategic corporate responsibility organization. The supervision and decision-making authority for sustainability agendas are the responsibility of the Managing Board at Raiffeisen International.

In a further step, the Extended Corporate Responsibility Committee (CR Committee) was established, and its first meeting held in June 2009. The body is composed of notable representatives of the stakeholders, including owners, non-profit organizations, and a representative of the network banks. The CR Committee has the task of informing and providing consultation to the Managing Board about current socially relevant trends from the respective areas, and contributes to accentuating Raiffeisen International's corporate responsibility activities in Austria and in Central and Eastern Europe.

One of the first measures taken to implement the sustainability program was the creation of an office dedicated exclusively to the area of corporate responsibility.

Corporate responsibility within the framework of business activity

An important aspect of corporate sustainability is linking responsible conduct with the company's original business purpose. Raiffeisen International accomplishes that by ensuring that the highest standards are observed in the areas of compliance and corruption prevention as well as by assuming environmental responsibility in the financing of facilities for the use of renewable energy sources and capital investments to enhance energy efficiency. Raiffeisen International demonstrates social commitment directly related to core business through financial inclusion, financial education, and microfinance as described below.

MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK

Compliance and corruption prevention

In June 2009, Raiffeisen International published a revised version of its Code of Conduct which upholds the principles of the organization and which is dedicated chiefly to the topics of compliance and corruption prevention. This catalog of conduct rules is applied throughout the Group and comprises the following topics: workplace and employees, fight against bribery and corruption, treatment of customers and business partners, prevention of market abuse, accounting and finance, and sensitive business areas. To do justice to the importance of the subject, a comprehensive training and communication process has been set up at the Raiffeisen International Group with the technical assistance of the Basel Institute on Governance. In addition to keeping employees' knowledge up-to-date, this measure is designed to promote increased awareness of the need for smooth implementation.

Means of enhancing energy efficiency

The Raiffeisen Bank in Hungary finances the improvement of the local infrastructure's energy efficiency with support from the European Bank for Reconstruction and Development (EBRD). With a credit line in the amount of € 25 million, funds are made available for modernization with a view to energy efficiency, achieved for example by renewing heat and energy distribution systems or building insulation. The capital investments made possible by the credit line will result in savings of up to 150 gigawatt-hours annually. That is equivalent to the consumption of Györ, the sixthlargest city in Hungary with a population of 128,000.

Financing renewable energy sources

In the area of renewable energy, Raiffeisen-Leasing International put the corporate responsibility concept into practice with projects in the segments of wind and solar energy. After a focus mainly on setting up wind farms in 2008, photovoltaic plants gained in importance in 2009. Currently, for example, several photovoltaic projects are being developed in the Czech Republic and in Slovakia. Renewable energy sources will also be an important strategic theme for Raiffeisen International in the years ahead.

Financial inclusion

The Raiffeisen Bank in Albania created a custom-tailored credit product for teachers who would not pass a standardized credit check due to the very low salary levels in the public service sector. Recognizing support of the educational system as part of its social responsibility, the Albanian Raiffeisen Bank grants teachers loans at special conditions and extended terms in the framework of financial inclusion.

Financial education

Tatra banka in Slovakia is working together with INTEGRA, a non-profit organization, to improve the population's knowledge about how to deal with money and bank products. In particular, population groups threatened by poverty are to receive support in managing their household income better and avoiding ill-considered credit commitments.

Microfinance

The Bulgarian Raiffeisenbank and RZB support Landhill Financial Ltd., whose business purpose is granting microloans to the Roma people. With group loans in amounts of up to € 300 per group member, funds are made available to start up micro and small businesses. Beginning in the second quarter of 2009, the effects of the economic crisis also became visible in the Bulgarian microcredit segment in respect to both raising funds and repaying existing loans. The emphasis from that time onward has therefore been on repayment of outstanding loans in a socially responsible manner. Solutions have been sought jointly with borrowers, such as deferral or lengthening of terms. At the end of 2009, 10 groups with a total of 55 borrowers were being serviced in Sofia and the surrounding area.

Raiffeisen International's social involvement

As a responsible company, Raiffeisen International is also actively involved in areas that are not directly connected with its original business purpose.

Therapy center for handicapped persons

A pertinent project is under way in Bosnia and Herzegovina. Under the name "Koraci Nade" (Steps of Hope), construction of a day therapy center made accessible for the handicapped in Tuzla, began in November 2009. This medical center will serve about 150 young persons with motor and mental handicaps, learning and speech disorders, and sensory disorders. The "Koraci Nade" project is being assisted by experts from the local Raiffeisen Bank, and at the same time, RZB will have made a financial contribution of € 450,000 by the time of planned completion of the building in the first half of 2010.

H. Stepic CEE Charity – opportunity for a better life!

The H. Stepic CEE Charity – Association to support charity projects in Central and Eastern Europe was founded in 2006 by Herbert Stepic, CEO of Raiffeisen International. The goal of the initiative is to support children, teenagers, and young women in disadvantaged regions of Central and Eastern Europe. Seven projects were realized by the end of 2009 in Serbia, Bulgaria, Ukraine, and Bosnia and Herzegovina.

One of the charity's many initiatives is an orphanage in Charkov, the second largest city in Ukraine. It accommodates 10 children from the age of 3 to 18, as well as 2 carers. Alongside running its own elementary school, the orphanage also has – in cooperation with Caritas and the local social support services – facilities for a carpenter's workshop which provides young people with an opportunity to have vocational training. Cooking and tailoring courses are also offered. As a result, the general circumstances of the children who would otherwise have to live in poorly equipped, state-run orphanages, has been greatly improved.

Corporate volunteering

In the framework of corporate volunteering, Raiffeisen International also supports the volunteer activities of its employees. The Raiffeisenbank in the Czech Republic, for example, organizes "volunteer days" for employees to engage in charitable projects. In 2009, more than 700 hours of volunteer work was done in this way.

In December 2009, Raiffeisen International employees at the head office in Vienna organized a Christmas action for needy children for the second time. They collected used but working toys and packaged them as a "surprise in a box." These gifts were distributed to children and teenagers at Christmas through the Caritas center for asylum seekers. A similar action has been conducted in the Hungarian Raiffeisen Bank for several years with great success.

Dealing responsibly with employees

Raiffeisen International strives to deal fairly with its employees in times of economic crisis as well. A key aspect in that regard is an extensive range of training and continuing education opportunities for the entire staff. In the period under review, that contributed to arranging personnel adjustments resulting from the economic crisis in the most socially responsible manner possible. Details regarding this may be found in the human resources chapter beginning on page 69.

Group management report

General economic environment

Worst recession since 1945

The world economy was hit in 2009 by the most severe recession since 1945. The starting point was the collapse of US investment bank Lehman Brothers in September 2008 and the resulting disruptions on global financial markets. World trade and industry were also hugely affected by the crisis in 2009. The euro area's real gross domestic product (GDP) dropped sharply in the first quarter of 2009 by 2.4 per cent on the previous quarter, and by 5 per cent on the same period of the previous year. The decrease for 2009 as a whole was 4 per cent year-on-year. After GDP declines over three consecutive quarters, however, the euro area overcame the recession in the third quarter of 2009 with real GDP growth of 0.4 per cent in quarterly comparison. Extensive government programs to stimulate the economy and expansive monetary policy from the European Central Bank (ECB) contributed decisively to that.

Because of their close economic and financial ties to Western Europe, the countries of Central and Eastern Europe (CEE) were also affected by the global economic crisis in 2009. Besides being heavily oriented to exporting to the European market, the CEE economies are especially dependent on capital flows from Western Europe. This concerns both foreign direct investments and the financing flows of the local financial sector. Since domestic savings are not sufficient as economic capital stock for these countries, they mostly depend on importing foreign capital. This

Annual real GDP development

was greatly curtailed, however, by the global financial crisis, which put an additional burden on the national economies. Countries whose current account deficits had sharply increased in the economic boom years were especially affected.

Among the new EU member states of Central Europe (Czech Republic, Hungary, Poland, Slovakia, and Slovenia), Poland stands out especially. It is Europe's only relatively large economy that achieved growth in 2009. The reasons for that are a relatively large share of domestic output and a robust financial sector that has hardly been impaired by the global crisis. In contrast, the Czech Republic and Slovakia, whose economies are strongly geared to export, and the automotive industry in particular, were affected significantly more on an annual basis. The cash-for-clunkers programs launched in many Western European countries to bolster the automotive industry also proved helpful, however, for automobile exports from Central and Eastern Europe. This put the Czech Republic and Slovakia among the EU economies that showed the strongest growth in the third quarter of 2009 by quarterly comparison. On the other hand, the Hungarian economy suffered a decline in the same period for the fourth consecutive quarter. Because of necessary budget consolidation, Hungary has hardly any maneuvering room left for fiscal policy measures. Altogether, the economic output of the new EU member states of Central Europe decreased in 2009 by 1.8 per cent year-on-year.

The rapid economic catch-up process in the transition countries in Southeastern European (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania, and Serbia) led to rising and in some cases very high current account deficits in past years. Before the outbreak of the crisis, financing of those deficits was ensured both by foreign direct investments and by the financing flows of the flourishing financial sector. Because of the crisis, however, financing flows decreased considerably, with the result that current account deficits also had to be reduced rapidly. Some countries, e.g., Romania, Serbia, and Bosnia and Herzegovina, were only able to do that with financial assistance from the International Monetary Fund (IMF). The adjustments in the Southeastern European economies needed to substantially reduce current account deficits caused a sharp decline of GDP growth in 2009 by about 5.6 per cent year-on-year.

The Commonwealth of Independent States (CIS), which had achieved the strongest economic growth of Raiffeisen International markets in past years, was hit hardest among all Central and Eastern European regions by the global economic crisis. In Ukraine, the continuing political crisis hindered not only reform efforts, but also effective measures to combat the economic crisis. That led to a huge loss of the population's confidence in the local currency. Its devaluation as well as a sharp decline of demand for steel, which subsequently affected its world-market price, caused Ukraine's economic output to drop in 2009 by around 15 per cent year-on-year. Despite a comparatively favorable starting position, the Russian economy was also unable to escape the effects of the global economic crisis. The sharp decline of commodity prices and a crisis of the domestic financial sector due to excessive speculation on the stock market are likely to have resulted in a contraction of the country's economic output by 7.9 per cent in 2009. Altogether, the GDP of the CIS probably declined by 8.3 per cent on average in 2009.

Assistance from IMF and EU stabilizes financial markets in Central and Eastern Europe

After the outbreak of the global financial crisis, Ukraine and Hungary were the first CEE countries to receive financial assistance from the IMF in November 2008, followed by Latvia in December 2008 and other CEE countries in the first half of 2009. The EU made additional funds available for the member states that required IMF money (Hungary, Latvia, and Romania). Both the rapid and pragmatic support by the IMF and the willingness of the EU to support member states in financial distress had a calming effect on the financial markets.

At the summit meeting of the 20 most important industrialized and emerging market countries (G-20) in the beginning of April 2009, it was decided that the IMF's financial assistance would be tripled to USD 750 billion. The EU also raised the amount of funds it can make available to its member states in an emergency to € 50 billion. Moreover, the World Bank, together with the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB), assembled a € 24.5 billion package to strengthen the financial industry in the CEE region and lending to the private sector.

The measures adopted at the G-20 summit strengthened the confidence of financial market participants that all CEE countries will meet their payment obligations in the foreseeable future. The meeting thus marked the turning point in the development of risk premiums and CEE currencies. The latter have stabilized since then, and some have even recovered. In the fourth quarter of 2009, risk premiums almost returned to the same levels they were at before the collapse of Lehman Brothers in September 2008.

Banking sector development in Central and Eastern Europe

After credit growth in Central and Eastern Europe already slowed greatly in the second half of 2008, it came to a nearly complete standstill in the first half of 2009. A massive rise in the cost and decline in the supply of external financing, tightened conditions for bank loans, and lower demand for credit were responsible for that. In addition to the economic recession, the devaluation of some CEE currencies due to the global economic crisis accelerated the increase of nonperforming loans. The situation in the banking sector stabilized in the second half of 2009, but remained generally tense. The reasons for that were a further rise of unemployment rates due to the recession on the one hand, and uncertainty about the extent, speed, and sustainability of the general economic recovery on the other.

The robust Polish market and favorable loan/deposit ratios in the Czech Republic and Slovakia had a positive effect on the new EU member states. Lending volume in Hungary declined in 2009. Slovenia and Slovakia already benefited from their status as members of the euro zone, which grants them direct access to ECB funding lines. In the transition countries in Southeastern Europe, lending volume is likely to have remained stable in 2009. One reason for that is a commitment from international banks not to reduce their lending volume in some countries, in which the IMF has extended financial assistance. On the other hand, lending volume is likely to have decreased slightly in the CIS.

Performance and financials

Introduction

The consolidated financial statements of Raiffeisen International are prepared in accordance with the International Financial Reporting Standards (IFRS), as applicable in the EU. Raiffeisen International Bank-Holding AG also prepares individual financial statements conforming to the Austrian Commercial Code (UGB), which provide the formal basis of assessment for calculating dividend payments and taxes. For more information on the disclosures required by the UGB, please see the relevant sections of this report and the notes.

The majority of Raiffeisen International is held by Raiffeisen Zentralbank Österreich Aktiengesellschaft (RZB), which makes it part of the RZB Group. The stake held by RZB amounted to 72.8 per cent at the end of the year; the rest of the shares were free float.

As of 31 December 2009, Raiffeisen International's scope of consolidation comprised 135 Group units, including network banks and leasing companies in 17 markets and a number of financial companies and bank-related service providers. For more information on changes in the scope of consolidation, please see the relevant section of the notes from page 218 onwards. Neither in the year under review nor in the preceding year were there any material additions or disposals in the scope of consolidation that impair the comparability of the two periods.

The effects of the global economic situation heavily shaped Raiffeisen International's development in 2009. That found expression, in particular, in an appreciable decline of business volume and significantly increased provisioning for impairment losses.

Profit from operating activities down 9 per cent on preceding year's level

Despite the sharp economic downturn in most CEE countries, Raiffeisen International's operating income declined in 2009 by only 9 per cent, or € 191 million, to € 2,056 million compared with the preceding year's level.

Net fee and commission income fell due to volume effects by 18 per cent on the preceding year, and net interest income by 9 per cent. General administrative expenses decreased by 14 per cent compared with the preceding year thanks to immediately implemented cost-saving measures.

Profit from operating activities on an annual basis

in € million 2009 Change 2008 2007
Net interest income 2,937 (9.1)% 3,232 2,419
Net fee and commission income 1,223 (18.3)% 1,496 1,250
Net trading income 186 11.2% 168 128
Other net operating income (20) 28.2% (16) (5)
Operating income 4,326 (11.4)% 4,880 3,791
Staff costs (1,054) (17.4)% (1,276) (1,085)
Other administrative expenses (970) (12.9)% (1,113) (877)
Depreciation on intangible
and tangible fixed assets
(246) 0.8% (244) (223)
General administrative expenses (2,270) (13.8)% (2,633) (2,184)
Profit from operating activities 2,056 (8.5)% 2,247 1,607

Operating income down 11 per cent mainly due to volume effects

Demand for credit and bank services declined significantly due to the sharp decline in growth triggered by the financial crisis. That was also partly due to a change in risk policy that mainly concerned foreign currency loans. Consequently, net interest income decreased by 9 per cent on the preceding year to € 2,937 million. In particular, declines were registered by the corporate customer division (minus 14 per cent), the retail customer division (minus 9 per cent), and the treasury division (minus 58 per cent), while positive effects came from the participations and other division because of computational results from the investment of equity. At the segment level, Russia (minus 15 per cent) and CIS Other (minus 8 per cent) bore particular responsibility for the decline. In comparison, the other segments showed smaller reductions. The Group's interest margin overall fell significantly year-on-year, by 26 basis points to 3.73 per cent. That decline was caused by Russia (minus 67 basis points), by Central Europe (minus 24 basis points), and by Southeastern Europe (minus 26 basis points). Nevertheless, at 68 per cent, the share of operating income attributable to net interest income was 2 percentage points above the previous year's level.

Development of operating income

The sharpest decline was registered by net fee and commission income, which fell by 18 per cent, or € 273 million, to € 1,223 million. Accordingly, its share of operating income declined by 3 percentage points to 28 per cent. In particular, the decline strongly affected the CIS Other segment (minus 25 per cent) and the Central Europe segment (minus 23 per cent), where income from banking services fell due to volume effects caused by the economic situation. That mainly concerned foreign currency and precious metals business, where income declined by 34 per cent due to the smaller extent of foreign currency loans and foreign payment transfers. An earnings reduction by 16 per cent was also registered in the payment transfer business, which is a main component of fee and commission income with a share of 44 per cent.

On the other hand, net trading income increased significantly, by 11 per cent, or € 19 million, to € 186 million. Its share of operating income thus rose to 4 per cent. The individual income components developed very differently and contrary to the preceding year. The result from interest-based transactions increased by € 205 million to € 117 million. That was due to write-ups in the securities portfolio, after valuation losses had occurred there in the preceding year as a result of strong interest rate movements triggered by the global financial market crisis. In contrast, profit from currencybased transactions declined by € 187 million. That was almost solely attributable to currency forwards in Russia, which arose because of changed interest rate and exchange rate differences between the Russian rouble and the US dollar. Valuation gains occurred in the preceding year for the same reason.

General administrative expenses reduced by 14 per cent

With the onset of the economic crisis in the CEE region, cost-cutting programs were immediately started. General administrative expenses fell for that reason, but also because of currency effects in the reporting year, by 14 per cent, or € 363 million, to € 2,270 million. Staff costs were reduced the most, by 17 per cent to € 1,054 million, and their share of total operating expenses declined by 2 percentage points. The average number of employees decreased by 2 per cent, or 1,268, to 60,186, mainly due to reductions in the CIS Other segment (minus 7 per cent) and Russia (minus 3 per cent). Other administrative expenses were also down, by 13 per cent to € 970 million. Cuts were made in this regard especially in advertising, PR, and promotional expenses (minus 40 per cent) and in internal costs such as traveling expenses and office supplies, while the cost of premises, the largest item with a share of 32 per cent, decreased by 2 per cent.

Cost/income ratio improved again by 1.5 percentage points

The decline of general administrative expenses by 14 per cent in the reporting period was greater than that of operating income by 11 per cent. That resulted in another improvement in the cost/income ratio, a key measure of bank efficiency representing the ratio of operating expenses to operating income, by 1.5 percentage points from 54.0 to 52.5 per cent.

Positive result despite much higher provisioning for impairment losses

Due to the recession, which caused an increase of non-performing loans for both retail and corporate customers, net allocations to provisioning for impairment losses rose by 123 per cent, or € 958 million, to € 1,738 million. That reduced profit before tax by 74 per cent, or € 1,061 million, to € 368 million.

Development of the cost/income ratio

in € million

Operating income General administrative expenses Cost/income ratio

Focus on provisioning in Ukraine, Russia, and Hungary

The considerable worsening of many borrowers' creditworthiness and financial strength necessitated a significant increase of net allocations to provisioning for impairment losses to € 1,738 million in 2009. While net allocation to individual provisions climbed by 212 per cent due to the increase of non-performing loans, portfolio-related provisions decreased by 33 per cent due to volume effects. Consequently, the risk/earnings ratio rose significantly, from 24.1 per cent to 59.2 per cent.

In 2009, as in the preceding year, net allocations to provisioning for impairment losses were higher in the case of retail customers

Development of consolidated earnings on an annual basis

in € million 2009 Change 2008 2007
Profit from operating activities 2,056 (8.5)% 2,247 1,607
Provisioning for impairment losses (1,738) 122.7% (780) (357)
Other profit/loss 50 (231.7)% (38) (13)
Profit before tax 368 (74.3)% 1,429 1,238
Income taxes (81) (77.1)% (351) (264)
Profit after tax 287 (73.4)% 1,078 973
Minority interests in profit (75) (22.2)% (96) (132)
Consolidated profit 212 (78.4)% 982 841

(€ 1,010 million) than in the case of corporate customers (€ 727 million). However, the risk/ earnings ratio (which is the ratio of provisioning for impairment losses to net interest income) was significantly higher in the corporate customer division (75.9 per cent) than in the retail customer division (60.5 per cent). From a segment perspective, the focus of net allocations to provisioning for impairment losses was in the CIS Other segment, with a share of 30 per cent, or € 514 million (plus 184 per cent). It thus showed a risk/earnings ratio of 105.3 per cent. In the other regions, the risk/ earnings ratio was between 46 per cent and 50 per cent. In Southeastern Europe, net allocations likewise grew above average, by 160 per cent to € 414 million. Central Europe and Russia each showed an increase of 84 per cent, with provisioning needs of € 487 million and € 322 million, respectively.

Tax rate down to 21.9 per cent

The decline of income taxes in 2009 by 77 per cent to € 81 million was proportional to that of profit before tax. The effective tax rate fell from 24.6 to 21.9 per cent. That was due to differences in the distribution of profits and in local tax laws. The effective tax rate was highest in Central Europe at 21.8 per cent, and the lowest rate was registered in Southeastern Europe at 13.3 per cent

Development of profit and return on equity

Consolidated profit at € 212 million

Profit after tax fell by 73 per cent in the reporting year to € 287 million (2008: € 1,078 million). This decline was largely due to an increase of net allocations to provisioning for impairment losses (plus € 958 million) and a 9 per cent lower profit from operating activities (minus € 191 million). Other profit/loss improved to € 50 million (2008: minus € 38 million). That was primarily due to the appreciation of the securities portfolio at fair value through profit and loss (increase of € 67 million) and of derivative financial instruments (increase of € 28 million).

In contrast to profit after tax, minority interests in profit declined by only 22 per cent to € 75 million. That was due to the different distribution of earnings changes within the Group. Substantial earnings contributions were achieved specifically at Group units with significant minority interests such as those in Slovakia, the Czech Republic, and Croatia. After deducting minority interests, consolidated profit allocable to Raiffeisen International came to € 212 million and was thus lower than the preceding year's level by 78 per cent, or € 770 million.

Earnings per share of € 0.99

Earnings per share before servicing of participation rights capital fell from € 5.40 to € 1.38. After deduction of compensation for participation rights capital amounting to € 60 million, profit allocable to shares decreased to € 152 million, and earnings per share (EPS) to € 0.99. The average number of outstanding shares relevant for calculating earnings per share was 153.7 million in 2009 (2008: 153.6 million). The Managing Board will propose to the Annual General Meeting 2010 that a dividend of € 0.20 per share be paid for 2009.

ROE before tax at 5.7 per cent

The return on equity (ROE) before tax declined in the reporting year from 22.0 per cent to 5.7 per cent, primarily due to the increased net allocation to provisioning for impairment losses. At € 6,394 million, average equity used in the calculation of this figure remained nearly unchanged on the preceding year. In the calculation of equity, deductions due to dividend payments for 2008 and negative currency developments were set against an increase due to issued participation rights. The consolidated ROE, which is based on the capital allocable to Raiffeisen International shareholders, fell by 13.5 percentage points to 3.9 per cent because of the earnings decline.

Equity reaches € 7 billion

Raiffeisen International's equity including minority interests rose in the past financial year by 7 per cent, or € 482 million, and stood at € 7 billion as of the balance sheet date.

Comprehensive income increased equity by € 37 million. That already included profit after tax of € 287 million. Other profit/loss, i.e., earnings components directly contained in equity, amounted to minus € 250 million. Those mainly comprised currency differences (minus € 266 million) caused by devaluation of local currencies in the CEE region and corresponding hedging measures. The devaluation of the Russian rouble (minus 5 per cent), the Belarusian rouble (minus 33 per cent), and the Ukrainian hryvnia (minus 5 per cent) had the greatest impact.

In August 2009, Raiffeisen International increased its capital by € 600 million by issuing participation rights in accordance with Section 174 of the Austrian Stock Corporation Act.

Equity was decreased in the reporting period by € 200 million due to dividend payments. Of that, € 143 million went to Raiffeisen International shareholders, corresponding to an unchanged dividend relative to the preceding year of € 0.93 per share, and € 57 million went to outside shareholders of Group companies.

Regulatory own funds rose by 19 per cent on the preceding year to € 8,328 million. Besides the described changes in equity, an additional € 650 million flowed into the company in September 2009 as a result of the issuance of hybrid capital, which had a positive effect on core capital (Tier 1). This issue, like the participation rights, was entirely subscribed by RZB. The core capital ratio based on total risk increased significantly as a result, by 2.9 percentage points to 11.0 per cent, and the own funds ratio grew somewhat more strongly, by 3.3 percentage points to 13.0 per cent.

Balance sheet total amounts to € 76 billion

For the first time after many years of growth, Raiffeisen International Group's balance sheet total declined in the year under review. It fell year-on-year from € 85.4 billion to € 76.3 billion, which means a reduction of 11 per cent, or € 9.1 billion. That includes currency effects of about € 1.4 billion, resulting from devaluation of some CEE currencies and the US dollar. Adjusting for currency effects yielded an organic decline of about 9 per cent, or € 7.7 billion.

Lending business was the main reason for that. Including the increase in provisions for impairment losses, loans and advances to customers fell by 16 per cent, or € 8.8 billion. About half of that reduction occurred in business with large corporates, while loans to private individuals only contributed about one fifth. At the segment level, the largest declines were registered in Russia at more than 30 per cent and in the CIS Other segment at 18 per cent.

On the liability side, the funding base consequently decreased in respect to deposits from banks by 23 per cent to € 20,110 million. Thanks to increased acquisition efforts, deposits from customers fell by only 4 per cent to € 42,578 million.

Detailed review of items in the income statement

Since no significant changes in the scope of consolidation occurred in 2009, the reported figures were comparable with those of the preceding year. However, the items of the income statement were influenced more strongly than in the previous years by the fluctuations of some CEE currencies.

Net interest income

Net interest income decreased by 9 per cent, or € 296 million, in the reporting year to € 2,937 million. Its fall was thus greater than that of the average balance sheet total, which declined by 3 per cent. Besides currency effects and lower business volume, higher funding costs were particularly responsible for that. For reasons of liquidity management, use was made in some cases of longer-term, and hence more expensive, funding instruments. Viewed in absolute terms, net interest income was down the most in Russia (minus € 115 million) and in Ukraine (minus € 58 million). The Czech Republic occupies a special position with an increase of € 34 million, as both lending volume and margins increased there contrary to the trend.

The decline of net interest income is explained not only by falling business volume, but also by

4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2005 2006 2007 2008 2009 3.55 3.76 3.86 3.99 3.73

Development of the interest margin

a narrowing of the interest margin by 26 basis points to 3.73 per cent (based on the average balance sheet total). That affected all Group segments, but particularly Russia, with a minus of 67 basis points. The interest margin also fell significantly in Central Europe and Southeastern Europe, by 24 basis points and 26 basis points, respectively.

Net interest income in the retail customer division decreased primarily due to volume effects by 10 per cent to € 1,669 million. Its share of total net interest income remained constant at 57 per cent, while that of the corporate customer division fell slightly to 33 per cent. However, the greatest decline of net interest income was in the treasury division (minus 58 per cent), which had lower net interest income in the area of maturity transformation and on securities investments. On the other hand, income from the investment of equity, booked in the participations and other division, more than doubled because of the different interest rate levels between the euro and CEE currencies.

Interest income declined by 10 per cent to € 5,589 million. More than 80 per cent of that derived from the most important item on the statement of financial position, loans and advances to customers, from which income decreased by 8 per cent for the reasons described above. Significant declines were registered by interest income from loans and advances to banks (minus 60 per cent) due to the general reduction of the interest rate level and from credit balances with central banks (minus 47 per cent) due to volume effects. On the other hand, the net contribution of interest income from derivatives stood at a € 168 million and hence 21 per cent above the preceding year's level.

Interest expenses amounted to € 2,655 million and thus also fell by 10 per cent. Although the total amount of customer deposits decreased by 4 per cent, interest expenses increased by just under 1 per cent. The reason for that was stiff competition for customer deposits in many markets and associated higher expenses. Lower interest expenses by 25 per cent were shown for deposits from banks, which is in line with the volume reduction. Interest expenses for subordinated liabilities, needed mainly because of local supervisory regulations, came to € 88 million (minus 6 per cent).

Provisioning for impairment losses

Net allocations to provisioning for impairment losses in the reporting year totaled € 1,738 million and thus registered an increase of € 958 million, or 123 per cent. That includes income from the sale of loans amounting to € 13 million. Less that income, individual provisions accounted for € 1,565 million, and portfolio-based provisions for € 186 million. A look at the development over the year reveals a slight flattening of momentum in net allocations after the second quarter of 2009, when the largest net allocations were made.

The net provisioning ratio, which is the ratio of net allocations to average risk-weighted assets (credit risk), increased by 1.88 percentage points to 3.19 per cent. The loss rate, which is the ratio of written-off loans to total lendings, rose from 0.11 per cent to 0.30 per cent.

The unfavorable economic environment was also discernible in the risk/earnings ratio, which is the ratio of provisioning for impairment losses to net interest income. This ratio rose from 24.1 per cent to 59.2 per cent.

The largest net allocations to individual provisions were made in the CIS Other segment. They amounted to € 490 million, of which the Ukrainian network bank alone accounted for € 456 million. Half of individual provisions in the region were due to private individuals, and half to corporate customers. Central Europe registered a net allocation of € 384 million in the reporting year, with the largest amount in Hungary at € 177 million. A further € 76 million was newly added to provisioning in Poland, € 69 million in Slovakia, and € 55 million in the Czech Republic. In Southeastern Europe, provisions were formed for individual loans in the amount of € 352 million, with the emphasis there on Romania (€ 153 million), Bulgaria (€ 74 million), and Croatia (€ 62 million). In Russia, provisioning for impairment losses amounted to € 339 million. Corporate customers accounted for two thirds of net allocations at the Russian network bank, and private individuals for the rest.

New portfolio-based provisions were formed in the amount of € 186 million in the year under review. The largest net allocations were registered in Central Europe at € 106 million and in Southeastern Europe at € 62 million.

Set against non-performing loans for non-banks, which rose by 150 per cent in the reporting year to € 4,442 million, was increased provisioning for impairment losses of € 3,080 million. Consequently, the ratio of provisioning for impairment losses to non-performing loans declined significantly. While it still stood at 92.2 per cent (excluding collateral) in 2008, it fell to 69.3 per cent in 2009.

Net fee and commission income

Net fee and commission income decreased by 18 per cent, or € 273 million, in 2009 to € 1,223 million. The result from payment transfer business made the largest contribution to that, at 44 per cent, or € 543 million. However, that was below the preceding year's level by 16 per cent, or € 100 million, due to lower transaction volumes. The CIS Other segment contributed the most to that reduction, with a minus of € 47 million, due to devaluation of the Ukrainian hryvnia and a decrease of payment transfer transactions.

The result from foreign currency and precious metals business amounted to € 333 million in 2009 and was thus € 172 million, or 34 per cent, below the preceding year's level. The Central Europe segment registered the largest decline at € 117 million. The main factors involved were the launch of the euro in Slovakia, a reduction of new business in foreign currency loans in Hungary, and lower foreign exchange transaction volumes in Poland. With a share of 27 per cent, the foreign currency and precious metals business made the second-largest contribution to net fee and commission income.

Amounting to € 200 million, the result from loan administration and guarantee business remained at the preceding year's level, with development varying among the individual countries. In the Russia segment, for example, the result achieved from loan administration and guarantee business was better than in the preceding year thanks to higher margins.

The result from agency services for own and third party products rose by € 15 million and thus contributed € 46 million to net fee and commission income. One reason for that was that in Central Europe, and particularly in Hungary, greater use was made of own branches instead of external distribution partners, which led to a decline of fee and commission expenses.

Development of net fee and commission income

Lower revenues from securities business due to the market situation led to a decline of income by 6 per cent to € 43 million. At € 7 million, the largest decline was registered in the Central Europe segment, and mainly in Hungary.

The result from managing investment and pension funds fell by almost one third from € 38 million in the preceding year to € 26 million due to the crisis-driven decline of demand. Management fees dependent on fund volume shrank due to devaluation of portfolios in 2008. That mainly affected the fund companies in Slovakia and Croatia.

Net trading income

Net trading income improved by 11 per cent, or € 19 million, to € 186 million thanks to positive valuation results. It includes both realized and unrealized gains and losses of all positions in the trading portfolio, refinancing costs for the assets in the trading portfolio, and the valuation results of all foreign currency positions.

From a segment perspective, the largest contributions to net trading income were € 89 million from Central Europe, including especially Hungary and Poland, and € 88 million from Southeastern Europe, particularly Romania and Croatia. Net trading income of € 17 million was achieved in the CIS Other segment. On the other hand, the Russia segment registered a net trading loss of € 13 million.

The results from interest-based and currencybased activities developed in opposite directions in the reporting period. While the result from interest-based transactions turned from minus € 88 million to € 117 million, the result from currency-based transactions fell from € 258 million to € 71 million. The result from equity and index-based business remained at the preceding year's level of minus € 1 million.

Interest-based transactions contributed € 117 million and hence the largest amount to net trading income. The reason for this is that valuation losses of € 93 million which occurred in the preceding year due to interest rate fluctuations were partly made up in 2009 (plus € 76 million). The Russia segment registered a result from interest-based transactions of € 59 million, followed by € 34 million from Southeastern Europe and € 33 million from Central Europe.

The result from currency-based transactions fell by € 187 million to € 71 million. The main reason for that decline was the Group unit in Russia, which booked valuation losses from currency forwards used for hedging purposes due to changes in interest rate and exchange rate differences between the Russian rouble and the US dollar. In the preceding year, valuation gains had been made on these transactions.

Net income from derivatives

Net income from derivatives improved in the year under review from minus € 20 million in 2008 to € 8 million. It consisted of an effect on income from hedge accounting (€ 2 million), the result from other derivatives (€ 9 million), and the result from credit derivatives (minus € 3 million). Because of a volume reduction and lower margins on credit default swaps, the result from credit derivatives declined by € 6 million to minus € 3 million. The result from hedge accounting and from other derivatives grew by € 34 million, since improvement of the interest rate situation led to a recovery of market values.

Net income from financial investments

While net income from financial investments was characterized by valuation losses in 2008, valuation gains were achieved in the reporting year thanks to a rally on the capital markets.

Net income from securities at fair value through profit and loss, which consists of net valuations and net proceeds from sales, amounted to € 39 million, after minus € 47 million in the preceding year. Valuation gains, resulting predominantly from appreciation of fixed-rate securities, accounted for € 23 million of that. In some Group units, fixed-rate and variable-rate securities were sold and yielded a profit of € 17 million. The majority of that came from the Hungarian network bank, and the rest primarily from Romania and Ukraine.

Net income from equity participations declined from € 21 million in the preceding year to € 3 million. Various relatively small participations in the leasing and fund management areas were written down by € 5 million in 2009 (2008: minus € 3 million). The net proceeds from the sale of equity participations, especially from leasing, resulted in a profit of € 9 million (2008: € 24 million).

Net income from securities held to maturity amounted to minus € 2 million, which resulted from a write-down of exposure to a non-performing issuer.

General administrative expenses

General administrative expenses fell significantly in the reporting year, by 14 per cent, or € 363 million, to € 2,270 million. The main reasons for that were strict cost management in the Group and currency devaluation in the CEE countries.

As a result of this sharp reduction, which was noticeably larger than the decline of operating income by 11 per cent, the cost/income ratio improved by 1.5 percentage points to 52.5 per cent (2008: 54.0 per cent). Ukraine, Russia, and Poland registered the largest declines in general administrative expenses.

Staff reduced by 11 per cent

Staff costs were again the largest item among general administrative expenses in 2009, accounting for 46 per cent. However, they fell by 17 per cent, or € 222 million, on the preceding year

to € 1,054 million. The effects of cost-cutting measures such as personnel reduction and not filling vacant positions as well as bonus cuts, began to appear.

Viewed by segments, staff costs decreased the most in the CIS Other segment (minus 30 per cent), which was due both to personnel reduction and to devaluation of the local currencies. In Russia, the reduction of staff costs amounted to 25 per cent, to which devaluation of the local currency against the euro also contributed. Central Europe registered a minus of 17 per cent, which in Hungary and Poland was mainly due to currency developments but also to targeted personnel reductions. In Southeastern Europe, the decrease of staff costs by 6 per cent was largely a result of currency devaluation.

The Group's average number of employees (expressed in full-time equivalents) fell in 2009 by 2 per cent, or 1,268, to 60,186. The segments with the largest declines were CIS Other, where the average number sank by 7 per cent, or 1,341 employees, and Russia, with a minus of 3 per cent, or 303 employees. In Central Europe, the average number rose by 2 per cent, or 252 employees, while Southeastern Europe registered a plus of 21 employees. Operating income per employee decreased from € 79 thousand to € 72 thousand.

The personnel measures are reflected more clearly in the number of employees on the balance sheet date than in the average number of employees. The number of employees on 31 December 2009 stood at 56,530 in contrast to 63,376 employees at the end of 2008. That means a reduction by 6,846 employees, or 11 per cent. As for development in the individual segments, the number fell by 11 per cent, or 2,183 in the CIS Other segment, by 9 per cent, or 1,700, in Southeastern Europe, by 16 per cent, or 1,668, in Russia, and by 9 per cent, or 1,319, in Central Europe.

Other administrative expenses cut significantly by 13 per cent

Other administrative expenses registered a decline of 13 per cent, or € 143 million, in 2009 to € 970 million. The reductions extended to nearly all expense categories. The most heavily affected were advertising, PR, and promotional expenses, office supplies, training expenses, and travelling expenses. The most significant reductions of other administrative expenses were in Ukraine and in Russia.

The largest expense items were premises at € 308 million (minus 2 per cent), IT costs at € 143 million (minus 7 per cent), legal, advisory and consulting expenses at € 100 million (minus 8 per cent), communications expenses at € 81 million (minus 7 per cent), and advertising, PR, and promotional expenses at € 80 million (minus 40 per cent). In Southeastern Europe, office space expenses increased by 7 per cent due to the opening of new business outlets. Office space expenses decreased by 18 per cent in the CIS Other segment, by 7 per cent in Russia, and by 2 per cent in Central Europe.

The number of business outlets came to 3,018 at the end of the year, which represents a net decrease on the preceding year's level by 213 business outlets. Due to further location optimizing measures, the number in the CIS Other segment fell year-on-year by 188 business outlets (181 in Ukraine and 7 in Belarus), and by 22 in Russia. Closures also led to a minus of 23 business outlets in Central Europe (in Slovakia and Hungary). The only net increase occurred in Southeastern European, by 20 business outlets.

General administrative expenses: breakdown by expense categories

in € million

Depreciation on intangible and tangible fixed assets

Depreciation on tangible and intangible fixed assets remained nearly unchanged year-onyear with an increase of 1 per cent, or € 2 million, to € 245 million. Tangible assets accounted for € 147 million of that, intangible assets for € 69 million, and assets from operating leasing business for € 30 million.

Group-wide investments in the reporting period amounted to € 407 million, of which 55 per cent (€ 225 million) flowed into own tangible assets. Intangible assets accounted for 33 per cent of investments, which primarily concerned software systems. The rest was invested in assets for the operating leasing business.

Other net operating income

Other net operating income worsened from minus € 16 million in the preceding year to minus € 20 million in 2009. Various components were responsible for that. For example, net proceeds from non-banking activities improved by € 5 million to € 4 million (2008: minus € 1 million) on the basis of higher revenues from IT activities. In contrast, the result from agency services fell by € 6 million to minus € 4 million. That was caused by higher expenses which arose primarily in Poland due to non-deductible taxes.

On the other hand, net income from operating leasing grew by 10 per cent, or € 3 million, to € 35 million. While this increase was caused mainly by growth of operating leasing business in Serbia, the majority of the result came from Croatia (€ 31 million). Other taxes not dependent on income decreased by 11 per cent from

Breakdown of other administrative expenses in 2009

€ 58 million to € 52 million, for which Hungary and Slovakia were mainly responsible. In the reporting year, no income from the release of negative goodwill arose on initial consolidation (2008: € 4 million). The result from allocation and release of other provisions changed from € 5 million to minus € 4 million. The preceding year's positive result had been based on the settlement of litigation in Slovakia and Poland.

Income from disposal of Group assets

The amount of € 76,000 shown under net income from disposal of Group assets contains a subsequent improvement of the sale price for a Group leasing company which was sold in the preceding year.

Net income from disposal of Group assets had amounted to € 8 million in the preceding year. Of that, € 7 million had been generated by the sale of Hungarian project companies, and € 1 million by the disposal of two Czech project companies.

Statement of financial position

Raiffeisen International's balance sheet total amounted to € 76.3 billion as of 31 December 2009 and thus stood € 9.1 billion, or 11 per cent, below the preceding year's value. Measures to reduce and stabilize the loan portfolio and increased provisions for impairment losses were largely responsible for that. Changes in the scope of consolidation, on the other hand, had no appreciable effects. The strong devaluation of currencies which began in the fourth quarter of 2008 slowed to some extent in the course of 2009. Some currencies even gained in value again. As a result, exchange rate movements had a significantly smaller influence on the development of the balance sheet total than in the preceding year. The Russian rouble, the Romanian leu, and the Ukrainian hryvnia devalued by 5 per cent each in the course of the year, but the Czech koruna and the Polish zloty gained slightly in strength. Only the Belarusian rouble showed a sharp devaluation of 33 per cent. About 2 per cent of the balance sheet total's decline is attributable to currency effects.

Assets

Shifts occurred in the structure of assets in the year under review. Loans and advances to customers (after provisioning) declined by

Structure of assets on the statement of financial position

4 percentage points as a share of total assets, but continued to dominate the asset side of the statement of financial position at 62 per cent. The share of loans and advances to banks increased by 3 percentage points, and that of financial investments (including the trading portfolio) by 4 percentage points to 14 per cent each. The share of other assets fell by 3 percentage points to 10 per cent.

In 2009 loans and advances to customers fell by € 7.4 billion, or 13 per cent, to € 50.5 billion, of which almost two thirds was due to lower demand in the lending business due to the recession. Loans to corporate customers decreased by 16 per cent, or € 5.4 billion, while loans to private individuals fell by 9 per cent, or € 2.0 billion. Because of the significant decline of the loan portfolio, the loan/deposit ratio improved by 12 percentage points to 119 per cent.

After the end of the reporting year, Raiffeisen International's statement of financial position was characterized by significantly higher provisions for impairment losses, which totaled € 3.1 billion as of 31 December 2009 after € 1.6 billion in the preceding year. Large corporate customers accounted for € 1.4 billion of that, and private individuals for € 1.2 billion. The highest level of provisions for impairment losses was booked in Central Europe at € 1.0 billion. The CIS Other segment showed a level of € 0.8 billion, while Southeastern Europe and Russia each had € 0.6 billion.

Loans and advances to banks increased by € 1.3 billion, or 14 per cent, to € 10.3 billion. Because of the normalization of interbank business, deposits were shifted from central banks (minus € 1.7 billion) to commercial banks, and short-term transactions with the latter were expanded.

Compared with the end of 2008, a significant increase of € 2.1 billion to € 11.0 billion was registered in financial investments (including trading assets). Of that, € 2.4 billion was newly invested in fixed-income securities, consisting predominantly of debt instruments issued by public authorities. By investing liquidity surpluses in this way, the share of the securities in the balance sheet total rose by 4 percentage points to 14 per cent.

Other assets declined by more than one third compared with the end of 2008, primarily due to the reduction of the cash reserve (minus € 3.0 billion). At the end of 2008, free liquidity of some Group units had been deposited with the local central banks. The situation normalized in 2009, which led again to reallocations. Market values of derivative financial instruments fell by € 0.5 billion, partly due to the termination and partly due to the maturing of the instruments, particularly in the case of currencybased transactions of a short-term nature

Liabilities

Deposits from customers fell by 4 per cent compared with the balance sheet date of 2008, but their share of total liabilities nevertheless rose by 4 percentage points to 56 per cent. They continued to dominate the liabilities side of the statement of financial position. The share of deposits from banks declined by 4 percentage points to 27 per cent. As a result of capital measures, the share of equity and subordinated capital in total liabilities rose by 3 percentage points to 12 per cent in the reporting year. The ratio of other liabilities to total liabilities came to 5 per cent (minus 3 percentage points).

Thanks to increased efforts to acquire and retain customers, deposits from customers declined only moderately by 4 per cent, or € 1.6 billion, to € 42.6 billion in 2009. All CEE countries were affected by this reduction. The largest decreases were registered in Central Europe at € 1.0 billion and in Southeastern Europe at € 0.9 billion. While deposits from retail customers increased by € 1.0 billion, deposits from corporate customers fell by € 1.9 billion. The public sector also reduced its deposits by € 0.7 billion.

Funding from banks fell by 23 per cent, or € 6.1 billion, to € 20.1 billion. The factor mainly responsible for this decline was funding by international commercial banks, which was down by € 5.6 billion compared with the end of 2008. Deposits from central banks decreased by € 0.8 billion, while those from multilateral development banks rose by € 0.3 billion. Long-term funding arrangements fell by € 3.3 billion, while money market dealings declined by € 2.8 billion.

Structure of loans and advances to customers

Other liabilities decreased by € 2.7 billion and amounted to € 4.1 billion at the end of the year. Debt securities issued accounted for € 2.5 billion of that. This means that this kind of capital market funding fell by € 0.9 billion. Furthermore, there were declines of € 0.9 billion in trading liabilities and of € 0.6 billion in derivative financial instruments.

Own funds, consisting of equity and subordinated capital, rose year-on-year by € 1.3 billion. Core capital was increased by € 1.25 billion in the year under review. This capital inflow occurred as a result of two issues, one of € 0.6 billion in the form of participation rights and one of € 0.65 billion in the form of hybrid Tier 1 capital. Both issues were entirely subscribed by RZB.

Structure of liabilities on the statement of financial position in € billion

Equity

Equity on the statement of financial position

Raiffeisen International's balance sheet equity including consolidated profit and minority interests rose by 7 per cent, or € 482 million, on 2008 to € 7,000 million.

Paid-in capital consists of subscribed capital, participation rights capital, and capital reserves. It changed in the reporting period only due to the disposal of own shares and to amounts from the share incentive program booked directly to equity, thus increasing by € 1.3 million. Furthermore, participation rights were issued in the reporting year in the amount of € 600 million, which was entirely subscribed by the core shareholder RZB.

Earned capital, consisting of consolidated profit and retained earnings, declined by € 194 million to € 2,365 million. In the year under review, consolidated profit fell from € 982 million in 2008 to € 212 million mainly due to high net allocations to provisioning for impairment losses.

The significant currency devaluation at the end of 2008 lost momentum in 2009, and the rates of some currencies recovered in the course of the year. Nevertheless, currency effects and capital hedging measures associated with them (minus € 13 million) reduced retained earnings by € 261 million. The currency effect in the preceding year was minus € 923 million.

In Russia, cash flow hedge accounting had already been introduced in the preceding year to hedge variable-interest-rate positions. Changes in the market value of hedging instruments increased retained earnings by € 13 million in 2009. On the other hand, the dividend of € 0.93 per share paid out in the year under review reduced retained earnings by € 143 million.

Minority interests rose by 8 per cent, or € 75 million, to € 998 million. Capital contributions of € 27 million in various Group units and the share of profit allocable to outside shareholders in the amount of € 75 million helped to increase this figure. Dividend payments had the opposite effect and reduced minority interests by € 57 million. Currency effects amounted to minus € 5 million.

Own funds according to the Austrian Banking Act

Raiffeisen International is not a separate banking group within the meaning of the Austrian Banking Act (BWG) and therefore is not itself subject as a Group to the regulatory provisions for banks. Since the beginning of 2008, the calculation of capital adequacy has been performed in accordance with Basel II. Credit risk and market risk are calculated generally according to the Standardized Approach pursuant to Section 22 of the BWG, but the credit risk for loans and advances to banks, corporates, and sovereigns is calculated according to the internal ratings-based approach (IRB) at the network banks in Croatia, Romania, Slovakia, the Czech Republic, and Hungary. The following consolidated figures have been calculated according to the provisions of the BWG and are accounted for within the scope of the RZB-Kreditinstitutsgruppe.

Consolidated own funds according to the BWG amounted to € 8,328 million as of 31 December 2009. Compared with the preceding year, this represents a plus of € 1,337 million. That is mainly due to a capital increase of € 600 million in the form of participation rights and an issue of hybrid capital in the amount of € 650 million. Both were entirely subscribed by RZB. On the other hand, exchange rate movements of currencies, including especially the Russian rouble, Serbian dinar, Ukrainian hryvnia, and Belarusian rouble, had a negative impact on core capital. Altogether, that resulted in a decrease of € 206 million.

Additional own funds rose by 5 per cent, or € 56 million, to € 1,102 million. Maturing Tier 2 issues led to a reduction in this item, while changes in maturity of subordinated capital in Ukraine and newly issued subordinate capital in Ukraine and Hungary had an increasing effect.

Set against own funds was an own funds requirement of € 5,117 million, which was 11 per cent, or € 650 million, below the preceding year's level due to exchange rate movements and reduced business volume. The own funds requirement consists of requirements for credit risk of € 4,007 million (2008: € 4,831 million), for market risk of € 136 million (2008: € 152 million), for open foreign exchange positions of € 399 million (2008: € 343 million), and for operational risk of € 574 million (2008: € 440 million). The last-mentioned of these grew in the reporting year due to the increased assessment base.

Composition of consolidated equity

in € million

Excess cover amounted to € 3,212 million at the end of the year and thus improved on the preceding year by € 1,987 million which resulted in an excess cover ratio of 62.8 per cent.

The core capital ratio based on credit risk increased from 9.7 per cent in the preceding year to 14.1 per cent. Likewise, the core capital ratio based on total risk rose to 11.0 per cent (plus 2.9 percentage points). The own funds ratio also improved by 3.3 percentage points to 13.0 per cent.

Research and development

Raiffeisen International does not engage in research and development.

Internal control and risk management system in regard to the Group accounting process

Balanced, complete financial reporting is an important goal for Raiffeisen International and its corporate bodies. Complying with all relevant provisions of law is, of course, a basic prerequisite for that. The Managing Board bears responsibility for establishing and arranging an internal control and risk management system in regard to the accounting process that meets the requirements of the Company. The aim of this internal control system is to support the management by ensuring effective and continuously improved internal controls in regard to accounting. The control system is geared to compliance with standards and regulations, on the one hand, and to creation of optimal conditions for specific control measures, on the other.

The consolidated financial statements are prepared on the basis of the applicable Austrian laws, including principally the Austrian Commercial Code (UGB), which governs the composition of such statements. The accounting standards for the consolidated financial statements are the International Financial Reporting Standards (IFRS) as adopted by the EU, which the RZB Group and hence Raiffeisen International have been using since 2000, initially on a voluntary basis.

Control environment

An internal control system has already existed at Raiffeisen International for years in the form of directives and instructions for strategically important subject areas. It comprises:

  • The assignment of authority for the approval of Group and company directives and department and division instructions.
  • Process descriptions for the preparation, quality control, approval, publication, implementation, and monitoring of directives and instructions.
  • Rules for the revision and suspension of directives and instructions.

The management of the respective network unit is responsible for implementing the Group instructions. Compliance with these Group rules is monitored in the context of audits on Group and local level.

Preparation of the consolidated financial statements for Raiffeisen International has been outsourced to RZB. It is performed in RZB's Group finance department, which is under the direction of the members of RZB's Managing Board responsible for risk and financial management. The relevant responsibilities are defined Group-wide in the framework of a dedicated function.

Risk assessment

Material risks in regard to the Group accounting process are evaluated and monitored by the Managing Board. Complex accounting principles can lead to an increased risk of error, and the same is true of non-uniform principles of valuation, particularly for financial instruments that are essential in the Group. Furthermore, a difficult business environment also poses the risk of material errors in reporting. To prepare consolidated financial statements, it is necessary to estimate various asset and liability items for which no reliable fair value can be determined. That applies particularly to lending business, social capital, and the intrinsic value of securities, participations, and goodwill.

Control measures

Individual financial statements are prepared according to RZB's specifications in a decentralized manner in the respective Group units. It is the task of the employees and managers responsible for accounting in the Group units to provide a complete picture and correct valuation of all transactions. Because of divergent reporting dates and different local accounting standards, local financial statements may deviate from the figures provided to RZB. The respective local management must see to it that the prescribed internal control measures, such as separation of duties and the "second-set-of-eyes" principle, are implemented.

The financial statement data, which are examined by an external auditor, are transmitted in most cases by direct input into the Cognos Controller consolidation system by the end of January each year. The system is protected in regard to IT security by restrictive granting of authorization.

The financial statement data received from the Group units are checked for initial plausibility in the Group finance department by the key account manager responsible for the Group unit. The further consolidation steps, including capital consolidation, expense and income consolidation, and debt consolidation, are then performed in the Cognos Controller consolidation system. Finally, any intercompany profits are eliminated by means of entries in Group accounts. Preparing the data for the notes to the financial statements required by the IFRS and UGB forms the conclusion of the consolidation process.

The general control environment also comprises the middle management level (department heads) in addition to the Managing Board. All control measures are applied in the current business process to ensure that potential errors or divergences in the financial reporting are prevented or detected and corrected. The control measures range from the examination of periodic results by the management to the specific reconciliation of accounts to the analysis of ongoing processes in the accounting department.

The consolidated financial statements together with the management report are dealt with in the Audit Committee of the Supervisory Board. The consolidated financial statements are furthermore submitted to the Supervisory Board for its information. In the framework of the annual report, it is published on the Company's website and in the official gazette of the Wiener Zeitung and lastly is submitted to the commercial register.

The consolidated financial statements are based on standardized forms that are uniform across the Group. The accounting and valuation standards involved are defined and explained in the RZB Group accounts manual and are binding in regard to preparing the financial statement data. Instructions to Group units concerning details on valuation measures in the area of credit risk and similar problems are given in the framework of Group directives. Changes in the instructions and standards are communicated in regular training sessions in the relevant units.

The consolidated results are assembled into complete consolidated financial statements in the Group finance department. In addition, a Group management report is prepared, in which the consolidated results are explained in words in accordance with the legal specifications. The consolidated financial statements and the management report are examined by the external auditor appointed for that purpose.

In the course of the year, reporting on a consolidated basis is performed monthly, and interim reports that conform to the provisions of IAS 34 are prepared quarterly for the public in accordance with the Austrian Stock Exchange Act. Consolidated financial statements to be published undergo final evaluation by company executives and the Chief Financial Officer before being forwarded to the Audit Committee of the Supervisory Board. Furthermore, analyses regarding the consolidated financial statements are prepared for the management, and accounting forecasts are periodically prepared for the Group. The budgeting process likewise includes preparing Group budgets on a three-year basis.

Monitoring

The Managing Board and the controlling department are responsible for continuous companywide monitoring. Furthermore, the department heads are responsible for monitoring their respective areas. Inspections and plausibility checks are conducted at regular intervals.

Internal auditing is also involved in the monitoring process. The internal auditing function is performed by the Group audit division of RZB based on an annually updated service level agreement. There are rules valid Group-wide and specific to internal auditing (Group audit standards) that apply to all internal auditing activities related to Raiffeisen International, which are based on the Austrian Financial Market Authority's minimum standards for internal auditing and on international best practices. In addition, the internal rules of the audit department apply (particularly the audit charter).

The Group audit division independently and regularly checks for compliance with internal rules both in Group units and in the head office's accounting division. The head of the audit division reports directly to the Managing Board.

Capital, share, voting, and control rights

Disclosures pursuant to Section 243 a (1) of the Austrian Commercial Code

(1) The Company's capital stock amounts to € 471,735,875 and is divided into 154,667,500 voting common bearer shares. Of those, 984,511 shares were in the portfolio of own shares, so 153,682,989 shares were outstanding as of the balance sheet date. Please consult the notes to this report (p. 166 onwards) for more information.

(2) The articles of association contain no restrictions concerning the voting rights or transfer of shares. The Managing Board is not aware of any restrictions arising from agreements among shareholders.

(3) RZB holds 72.8 per cent of the shares in the Company by way of its indirect 100 per cent subsidiary Cembra Beteiligungs GmbH, Vienna. The remaining shares are free float, which contains no direct or indirect participations in 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 on voting rights in 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 Managing 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 Managing Board and the Supervisory Board beyond the provisions of the relevant laws.

(7) The Managing Board is authorized 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, 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 of 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 is 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 the right to convert such bonds into shares of the Company. No convertible bonds have been issued to date, however.

The Annual General Meeting of 10 June 2008 authorized the Managing Board in accordance with the provisions of the Austrian Stock Corporation Act to buy own shares and, if deemed appropriate, to retire them without further prior involvement of a general meeting of shareholders. The proportion of shares to be bought and shares already bought may not exceed 10 per cent of the Company's respective capital stock. The duration of the authorization to buy own shares is limited to 30 months from the date of the Annual General Meeting's resolution. No own shares have been bought since the authorization was issued in June 2008.

The Annual General Meeting of 9 June 2009 authorized the Managing Board of Raiffeisen International Bank-Holding AG 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 € 2,000 million within five years from the date of the authorizing resolution with approval of the Supervisory Board after closer specification of the terms of the participation rights to be set by the Managing Board and excluding shareholders' subscription rights. 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. Raiffeisen International 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. No further participation rights have been issued to date. Please consult the notes to this report (p. 166) for more information.

(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:

"If the insured, Raiffeisen International, 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 provides upon change in corporate control as follows: "If a change of 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 the contingent shares."

(9) There are no indemnification agreements between the company and its Managing Board and Supervisory Board members or employees for the case of a public takeover bid.

Funding

Liquidity situation significantly eased

Banks usually fund themselves by means of their own funds, customer deposits, and other external sources such as the capital and interbank markets. Because of the financial crisis, funding by means of external sources, so-called wholesale funding, was still severely affected again in 2009.

Due to continuing erosion of confidence among banks and the resulting scarcity of liquidity, the cost of wholesale funding increased further in the first quarter of 2009, and spreads of unsecured senior bank bonds reached on average 200 basis points relative to the Euribor during the first three quarters. By March 2009, the average prices of senior credit default swaps (CDS) used to buy protection against the unsecured risk of international banks with operations in the CEE region similarly reached a peak of around 300 basis points.

Many countries reacted to this rise in funding costs which affected the entire banking sector by providing capital injections and state guarantees, while central banks lowered key interest rates and expanded the supply of liquidity. These measures noticeably eased the situation in the second quarter of 2009. Because of more selective lending by banks due to the crisis and intensified acquisition of customer deposits, the liquidity situation improved significantly in the course of the reporting period. The former difficulty of supplying the banking sector with liquidity no longer exists. A simultaneous decline in credit demand similarly contributed to this development.

Funding measures

Intensified cooperation among Raiffeisen International, its network banks, and the Group, particularly in regard to managing liquidity, providing funding, and supplying treasury products, made it possible to cope well with the challenges of the market environment again in 2009. Especially in the first half of the year, the liquidity committee set up in 2008 assumed major coordination tasks regarding funding projects for the entire Group. Cooperation with RZB and the network banks was strengthened in the reporting period, both bilaterally and through an international sales network that serves as a virtual platform for financial market products.

In view of the difficult market conditions, the focus of the network units with respect to wholesale funding in 2009 was on loans from RZB, which were partly refinanced by the Oesterreichische Kontrollbank (OeKB), borrowing from supranational and local institutions, as well as local securities placements. In the first half of 2009, RZB issued three benchmark bonds guaranteed by the Republic of Austria worth a total of € 4.25 billion as well as a considerable volume of private placements, a substantial part of which served to fund Raiffeisen International. Furthermore, RZB made available to Raiffeisen International and its network banks a total of € 1.25 billion in the form of hybrid capital and participation rights to strengthen their capital base.

A coordinated funding package involving the EIB, the EBRD, and the International Finance Corporation (IFC) is in preparation and will contribute importantly to providing long-term funds to network units in the coming years.

Of the USD 5 billion euro medium-term note (EMTN) program of ZAO Raiffeisenbank in Russia, registered in February 2008, the first tranche of USD 340 million was placed with an institutional investor in 2009.

Solid funding sources

Raiffeisen International's funding has been based on several pillars for some years now. At the end of 2009, customer deposits represented the largest share of that at 63 per cent, or € 42.6 billion. Wholesale funding accounted for the remaining 37 per cent, or € 25.1 billion, of which in turn 60 per cent came from RZB.

The effects of measures taken to counter the evaporation of wholesale funding markets in 2008 became visible in the first half of 2009, and the ratio of customer deposits to total funding increased.

A large part of the funding volume for network units falling due in 2009 was renewed by means of mostly medium- and long-term funding agreements. This primarily concerns loans from RZB, which partly derived from OeKB funds.

The EBRD and IFC are also important partners in long-term funding for Raiffeisen International as a bank with Central and Eastern European exposure. That is because Raiffeisen International fulfills the prerequisites for the distribution of supranational credits that the EBRD and IFC make available to promote the CEE region's economic development. Raiffeisen International had total funding of € 1.4 billion, outstanding at the end of 2009 and granted primarily on a long-term basis. Further cooperation with these supranational institutions is planned.

Although the importance of wholesale funding for Raiffeisen International is tending to diminish, the international financing possibilities continue to be a substantial factor. The Group has strong funding partners, which have excellent access to the international capital markets. Raiffeisen International's 2010 funding needs which are foreseeable at the end of the reporting period were taken care of on this basis. Besides customer deposits, which are the leading source, the possibilities of funding by way of RZB and supranational institutions and furthermore by way of house banks, will continue to shape the funding structure in 2010.

Risk management

Active risk management is a core area of expertise for Raiffeisen International as a bank holding company and demands highest attention in times of crisis. To recognize, assess, and manage risks effectively, Raiffeisen International established a comprehensive risk management system in the past and constantly continues to develop it further.

The economic crisis shaped the development of Raiffeisen International's risk management in 2009. The focus in retail risk management was on an intensification of collections, loan restructuring, stress tests, and scenario analyses at the portfolio level. In corporate risk management, an early warning system was established in light of the crisis, workout management was expedited, and more stress tests were conducted.

In general, Raiffeisen International's risk management is governed by Group-wide guidelines for credit policy. This ensures coordinated application in all network units of the criteria centrally adopted by the Managing Board. Work on area-wide implementation of the advanced approach of Basel II likewise contributes to standardization.

Raiffeisen International's business is subject to currency fluctuations due to numerous activities outside the euro area. This concerns income and expenses incurred in foreign currencies, the own funds requirement of asset positions in foreign currencies, and the equity of material participations. Rate changes therefore lead not only to fluctuations of Raiffeisen International's consolidated capital, but also to changes of the own funds requirement for credit risk. You will find information about the hedging of Raiffeisen International's currency risk from page 200 onwards.

The two areas of risk management – retail and corporate risk management – are presented below particularly with regard to their achievements in 2009. Following that, progress made in implementing Basel II and in optimizing processes is highlighted with emphasis on data quality. A detailed report on risk management is included in the notes to the consolidated financial statements, beginning on page 176.

Retail risk management

Risk management of business with retail customers (private individuals and small enterprises) in the previous year focused on collections, loan restructuring, and conducting stress tests. Since comprehensive activities aimed at standardizing risk management criteria, processes, and products for private individuals within the Group – a central theme in previous years – were basically already completed, only regular adjustments and additions on behalf of constant further development had to be made in the year under review.

Group lending criteria were basically maintained as they were after adjustment in the previous year due to changes resulting from the economic crisis. That also includes keeping a very tight rein on granting foreign currency loans. In some countries, lending criteria were adjusted to country-specific conditions in 2009.

Lending criteria for private individuals adjusted

Country specific credit policies were enhanced for private individuals in 2009. This includes, among other things, general lending rules, credit fraud prevention rules, and clear criteria regarding target customers in the individual divisions.

Collection excellence program

A comprehensive program was launched at the beginning of 2009 to intensify collection activities in the retail division. It involves a proactive approach at the portfolio level. The program has already been implemented in 9 countries, and will be put into practice in another 3 countries in 2010.

The program is divided into three phases: assessment, intensive care, and standard care. In the first phase, the current status of collections is determined, and a list is made of measures to be taken, prioritized according to their urgency and short-term bottom line impact. Typical measures include, for example, improving a collections strategy, capacity planning, employee motivation, and monitoring. In the second phase, the measures adopted in the first phase are implemented in the respective country with ongoing comprehensive support from a team of experts on site. The greatest effect is typically achieved in this three-month phase. Further improvements are generated in the third phase, standard care. Support from the head office is given in this phase as needed, while the resources required for restructuring successes tend to be increasing.

The collections excellence program has necessitated measures to be taken on the personnel side, which have been achieved through retraining, especially of account managers, and through new hiring. The general training program established in 2008 was continued throughout the Group in the past year.

Overall, significant successes in recovering past due receivables were registered in countries where the program was already implemented. It thus decisively improved the efficiency of collections.

Restructuring

The agreements typically made with customers in cases of restructuring include lengthening of loan terms, provision of additional collateral, temporary reduction of installments (while maintaining the net present value of the loan), and selective adjustment of rates.

Aspects such as quality of the customer relationship, collateral, and the customer's debt/income ratio play an important role in this. The greatest need for restructuring in 2009 arose in Ukraine, Romania, Bulgaria, and Hungary.

Scenario analyses established at the portfolio level

Portfolio management was significantly intensified against the background of market development in the reporting period. The goal was an in-depth analysis of trends and causes. For that purpose, a system was developed to investigate how portfolio quality is influenced by macroeconomic factors such as changes in GDP growth rates. From the results obtained, inferences can be drawn for general business strategy regarding, for example, which customer divisions will be especially volatile, or which products especially risky.

The system developed should be viewed as supplementing the stress tests, which have been conducted for a long time in accordance with regulations, and used both at the level of business subdivisions (private individuals and small and medium-sized enterprises) and at the product level (for example, mortgage loans, overdrafts, installment loans, and credit cards). The scenario analyses were conducted several times in the past year, and the results obtained made a valuable contribution to the planning and management of the entire Group. At the same time, an important foundation was thus laid for the scenario analyses required by Basel II in those countries where the launch of the Advanced Internal Ratings Based (Advanced IRB) approach is to move forward in 2010.

Corporate risk management

The measures already taken in 2008 to mitigate the effects of the crisis, such as tightening lending criteria, were continued and supplemented with additional elements. Reducing unsecured credit lines, lowering loan-to-value ratios, and restricting lending to companies particularly sensitive to cyclicality effects were basically continued and expanded to local and regional government financing and adapted to the prevailing situation.

Parallel to that, the focus in the reporting year was on establishing an early warning system, expanding and further developing workout, conducting and refining stress tests, and actively managing portfolios.

In addition to the local risk management units of the respective network banks, central risk management continues to play a key role in the overall Group organization. Besides setting up Group standards, it pursues their uniform implementation and observance Group-wide.

Implementation of an early warning system

In view of the continuing economic difficulties of many companies in Central and Eastern Europe as a result of the crisis and its effects on the corporate customer division's loan portfolio, workout functionality was significantly revised and expanded in the past year. The key topics were processing and decision-making processes, employee motivation by means of a specific incentive system, and organizational issues. These minimum standards were rolled out in the entire network.

The new workout process is based on a clear definition of the risk status of each customer. The assignment of a certain risk status results from a recently developed early warning system, which consists of a partially automated and IT-supported cause-and-effect analysis based on numerous signals. Most signals are standardized at the Group level, but can be adapted and supplemented with further factors to meet specific local conditions. Early detection of potential problem cases follows a structured process by means of which customers are supported as early as possible and, if necessary, countermeasures can be taken.

The process is divided into the following categories: standard (no need for action), pre-workout (first signs of a potential problem case), and workout (subdivided into the phases of early workout and late workout).

Depending on the respective classification, the bank and customer jointly develop measures to minimize the risks. Moreover, depending on the risk status, the client responsibility changes within the bank from account managers to workout specialists in dealing with and supporting the customer further. In the framework of expanding the workout process and ensuring optimal support, personnel capacities were roughly doubled in the past year. By means of training programs developed especially for Raiffeisen International with the support of well-known international training companies, employees were quickly prepared for the new tasks and correspondingly deployed. Additionally created incentive systems ensure high result quality and efficiency.

Results of the newly structured workout process include both standardized pre-workout and considerably cheaper and more efficient handling of non-performing loans.

Stress tests

The existing stress tests continued to be applied in the reporting year. On the one hand, stress tests were conducted at the portfolio level (top down), in which the effects of changes in individual parameters on the entire portfolio are simulated. On the other hand, those were supplemented by stress tests based on individual exposures (bottom up). Amongst others, these tests are used to simulate how the customer credit standing and repayment ability is affected by changes of exchange rates in a country relative to a certain reference currency or by a non-renewal of financing by other banks. Their results allow potential risks to be detected and then countered proactively at a very early stage.

Active portfolio management

The focus of activities in portfolio management was on real estate loans. That was the case particularly in countries with a high proportion of such loans in relation to the overall portfolio. Both concentration risks at the portfolio level and individual real estate financing projects were analyzed in detail (bottom up), and appropriate measures were initiated. Special importance was placed on working with customers to identify possible risks early and actively counteract them, for example, by lengthening leases early, making adjustments in the rent level, and changing the extent of collateral or the tenor of the loans. Furthermore, the fundamental long-term development prospects in the real estate markets of individual countries are analyzed on an ongoing basis with a team of experts in order to take strategic anticipatory measures early in respect to future credit exposure.

Basel II and risk process optimization

Uniform and harmonized processes and valuation methods are the declared goal of all Raiffeisen International activities in the areas of Basel II and risk process optimization.

To that end, the concept of consistent and Group-wide implementation of Basel II was again systematically pursued in 2009. The goals involved go far beyond implementing methods of measuring credit risk for regulatory purposes. Development of the key pillars of the credit management process, i.e. risk measurement and management, continued steadily.

Raiffeisen International successfully underwent the IRB approval process according to plan: this was carried out in Slovenia and Hungary for business relating to private individuals, and for business dealing with customers such as small and medium enterprises, large enterprises and financial institutions in Croatia and Romania. The approval process was successfully completed, subject to only a very low number of conditions. The conditions set by supervisory authorities in Hungary, Slovakia, Poland and the Czech Republic – the authorization was given for the latter two in the previous year – were quickly fulfilled in the candidate countries. In 2010, these contents will be implemented in the entire network for the purpose of optimizing the risk process. That also applies to countries in which the standard approach is still being used.

Basel II preparations in Russia and Ukraine made very good progress in 2009, with the focus on implementing the data warehouse. Starting in 2010, Belarus will also be included in the extensive IRB preparations.

It is the aim of the Basel II center of excellence in Vienna to maintain the high level achieved in credit risk management. Optimization of the risk process with special attention to data quality and comprehensive collateral management will be consistently continued in all of the network's banks and leasing units in the years ahead.

Operations and IT

Cutting costs and raising productivity

When the economic crisis emerged in 2008, Raiffeisen International reacted immediately and reduced its costs. Total costs therefore decreased by around 14 per cent year-on-year.

This rapid change of goals from strong growth to cost-reduction was made possible in part by measures already taken in the past years, investments in process optimization and the establishment of centralized procurement departments. Many of those measures proved extremely successful in 2009 and led to notable improvement of the cost-income ratio from 54.0 per cent to 52.5 per cent despite unchanged income.

Savings were achieved through a balanced combination of cuts to personnel costs and a reduction of administrative expenses. This development was additionally promoted by the devaluation of many CEE currencies. Savings were not evenly distributed among all countries and departments, but were achieved in targeted areas where decreased business volume and the crisis had especially severe effects. Care was also taken that savings not be made at the expense of strategic projects that are necessary for Raiffeisen International's future competitive positioning.

A Group-wide cost management program had already been set up toward the end of 2008, coordinating and guiding all above-mentioned initiatives. Together with risk management, optimizing the collections operations was another focus of action. As a result, significant improvements of efficiency were achieved in a very short time. Above all, processes, organizational structures, capacity planning, and technical support were optimized.

The 6 Sigma initiative that has successfully been running at Raiffeisen International for several years was expanded in 2009 by some pilot projects in the area of lean management, aimed at increasing organizational efficiency. For example, a new operations back office was set up in Slovakia and all established settlement processes there were revamped with a view to lean management. The successful realization of these pilot projects is expected to lead to a Group-wide introduction of lean management in the Raiffeisen International Group in the years to come.

Both network banks and the head office were particularly called upon to reduce costs through procurement. The focus was on lowering those expenses that in sum account for the majority of administrative costs, which means expenditures for information technology (IT), rent, and advertising and consulting costs. The majority of rental agreements were thus renegotiated in all countries. IT-systems were consolidated to reduce maintenance expense. Moreover, new frame agreements for servers and "thin clients" (terminals that are restricted to input and output were signed).

Compared with 2008, when personnel reached the highest level in company history, the number of employees had to be reduced Group-wide by around 11 per cent to 56,530 at the end of 2009. Personnel and cost reduction was stepped up especially in countries that were hit hardest by the crisis and capacity buildup occurred in the years of strong growth, including Ukraine, Russia, and Hungary. In those countries alone, almost 4,600 jobs were cut, which represents around 67 per cent of the overall reduction.

IT and shared service centers

Midas, a universal banking system for handling core processes (e.g., account administration) that is used in seven network banks, was expanded in 2009 in cooperation with the manufacturer, Misys PLC. The Midas Plus 1.4 version was successfully introduced in Russia. This version offers substantial optimization of capacity, but also of functionality, especially at interfaces

with other applications. At Tatra banka, a.s. in Slovakia, the migration to Midas Plus 1.4 was also carried out. At Raiffeisen Bank Aval JSC in Ukraine, Midas Plus 1.4 was implemented in a first phase for treasury operations.

At the same time, preparations were in full swing for the launch of Finacle from Infosys, a new core banking system oriented to retail customers. The pilot bank for that is Raiffeisenbank a.s. in the Czech Republic.

The launch of further Group solutions, such as the internal reporting system (MIS), collections, treasury (GTS), and compliance, moved forward successfully in 2009. With one exception (Ukraine), all network banks were connected via CRISP, the shared service center in Romania, to the central SWIFT hub and to transaction and customer screening (FISA) at the end of the reporting period. These centralized applications support further strengthening of the compliance function.

Moreover, new Group-wide solutions were defined in customer relationship management (CRM). A pilot version was successfully introduced for the area of corporate customers in Serbia.

Further improvements in IT security were made in the reporting period. They are designed to protect electronic banking solutions, in particular, but also internal applications and IT processes even better from possible external threats.

Card processing

Raiffeisen International's two card processing centers, in Kiev and Bratislava, increased their profitability and productivity. These centers processed 518 million transactions in the Group in 2009. 12.5 million cards were issued as of the end of the reporting period. Preparations are now being made for a new Group-wide application platform for issuing cards and for managing and processing card transactions. The medium-term goal is to bundle processing of all card transactions in the two centers.

Payment transfers

More than 80 per cent of the Group's total payment transfers are already being processed completely electronically. That is a result of process optimization measures and incentives for customers to switch to electronic banking. In the shared service center in Bucharest, active preparations are now under way to manage the international payment transfers of five network banks through one centralized software solution.

Payment transfers also play a great role in the business strategy for corporate customers and private individuals. Raiffeisen International therefore constantly invests in new electronic channels (internet banking, mobile banking) to make fast, convenient service possible for its customers. The money transfer product Bystraya Pochta ("Express Mail"), which is offered to private customers in Russia and in the CIS Other segment, held up well even in the crisis, and will again be a main focus in the CIS Other segment in the year ahead.

Human resources

Crisis-driven adjustments

Because of the financial crisis and its very noticeable effects on the real economy in 2009, Raiffeisen International was forced to adjust the number of its employees to current business needs. Compared with the end of the previous year, the level of personnel was therefore down as of 31 December 2009 by 10.8 per cent, or 6,846 persons, to 56,530 employees (measured in terms of full-time equivalents).

The changed conditions also made it necessary to increase the number of employees in some areas, including compliance, risk management, collections, and workout. However, in other areas, such as sales, fewer employees were needed. Targeted continuing education and retraining measures were therefore implemented to prepare employees quickly and effectively for deployment in areas with increased capacity needs.

Workforce reductions occurred particularly in Ukraine (2,143), in Russia (1,668), Romania (664), and Bulgaria (426). These personnel measures were implemented in every country in a socially responsible manner and only after exhausting all other alternatives.

The average age of employees remains relatively low at 34.6 years and thus corresponds to Raiffeisen International's image as a young and dynamic company. With 76 per cent of the employees being university graduates, the workforce exhibits a very high level of qualification. 67 per cent of the employees are women.

Human resources controlling

To optimize management of its personnel, Raiffeisen International began to develop an internal human resources controlling system in 2008. This system was successfully implemented in all countries in 2009.

Data relevant to personnel, e.g. including the return on investment of human capital, training days per employee, the turnover rate, personnel costs per employee, and profit per employee, have been collected and internally evaluated to create a solid basis for business decisions.

Expanded full-time equivalent reporting on the basis of job groups is used in many projects in different areas of the Group to measure and improve their efficiency and productivity.

Development of personnel

Number of staff on balance sheet date

Geographical distribution of employees as of the balance sheet date

Commitment to performance and management development

Performance management

Commitment to performance enjoys an especially important status in times of crisis-driven cost reductions. The well-established performance management system that has existed in Raiffeisen International's entire network for some years forms an efficient basis for that. In line with its purpose, all management personnel as well as all employees in most network units were integrated into the performance management process in 2009. Further standardization of performance evaluation and hence better comparability across all markets of the Group will be sought in 2010. Moreover, the goal agreement system is to be improved at the management level in order to harmonize company and employee goals effectively.

Management development

Systematic identification and promotion of top performers and high potentials continued in 2009 despite the difficult environment. Particularly in times of change it is important to counteract an exodus of such talent by responding appropriately.

A number of activities to ensure top performers' loyalty to the company and systematic promotion were started in the network units. The above-mentioned human resources controlling system makes the success of those activities measurable and visible throughout the Group. As a result, turnover of these high potentials already declined in the period under review.

Succession planning for Managing Board members and management positions in the network banks continued to be improved systematically in the reporting period and extended to lower management levels. For the first time, the selection of possible successor candidates for the Managing Board level was supported Group-wide by a standardized potential analysis process. Development of candidates in the top talent pool – the potential future executives for the highest management levels – was also an important focus. Increasing professional depth through horizontal career opportunities and time-limited job rotation as well as systematically enhancing management qualifications were at the fore in that regard.

Another emphasis in 2009 was on needs-based and efficient continuing education of management personnel at the local and international levels. The offerings for top managers in that connection were particularly concerned with the topic of leading people through times of crisis.

A new leadership training architecture was introduced at the Group level in the reporting period. It is based on competence profiles for different target groups and forms the framework for all local, regional, and international management training measures. That ensures optimal coordination of all centralized and local programs and contributes substantially to harmonizing management talent development and hence management culture and standards.

Qualification remains in focus

Educational offering adjusted

Early on, Raiffeisen International identified changes in the educational needs of its employees due to the difficult business environment. It therefore shifted the focus of its educational offering already in the beginning of 2009 to topics such as customer service, risk management, restructuring of the loan portfolio, collections, and workout. In addition, competence in serving affluent customers was further increased through intensive training programs. Although educational budgets were also cut in the framework of Group-wide cost optimization, training intensity remained nearly at the level of the previous years as a result of shifting to less expensive training measures. Those included, for example, increased use of internal instead of external trainers, intensification of eLearning, and replacement of international with local training programs.

This adjustment of the training provision enabled 79 per cent of the employees to participate in at least one continuing educational measure in the reporting period.

eLearning expanded

The strategy established in the previous years of training a large number of employees flexibly and efficiently by way of eLearning was successfully continued in the reporting period. The basis for that is the Group-wide learning management system. The shared infrastructure furthermore enables the network banks to realize local eLearning activities as well.

At present, eLearning is already being used intensively in 10 network banks to train large groups of employees. That applies particularly to Belarus, Slovakia, Romania, Russia, and Ukraine.

Know-how transfer, exchange of information, and shared eLearning productions are being promoted through intensive, cross-border cooperation of eLearning experts. As a result, initial cost savings and quality improvements were already achieved in 2009.

Outlook

Economic prospects

After the deep recession in the first half of 2009, a significant recovery of the world economy started in the second half of the year. Major factors for the trend reversal in Europe included the support measures taken by various governments, the injection of liquidity by the ECB, the revival of exports, and the restocking of inventories. On the other hand, consumer demand is likely to recover slowly due to rising unemployment rates trailing the cyclical curve. Moreover, credit growth will probably continue to stagnate due to necessary further consolidation of the financial sector. Since some of the supporting effects will fade this year, real GDP growth of only 1.4 per cent in the euro area is expected for the full year 2010. That would put it just under the estimate for 2011 which is at 1.5 per cent, but it is nonetheless significantly above the minus 3.9 per cent reported for 2009.

The national economies of Central and Eastern Europe should also continue to lag significantly behind their growth potential in 2010. There are several factors responsible for this: the inflows of foreign direct investments are likely to be significantly below the level of the past years again in 2010. Furthermore, credit growth will probably turn out to be extremely moderate, and public budgets are likely to remain very heavily strained. Nevertheless, average real GDP growth of about 2.6 per cent is expected for the CEE national economies in 2010 (2009: minus 6.0 per cent).

Among the relatively new EU member states of Central Europe (Czech Republic, Hungary, Poland, Slovakia, and Slovenia), Poland probably remains the country with the best growth prospects. The Czech Republic, Slovakia, and Slovenia should also show positive GDP growth, but it is likely at best to match that of the euro area. Stagnation of GDP is expected for Hungary. Altogether, the region should achieve a plus of about 1.8 per cent on average (2009: minus 1.8 per cent) in 2010, and thus just above the GDP growth forecast for the eurozone area.

The transition countries in Southeastern Europe (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania, and Serbia) will probably continue to be forced to reduce their current account deficits, which are in some cases still high. Unlike before 2009, the financial sector is unlikely to be able to stimulate domestic consumer demand substantially. The state of public finances will probably also hardly allow any expansion of government capital spending. The region's average GDP growth in 2010 should thus come to only about 0.7 per cent (2009: minus 5.6 per cent).

The CIS countries (Belarus, Russia, and Ukraine) oriented to basic materials suffered the most from the global economic crisis. However, the decline of real GDP by almost 8.3 per cent in 2009 also lays the foundation for a significant recovery. Above all, the price of oil, which is very important for Russia, already rose sharply in the second half of 2009, and demand for steel recovered strongly. The region's average GDP growth should reach about 3.4 per cent.

The real economic environment should remain disinflationary in 2010 given that the CEE national economies are likely to lag considerably behind their growth potential, and unemployment rates are likely to show a further upwards trend. The sharpest inflation decline is expected in the CIS, where average inflation rates will probably not only fall significantly below the 10 per cent mark, but might hit their lowest level since the beginning of the transformation at about 7.0 per cent (2009: 12.9 per cent). The same applies to the transition states of Southeastern Europe, whose average inflation rate in 2010 should come to only about 4.0 per cent (2009: 4.7 per cent). Regarding the relatively new EU member states of Central Europe, an average inflation rate of about 2.6 per cent is forecast for 2010 (2009: 2.8 per cent).

Outlook for Raiffeisen International

The financial and economic crisis again had a big hand in shaping the past business year. The recession continued to dominate in the first few months, causing severe fluctuations of currency exchange rates in some of our target markets and affecting our business trend and actions in the entire year through higher provisioning for impairment losses and cost-cutting programs. Fortunately, however, economic development turned appreciably upward in the course of the year. Our business model, geared to universal bank services with a transparent product range strictly

oriented to customer needs, consistently proved itself. As the financial crisis ebbed, the problems of procuring liquidity in the banking sector were also overcome. Nevertheless, the consequences of the economic crisis will continue to be felt for some time.

The broad diversification of our bank network in 15 countries again proved very advantageous in the crisis, because individual countries were affected quite differently. We remain committed to that and will expand our presence and business where we see appropriate growth potential. We hope to gain impetus from the expected economic recovery in the CEE region. That is likely to be stronger in Central Europe, Southeastern Europe, and Russia than in the CIS Other segment, where the recovery will probably start later due to continuing problems in Ukraine.

We further developed and considerably expanded our risk management in the past year and took extensive precautions for possible risks. We expect the rise of non-performing loans to continue in 2010, but their upward momentum appears to have broken with the onset of the economic recovery. The strict cost management introduced in the period under review will continue in 2010. Expansion of the business outlet network will move forward only selectively. Existing outlets may be closed or relocated, so the total number is likely to remain about the same in 2010.

Business with corporate customers proved to be the backbone of the Group in 2009. We aim to intensify lending business in this area selectively in 2010. Special attention will be given to business with customers in the mid-market segment and to selected industries. Moreover, fee and commission business will be strengthened further, for example, by means of targeted cross-selling.

In the retail customer division, we are striving for an increase in lending in 2010. The focus will initially be on cross-selling with selected loan offers such as consumer loans and credit cards. We also aim to increase customer deposits, for which we hope to gain positive impetus from the direct bank that is to begin operations in 2010. Another goal is to expand business with affluent private individuals, especially involving commission-related products.

Overall demand for credit will probably remain subdued in 2010, but from today's perspective, we expect a slight rise of lending to customers for Raiffeisen International in the course of the year.

Events after the balance sheet date

On 22 February 2010, Raiffeisen International published an ad-hoc release which addressed the issue of the examination of a potential merger between Raiffeisen International and RZB as one of several strategic options under review. At the time of the editorial deadline, no official decisions were made to implement any of these options.

Segment reports

Regional segments

Individual Central and Eastern European countries constitute Raiffeisen International's smallest cash generating units (CGUs). Countries that hold the prospect of similar long-term economic development and exhibit a similar economic profile are grouped together as regional segments. In view of the threshold values required by IFRS 8, four regional segments have been defined by means of which transparent and comprehensible reporting is achieved. The threshold values as defined by IFRS 8 are equivalent to 10 per cent, respectively, of operating income, profit after tax, and segment assets.

As of 31 December 2009, the following Group segments existed. The location of the respective business outlets served as the criterion for segment assignment:

■ Central Europe

This segment contains the five countries that joined the EU on 1 May 2004 – the Czech Republic, Hungary, Poland, Slovakia, and Slovenia. They represent not only the most fully developed banking markets in Central and Eastern Europe, but also the markets in which Raiffeisen International was present the earliest.

■ Southeastern Europe

Southeastern Europe includes Albania, Bosnia and Herzegovina, Croatia, Kosovo, Moldova, Serbia, as well as Bulgaria and Romania, which joined the EU on 1 January 2007. Moldova has been included in this segment due to its close economic ties to Romania and the respective management structures within the Group.

■ Russia

This segment includes the results of the Raiffeisen International companies in the Russian Federation. The Group is represented in Russia by a bank, a leasing company, and a capital management company, among others.

■ Commonwealth of Independent States (CIS) Other

This segment comprises Belarus, Kazakhstan, and Ukraine.

The figures stated in the segment report derive from the individual financial statements prepared according to IFRS and underlying the consolidated financial statements. Divergences from locally published data are possible, as the latter may be based on different valuation rules – within IFRS or between IFRS and accounting standards applicable in the individual countries – and on different scopes of consolidation.

Segment overview

Raiffeisen International's regional segments exhibited very different economic developments in the year under review. On the one hand, the mild recovery of the financial markets had a positive effect in Central Europe and Southeastern Europe, especially through market value appreciation of securities, bonds, and other interest and money market products. On the other hand, the effects of the economic crisis were clearly discernible in yearly comparison. The continuing difficult credit environment weighed heavily on earnings, especially in Ukraine and Hungary. The increase of non-performing loans found expression in a corresponding rise of provisioning for impairment losses. Overall, the earnings of all Raiffeisen International segments therefore declined in the year under review.

The regional segment of Southeastern Europe achieved the highest profit before tax in 2009, which amounted to € 260 million. That was based on a relatively satisfactory income from operating activities, whose decline by only 6 per cent year-on-year was the lowest of all the segments, and on a solid increase of net trading income. The segment's balance sheet assets fell by 7 per cent on the preceding year.

The regional segment of Central Europe achieved the second-highest profit before tax of all the segments, which amounted to € 234 million. Despite positive development of net trading income, it was burdened considerably by increased net allocations to provisioning for impairment losses. Balance sheet assets fell by 7 per cent on the preceding year.

In the Russia segment, profit before tax amounted to € 153 million. That represents a sharp decline on the preceding year, which resulted from significantly increased net allocations to provisioning for impairment losses and negative net trading income. The segment's balance sheet assets fell by 22 per cent year-on-year.

The CIS Other segment registered a loss before tax of € 126 million. Extensive net allocations to provisioning for impairment losses of € 514 million, with emphasis in Ukraine, and a decline of operating income gave rise to significantly negative influences. The segment's balance sheet assets were down sharply, by 22 per cent compared with 2008.

The regional structure of Group assets remained almost unchanged on the preceding year. The Central Europe segment continued to dominate with a share of 45 per cent. Southeastern Europe accounted for 31 per cent of Group assets, the second-largest share, followed by Russia with 16 per cent and CIS Other with 8 per cent.

Central Europe

in € million 2009 2008 Change
Net interest income 985 1,025 (3.8)%
thereof current income from associates 0 1
Provisioning for impairment losses (487) (265) 83.6%
Net interest income after provisioning 498 760 (34.5)%
Net fee and commission income 435 568 (23.4)%
Net trading income 89 56 60.2%
Net income from derivatives (1) (11) (89.4)%
Net income from financial investments 37 2 >500%
General administrative expenses (802) (930) (13.8)%
thereof staff costs (378) (455) (16.8)%
thereof other administrative expenses (348) (389) (10.6)%
thereof depreciation on intangible
and tangible fixed assets
(75) (86) (12.0)%
Other net operating income (22) (10) 113.1%
Net income from disposal of Group assets 0 8 (99.0)%
Profit before tax 234 442 (46.9)%
Income taxes (51) (91) (43.7)%
Profit after tax 183 351 (47.7)%
Minority interests in profit (57) (90) (37.1)%
Profit after minorities 127 261 (51.4)%
Share of profit before tax 44.9% 26.9% 18.0 PP
Share of profit after tax 42.8% 27.5% 15.2 PP
Risk-weighted assets (credit risk) 21,493 23,533 (8.7)%
Own funds requirement 1,979 2,401 (17.6)%
Total assets 33,654 36,316 (7.3)%
Liabilities 31,021 33,910 (8.5)%
Risk/earnings ratio 49.5% 25.9% 23.6 PP
Cost/income ratio 53.9% 56.8% (2.9) PP
Average equity 2,587 2,607 (0.8)%
Return on equity before tax 9.1% 16.9% (7.9) PP
Return on equity after minorities 6.7% 13.4% (6.7) PP
Average number of employees 13,517 13,265 1.9%
Business outlets 549 572 (4.0)%

In Central Europe, profit before tax amounted to € 234 million in 2009 and was thus 47 per cent, or € 208 million, below the preceding year's level. Increased net allocations to provisioning for impairment losses and a sharp decline of net fee and commission income by € 133 million to € 435 million were mainly responsible for that. The return on equity before tax fell by 7.9 percentage points to 9.1 per cent.

The segment's net interest income was down by 4 per cent to € 985 million. The Group unit in Poland registered the largest earnings decline, caused by increased interest expense for customer deposits due to intensified money market competition. Exchange rate effects had a decreasing influence on earnings in Hungary, although net interest income grew in local currency. The Group unit in the Czech Republic showed a considerable increase of net interest income, mainly due to improved margins on mortgage loans. The Group's assets fell by 7 per cent, and the net interest margin decreased by 24 basis points on the preceding year to 2.90 per cent. Credit riskweighted assets declined 9 per cent year-on-year from € 23.5 billion to € 21.5 billion. That was brought about primarily by volume reductions in almost all countries of the region, while stronger collateral, particularly in new business, positively influenced credit risk-weighted assets.

The segment's net allocations to provisioning for impairment losses amounted to € 487 million in the year under review, after € 265 million in the preceding year. That represents an increase of 84 per cent, or € 222 million, which resulted mainly from sharply higher net allocations to individual provisions. Because of especially difficult economic conditions in Hungary, net allocations were necessary there in the amount of € 179 million, which made up almost half of the net allocations for the entire region. The remaining net allocations to individual provisions were to a large extent evenly distributed among the other countries of Central Europe. Net allocations to portfolio-based provisions roughly doubled in the year under review, for which again the Hungarian units were primarily responsible at € 88 million. This provisioning was mainly connected with loans to private individuals. The share of non-performing loans in the portfolio rose by 3.9 percentage points to 7.0 per cent.

Net fee and commission income decreased in nearly all countries of the region, which resulted in an overall decline of 23 per cent, or € 133 million, to € 435 million. Only in the Czech Republic was a considerable increase achieved, thanks to an aggressive pricing policy. A sharp fall in income from foreign exchange and notes/coins business, by 45 per cent to € 141 million, played a substantial part in the decline of net fee and commission income. The main reason for that was the introduction of the euro in Slovakia. Significantly negative influences also arose from a volume reduction of foreign exchange business in Poland, and diminishing new business in foreign currency loans especially in the first half of the year in Hungary. Net income from payment transfers and account services was down in all countries of the region, by 17 per cent to € 168 million. Securities business also contracted by 25 per cent year-on-year to € 29 million due to lower customer activity, especially in Hungary.

The Central Europe segment's net trading income amounted to € 89 million and was thus 60 per cent above the preceding year's level. Currency-based transactions, to which Hungary and Poland contributed substantially, accounted for € 58 million of that. In interest-based transactions, the region booked a net result of € 33 million, which came about mainly through valuation gains from interest rate swap transactions and from fixed-income bonds in Slovakia. Equity- and indexrelated business caused a loss of € 2 million, almost half of which was incurred in Hungary.

Net income from derivatives of minus € 1 million derived almost exclusively from hedging transactions in Hungary and the Czech Republic, which were used to adjust the currency structure. However, a loss in the Czech Republic was almost entirely offset by valuation gains in Hungary.

Net income from financial investments amounted to € 37 million and included proceeds of € 12 million from the cross-segment sale of a company in Slovakia, which was consolidated in the Group result. Moreover, this item includes valuation gains from securities in all Group units of the region, of which the largest occurred in the Czech Republic at € 8 million and in Slovakia at € 7 million.

General administrative expenses declined by 14 per cent, or € 128 million, year-on-year to € 802 million. This change was mainly based on a reduction of staff costs by 17 per cent to € 378 million, achieved primarily by means of bonus payment cuts. The average number of employees

increased overall by 2 per cent on the preceding year to 13,517. Other administrative expenses fell by 11 per cent on the comparable period to € 348 million, and depreciation on intangible and tangible fixed assets sank by € 11 million to € 75 million. The number of business outlets was reduced by 4 per cent, or 23, on the preceding year to 549 locations. The segment's cost/income ratio improved significantly by 2.9 percentage points to 53.9 per cent.

The region's other net operating income came to minus € 22 million and mainly consisted of tax expenses not dependent on income in the amount of € 31 million, incurred primarily in the Hungarian and Slovakian units. Operating leasing business made a positive contribution of € 8 million.

Income taxes fell by 44 per cent on the comparable year to € 51 million. The tax rate in the region increased slightly, by 1 percentage point to 22 per cent. Profit after minorities amounted to € 127 million.

Czech Republic

The global slump in demand had significant effects on the Czech economy in 2009, since it has extensive external ties and focuses on the automotive sector, which was hit especially hard by the crisis. Although the Czech Republic already registered a turnaround in the second quarter of 2009 with positive growth in quarterly comparison, real GDP nevertheless shrank by 4.3 per cent for the year 2009. Besides the "cash-for-clunkers" programs that some Western European countries offered and a noticeable easing of fiscal policy, the robust Czech banking sector also played an important role in overcoming the recession. Total lending thus showed a slight increase in 2009. While loans to private individuals rose, those to corporate customers declined. The Czech koruna which was weak at over 29 Czech koruna per euro in February 2009, was among the currencies with the strongest rate increases in 2009 overall. The koruna rose by 1.75 per cent in the course of 2009, and increased by 11 per cent from its low in February to the end of 2009.

Founded in 1993, Raiffeisenbank a.s. has become the country's fifth-largest bank since its merger with eBanka a.s., completed in 2008. The bank's product range extends from traditional banking business to building society plans and insurance to leasing. For many years, its focus has been on serving affluent customers and small and medium-sized enterprises.

At the end of 2009, Raiffeisen International in the Czech Republic had 2,638 employees serving about 408.000 customers in 111 branches. Profit after tax achieved in the reporting period of € 75 million, which was 40.1 per cent more than in the preceding year, confirms the dynamic development of Raiffeisen International in the Czech Republic. With a balance sheet total of € 7.7 billion, total deposits increased by 17.9 per cent to € 4.9 billion, while the loan portfolio grew by 4.7 per cent to € 5.7 billion. The cost-income ratio improved in the reporting period from 60.7 per cent to 52.4 per cent.

In the year under review, Raiffeisenbank began to implement a new core banking system and simultaneously was one of the first Group units to employ an early warning system in risk management. It is the only bank on the Czech market that offers its customers a current account with no maintenance fee, which it calls the "ekonto".

Measured in terms of profitability, 2009 was the most successful year in Raiffeisenbank's history. Global Finance awarded it the title of "Best Bank" in the Czech Republic in 2009.

At the end of 2009, Raiffeisen International owned 51 per cent of Raiffeisenbank. Furthermore, Raiffeisenlandesbank Niederösterreich-Wien and Raiffeisenlandesbank Oberösterreich AG held indirect stakes in the bank of 24 per cent and 25 per cent, respectively.

in € million 2009 2008 Change
Balance sheet total 7,739 7,198 7.5%
Loans and advances to customers 5,719 5,464 4.7%
thereof corporate customers in per cent 42.3% 46.8% (4.5) PP
thereof retail customers in per cent 57.7% 53.2% 4.5 PP
thereof foreign currency loans in per cent 7.5% 8.6% (1.1) PP
Deposits from customers 4,940 4,191 17.9%
Operating income 340 309 9.9%
Net interest income 245 211 16.1%
Net fee and commission income 92 88 4.1%
Net trading income (3) 2
Other net operating income 7 8 (16.0)%
Provisioning for impairment losses (72) (53) 36.9%
General administrative expenses (178) (188) (5.0)%
Profit before tax 96 68 41.4%
Profit after tax 75 53 40.1%
Return on equity before tax 23.0% 18.3% 4.7 PP
Return on equity after tax 18.0% 14.4% 3.6 PP
Cost/income ratio 52.4% 60.7% (8.2) PP
Business outlets 111 107 3.7%
Number of employees 2,638 2,654 (0.6)%
Number of customers 407,900 411,400 (0.9)%

Hungary

The Hungarian economy has been going through a painful budget consolidation for some years. Since Hungary was one of the first countries that had to request financial assistance from the IMF and the EMU at the beginning of November 2008, it could not slacken its fiscal reins despite the economic crisis. The global collapse in demand therefore dealt the local economy an especially severe blow, and real GDP shrank by 6.3 per cent in 2009. Even in this very difficult environment, however, the total amount of outstanding loans declined only slightly. After devaluation in the first quarter to over HUF 300 per euro, the currency was able to recover in the further course of the year and rose by 14 per cent as of year's end.

Founded as Unicbank in 1986, Raiffeisen Bank Zrt. was Hungary's sixth-largest bank at the end of 2009. At the same time, it is one of the largest banks in Raiffeisen International's network. At the end of last year, it had 3,197 employees serving 660,000 customers in 145 business outlets. Those include not only private individuals and small and medium-sized enterprises, but also a large number of corporate customers. At year's end, loans to customers amounted to about € 6.5 billion, while deposits from customers came to € 4.9 billion. The balance sheet total stood at € 8.8 billion.

Raiffeisen Bank mainly focused in the year under review on active customer relationship management based on an innovative and extensive product range. At the same time, risk management was improved, and efficiency was enhanced by means of active cost management.

However, the difficult development of the Hungarian economy led to continuing deterioration of the credit environment in the past year. In line with the market trend, the result was a corresponding rise of provisioning for impairment losses, and particularly of portfolio-based provisions for loans to private individuals.

Expenses were reduced substantially in the year under review thanks to strict cost management. They mainly concerned reductions of staff costs by means of job cuts and lower bonuses. In addition, the closing of 19 business outlets, reorganization of processes, and integration of leasing business led to an appreciable lowering of other administrative expenses. Weaker turnover in securities business, lower volumes of foreign exchange transactions, and increased funding costs for customer deposits had an income-reducing effect in the past year.

in € million 2009 2008 Change
Balance sheet total 8,778 9,568 (8.3)%
Loans and advances to customers 6,452 7,186 (10.2)%
thereof corporate customers in per cent 55.2% 53.7% 1.5 PP
thereof retail customers in per cent 41.3% 42.8% (1.5) PP
thereof foreign currency loans in per cent 76.3% 77.5% (1.2) PP
Deposits from customers 4,941 5,654 (12.6)%
Operating income 465 486 (4.3)%
Net interest income 337 350 (3.5)%
Net fee and commission income 107 140 (23.7)%
Net trading income 35 9 296.3%
Other net operating income (14) (13) 10.4%
Provisioning for impairment losses (272) (110) 148.0%
General administrative expenses (232) (284) (18.3)%
Profit/loss before tax (25) 83
Profit/loss after tax (17) 67
Return on equity before tax 14.5%
Return on equity after tax 11.7%
Cost/income ratio 49.9% 58.5% (8.6) PP
Business outlets 145 164 (11.6)%
Number of employees 3,197 3,960 (19.3)%
Number of customers 660,200 657,100 0.5%

Poland

Poland was the only national economy in the EU to register positive real GDP growth overall for 2009 (plus 1.7 per cent year-on-year). A relatively large domestic economy compared with most other CEE countries and consequently lower dependence on export demand as well as a robust banking sector contributed to that. According to the latest data available at this report's editorial deadline, the Polish banking sector's total lending business increased slightly in the period to 30 September 2009. Set against an expansion of lending to private individuals was a slight decline of lending to corporate customers. After sharp devaluation of the zloty against the euro in the first half of the year, the Polish currency recovered strongly in the second half.

Raiffeisen has been present in the Polish market since the founding of Raiffeisen Bank Polska S.A. in 1991. The number of customers came to about 275,000 at the end of the year, and the number of employees to about 3,000. The balance sheet total reached € 6.2 billion. In addition to serving corporate customers and small and medium-sized enterprises, Raiffeisen Bank Polska has also focused attention as a universal bank on affluent customers in the past years. It has a consulting and service range tailored to their specific needs.

In the year under review, Raiffeisen International's total lending in Poland amounted to € 4.8 billion, and deposits increased by 0.2 per cent year-on-year to a total of € 3.5 billion. The loandeposit ratio also improved because of the company's focus on acquiring and retaining customer deposits.

The expense of acquiring customer deposits rose significantly due to intensified competition on the money market since the beginning of the year. However, only part of the increase was passed on to customers. Consequently, net interest income in 2009 remained below the value of the previous year. Net trading income, on the other hand, turned out better than in the preceding year due to successful currency-related transactions. However, a decline of payment transfers and lower customer margins in foreign exchange business had an adverse effect on net fee and commission income.

Thanks to the relatively good development of the Polish economy, the rise of provisioning for impairment losses was kept to a manageable extent in the year under review, particularly in the case of loans to private individuals. Considerable expense reductions were achieved by means of efficient cost management. The number of employees declined by 8.1 per cent year-on-year to 3,007, with targeted increases of personnel capacities in risk management including early warning systems.

Despite the difficult market environment for leasing business in Poland, Raiffeisen International maintained its position as the third-largest provider in that area in the past year with a portfolio of about € 1.3 billion. In factoring, Raiffeisen International continued to be among the country's market leaders in 2009. Raiffeisen Bank Polska has operated successfully for years in the area of mutual fund sales.

in € million 2009 2008 Change
Balance sheet total 6,241 7,108 (12.2)%
Loans and advances to customers 4,820 5,319 (9.4)%
thereof corporate customers in per cent 69.8% 71.8% (2.1) PP
thereof retail customers in per cent 30.3% 28.2% 2.1 PP
thereof foreign currency loans in per cent 38.4% 36.8% 1.6 PP
Deposits from customers 3,524 3,516 0.2%
Operating income 273 386 (29.3)%
Net interest income 123 178 (30.9)%
Net fee and commission income 121 173 (30.1)%
Net trading income 33 27 22.3%
Other net operating income (3) 8
Provisioning for impairment losses (76) (57) 32.8%
General administrative expenses (150) (199) (25.0)%
Profit before tax 45 129 (65.0)%
Profit after tax 34 103 (67.3)%
Return on equity before tax 8.2% 25.7% (17.7) PP
Return on equity after tax 6.1% 20.5% (14.5) PP
Cost/income ratio 54.8% 51.6% 3.1 PP
Business outlets 124 123 0.8%
Number of employees 3,007 3,271 (8.1)%
Number of customers 274,600 290,200 (5.4)%

Slovakia

The national economy of Slovakia, which became the second new EU member state to join the euro area on 1 January 2009, was hard hit by the global slump in demand because of the great importance of its export industry and strong orientation to the automotive sector. Real GDP shrank in 2009 by 4.7 per cent year-on-year. However, the country overcame the recession in the second quarter of 2009 and achieved the strongest GDP growth of all EU member states with a plus of 1.1 per cent on the preceding quarter. In addition to the "cash-for-clunkers" programs set up in a number of Western European countries and a notable easing of fiscal policy, the switch to the euro and a robust banking sector also contributed to that. Total lending in the Slovakian banking sector showed a slight increase as of 30 September 2009. Set against a significant expansion of lending to private individuals was a slight decline of lending to corporate customers.

Founded in 1991 as Slovakia's first private bank, Tatra banka a.s. ranked third in the market at the end of 2009. Listed on the Bratislava Stock Exchange, Tatra banka was especially successful in business with both corporate and retail customers in 2009. Serving affluent customers is one activity that the bank has focused on since its beginning. Subsidiaries in the areas of fund management and leasing complete the range of services which this comprehensive financial group covers.

At the beginning of 2009, Tatra banka successfully coped with the introduction of the euro, which had posed a great challenge in the run-up for all banks in Slovakia.

At the end of the reporting period, Raiffeisen International in Slovakia had over 152 business outlets, 3,601 employees, and about 742,000 customers. With a balance sheet total of € 9.3 billion, total deposits declined in 2009 by 9.8 per cent to € 6.7 billion, while the loan portfolio fell by 6.1 per cent to € 5.8 billion. Taking into account one-off effects due to the selling of a subsidiary, profit after tax amounted to about € 91 million. The cost-income ratio rose, among other things, because of the costs of introducing the euro from 53.3 per cent in the previous year to 57.4 per cent.

Tatra banka outsourced its back office to Presov in 2009 with the aim of streamlining business processes, and it plans to implement the concept of outsourcing in other areas as well to improve its cost-income ratio.

Moody's gave the bank a foreign currency deposit rating in 2009 of A2 with a negative outlook. Tatra banka was honored as the country's "Best Bank" and "Best Consumer Internet Bank" by Global Finance in 2009.

After a capital increase in mid-2009, Raiffeisen International owned 66 per cent of Tatra banka as of year's end. The rest of the shares were held indirectly by Raiffeisenlandesbank Niederösterreich-Wien AG and employees of the bank or were in free float.

in € million 2009 2008 Change
Balance sheet total 9,324 10,973 (15.0)%
Loans and advances to customers 5,835 6,215 (6.1)%
thereof corporate customers in per cent 54.3% 54.7% (0.5) PP
thereof retail customers in per cent 45.8% 45.3% 0.5 PP
thereof foreign currency loans in per cent 1.5% 21.0% (19.5) PP
Deposits from customers 6,726 7,454 (9.8)%
Operating income 375 432 (13.2)%
Net interest income 252 261 (3.7)%
Net fee and commission income 110 160 (31.3)%
Net trading income 24 17 41.8%
Other net operating income (11) (7) 67.5%
Provisioning for impairment losses (62) (45) 39.1%
General administrative expenses (215) (230) (6.5)%
Profit before tax 117 157 (25.3)%
Profit after tax 91 124 (26.2)%
Return on equity before tax 18.7% 28.9% (10.2) PP
Return on equity after tax 14.6% 22.8% (8.3) PP
Cost/income ratio 57.4% 53.3% 4.1 PP
Business outlets 152 162 (6.2)%
Number of employees 3,601 3,885 (7.3)%
Number of customers 742,000 744,200 (0.3)%

Slovenia

Because of its relatively heavy dependence on exports, the Slovenian economy was hard hit by the global slump in demand in 2009. Among the new EU member states of Central Europe, Slovenia showed the sharpest decline of real GDP with minus 8.0 per cent for the full year of 2009. Since the country had already joined the euro area in 2007, the economic crisis affected the local banking sector less severely than it did in a number of other Central and Eastern European countries. By the end of the third quarter of 2009, it registered an increase of total lending, including both private individuals and corporate customers.

Founded in 1992, Krekova banka was taken over by Raiffeisen in 2002 and renamed Raiffeisen Banka d.d. in 2007. Measured in terms of balance sheet total, it ranked 11th of all Slovenian banks at the end of the past year and offers its customers a full range of financial services as a universal bank.

Raiffeisen Banka stepped up its affluent banking strategy in 2009 after a successful pilot program in 2008. In addition, it gave increased attention in 2009 to serving small and medium-sized enterprises.

As of 31 December 2009, Raiffeisen International in Slovenia had 352 employees, serving around 67,000 customers in 17 business outlets. Loans to customers amounted to € 1.2 billion at year's end. Set against that were deposits from customers of € 528 million. The balance sheet total came to € 1.6 billion.

In October 2009, Raiffeisen Banka officially opened its new corporate headquarters in Maribor, whose design greatly emphasizes ecologically sustainable construction. The new building thus underscores the forward-looking dedication of Raiffeisen International in Slovenia.

With 86.3 per cent, Raiffeisen International was Raiffeisen Banka's largest shareholder at the end of 2009. Except for a small free float, the remaining shares are held indirectly by Raiffeisen-Landesbank Steiermark AG and Raiffeisenlandesbank Burgenland und Revisionsverband registrierte Genossenschaft mit beschränkter Haftung.

in € million 2009 2008 Change
Balance sheet total 1,583 1,509 4.9%
Loans and advances to customers 1,233 1,179 4.6%
thereof corporate customers in per cent 68.6% 69.1% (0.5) PP
thereof retail customers in per cent 31.4% 30.9% 0.5 PP
thereof foreign currency loans in per cent 13.6% 19.8% (6.2) PP
Deposits from customers 528 545 (3.2)%
Operating income 32 32 (0.4)%
Net interest income 25 24 4.1%
Net fee and commission income 6 7 (15.1)%
Net trading income 1 1 15.5%
Other net operating income 0 1 (35.6)%
Provisioning for impairment losses (6) (2) 268.5%
General administrative expenses (26) (28) (6.4)%
Profit before tax 1 4 (73.0)%
Profit after tax 1 3 (76.7)%
Return on equity before tax 1.5% 6.0% (4.5) PP
Return on equity after tax 0.9% 4.3% (3.4) PP
Cost/income ratio 82.4% 87.6% (5.2) PP
Business outlets 17 16 6.3%
Number of employees 352 344 2.3%
Number of customers 67,400 71,600 (5.9)%

Southeastern Europe

in € million 2009 2008 Change
Net interest income 896 947 (5.4)%
thereof current income from associates 3 0
Provisioning for impairment losses (414) (159) 160.1%
Net interest income after provisioning 482 788 (38.8)%
Net fee and commission income 398 463 (14.1)%
Net trading income 88 57 54.8%
Net income from derivatives 0 (5)
Net income from financial investments 8 (19)
General administrative expenses (741) (773) (4.2)%
thereof staff costs (326) (344) (5.5)%
thereof other administrative expenses (317) (339) (6.5)%
thereof depreciation on intangible
and tangible fixed assets
(98) (90) 9.6%
Other net operating income 24 23 4.9%
Profit before tax 260 534 (51.3)%
Income taxes (35) (84) (59.0)%
Profit after tax 226 450 (49.8)%
Minority interests in profit (16) (21) (23.9)%
Profit after minorities 209 429 (51.1)%
Share of profit before tax 49.9% 32.5% 17.3 PP
Share of profit after tax 52.6% 35.3% 17.3 PP
Risk-weighted assets (credit risk) 16,437 18,939 (13.2)%
Own funds requirement 1,529 1,704 (10.3)%
Total assets 23,573 25,239 (6.6)%
Liabilities 20,808 22,488 (7.5)%
Risk/earnings ratio 46.2% 16.8% 29.4 PP
Cost/income ratio 52.7% 51.9% 0.8 PP
Average equity 2,038 2,072 (1.6)%
Return on equity before tax 12.8% 25.8% (13.0) PP
Return on equity after minorities 11.6% 23.3% (11.7) PP
Average number of employees 18,282 18,261 0.1%
Business outlets 1,204 1,184 1.7%

In Southeastern Europe, profit before tax fell in 2009 by 51 per cent, or € 274 million, on the preceding year and amounted to € 260 million. Net allocations to provisioning for impairment losses were sharply increased from the preceding year's level due to the GDP slump in some countries of the region, which burdened earnings significantly. Consequently, the return on equity before tax declined by 13.0 percentage points to 12.8 per cent.

The segment's net interest income fell by 5 per cent, or € 51 million, to € 896 million. Increased funding costs in Romania, especially for customer deposits but also for loans from banks, were primarily responsible for that. In Serbia, a sharp decline of loans and advances to customers

combined with higher funding costs likewise led to a reduction of interest income by 12 per cent. The net interest margin narrowed by 25 basis points to 3.70 per cent. Credit risk-weighted assets fell by 13 per cent from € 18.9 billion to € 16.4 billion, while the balance sheet total decreased by only 7 per cent. The disproportionate decline of credit risk-weighted assets was mainly a consequence of the reduction of off-balance sheet items in the region's Group units. The Basel II internal ratings-based approach (IRB) was applied for the first time to certain asset classes in Romania as of July 2009 and in Croatia as of October 2009. However, that did not result in a reduction of risk-weighted assets.

Net allocations to provisioning for impairment losses rose in 2009 by € 255 million to € 414 million, primarily because of net allocations to individual provisions. In Romania, where the highest net allocations were registered, that mainly concerned loans to private individuals. In Croatia and Bulgaria, on the other hand, net allocations for loans to corporate customers increased significantly. Portfolio-based provisions were likewise formed in all Group units of the region, but net allocations for that remained overall € 26 million below the preceding year's level. The share of non-performing loans in the portfolio increased by 4.2 percentage points on the preceding year to 6.5 per cent and was thus the lowest of all the regions.

Net fee and commission income was down by 14 per cent year-on-year to € 398 million. Payment transfers contributed € 171 million to that and were thus 2 per cent above the preceding year's level. The Group unit in Romania, still the strongest fee and commission earner, made the largest contribution at € 89 million, for which commissions on credit cards and payment transactions, money transfers with Western Union, and other bank transactions were primarily responsible. Income from foreign exchange and notes/coins business fell by 22 per cent to € 79 million. Furthermore, lending and guarantee business generated € 67 million, nearly all of which was achieved in Romania.

Net trading income registered positive development in Southeastern Europe in 2009 and rose from € 57 million in the preceding year to € 88 million. Currency-based transactions made a significant contribution of € 69 million to that. A considerable € 44 million of which derived from the valuation of cross-currency interest rate swaps, which had been used in Romania to hedge foreign currency loans to customers. In Croatia, the country with the region's largest trading portfolio, the valuation of various derivative financial instruments led to profits in the amount of € 28 million. In interest-based transactions, a profit of € 20 million was registered, which was spread evenly among the region's countries. Mostly positive adjustments of the securities portfolio to market values led to an offset of the valuation losses registered in the preceding periods.

Net income from financial investments rose to € 8 million, after having turned out negative in the preceding year. This increase was based on the appreciation of securities. Valuation gains from fixed-income bonds in Romania in the amount of € 11 million contributed especially to that.

At a total of € 741 million, general administrative expenses remained 4 per cent below the preceding year's level. Staff costs fell by € 18 million to € 326 million, while the average number of employees remained almost unchanged on the preceding year. Other administrative expenses were down by 7 per cent on the preceding year at € 317 million. Depreciation on intangible and tangible fixed assets, mostly for branch investments, increased by 10 per cent to € 98 million. Beginning from 1,184 business outlets at the end of the preceding year, their number rose by 2 per cent to 1,204. The cost/income ratio increased slightly, by 0.8 percentage points to 52.7 per cent.

At € 24 million, other net operating income remained almost unchanged in comparison with the preceding year. Besides minor expense items, that mainly included income from operating leasing business in the amount of € 31 million, which was achieved predominantly in Croatia.

Income taxes fell by 59 per cent on the preceding year to € 35 million. At 13 per cent, the tax rate in the region remained 3 percentage points below the preceding year's level. Profit after minorities amounted to € 209 million.

Albania

Because of low external economic ties, robust domestic demand, and a stable banking sector, Albania was, along with Poland, the second European national economy to achieve positive real GDP growth in 2009. According to most recent data available at this report's editorial deadline, the local banking sector achieved slight growth of total lending, especially in business with corporate customers, as of 30 September 2009. Nevertheless, Albania still shows the lowest GDP per capita among the national economies of Central and Eastern Europe. By officially submitting its application for accession in May 2009, the country took the next important step toward EU membership.

Raiffeisen International has been represented in the Albanian market since 2004 by Raiffeisen Bank Sh.a., which was founded in 1992 as Banka e Kursimeve i Shqipërisë. At the end of 2009, it was the country's leading bank and offers financial services in all business areas as a universal bank. Its focus in 2009 was on expanding services provided to affluent customers.

Raiffeisen International in Albania has a countrywide distribution network with 104 branches. It had 1,326 employees serving around 575,000 customers at the end of 2009.

On a balance sheet total of € 1.8 billion, loans to customers at the end of 2009 were above the level of the previous year at € 683 million. Set against that were customer deposits of € 1.5 billion.

By acquiring the leading Albanian private pension fund, American Institute of Supplementary Private Pensions, Raiffeisen Bank also succeeded in entering the pension fund market in 2009. As a 100 per cent subsidiary, this company now offers private pension products under the name Raiffeisen Pensions Sh.a.

Founded in 2006, subsidiary Raiffeisen Leasing Sh.a. successfully defended its leading market position in the period under review.

Last year, Raiffeisen Bank was once again named "Best Bank" by Euromoney and "Bank of the Year 2009" by The Banker.

in € million 2009 2008 Change
Balance sheet total 1,842 2,048 (10.1)%
Loans and advances to customers 683 692 (1.2)%
thereof corporate customers in per cent 57.0% 49.9% 7.1 PP
thereof retail customers in per cent 40.6% 48.0% (7.4) PP
thereof foreign currency loans in per cent 56.7% 66.1% (9.4) PP
Deposits from customers 1,505 1,745 (13.8)%
Operating income 100 100 0.7%
Net interest income 82 82 (0.1)%
Net fee and commission income 8 12 (31.5)%
Net trading income 9 8 14.5%
Other net operating income 1 (2)
Provisioning for impairment losses (29) (14) 108.8%
General administrative expenses (33) (40) (17.5)%
Profit before tax 39 46 (15.9)%
Profit after tax 35 41 (16.0)%
Return on equity before tax 29.1% 37.8% (8.8) PP
Return on equity after tax 26.0% 33.8% (7.8) PP
Cost/income ratio 32.6% 39.8% (7.2) PP
Business outlets 104 102 2.0%
Number of employees 1,326 1,427 (7.1)%
Number of customers 574,900 531,700 8.1%

Bosnia and Herzegovina

Since its introduction in 1997, the convertible mark has been pegged to the Deutsche Mark and subsequently to the euro. The country's banking sector was thus not affected by currency devaluation in the economic crisis in contrast to other Central and Eastern European countries. Bosnia and Herzegovina drew financial assistance from the IMF in July 2009. As of 30 September 2009, the total amount of outstanding loans was practically unchanged in comparison with the end of 2008. Real GDP registered a decline of around 4.0 per cent for the full year 2009.

Raiffeisen has been represented in Bosnia and Herzegovina since acquiring Market Banka in 2000. Raiffeisen Bank d.d. Bosna i Hercegovina emerged from that and quickly advanced to become the country's leading bank. Measured in terms of balance sheet total, it occupied first place among local banks in the past year. Raiffeisen International owns 97 per cent of the bank, and 3 per cent is held indirectly by Raiffeisen-Landesbank Steiermark AG.

The year 2009 was shaped for Raiffeisen International in Bosnia and Herzegovina by reorganization of business with private individuals, to which services for affluent customers were added. Furthermore, the successful strategy in the area of small and medium-sized enterprises was continued.

In the past year, Raiffeisen International was represented countrywide in Bosnia and Herzegovina with 101 business outlets, and it had 1,655 employees serving 716,000 customers. The balance sheet total stood at about € 2.3 billion on 31 December 2009. Total loans to customers came to € 1.4 billion on the balance sheet date.

Raiffeisen International reinforced its status as a successful all-finance institution with subsidiaries Raiffeisen Leasing d.o.o. and Raiffeisen Brokers d.o.o.

In the year under review, Raiffeisen Bank was honored by Euromoney as the "Best Bank" in Bosnia and Herzegovina. It also received that title for the sixth consecutive time from Global Finance. It was named "Bank of the Year 2009" by The Banker.

in € million 2009 2008 Change
Balance sheet total 2,325 2,395 (2.9)%
Loans and advances to customers 1,393 1,671 (16.6)%
thereof corporate customers in per cent 37.5% 37.0% 0.5 PP
thereof retail customers in per cent 62.5% 63.0% (0.5) PP
thereof foreign currency loans in per cent 74.1% 73.3% 0.8 PP
Deposits from customers 1,605 1,510 6.3%
Operating income 94 103 (8.9)%
Net interest income 67 77 (12.4)%
Net fee and commission income 27 28 (3.0)%
Net trading income 0 (1)
Other net operating income (1) 0
Provisioning for impairment losses (13) (9) 35.2%
General administrative expenses (65) (66) (2.0)%
Profit before tax 17 28 (41.1)%
Profit after tax 16 16 (4.0)%
Return on equity before tax 7.9% 15.0% (7.2) PP
Return on equity after tax 7.4% 8.7% (1.3) PP
Cost/income ratio 69.1% 64.3% 4.9 PP
Business outlets 101 100 1.0%
Number of employees 1,655 1,776 (6.8)%
Number of customers 716,100 739,700 (3.2)%

Bulgaria

Like Romania, Bulgaria acceded to the EU at the beginning of 2007. The Bulgarian lev has been firmly pegged to the euro (originally to the Deutsche Mark) since 1997, which caused Bulgaria to be spared currency devaluation due to the economic crisis. Nevertheless, the Bulgarian economy was not able to decouple from the global slump in demand because of its extensive foreign trade relationships. The country consequently registered a decline of real GDP by 5.1 per cent in 2009 and was forced by the recession to report a budget deficit for the first time in six years. As of 30 September 2009, the combined total of outstanding loans to private individuals and corporate customers was practically unchanged in comparison with the end of 2008.

Raiffeisenbank (Bulgaria) EAD was founded in 1994 and is owned 100 per cent by Raiffeisen International. It operates in a very competitive market, where it ranks fourth in terms of balance sheet total. As a universal bank focusing on large customers and on small and medium-sized enterprises, it rounds out its product range with subsidiary Raiffeisen Asset Management (Bulgaria) EAD, which successfully defended its position in the reporting period as market leader in terms of assets under management.

At the end of 2009, Raiffeisen International in Bulgaria had a balance sheet total of € 4.0 billion, 3,282 employees, and a network of 199 business outlets. In addition, distribution has been supplemented for years by mobile bankers, who sell the bank's products to customers on a contract basis. The number of customers reached a total of around 706,000, which amounts to an increase of around 53,500 customers in 2009. Total lending amounted to about € 3 billion at the end of the year, and customer deposits came to € 2.1 billion. Provisioning for impairment losses increased in 2009, following the market trend.

Raiffeisen International in Bulgaria improved its cost-income ratio in the reporting period from the previous level of 47.4 per cent to 43.7 per cent. Profit after tax amounted to € 41 million.

The foreign currency deposit rating published by Moody's for Raiffeisenbank is Baa3 with a negative outlook. In 2009, Raiffeisenbank was awarded the title of "Best Bank" in Bulgaria by Global Finance.

in € million 2009 2008 Change
Balance sheet total 3,998 4,766 (16.1)%
Loans and advances to customers 2,953 3,364 (12.2)%
thereof corporate customers in per cent 31.2% 28.3% 2.9 PP
thereof retail customers in per cent 68.8% 71.7% (2.9) PP
thereof foreign currency loans in per cent 66.3% 63.7% 2.6 PP
Deposits from customers 2,143 2,230 (3.9)%
Operating income 233 206 13.2%
Net interest income 192 178 7.7%
Net fee and commission income 36 26 37.6%
Net trading income 4 0 >500%
Other net operating income 0 1 (47.4)%
Provisioning for impairment losses (86) (28) 213.0%
General administrative expenses (102) (97) 4.4%
Profit before tax 44 78 (43.6)%
Profit after tax 41 70 (41.1)%
Return on equity before tax 10.7% 23.4% (12.7) PP
Return on equity after tax 10.0% 21.0% (11.0) PP
Cost/income ratio 43.7% 47.4% (3.7) PP
Business outlets 199 197 1.0%
Number of employees 3,282 3,708 (11.5)%
Number of customers 706,500 652,900 8.2%

Croatia

Now that EU accession negotiations have resumed, Croatia has realistic chances of becoming an EU member state in 2012. Although the tourist season went satisfactorily in 2009, the country was not spared the consequences of the economic crisis, and it registered a decline of real GDP by 5.8 per cent in the same year. Despite high foreign debt, however, Croatia did not have to draw assistance from the IMF. As of 30 September 2009, the local banking sector registered a slight decline of total lending. Set against a slight rise of loans to corporate customers was a slight decline of loans to private individuals. After a weak phase in the first quarter of 2009, the Croatian kuna recovered significantly in the course of the year.

MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK

Raiffeisenbank Austria d.d. was founded in 1994 as the first foreign bank in Croatia. Fifteen years later, Raiffeisen International is established as one of the top names in the country, not only for large and medium-sized corporate customers, but in recent years also to a greater extent for micro businesses and private individuals. Raiffeisen International was the largest shareholder of Raiffeisenbank Austria at the end of 2009 with a stake of 73 per cent in 2009, and together several Raiffeisen Landesbanken indirectly held another 24 per cent. The remaining shares were owned by employees.

Raiffeisenbank Austria's branch network was further expanded in 2009 and comprised 85 branches at year's end. That represents a plus of 6 locations in comparison with the end of 2008. The number of employees countrywide stood at 2,225, while customers came to almost 602,000.

Lending to customers amounted to € 3.7 billion at the end of the year. Set against that were customer deposits of € 3.0 billion.

Raiffeisen International in Croatia offers its customers a wide range of services by way of several successful subsidiaries, including Raiffeisen Leasing d.o.o., pension fund Raiffeisen mirovinsko društvo d.d., and asset management company Raiffeisen Invest d.o.o. Associated Group companies like Raiffeisen Bausparkasse also contributed substantially to the success of Raiffeisen International in Croatia.

in € million 2009 2008 Change
Balance sheet total 5,900 5,984 (1.4)%
Loans and advances to customers 3,742 3,921 (4.5)%
thereof corporate customers in per cent 43.0% 39.0% 4.0 PP
thereof retail customers in per cent 56.6% 61.0% (4.4) PP
thereof foreign currency loans in per cent 73.6% 72.1% 1.5 PP
Deposits from customers 2,968 3,296 (10.0)%
Operating income 291 246 18.2%
Net interest income 152 145 4.4%
Net fee and commission income 75 75 (0.6)%
Net trading income 36 2 >500%
Other net operating income 28 24 19.3%
Provisioning for impairment losses (71) (13) 428.4%
General administrative expenses (152) (151) 1.3%
Profit before tax 67 76 (11.3)%
Profit after tax 53 61 (12.8)%
Return on equity before tax 9.1% 11.7% (2.6) PP
Return on equity after tax 7.2% 9.3% (2.2) PP
Cost/income ratio 52.4% 61.2% (8.8) PP
Business outlets 85 79 7.6%
Number of employees 2,225 2,333 (4.6)%
Number of customers 601,700 582,200 3.3%

Kosovo

According to an IMF estimate, real GDP in Kosovo grew in 2009 by 3.8 per cent, after a plus of 5.4 per cent in the preceding year. The effects of the economic crisis on the country's banking sector were thus limited, to which its comparatively early stage of development and a favorable loan-deposit ratio contributed. However, the budget showed a deficit due to a slow-down in growth, and consumer price inflation temporarily fell into negative territory.

The full takeover of American Bank of Kosovo, founded in November 2001, and renaming of it to Raiffeisen Bank Kosovo J.S.C. by Raiffeisen International was completed in 2003.

According to data from local banking authorities, Raiffeisen Bank Kosovo was the country's second-largest bank in 2009. With a balance sheet total of € 672 million, it had 51 banking outlets and 668 employees at the end of the reporting period. Mobile bankers have supplemented that broad presence in the country since 2008. The number of customers increased by 20.8 per cent in the reporting period to around 277,000.

Total deposits were up as of 31 December 2009 by 10.6 per cent year-on-year to € 548 million, while the loan portfolio shrank by 12.5 per cent to € 372 million. The cost-income ratio in Kosovo amounted to 53.1 per cent, and profit after tax to € 7 million.

The Kosovo network bank focused in 2009 on expanding business with affluent customers. At the same time, with a market share of about 28 per cent, it successfully defended its leading position in the segment of small and medium-sized enterprises.

For the second time in a row, Euromoney selected Raiffeisen Bank Kosovo as the country's "Best Bank" in 2009.

in € million 2009 2008 Change
Balance sheet total 672 598 12.4%
Loans and advances to customers 372 424 (12.5)%
thereof corporate customers in per cent 27.0% 26.3% 0.7 PP
thereof retail customers in per cent 72.9% 73.7% (0.8) PP
thereof foreign currency loans in per cent 0.0% 0.0% 0.0 PP
Deposits from customers 548 495 10.6%
Operating income 46 53 (13.1)%
Net interest income 39 47 (16.1)%
Net fee and commission income 6 7 (4.1)%
Net trading income 0 0 (228.5)%
Other net operating income 0 0 (136.5)%
Provisioning for impairment losses (13) (4) 256.1%
General administrative expenses (24) (24) 2.1%
Profit before tax 7 20 (64.1)%
Profit after tax 7 15 (53.3)%
Return on equity before tax 11.0% 34.7% (23.7) PP
Return on equity after tax 10.5% 25.5% (15.0) PP
Cost/income ratio 53.1% 45.2% 7.9 PP
Business outlets 51 47 8.5%
Number of employees 668 720 (7.2)%
Number of customers 276,800 229,100 20.8%

MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK

Romania

The third quarter of 2009 was the fourth in a row in which the Romanian economy contracted, although the important agricultural sector delivered a positive surprise. For the full year, real GDP in Romania registered a decline of 7.2 per cent. After the country received financial assistance from the IMF and the EU in May 2009, international banks operating in Romania agreed not to reduce lending as far as possible. That helped bring about a slight increase of lending to both private individuals and corporate customers as of 30 September 2009. After devaluation at the end of 2008, the Romanian lei was kept largely stable by the central bank in 2009 and recovered further toward the end of the year.

Raiffeisen opened up the Romanian market in 1998 with the founding of Raiffeisen Bank S.A. At the end of 2009, Raiffeisen International in Romania had a balance sheet total of € 6.2 billion and 6,235 employees. Merged with Banca Agricola S.A. in 2002, Raiffeisen Bank now ranks fifth among local banks. As a universal bank, it provides high-quality financial services and products to almost 2 million customers by way of a countrywide branch network, which was expanded slightly in 2009.

The balance sheet total declined in 2009 by 6.0 per cent mainly because of measures to consolidate the loan portfolio. Loans to customers fell by 9.6 per cent in the reporting period to about € 4.2 billion. Set against that at the end of 2009 were customer deposits of € 3.3 billion.

In the year under review, Raiffeisen Bank concentrated on strengthening deposit business and its house bank functions for primary customers in all business areas. In retail business, more attention was focused on affluent customers and small businesses, while in the case of corporate customers, the bank stepped up customer business that requires less capital to support, including cash management products, for example.

The difficult situation of the Romanian real economy led in 2009 to an increase of provisioning for impairment losses, and particularly for loans to private individuals. Lower margins on customer deposits and on deposits from banks led to a decline of net interest income in the past year. Extensive cost-cutting measures led to a significant personnel reduction by over 660 employees compared with the preceding year (minus 9.6 per cent). Also in reaction to the crisis, business processes were further centralized, and risk management strengthened.

Besides banking business, Raiffeisen International in Romania is one of the leading providers in the areas of asset management, leasing, insurance, and building society plans. Raiffeisen Bank's foreign currency deposit rating published by Moody's was Baa3 with a stable outlook. Apart from a small free float, Raiffeisen Bank was owned by Raiffeisen International as of 31 December 2009.

in € million 2009 2008 Change
Balance sheet total 6,164 6,561 (6.0)%
Loans and advances to customers 4,154 4,594 (9.6)%
thereof corporate customers in per cent 34.4% 37.4% (3.0) PP
thereof retail customers in per cent 60.8% 57.5% 3.3 PP
thereof foreign currency loans in per cent 62.6% 66.2% (3.6) PP
Deposits from customers 3,278 3,525 (7.0)%
Operating income 481 561 (14.2)%
Net interest income 244 282 (13.5)%
Net fee and commission income 206 237 (12.8)%
Net trading income 36 44 (18.3)%
Other net operating income (5) (2) 147.8%
Provisioning for impairment losses (166) (57) 192.7%
General administrative expenses (276) (299) (7.5)%
Profit before tax 50 193 (74.3)%
Profit after tax 40 161 (75.4)%
Return on equity before tax 12.5% 46.6% (33.6) PP
Return on equity after tax 10.0% 39.0% (28.6) PP
Cost/income ratio 57.5% 53.3% 4.1 PP
Business outlets 563 557 1.1%
Number of employees 6,235 6,899 (9.6)%
Number of customers 1,913,500 2,011,000 (4.8)%

Serbia

Serbia officially filed its application for EU membership in December 2009. In the context of the economic crisis, the local economy held up well, with real GDP declining by 3.0 per cent yearon-year. Serbia had already received financial assistance from the IMF in January 2009, which was replenished in May 2009. In the process, international banks agreed as far as possible not to reduce lending. As a result, Serbia's total lending rose slightly by the end of the third quarter of 2009. After the currency's devaluation at the end of 2008, the central bank kept the Serbian dinar largely stable in 2009.

In the eighth year since its founding, Raiffeisen banka a.d. was again one of Serbia's leading commercial banks. Its leading role was supported by a wide range of banking products and services and not least by subsidiary Raiffeisen Leasing d.o.o., pension fund Raiffeisen Future a.d., and asset management company Raiffeisen Invest a.d.

At the end of 2009, Raiffeisen International in Serbia had 1,982 employees and about 586,000 customers. Raiffeisen banka is one of the country's most important banks for corporate customers and private individuals. With a balance sheet total of about € 2.8 billion, loans to customers reached about € 1.4 billion at the end of the reporting year, and funding was mainly accomplished by means of customer deposits of over € 1.1 billion.

Raiffeisen banka's focus in 2009 was on further developing its product range. Once again, the bank demonstrated innovativeness in that regard and so reinforced its pioneering role in the local market. Raiffeisen was thus among the first banks in Serbia last year to offer their customers interest rate swaps to hedge risks of interest rate change.

in € million 2009 2008 Change
Balance sheet total 2,762 2,913 (5.2)%
Loans and advances to customers 1,415 1,963 (27.9)%
thereof corporate customers in per cent 55.0% 57.9% (2.9) PP
thereof retail customers in per cent 45.0% 42.1% 2.9 PP
thereof foreign currency loans in per cent 83.7% 42.9% 40.8 PP
Deposits from customers 1,149 1,205 (4.7)%
Operating income 162 195 (17.3)%
Net interest income 121 137 (11.6)%
Net fee and commission income 38 51 (24.3)%
Net trading income 2 4 (51.4)%
Other net operating income 0 3 (105.5)%
Provisioning for impairment losses (37) (13) 190.6%
General administrative expenses (88) (96) (8.2)%
Profit before tax 36 87 (58.5)%
Profit after tax 34 80 (57.3)%
Return on equity before tax 8.1% 19.8% (11.8) PP
Return on equity after tax 7.6% 18.1% (10.6) PP
Cost/income ratio 54.6% 49.2% 5.4 PP
Business outlets 101 103 (1.9)%
Number of employees 1,982 2,210 (10.3)%
Number of customers 585,800 585,800 0.0%

Well-known financial magazines such as Euromoney and Global Finance named Raiffeisen banka as Serbia's "Best Bank" in 2009.

Russia

in € million 2009 2008 Change
Net interest income 650 764 (14.9)%
thereof current income from associates 0 0
Provisioning for impairment losses (322) (175) 83.7%
Net interest income after provisioning 328 589 (44.2)%
Net fee and commission income 207 223 (7.4)%
Net trading income (13) 102
Net income from derivatives 11 (7)
Net income from financial investments 3 5 (39.8)%
General administrative expenses (365) (456) (20.0)%
thereof staff costs (162) (217) (25.4)%
thereof other administrative expenses (170) (212) (19.8)%
thereof depreciation on intangible
and tangible fixed assets (33) (27) 21.5%
Other net operating income (19) (18) 5.3%
Profit before tax 153 438 (65.1)%
Income taxes (28) (125) (77.3)%
Profit after tax 124 313 (60.3)%
Minority interests in profit 0 14
Profit after minorities 124 327 (62.0)%
Share of profit before tax 29.3% 26.7% 2.6 PP
Share of profit after tax 29.0% 24.5% 4.4 PP
Risk-weighted assets (credit risk) 7,298 11,103 (34.3)%
Own funds requirement 758 969 (21.8)%
Total assets 11,681 14,952 (21.9)%
Liabilities 10,063 13,381 (24.8)%
Risk/earnings ratio 49.5% 23.0% 26.6 PP
Cost/income ratio 44.2% 42.6% 1.6 PP
Average equity 1,046 1,205 (13.2)%
Return on equity before tax 14.6% 36.4% (21.7) PP
Return on equity after minorities 11.9% 27.2% (15.3) PP
Average number of employees 9,351 9,654 (3.1)%
Business outlets 215 237 (9.3)%

The Russia segment was also unable to escape the effects of the economic crisis. Profit before tax fell by 65 per cent, or € 285 million, to € 153 million. As in the other segments, high net allocations to provisioning for impairment losses were the main reason for that. In addition, net trading income declined sharply. The average devaluation of the Russian rouble year-on-year also weighed heavily on earnings in this segment. The return on equity before tax consequently fell by 21.7 percentage points to 14.6 per cent.

The decline of net interest income by 15 per cent, or € 114 million, to € 650 million was largely due to a reduction of the loan portfolio, particularly in respect to corporate customers. The region's net interest margin decreased by 67 basis points to 4.96 per cent, and balance sheet assets fell year-on-year by 22 per cent, or € 3.3 billion, to € 11.7 billion. Credit risk-weighted assets were also down by 34 per cent at € 7.3 billion, mainly due to the reduction of business volume. They thus registered a sharper decline than that of balance sheet assets, which was primarily caused by the reduction of credit line commitments and of contingent liabilities in the off-balance sheet area. Total outstanding loans at year's end amounted to € 6.4 billion, and customer deposits stood at € 5.8 billion.

Net allocations to provisioning for impairment losses increased from € 175 million in the preceding year to € 322 million. Individual provisions of € 345 million net, which predominantly concerned corporate customers, were substantially responsible. On the other hand, portfoliorelated provisions made a positive contribution, since a release of existing provisioning for impairment losses occurred in the year under review. The main reasons for that were a reduction of the corporate customer portfolio, which is the basis for portfolio-related provisions, and shifts from portfolio-related to individual provisions. Because of the sharp rise of non-performing loans, whose share in the portfolio increased by 8.2 percentage points to 10.1 per cent, correspondingly higher net allocations to individual provisions were necessary.

Net fee and commission income fell by 7 per cent, or € 16 million, to € 207 million. That decline was primarily due to income from foreign exchange and notes/coins business, which was down by 23 per cent on the preceding year at € 60 million. Payment transfers contributed the largest part to net fee and commission income at € 84 million despite a decline of 14 per cent. The result from lending and guarantee business increased due to higher margins by 29 per cent to € 30 million, and income from securities business grew to € 13 million in the year under review.

Net trading income turned in the year under review from € 102 million to minus € 13 million. A loss from currency-based transactions in the amount of € 73 million resulted primarily from the valuation of foreign exchange contracts due to changed forward prices. Interest-based transactions, which had been strongly negative in the preceding year, were characterized by strong appreciation in the year under review and yielded income of € 59 million. That arose from the downward trend of interest rates on mostly fixed-income bonds and notes of non-public issuers.

Net income from derivatives amounted to € 11 million in the year under review. It was primarily based on valuation results from interest rate swaps that had been used to reduce yield curve risk.

Net income from financial investments in Russia came to € 3 million and resulted from the recognition of fixed-income securities holdings at fair values.

General administrative expenses fell by 20 per cent, or € 91 million, to € 365 million mainly due to currency devaluation. The largest reduction was in staff costs, which declined by 25 per cent, or € 55 million, to € 162 million. The average number of employees was down by 3 per cent on the preceding year at 9,351. Other administrative expenses decreased by 20 per cent, or € 42 million, to € 170 million, while depreciation on intangible and tangible fixed assets rose in line with new additions to fixed assets by € 6 million to € 33 million. The region's cost/income ratio increased slightly by 1.6 percentage points to 44.2 per cent.

The segment's other net operating income remained almost unchanged on the preceding year at minus € 19 million. The main reasons for that were expenses for taxes not dependent on income and costs connected with branch closings.

Income taxes fell by 77 per cent on the comparable period to € 28 million, and the tax rate declined by 10 percentage points to 19 per cent. Profit after minorities decreased by 62 per cent to € 124 million.

Environment and business development

The Russian economy was severely affected by the economic crisis in 2009. That led to a decline of real GDP by 7.9 per cent, which was even worse than during the 1998 Russian crisis. Against this background, in the first quarter of 2009, the Russian central bank continued the gradual devaluation of the rouble begun at the end of 2008 against the basket of currencies consisting of the US dollar and the euro. In the further course of the year, however, the rouble became significantly stronger again due to rising oil prices and the recovering economy. By 30 September 2009, the time up to which data available before this report's editorial deadline extended, total lending declined slightly both for private individuals and for corporate customers compared with the end of 2008.

Founded in 1996, ZAO Raiffeisenbank ranked ninth in the Russian banking market at the end of the reporting period and is thus one of the country's leading banks.

In the past year, Raiffeisenbank devoted its attention mainly to financing corporate customers and to customer retention strategies. Business with private individuals was further strengthened by means of cross-selling activities. Providing services to affluent customers within the framework of an affluent customer concept was another emphasis in 2009. At the end of the reporting period, customers numbered 1.8 million, and employees over 8,600.

With a network of 215 business outlets, Raiffeisen International is represented in 45 regions of the Russian Federation. To optimize customer service further, Raiffeisenbank started a transformation program in 2009 for the purpose of bundling and centralizing services in all regions.

Subsidiaries OOO Raiffeisen Leasing, OOO Raiffeisen Capital Asset Management Company, and NPF Raiffeisen (pension funds) round out the product range.

Standard & Poor's recently rated Raiffeisenbank at BBB- with a stable outlook. Fitch rated the bank at BBB+ with a negative outlook, and thus better than Russia. The rating from Moody's stands at Baa3 with a negative outlook and is thus only just below that of the Russian state.

in € million 2009 2008 Change
Loans and advances to customers 6,368 9,381 (32.1)%
thereof corporate customers in per cent 68.6% 69.7% (1.2) PP
thereof retail customers in per cent 31.3% 30.2% 1.1 PP
thereof foreign currency loans in per cent 47.5% 48.1% (0.6) PP
Operating income 825 1,071 (23.0)%
Return on equity after tax 9.1% 25.8% (16.8) PP
Number of employees on 31 December 8,608 10,276 (16.2)%
Number of customers 1,795,700 1,666,600 7.7%

Global Finance awarded Raiffeisenbank the title of Russia's "Best Consumer Bank" in 2009.

CIS Other

in € million 2009 2008 Change
Net interest income 488 533 (8.4)%
thereof current income from associates 0 0
Provisioning for impairment losses (514) (181) 184.3%
Net interest income/loss after provisioning (26) 352
Net fee and commission income 175 234 (24.9)%
Net trading income 17 59 (70.9)%
Net income from derivatives 1 (1)
Net income from financial investments 4 (14)
General administrative expenses (294) (397) (25.9)%
thereof staff costs (145) (208) (30.3)%
thereof other administrative expenses (113) (150) (24.7)%
thereof depreciation on intangible
and tangible fixed assets
(36) (39) (6.6)%
Other net operating income (3) (5) (44.1)%
Profit/loss before tax (126) 227
Income taxes 21 (67)
Profit/loss after tax (104) 161
Minority interests in profit 1 (11)
Profit/loss after minorities (103) 150
Share of profit before tax (24.1)% 13.9% (37.9) PP
Share of profit after tax (24.3)% 12.6% (36.9) PP
Risk-weighted assets (credit risk) 5,068 6,960 (27.2)%
Own funds requirement 486 624 (22.2)%
Total assets 6,281 8,028 (21.8)%
Liabilities 5,387 7,047 (23.5)%
Risk/earnings ratio 105.3% 34.0% 71.4 PP
Cost/income ratio 43.4% 48.4% (5.0) PP
Average equity 742 761 (2.5)%
Return on equity before tax 29.9%
Return on equity after minorities 21.6%
Average number of employees 18,670 20,011 (6.7)%
Business outlets 1,050 1,238 (15.2)%

The CIS Other segment registered a decline in profit before tax by € 353 million to minus € 126 million in the year under review. A differentiating view should be taken of this result, however, as the countries of this region exhibit very heterogeneous development. High net allocations to provisioning for impairment losses in Ukraine and devaluation of the local currency there had a very strong effect in this segment and were the main reasons for the earnings decline. In Belarus, on the other hand, Raiffeisen International registered very positive business development. Group units there booked a significant earnings plus thanks to increased profit from operating activities, which partly offset the region's losses.

The segment's net interest income fell overall by 8 per cent, or € 45 million, to € 488 million. In Ukraine, currency effects had an especially strong profit-reducing influence despite significant improvement of customer margins on the asset side. In Belarus, an increase of net interest income was achieved through repricing measures for loans in all business areas. Balance sheet assets decreased by 22 per cent, or € 1.7 billion, year-on-year to € 6.3 billion. The net interest margin fell slightly, by 8 basis points to 6.84 per cent. Due to the reduction of business volume, credit risk-weighted assets also went down by 27 per cent to € 5.1 billion. That the decline of this item was somewhat greater than that of the balance sheet total was due to the lapse of many credit line commitments for customers in Ukraine.

Net allocations to provisioning for impairment losses rose from € 181 million to € 514 million and thus showed the most significant increase of all the regions. That reflects, above all, the generally weak credit environment in Ukraine, which was affected most strongly of all Raiffeisen International's markets by the economic crisis. Net allocations to individual provisions accounted for € 490 million of that, which primarily concerned mortgage loans to private individuals in Ukraine. With a net allocation of € 25 million, portfolio-based provisions were significantly less important than they had been in the preceding year, and they mainly concerned loans to corporate customers in Ukraine. The share of non-performing loans in the loan portfolio rose by 13.8 percentage points to 19.9 per cent. It came to 23.6 per cent in Ukraine and to 3.2 per cent in Belarus.

Net fee and commission income registered a sharp decline, by 25 per cent to € 175 million, mainly due to curbed customer activity in general payment transfers and limited new lending in Ukraine. Payment transfers business continued to make the most important contribution at € 116 million, while the foreign exchange and notes/coins business contributed € 53 million.

Net trading income fell from € 59 million to € 17 million and resulted almost entirely from currency-based transactions. Valuation gains from a strategic currency position used to hedge equity in Belarus contributed € 26 million. Because of a change in the IFRS rules, such valuation results are to be reported in the income statement, effective from the beginning of 2009. Set against the valuation gains were currency-related losses in Ukraine and Kazakhstan, which also derived from currency positions and were caused mainly by the strong change of currency structure in the statement of financial position in Ukraine. Interest-based transactions yielded income of € 5 million, which was achieved entirely in Ukraine.

Net income from derivatives amounted to € 1 million in the year under review. It was mostly booked by the leasing company in Kazakhstan.

Net income from financial investments came to € 4 million. Positive influences in this regard came, on the one hand, from valuation gains on securities holdings recognized at fair value and, on the other hand, from results of selling fixed-income securities in Ukraine.

General administrative expenses decreased overall by 26 per cent, or € 103 million, to € 294 million. The largest reduction was in staff costs, which declined by 30 per cent, or € 63 million, to € 145 million. The average number of employees in the region fell by 7 per cent, or 1,341, on the comparable period to 18,670 as a result of cost-cutting programs immediately initiated with the outbreak of the crisis. Other administrative expenses decreased by 25 per cent, or € 37 million, to € 113 million. That was achieved primarily by selectively closing 181 business outlets in Ukraine. At € 36 million, depreciation on intangible and tangible fixed assets was also down by 7 per cent on the preceding year's level. The region's cost/income ratio improved significantly, by 5.0 percentage points to 43.4 per cent.

The segment's other net operating income amounted to minus € 3 million. Besides minor expense and income items, taxes not dependent on income were the primary component in that amount.

Due to the formation of deferred tax assets, income taxes came out positive in the amount of € 21 million, after minus € 67 million in the preceding year. Profit after minorities decreased to minus € 103 million.

Belarus

The Belarusian economy is the last planned economy in Europe. Nevertheless, the country was not able to fully decouple from the economic crisis. Belarus is an exception among Central and Eastern European countries in respect to the development of the banking sector, which also registered impressive credit growth in 2009. Above all, the total amount of lending to corporate customers increased, since state-owned banks financed production operations of state-owned enterprises in the crisis by means of loans. The Belarusian rouble was devalued at the beginning of 2009, after the country had received financial assistance from the IMF. Since then, it has been oriented to a basket of currencies consisting of the euro, US dollar, and Russian rouble.

Priorbank JSC was founded in 1989 as a commercial customer bank and taken over by Raiffeisen International in 2003. At the end of 2009, Raiffeisen International's holding in the bank amounted to about 88 per cent. The remaining shares were in free float. Measured in terms of balance sheet totals, it ranked fifth in the local banking market and offered all the services of a modern universal bank.

After further expansion in 2009, Raiffeisen International in Belarus had a countrywide distribution network of 96 business outlets and 2,147 employees serving 850,000 customers at the end of the reporting period. The loan portfolio amounted to € 919 million, with a balance sheet total of € 1.2 billion. Non-performing loans increased by 137 per cent in 2009 to € 30 million. Set against the loan portfolio were customer deposits of € 623 million.

The "Branch Service Excellence Project" helped in 2009 to modernize and harmonize the range of financial services for private individuals and corporate customers.

Founded in 2005, SOOO Raiffeisen Leasing maintained its market position in the reporting period as the country's third-largest leasing company in close cooperation with the branch network of Priorbank.

Once again, Priorbank was awarded the title of "Best Bank" by Euromoney magazine in 2009, and "Bank of the Year 2009" by The Banker.

in € million 2009 2008 Change
Balance sheet total 1,224 1,646 (25.6)%
Loans and advances to customers 919 1,249 (26.5)%
thereof corporate customers in per cent 48.8% 46.9% 1.9 PP
thereof retail customers in per cent 50.3% 52.8% (2.5) PP
thereof foreign currency loans in per cent 62.6% 63.6% (1.0) PP
Deposits from customers 623 645 (3.3)%
Operating income 149 121 23.0%
Net interest income 75 66 13.5%
Net fee and commission income 50 52 (3.6)%
Net trading income 24 5 383.7%
Other net operating income 0 (2)
Provisioning for impairment losses (16) (9) 68.7%
General administrative expenses (55) (58) (3.9)%
Profit before tax 77 54 42.1%
Profit after tax 56 38 45.0%
Return on equity before tax 51.6% 38.4% 13.2 PP
Return on equity after tax 37.1% 27.1% 10.0 PP
Cost/income ratio 37.3% 47.8% (10.5) PP
Business outlets 96 103 (6.8)%
Number of employees 2,147 2,168 (1.0)%
Number of customers 849,800 855,400 (0.6)%

Ukraine

Ukraine was one of the Central and Eastern European economies hardest hit by the economic crisis, with real GDP declining in 2009 by 15.0 per cent year-on-year. That was partly due to a difficult political situation, which led to the people's loss of confidence in the local currency. The hryvnia lost more than 40 per cent of its value against the US dollar from the fourth quarter of 2008 to the end of the first quarter of 2009, but then stabilized in the further course of last year. Ukraine was one of the first countries to receive financial assistance from the IMF at the beginning of November 2008. The banking sector was shaped in this environment by a sharp rise of nonperforming loans and registered a slight decline of total lending at the end of the third quarter of 2009, which was significant mainly in the area of loans to private individuals.

Founded as a universal bank in 1992, Bank Aval was acquired in 2005 by Raiffeisen International, which held a stake of 95.9 per cent at the end of 2009. As the country's fourth-largest bank, Raiffeisen Bank Aval JSC is today one of the leading major banks in the local market. With its tightly woven distribution network, it is present countrywide and offers its customers a full range of financial services and products. That is rounded out by products from subsidiaries LLC Raiffeisen Leasing Aval and Asset Management Company Raiffeisen Aval.

At the end of 2009, Raiffeisen International in Ukraine had almost 4.8 million customers, 15,225 employees, and 953 branches. Loans to customers amounted to € 4.4 billion, with a balance sheet total of almost € 5.0 billion. Non-performing loans increased by 172 per cent in 2009 to € 1,041 million. Set against loans were customer deposits of € 2.3 billion.

Because of the difficult economic situation in Ukraine, Raiffeisen Bank Aval took extensive crisis management measures in the period under review. Provisioning for impairment losses was increased greatly, which primarily affected business with private individuals. Furthermore, restructuring programs were implemented in all customer groups: corporate customers, small and medium-sized enterprises, and private individuals. Parallel to that, activities in customer relationship management were pushed forward to tap existing customer potential further. Moreover, an optimization program for the branch network was started, which led to the closing of 181 business outlets. At the same time, the number of employees was reduced by 12.3 per cent. A capital increase amounting to about € 73 million was conducted at the end of 2009 to strengthen Raiffeisen Bank Aval's capital base. Subordinated loans in the value of USD 150 million were also received from the EBRD.

Moody's gave Raiffeisen Bank Aval a foreign currency deposit rating of B3 with a negative outlook. The bank was awarded the title of "Best Bank" in Ukraine by Euromoney in the year under review.

in € million 2009 2008 Change
Balance sheet total 4,983 6,285 (20.7)%
Loans and advances to customers 4,401 5,261 (16.3)%
thereof corporate customers in per cent 43.4% 43.3% 0.1 PP
thereof retail customers in per cent 56.6% 56.7% (0.1) PP
thereof foreign currency loans in per cent 66.2% 69.8% (3.6) PP
Deposits from customers 2,303 2,399 (4.0)%
Operating income 529 701 (24.5)%
Net interest income 410 467 (12.3)%
Net fee and commission income 125 182 (31.1)%
Net trading income (4) 54
Other net operating income (2) (2) 23.9%
Provisioning for impairment losses (499) (172) 189.7%
General administrative expenses (237) (338) (29.7)%
Profit/loss before tax (203) 176
Profit/loss after tax (160) 127
Return on equity before tax 23.3%
Return on equity after tax 16.8%
Cost/income ratio 44.9% 48.2% (3.3) PP
Business outlets 953 1,134 (16.0)%
Number of employees 15,225 17,368 (12.3)%
Number of customers 4,882,500 4,709,100 3.7%

Business divisions

Besides its regional segmentation, Raiffeisen International is structured into business divisions that reflect its internal organization and reporting structure. The Group's business is broken down into the following divisions:

  • Corporate customers
  • Retail customers
  • Treasury
  • Participations and other

The corporate customer division comprises business with local and international mid-market companies and large corporations. The retail customer division includes private individuals and small and medium-sized businesses, which as a rule have a yearly turnover of up to € 5 million. The treasury division encompasses the treasury's proprietary trading and investment banking activities, which are carried out only in a few Group units. Besides non-banking activities, the participations and other division concerns the management of participations. Moreover, other cross-divisional functions are involved, including especially those performed by parent company Raiffeisen International Bank-Holding AG.

Business division overview

Corporate Retail Treasury Participations Total
in € million customers customers and other
Net interest income 958 1,669 73 237 2,937
Provisioning for impairment losses (727) (1,010) 0 0 (1,738)
Net interest income after provisioning 231 659 73 237 1,199
Net fee and commission income 403 801 13 7 1,223
Net trading income 1 0 185 0 186
Net income from derivatives 0 0 8 0 8
Net income from financial investments 0 0 37 4 41
General administrative expenses (439) (1,606) (87) (138) (2,270)
Other net operating income 29 12 0 (62) (20)
Net income from disposal of Group assets 0 0 0 0 0
Profit/loss before tax 224 (134) 230 48 368
Risk-weighted assets (credit risk) 26,096 15,883 5,484 2,627 50,090
Own funds requirement 2,273 1,600 1,010 233 5,117
Average number of employees 9,739 47,059 1,478 1,911 60,186
Cost/income ratio 31.6% 64.7% 32.1% 75.9% 52.5%
Average equity 3,282 2,019 703 391 6,394
Return on equity before tax 6.8% 32.7% 12.2% 5.7%

Financial year 2008

in € million Corporate
customers
Retail
customers
Treasury Participations
and other
Total
Net interest income 1,113 1,844 172 103 3,232
Provisioning for impairment losses (269) (507) (3) (1) (780)
Net interest income after provisioning 844 1,337 169 102 2,452
Net fee and commission income 531 962 5 (1) 1,496
Net trading income 1 1 169 (3) 168
Net income from derivatives 0 0 (20) 0 (20)
Net income from financial investments 1 0 (48) 21 (26)
General administrative expenses (526) (1,876) (108) (123 (2,633)
Other net operating income 33 12 0 (61) (16)
Net income from disposal of Group assets 0 0 0 8 8
Profit/loss before tax 884 435 166 (56) 1,429
Risk-weighted assets (credit risk) 31,132 19,063 6,879 3,313 60,388
Own funds requirement 2,642 1,779 1,075 271 5,767
Average number of employees 9,760 48,062 1,529 2,103 61,454
Cost/income ratio 31.3% 66.6% 31.3% 54.0%
Average equity 3,348 1,949 648 538 6,483
Return on equity before tax 26.4% 22.3% 25.6% 22.0%

Corporate customers

The corporate customer division registered a sharp earnings decline in the year under review, and profit before tax fell by 75 per cent to € 224 million. A significant rise of net allocations to provisioning for impairment losses by € 458 million to € 727 million was mainly responsible for that. Most of the increase was caused by net allocations of € 209 million in Russia, where a strong business orientation to corporate customers prevails. Another emphasis was in Poland, which had € 40 million in net allocations to provisioning.

Operating income fell from € 1,678 million to € 1,391 million and thus remained 17 per cent below the preceding year's level. Net interest income decreased by 14 per cent on the comparable period to € 958 million. That was caused, on the one hand, by the sharp decline of net interest income from business with mid-market companies and, on the other, by a reduction of business with the public sector in Russia and Hungary. Net fee and commission income registered a decrease by 24 per cent to € 403 million, which was predominantly due to the cyclically induced contraction of business volume, especially in the case of large corporate customers in Russia and Poland.

General administrative expenses fell by 16 per cent to € 439 million, and the cost-income ratio therefore remained almost unchanged at 31.6 per cent.

Other net operating income was down by 12 per cent to € 29 million. The operating leasing business in Croatia continued to contribute the most to that at € 22 million.

Credit risk-weighted assets amounted to € 26.1 billion. That means a sharp decline of 16 per cent on the preceding year, caused by both volume and currency influences.

The return on equity before tax in the corporate customer division shrank by 19.6 percentage points to 6.8 per cent due to the decline of net income.

Emphases in 2009

Business with medium and large enterprises is bundled in the corporate customer division, which amounted to more than 79,000 customers at the end of 2009.

The effects of the economic crisis that emerged at the end of 2008 were also visible last year in the corporate customer division. Raiffeisen International's core markets – Central Europe, Southeastern Europe, Russia, and CIS Other – were hit hard by that after the above-average growth rates of the previous years.

Reduced corporate capital spending led to a decline in credit demand in 2009. In line with that, customer deposits also fell as businesses financed mostly low capital expenditures and replacements increasingly from own funds. Nevertheless, Raiffeisen International kept the ratio of lendings to customer deposits constant in corporate customer business and supplied house bank customers with liquidity in a difficult environment.

Further challenges were posed by increased default probabilities and higher funding costs on the financial markets, which necessitated adjustment of margins in customer business. That kept interest income from financing business constant and partly cushioned higher risk costs.

The company's business model based on close customer relationships and quick reaction to changed conditions formed the basis for targeted management of customer business. Regular customer contact and an internally defined early warning system enabled us to make timely adjustments to financing arrangements as needed together with customers. The intensive cooperation between corporate customer advisers and risk management staff was essential to that and was expanded further. Increased need for optimal credit management was met with additional resources in risk management.

Raiffeisen International's corporate customers also faced new challenges. Many businesses registered all-time declines in new orders and were forced to cut costs, restructure, and lay off employees. Moreover, they were often confronted with liquidity shortages and increased default risks with respect to their own customers.

In reaction to changed customer needs, Raiffeisen International's focus therefore shifted in 2009 to products such as factoring, letters of credit, guarantees, cash management, and management of interest rate and currency risks of customers.

Good market positioning

Triggered by the economic crisis, there will be consolidation of market participants in the future on both the bank and customer sides. Opportunities were therefore also taken in 2009 to set the appropriate course for a stronger market position of Raiffeisen International.

The corporate customer division's already low cost-income ratio was reduced further to 31 per cent through strict cost management. The achieved efficiency enhancement has increased striking power for the future.

To position itself in competition for the best corporate customers, Raiffeisen International continued to move forward with implementation of the "Formula Uno" sales management program. In that project, individual acquisition and cross-selling goals are set for each corporate customer adviser based on trend forecasts regarding the potential and risk of individual industrial sectors and an internal analysis of the customer portfolio. Furthermore, a customer relationship management tool that supports corporate customer advisers with customer analysis and activity planning was installed at Raiffeisen banka a.d. in Serbia. This instrument will be implemented at other subsidiary banks in the coming years.

The environment for corporate customer business in Central and Eastern Europe will again be shaped by the effects of the economic crisis in 2010 despite first positive signals. Raiffeisen International therefore relies especially in the corporate customer division on intensifying customer relationships with its house bank customers. Proceeding from a detailed analysis of the credit portfolio, business relationships are expanded in the sectors and countries that are especially attractive because of their return and risk prospects.

Retail customers

The loss before tax for the retail customers division – which includes private individuals and small and medium-sized enterprises – amounted to € 134 million in the year under review. This earnings decline was caused primarily by the heightened risk situation, which necessitated much greater net allocations to provisioning for impairment losses of € 1,010 million. At € 288 million, provisioning for impairment losses was increased greatly in Ukraine, where business with private individuals makes up a large part of the overall business. Considerable net allocations to provisioning for impairment losses were also registered in Hungary, in the amount of € 157 million.

At € 2,482 million, the division's operating income was down by 12 per cent on the comparable period. Net interest income fell by 10 per cent to € 1,669 million, mainly as a result of declines in customer deposit business and margin reductions in some countries. The Group units in Ukraine and Romania were especially affected by that. Net fee and commission income decreased by 17 per cent to € 801 million, also mainly because of the business decline at the Group units in Ukraine and Romania.

In the year under review, the division's general administrative expenses fell by 14 per cent to € 1,606 million. The main reasons for that were cost-cutting measures to optimize the branch network, on the one hand, and currency effects, on the other. Consequently, the cost/income ratio improved further by 1.9 percentage points to 64.7 per cent.

Other net operating income came to € 12 million and thus remained at the preceding year's level. The operating leasing business in Croatia made the largest contribution to that in the amount of € 8 million.

The retail customer division's credit risk-weighted assets fell by 17 per cent year-on-year to € 15.9 billion.

The retail customers division served around 15 million private individuals and small enterprises at the end of the reporting period. Customers are served by more than 25,000 sales advisers and service personnel through a network of 3,018 business outlets as well as over 7,000 automated teller machines and about 1,500 car dealers and retailers as contracting partners of Raiffeisen International.

Total deposits from retail customers remained stable despite significantly slower GDP growth in Central and Eastern Europe. New product introductions such as savings plans and products with upfront interest rates combined with regular above-the-line marketing campaigns and sales incentives contributed to a 4.1 per cent growth in term deposits from private individuals. In 6 countries (Belarus, Bosnia and Herzegovina, Bulgaria, the Czech Republic, Romania and Russia) network banks registered double-digit growth rates for deposits year-on-year. Despite difficult economic conditions the market share grew in Ukraine as well. Overall, the division's loan-deposit ratio improved from 94 per cent as of 31 December 2008 to 83 per cent at the end of 2009.

To step up acquisition of customer deposits in the retail customer division further, a direct bank using the internet as its primary sales and service platform is to be introduced in selected markets in 2010.

Notwithstanding the increased efforts to acquire customer deposits, net interest income dominated the retail customers division's operating income again in 2009 with a share of about 68 per cent. Mounting unemployment rates in the entire region and significant currency devaluations, particularly in Russia, Ukraine, and Hungary, led to a significant rise in non-performing loans and an increase of provisioning for impairment losses by 100 per cent year-on-year. Because of the changed risk situation and the slump in demand, especially for mortgage loans, lending to private individuals declined in 2009 by 62 per cent on the preceding year. The collection processes were strengthened while the number of employees in risk management was increased sharply. These actions helped stabilize and subsequently reduce both the volume and flow of non-performing loans.

The slowdown in revenues from shrinking deposit margins and declining loan volumes was partially offset by higher productivity from initiatives designed to improve the overall cost efficiency in the branch network. Altogether, 213 business outlets were closed in 2009, of which Ukraine accounted for 181, and Hungary for 19. In the process, great importance was placed on being able to continue serving affected customers in nearby branches. Thanks to the measures taken, the retail customers division's cost-income ratio improved by 1.9 percentage points year-on-year to 64.7 per cent. At the same time, the number of customers per business outlet and the ratio of branch employees to customers increased. Despite the targeted branch closures, Raiffeisen International is still present in all large cities of Central and Eastern Europe.

The product range for bancassurance provided jointly with strategic partner UNIQA Versicherungen AG was promoted further in 2009. Additional business related to credit, e.g., involving payment protection insurance policies, was also affected by the lending volume decline. However, thanks to joint sales programs with UNIQA in Slovakia, Croatia, Poland, the Czech Republic, and Bulgaria, sales of stand-alone life insurance products increased by 46 per cent. Altogether, however, commission income from insurance policy sales declined in 2009 by 13 per cent compared with the preceding year.

After a very tough first quarter in 2009, Raiffeisen International's fund management business recovered significantly in the further course of the year, parallel to the positive trend on international stock markets. In this context, the cooperation with Raiffeisen Capital Management played an important role. Assets under management increased from the interim low of € 3.44 billion at

the end of March 2009 to € 4.32 billion at year's end. An increase of 21 per cent year-on-year was thereby registered. Nearly 80 percent of funds under management consist of local money market funds produced by local asset management companies. In 2010, significant resources will be devoted to building "profile funds" designed to better match customer risk profiles to specific fund allocations. In addition, dedicated sales support teams will be activated to further support branch sales.

Raiffeisen International continued rolling out its premium banking service for affluent customers (personal financial assets above € 25,000). The personal financial consulting is already available to qualified customers in Serbia, Croatia, Hungary, Slovakia, Romania, Russia, Poland, and the Czech Republic. Its launch in other network banks is planned.

Small businesses account for about 90 per cent of legal entities in Central and Eastern Europe and thus represent an important growth market for Raiffeisen International. Unlike business with private individuals, the deposit business in the small business segment experienced a significant net deposit outflow in 2009 as companies deployed their savings to manage through the crisis. Nevertheless, Raiffeisen International continued developing its small business operating model in a number of important areas such as standardizing and simplifying the lending product set, refining customer segmentation, developing current account bundles, building application scorecards and strengthening collections.

Treasury

The treasury division achieved a profit before tax of € 230 million in 2009 and thus registered an increase of 38 per cent on the preceding year despite a sharp decline of net interest income. This result was brought about by positive net income from financial investments and a 10 per cent improvement of net trading income.

Net interest income decreased from € 172 million in the preceding year to € 73 million. The main causes of that were higher funding costs, increased costs for the minimum reserve, and a negative margin from invested liquidity surpluses.

Net trading income amounted to € 185 million and was largely influenced by appreciation of securities holdings in Croatia and Romania, which particularly lost value in the last quarter of 2008.

Net income from derivatives came to € 8 million and was predominantly based on valuation gains from interest rate swaps in Russia and Hungary.

In contrast to the preceding year, net income from financial investments was positive in the amount of € 38 million. It resulted largely from valuation gains of fixed-income securities in the Hungarian and Romanian units.

General administrative expenses were reduced by 20 per cent year-on-year. Since operating income likewise showed a sharp decline by 22 per cent to € 271 million, the cost/income ratio remained almost unchanged, rising only slightly by 0.7 percentage points to 32.1 per cent.

Credit risk-weighted assets fell by 20 per cent to € 5.5 billion due to lower investments.

The division's return on equity before tax rose by 7.1 percentage points to 32.7 per cent.

Participations and other

Profit before tax in the participations and other division amounted to € 48 million. Net interest income increased sharply on the preceding year to € 237 million. The result was mainly positive because it includes the computational results from the investment of equity, which increased strongly in the reporting period thanks to the high interest rate level in the CEE region.

In addition to net income from participations and non-banking activities, this division includes the costs of central Group management, which remained stable compared with the preceding year. Such costs remain in the division, in accordance with internal guidelines, and are not distributed among the other divisions.

Profit before tax by business divisions

MANAGEMENT REPORT SEGMENT REPORTS CONSOLIDATED FINANCIAL STATEMENTS

Consolidated financial statements

Statement of comprehensive income

Income statement

€000 Notes 2009 2008 Change
Interest income 5,588,567 6,183,278 (9.6)%
Current income from associates 2,931 603 386.1%
Interest expenses (2,654,996) (2,951,871) (10.1)%
Net interest income (2) 2,936,502 3,232,010 (9.1)%
Provisioning for impairment losses (3) (1,737,882) (780,301) 122.7%
Net interest income after provisioning 1,198,620 2,451,709 (51.1)%
Fee and commission income 1,441,415 1,764,236 (18.3)%
Fee and commission expense (218,358) (267,867) (18.5)%
Net fee and commission income (4) 1,223,057 1,496,369 (18.3)%
Net trading income (5) 186,340 167,642 11.2%
Net income from derivatives (6) 8,205 (19,921)
Net income from financial investments (7) 41,350 (25,638)
General administrative expenses (8) (2,269,726) (2,633,030) (13.8)%
Other net operating income (9) (20,325) (15,856) 28.2%
Net income from disposal of group assets (10) 76 7,860 (99.0)%
Profit before tax 367,597 1,429,135 (74.3)%
Income taxes (11) (80,500) (350,880) (77.1)%
Profit after tax 287,097 1,078,255 (73.4)%
Minority interests in profit (74,916) (96,269) (22.2)%
Consolidated profit 212,181 981,986 (78.4)%

Transition to total comprehensive income

Group equity Minority interests
€000 2009 2008 2009 2008
Consolidated profit 212,181 981,986 74,916 96,269
Exchange differences (248,871) (856,901) (5,018) (15,600)
Capital hedge (12,573) (65,613) 0 0
Cash flow hedge 12,588 (42,771) 0 0
Fair value reserve (available-for-sale financial assets) 8,716 19,541 0 0
Deferred taxes on income and expenses directly
recognized in equity
(5,001) 2,420 0 0
Other comprehensive income (245,141) (943,324) (5,018) (15,600)
Total comprehensive income (32,960) 38,662 69,898 80,669

Capital hedge comprises hedges for investments in economically independent sub-units in accordance with IAS 39.102.

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
As of 1/1/2008 (222,847) 156,611 (7,941) (4)
Net changes in financial period (856,901) (65,613) (42,771) 19,541
As of 31/12/2008 (1,079,748) 90,998 (50,712) 19,537
Net changes in financial period (248,871) (12,573) 12,588 8,716
As of 31/12/2009 (1,328,619) 78,425 (38,124) 28,253

Earnings per share

in € Notes 2009 2008 Change
Earnings per share (12) 0.99 6.39 (5.40)

Earnings per share are obtained by dividing consolidated profit less the compensation for participation rights by the average number of common shares outstanding. As of 31 December 2009, the number of common shares outstanding was 153,674 thousand compared with 153,599 thousand as of 31 December 2008.

There were no conversion or option rights outstanding, so undiluted earnings per share are equal to diluted earnings per share.

Profit development

Quarterly results

€000 Q1/2009 Q2/2009 Q3/2009 Q4/2009
Net interest income 767,118 728,609 728,713 712,062
Provisioning for impairment losses (445,179) (523,364) (396,461) (372,878)
Net interest income after provisioning 321,939 205,245 332,252 339,184
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 (4,911) 23,877 (13,480) 2,719
Net income from financial investments (2,913) 34,226 12,247 (2,210)
General administrative expenses (573,637) (569,472) (534,831) (591,786)
Other net operating income 3,688 11,949 (12,618) (23,344)
Net income from disposal of group assets 73 1 1 1
Profit before tax 83,583 70,140 132,938 80,936
Income taxes (19,870) (14,815) (36,304) (9,511)
Profit after tax 63,713 55,325 96,634 71,425
Minority interests in profit (7,539) (33,478) (19,038) (14,861)
Consolidated profit 56,174 21,847 77,596 56,564
€000 Q1/2008 Q2/2008 Q3/2008 Q4/2008
Net interest income 711,123 786,471 844,086 890,330
Provisioning for impairment losses (93,032) (108,342) (164,163) (414,764)
Net interest income after provisioning 618,091 678,130 679,923 475,566
Net fee and commission income 330,866 371,989 394,925 398,588
Net trading income 37,578 54,598 35,187 40,280
Net income from derivatives (36,712) 44,109 (6,292) (21,026)
Net income from financial investments (1,536) 884 10,782 (35,768)
General administrative expenses (584,430) (665,458) (689,650) (693,492)
Other net operating income 5,753 (16,996) (6,384) 1,771
Net income from disposal of group assets 0 5,834 (188) 2,213
Profit before tax 369,609 473,090 418,304 168,133
Income taxes (90,227) (106,027) (99,324) (55,303)
Profit after tax 279,382 367,063 318,980 112,830
Minority interests in profit (24,940) (55,813) (23,191) 7,675
Consolidated profit 254,442 311,250 295,788 120,506

MANAGEMENT REPORT SEGMENT REPORTS CONSOLIDATED FINANCIAL STATEMENTS

Statement of financial position

Assets Notes 31/12/2009 31/12/2008 Change
€000
Cash reserve (14, 35) 4,179,572 7,129,860 (41.4)%
Loans and advances to banks (15, 35, 36) 10,310,101 9,038,096 14.1%
Loans and advances to customers (16, 35, 36) 50,514,971 57,902,304 (12.8)%
Impairment losses on loans and advances (17, 35) (3,084,023) (1,641,262) 87.9%
Trading assets (18, 35, 36) 3,709,452 3,763,178 (1.4)%
Derivatives (19, 35, 36) 332,882 864,944 (61.5)%
Financial investments (20, 35, 36) 7,270,547 5,136,607 41.5%
Investments in associates (21, 35, 36) 5,437 2,526 115.2%
Intangible fixed assets (22, 24, 35) 971,881 951,888 2.1%
Tangible fixed assets (23, 24, 35) 1,244,233 1,263,769 (1.5)%
Other assets (25, 35, 36) 820,276 985,075 (16.7)%
Total assets 76,275,329 85,396,985 (10.7)%
Equity and liabilities Notes 31/12/2009 31/12/2008 Change
€000
Deposits from banks (26, 35, 36) 20,110,170 26,213,163 (23.3)%
Deposits from customers (27, 35, 36) 42,578,249 44,205,906 (3.7)%
Debt securities issued (28, 35, 36) 2,526,651 3,393,383 (25.5)%
Provisions for liabilities and charges (29, 35, 36) 311,531 436,767 (28.7)%
Trading liabilities (30, 35, 36) 514,199 1,460,135 (64.8)%
Derivatives (31, 35, 36) 259,433 831,896 (68.8)%
Other liabilities (32, 35, 36) 504,629 653,073 (22.7)%
Subordinated capital (33, 35, 36) 2,470,285 1,684,456 46.7%
Equity (34, 35) 7,000,182 6,518,206 7.4%
Consolidated equity 5,790,463 4,613,194 25.5%
Consolidated profit 212,181 981,986 (78.4)%
Minority interest 997,538 923,026 8.1%
Total equity and liabilities 76,275,329 85,396,985 (10.7)%

Statement of changes in equity

€000 Subscribed
capital
Participation
rights
Capital
reserves
Retained
earnings
Consolidated
profit
Minority
interests
Total
Equity as of
1/1/2008
469,215 0 2,587,709 1,929,255 841,258 794,701 6,622,138
Capital increases 0 0 0 0 0 87,580 87,580
Transferred to
retained earnings
0 0 0 698,485 (698,485) 0 0
Dividend payments 0 0 0 0 (142,773) (46,855) (189,628)
Total
comprehensive
income
0 0 0 (943,324) 981,986 80,669 119,331
Own shares/share
incentive program
(618) 0 (19,706) 0 0 0 (20,325)
Other changes 0 0 0 (107,822) 0 6,932 (100,889)
Equity as of
31/12/2008
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

Further details to the above mentioned changes are reported under note (34) equity and minorities.

Other changes in equity are due to currency differences between the income statement and the statement of financial position and changes in shares in Group units.

Statement of cash flows

€000 2009 2008
Profit after tax 287,097 1,078,255
Non-cash positions in profit and transition to net cash from operating activities:
Write-downs/write-ups of tangible fixed assets and financial investments 251,825 216,302
Net provisioning for liabilities and charges and impairment losses 1,664,212 948,903
Gains (losses) from disposals of tangible fixed assets and financial investments (5,462) 2,754
Other adjustments (net) (679,989) 636,962
Subtotal 1,517,683 2,883,176
Changes in assets and liabilities arising from operating activities after corrections
for non-cash positions:
Loans and advances to banks and customers 6,329,441 (5,814,006)
Trading assets/trading liabilities (net) (923,989) (307,099)
Other assets/other liabilities (net) (958,613) (501,221)
Deposits from banks and customers (7,762,430) 7,771,642
Debt securities issued (808,404) 765,797
Net cash from operating activities (2,606,312) 4,798,289
Proceeds from sale of:
Financial investments and equity participations 1,829,907 1,099,311
Tangible and intangible fixed assets 89,156 113,988
Proceeds from disposal of group assets 0 8,011
Payments for purchase of:
Financial investments and equity participations (2,885,558) (1,544,858)
Tangible and intangible fixed assets (417,361) (663,110)
Net cash from investing activities (1,383,856) (986,658)
Capital increases 626,563 87,580
Inflows/outflows of subordinated capital 785,828 152,690
Dividend payments (200,224) (189,628)
Net cash from financing activities 1,212,167 50,642
€000 2009 2008
Cash and cash equivalents at the end of previous period 7,129,860 3,664,187
Net cash from operating activities (2,596,165) 4,798,289
Net cash from investing activities (1,394,003) (986,658)
Net cash from financing activities 1,212,167 50,642
Effect of exchange rate changes (172,287) (396,600)
Cash and cash equivalents at the end of period 4,179,572 7,129,860
Cash flows for taxes, interest and dividends 2009 2008
Interest received 5,865,966 5,800,753
Dividends received 78 2,900
Interest paid (3,016,167) (2,626,455)
Income taxes paid (60,184) (117,618)

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.

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.

MANAGEMENT REPORT SEGMENT REPORTS CONSOLIDATED FINANCIAL STATEMENTS

Segment reporting

Classification of segments

Generally, internal management reporting in Raiffeisen International is carried out based on its matrix organizational structure. Under this organizational structure, members of the Managing Board are responsible for both specific countries and certain business areas. The highest decision making bodies, Raiffeisen International's Managing and Supervisory Boards, make important decisions, such as the allocation of resources, according to geographical considerations. The same applies to the appraisal of financial strength and profitability, which is why this has been identified as the substantial reporting criterion.

Individual Central and Eastern European countries constitute the smallest cash generating units – CGU. Countries that expect a similar long-term economic development and exhibit a similar economic profile are grouped together as regional segments. In view of the threshold values required by IFRS 8, four regional segments have been defined by means of which transparent and clearly represented reporting is achieved. The threshold values as defined by IFRS 8 are equivalent to 10 per cent, respectively, of operating income, profit after tax, and segment assets.

As of 31 December 2009 the following Group segments existed. The location of the respective business outlets served as the criterion for segment assignment:

Central Europe

This segment contains the five countries that joined the EU on 1 May 2004 – the Czech Republic, Hungary, Poland, Slovakia, and Slovenia. They represent not only the most fully developed banking markets in Central and Eastern Europe, but also the markets in which Raiffeisen International had its earliest presence.

Southeastern Europe

Southeastern Europe includes Albania, Bosnia and Herzegovina, Croatia, Kosovo, Moldova, Serbia, as well as Bulgaria and Romania, which joined the EU on 1 January 2007. Moldova has been included in Romania due to its close economic ties and the respective management structures within the Group.

Russia

This segment includes the assets and performance for those companies active in the Russian Federation on behalf of Raiffeisen International. The Group is represented in Russia by a bank, a leasing company and a capital management company, amongst others.

CIS Other

This segment includes Belarus, Kazakhstan and Ukraine.

The figures stated are derived from the financial statements prepared in accordance to the International Financial Reporting Standards (IFRS) that underlie the consolidated financial statements. Divergences from locally published data are possible, as the latter may be based on different measurement rules and on different dates of preparation.

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, Raiffeisen International's management reporting is based on IFRS. Therefore, no differences occur in the recognition and measurement principles between segment reporting and consolidated financial accounts.

In order to ensure transparent and significant segment reporting, the following control and reporting indicators were used to evaluate the performance of a CGU.

  • The return on equity before tax measures the rentability of every CGU. This figure shows the proportion between the profit before tax and the average capital employed. The return on equity shows the return of the capital employed in each segment. For a rentability measurement, the Return on Risk Adjusted Capital Ratio (RORAC) is used within the internal management reporting system. The figure shows the return of the risk-adjusted equity (economic equity). This figure is not an indicator according to IFRS.
  • The cost/income ratio represents the cost efficiency of the segment. The cost/income ratio shows the proportion of the administrative expenses and the sum of net interest income, net fee and commission income, net trading income and the other net operating income.
  • The risk-weighted assets are an important indicator for the change in business volume. The risk-weighted assets according to Austrian Banking Act (based on Basel II) presents sector-specific additional information to the segment assets of which the own funds requirement of 8 per cent is based.

The presentation of segment performance is based on the income statement. Income and expenses are attributed to the country in which they are generated. Income positions are the net interest income, net fee and commission income, net trading income and the other net operating income. Additionally, the current income from associates that are accounted for at equity is stated. The material expense positions, which are part of the segment reporting, are included in the income statement. The segment performance is reported up to the consolidated profit. The segment assets are represented by the total assets and the riskweighted assets. The item liabilities includes all positions of the liabilities side except the equity.

The reconciliation implies mainly the amounts resulting from the elimination of intra-group results, the consolidation between the segments and head office's results. It also includes the refinancing of the participations in the holding company. Finally, financial ratios – usual in the line of business – are added to evaluate the results.

MANAGEMENT REPORT SEGMENT REPORTS CONSOLIDATED FINANCIAL STATEMENTS

Financial year 2009
€000
Central
Europe
Southeastern
Europe
Russia CIS
Other
Reconciliation Total
Net interest income 985,112 895,635 650,380 488,384 (83,009) 2,936,502
thereof current income from
associates
0 2,931 0 0 2,931
Provisioning for impairment losses (487,341) (413,957) (322,149) (514,435) (1,737,882)
Net interest income after
provisioning
497,771 481,678 328,231 (26,051) (83,009) 1,198,620
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
Net income from derivatives (1,160) 193 11,479 678 (2,985) 8,205
Net income from financial
investments
36,861 8,450 3,239 4,262 (11,462) 41,350
General administrative expenses (801,886) (740,632) (364,639) (294,099) (68,470) (2,269,726)
thereof staff expenses (378,368) (325,557) (161,963) (145,098) (43,181) (1,054,167)
thereof other administrative
expenses
(348,096) (316,716) (170,017) (112,828) (22,527) (970,184)
thereof depreciation (75,423) (98,359) (32,658) (36,173) (2,762) (245,375)
Other net operating income (21,654) 24,165 (18,787) (2,878) (1,171) (20,325)
Net income from disposal of group
assets
76 0 0 0 76
Profit/loss before taxes 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 taxes 183,447 225,699 124,284 (104,323) (142,010) 287,097
Minority interests in profit (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%
Share of profit after tax 42.8% 52.6% 29.0% (24.3)% 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
Total 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
Risk/earnings ratio 49.5% 46.2% 49.5% 105.3% 59.2%
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%
Consolidated return on equity (after
minorities)
6.7% 11.6% 11.9% 3.9%
Average number of staff 13,517 18,282 9,351 18,670 366 60,186
Business outlets 549 1,204 215 1,050 3,018
Financial year 2008
€000
Central
Europe
Southeastern
Europe
Russia CIS
Other
Reconciliation Total
Net interest income 1,024,538 946,789 763,894 532,945 (36,157) 3,232,010
thereof urrent income from
associates
919 (316) 0 0 603
Provisioning for impairment
losses
(265,365) (159,177) (175,322) (180,969) 532 (780,301)
Net interest income after
provisioning
759,173 787,612 588,572 351,976 (35,625) 2,451,709
Net fee and commission income 568,379 463,136 223,046 233,594 8,214 1,496,369
Net trading income 55,713 57,077 101,977 58,658 (105,783) 167,642
Net income from derivatives (10,929) (4,958) (7,302) (1,121) 4,390 (19,921)
Net income from financial
investments
1,753 (18,923) 5,383 (13,836) (15) (25,638)
General administrative expenses (930,035) (772,706) (455,870) (396,656) (77,763) (2,633,030)
thereof staff expenses (454,853) (344,411) (217,015) (208,030) (51,705) (1,276,014)
thereof other administrative
expenses
(389,498) (338,589) (211,976) (149,906) (23,510) (1,113,480)
thereof depreciation (85,684) (89,706) (26,878) (38,720) (2,548) (243,536)
Other net operating income (10,160) 23,044 (17,840) (5,150) (5,750) (15,856)
Net income from disposal
of group assets
7,860 0 0 0 - 7,860
Profit/loss before taxes 441,755 534,282 437,967 227,464 (212,333) 1,429,135
Income taxes (90,695) (84,262) (125,218) (66,564) 15,858 (350,880)
Profit/loss after taxes 351,060 450,020 312,749 160,900 (196,475) 1,078,255
Minority interests in profit (90,488) (21,456) 13,765 (10,881) 12,791 (96,269)
Consolidated profit/loss 260,572 428,564 326,514 150,019 (183,683) 981,986
Share of profit before tax 26.9% 32.5% 26.7% 13.9% 100.0%
Share of profit after tax 27.5% 35.3% 24.5% 12.6% 100.0%
Risk-weighted assets (credit risk) 23,532,546 18,939,238 9,551,204 8,511,732 (147,157) 60,387,563
Total own funds requirement 2,400,956 1,704,413 845,343 748,479 67,623 5,766,815
Total assets 36,316,186 25,239,486 14,952,381 8,027,668 861,264 85,396,985
Liabilities 33,909,679 22,487,774 13,381,115 7,046,516 2,053,696 78,878,779
Risk/earnings ratio 25.9% 16.8% 23.0% 34.0% - 24.1%
Cost/income ratio 56.8% 51.9% 42.6% 48.4% - 54.0%
Average equity1 2,606,729 2,071,959 1,204,829 760,588 (161,319) 6,482,786
Return on equity before tax1 16.9% 25.8% 36.4% 29.9% 22.0%
Consolidated return on equity
after minorities
13.2% 23.3% 26.0% 21.9% 17.4%
Average number of staff 13,265 18,261 9,654 20,011 263 61,454
Business outlets 572 1,184 237 1,238 3,231

1 The figures for the segments Russia and CIS Other were adapted due to a different mapping.

Notes

Reporting entity

Raiffeisen International Bank-Holding AG is a financial holding company domiciled at Am Stadtpark 3, A-1030 Vienna and registered at the Vienna Commercial Court (Handelsgericht Wien) under Companies Register number FN 122.119m. The shares have been listed on the Prime Market of the Vienna Stock Exchange since 25 April 2005. Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna, indirectly holds indirectly the majority stake in the company, totaling 72.8 per cent of its issued share capital as of the balance sheet date. The company belongs to the Group of Raiffeisen-Landesbanken-Holding GmbH, Vienna, which is the supreme parent company, and it is fully consolidated into the parent company. This financial holding owns the majority stake in Raiffeisen Zentralbank Österreich Aktiengesellschaft. Moreover, Raiffeisen International is also included in the consolidated financial statements of Raiffeisen Zentralbank Österreich Aktiengesellschaft.

Raiffeisen International specializes in providing banking and financial services in Central and Eastern Europe (CEE). The Group includes universal banks in 15 countries that operate a broad network of local business outlets. Raiffeisen International provides a comprehensive range of banking and financial services through these banks and other financial institutions. These services range from account management, payment transfer, depositbusiness, lending, trade finance, and credit card services to mortgages, leasing, syndicated loans, and capital market transactions. The Group's diversified client base comprises multinational and large local customers, small and medium-sized enterprises, public sector institutions, and retail customers.

These consolidated financial statements were signed by the Managing Board on 26 February 2010 and subsequently submitted to the Supervisory Board for review and approval (ascertainment).

Principles underlying the consolidated financial statements

Policies

The consolidated financial statements for the financial year 2009 and the comparative figures for the financial year 2008 were prepared by applying Section 245a UGB 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). All standards published by the IASB to be applied to financial statements for 2009 and adopted by the EU, have been applied as far as they were obligatory for the business year. IAS 20, IAS 31, IAS 41, IFRS 4 and IFRS 6 were not applied as there were no relevant business transactions in the Group.

New application of amended standards and interpretations, which have been mandatory since 2009, i.e. IAS 1 (Presentation of Financial Statements, effective as of 1 January 2009), IAS 23 (Borrowing Costs; effective as of 1 January 2009), IAS 32 (Callable Financial Instruments and Obligations Arising from Liquidation, effective as of January 1, 2009), IFRS 2 (Terms and Conditions and Cancellations, effective as of 1 January 2009), IFRIC 9 (Reassessment of Embedded Derivatives; effective as of 30 June 2009), IFRIC 13 (Customer Loyalty Programmes; effective as of 1 July 2008), IFRIC 15 (Agreements for the Construction of Real Estate), IFRIC 16 (Hedges of a Net Investment in a Foreign Operation) and changes in the so-called "Improvements Project" had no material effect on the recognition and measurement methods of the bank.

In March 2009 the IASB adopted a revised IFRS 7 (Improvements to Information on Fair Value and Liquidity Risk, effective as of 1 January 2009), which contains additional information on the fair value and the liquidity risk of financial instruments. For the calculation of fair value a tabular breakdown of each class of financial instruments, a three-level fair value hierarchy, has been specified and the scope of the disclosure requirements has been expanded. In addition, the information on liquidity risk has been clarified and expanded. These changes have resulted in additional notes to the consolidated financial statements.

IFRS 8 (Operating Segments) was adopted early for the fiscal year 2008 and has been mandatory since 1 January 2009.

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 2 (Share-base Payment within the Group which are Settled in Cash, effective as of 1 July 2009), IFRS 3 and IAS 27 (Business Combinations, effective as of 1 July 2009), IAS 24 (Related Party Disclosures, effective as of 1 January 2011), IAS 32 (Classification of Warrants; effective as of 1 February 2010), IAS 39 (Eligible Hedged Items, effective as of 1 July 2009), IFRIC 17 (Distributions of Non-cash Assets to Owners, effective as of 1 July 2009), IFRIC 19 (Extinguishing Financial Liabilities with Equity Instruments, effective as of 1 July 2010), IFRIC 14 (The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, effective as of 1 January 2011) as well as changes in the so-called "Improvements Project. "

The consolidated financial statements are based on the reporting packages of all fully consolidated Group members, which are prepared according IFRS rules and uniform Group standards. All fully consolidated companies prepared their annual financial statements as of 31 December with the exception of two subsidiaries accounted for within interim financial statements – the balance sheet date is on 30 June due to reasons of dividend policy. Figures in these financial statements are stated in thousands of euros. The following tables may include rounding differences.

A financial asset is recognized when it is probable that the future economic benefits will flow to the enterprise and the cost or 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), (25) and (29).

Consolidation methods

Raiffeisen International consolidates all material subsidiaries, in which Raiffeisen International Bank-Holding 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. 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 were consolidated 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. 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 assessment of whether the activities performed by the SPE in favor of the Group are in accordance with its specific business needs so that it can benefit from SPE´s activities, whether the Group has the decision-making power to profit from the majority of the SPE´s benefits, whether the Group receives the majority of the benefits of the SPE´s operations or the Group retains the majority of the assets associated with the actually residual or ownership risks in order to benefit from its activities.

In the event that further shares are acquired under existing control or shares are sold without loss of control, such transactions are recognized resulting in neither profit nor loss in equity during the course of continuing consolidation.

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

Minority interests are shown in the consolidated statement of financial position as part of equity, but separately from Raiffeisen International's shareholders' equity. The net profit attributable to minority 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 amortized cost.

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.

On each balance-sheet 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 Raiffeisen International, all segments according to segment reporting are determined as cash generating units and within the segments, the legal entities themselves form the cash generating unit intended 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 value of an item's value in use and the fair value less cost to sell. It is based on the expected cash flows in accordance with the business plan 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. In order to better reflect the mid-term development, a ten-year detail planning period was chosen. The data is used to capture the terminal value on a going concern concept. The profit after tax in compliance with the solvency regulations considering a security reserve serves as basis for the calculation. Discounting 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 inflation-adjusted discount rates used in 2009 for the

cash generating units range from 9.66 per cent to 24.17 per cent (2008: 10.14 per cent and 31.51 per cent). The annual impairment test for goodwill for 2009 and 2008 did not result in an impairment loss as the recoverable amount for all cash generating units was higher than their respective carrying amount.

Companies of Raiffeisen International Group 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 undeterminable 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.

Consolidation entries

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 off-set and timing 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 at arm's length terms.

Consolidated group

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

Fully consolidated Equity method
Number of units 2009 2008 2009 2008
As of 1/1 131 121 1 3
Included for the first time in the financial period 8 19 0 0
Merged in the financial period (3) (2) 0 0
Excluded in the financial period (1) (7) 0 (2)
As of 31/12 135 131 1 1

Because of their minor importance in giving a view of the Group's assets, and financial and earnings position, 92 subsidiaries were not included in the consolidated financial statements (2008: 87). They were recognized at amortized 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 218 ff.

In the financial year 2009, the following companies were included into the consolidated financial statements for the first time:

Name Share Included as of Fact
Banks
Raiffeisen International Direct Bank AG, Vienna (AT) 100.0% 1/12 Start of
operations
Financial institutions
ACB Ponava, s.r.o., Prague (CZ) 34.5%1 1/3 Start of
operations
REC Alpha LLC, Kiev (UA) 99.9% 1/7 Foundation
REH Limited, Limassol (CY) 100.0% 1/7 Foundation
Raiffeisen Leasing Kosovo LLC, Prishtina (RS) 92.5% 1/1 Materiality
SCTAI Angol Iskola Kft, Budapest (HU) 56.9% 22/9 Start of
operations
Financial holding companies
Lexxus Services Holding GmbH, Vienna (AT) 100.0% 1/12 Materiality
Companies rendering banking-related ancillary services
Regional Card Processing Center s.r.o., Bratislava (SK) 63.0% 1/1 Materiality

1 Computed effective share; integration due to control.

Mergers

In the financial year 2009, three mergers took place: Raiffeisen Finance d.o.o., Sarajevo, was merged as of 30 September 2009 into Raiffeisen Leasing d.o.o., Sarajevo. SCTAI Angol Iskola Kft., Budapest, was merged as of 1 October 2009 into SCT Brit Iskola Kft., Budapest and renamed in SCTAI Angol Iskola Kft., Budapest. Negyedik Vagyonkezelö Kft., Erd, was incorporated as of 1 December 2009 into Raiffeisen Ingatlan Vagyonkezelö Kft., Budapest.

Excluded units

ACB Ponava, s.r.o., Prague, operating in real estate leasing business was integrated for the first time as of 1 March 2009. As of 22 December 2009, the company was excluded from the consolidated group due to sale to Raiffeisen-Leasing GmbH, Vienna.

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 balance sheet date. Differences arising from the translation of equity (historical exchange rates) were offset against retained earnings and not recognized in income statement.

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 balance sheet date and the average exchange rate applied in the income statement were offset against equity and not recognized in the income statement.

In the case of one subsidiary not headquartered in the euro-area (GSI Group Software Investment AG, Zug), the euro was the reporting currency for measurement purposes given the economic substance of the underlying transactions. Roof Russia S.A., Luxembourg, carries out its business transactions and refinancing in USD, therefore the functional currency is the USD. The following exchange rates were used for currency translation:

2009 2008
Rates in units per € As of 31/12 Average As of 31/12 Average
Albanian lek (ALL) 137.960 131.975 123.800 122.931
Belarusian rouble (BYR) 4,106.110 3,841.162 3,077.140 3,157.684
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) 7.300 7.345 7.356 7.230
Czech koruna (CZK) 26.473 26.525 26.875 25.161
Hungarian forint (HUF) 270.420 280.304 266.700 251.255
Kazakh tenge (KZT) 212.840 203.742 170.890 177.714
Moldovan leu (MDL) 17.625 15.510 14.741 15.432
Polish zloty (PLN) 4.105 4.332 4.154 3.533
Romanian leu (RON) 4.236 4.225 4.023 3.693
Russian rouble (RUB) 43.154 44.068 41.283 36.691
Serbian dinar (RSD) 95.889 93.695 88.601 81.704
Slovak koruna (SKK) 30.126 31.314
Ukrainian hryvnia (UAH) 11.449 10.893 10.855 7.869
US-Dollar (USD) 1.441 1.396 1.392 1.473

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 the zero-coupon curve. 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 derivative financial instruments. 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.

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 item 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 receivables are recognized in the income statement item 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 are 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 available-for-sale are written-off when the fair value over the last six months before the reporting date was 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.

For unquoted equity instruments, for which reliable fair values cannot be assessed regularly and are therefore valued at cost less impairment losses, 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.

Reclassification

In accordance with IAS 39.50, in exceptional circumstances, non-derivative financial instruments classified as trading assets and available-for-sale financial instruments can be reclassified to financial assets held-to-maturity and loans and advances. In contrast to the previous year, no use was made of the possibility to reclassify in 2009. Further details can be found in the notes position (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 at arm's length terms.

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 and parameters (in particular present value calculation or option price model). These methods concern the majority of the OTCderivates 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 Measurement Category according to IAS 39
Fair
value
Amortized
cost
Others
Asset classes
Nominal
Cash reserve 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
thereof finance lease business X n/a
Financial investments X At fair value through profit or loss
Financial investments X Available-for-sale
Financial investments X Held-to-maturity
thereof financial investments 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
Debt securities issued X Financial liabilities
Subordinated capital X Financial liabilities
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 the risk management, to manage and secure the 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, whose value is dependent on future expected specified credit (non-) events are shown under derivatives (positive fair values on the asset side and negative fair values on the liability side with their fair values). 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 hedges, cash-flow hedges 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. Especially the credit business is 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 of 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. Especially variable-interest liabilities are 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, were recognized as follows: The hedging instrument was 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 balance sheet date it is assessed 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, if:

  • there is objective evidence of impairment as a result of a loss event that occurred after the initial recognition of the asset until the balance sheet date (a 'loss event'),
  • that loss event (or events) 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 may be 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 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 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 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 the 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. Permanent 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. Goodwill and other intangible fixed assets (e.g. brand rights) without definite useful lives are tested for impairment at every balance sheet date. Whenever events or changes in circumstances indicate that the expected benefit no longer exists, impairment must be made pursuant to IFRS 3.

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

Internally developed intangible fixed assets comprise without exemption 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. 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 OAO Impexbank (meanwhile merged with ZAO Raiffeisenbank) and eBanka a. s. (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 was to be expected, extraordinary write-downs were 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 balance sheet date or if limited usage or longer periods for storage 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 balance sheet date while taking into account the risks and uncertainties underlying the commitment to fulfill the obligation. These provisions are not discounted because the resulting interest effect is immaterial.

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 2009 2008
Interest rate 4.75 6.0
Effective salary increase for active employees 3.0 3.0
Individual career trend for active employees 2.0 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 age of 65 years 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. The right to vote according to IAS 19.92 (corridor method) was not applied.

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

Per cent 2009 2008
Interest rate 4.75 6.0
Average increase in salary 3.0 3.0
Individual career trend 2.0 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.

Defined contribution plans

Under defined contribution plans, the company pays fixed contributions into a separate entity (a fund). These payments are recognized as staff expense 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 (before changes in reserves) and which can be repaid in the case of solvency only after all other debtors are satisfied.

Own shares

Own shares held by Raiffeisen International Bank-Holding AG as of the balance sheet date are deducted from equity. No gain or loss may be recognized in profit or loss on the purchase, sale, issue or cancellation of an entity's own equity instruments.

Share-based remuneration

The Managing Board of Raiffeisen International Bank-Holding 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 Managing Board members of Raiffeisen International Bank-Holding AG, managing board members of affiliated bank subsidiaries, and selected upper management personnel of Raiffeisen International Bank-Holding AG and its affiliated enterprises are eligible to participate.

The number of common shares in Raiffeisen International Bank-Holding 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 Raiffeisen International Bank-Holding AG shares in relation to TSRs of shares in the Dow Jones EURO STOXX Banks index after a threeyear holding period. Moreover, beneficiaries have to be in active service for Raiffeisen International. SIP participation is voluntary.

All share-based remunerations are recognized according to IFRS 2 (Share-based payment) as staff expenses and booked 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. 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

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 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. Deferred tax assets and deferred tax liabilities within the same entity are netted.

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

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 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 exists. 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 particular notes. Especially, 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 (50) 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 2009 2008
Net gains (losses) on financial assets and liabilities held-for-trading 348,485 46,058
Financial assets and liabilities at fair value through profit or loss 253,136 51,960
Net interest income 213,645 98,560
Net gains (losses) on financial assets and liabilities at fair value through profit or
loss
39,491 (46,600)
Financial assets available-for-sale 9,404 29,552
Net interest income 5,940 8,552
Net realized gains (losses) on financial assets not measured at fair value through
profit and loss
8,540 24,171
Impairment on financial assets not measured at fair value through profit and loss (5,076) (3,171)
Loans and advances 3,271,232 4,981,293
Net interest income 5,009,115 5,761,594
Net realized gains (losses) on financial assets not measured at fair value through
profit and loss
12,652 0
Impairment on financial assets not measured at fair value through profit and loss (1,750,535) (780,301)
Financial assets held-to-maturity 183,816 166,291
Net interest income 185,421 166,330
Net realized gains (losses) on financial assets not measured at fair value through
profit and loss
3 (38)
Impairment on financial assets not measured at fair value through profit and loss (1,608) 0
Financial liabilities (2,645,736) (2,942,090)
Interest expenses (2,645,736) (2,942,090)
Derivatives (hedging) (11,642) (8,117)
Net interest income (14,083) (686)
Net gains (losses) from hedge accounting 2,441 (7,432)
Net revaluations from exchange differences 25,819 248,845
Other operating income/expenses (1,066,917) (1,144,657)
Profit before tax from continuing operations 367,597 1,429,135

MANAGEMENT REPORT SEGMENT REPORTS CONSOLIDATED FINANCIAL STATEMENTS

(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 2009 2008
Interest income 5,578,983 6,164,628
from balances at central banks 108,972 206,147
from loans and advances to banks 120,786 298,548
from loans and advances to customers 4,498,805 4,902,210
from financial investments 399,036 263,702
from leasing claims 283,266 354,957
from derivative financial instruments (non-trading), net 168,118 139,064
Current income 3,038 9,138
from shares and other variable-yield securities 30 1,188
from shares in affiliated companies 1,473 2,829
from other interests 1,535 5,121
Interest-like income 6,546 9,512
Interest and interest-like income, total 5,588,567 6,183,278
Current income from associates 2,931 603
Interest expenses (2,650,285) (2,943,553)
on deposits from central banks (9,259) (9,780)
on deposits from banks (827,940) (1,105,222)
on deposits from customers (1,593,821) (1,582,564)
on debt securities issued (131,415) (152,719)
on subordinated capital (87,850) (93,268)
Interest-like expenses (4,711) (8,318)
Interest expenses and interest-like expenses, total (2,654,996) (2,951,871)
Net interest income 2,936,502 3,232,010

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

Per cent 2009 2008
Interest margin (total assets) 3.73 3.99
Interest margin (risk-weighted assets, credit risk) 5.38 5.46

Interest income includes interest income (unwinding) from impaired loans to customers and impaired loans to banks in the amount of € 304,849 thousand (2008: € 178,525 thousand). Interest of 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. Interest income was already considered by calculating the amount of impairment losses on loans and advances and their disclosure was made according to IAS 38.

MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK

(3) Provisioning for impairment losses

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

€000 2009 2008
Individual loan loss provisions (1,564,705) (501,961)
Allocation to provisions for impairment losses (1,774,035) (682,898)
Release of provisions for impairment losses 271,455 230,362
Direct write-downs (87,978) (72,703)
Income received on written-down claims 25,853 23,278
Portfolio-based loan loss provisions (185,829) (278,340)
Allocation to provisions for impairment losses (474,261) (407,908)
Release of provisions for impairment losses 288,432 129,568
Gains from the sales of loans 12,652 0
Total (1,737,882) (780,301)

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

Ratios 2009 2008
Net provisioning ratio (average risk-weighted assets, credit risk) 3.19% 1.32%
Net provisioning ratio (total loans outstanding) 1.95% 0.80%
Loss rate 0.30% 0.11%
Portfolio rate 3.53% 1.75%
Risk/earnings ratio 59.18% 24.14%

(4) Net fee and commission income

€000 2009 2008
Payment transfer business 543,283 643,179
Loan administration and guarantee business 199,835 200,545
Securities business 42,587 45,173
Foreign currency and precious-metals business 332,878 504,917
Management of investment and pension funds 25,747 37,975
Agency services for own and third party products 45,613 30,448
Credit derivatives business (1,258) (1,494)
Other banking services 34,372 35,626
Total 1,223,057 1,496,369

(5) Net trading income

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

€000 2009 2008
Interest-based transactions 116,903 (88,310)
Currency-based transactions 70,893 257,947
Equity-/index-based transactions (1,471) (1,418)
Other transactions 15 (577)
Total 186,340 167,642

In the previous year, the item currency-based transactions included a loss of € 93,936 thousand resulting from the ineffective part of capital hedge for investments in the Ukrainian and Belarusian network unit. In 2009, no positions were attributable to capital hedge.

(6) Net income from derivatives

€000 2009 2008
Net income from hedge accounting 2,441 (7,432)
Net income from credit derivatives (3,100) 3,191
Net income from other derivatives 8,864 (15,680)
Total 8,205 (19,921)

Net income from hedge accounting comprises on the one hand, a valuation result of derivatives in fair value hedges amounting to € 1,564 thousand (2008: € 8,199 thousand) and on the other hand, changes in the carrying amounts of the fair value hedged items totaling plus € 877 thousand (2008: minus € 15,631 thousand).

Net income from other derivatives includes valuation results and results from early termination of derivatives, 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.

(7) Net income from financial investments

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 2009 2008
Net income from financial investments held-to-maturity (1,605) (38)
Net valuations of financial investments held-to-maturity (1,608) 0
Net proceeds from sales of financial investments held-to-maturity 3 (38)
Net income from equity participations 3,464 20,999
Net valuations of equity participations (5,076) (3,171)
Net proceeds from sales of equity participations 8,540 24,170
Net income from securities at fair value through profit and loss 39,491 (46,599)
Net valuations of securities at fair value through profit and loss 22,588 (44,997)
Net proceeds from sales of securities at fair value through profit and loss 16,903 (1,602)
Total 41,350 (25,638)

(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 2009 2008
Staff expenses (1,054,167) (1,276,014)
Wages and salaries (805,599) (990,608)
Social security costs and staff-related taxes (207,757) (231,698)
Other voluntary social expenses (33,078) (37,049)
Expenses on severance payments and retirement benefits (3,950) (5,817)
Expenses on share incentive program (SIP) (3,783) (10,842)
Other administrative expenses (970,184) (1,113,480)
Office space expenses (308,037) (314,378)
IT costs (143,038) (153,406)
Communication expenses (80,833) (86,624)
Legal, advisory and consulting expenses (99,883) (108,615)
Advertising, PR and promotional expenses (80,303) (132,928)
Deposit insurance fees (66,388) (57,024)
Office supplies (30,714) (43,723)
Car expenses (18,532) (23,241)
Security expenses (35,928) (38,818)
Traveling expenses (15,964) (26,490)
Training expenses for staff (13,029) (24,429)
Sundry administrative expenses (77,535) (103,804)
Depreciation on intangible and tangible fixed assets (245,375) (243,536)
Tangible fixed assets (146,689) (149,262)
Intangible fixed assets (68,570) (67,638)
Leased assets (operating lease) (30,116) (26,636)
Total (2,269,726) (2,633,030)

Legal, advisory and consulting expenses include audit fees of the Group companies which comprise expenses paid for the audit of financial statements amounting to € 5,315 thousand (2008: € 6,774 thousand) and tax advisory as well as other additional consulting services provided by the auditors amounting to € 1,954 thousand (2008: € 2,305 thousand). Thereof, € 300 thousand (2008: € 317 thousand) are accounted for by the group auditor for the audit of the consolidated financial statement and the individual financial statement of Raiffeisen International Bank-Holding AG and € 130 thousand (2008: € 126 thousand) is accounted for by other consulting services.

Amortization of intangible fixed assets capitalized in the course of initial consolidation was € 5,687 thousand (2008: € 7,233 thousand). This is due to scheduled amortization of the acquired customer base.

(9) Other net operating income

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 2009 2008
Sales revenues from non-banking activities 118,627 194,863
Expenses arising from non-banking activities (114,522) (195,881)
Revenues from additional leasing services 84,502 80,303
Expenses from additional leasing services (88,357) (78,167)
Net income from operating lease (vehicles and equipment) 35,330 32,0091
Net income from investment property incl. operating lease (real estate) 9,167 8,9721
Net proceeds from disposal of tangible and intangible fixed assets (3,080) (2,716)
Other taxes (51,679) (58,074)
Income from release of negative goodwill 28 3,627
Net expense from allocation and release of other provisions (3,951) 4,516
Sundry operating income 33,411 31,737
Sundry operating expenses (39,801) (37,045)
Total (20,325) (15,856)

1 Adaptation of previous year figures due to different mapping.

(10) Net income from disposal of group assets

Income from disposal of group assets amounting to € 76 thousand resulted from additional proceeds for a subsidiary already sold in the previous year. In 2008, the income from disposal of group assets totaled € 7,860 thousand resulting from the disposal of project companies in Hungary and the Czech Republic.

(11) Income taxes

Income taxes break down as follows:

€000 2009 2008
Current income taxes (148,722) (366,308)
Domestic 10,745 20,771
Foreign (159,467) (387,079)
Deferred taxes 68,222 15,428
Total (80,500) (350,880)

Raiffeisen International Bank-Holding AG and two of its domestic subsidiaries are members of a joint tax entity headed by Raiffeisen Zentralbank Österreich Aktiengesellschaft. This enables them to allocate Group member losses to the Group parent's tax income. In 2009, Raiffeisen International Bank-Holding AG was apportioned a tax benefit of € 13,198 thousand including payments of previous periods (2008: € 28,682 thousand) from Raiffeisen Zentralbank Österreich Aktiengesellschaft.

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

€000 2009 2008
Profit before tax 367,597 1,429,135
Theoretical income tax expense in the financial year based on the domestic income
tax rate of 25 per cent
(91,899) (357,284)
Effect of divergent foreign tax rates 51,792 96,456
Tax deductions because of tax-exempted income from equity participations and other
income
97,436 37,521
Tax increases because of non-deductible expenses (81,243) (59,450)
Other tax deductions and tax increases (56,586) (68,123)
Effective tax burden (80,500) (350,880)
Tax rate in per cent 21.9 24.6

Other tax deductions and tax increases among others include group taxation, belated tax payments and tax refunds for prior periods.

(12) Earnings per share

€000 2009 2008
Consolidated profit 212,181 981,986
Less compensation for participation rights (60,000) -
Adapted consolidated profit 152,181 981,986
Average number of ordinary shares outstanding (in 1,000 units) 153,674 153,599
Earnings per share in € 0.99 6.39

There were no conversion or option rights outstanding, so undiluted earnings per share are equal to diluted earnings per share.

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
2009 2008
Trading assets 4,020,769 4,611,545
Positive fair values of derivative financial instruments 857,630 2,343,534
Shares and other variable-yield securities 10,642 36,974
Bonds, notes and other fixed-interest securities 3,152,497 2,231,038
Financial assets at fair value through profit or loss 3,233,527 2,042,089
Shares and other variable-yield securities 197,118 67,117
Bonds, notes and other fixed-interest securities 3,036,409 1,974,972
Financial assets available-for-sale 124,396 120,398
Investments in associates and other affiliated companies 65,884 64,450
Other interests 58,512 55,948
Loans and advances 62,709,168 73,372,732
Loans and advances to banks 14,489,573 16,167,956
Loans and advances to customers 50,483,342 57,860,963
Other non-derivative financial assets 820,276 985,075
Impairment losses for loans and advances (3,084,023) (1,641,262)
Financial assets held-to-maturity 3,949,790 3,017,987
Bonds, notes and other fixed-interest securities 3,918,060 2,976,647
Purchased loans 31,730 41,340
Derivatives (hedging) 21,565 16,577
Positive fair values of derivatives (hedging) 21,565 16,577
Other assets 2,216,114 2,215,657
Intangible and tangible fixed assets 2,216,114 2,215,657
Total assets 76,275,329 85,396,985
Equity and liabilities according to measurement categories
€000
2009 2008
Trading liabilities 723,606 2,241,141
Negative fair values of derivative financial instruments 719,535 2,230,569
Call/time deposits from trading purposes 0 10,572
Short-selling of trading assets 4,071 0
Financial liabilities 68,189,984 76,149,982
Deposits from banks 20,110,170 26,213,163
Deposits from customers 42,578,249 44,205,906
Debt securities issued 2,526,651 3,393,383
Subordinated capital 2,470,285 1,684,456
Other non-derivative financial liabilities 504,629 653,073
Derivatives (hedging) 50,026 50,889
Negative fair values of derivatives (hedging) 50,026 50,889
Provisions for liabilities and charges 311,531 436,767
Equity 7,000,182 6,518,206
Total equity and liabilities 76,275,329 85,396,985

(14) Cash reserve

€000 2009 2008
Cash in hand 1,367,591 1,662,690
Balances at central banks 2,811,981 5,467,170
Total 4,179,572 7,129,860

(15) Loans and advances to banks

€000 2009 2008
Giro and clearing business 2,125,688 1,642,7091
Money market business 7,903,797 5,092,4361
Loans to banks 278,058 2,264,524
Purchased loans 208 2,098
Leasing claims 1,659 3,929
Claims evidenced by paper 691 32,400
Total 10,310,101 9,038,096

1 Adaptation of previous year figures due to different mapping. Of the purchased loans amounting to € 208 thousand, € 101 thousand are assigned to the measurement category held-tomaturity (2008: 0). Purchased loans classified as loans and advances totaled € 107 thousand (2008: € 2,098 thousand).

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

€000 2009 2008
Central Europe 1,006,673 2,453,884
Southeastern Europe 1,148,085 1,043,025
Russia 559,358 535,045
CIS Other 465,679 301,678
Austria 5,673,192 3,124,850
Other countries 1,457,114 1,579,614
Total 10,310,101 9,038,096

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

€000 2009 2008
Central banks 1,951,611 3,663,553
Commercial banks 8,335,838 5,355,367
Multilateral development banks (MDB) 22,652 19,176
Total 10,310,101 9,038,096

(16) Loans and advances to customers

€000 2009 2008
Credit business 26,723,556 31,105,9211
Money market business 2,148,354 4,812,1021
Mortgage loans 17,874,752 17,249,079
Purchased loans 499,425 723,633
Leasing claims 3,266,872 4,009,021
Claims evidenced by paper 2,012 2,548
Total 50,514,971 57,902,304

1 Adaptaton of previous year figures due to different mapping.

Purchased loans amounting to € 31,629 thousand (2008: € 41,340 thousand) are assigned to the measurement category held-to-maturity. Purchased loans classified as loans and advances totaled € 467,796 thousand (2008: € 682,293 thousand).

€000 2009 2008
Sovereigns 1,157,831 1,103,929
Corporate customers – large 25,371,785 29,564,406
Corporate customers – small business 3,815,092 5,056,611
Retail customers – private individuals 17,790,107 19,268,185
Retail customers – small and medium-sized entities 2,351,931 2,868,058
Other 28,225 41,115
Total 50,514,971 57,902,304

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

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

€000 2009 2008
Central Europe 23,379,142 24,620,638
Southeastern Europe 12,319,851 12,933,827
Russia 6,111,924 8,818,875
CIS Other 5,403,420 6,601,508
Austria 31,685 23,804
Other countries 3,268,949 4,903,652
Total 50,514,971 57,902,304

(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 187. Provisions for impairment losses are allocated to the following asset classes according to Basel II definition:

€000 2009 2008
Sovereigns 2,915 2,153
Banks 3,438 4,351
Corporate customers – large 1,364,783 685,535
Corporate customers – small business 332,662 166,457
Retail customers – private individuals 1,169,892 669,127
Retail customers – small and medium-sized entities 210,333 113,639
Total 3,084,023 1,641,262

(18) Trading assets

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

€000 2009 2008
Bonds, notes and other fixed-interest securities 3,152,498 2,231,037
Treasury bills and bills of public authorities eligible for refinancing 1,300,762 831,657
Other securities issued by the public sector 1,094,950 808,200
Bonds and notes of non-public issuers 756,786 591,180
Shares and other variable-yield securities 10,642 36,974
Shares 8,578 22,818
Mutual funds 1,734 5,537
Other variable-yield securities 330 8,619
Positive fair values of derivative financial instruments 546,312 1,495,167
Interest-based transactions 333,073 439,860
Currency-based transactions 210,515 1,030,081
Equity-/index-based transactions 2,710 20,194
Other transactions 14 5,032
Total 3,709,452 3,763,178

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 2009 2008
Positive fair values of derivatives in fair value hedges (IAS 39) 21,565 16,577
Interest-based transactions 21,151 16,577
Currency-based transactions 414 0
Positive fair values of credit derivatives 165 5,202
Positive fair values of other derivatives 311,152 843,165
Interest-based transactions 102,901 153,614
Currency-based transactions 203,303 689,551
Equity-/index-based transactions 4,948 0
Total 332,882 864,944

Insofar 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. 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 item comprises securities available-for-sale, financial assets at fair value through profit or loss, and securities held-to-maturity as well as strategic equity participations held on a long-term basis.

€000 2009 2008
Bonds, notes and other fixed-interest securities 6,954,469 4,951,620
Treasury bills and bills of public authorities eligible for refinancing 3,345,967 2,181,732
Other securities issued by the public sector 2,429,753 1,872,119
Bonds and notes of non-public issuers 1,178,749 897,768
Shares and other variable-yield securities 197,118 67,116
Shares 433 435
Mutual funds 196,685 66,681
Equity participations 118,960 117,871
Interests in affiliated companies 60,448 61,923
Other interests 58,512 55,948
Total 7,270,547 5,136,607

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.

In contrast to 2008, no reclassification was made for securities held-for-trading to category held-to-maturity in 2009. The carrying amount at the date of reclassification in 2008 amounted to € 371,686 thousand. As of 31 December 2009, the carrying amount was € 284,581 thousand and the fair value totaled € 286,092 thousand. In 2009, a result from the reclassified securities of € 13,709 thousand (2008: € 12,630 thousand) was shown in the income statement. If the reclassification had not been made, a gain of € 3,983 thousand would have arisen (2008: loss of € 10,252 thousand).

Other interests valued at amortized cost for which fair values could not be reliably measured amounted to € 33,590 thousand (2008: € 39,840 thousand).

For the following subsidiaries syndicate contracts between Raiffeisen International and the respective shareholders exist: Raiffeisenbank a.s. (Czech Republic), Tatra banka a.s. (Slovakia), Raiffeisen Bank, Zrt. (Hungary) namely Raiffeisen-RBHU Holding GmbH (Austria), 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

Financial information on associated companies is shown in the following table:

€000 Total Total Profit/loss Shareholders'
assets revenues after tax equity
Raiffeisen Banca pentru Locuinte S.A., Bucharest (RO) 76,992 5,899 (264) 16,315

In the financial year, Raiffeisen Banca pentru Locuinte S.A. was merged with HVB Banca pentru Locuinte S.A. This led to an increase in equity of € 9,020 thousand.

Further information regarding associated companies is stated on page 220.

(22) Intangible fixed assets

€000 2009 2008
Goodwill 581,374 610,193
Software 274,912 216,637
Other intangible fixed assets 115,595 125,058
Total 971,881 951,888

The item software comprises acquired software amounting to € 274,244 thousand (2008: € 216,051 thousand) and developed software amounting to € 669 thousand (2008: € 586 thousand).

The carrying amount of goodwill as basis for the impairment test was allocated to the following cash generating units, the change in the carrying amount is mainly due to currency differences:

€000 2009 2008
Raiffeisen Bank Aval JSC, Kiev 204,622 215,808
ZAO Raiffeisenbank, Moscow 248,893 260,173
Raiffeisenbank a.s., Prague 40,758 40,148
Raiffeisen Bank Sh.a., Tirane 53,020 59,085
Other 34,081 34,979
Total 581,374 610,193

(23) Tangible fixed assets

€000 2009 2008
Land and buildings used by the Group for own purpose 526,408 495,908
Other land and buildings (investment property) 26,864 10,628
Office furniture and equipment as well as other tangible fixed assets 479,421 532,274
Leased assets (operating lease) 211,540 224,959
Total 1,244,233 1,263,769

The fair value of investment property totaled € 26,864 thousand (2008: € 11,256 thousand).

(24) Development of fixed assets

Tangible and intangible 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
thereof land value
of developed land
6,304 0 (277) 2,799 0 0 8,826
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
€000 Cumulative Write-ups Depreciation As of
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
thereof land value of developed land 0 0 0 8,826
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

Intangible and tangible fixed assets developed in the financial year 2008 as follows:

Cost of acquisition or conversion
€000 As of
1/1/2008
Change in
consolidated
group
Exchange
differences
Additions Disposals Transfers As of
31/12/2008
Intangible fixed
assets
1,422,649 1,315 (235,550) 119,658 (27,645) (9,709) 1,270,718
Goodwill 792,647 1,420 (152,323) 0 (1,065) 0 640,679
Software 401,001 (105) (25,183) 114,650 (20,829) 1,690 471,224
Other intangible fixed
assets
229,001 0 (58,044) 5,008 (5,751) (11,399) 158,815
Tangible fixed
assets
1,837,567 (9,782) (194,287) 543,452 (229,952) 9,708 1,956,706
Land and buildings
used by the Group
for own purpose
627,967 (7) (96,149) 115,443 (48,617) 21,641 620,278
Other land and
buildings
35,820 0 (4,749) 4,958 (2,424) (18,172) 15,433
thereof land value
of developed land
7,429 0 (2,366) 1,249 (8) 0 6,304
Other tangible fixed
assets
919,379 (3,665) (87,872) 313,802 (94,942) 6,850 1,053,552
Leased assets
(operating lease)
254,401 (6,110) (5,517) 109,249 (83,969) (611) 267,443
Total 3,260,216 (8,467) (429,837) 663,110 (257,597) 0 3,227,424
Write-ups, amortization, depreciation, impairment Carrying
amount
€000 Cumulative Write-ups Depreciation As of
31/12/2008
Intangible fixed assets (318,830) 3 (67,638) 951,888
Goodwill (30,486) 0 0 610,193
Software (254,587) 3 (58,395) 216,637
Other intangible fixed assets (33,757) 0 (9,243) 125,058
Tangible fixed assets (692,937) 0 (175,898) 1,263,769
Land and buildings used by the Group for own
purpose
(124,370) 0 (27,712) 495,908
Other land and buildings (4,805) 0 (2,384) 10,628
thereof land value of developed land 0 0 0 6,304
Other tangible fixed assets (521,278) 0 (119,166) 532,274
Leased assets (operating lease) (42,484) 0 (26,636) 224,959
Total (1,011,767) 3 (243,536) 2,215,657

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

(25) Other assets

€000 2009 2008
Tax assets 229,472 156,107
Current tax assets 109,403 66,347
Deferred tax assets 120,069 89,760
Receivables arising from non-banking activities 27,199 40,475
Prepayments and other deferrals 220,733 253,150
Clearing claims from securities and payment transfer business 95,942 162,573
Lease in progress 141,438 140,863
Assets held for sale (IFRS 5) 1,820 3,510
Inventories 30,424 78,114
Any other business 73,248 150,283
Total 820,276 985,075

Deferred taxes break down as follows:

€000 2009 2008
Deferred tax assets 120,069 89,760
Provisions for deferred taxes 13,234 46,781
Net deferred taxes 106,835 42,979

The net deferred taxes result from the following items:

€000 2009 2008
Loans and advances to customers 69,914 50,564
Impairment losses on loans and advances 77,483 46,118
Tangible and intangible fixed assets 4,469 3,792
Other assets 8,766 3,305
Provisions for liabilities and charges 29,947 33,901
Trading liabilities 24,961 140,134
Other liabilities 35,445 67,792
Tax loss carry-forwards 79,107 26,324
Other items of the statement of financial position 326 19,594
Deferred tax assets 330,418 391,523
Loans and advances to banks 497 8,793
Loans and advances to customers 38,881 42,129
Trading assets 21,373 121,580
Tangible and intangible fixed assets 51,974 49,441
Deposits from customers 743 341
Provisions for liabilities and charges 9,359 18,171
Other liabilities 9,925 10,997
Other items of the statement of financial position 90,831 97,092
Deferred tax liabilities 223,583 348,544
Net deferred taxes 106,835 42,979

Deferred tax assets are recognized for unused tax loss carry-forwards and amounted to € 79,107 thousand (2008: € 26,324 thousand). The tax loss carry-forwards are mainly without any time limit. The Group did not recognize deferred tax assets of € 2,464 thousand (2008: € 1,815 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 2009 2008
Giro and clearing business 733,283 741,046
Money market business 3,145,124 5,960,410
Long-term refinancing 16,231,763 19,511,707
Total 20,110,170 26,213,163

Raiffeisen International 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 if Raiffeisen Zentralbank Österreich Aktiengesellschaft loses the majority shareholding in Raiffeisen International Bank-Holding AG. This would lead to increased refinancing costs for Raiffeisen International in the future.

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

€000 2009 2008
Central Europe 1,671,407 1,609,150
Southeastern Europe 1,455,660 556,388
Russia 406,321 1,332,999
CIS Other 38,468 180,387
Austria 12,735,914 15,144,329
Other countries 3,802,400 7,389,910
Total 20,110,170 26,213,163

Deposits from banks break down into the following bank segments:

€000 2009 2008
Central banks 490,019 1,329,781
Commercial banks 18,772,845 24,328,050
Multilateral development banks (MDB) 847,306 555,332
Total 20,110,170 26,213,163

(27) Deposits from customers

€000 2009 2008
Sight deposits 17,140,431 16,242,691
Time deposits 24,044,766 27,011,253
Savings deposits 1,393,052 951,962
Total 42,578,249 44,205,906

Deposits from customers break down in Line with the Basel II definition as follows:

€000 2009 2008
Sovereigns 1,558,512 2,238,487
Corporate customers – large 14,180,912 15,343,446
Corporate customers – small business 2,330,959 3,084,467
Retail customers – private individuals 21,103,804 20,327,319
Retail customers – small and medium-sized entities 3,129,147 2,908,228
Other 274,915 303,959
Total 42,578,249 44,205,906

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

€000 2009 2008
Central Europe 19,448,272 20,432,010
Southeastern Europe 12,249,460 13,143,448
Russia 5,495,663 5,833,922
CIS Other 2,889,828 2,984,745
Austria 404,630 259,402
Other countries 2,090,396 1,552,379
Total 42,578,249 44,205,906

(28) Debt securities issued

€000 2009 2008
Bonds and notes issued 1,925,044 2,630,226
Money market instruments issued 112 8,179
Other debt securities issued 601,495 754,978
Total 2,526,651 3,393,383

(29) Provisions for liabilities and charges

As of
1/1/2009
Change in
consolidated
Allocation Release Usage Transfers,
exchange
As of
31/12/2009
€000 group differences
Severance payments 8,047 0 2,245 (26) (575) (287) 9,404
Retirement benefits 4,769 0 30 0 161 0 4,960
Taxes 108,335 0 23,393 (87,729) (15,848) (1,995) 26,156
Current 61,554 0 12,867 (44,843) (15,677) (979) 12,922
Deferred 46,781 0 10,526 (42,886) (171) (1,016) 13,234
Contingent liabilities
and commitments 69,377 0 51,236 (45,122) (1) (5,653) 69,837
Pending legal issues 41,003 0 6,156 (5,382) (1,044) (934) 39,799
Overdue vacation 32,431 0 5,835 (8,404) 0 (1,154) 28,708
Bonus payments 138,303 0 48,031 (26,314) (63,915) (3,894) 92,211
Restructuring 3,808 0 82 0 (512) (176) 3,202
Other 30,694 14 24,955 (7,070) (11,372) 33 37,254
Total 436,767 14 161,963 (180,047) (93,106) (14,060) 311,531

Severance payments also include provisions for anniversary payments amounting to € 2,047 thousand (2008: € 2,306 thousand).

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

(30) Trading liabilities

€000 2009 2008
Negative fair values of derivative financial instruments 510,128 1,449,563
Interest-based transactions 340,066 401,235
Currency-based transactions 167,323 1,034,283
Equity-/index-based transactions 2,725 9,107
Other transactions 14 4,938
Short-selling of trading assets 4,071 0
Call/time deposits from trading purposes 0 10,572
Total 514,199 1,460,135

(31) Derivatives

€000 2009 2008
Negative fair values of derivatives in fair value hedges (IAS 39) 5,113 1,358
Interest-based transactions 5,113 1,358
Negative fair values of derivatives in cash flow hedges (IAS 39) 44,913 49,531
Interest-based transactions 44,913 49,531
Negative fair values of credit derivatives 0 2,196
Negative fair values of other derivative financial instruments 209,407 778,811
Interest-based transactions 95,755 252,031
Currency-based transactions 108,819 526,780
Equity-/index-based transactions 4,833 0
Total 259,433 831,896

Insofar 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.

As of 31 December 2009, variable-interest refinancing of ZAO Raiffeisenbank, Moscow, was hedged against the risk of changes in future cash flows by applying interest rate swaps, which are reported as cash flow hedge. The effective part of this hedge amounted to € 9,834 thousand (2008: € 40,346 thousand) and was recognized in other comprehensive income.

As of 31 December 2009, future cash flows from hedged liabilities amounting to € 332,621 thousand (2008: € 114,177 thousand) are to be expected, this is € 4,471 thousand (2008: € 42,678 thousand) for the next year and € 328,151 thousand (2008: € 71,499 thousand) between 2011 and 2015.

(32) Other liabilities

€000 2009 2008
Liabilities from non-banking activities 62,112 67,452
Accruals and deferred items 111,467 174,624
Liabilities from dividends 468 8,468
Clearing claims from securities and payment transfer business 168,583 195,078
Any other business 161,999 207,451
Total 504,629 653,073

(33) Subordinated capital

€000 2009 2008
Hybrid tier-1-capital 1,169,030 503,381
Subordinated liabilities 1,209,885 1,089,069
Supplementary capital 91,370 92,006
Total 2,470,285 1,684,456

In the financial year, hybrid tier-1-capital amounting to € 650,000 thousand was issued and fully subscribed by Raiffeisen Zentralbank Österreich Aktiengesellschaft. The hybrid tier-1-capital has no maturity date and may be redeemed and repaid by the issuer for the first time after five years. The coupon amounts to 10 per cent p.a.

Of total subordinated capital, Raiffeisen Zentralbank Österreich Aktiengesellschaft and other subsidiaries of RZB provided € 2,116,569 thousand (2008: € 1,434,766 thousand). The following table contains borrowings that exceed 10 per cent of the subordinated capital:

€000 Amount Currency Interest rate Due
Non-cumulative Subordinated Perpetual Callable Step-up 500,000 EUR EURIBOR + 1.1%
Non-cumulative Subordinated Perpetual Callable Fixed
Rate Hybrid Capital
650,000 EUR 10%

In 2009, expenses on subordinated liabilities totaled € 93,850 thousand (2008: € 93,444 thousand).

(34) Equity and minorities

€000 2009 2008
Consolidated equity 5,790,463 4,613,194
Subscribed capital 468,733 468,597
Participation rights 600,000
Capital reserves 2,569,132 2,568,003
Retained earnings 2,152,598 1,576,594
Consolidated profit 212,181 981,986
Minority interest 997,538 923,026
Total 7,000,182 6,518,206

Subscribed capital

The subscribed capital of Raiffeisen International Bank-Holding AG as defined by the articles of incorporation amounted to € 471,736 thousand as of 31 December 2009. It comprises 154,667,500 no-par bearer shares. Excluding own shares of 984,511 the stated subscribed capital totaled € 468,733 thousand.

Participation rights

The Annual General Meeting held on 9 June 2009 authorized the Managing Board to issue within five years from the date of the resolution – with the approval of the Supervisory Board – also in several tranches, participation rights pursuant to Section 174 of the Austrian Joint Stock Companies Act, with a maximum total nominal amount of € 2,000,000 thousand and to determine all further conditions of the issue. Shareholders are excluded from exercising their subscription rights.

The Managing Board made use of the authorization and decided to strengthen the core capital by the issuance of participation rights of € 600,000 thousand. The issuance was fully subscribed by Raiffeisen Zentralbank Österreich AG. Participation rights are perpetual and carry a call option – the right of early redemption by the issuer – whereas economic incentives for the Issuer for an early redemption exist as the participation rights dividend increase. The dividend amounts to 10 per cent in the first five years and progressively increases. Thereafter the repayment is limited to the nominal amount issued, thus the investor does not participate in the value of growth of Raiffeisen International. Hence, there is no dilution of the existing shareholders.

Own shares

The Annual General Meeting held on 10 June 2008 authorized the Managing Board to acquire own shares, pursuant to Section 65 (1), items 4 and 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. The Managing Board was given the authorization to decide, with the approval of the Supervisory Board, on the sale of own shares by different means than the stock exchange or a public tender, to the exclusion of shareholders´ subscription rights. The acquisition of own shares mainly serves to cover the obligation of Raiffeisen International Bank-Holding AG within the framework of the share incentive program (SIP) towards the Managing Board and executive employees. These bonus payments are carried out in the form of company shares.

Authorized and contingent capital and convertible bonds remaining as of 31 December 2009:

Authorized capital

In the Annual General Meeting held on 5 June 2007, the Management Board was authorized, with the approval of the Supervisory Board, to increase the subscribed capital by a maximum of € 217,724 thousand by issuing up to a maximum of 71,385,000 no-par bearer shares with voting rights against a contribution in cash and/or in kind within five years, after having the respective changes in the Articles of Association recorded in the Company Register (authorized capital). € 36,287 thousand (11,897,500 shares) were used for the capital increase on 5 October 2007 (Secondary Public Offering). As of 31 December 2009, the authorized capital not used amounted to € 181,437 thousand.

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 € 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

Also in the Annual General Meeting held on 10 June 2008, the resolution on the contingent increase of the nominal capital by a maximum of € 47,174 thousand by issuing a maximum of 15,466,750 new ordinary bearer shares in order to grant the creditors of the convertible bonds issued their conversion or subscription right, as well as to correspondingly amend the Articles of Association in Section 4 (Capital and Shares) by adding the following paragraph: In keeping with Section 159 (2) item 1 of the Austrian Joint Stock Companies Act, the subscribed capital has been increased contingently by a maximum of € 47,174 thousand by issuing a maximum of 15,466,750 ordinary bearer shares (contingent increase of capital). The contingent increase of capital will only be implemented to the extent that the owners of convertible bonds, issued on the basis of the resolution taken by the Annual General Meeting on 10 June 2008, actually exercise their right to convert these bonds into shares of the company. The amount of issue and the conversion ratio shall be determined on the basis of recognized methods of investment mathematics, as well as the price of Raiffeisen International Bank-Holding AG shares in a recognized pricing procedure (basis for calculating the amount of issue). The amount of issue must not be less than the pro-rata amount of the nominal capital. The new shares, which are issued under the contingent increase of capital, are entitled to receive the dividend that corresponds to that of the shares that are traded on the stock exchange at that time. The Managing Board is authorized, with the approval of the Supervisory Board, to determine the further details for implementing the contingent increase of capital. The Supervisory Board is authorized to adopt any amendments in the Articles of Association as they result from the issue of shares on the basis of the contingent increase in capital.

Dividend proposal

The Managing Board intends to propose at the Annual General Meeting that a dividend of € 0.20 per ordinary share be distributed from Raiffeisen International Bank-Holding AG´s profit for the financial year 2009, which represents a maximum distribution of € 30,934 thousand, and that the remaining amount be carried forward.

The statement of changes in equity is shown on page 117.

The number of shares outstanding developed as follows:

Number of shares 2009 2008
Number of shares issued as of 1/1 154,667,500 154,667,500
New shares issued 0 0
Number of shares issued as of 31/12 154,667,500 154,667,500
Own shares as of 1/1 (1,029,012) (826,223)
Purchase of own shares (1,446)1 (321,973)
Sale of own shares 45,947 119,184
Less own shares as of 31/12 (984,511) (1,029,012)
Number of shares outstanding as of 31/12 153,682,989 153,638,488

1 Return of unused shares from SIP 2005.

Share-based remuneration

In 2009, the second allotment of the share incentive plan (SIP – SIP allotment 2006) matured. According to the program conditions (published in the Wiener Zeitung as of 28 July 2006) the number of shares shown in the table below was transferred:

Share incentive program (SIP) 2006
Group of persons
Number of
due shares
Amount with share
price of € 15,70 at the
allotment day
(4/3/2009)
Number of
effective
distributed shares
Members of the Managing Board of Raiffeisen International
Bank-Holding AG
16,986 266,680 10,761
Members of the managing boards of bank subsidiaries
affiliated with Raiffeisen International Bank-Holding AG
30,380 476,966 27,807
Executives of Raiffeisen International Bank-Holding AG and
other affiliated companies
11,234 176,374 7,379

In order to avoid legal uncertainties, the entitled employees in two countries received cash compensation instead of the distribution of shares, according to the program conditions. In Austria, the entitled persons had the alternative to receive cash compensation instead of half of the due shares, to be able to settle the payable income tax due at the transfer date. For that reason the number or actually transferred shares is lower than the number of due shares; the stock of the own shares was, therfore reduced by the lower number of actually distributed shares.

Within the framework of the SIP, a new allotment has been issued on a yearly basis to date. This implies that on the balance sheet date contingent shares for three allotments are assigned. As of 31 December 2009, the contingent allotment under the share incentive program came to 536,736 shares (50,905 shares are due to the allotment of 2007, 83,368 shares are due to the allotment of 2008, 402,463 shares are due to the allotment of 2009). The originally announced contingent of allotted shares has changed as a result of various management changes in the Group units and due to the maturation of the SIP allotment 2006.This is shown on an aggregated level in the following table:

MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK

MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK

Share incentive program (SIP)
2007-2009
Group of persons
Number of
contingently
allotted shares as
of 31/12/2009
Minimum of
allotment of shares
Maximum
allotment of
shares
Members of the Managing Board of Raiffeisen
International Bank-Holding AG
164,849 47,371 247,274
Members of the managing boards of bank subsidiaries
affiliated with Raiffeisen International Bank-Holding AG
285,280 81,905 427,920
Executives of Raiffeisen International Bank-Holding AG
and other affiliated companies
86,607 25,031 129,911

In the financial year 2009, no own shares were bought back for the share incentive program.

(35) Breakdown of remaining terms to maturity

31/12/2009 Due at call or
without
Up to 3
months
More than 3
months, up to
More than 1
year, up to 5
More than 5
years
€000 maturity 1 year 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 for 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
31/12/2008 Due at call or
without
Up to 3
months
More than 3
months, up to
More than 1
year, up to 5
More than 5
years
€000 maturity 1 year years
Cash reserve 7,129,860 0 0 0 0
Loans and advances to banks 1,893,686 6,369,587 419,873 298,217 56,733
Loans and advances to customers 4,854,815 7,692,565 11,659,658 18,755,549 14,939,717
Impairment losses for loans and
advances (1,641,262) 0 0 0 0
Trading assets 45,553 981,687 986,408 1,110,988 638,542
Financial investments 140,094 775,092 1,276,783 1,986,429 958,209
Investments in associates 2,526 0 0 0 0
Sundry assets 2,407,216 645,478 515,037 454,173 43,772
Total assets 14,832,488 16,464,409 14,857,759 22,605,356 16,636,973
Deposits from banks 971,500 5,099,507 5,851,203 13,412,126 878,827
Deposits from customers 16,654,386 18,185,673 7,577,894 1,638,391 149,562
Debt securities issued 0 523,727 753,127 2,004,319 112,210
Trading liabilities 0 598,056 556,971 266,130 38,978
Subordinated capital 0 4,160 15,046 576,457 1,088,793
Sundry liabilities 589,195 627,260 274,774 373,518 56,989
Subtotal 18,215,081 25,038,383 15,029,015 18,270,941 2,325,359
Equity 6,518,206 0 0 0 0
Total equity and liabilities 24,733,287 25,038,383 15,029,015 18,270,941 2,325,359

(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.

€000 Parent
companies
Affiliated
companies
Companies
valued at equity
Other interests
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

Disclosures on Raiffeisen International's relations to key management are reported under note (53) relations to key management. As of 31 December 2009, the transactions with related parties were as follows:

As of 31 December 2008, the transactions with related parties were as follows:

Parent Affiliated Companies Other interests
€000 companies companies valued at equity
Loans and advances to banks 2,689,914 1,010 0 49,615
Loans and advances to customers 486 126,131 13,409 38,278
Trading assets 203,565 0 9,178 205
Financial investments 5,202 61,923 0 50,879
Investments in associates 0 0 2,526 0
Other assets (including derivatives) 298,197 646 5 33
Deposits from banks 13,961,430 1,933,643 83,398 119,078
Deposits from customers 5,657 38,026 2,494 8,634
Debt securities issued 25,255 0 0 0
Provisions for liabilities and charges 5,703 1 0 0
Trading liabilities 281,650 0 0 356
Other liabilities (including derivatives) 276,964 1,114 153 3,216
Subordinated capital 843,883 590,883 0 0
Guarantees given 249,617 5,964 0 13
Guarantees received 326,897 0 0 558

(37) Foreign currency volumes

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

€000 2009 2008
Assets 43,183,773 62,074,863
Liabilities 36,955,043 52,674,892

(38) Foreign assets/liabilities

Assets and liabilities with counterparties outside Austria are as follows:

€000 2009 2008
Assets 67,784,374 78,547,990
Liabilities 55,021,811 62,090,921

(39) Securitization

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 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 2009, 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 2009 the nonderecognized loans of ROOF Bulgaria 2008-1 amount to € 149,588 thousand (2008: € 195,257 thousand), those of ROOF Romania 2008-1 came up to € 167,622 thousand (2008: € 173,102 thousand).

Regarding true sale transaction ROOF Poland 2008-1 consisting of car leasing contracts the total volume of the loans amounts to € 131,829 thousand as of 31 December 2009 (2008: € 240,820 thousand). The maturity of the portfolio 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 € 117,077 thousand at year end 2009 (2008: € 263,707 thousand). In this case, the decrease of the carrying value is mainly explained by the maturity of the consumer loan volume in original currency, above-average high pre-term repayments 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 € 146,631 thousand.

Within the scope of synthetic securitizations ROOF CEE 2006-1, the non-derecognized loans amounted to € 364,285 thousand at year end (2008: € 404,403 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 in a marginal extent and hence to exceed slightly the original values.

€000 Seller of claims or secured
party
Date of
contract
End of
maturity
Volume Portfolio Junior
tranche
True Sale Transaction Raiffeisen Bank S.A., July To be Consumer
ROOF Romania 2008-1 Bucharest (RO) 2008 defined 1 175,000 loans
Raiffeisenbank (Bulgaria)
True Sale Transaction EAD, March To be Consumer
ROOF Bulgaria 2008-1 Sofia (BG) 2008 defined 1 200,000 loans
True Sale Transaction Raiffeisen-Leasing Polska January December Car leasing
ROOF Poland 2008-1 S.A., Warsaw (PL) 2008 2014 290,000 contracts 1.3%
True Sale Transaction ZAO Raiffeisenbank, May May
ROOF Russia 2007-1 Moscow (RUS) 2007 2017 297,000 Car loans 1.9%
Raiffeisen Bank Polska S.A.,
Warsaw (PL)
Synthetic Transaction Raiffeisenbank a.s., March March Company
ROOF CEE 2006-1 Prague (CZ) 2006 2019 450,000 loans 1.8%

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

1 As soon as there is a placement to external investors

(40) Genuine sale and repurchase agreements

The following repurchase and redelivery commitments are shown as of 31 December:

€000 2009 2008
Genuine repurchase agreements as borrower
Deposits from banks 841,724 602,707
Deposits from customers 13,488 121,979
Total 855,212 724,686
€000 2009 2008
Genuine repurchase agreements as lender (reverse repurchase agreement)
Loans and advances to banks 1,234,363 2,653,688
Loans and advances to customers 38,757 47,576
Total 1,273,120 2,701,264

Assets sold in a genuine sale and repurchase agreement amounted to € 1,024,330 thousand (2008: € 655,448 thousand) as of 31 December 2009. Assets, where the borrower has the right to sell or repledge totaled € 894,255 thousand (2008: € 638,875 thousand) and were bonds, notes and other fixed-interest securities.

Securities purchased in a genuine sale and repurchase agreement totaled € 1,294,129 thousand (2008: € 2,689,990 thousand). Assets which were sold or repledged amounted to € 843,439 thousand (2008: € 33,896 thousand). Thereof € 831,632 thousand were bonds (2008: € 32,574 thousand) and € 11,248 thousand (2008: € 0) were shares and other variable-yield securities and € 559 thousand were loans and advances (2008: € 1,322 thousand).

Security lending serves to fulfill delivery obligations. The loaned securities as of 31 December 2009 amounted to € 4,696 thousand (2008: 0).

(41) Assets pledged as collateral

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

€000 2009 2008
Deposits from banks 777,578 614,908
Deposits from customers 13,488 107,530
Debt securities issued 222,368 294,514
Other liabilities 725,651 453,291
Contingent liabilities and commitments 3,530 395
Total 1,742,615 1,470,638

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

€000 2009 2008
Loans and advances to banks 212,372 284,463
Loans and advances to customers 722 667
Trading assets 652,742 681,442
Financial investments 1,454,524 821,949
Total 2,320,360 1,788,521

(42) Finance leases

€000 2009 2008
Gross investment value 3,658,891 4,692,700
Up to 3 months 471,893 456,888
More than 3 months, up to 1 year 950,484 1,144,992
More than 1 year, up to 5 years 1,884,002 2,673,190
More than 5 years 352,512 417,631
Unearned finance income 460,986 688,737
Up to 3 months 50,099 72,582
More than 3 months, up to 1 year 123,248 185,970
More than 1 year, up to 5 years 241,938 350,195
More than 5 years 45,701 79,990
Net investment value 3,197,905 4,003,963

Write-offs on unrecoverable minimum lease payments outstanding totaled € 46,597 thousand (2008: € 9,130 thousand).

Assets under finance leases break down as follows:

€000 2009 2008
Vehicles leasing 2,016,595 2,695,882
Real estate leasing 530,245 493,871
Equipment leasing 651,065 814,210
Total 3,197,905 4,003,963

(43) Operating leases

Operating leases from view of lessor

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

€000 2009 2008
Up to 1 year 42,686 50,484
More than 1 year, up to 5 years 79,467 106,730
More than 5 years 51,532 63,662
Total 173,685 220,876

Operating leases from view of lessee

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

€000 2009 2008
Up to 1 year 114,668 90,761
More than 1 year, up to 5 years 238,918 268,180
More than 5 years 41,957 65,474
Total 395,543 424,415

Risk report

(44) Risks arising from financial instruments

Banks are as active players in the world's financial markets inherently exposed to their risks. For this reason, the ability of Raiffeisen International to identify and measure risks, to monitor and to manage them is decisive for the long-term success of the Group. Risk control in this process thus anticipates changing market environments in order to limit potential losses from banking activities and to optimize the risk/return profile. In particular, Raiffeisen International's risk management controls the exposure to and ensures professional management of credit and country, market, liquidity, and operational risks.

As a subsidiary and major sub-group of RZB, Raiffeisen International is integrated into RZB-Kreditinstitutsgruppe's risk management system. This ensures through different risk management units at several organizational levels of the Group that all material risks are measured and limited, and that business in general in due consideration of a risk/return perspective. For this purpose and in addition to legal and regulatory requirements, the risk management concept takes into account the particular nature, scale, and complexity of the business activities and the resulting risks.

Organization of risk management

In order to ensure a consistent and coherent risk management approach within the Group, the Managing Board of Raiffeisen International decides on the risk strategy and risk management rules within the framework laid down by RZB. These targets which are defined in the risk strategy include the risk appetite, limits for all material risks, and the demand on a minimum riskadjusted return. Also limits on large exposures, product/sector/industry weights, regional concentrations, and for market risks (e.g. structural open foreign exchange positions) are defined. The Managing Board of Raiffeisen International Bank-Holding AG is responsible for implementing these targets and for an adequately monitoring and controlling of the resulting risks.

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

Organizational structure

Basically, risk management functions are performed on different levels in the Group. Raiffeisen International Bank-Holding AG develops and implements the according concepts in close cooperation and coordination with Raiffeisen Zentralbank Österreich Aktiengesellschaft as the parent company and its individual subsidiaries.

The central risk management units are responsible for the adequate and appropriate implementation of the Group's risk management process. 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 legal entities of Raiffeisen International. 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 communicate them to central risk management units via defined reporting interfaces.

Risk committees

Committees bring together decision makers from RZB's different units (and therefore also representatives of Raiffeisen International) involved in risk management activities.

The Group Risk Committee is responsible for the 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 capital adequacy and 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 (MACO) controls market risks of trading and banking book transactions of Raiffeisen International and establishes corresponding limits and processes. For this purpose, the committee evaluates business results, the amount of risks taken and the limit utilization, as well as the results from scenarios and stress tests.

The Credit Committee, which is staffed by front office and back office divisions (account management and risk management), decides on credit transactions according to the credit approval process (depending on rating, exposures size, and duration) and approves all credit decisions that must be made by the Managing Board.

The Asset Liability Management Committee (ALCO) assesses and manages balance sheet structure risks and liquidity risk. 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 have been newly introduced to define credit portfolio strategies for different customer segments. In these committees, representatives from business and risk management units discuss the risks and opportunities of different customer segments (e.g. industries, countries, retail divisions) and develop limits for the Group's future credit portfolio orientation.

Internal capital adequacy

Maintaining an adequate level of capital is a core objective of risk management at Raiffeisen International. Capital adequacy is monitored on a quarterly basis based on the actual risk level 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
Sustainability
perspective
Core capital ratios
from a risk
perspective
Capital and earnings 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 equity
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 (risk horizon:
1 year)
99 per cent reflecting the
owners' willingness to inject
additional own funds
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 probability
of the fault of the target rating

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.

Risk contribution of individual risk types to economic capital 31/12/2009

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 members and different risk categories (credit incl. country risk, market, and operational risk). In addition, a separate buffer for other risks not explicitly quantified is held on overall Group level.

Raiffeisen International 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, which 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 last year – that credit risk of the corporate customer division remains the dominant risk category. Its share in total risk (29 per cent), however, is decreasing steadily in annual comparison. Credit risks in total account for 69 per cent of economic capital. Market and operational risks account for 11 and 8 per cent respectively 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 subordinated capital and serves as a cushion for servicing claims of senior debtors if losses are incurred. Total utilization of available risk capital (the ratio of eco-

nomic capital to internal capital) amounted to 87 per cent at the end of the reporting period (2008: 92 Prozent). The decreased utilization in comparison to the previous year mainly results from a fall of foreign exchange rate risk in the market risk area and the strengthening of the capital base.

Economic capital is used as 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 transformed for operative steering into volume, sensitivity, or value-at-risk limits. In Raiffeisen International this sort of planning is done on a revolving basis for the upcoming three years and it incorporates the future development of economic capital as well as the available internal capital. Economic capital thus influences the plans for future lending activities and the overall limit for taking market risks.

Based on these calculations, Raiffeisen International also carries out risk-adjusted performance measurement. In doing so, 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. The RORAC measure in turn is 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 with a view to 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 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 members 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 Raiffeisen International can also maintain a sufficient core capital ratio for the three-year planning period 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 as well as changes in default probabilities and rating migrations.

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.

The main focus of this integrated stress test is the resulting core capital ratio in the RZB-Kreditinsitutsgruppe, with Raiffeisen International as a major subgroup, 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 valuations and earnings effects resulting from the downturn scenario are incorporated.

Eventually, the results of these stress tests are analyzed in detail in order that adequate steering measures can be implemented in advance. If the results exceed valid trigger levels, predefined countermeasures are initiated and necessary additional actions are evaluated for Raiffeisen International. In the reporting period, for example, as part of these measures participation capital and hybrid tier-1 capital was issued and risks have been reduced selectively.

Credit risk

Credit risk within Raiffeisen International consists mainly of default risk that arises 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 contractually agreed financial obligations. Also migration risks (caused by deteriorations in customers' creditworthiness), concentration risks of creditors or in credit risk mitigation techniques, and country risk are considered.

Credit risk is by far the most important risk category in Raiffeisen International 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, and 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 credit risk controlling system includes different types of monitoring measures which are tightly integrated into the work flow that lead 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 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 limits leading to credit risk, 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 considered by the next decision-making level.

The values of collateral and other risk mitigation techniques are calculated with each credit assessment as well. For the calculation of risk mitigation effects, the value accounted for is the value Raiffeisen International 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 respective value of the collateral is calculated via specified methods, which include standardized calculations based on market values, predefined minimum discounts, and expert assessments.

The whole limit application process is based on defined uniform principles and rules. Account management, for example, where multinational customers do business simultaneously with more than one network unit of Raiffeisen International, is supported by the Global Account Management System (GAMS). The limit application process makes the dual control principle mandatory and allows for fast sharing of lending applications for decision making according to the defined competence schemes. All these applications benefit from unique customer identification in the non-retail division and the respective IT system for retail customers in the Group.

MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK

Rating models and credit structure

The rating process is the process of determining the creditworthiness of a counterparty. Raiffeisen International uses internal ratings for assessing credit risk where different risk-classification procedures (rating and scoring models) for different asset classes are employed. Non-retail rating and scoring models are used uniformly in the whole Group and are available as specific software tools (e.g. for determining the creditworthiness and calculating the rating, rating documentation in the rating database).

The rating models in the main non-retail asset classes – corporate customers, financial institutions, and sovereigns – rank creditworthiness in ten classes. The portfolio distribution shown is based on individual customer ratings. For the overall assessment of credit risk, guarantees and collateral must also be considered. Furthermore, it should be noted that the default probabilities of individual rating classes are calculated separately for each business segment. Thus the default probability of the same ordinal rating class (e.g. 1.5 for corporates, A3 for financial institutions, and A3 for sovereigns) in the different segments is not directly comparable.

Corporate customers

The internal rating model for corporate customers takes qualitative factors as well as several business and performance figures which are tailored to the various industries and financial reporting standards into account.

Exposure to corporate customers, by internal rating and region

in € million

The following table provides a breakdown of the credit exposure according to the internal rating of corporate customers in thousands of euros. These figures show the total exposure (including off-balance sheet exposure). Collateral must also be taken into account in the overall assessment of credit risk:

Internal rating 2009 Proportion 2008 Proportion
0.5 Minimal Risk 62 <0.1% 4,985 <0.1%
1.0 Excellent credit standing 501,463 1.3% 816,578 1.7%
1.5 Very good credit standing 2,016,052 5.3% 3,387,288 7.1%
2.0 Good credit standing 3,030,803 7.9% 6,461,836 13.6%
2.5 Sound credit standing 4,801,391 12.6% 7,118,823 15.0%
3.0 Acceptable credit standing 6,998,598 18.3% 9,780,532 20.6%
3.5 Marginal credit standing 7,624,213 20.0% 9,919,172 20.9%
4.0 Weak credit standing/sub-standard 6,632,624 17.4% 5,626,043 11.8%
4.5 Very weak credit standing/doubtful 3,003,247 7.9% 1,813,613 3.8%
5.0 Default (acc. to Basel II definition) 2,531,273 6.6% 951,437 2.0%
NR Not rated 1,019,873 2.7% 1,616,048 3.4%
Total 38,159,599 100.0% 47,496,355 100.0%

The total credit exposure to corporate customers declined in comparison to year end 2008 by approximately 20 per cent. This reduction can be partly attributed to the implementation of selective portfolio reduction measures, but is also caused by foreign exchange effects. During the financial year 2009 the average credit quality of corporate customers declined. This negative change in overall credit quality is mainly caused by rating-downgrades for existing customers where the key business and performance figures used in rating models deteriorated due to the economic downturn. The portfolio share of the best rating categories (up to rating class 2.0) decreased most by 7.9 per cent to now 14.5 per cent. Also the proportion of exposures with acceptable credit standing (up to rating class 3.0) declined by 4.7 per cent and stands at 30.9 per cent. Consequently, the portfolio share of lower rated customers increased by 8.7 per cent to 45.2 per cent as the economic recession fully unfolded during the year 2009. The portfolio share of customers at default (rating class 5.0) also increased from 2.0 per cent to 6.6 per cent as well. On the regional level, the main focus of the customers at default lay in Ukraine and Russia followed by Hungary with a distance. Nearly one half of the exposure not rated is due to small loans which are loaded without their ratings into the group data warehouse. Nonetheless, the exposure share of unrated corporate customers has been decreased above average as a consequence of process improvements.

It should be noted that the rating shown in this table only reflects the borrowers' credit standing and does not take into account the amount of collateral provided in individual transactions.

Project rating 2009 Proportion 2008 Proportion
6.1 Excellent project risk profile – very low risk 940,405 28.4% 1,451,184 40.0%
6.2 Good project risk profile – low risk 1,316,273 39.8% 1,405,852 38.8%
6.3 Acceptable project risk profile – average risk 745,345 22.5% 664,786 18.3%
6.4 Poor project risk profile – high risk 219,127 6.6% 73,559 2.0%
6.5 Default 61,534 1.9% 10,848 0.3%
NR Not rated 27,805 0.8% 20,042 0.6%
Total 3,310,489 100.0% 3,626,271 100.0%

For project financing the rating model shows five different grades. The breakdown of project financing volume in thousands of euros is as follows:

The volume of assets rated through project rating has decreased by 9 per cent compared to year end 2008 where the main reduction took place in Central Europe. The good rating profile of the portfolio reflects the high collateralization in these special financing transactions. Nonetheless, there have been downgrades as well.

Retail customers

Retail customers are divided into private individuals and small and medium-sized enterprises (SME). For retail customers, a twofold 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 credit exposure (including off-balance sheet exposure) for retail customers by region (domicile of the booking unit) in thousands of euros:

2009 Total Proportion Central
Europe
Southeastern
Europe
Russia CIS Other
Retail – private
individuals
19,409,046 88.5% 8,762,722 6,648,863 1,950,408 2,047,053
Retail – SME 2,534,436 11.5% 1,464,466 836,075 29,089 204,806
Total 21,943,482 100.0% 10,227,188 7,484,938 1,979,497 2,251,859
2008 Total Proportion Central
Europe
Southeastern
Europe
Russia CIS Other
Retail – private
individuals
20,688,912 87.5% 8,658,050 7,204,791 2,436,984 2,389,087
Retail – SME 2,964,022 12.5% 1,532,529 1,026,792 39,032 365,669
Total 23,652,934 100.0% 10,190,579 8,231,583 2,476,016 2,754,755

Retail exposure, split by product groups

From year-end 2008 to year-end 2009, the retail portfolio in total decreased by 7 per cent to € 21,943,482 thousand. This decrease was caused mainly by implementing measures for selectively reducing the credit portfolio. Partial product restrictions with respect to foreign currency loans as a response to the economic development in some CEE countries and exchange rate effects contributed to this decrease in assets as well. The largest exposure decrease took place in the small and medium enterprises division (minus 14 per cent), whereas loans to private individuals decreased just by 6 per cent.

From a geographical point of view, the segments Russia and CIS Other were hit by the largest decrease (minus 20 per cent and minus 18 per cent respectively).

Exposure to financial institutions, by internal rating and region

Financial institutions

The customer division financial institutions 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. A ceiling is applied to the final rating for financial institutions by the respective country rating.

Internal rating 2009 Proportion 2008 Proportion
A1 Minimal risk 35,527 0.3% 417,787 4.6%
A2 Excellent credit standing 411,278 3.7% 710,634 7.8%
A3 Very good credit standing 8,331,712 75.5% 6,193,968 68.3%
B1 Good credit standing 622,119 5.6% 414,217 4.6%
B2 Average credit standing 672,202 6.1% 631,356 7.0%
B3 Mediocre credit standing 493,761 4.5% 347,200 3.8%
B4 Weak credit standing 155,176 1.4% 64,183 0.7%
B5 Very weak credit standing 191,052 1.7% 130,809 1.4%
C Doubtful/high default risk 58,156 0.5% 13,978 0.2%
D Default 4,919 <0.1% 731 <0.1%
NR Not rated 64,626 0.6% 140,291 1.5%
Total 11,040,528 100.0% 9,065,154 100.0%

The following table shows the credit exposure per rating class for financial institutions (including off-balance sheet exposure but excluding central banks) in thousands of euros:

In comparison to year end 2008, loans and advances to and securities issued by financial institutions increased significantly by 22 per cent to € 11,040,528 thousand. The rating distribution of financial institutions showed an even higher clustering in the rating class A3, which went up from 68.3 per cent to 75.5 per cent in the overall portfolio share. This increase was mainly due to short-term deposits made at other banks. The exposure in the rating class B4 increased by 142 per cent compared to the year end 2008. The main increase was recorded in Southeastern Europe. The exposure of unrated financial institutions was below 1 per cent as of 31 December 2009. This exposure was caused mainly by short-term loans to small banks, where the rating process had not been completed yet.

Sovereigns

Another rating model is used for 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 and off-balance sheet exposure) based on the internal rating in thousands of euros:

Internal rating 2009 Proportion 2008 Proportion
A1 Minimal risk 455,342 3.1% 510,718 3.2%
A2 Excellent credit standing 380,171 2.6% 137,227 0.9%
A3 Very good credit standing 3,687,206 25.2% 4,540,568 28.6%
B1 Good credit standing 1,061,130 7.3% 1,134,324 7.2%
B2 Average credit standing 653,250 4.5% 3,523,547 22.2%
B3 Mediocre credit standing 5,762,992 39.4% 3,610,963 22.8%
B4 Weak credit standing 1,168,817 8.0% 1,794,342 11.3%
B5 Very weak credit standing 1,373,089 9.4% 556,784 3.5%
C Doubtful/high default risk 8,306 0.1% 0 <0.1%
D Default 19,232 0.1% 4,172 <0.1%
NR Not rated 61,313 0.4% 42,578 0.3%
Total 14,630,848 100.0% 15,855,223 100.0%

The total exposure to sovereigns decreased by 8 per cent. This was caused mainly by shifting liquid funds. Due to the gradual normalization of the interbank market, liquidity was placed again at other banks instead of central banks. Compared to the previous year the total exposure of the best rating class A1 decreased by 11 per cent. The decline of portfolio in rating class A3 was caused by a reduction in deposits at and securities issued by Slovakian sovereigns.

The high exposure in average rating grades resulted mainly from the deposits of network banks at local central banks in Central and Eastern Europe with an acceptable credit standing. These deposits are used to meet the respective minimum reserve requirements and to manage excess liquidity on a short-term basis and therefore are intrinsically tied to the banking activities in these countries. The exposure to rating class B2 has been reduced by € 2,870,297 thousand compared to year-end 2008. This can be mainly attributed to the rating of Hungary, which has been downgraded from B2 to B3. The exposure in rating class B5 increased by € 816,305 thousand. This has been caused mainly by the rating downgrade of Serbia (from B4 to B5).

Exposure to sovereigns, by internal rating and region

Default and workout process

Non-performing loans are defined analogous to Basel II default criteria. Default is defined in Raiffeisen International as the event where a specific debtor is unlikely to pay its credit obligations to the Group from primary sources, or the debtor is overdue more than 90 days on any material credit obligation. Raiffeisen 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 workout unit is considering stepping in to help a company restore its financial soundness.

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. It is supplemented by an early warning system and conducted on a monthly basis. A review is conducted at least once annually for the non-retail divisions corporate customers, financial institutions, and sovereigns. This includes a rating review and the reevaluation of financial and tangible collaterals.

Within the scope of the Basel II project a Group-wide default database has been created for recording and documenting customer defaults. The database tracks recoveries and work-out costs as well, which makes it suitable for calculating and validating PDs and LGDs (the probability of default, PD, and loss given default, LGD, both are parameters in the regulatory Internal Ratings Based approach used for determining required own funds and the Group's internal risk quantification models).

MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK

Troubled loans (where debtors are expected to run into material financial difficulties or delayed payment) need special handling. In the non-retail segments, Problem Loan Committees (PLCs) of each Group member review problematic exposures. In case of the need for intensified handling and workout, the troubled loans are assigned either to a designated specialist or to a restructuring unit (workout department), both part of the risk or credit risk management divisions. Employees of workout units are specially trained 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 in reducing losses caused by troubled loans. Cases in which restructuring or liquidation take place are analyzed in Raiffeisen International to find out their causes. Lending processes are then adapted as necessary on the basis of these results.

Default and workout standards in the retail area are defined for the whole restructuring and collection process for private individuals and small enterprises. A restructuring guideline defines the Group's restructuring framework including the 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 each.

Restructuring of loans

As of 31 December 2009 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 € 483,909 thousand. Split by asset classes, € 160,282 thousand of that is attributable to corporate customers and € 323,627 thousand to retail customers.

Impairments and provisioning

The impact of the economic crisis led to a strong increase in credit defaults in the year 2009.

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. 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 charts show the regional breakdown of non-performing loans and provisions.

Breakdown of non-performing loans by region Breakdown of loan loss provisions by region

The following table shows the exposure outstanding in the defined asset classes from balance sheet positions loans and advances to banks and loans and advances to customers and the corresponding non-performing loans, collateral provided for these loans, and impairment losses on loans by segments (domicile of booking unit):

€000 Central
Europe
Southeastern
Europe
Russia CIS Other Total 2009
Corporate customers 14,445,729 7,152,689 4,394,004 3,222,680 29,215,102
Non-performing 1,073,183 549,985 441,780 511,296 2,576,244
thereof collateralized 409,459 339,276 172,491 325,714 1,246,939
Impairment losses on loans 588,475 294,615 408,117 406,238 1,697,445
Retail customers 9,225,278 6,898,650 1,866,483 2,151,627 20,142,038
Non-performing 650,711 436,773 202,870 559,866 1,850,220
thereof collateralized 358,453 113,781 114,112 405,873 992,218
Impairment losses on loans 408,227 370,941 192,387 408,670 1,380,225
Financial institutions 1,936,906 2,110,331 3,154,166 602,254 7,803,657
Non-performing 4,057 0 0 176 4,233
thereof collateralized 0 0 0 0 0
Impairment losses on loans 3,245 16 0 176 3,438
Sovereigns 1,060,919 1,724,651 127,696 218,828 3,132,094
Non-performing 12,935 0 2,964 0 15,898
thereof collateralized 502 0 0 0 502
Impairment losses on loans 2,343 0 572 0 2,915
Total 26,668,832 17,886,322 9,542,348 6,195,389 60,292,891
Non-performing 1,740,886 986,758 647,613 1,071,338 4,446,596
thereof collateralized 768,414 453,057 286,603 731,586 2,239,660
Impairment losses on loans 1,002,291 665,572 601,076 815,084 3,084,023
€000 Central
Europe
Southeastern
Europe
Russia CIS Other Total 2008
Corporate customers 15,781,436 8,460,085 6,486,680 3,933,930 34,662,130
Non-performing 488,012 184,160 44,234 107,643 824,049
thereof collateralized 208,868 179,046 79,296 51,620 518,830
Impairment losses on loans 363,348 145,746 211,397 131,501 851,993
Retail customers 9,222,207 7,613,793 2,668,794 2,631,449 22,136,244
Non-performing 327,035 197,953 79,296 346,460 950,744
thereof collateralized 113,328 206,019 48,259 163,776 531,382
Impairment losses on loans 214,314 211,685 155,031 201,736 782,766
Financial institutions 1,014,322 1,638,287 1,605,991 809,634 5,068,234
Non-performing 0 431 0 0 431
thereof collateralized 0 0 0 0 0
Impairment losses on loans 4,162 16 173 0 4,351
Sovereigns 2,823,485 1,693,074 210,363 59,736 4,786,658
Non-performing 5,206 0 0 0 5,206
thereof collateralized 236 0 0 0 236
Impairment losses on loans 2,153 0 0 0 2,153
Gesamt 28,841,450 19,405,239 10,971,828 7,434,750 66,653,266
Non-performing 820,254 382,544 123,530 454,103 1,780,431
thereof collateralized 322,432 385,065 127,555 215,396 1,050,448
Impairment losses on loans 583,977 357,446 366,601 333,237 1,641,262

In 2009 in the corporate customers division, NPL ratio was the highest in the segment CIS Other, standing at 15.9 per cent, which is mainly attributable to loan defaults in Ukraine. For the total division this ratio went up from 2.4 per cent to 8.8 per cent. In nominal amounts, non-performing loans reached € 2,576,244 thousand where € 1,697,445 thousand impairment losses on loans have been allocated and in addition € 1,246,939 thousand of collateral is available.

The retail customer division has the highest ratio of non-performing loans to total loans. The NPL ratio in this division increased to 9.2 per cent. In particular, the NPL ratio in the relatively small segment CIS Other increased significantly from 8.0 per cent to 26.0 per cent. In total, non-performing loans in the retail area reached € 1,850,220 thousand where € 992,218 thousand were available as collateral. For the difference between these values € 1,380,225 thousand in impairment losses on loans have been allocated.

As of
1/1/2009
Change in
consolidated
Allocation1 Release Usage2 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 to banks 4,050 0 194 (3) (8) (803) 3,430
Loans 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
provisions
598,725 0 474,261 (288,431) 0 (14,043) 770,512
Loans to banks 301 0 121 (283) 0 (131) 8
Loans 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

The following table summarizes the development of loan loss provisions and provisions for off-balance sheet obligations in the fiscal year and that of the underlying positions on the balance sheet:

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
1/1/2008
Change in
consolidated
group
Allocation1 Release Usage2 Transfers,
Exchange
differences
As of
31/12/2008
Individual loan
loss provisions
803,597 0 732,323 (230,362) (107,912) (85,732) 1,111,914
Loans to banks 146 0 3,670 (152) (8) 394 4,050
Loans to customers 754,580 0 700,872 (192,077) (107,898) (85,356) 1,070,121
Off-balance sheet
obligations
48,871 0 27,781 (38,133) (6) (770) 37,743
Portfolio-based
provisions
367,364 0 407,909 (129,569) 0 (46,979) 598,725
Loans to banks 499 0 325 (471) 0 (51) 301
Loans to customers 347,941 0 385,900 (120,505) 0 (46,546) 566,790
Off-balance sheet
obligations
18,924 0 21,684 (8,593) 0 (382) 31,634
Total 1,170,961 0 1,140,232 (359,931) (107,912) (132,711) 1,710,639

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 Usage2 Exchange
differences
As of
31/12/2009
€000 group
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
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

The following table shows the geographic breakdown of loan loss provisions by region according to the domicile of the booking unit:

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
1/1/2008
Change in
consolidated
group
Allocation1 Release Usage2 Exchange
differences
As of
31/12/2008
Individual loan
loss provisions
803,597 0 732,323 (230,362) (107,912) (85,732) 1,111,914
Central Europe 302,303 0 324,870 (99,943) (59,003) (18,771) 449,456
Southeastern
Europe
191,201 0 163,207 (91,841) (21,046) (2,699) 238,822
Russia 169,887 0 120,432 (21,345) (14,650) (30,983) 223,341
CIS Other 140,206 0 123,814 (17,233) (13,213) (33,279) 200,295
Portfolio-based
provisions
367,364 0 407,909 (129,569) 0 (46,979) 598,725
Central Europe 126,023 0 98,864 (58,426) 0 (1,168) 165,293
Southeastern
Europe
66,280 0 109,149 (21,870) 0 (5,404) 148,155
Russia 94,118 0 96,118 (19,883) 0 (20,344) 150,009
CIS Other 80,943 0 103,778 (29,390) 0 (20,063) 135,268
Total 1,170,961 0 1,140,232 (359,931) (107,912) (132,711) 1,710,639

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

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

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

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

31/12/2008 Carrying
amount
Individual
loan loss
Portfolio
based
Net carrying
amount
Individually
impaired
Fair value
€000 provisions provisions assets
Financial institutions 9,038,096 4,050 301 9,033,745 16,253 10,308,502
Sovereigns 1,103,929 2,153 0 1,101,776 6,025 1,087,379
Corporate customers –
large
29,564,406 506,757 178,778 28,878,871 1,428,291 29,110,585
Corporate customers –
small business
5,056,611 117,988 48,469 4,890,154 304,247 4,949,538
Retail – private
individuals
19,268,185 368,400 300,727 18,599,058 500,821 18,879,855
Retail – SME 2,868,058 74,823 38,816 2,754,419 128,831 2,841,323
Others 41,115 0 0 41,115 0 41,187
Total 66,940,400 1,074,171 567,091 65,299,138 2,384,468 67,218,369

Overdue financial assets

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:

31/12/2009 Current Overdue Collaterals
€000 <31 days 31–90
days
91–180
days
181 days
– 1 year
>1 year received for
assets which
are past due
Financial institutions 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 – private
individuals
14,253,465 1,407,58
0
414,313 278,046 111,027 133,663 1,063,926
Retail – SME 1,764,539 199,152 76,277 30,300 4,435 6,286 297,741
Others 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
31/12/2008 Current Overdue Collaterals
€000 <31 days 31–90
days
91–180
days
181 days
– 1 year
>1 year received for
assets which
are past due
Financial institutions 8,953,066 2,741 66,036 0 0 0 2,860
Sovereigns 1,071,981 24,817 1,071 34 1 0 3,824
Corporate customers –
large
26,144,068 1,740,650 171,876 44,761 12,411 22,349 1,541,124
Corporate customers –
small business
4,158,340 479,609 95,077 8,820 4,247 6,271 642,352
Retail – private
individuals
16,344,457 1,615,384 440,690 223,072 46,938 96,823 1,892,329
Retail – SME 2,445,684 173,069 69,744 32,238 8,409 10,083 394,053
Others 41,011 102 0 0 0 0 3
Total 59,158,607 4,036,372 844,494 308,925 72,006 135,526 4,476,545

Impaired assets

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

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
Financial institutions 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 – private individuals 1,192,012 777,874 414,138 719,163 118,627
Retail – SME 270,943 156,640 114,303 194,501 22,713
Others 129 0 129 0 0
Total 4,905,944 2,358,009 2,547,935 2,748,541 304,849
31/12/2008 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
Financial institutions 16,253 4,050 12,203 2,296 1,290
Sovereigns 6,025 2,153 3,872 20,088 1,380
Corporate customers – large 1,428,291 506,757 921,534 1,197,200 71,489
Corporate customers – small
business
304,247 117,988 186,259 384,781 21,840
Retail – private individuals 500,821 368,400 132,421 305,471 71,641
Retail – SME 128,831 74,823 54,008 118,088 10,885
Others 0 0 0 0 0
Total 2,384,468 1,074,171 1,310,297 2,027,924 178,525
31/12/2009 Maximum credit exposure Fair value of collaterals
€000 Net exposure Commitments /
guarantees issued
Financial institutions 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 – private individuals 16,620,215 1,742,211 12,570,999
Retail – SME 2,141,599 312,526 1,513,847
Others 28,224 1,926 7,319
Total 57,741,049 14,708,812 34,190,964

The maximum credit risk exposure and the fair value of collaterals without default of debtor are shown in the following table:

Collateral, where reselling or repledging is allowed without default of debtor amounted to € 15,540,905 thousand (2008: € 18,185,718 thousand).

31/12/2008 Maximum credit exposure Fair value of collaterals1
€000 Net exposure Commitments /
guarantees issued
Financial institutions 9,033,745 563,827 2,037,226
Sovereigns 1,101,776 399,168 496,174
Corporate customers – large 28,878,871 13,768,609 20,100,704
Corporate customers – small business 4,890,154 1,122,311 4,379,320
Retail – private individuals 18,599,058 1,974,038 13,858,676
Retail – SME 2,754,419 401,638 2,853,401
Others 41,113 12,941 2,748
Total 65,299,136 18,242,532 43,728,249

1 Last year figures were adapted and include all collaterals.

Type of collateral as of 31/12/2009

Collateral

Collateral is divided into pledges (e.g. guarantees) and asset-based collateral. In Raiffeisen International liens on residential or commercial properties are the main type of collateral used with Raiffeisen International.

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. Raiffeisen International 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 generally increased in the course of the global economic crisis.

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 macroeconomic risk of a particular country and a qualitative analysis of the political risk that a particular country represents. Country risk management in Raiffeisen International is based on the country risk policy which is reviewed semi-annually by the Managing Board as prepared by the Country Risk Committee. This committee includes representatives of the various business segments and risk management departments. 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 a customer. Country risk is also measured separately when assessing internal capital adequacy and is reflected in product pricing as well as in risk-adjusted performance evaluation. Business units therefore get rewarded for mitigating country risk 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 Group's performance. These stress tests are another core area of country risk management and underline the special importance of this topic in Raiffeisen International's risk management.

Concentration risk

Raiffeisen International's lending portfolio is broad and well diversified in terms of region and industry. The ten largest corporate exposures (as groups of connected customers) with a weighted average rating between 3.0 and 3.5 account for 3.6 per cent of the corporate portfolio.

The regional breakdown of credit exposure reflects the broad diversification in European markets. The following table shows the regional distribution of credit exposure from banks and customers (including off-balance sheet exposure) by domicile of borrower:

€000 2009 Proportion 2008 Proportion
Slovakia 10,123,017 11.4% 12,171,277 12.2%
Hungary 9,645,335 10.8% 11,086,835 11.1%
Russia 9,547,443 10.7% 13,773,229 13.8%
Czech Republic 9,306,854 10.5% 8,566,498 8.6%
Austria 7,420,225 8.3% 4,822,747 4.8%
Romania 7,225,958 8.1% 6,827,516 6.8%
Poland 6,930,303 7.8% 7,796,949 7.8%
European Union1 6,293,175 7.1% 8,423,667 8.4%
Croatia 5,793,291 6.5% 6,041,691 6.1%
Ukraine 5,040,303 5.7% 6,501,749 6.5%
Bulgaria 4,093,188 4.6% 4,940,321 5.0%
Serbia 2,990,563 3.4% 4,672,976 4.7%
Bosnia and Herzegovina 2,168,909 2.4% 2,543,512 2.5%
Others 2,400,065 2.7% 1,583,060 1.6%
Total 88,978,629 100.0% 99,752,028 100.0%

1 EU-27 excluding member states listed in this table

Within the scope of its risk policy and assessments of creditworthiness, Raiffeisen International also considers the borrower's industry. The following table covers the customer credit exposure (including off-balance sheet exposure, but without banks and central banks):

€000 2009 Proportion 20081 Proportion
Private households 19,608,105 26.4% 21,489,380 26.2%
Retail and wholesale trade 10,659,018 14.3% 13,604,595 16.6%
Manufacturing 10,636,720 14.3% 14,173,926 17.3%
Public administration and social insurance institutions 10,458,091 14.1% 7,332,625 8.9%
Real estate 9,110,786 12.3% 9,091,722 11.1%
Construction 3,973,371 5.3% 4,913,450 6.0%
Communication and information transmission 2,832,519 3.8% 3,371,896 4.1%
Banking and insurance 2,767,659 3.7% 3,490,157 4.3%
Others 4,242,437 5.7% 4,615,207 5.6%
Total 74,288,706 100.0% 82,082,957 100.0%

1 Adaptation of previous year figures due to different mapping.

Exposure to financial institutions and customers by geographical region (including off-balance sheet)

Non-bank credit exposure (including off-balance sheet items) by industry

Counterparty credit risk

If a counterparty in a derivative, repurchase, securities or commodities lending or borrowing transaction defaults then losses can arise from re-establishing the contract with another counterparty. In Raiffeisen International this risk is measured by the mark-tomarket 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 the 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, Raiffeisen International strives to establish standardized ISDA master agreements with all counterparties 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.

Market risk

Raiffeisen International defines market risk as the risk of possible losses arising from changes in the market due to fluctuating or changing interest rates, foreign exchange rates, share prices and prices in general. This risk category encompasses both trading book and banking book positions. Risky positions are the result either of business done for customers or result from proprietary position taking.

Organization

Market risk at Raiffeisen International is monitored and managed by RZB within the scope of a service level agreement (SLA). The rules and procedures for the management of market risks are defined by RZB on a Group-wide basis and endorsed by the Managing Board of Raiffeisen International. All network banks of Raiffeisen International have market risk management departments. Those departments are responsible for day-to-day limit monitoring and weekly reporting to RZB.

Raiffeisen International approves, measures, monitors and manages all market risks by setting a variety of limits. The overall limit is set by the Managing Board on the basis of the Group's risk-bearing capacity and income budgeting. This limit is apportioned on the basis of a coordinated proposal made by the treasury department and market risk management in the weekly market risk committee. The individual limits set at book level vary according to the different risk factors. Besides value-at-risk (VaR) limits, those limits may include volume and position limits as well as sensitivity limits (basis-point value, delta, gamma, vega) and stop-loss limits, depending on the type of transaction. All products in which open positions can be held are listed in

MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK

the product catalogue. New products are added to this list only after running through the product approval process (PAP). Positions and limits are checked daily throughout the Group.

Value-at-risk is of central importance for setting limits. The value-at-risk results for 2009 are still reported based on a variancecovariance model. In this calculation the Group uses a confidence level of 99 per cent, sets the holding period to 10 days, and derives volatilities and correlations from historical market data of one business year. The accuracy and reliability of this value-atrisk approach, which is based on past market developments, is checked using appropriate backtesting.

Value-at-risk figures forecast maximum losses that will not be exceeded with a certain confidence level under normal market conditions but do not provide any specific information about the effects of exceptionally extreme market movements. To take such events into account, weekly stress tests are carried out focusing on the biggest daily market movements in the preceding five years. With stress scenarios crisis situations and major fluctuations in market parameters are simulated and their effect on the Group's current positions is computed. The results are an important input for the management of risks (especially on market risk concentrations).

Market risk in the trading book

Market risk in Raiffeisen International's trading books depends primarily on currency risk, which results from foreign-currency denominated equity investments made in foreign Group units and the corresponding hedging positions entered by the Asset Liability Management Committee. This risk has decreased significantly during the last year due to the steady decline in foreign exchange rates' volatilities.

Interest rate risk and price risks (e.g. stocks and funds) are also important, whereas commodity risk is not material at all. The table below provides value-at-risk figures (99 per cent, 10-day) by risk type for market risk in the trading book of Raiffeisen International:

€000 VaR as of
31/12/2009
Average VaR Minimum VaR Maximum
VaR
Interest rate risk 14,794 10,220 5,120 17,975
Price risk 1,404 2,033 903 3,268
Currency risk 189,023 267,576 189,023 301,652
thereof currency risk without capital 18,213 18,573 3,891 37,267

The following table shows the market risks for the year 2008:

€000 VaR as of
31/12/2008
Average VaR Minimum VaR Maximum
VaR
Interest rate risk 18,586 8,200 3,806 19,301
Price risk 3,020 3,863 2,690 5,486
Currency risk 258,384 112,981 38,699 258,384
thereof currency risk without capital 15,554 4,066 582 16,153

The own funds requirement for the trading book is calculated using the standardized approach as defined in Austria's solvability directive.

Foreign exchange rate risk and capital (ratio) hedges

Foreign exchange rate risk in a narrow sense denotes the risk that one suffers losses due to open foreign exchange positions. Exchange rate fluctuations affect foreign-currency denominated equity investments, expenses, and revenues. Exchange rate changes, however, 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.

Raiffeisen International holds several material participations located in countries outside of the European Monetary Union with equity denoted in the corresponding local currency. Also, a significant share of the Group's risk weighted assets is denoted in foreign currencies. Changes in foreign exchange rates thus lead to a change of consolidated capital; and they influence the Group's own funds requirement for credit risks as well.

Basically, there are two different approaches for managing foreign exchange rate risks:

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

Raiffeisen International aims at stabilizing its core capital ratio in the Group's risk management of foreign exchange rate risks. Changes in foreign exchange rates thus lead to changes in consolidated capital amounts; however, also the regulatory capital requirements for credit risks stemming from assets denoted in foreign currencies change correspondingly. This risk is managed monthly in the Group's 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.

Market risk in the banking book

Interest rate risk in the banking book arises from different maturities and repricing schedules of Raiffeisen International's assets and the corresponding liabilities (i.e. deposits and refinancing on debt and capital markets). This risk in particular is due to 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 network banks located in Central and Eastern Europe.

This risk is mainly hedged by a combination of on- and off-balance sheet transactions where the Group uses in particular interest rate swaps and – to a smaller extend – also interest rate forwards and interest rate options. Balance sheet management is a core task of the central treasury department 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 traditional tools for nominal and interest rate gap analysis. The following table shows the change in the present value of Raiffeisen International's banking book given a one-basis-point interest rate increase for the whole yield curve in € thousand:

Change of present value 31/12/2009 6–12 months >1–2 years >2–5 years >5 years
EUR (13.7) 25.8 (108.7) (0.3)
USD (5.1) 22.2 201.6 (55.1)
Others 38.0 (73.5) (107.5) (69.7)

Present value change of Raiffeisen International's banking book in the previous year given a simultaneous one-basis-point interest rate increase in € thousand:

Change of present value 31/12/2008 6–12 months >1–2 years >2–5 years >5 years
EUR 33.1 42.3 105.3 56.5
USD 60.0 0.2 349.2 160.4
Others 29.4 36.9 48.4 18.4

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 diametric desire 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 meets is obligations at all times, is performed both centrally by Raiffeisen International and on a decentralized basis by the local banks. 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's always conforms to legal regulations on liquidity positions and the defined internal liquidity limits. Liquidity analyses also include simulations on the sensitivity of liabilities and the liquidity of assets as well as defined liquidity crises in scenariobased cash flow forecasts. All these analyses are discussed in the Group's Asset Liability Management 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). These parameters have been updated in 2009 according to the statistical evidence collected during this year.

Maturity 2009 2008
€000 1 week 1 month 1 year 1 week 1 month 1 year
Liquidity gap 9,024,377 10,229,915 1,607,660 11,017,694 14,326,032 12,367,631
Liquidity ratio 207% 165% 103% 247% 220% 141%

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

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 seeks 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. Raiffeisen International's banking activities are refinanced by combining the wholesale strengths and know-how of Raiffeisen Zentralbank as parent credit institution and the retail franchise of deposit-taking network banks and their own issuing plans. Extending and securing deposit gathering activities currently receives the main focus.

This risk is managed first of all by the Asset Liability Management Committee of Raiffeisen International. The main task is the coordination of funding plans for the year ahead and strategic funding plans for longer horizons. Moreover, Raiffeisen International coordinates the medium-term and long-term borrowing activities 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 and tightened for individual network banks. The new 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.

31/12/2009
€000
Carrying
amount
Contractual
cash flows
<3 months 3–12 months 1–5 years >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

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

31/12/2008
€000
Carrying
amount
Contractual
cash flows
<3 months 3–12 months 1–5 years >5 years
Non-derivative
liabilities
76,160,553 83,516,010 47,056,182 15,032,868 18,776,600 2,650,360
Deposits from
banks
26,213,164 29,113,564 7,229,421 6,962,430 13,947,698 974,015
Deposits from
customers
44,205,905 47,874,345 38,510,884 7,085,415 2,084,907 193,139
Debt securities
issued
3,393,383 3,781,616 575,331 910,727 1,866,544 429,014
Other liabilities 663,645 769,735 720,647 30,918 6,257 11,913
Subordinated
capital
1,684,456 1,976,750 19,899 43,378 871,194 1,042,279
Derivative
liabilities
2,281,459 86,753,084 29,358,845 30,360,762 25,794,649 1,238,828
Derivatives in the
trading book
1,449,562 74,926,511 24,624,827 28,063,898 21,115,547 1,122,239
Hedging
derivatives
50,890 304,177 16,028 166,667 96,297 25,185
Other derivatives 778,811 11,520,200 4,715,794 2,130,197 4,582,805 91,404
Credit derivatives 2,196 2,196 2,196 0 0 0

Operational risk

In line with Basel II, 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 Raiffeisen International manages internal risk drivers like unauthorized activities, fraud or theft, execution and process errors, or business disruption and system failures. External factors are managed as well such as damage to physical assets or consciously conducted human fraud.

These operational risks are analyzed and managed on the basis of the Group's 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 risks costs of individual business units. Generally speaking, Raiffeisen International 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 are then implemented risk-specifically and risk specific in the native language of individual units of Raiffeisen International.

As with other risk types the principle of firewalling between risk management and risk controlling is also applied to operational risk in Raiffeisen International. 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 of Key Risk Indicators – KRIs, etc.) and for reporting to the central operational risk controlling function. Business line managers are responsible for managing 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 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 only with a minor amount of loss).

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). All Group units grade each combination of operational risk category and business function according to their estimation of the total annual loss for high probability/low impact events and low probability/high impact incidents. Low probability/high impact events are quantified by a Group-wide scenario analysis framework that includes the simulation of up to ten specific scenarios. Each entity is furthermore required to run additional scenarios depending on the individual risk profile and local specifics.

Monitoring

KRIs are measurable quantities that are used to promptly identify and mitigate operational risks. Key risk indicators are specifically tailored to all network units as well. A common catalog of key risk indicators, which is defined by the head office for internal benchmarking purposes, is mandatory for all Group members. All network units then add additional relevant KRIs and define thresholds (two levels of thresholds have to be defined as an early warning system) as most appropriate for their business.

Loss data is collected in a central database called ROCO (Raiffeisen Operational Risk Controlling) in a structured and Groupwide form 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.

Operational risks are reported semi-annually to the Group Risk Committee.

Quantification and mitigation

Raiffeisen International currently calculates regulatory capital requirements for operational risks according to Basel II using the standardized approach (STA). After several years of implementation the Ukrainian network bank, Raiffeisen Bank Aval, applies this calculation methodology starting as of 1 January 2010 as well. As a consequence the standardized approach now is used in all major Group members.

Risk reduction in operational risks is initiated by business managers who decide on preventive actions like risk mitigation or risk transfer. These managers also define contingency plans if these scenarios would become real 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 in the retail segment which is dedicated to proactive monitoring and preventing fraud. Raiffeisen International also executes an extensive staff training program and has different emergency plans and back-up systems in place.

Other disclosures

(45) Derivative financial instruments

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 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
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 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
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 75,708,573 32,334,647 2,771,599 110,814,819 2,360,110 (2,281,458)
Interest rate contracts 46,292,914 25,001,665 2,698,916 73,993,495 610,051 (704,155)
OTC products
Interest rate swaps 9,917,902 19,631,914 2,698,916 32,248,732 536,066 (628,649)
Interest rate futures 36,075,682 5,369,151 0 41,444,833 73,982 (71,069)
Interest rate options 0 600 0 600 3 (3)
Products trading on stock
exchange
Interest rate futures 299,330 0 0 299,330 0 (4,434)
Foreign exchange rate
contracts
29,194,494 7,096,086 72,683 36,363,265 1,719,632 (1,561,062)
OTC products
Cross-currency interest rate
swaps
1,058,969 4,847,553 72,683 5,979,205 256,182 (213,936)
Forward foreign exchange
contracts
19,910,362 1,263,725 0 21,174,087 1,065,006 (881,662)
Currency options –
purchased
2,700,804 484,499 0 3,185,303 250,970 0
Currency options – sold 2,617,208 500,309 0 3,117,517 0 (257,154)
Other similar currency
contracts
2,862,053 0 0 2,862,053 146,211 (207,213)
Products trading on stock
exchange
Currency contracts (futures) 45,098 0 0 45,098 1,263 (1,097)
Equity/index contracts 126,711 29,114 0 155,825 20,194 (9,107)
OTC products
Equity/index-based options 91,183 29,114 0 120,297 18,527 (7,209)
Other similar equity/index
contracts
22,214 0 0 22,214 9 (7)
Products trading on stock
exchange
Equity/index futures 13,314 0 0 13,314 1,658 (1,891)
Commodities 19,454 0 0 19,454 5,031 (4,938)
Credit derivatives 75,000 207,782 0 282,782 5,202 (2,196)

The total volume of unsettled financial instruments as of 31 December 2008 breaks down as follows:

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

Fair values 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.

2009
€000 Fair value Carrying
amount
Difference Fair value Carrying
amount
Difference
Assets
Cash reserve 4,179,572 4,179,572 0 7,129,860 7,129,860 0
Loans and
advances to banks
10,306,241 10,310,101 (3,860) 10,308,502 9,038,096 1,270,406
Loans and
advances to
customers
49,184,889 50,514,971 (1,330,082) 56,909,867 57,902,304 (992,437)
Financial
investments held-to
maturity
4,030,932 4,017,536 13,397 3,056,122 3,080,937 (24,815)
Intangible and
tangible fixed
assets
2,217,538 2,216,114 1,424 2,216,285 2,215,657 628
Other assets 820,276 820,276 0 985,075 985,075 0
Liabilities
Deposits from
banks
20,082,264 20,110,170 (27,906) 26,203,796 26,213,163 (9,367)
Deposits from
customers
42,609,218 42,578,249 30,969 44,211,175 44,205,906 5,269
Debt securities
issued
2,535,415 2,526,651 8,764 3,399,337 3,393,383 5,954
Subordinated
capital
2,470,481 2,470,285 196 1,684,727 1,684,456 271
Other liabilities 504,629 504,629 0 653,073 653,073 0

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

2009 2008
€000 Quoted
market prices
(Level I)
Valuation
techniques
based on
market data
(Level II)
Valuation
techniques
not based on
market data
(Level III)
Quoted
market prices
(Level I)
Valuation
techniques
based on
market data
(Level II)
Valuation
techniques
not based on
market data
(Level III)
Trading assets 2,635,957 1,351,878 32,934 2,623,449 1,774,070 214,026
Positive fair values of
derivatives1
85,846 768,055 3,729 1,078,688 1,052,023 212,823
Shares and other
variable-yield securities
9,364 1,278 0 35,771 0 1,203
Bonds, notes and other
fixed-interest securities
2,540,747 582,545 29,205 1,508,990 722,047 0
Financial assets at fair
value through profit
or loss
2,338,151 895,371 5 1,567,802 471,445 2,842
Shares and other
variable-yield securities
40,084 157,029 5 64,275 0 2,842
Bonds, notes and other
fixed-interest securities
2,298,067 738,342 0 1,503,527 471,445 0
Financial assets
available-for-sale
24,921 0 0 16,108 0 0
Other interests2 24,921 0 0 16,108 0 0
Derivatives (hedging) 0 21,565 0 16,366 211 0
Positive fair values of
derivatives from hedge
accounting
0 21,565 0 16,366 211 0

1 Including other derivatives.

2 Includes only securities traded on the stock exchange.

2009 2008
€000 Quoted
market prices
(Level I)
Valuation
techniques
based on
market data
(Level II)
Valuation
techniques
not based on
market data
(Level III)
Quoted
market prices
(Level I)
Valuation
techniques
based on
market data
(Level II)
Valuation
techniques
not based on
market data
(Level III)
Trading liabilities 98,041 625,565 0 958,708 1,277,753 4,681
Negative fair values
of derivatives
financial instruments1 93,969 625,565 0 958,708 1,267,180 4,681
Call/time deposits
for trading purposes
4,072 0 0 0 10,572 0
Derivatives
(hedging)
0 50,026 0 49,531 1,358 0
Negative fair values
of derivatives from
hedge accounting
0 50,026 0 49,531 1,358 0

Gains and losses resulting from financial instruments of the level III fair value hierarchy amounted to € 40,954 thousand (2008: € 15,502 thousand).

1 Including other derivatives.

(48) Contingent liabilities and commitments

€000 2009 2008
Contingent liabilities 4,667,660 5,052,439
Acceptances and endorsements 1,031 2,072
Credit guarantees 1,582,764 1,367,990
Other guarantees 2,606,104 2,808,884
Letters of credit (documentary business) 457,999 856,480
Other contingent liabilities 19,762 17,013
Commitments 5,395,147 6,342,881
Irrevocable credit lines and stand-by facilities 5,395,147 6,342,881
Up to 1 year 3,028,976 3,117,631
More than 1 year 2,366,171 3,225,250

The following table contains revocable credit lines that currently bear no credit risk:

€000 2009 2008
Revocable credit lines 4,646,005 6,847,212
Up to 1 year 1,763,424 2,814,303
More than 1 year 2,882,581 4,032,909

(49) Fiduciary business

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

€000 2009 2008
Loans and advances to banks 8,006 4,131
Loans and advances to customers 6,512 9,900
Financial investments 157 86
Other fiduciary assets 37,109 14,182
Fiduciary assets 51,784 28,299
Deposits from banks 305 310
Deposits from customers 16,286 15,113
Other fiduciary liabilities 35,193 12,876
Fiduciary liabilities 51,784 28,299

Fees income from fiduciary business amounted to € 4,066 thousand (2008: € 8,391 thousand). Fee expenses totaled € 962 thousand (2008: € 2,487 thousand).

The following table contains the funds managed by Raiffeisen International:

€000 2009 2008
Retail investment funds 2,906,574 2,448,349
Equity-based and balanced funds 718,747 496,559
Bond-based funds 227,330 224,534
Money market funds 589,771 649,906
Other 1,370,726 1,077,350
Special funds 188,897 293,435
Property-based funds 237,070 236,522
Total 3,332,541 2,978,306

(50) Capital management and regulatory own funds

The most crucial steering instrument for Raiffeisen International is equity. Raiffeisen International is not subject to the regulatory requirements of the Austrian Banking Act, as on the one hand no banking license is drawn and on the other hand this company is integrated in the RZB-Kreditinstitutsgruppe, which is already subject to regulatory monitoring. Nevertheless, the network banks of Raiffeisen International are subject to the local regulative equity regulations.

Equity and in a broader sense own funds serve as protection against unexpected losses. In terms of an orderly business control, the role of the management of Raiffeisen International is to guarantee capital adequacy. In principle, Raiffeisen International uses basically the same steering instrument as RZB Group.

For Raiffeisen International, the main focus is on the core capital ratio. This control is monitored by the Managing Board.

Raiffeisen International uses target values for internal regulation. These incorporate all risk types, including trading book, foreign exchange, and operational risk. The local network banks are in charge of maintaining the local regulative targets, in accordance with the unit's investment management and corporate planning division.

The determination of the target values in relation to the compulsory minimum requirements needs additional 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. These calculations assure that the capitalization and the capital target rate are consistent with the risk agreed to by the Group. Further details are stated in the risk report.

Raiffeisen International Bank-Holding AG, a subsidiary of Raiffeisen Zentralbank Österreich Aktiengesellschaft, does not have its own credit institution group as defined by the Austrian Banking Act (BWG). Therefore, it is not itself subject to the relevant regulatory requirements. However, the following figures are accounted for within the scope of RZB-Kreditinstitutsgruppe and are provided for information purposes only.

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

€000 2009 2008
Paid-in capital 3,637,865 3,036,600
Earned capital 1,512,054 1,499,662
Minority interest 1,061,571 1,051,600
Hybrid tier 1-capital 1,150,000 500,000
Intangible fixed assets (289,483) (227,646)
Core capital (tier 1 capital) 7,072,007 5,860,216
Deductions from core capital (13,059) (13,770)
Eligible core capital (after deductions) 7,058,948 5,846,446
Additional own funds according to Section 23 (1) 5 BWG 91,001 91,001
Provision excess of internal rating approach positions 7,883 58,337
Long-term subordinated own funds 1,003,079 897,041
Additional own funds (tier 2 capital) 1,101,963 1,046,379
Deduction items: participations, securitizations (13,059) (12,774)
Eligible additional own funds (after deductions) 1,088,904 1,033,605
Deduction items: insurances (964) (996)
Tier 2 capital available to be redesignated as tier 3 capital 181,581 112,455
Total own funds 8,328,469 6,991,510
Own funds requirement 5,116,816 5,766,816
Excess own funds 3,211,653 1,224,695
Excess cover ratio 62.8% 21.2%
Core capital ratio (tier 1), credit risk 14.1% 9.7%
Core capital ratio (tier 1), total 11.0% 8.1%
Own funds ratio 13.0% 9.7%

The total own funds requirement is as follows:

€000 2009 2008
Risk-weighted assets according to Section 22 BWG 50,089,600 60,387,566
thereof 8 per cent minimum own funds for the credit risk
according to Sections 22a to 22h BWG 4,007,168 4,831,005
Standardized approach 2,861,668 4,053,174
Internal rating approach 1,145,500 777,831
Settlement risk 17 0
Own funds requirement for position risk in bonds, equities and commodities 136,189 152,143
Own funds requirement for open currency positions 399,109 343,234
Own funds requirement for operational risk 574,333 440,434
Total own funds requirement 5,116,816 5,766,816

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

€000 2009 2008
Risk-weighted assets according to standardized approach 35,770,850 50,664,675
Central governments and central banks 2,604,738 3,927,463
Regional governments 126,675 498,400
Public administration and non-profit organizations 38,425 52,863
Multilateral development banks (MDB) 0 27,500
Banks 1,683,763 1,824,288
Corporates 17,545,988 28,438,013
Retail (including small and medium-sized entities) 11,450,513 13,585,813
Mutual funds 122,925 68,900
Securitization position 2,713 0
Other positions 2,195,110 2,241,438
Risk-weighted assets on internal rating approach 14,318,750 9,722,888
Central governments and central banks 679,911 0
Banks 1,669,613 384,250
Corporates 11,816,963 9,334,400
Equity exposures 152,263 4,238
Total 50,089,600 60,387,566

(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 2009 2008
Salaried employees 59,105 59,565
Wage earners 1,081 1,889
Total 60,186 61,454
Full-time equivalents 2009 2008
Central Europe 13,517 13,265
Southeastern Europe 18,282 18,261
Russia 9,351 9,654
CIS Other 18,670 20,011
Austria 361 262
Other countries 5 1
Total 60,186 61,454

(52) Expenses on severance payments and retirement benefits

€000 2009 2008
Members of the Managing Board and senior staff 1,122 466
Other employees 2,828 9,466
Total 3,950 9,932

The same regulations are in principle valid for members of the Managing Board and employees. 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. Three Managing Board members additionally have individual retirement benefits, which are funded by reinsurances.

In the case of termination of function or employment contract and retirement, two members of the Managing Board are entitled to receive severance payments according to the Salaried Employee Act (Angestelltengesetz), two members of the Managing Board according to contractual agreements and two members of the Managing Board only according to the Company Retirement Plan Act (Betriebliches Mitarbeitervorsorgegesetz). The entitlement to receive severance payments according to the Salaried Employee Act (Angestelltengesetz) and according to contractual agreements lapses with the exemption of one member of the Managing Board in case of termination by the employee. Moreover, four members of the Managing Board are entitled by contract to receive additional severance payments.

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

€000 2009 2008
Sight deposits 194 581
Bonds 588 268
Shares 8,557 5,543
Time deposits 320 1,079
Other claims 0 0

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

€000 2009 2008
Shares 63 31

Moreover, as of 31 December 2009 guarantees for a loan granted to a member of the Managing Board amounted to € 765 thousand (2008: € 765 thousand). There is no compensation agreed between the company and their members of the Managing Board and Supervisory Board in the case of a takeover bid.

Remuneration of members of the Managing Board

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

€000 2009 2008
Fixed and performance-based remunerations 4,610 5,544
Payments to pension funds and business insurances 97 79
Share-based payments (performance-based) 267 3,676
Total 4,974 9,299

The table contains fixed remuneration, performance-based remuneration, remuneration for membership of boards of affiliated subsidiaries, bonuses, and payments in kind. In the financial year 2009, the share of performance-based remuneration components of the remuneration of members of the Managing Board was 5.5 per cent (2008: 60.7 per cent).

The Chairman of the Managing Board is furthermore still working for the board of Raiffeisen Zentralbank. Remuneration stated in the above table also covers this position.

Performance-based remuneration components of the Managing Board consist usually of bonus payments which 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 the allotment regarding SIP program (see page 168 share-based remuneration). For the year 2008, all members of the Managing Board waived the right for bonus payments. The value of the distributed shares in 2009 amounts to 100 per cent (2008: 65.7 per cent) of the performance-based remuneration. There were no material changes in principle for profit sharing against the previous year.

In 2006, bonus payments totaling € 4,750 thousand in connection with acquisitions were agreed. Although the targets of the subsidiaries for the financial years 2006 until 2008 were achieved and the bonus payments became due in 2009, the members of the Managing Board renounced any claim to bonus payments.

Remuneration of members of the Supervisory Board

The Annual General Meeting held on 9 June 2009 decided an annual remuneration for the members of the Supervisory Board of € 305 thousand and transferred the distribution to the Board itself. The members of the Supervisory Board settled the distribution in their meeting of 9 June 2009 as follows: Chairman € 70 thousand, Deputy-Chairman € 60 thousand, members of the Supervisory Board € 50 thousand. Session fees were not paid. It has to be mentioned, that Johann Strobl as member of the Supervisory Board received € 25 thousand instead of € 50 thousand as he was member of the Supervisory Board for only half of the year 2008.

In the financial year 2009, € 305 thousand was paid to the Supervisory Board. In the previous year, the members of the Supervisory Board received remuneration of € 330 thousand.

Moreover, no contracts subject to approval in the meaning of Section 95 (5) items 12 Austrian Joint Stock Companies Act (AktG) were concluded with members of the Supervisory Board in the financial year 2009.

(54) Boards

Managing Board

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

The members of the Managing Board have 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, Raiffeisen Centrobank 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

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

The members of the Supervisory Board have further mandates in the Supervisory Board or similar functions in quoted companies at home and abroad:

  • Walter Rothensteiner: UNIQA Versicherungen AG
  • Karl Sevelda: Bene AG
  • Kurt Geiger: Raiffeisen Bank Aval JSC

All members of the Supervisory Board declare themselves to be independent in the meaning of 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 Raiffeisen International. 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 8 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

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

On 22 February 2010, Raiffeisen International published an ad-hoc release informing that Raiffeisen International Bank-Holding AG and Raiffeisen Zentralbank Österreich AG are currently taking a closer look at a possible merger as one of several possible strategic options. At the date of compilation, no official decisions have been made to implement any of these strategic options.

(56) List of fully consolidated companies

The following table shows a selection of operating companies of Raiffeisen International's consolidated group. The complete list of the equity participations of Raiffeisen International Bank-Holding AG is deposited with the Group parent's headquarters.

Company, domicile (country) Subscribed capital in local currency Share Type1
JLLC Raiffeisen-leasing, Minsk (BY) 4,300,250,000 BYR 83.9% FI
OOO Raiffeisen Capital Asset-Management Company, Moscow (RU) 225,000,000 RUB 100.0% 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) 1,168,928,550 PLN 100.0% BA
Raiffeisen Bank S.A., Bucharest (RO) 1,196,258,639 RON 99.5% BA
Raiffeisen Bank Sh.a., Tirane (AL) 4,348,232,686 ALL 100.0% BA
Raiffeisen Bank Zrt., Budapest (HU) 45,129,140,000 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 Capital & Investment S.A., Bucharest (RO) 1,600,000 RON 99.5% FI
Raiffeisen Factoring Ltd., Sofia (BG) 1,000,000 BGN 100.0% FI
Raiffeisen Factoring Ltd., Zagreb (HR) 15,000,000 HRK 73.6% FI
Raiffeisen International Direct Bank AG, Vienna (AT) 5,000,000 EUR 100.0% BA
Raiffeisen Invest d.o.o., Zagreb (HR) 8,000,000 HRK 73.6% FI
Raiffeisen Investment Fund Management Zrt., Budapest (HU) 100,000,000 HUF 70.3% FI
Raiffeisen Leasing Aval LLC, Kiev (UA) 58,208,527 UAH 87.7% FI
Raiffeisen Leasing Bulgaria OOD, Sofia (BG) 5,900,000 BGN 81.1% FI
Raiffeisen Leasing d.o.o., Belgrade (RS) 226,544,550 RSD 87.5% FI
Raiffeisen Leasing d.o.o., Ljubljana (SI) 3,738,107 EUR 75.0% FI
Raiffeisen Leasing d.o.o., Sarajevo (BA) 16,679,353 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 Real Estate, s.r.o., Prague (CZ) 10,000,000 CZK 69.0% FI
Raiffeisen Leasing sh.a., Tirane (AL) 123,000,000 ALL 93.8% FI
Raiffeisen Lízing Zrt., Budapest (HU) 226,620,000 HUF 72.7% BA
Raiffeisen Mandatory Pension Fund Management Company d.d., Zagreb (HR) 110,000,000 HRK 73.6% FI

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

Company, domicile (country) Subscribed capital in local currency Share Type1
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 Polska S.A., Warsaw (PL) 150,003,800 PLN 87.5% FI
Raiffeisen-Leasing, spolecnost s.r.o., Prague (CZ) 50,000,000 CZK 63.0% 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
RI FINANCE (JERSEY) PCC, St. Helier (JE) 2 EUR 100.0% 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) 200,000,000 SKK 70.6% FI
TOO Raiffeisen Leasing Kazakhstan, Almaty (KZ) 85,800,000 KZT 75.0% FI
Ukrainian Processing Center, JSC, Kiev (UA) 180,000 UAH 100.0% BR
ZAO Raiffeisenbank, Moscow (RU) 36,711,260,000 RUB 100.0% BA

1 Company type: BA…Bank, BR…Company rendering banking-related ancillary services, FI…Finacial institution

(57) List of equity participations

The following tables show a selection of equity participations. The complete list of the equity participations of Raiffeisen International Bank-Holding 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% BA

Other non-consolidated subsidiaries and equity participations

Company, domicile (country) Subscribed capital in local currency Share Indirectly
held1
Type2
Asset Management Company Raiffeisen Aval, Kiev (UA) 8,000,000 UAH 100.0% FI
Centralised Raiffeisen International Services & Payments
S.R.L., Bucharest (RO)
6,800,000 RON 100.0% BR
Czech Real Estate Fund (CREF) B.V., Amsterdam (NL) 18,000 EUR 20.0% FI
Doplnková dôchodková spoločnosť Tatra banky, a.s.,
Bratislava (SK)
1,659,700 EUR 100.0% FI
ELIOT, s. r. o., Bratislava (SK) 48,610,000 SKK 100.0% BR
Raiffeisen Asset Management (Bulgaria) EAD, Sofia (BG) 250,000 BGN 100.0% FI
Raiffeisen BROKERS doo, Sarajevo (BA) 1,000,000 BAM 100.0% FI
Raiffeisen consulting d.o.o., Zagreb (HR) 14,900,000 HRK 100.0% FI
Raiffeisen Financial Services Polska Sp. z o.o., Warsaw (PL) 3,847,500 PLN 100.0% FI
RAIFFEISEN FUTURE AD, Belgrade (RS) 126,274,549 RSD 100.0% FI
Raiffeisen Invest a.d., Belgrade (RS) 49,619,222 RSD 100.0% FI
Raiffeisen Non-Government Pension Fund, Moscow (RU) 313,000,000 RUB 100.0% FI
Raiffeisen Pension Insurance d.o.o., Zagreb (HR) 14,400,000 HRK 100.0% FI
Raiffeisen Pensions Sh.A., Tirane (AL) 109,648,000 ALL 100.0% FI
RAIFFEISEN SERVICES EOOD, Sofia (BG) 3,000,000 BGN 100.0% BR
Raiffeisen Services SRL, Bucharest (RO) 30,000 RON 100.0% FI
RAIFFEISEN TRAINING CENTER LTD., Zagreb (HR) 20,000 HRK 80.0% 20.0% BR
Raiffeisen Voluntary Pension Fund Management d.o.o.,
Zagreb (HR)
33,445,300 HRK 100.0% FI
S.A.I. Raiffeisen Asset Management S.A., Bucharest (RO) 10,656,000 RON 100.0% FI
TATRA Residence, s.r.o., Bratislava (SK) 831,608 EUR 100.0% 100.0% BR
CREDEX FINANTARI IFN SA, Bucharest (RO) 15,112,500 RON 30.0% FI
Fondul de Garantare a Creditului Rural S.A., Bucharest (RO) 2,914,750 RON 33.3% FI

1 Equity participations held via companies that are not included in the consolidated financial statements (pro-rata share)

2 Company type: BA…Bank, BR…Company rendering banking-related ancillary services, FI…Financial institution

MANAGING BOARD SUPERVISORY BOARD OVERVIEW INTERVIEW STOCK

Vienna, 26 February 2010

The Managing Board

Rainer Franz Peter Lennkh Heinz Wiedner

Herbert Stepic Martin Grüll Aris Bogdaneris

Auditor's report

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Raiffeisen International Bank-Holding AG, Vienna, for the year from 1 January 2009 to 31 December 2009. These consolidated financial statements comprise the consolidated balance sheet as of 31 December 2009, the consolidated statement of comprehensive income, the consolidated statement of cash flows and the consolidated statement of changes in equity for the year ended 31 December 2009 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 2009 and of its financial performance and its cash flows for the year from 1 January to 31 December 2009 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, 1 March 2010

KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft

Wirtschaftsprüfer Wirtschaftsprüfer

Wilhelm Kovsca Bernhard Mechtler

Statement of the Managing Board

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 principal risks and uncertainties the Group faces.

Vienna, 26 February 2010

The Managing Board

Herbert Stepic Martin Grüll Aris Bogdaneris

Rainer Franz Peter Lennkh Heinz Wiedner

MANAGEMENT REPORT SEGMENT REPORTS CONSOLIDATED FINANCIAL STATEMENTS

Glossary

Affiliated companies – Entity over which the investor has control (i.e. power to govern the financial and operating policies).

Affluent banking – Support for wealthy customers that includes additional and above all more individually tailored products in comparison to the customary support for private customers.

Associated companies – Entity over which the investor has significant influence.

Back testing – The backward comparison of VaR figures with actual results to test the quality of a model.

Badwill – Any remaining excess of the acquirer's interest in the fair values of the identifiable assets and liabilities acquired over the cost of the acquisition as at the date of the exchange transaction.

Basel II – The body of capital adequacy regulations proposed in recent years by the "Basel Committee," an international forum dedicated to improving bank supervision. According to EU Directives 2006/48/EC and 2006/49/EC, the regulations must be applied in the member states of the European Union from 1 January 2007 onwards to all banks and financial service institutions. As in the case of the Basel I Accord, the goal is to ensure that banks have adequate capital resources and that uniform competitive conditions are created for both lending and credit trading. The main objective of the changes made by Basel II compared with Basel I is to orient capital adequacy requirements prescribed by government more strongly to actual risk and hence approximate the capital requirements internally ascertained by banks.

BWG – Austrian Banking Act.

CAGR – Compound Annual Growth Rate is the average increase of a figure.

Cash flow – Inflows and outflows of cash and cash equivalents.

Cash flow hedge – Protection against the risk of variability in projected cash flows, resulting either from risk associated with a recognized asset or liability or risk associated with a forecasted transaction. Whereas the effective portion of the hedge relating to changes in value of the hedging instruments can be directly recognized in equity, the ineffective portion has a direct effect on profit and loss.

CE – Central Europe. For Raiffeisen International it is defined as Hungary, Poland, Slovakia, Slovenia, and the Czech Republic.

CEE – Central and Eastern Europe.

CIS – Commonwealth of Independent States, consisting predominantly of territories of the former Soviet Union.

Clean price – Price of a financial instrument without accrued interest.

Consolidated ROE – Return on Consolidated Equity, i.e. the equity attributable to the shareholder of Raiffeisen International. It is calculated by consolidated profit in relation to average balance sheet equity (without minority interests). Average equity is based on month-end figures and does not include current year profit.

Country risk – This comprises transfer and convertibility risk and political risk.

Core capital – So called tier I, involves regulatory core capital as defined in Section 23 BWG.

Core capital ratio – This ratio's numerator is core capital (tier 1) and its denominator are the risk-weighted assets of credit risk.

Cost/income ratio – Indicator of an enterprise's cost efficiency based on the ratio of expenses to earnings. It is calculated by comparing general administrative expenses (comprising staff expenses and other administrative expenses and depreciation on intangible and tangible fixed assets) with operating income (net interest income, net commission income, trading profit/loss and other operating profit/loss).

Credit derivatives – Instruments designed to transfer credit risk arising from loans, bonds and other risk assets or market risk items to another party.

Credit exposure – Comprises all on-balance sheet exposures (loans, debt securities) and off-balance-sheet exposures (guarantees, commitments) that expose Raiffeisen International to credit risk.

Credit risk – The risk of loss due to a debtor's non-payment of a loan or other line of credit.

Credit spread (or simply "spread") – Difference in yield between top-rated bonds (usually government bonds) and bonds with the same residual maturity but lower issuer quality.

Cross selling – Marketing strategy in which additional products and services are actively offered to existing customers.

DBO – Defined benefit obligation, i.e. the present value, without deducting any plan assets, of expected future payments required to settle the obligation resulting from employee service in the current and prior periods.

Default risk – Risk that counterparties in a financial transaction will not be able to fulfil an obligation, causing the other party a financial loss.

Deferred tax assets – The amounts of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses, and the carry forward of unused tax credits.

Deferred tax liabilities – The amounts of income taxes payable in future periods in respect of taxable temporary differences.

Derivatives – Financial instruments whose value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index, or other variable, that requires no initial net investment or small initial net investment and that is settled at a future date.

Dirty price – Price of a financial instrument including accrued interest.

Earnings per share (EPS) – Profit attributable to ordinary equity holder (profit adjusted by dividends to preference shareholders) divided by the weighted average number of ordinary shares outstanding during the period.

EBRD (European Bank for Reconstruction and Development) – An institution that promotes the transition to an open market economy and to private and entrepreneurial action in the countries of Central and Eastern Europe. Through its investments, it supports activity of the private sector and strengthens financial institutions, legal systems, and development of infrastructure needed by the private sector.

EMTN (Euro Medium Term Notes) Program – Framework agreement between companies and bond traders who make it possible for the companies to issue medium-term securities in the European capital market for the purpose of flexibly procuring outside capital.

Excess cover ratio – Relation of excess own funds to total own funds requirement.

Fair value – The amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm's length transaction.

Fair Value Level I – (is quoted on an active market). The fair value is measured through a market price, if available.

Fair Value Level II – (evaluation method through observable parameters). When current bid and asking prices are unavailable, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. (Used methods: cash method and option pricing models)

Fair Value Level III – (evaluation method through non-observable parameters). If observable parameters are not available; the fair value will be measured through valuation methods appropriate for the financial instrument.

Fiduciary business – Transactions which are carried out by a trustee, often banks, on own name but on account of the beneficiary.

Finance lease – A lease that transfers substantially all the risks and rewards incidental to ownership of an asset.

Funding – All means used by banks for the purpose of refinancing.

Futures – Standardized forward contracts traded on a stock exchange under which a commodity traded in a money, capital, precious metal or currency market is to be delivered or accepted at a price fixed in an exchange environment.

Goodwill – Any excess of the cost of the acquisition over the acquirer's interest in the fair value of the identifiable assets and liabilities acquired as at the date of the exchange transaction.

Gross investment value – The aggregate of minimum lease payments receivable by the lessor under a finance lease and any unguaranteed residual value accruing to the lessor.

Hedging – Designating one or more hedging instruments so that their change in fair value is an offset, in whole or in part, to the change in fair value or cash flows of a hedged item.

Held-for-trading – Securities held for trading purposes to take advantage of short-term market fluctuations.

Held-to-maturity – Financial assets with fixed or determinable payments and fixed maturity that an entity has the positive intention and ability to hold to maturity.

HGB/UGB – (Austrian) Commercial Code.

IFC (International Finance Corporation) – An institution of the World Bank that supports the establishment and strengthening of the private sector in developing countries by means of investments and advisory service.

IFRIC, SIC – International Financial Reporting Interpretations Committee – Interpreter of the International Financial Reporting Standards, formerly also SIC (Standing Interpretations Committee).

IFRS, IAS – The International Financial Reporting Standards or International Accounting Standards are reporting standards published by the IASB (International Accounting Standards Board) with the goal of achieving transparent and comparable accounting on an international basis.

Interest margin – Net interest income in relation to average balance sheet total.

Investment property – Property (land or buildings – or part of buildings – or both) which are held to earn rentals or for capital appreciation or both.

IPO – Initial public offering.

IRB (Internal Ratings-Based approach) – Method of evaluating the capital backing of credit risks in accordance with Basel II. By using the IRB approach, the capital backing is determined according to internal credit ratings. In the process, features specific to the borrower and the loan are taken into account. The ratings must be made by an independent source.

Liquidity risk – Risk that the bank could be unable to meet its current and future financial obligations in full or in good time. This arises from the danger that, e.g. refinancing can only be obtained at very disadvantageous terms or is entirely impossible.

Loss rate – Usage of previously allocated loan loss provisions plus direct write-downs and income received on written-down claims divided by total credit exposure.

Market capitalization – The number of issued shares multiplied by the share price.

Market risk – The risk that the value of a financial instrument will fluctuate because of changes in market prices whether those changes are caused by factors specific to the individual security or its issuer or factors affecting all securities traded in the market.

Net provisioning ratio (average risk-weighted assets credit risk) – Risk valuation ratio. Is calculated by provisioning for impairment losses divided by average credit risk-weighted assets.

Net provisioning ratio (total credit exposure) – Risk valuation ratio. Is calculated by provisioning for impairment losses divided by the total credit exposure.

Operating leasing – Lease under which commercial and legal ownership remains with the lessor with the effect that the lessor must show the asset on its statement of financial position.

Operating profit/loss – In IFRS-compliant financial statements, it consists of operating income net of general administrative expenses. Operating income comprises net interest income, net commission income, trading profit/loss and other operating profit/loss. General administrative expenses comprise staff expenses and other administrative expenses and depreciation on intangible and tangible fixed assets.

Operational risk – Risk of unexpected losses resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk.

Options – Instruments that give the holder the right to purchase the underlying from a contracting party at an agreed price and at an agreed time or within an agreed period (call option) or to sell the underlying to a contracting party at an agreed price and at an agreed time or within an agreed period (put option).

OTC instruments – Financial instruments that are neither standardized nor traded on a stock exchange. They are traded directly between market participants "over-the-counter".

Own funds according to BWG – Consist of core capital (tier 1), additional and subordinated capital (tier 2) and short-term subordinated capital and rededicated tier 2 capital (tier 3).

Own funds ratio – The ratio's numerator is own funds within the meaning of the Austrian Banking Act (BWG) and its denominator is the own funds requirement multiplied by 12.5.

Own funds requirement according to BWG – Defined in Section 22 BWG and involves the requirement for the credit risk, for position risk in bonds, equities and commodities and foreign currency and for the operational risk.

Own shares – Repurchased equity instruments (shares) held by the issuing entity itself or by its subsidiaries.

Plan assets – Assets held by a long-term employment benefit fund.

Portfolio-based loan loss provisions – Impairment provisions for portfolios of loans with identical risk profiles that may be compiled under certain conditions.

Portfolio rate – Total provisions for impairment losses divided by total credit exposure.

Projected unit credit method – An actuarial valuation method defined by IAS 19 that sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation (sometimes known as the accrued benefit method pro-rated on service or as the benefit/years of service method).

Quarter-on-quarter – compared to the quarter which precedes the quarter under consideration; for example, the third quarter of 2010 in comparison to the second quarter of 2010.

Raiffeisen International – The Group of Raiffeisen International Bank-Holding AG.

Repurchase agreement – During a genuine repurchase transaction (repo), the enterprise sells assets to a counterparty and concurrently agrees to reacquire the assets at an agreed time and at an agreed price.

Risk-weighted assets (incl. market risk) – Comprises the basis of assessment within the meaning of Section 22 of the Austrian Banking Act (BWG) plus 12.5 times the own funds required as cover for the trading book and open currency positions.

Risk-weighted assets (credit risk) – This is the sum of the weighted accounts receivable and includes receivables in the form of asset items, off-balance-sheet items according to annex 1 of Section 22 and derivatives according to Annex 2 of Section 22 BWG.

Risk/earnings ratio – Risk valuation ratio. Is calculated by provisioning for impairment losses divided by net interest income.

ROE (return on equity) – Return on the total equity including minority interests, i.e. profit before tax respectively after tax in relation to weighted average balance sheet equity. Average equity is calculated on month-end figures and does not include current year profit.

RZB – Raiffeisen Zentralbank Österreich AG Group.

RZB-Kreditinstitutsgruppe – Pursuant to Section 30 of the Austrian Banking Act (BWG), RZB-Kreditinstitutsgruppe is made up of all banks, financial institutions, securities companies and companies rendering banking-related services in which RZB holds direct or indirect interests or has control as a superordinate institution.

Scorecard – A statistical tool in risk management for estimating risk parameters, typically used to determine probability of default or the loss-given-default ratio.

Securitization – Special type of refinancing and 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.

Segment reporting – Disclosure of earnings and asset data for geographical segments.

SEPA – Single European Payments Area. This is a project to create a European-wide standardized payment area. In this payment area there is no distinction between cross-border and national payments for customers anymore.

Share-based remuneration – Performance-based allotments of company shares for eligible employees for a given period of time.

Splitting – A procedure that is particularly common in U.S. investment banking where equities that have become very highly priced are split into two or more shares or share certificates.

SPO – Secondary public offering; capital increase.

Statement of cash flows – Statement of cash flows during the financial year arising from operating activities, investing activities and financing activities and a reconciliation of cash and cash-equivalents held at the beginning and the end of the financial year.

Stress tests – Stress tests endeavor to simulate extreme fluctuations in market parameters. They are used because such fluctuations are usually inadequately captured by VaR models (VaR forecasts maximum losses under normal market conditions).

Subprime loans – Mortgage loans given to borrowers who do not qualify for the prime market interest rate due to their low credit-worthiness. Subprime loans are characterized by a relatively high risk of loss.

Swap – Exchange of interest obligations (interest swap) and/or currency positions (currency swap).

Tax rate – Relation of income taxes to profit before tax.

Total shareholder return – is a ratio illustrating the development of a share investment over a period considering the dividends and changes in share price.

Trading book – Bank regulators' term for assets held by a bank for short-term resale to exploit fluctuations in prices and interest rates.

VaR – Value at risk expresses the potential loss that will, with a 99 per cent probability, not be exceeded within the period for which an asset is held in the portfolio in question.

Wholesale funding – Refinancing of banks by way of external sources, i.e., not through their own funds or customer deposits.

Year-on-year – compared to the point in time, or the time period, which occurs one year before the point in time, or the time period, under consideration; for example, the first half year of 2010 in comparison to the first half year of 2009, or 30 June 2010 in comparison to 30 June 2009.

Addresses

Raiffeisen International Bank-Holding AG

Austria

Am Stadtpark 3 1030 Wien Tel.: +43-1-71707 0 Fax: +43-1-71707 1715 www.ri.co.at [email protected] [email protected]

Banking Network

Albania

Raiffeisen Bank Sh.a. European Trade Center Bulevardi "Bajram Curri" Tiranë Tel.: +355-4-238 1000 Fax: +355-4-2275 599 SWIFT/BIC: SGSBALTX www.raiffeisen.al

Belarus

Priorbank JSC 31A V. Khoruzhey 220002 Minsk Tel.: +375-17-289 9090 Fax: +375-17-289 9191 SWIFT/BIC: PJCBBY2X www.priorbank.by

Bosnia and Herzegovina Raiffeisen Bank d.d. Bosna i Hercegovina Zmaja od Bosne bb 71000 Sarajevo Tel.: +387-33-287 101 Fax: +387-33-213 851 SWIFT/BIC: RZBABA2S www.raiffeisenbank.ba

Bulgaria Raiffeisenbank (Bulgaria) EAD

18/20 Ulica N. Gogol 1504 Sofia Tel.: +359-2-9198 5101 Fax: +359-2-943 4528 SWIFT/BIC: RZBBBGSF www.rbb.bg

Croatia Raiffeisenbank Austria d.d. Petrinjska 59 10000 Zagreb Tel.: +385-1-456 6466 Fax: +385-1-481 1624 SWIFT/BIC: RZBHHR2X www.rba.hr

Czech Republic

Raiffeisenbank a.s. Hvezdova 1716/2b 14078 Praha 4 Tel.: +420-221-141 111 Fax: +420-221-142 111 SWIFT/BIC: RZBCCZPP www.rb.cz

Hungary

Raiffeisen Bank Zrt. Akadémia utca 6 1054 Budapest Tel.: +36-1-484 4684 Fax: +36-1-484 4444 SWIFT/BIC: UBRTHUHB www.raiffeisen.hu

Kosovo

Raiffeisen Bank Kosovo J.S.C. Rruga UÇK, No. 51 10000 Pristina Tel.: +381-38-222 222 Fax: +381-38-2030 1130 SWIFT/BIC: RBKORS22 www.raiffeisen-kosovo.com Poland Raiffeisen Bank Polska S.A. Ul. Piękna 20 00549 Warszawa Tel.: +48-22-585 2001 Fax: +48-22-585 2585 SWIFT/BIC: RCBWPLPW www.raiffeisen.pl

Romania

Raiffeisen Bank S.A. Piaţa Charles de Gaulle 15 011857 Bucureşti 1 Tel.: +40-21-306 1000 Fax: +40-21-230 0700 SWIFT/BIC: RZBRROBU www.raiffeisen.ro

Russia

ZAO Raiffeisenbank Smolenskaya-Sennaya, 28 119002 Moskwa Tel.: +7-495-721 9900 Fax: +7-495-721 9901 SWIFT/BIC: RZBMRUMM www.raiffeisen.ru

Serbia

Raiffeisen banka a.d. Bulevar Zorana Djindjića 64a 11070 Novi Beograd

Tel.: +381-11-320 2100 Fax: +381-11-220 7080 SWIFT/BIC: RZBSRSBG www.raiffeisenbank.rs

Slovakia

Tatra banka, a.s. Hodžovo námestie 3 81106 Bratislava 1 Tel.: +421-2-5919 1111 Fax: +421-2-5919 1110 SWIFT/BIC: TATRSKBX www.tatrabanka.sk

Slovenia Raiffeisen Banka d.d.

Zagrebeška cesta 76 2000 Maribor Tel.: +386-2-229 3100 Fax: +386-2-303 442 SWIFT/BIC: KREKSI22 www.raiffeisen.si

Ukraine

Raiffeisen Bank Aval JSC Vul Leskova, 9 01011 Kyiv Tel.: +38-044-490 8888 Fax: +38-044-285 3231 SWIFT/BIC: AVALUAUK www.aval.ua

Leasing Companies

Austria Raiffeisen-Leasing International GmbH Am Stadtpark 3 1030 Wien Tel.: +43-1-71707 2966

Fax: +43-1-71707 2059 www.rli.co.at

Albania

Raiffeisen Leasing Sh.a. Rruga Kavajes 44 Tiranë Tel.: +355-4-2274 920 Fax: +355-4-2232 524 www.raiffeisen.al

Belarus

SOOO Raiffeisen Leasing 31A V. Khoruzhey 220002 Minsk Tel.: +375-17-289 9395 Fax: +375-17-289 9394 www.priorbank.by

Bosnien and Herzegovina Raiffeisen Leasing d.o.o. Sarajevo St. Branilaca Sarajeva

No. 20 71000 Sarajevo Tel.: +387-33-254 354 Fax: +387-33-212 273 www.rlbh.ba

Bulgaria

Raiffeisen Leasing Bulgaria OOD

Business Park Sofia Building 7B, 4th floor 1766 Sofia Tel.: +359-2-491 9191 Fax: +359-2-974 2057 www.rlbg.bg

Croatia

Raiffeisen Leasing d.o.o. Radnicka cesta 43 10000 Zagreb Tel.: +385-1-6595 000 Fax: +385-1-6595 050 www.rl-hr.hr

Czech Republic

Raiffeisen-Leasing s.r.o. Hvezdova 1716/2b 14078 Praha 4 Tel.: +420-221-5116 11 Fax: +420-221-5116 66 www.rl.cz

Hungary

Raiffeisen Lízing Zrt. Hungaria krt. 40-44 1087 Budapest Tel.: +36-1-298 8000 Fax: +36-1-298 8010 www.raiffeisenlizing.hu

Kazakhstan Raiffeisen Leasing Kazakhstan LLP 146, Shevchenko Str., Flat 1 050008 Almaty Tel.: +7-727-3785 430 Fax: +7-727-3785 447

Kosovo Raiffeisen Leasing Kosovo Str. Agim Ramadani, No. 15 10000 Pristina Tel.: +381-38-2222 22 Fax: +381-38-2030 3011

Moldova

www.rlkz.kz

ICS Raiffeisen Leasing SRL 51 Alexandru cel Bun 2012 Chisinau Tel.: +373-22-2793 13 Fax: +373-22-2283 81 www.raiffeisen-leasing.md

Poland Raiffeisen-Leasing Polska S.A. Ul. Prosta 51 00838 Warszawa

Tel.: +48-22-3263 600 Fax: +48-22-3263 601 www.rl.com.pl

Romania Raiffeisen Leasing

IFN S.A. Calea 13 Septembrie 90 Grand Offices Marriott Grand Hotel Sector 5 050726 Bucureşti Tel.: +40-21-403 3334 Fax: +40-21-403 3298 www.raiffeisen-leasing.ro

Russia

OOO Raiffeisen Leasing Stanislavskogo Str. 21/1 109004 Moskwa Tel.: +7-495-721 9980 Fax: +7-495-721 9901 www.rlru.ru

Serbia

Raiffeisen Leasing d.o.o. Milutina Milankovića 134a 11000 Novi Beograd Tel.: +381-11-20177 00 Fax: +381-11-31300 81 www.raiffeisen-leasing.rs

Slovakia

Tatra Leasing s.r.o. Hodžovo námestie 3 81106 Bratislava Tel.: +421-2-5919 3168 Fax: +421-2-5919 3048 www.tatraleasing.sk

Slovenia

Raiffeisen Leasing d.o.o. Tivolska 30 (Center Tivoli) 1000 Ljubljana Tel.: +386-1-241 6250 Fax: +386-1-241 6268 www.rl-sl.com

Ukraine LLC Raiffeisen

www.rla.com.ua

Leasing Aval Moskovskiy Prospect, 9 Corp. 5 Office 101 04073 Kyiv Tel.: +38-044-590 2490 Fax: +38-044-200 0408

Real-estate leasing

Czech Republic Raiffeisen Leasing Real Estate s.r.o. Hvezdova 1716/2b 14078 Praha 4 Tel.: +420-221-5116 10 Fax: +420-221-5116 41 www.realestateleasing.cz

Raiffeisen Zentralbank Österreich AG

Austria

Am Stadtpark 9 1030 Wien Tel.: +43-1-71707 0 Fax: +43-1-71707 1715 SWIFT/BIC RZBAATWW www.rzb.at

Publication details

Publisher: Raiffeisen International Bank-Holding AG Editor: Investor Relations Editorial deadline: 1 March 2010

Consulting/support/design:

gantnerundenzi.at Copy editing support/proofreading: be.public Printer: AV+Astoria Druckzentrum GmbH Place of production: Vienna

Raiffeisen International Bank-Holding AG Am Stadtpark 3 1030 Vienna Austria Tel.: +43-1-71707 0 Fax: +43-1-71707 1715 www.ri.co.at

Investor Relations contact

Tel.: +43-1-71707 2089 E-mail: [email protected] Internet: www.ri.co.at → Investor Relations

Public Relations contact

Tel.: +43-1-71707 2828 E-mail: [email protected] Internet: www.ri.co.at → Public Relations

You will find the online version of the annual report at http://ar2009.ri.co.at. The original German version of the report is available at http://gb2009.ri.co.at.

The forecasts, plans, and statements addressing the future are based on knowledge and assumptions of Raiffeisen International at the time at which they are drawn up. Like all statements addressing the future, they are exposed to risks and uncertainty factors that may lead to considerable deviations in the result. No guarantees can therefore be provided that the forecasts and targeted values, or the statements addressing the future, will actually materialize. We have exercised utmost diligence in the preparation of this annual report and checked the data contained therein. However, rounding, transmission, printing, and typographical errors cannot be ruled out. The present English version is a translation of the report that the company originally prepared in German. The company only recognizes the German version as the authentic version.

To make for easier reading all references to people are made using the masculine form: the feminine form is to be understood to be included in this.

FROM RESPONSIBLE SOURCES

Annual Financial Statement 2009

Raiffeisen International Bank-Holding AG

Contents

Raiffeisen International Bank‐Holding AG
Group Management Report 1
General economic environment 1
Banking sector development in Central and Eastern Europe 4
Business in 2009 5
Risk management 11
Human resources 15
Corporate Responsibility 17
Outlook 18
Other information 20
Balance sheet as of December 31, 2009 21
Income statement for 2009 23
Notes to the financial statements 25
Appendix I 43
Appendix II 44
Auditor's report 50

Group Management Report

General economic environment

Worst recession since 1945

The world economy was hit in 2009 by the most severe recession since 1945. The starting point was the collapse of US investment bank Lehman Brothers in September 2008 and the resulting disruptions on global financial markets. World trade and industry were also hugely affected by the crisis in 2009. The euro area's real gross domestic product (GDP) dropped sharply in the first quarter of 2009 by 2.4 per cent on the previous quarter, and by 5 per cent on the same period of the previous year. The decrease for 2009 as a whole was 4 per cent year-on-year. After GDP declines over three consecutive quarters, however, the euro area overcame the recession in the third quarter of 2009 with real GDP growth of 0.4 per cent in quarterly comparison. Extensive government programs to stimulate the economy and expansive monetary policy from the European Central Bank (ECB) contributed decisively to that.

Because of their close economic and financial ties to Western Europe, the countries of Central and Eastern Europe (CEE) were also affected by the global economic crisis in 2009. Besides being heavily oriented to exporting to the European market, the CEE economies are especially dependent on capital flows from Western Europe. This concerns both foreign direct investments and the financing flows of the local financial sector. Since domestic savings are not sufficient as economic capital stock for these countries, they mostly depend on importing foreign capital. This was greatly curtailed, however, by the global financial crisis, which put an additional burden on the national economies. Countries whose current account deficits had sharply increased in the economic boom years were especially affected.

Among the new EU member states of Central Europe (Czech Republic, Hungary, Poland, Slovakia, and Slovenia), Poland stands out especially. It is Europe's only relatively large economy that achieved growth in 2009. The reasons for that are a relatively large share of domestic output and a robust financial sector that has hardly been impaired by the global crisis. In contrast, the Czech Republic and Slovakia, whose economies are strongly geared to export, and the automotive industry in particular, were affected significantly more on an annual basis. The cash-for-clunkers programs launched in many Western European countries to bolster the automotive industry also proved helpful, however, for automobile exports from Central and Eastern Europe. This put the Czech Republic and Slovakia among the EU economies that showed the strongest growth in the third quarter of 2009 by quarterly comparison. On the other hand, the Hungarian economy suffered a decline in the same period for the fourth consecutive quarter. Because of necessary budget consolidation, Hungary has hardly any maneuvering room left for fiscal policy measures. Altogether, the economic output of the new EU member states of Central Europe decreased in 2009 by 1.8 per cent year-on-year.

The rapid economic catch-up process in the transition countries in Southeastern European (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania, and Serbia) led to rising and in some cases very high current account deficits in past years. Before the outbreak of the crisis, financing of those deficits was ensured both by foreign direct investments and by the financing flows of the flourishing financial sector. Because of the crisis, however, financing flows decreased considerably, with the result that current account deficits also had to be reduced rapidly. Some countries, e.g., Romania, Serbia, and Bosnia and Herzegovina, were only able to do that with financial assistance from the International Monetary Fund (IMF). The adjustments in the Southeastern European economies needed to substantially reduce current account deficits caused a sharp decline of GDP growth in 2009 by about 5.6 per cent year-on-year.

Annual real GDP development

The Commonwealth of Independent States (CIS), which had achieved the strongest economic growth of Raiffeisen International markets in past years, was hit hardest among all Central and Eastern European regions by the global economic crisis. In Ukraine, the continuing political crisis hindered not only reform efforts, but also effective measures to combat the economic crisis. That led to a huge loss of the population's confidence in the local currency. Its devaluation as well as a sharp decline of demand for steel, which subsequently affected its worldmarket price, caused Ukraine's economic output to drop in 2009 by around 15 per cent yearon-year. Despite a comparatively favorable starting position, the Russian economy was also unable to escape the effects of the global economic crisis. The sharp decline of commodity prices and a crisis of the domestic financial sector due to excessive speculation on the stock market are likely to have resulted in a contraction of the country's economic output by 7.9 per cent in 2009. Altogether, the GDP of the CIS probably declined by 8.3 per cent on average in 2009.

Assistance from IMF and EU stabilizes financial markets in Central and Eastern Europe

After the outbreak of the global financial crisis, Ukraine and Hungary were the first CEE countries to receive financial assistance from the IMF in November 2008, followed by Latvia in December 2008 and other CEE countries in the first half of 2009. The EU made additional funds available for the member states that required IMF money (Hungary, Latvia, and Romania). Both the rapid and pragmatic support by the IMF and the willingness of the EU to support member states in financial distress had a calming effect on the financial markets.

At the summit meeting of the 20 most important industrialized and emerging market countries (G-20) in the beginning of April 2009, it was decided that the IMF's financial assistance would be tripled to USD 750 billion. The EU also raised the amount of funds it can make available to its member states in an emergency to € 50 billion. Moreover, the World Bank, together with the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB), assembled a € 24.5 billion package to strengthen the financial industry in the CEE region and lending to the private sector.

The measures adopted at the G-20 summit strengthened the confidence of financial market participants that all CEE countries will meet their payment obligations in the foreseeable future. The meeting thus marked the turning point in the development of risk premiums and CEE currencies. The latter have stabilized since then, and some have even recovered. In the fourth quarter of 2009, risk premiums almost returned to the same levels they were at before the collapse of Lehman Brothers in September 2008.

Banking sector development in Central and Eastern Europe

After credit growth in Central and Eastern Europe already slowed greatly in the second half of 2008, it came to a nearly complete standstill in the first half of 2009. A massive rise in the cost and decline in the supply of external financing, tightened conditions for bank loans, and lower demand for credit were responsible for that. In addition to the economic recession, the devaluation of some CEE currencies due to the global economic crisis accelerated the increase of nonperforming loans. The situation in the banking sector stabilized in the second half of 2009, but remained generally tense. The reasons for that were a further rise of unemployment rates due to the recession on the one hand, and uncertainty about the extent, speed, and sustainability of the general economic recovery on the other.

The robust Polish market and favorable loan/deposit ratios in the Czech Republic and Slovakia had a positive effect on the new EU member states. Lending volume in Hungary declined in 2009. Slovenia and Slovakia already benefited from their status as members of the euro zone, which grants them direct access to ECB funding lines. In the transition countries in Southeastern Europe, lending volume is likely to have remained stable in 2009. One reason for that is a commitment from international banks not to reduce their lending volume in some countries, in which the IMF has extended financial assistance. On the other hand, lending volume is likely to have decreased slightly in the CIS.

Business in 2009

Changes in corporate status and disclosures pursuant to Section 243a (1) of the Austrian Commercial Code

The company's capital stock as of December 31, 2009 was unchanged in comparison with the previous balance sheet date at € 471,735,875.00 and consisted of 154,667,500 no-par unit shares (bearer shares).

At the Annual General Meeting on June 5, 2007, the Managing Board was authorized with the Supervisory Board's approval to increase the company's capital stock by up to € 217,724,250.00 within five years of entering the relevant changes in the articles of association in the register of companies by issuing up to 71,385,000 new ordinary bearer shares with voting rights against contributions in cash and/or in kind while preserving shareholders' subscription rights (authorized capital). An amount of € 36,287,375.00 (11,897,500 unit shares) was used for the capital increase on October 5, 2007 (secondary public offering).

As of December 31, 2008, unused authorized capital amounted to € 181,436,875.00.

At the Annual General Meeting of 10 June 2008, the share capital was increased contingently by up to € 47,173,587.50 through the issue of up to 15,466,750 common bearer shares (contingent capital) pursuant to Section 159 (2) 1 of the Austrian Stock Corporation Act. The contingent capital increase may 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 the right to convert such bonds into shares of the Company. The issue amount and conversion ratio are determined on the basis of recognized accrual valuation methods and the current price of the Company's shares in a recognized pricing procedure. The issue amount may not be less than the pro rata amount of the capital stock. The new shares issued under the contingent capital increase are entitled to receive a dividend equal to that of the shares traded on the stock exchange at the time of the issue. The Managing Board is authorized subject to Supervisory Board approval to determine the further details of implementing the contingent capital increase, and the Supervisory Board is authorized to amend the articles of association accordingly.

At the Annual General Meeting of 10 June 2008, the Managing Board was authorized to purchase own shares under the provisions of the Austrian Stock Corporation Act and, if deemed appropriate, to retire them without further prior involvement of a general meeting of shareholders. The proportion of shares to be purchased and shares already purchased may not exceed 10 per cent of the Company's respective share capital. The duration of the authorization to purchase own shares is limited to 30 months from the date of the Annual General Meeting's resolution. No own shares have been bought since the authorization was issued in June 2008.

At the Annual General Meeting of 10 June 2008, the Managing Board was also authorized subject to Supervisory Board approval to issue convertible bonds under Section 174 (2) of the Austrian Stock Corporation Act for a nominal total of up to € 2,000,000,000.00 in one or more tranches within five years from the date of the resolution. The convertible bonds carry conversion or subscription rights to obtain up to 15,466,750 common bearer shares in the Company with a corresponding pro rata amount in the subscribed capital of up to € 47,173,587.50. Such an issue may also occur indirectly by means of a guarantee for convertible bond issues of a subsidiary in which the Company holds 100 per cent directly or indirectly that carry conversion rights to obtain shares of that company. The Managing Board was furthermore authorized to determine all further conditions concerning the issue (including the currency of the issue) and the conversion procedure for the convertible bonds. The subscription right of shareholders is excluded.

At the Annual General Meeting of 9 June 2009, the Managing Board was authorized to issue participation rights having equity characteristics under Section 174 of the Austrian Stock Corporation Act for a nominal total of up to € 2,000,000,000.00 in one or more tranches within five years from the date of the authorizing resolution subject to Supervisory Board approval and excluding the subscription right of shareholders.

On 4 August 2009, Raiffeisen International issued participation rights capital as provided by Section 174 of the Austrian Stock Corporation Act for a nominal amount of € 600,000,000.00 after approval by the Supervisory Board. The participation rights capital was entirely subscribed by Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna.

In accordance with the terms of the issue, the participation rights capital is issued for the duration of the company, i.e., without the subscriber of the participation rights capital having the option of ordinary or extraordinary notice of termination. It takes part to the same extent as the share capital does in loss as defined under company law. Its status in case of the Company's liquidation, dissolution, or insolvency is that of a subordinated creditor, but it is to be serviced as being of the same rank as the share capital. The claim to liquidation proceeds is limited at 100 per cent of nominal value in the first ten years, and at 150 per cent as of 2019, provided the increase in enterprise value is covered.

Compensation for the participation rights capital amounts to 10 per cent in the first five years, and annual premiums are provided for thereafter. The increase of annual compensation is capped at the average of the respective 12-month Euribor plus 12 per cent per year.

Payment of compensation for the participation rights capital depends on its being covered in the year's profit after changes in reserves. Compensation that is not covered in the year's profit after changes in reserves lapses and is not to be paid later. If the Company retains profits without a legal or regulatory order to that effect, compensation for the participation rights capital then not paid out will increase the liquidation claim.

The participation rights capital can be paid back with notice of termination by the issuer only under analogous application of the provisions of the Austrian Stock Corporation Act concerning capital reductions or under corresponding application of the provisions of Section 102a of the Austrian Banking Act. The settlement amount corresponds to the nominal value of the participation rights capital until 2018, and increases to 150 per cent of the nominal value as of 2019.

Persons who are 68 years or older may not be appointed as members of the Managing Board or be reappointed for another term in office.

Persons who are 75 years or older may not be elected as members of the Supervisory Board or be reelected for another term in office. Furthermore, no person may be elected who has altogether more than eight supervisory board seats in companies listed on the stock exchange. The chair in the supervisory board of a company listed on the stock exchange counts twice. The articles of association contain no restrictions concerning voting rights or the transfer of shares. The Managing Board is not aware of any restrictions arising from agreements among shareholders. Moreover, there is no special right of control associated with holding shares.

RZB holds 72.8 per cent of the shares in the Company by way of its indirect 100 per cent subsidiary Cembra Beteiligungs GmbH, Vienna. The remaining shares are free float, which contains no direct or indirect participations in capital amounting to 10 per cent or more.

Section 9 of the articles of association contains the provision that shareholder Raiffeisen Zentralbank Österreich Aktiengesellschaft 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 that company holds a participation in Raiffeisen International Bank-Holding AG.

There is no control on voting rights in case of a participation in capital by employees.

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):

"If the insured, Raiffeisen International, 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 upon a change in corporate control as follows: "If a change of 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 of the investor's actual possibility of disposing of them, or at the time of the merger. An indemnification payment will be made for the contingent shares."

There are no indemnification agreements between the Company and its Managing Board and Supervisory Board members or employees for the case of a public takeover bid.

Business development in 2009

Business in 2009 was primarily shaped by the effects of the financial crisis, which made it necessary for the management to take appropriate actions and measures to deal with the changed market environment.

As in previous years, several units required support for their development, with this taking the form of capital increases and further purchasing of shares. Moreover, additional shares were purchased in some cases, and new companies were founded.

Material additions to assets during the year (not including additions arising from valuation units) are capital increases at Tatra Banka a.s., Bratislava (€ 88.8 million), Raiffeisen Bank Polska S.A., Warsaw (€ 75.0 million), VAT Raiffeisen Bank Aval, Kiev (€ 73.1 million), and Raiffeisenbank (Bulgaria) EAD, Sofia (€ 30.0 million) as well as the founding and capitalization of REH Limited, Limassol (€ 24.6 million) and a shareholder grant to Eastern European Invest Holding GmbH, Vienna (€ 20.0 million).

Development in leasing business was also supported in 2009 by shareholder contributions to RLI Holding Gesellschaft mbH, Vienna.

However, because of the negative development brought about by the financial and economic crisis and the related loss of intrinsic value, the shares in VAT Raiffeisen Bank Aval, Kiev had to be written down unscheduled in 2009.

To strengthen equity and own funds eligible under the Austrian Banking Act, participation rights capital in the amount of € 600 million and subordinated capital in the amount of € 650 million were issued by Raiffeisen International Bank-Holding AG, Vienna in 2009 (promissory note of 22 September 2009).

Key financial indicators

Assets and finances

The balance sheet total rose in 2009 from € 5,514.9 million to € 5,934.3 million. This increase resulted on the asset side particularly from changes in shares held in affiliated companies and in liquid funds.

As of the balance sheet date, Raiffeisen International held participations worth € 5.393,1 million (€ 5.301,4 million as of December 31, 2008), with this including holdings in affiliates worth € 5.392,4 million (previous year: € 5.300,7 million), and participations worth an unchanged € 0.7 million. Of the affiliated companies total, € 5.004,0 million (as of December 31, 2008: € 4.990,9 million) stemmed from banking participations, with the remainder still predominately being in holding companies. Furthermore, Raiffeisen International holds shares in two card-processing centers in Bratislava and Kiev and in a company in Bucharest founded for the purpose of clearing payment transfers (in particular, SWIFT transactions) and other backoffice activities for the Group.

Changes in the line-up of affiliated companies are stated on page 7.

Consortium agreements with the respective shareholders exist for the following participations:

Raiffeisenbank a.s., Prague; Tatra Banka a.s., Bratislava; Raiffeisen Bank Zrt, Budapest, and Raiffeisen-RBHU Holding GmbH, Vienna, Raiffeisen banka d.d., Maribor, and Raiffeisenbank Austria d.d., Zagreb. The consortium agreements primarily establish reciprocal rights of preemptive purchase of stakes. Changes in operating control, which could arise from the receipt of a takeover offer, suffice to nullify these contracts.

To secure against the risks arriving from equities being maintained in local currencies, several of the banks' participations have entered into currency hedges with Raiffeisen Zentralbank. Hedging relationships were set up for each of the participations affected. This arrangement ensures that opposing developments of currencies' rates of exchange will be compensated for by the interplay of the underlying (participation) and the hedge. The hedges took the form of spot transactions and currency futures. As of 31 December 2009, the currency risk was hedged only for Raiffeisenbank a.s., Prague, as a result of a change in hedging strategy.

Not yet billable services shown under inventories increased as a result of new projects from € 1.6 million to € 7.3 million.

Other accounts receivable from affiliated companies decreased primarily because of lower amounts of same-period dividend recognition and compensation due to tax apportionment stated in this item.

Positive balances at banks increased by € 359.0 million, which arose from the surplus funds resulting from strengthening equity by means of participation rights and subordinated capital.

On the liability side, obligations to banks decreased largely due to the repayment of a loan in the amount of € 500.0 million.

On the other hand, among obligations to affiliated companies, financial obligations increased by about € 685.0 million in particular due to the issue of subordinated capital and recognition of compensation for participation rights capital.

Earnings

Sales revenues, which rose by € 16.5 million year-on-year, include revenues from IT consulting and development in addition to general consulting and management services. The revenues are generated exclusively in dealings with affiliated companies.

Operating performance, which comprises revenues, the change in the total of not yet billable services, and other operating income, increased as a result of that by € 24.7 million, or 35.0 per cent, to € 95.2 million.

On the other hand, expenses incurred for operating performance rose by € 22.2 million year on year to € 157.8 million. Within the item of other operating expenses, increases were registered primarily in legal, auditing, and consulting expenses, data processing expenses, and rent.

As a result, operating income improved slightly, from minus € 65.1 million to minus € 62.7 million.

Including financial earnings of minus € 40.3 million (previous year: € 108.4 million), which in 2009 were mainly attributable to earnings from participations of € 277.8 million set against expenses from financial investments of minus € 270.5 million and interest and similar expenses of minus € 94.2 million in particular, there was a net loss for the year amounting to minus € 92.3 million (previous year: net profit of € 70.1 million) after taking into account earnings from income taxes of € 10.7 million (previous year: € 25.7 million). Expenses from financial investments amounted to € 270.0 million in 2009 and concern the unscheduled write-down of VAT Raiffeisen Bank Aval, Kiev.

After the release of other (freely disposable) retained earnings reserves of € 182.4 million (previous year: € 51.0 million), the result for 2009 is net income of € 90.1 million (previous year: € 121.1 million). After taking into account compensation for participation rights capital of € 60.0 million, and including profits carried forward from the previous year, unappropriated retained earnings amounted to € 31.5 million (previous year: € 144.3 million) as at 31 December 2009.

Cash flow statement

The cash flow statement shows the composition of liquid funds in the year under review and is divided into three areas, operating business activity, investing activity, and financing activity.

2009 2008
TEUR TEUR
Cash flow from current business activity (operating cash flow) 211,598 80,959
Cash flow from investing activity -366,221 -1,225,396
Cash flow from financing activity 513,112 1,215,353
Change in liquid funds 358,489 70,916
Liquid funds at the beginning of the period 88,289 15,617
Amount taken over in merger with RI GROUP IT GmbH 0 1,756
Liquid funds at the end of the period 446,778 88,289

Risk management

Raiffeisen International's core business is comprised of the purchasing, ownership and management of majority holdings in banks and other financial institutions active in Central and Eastern Europe. Prior to their being acquired, objects are subjected to intensive audits conducted on an in-house basis. Should the situation so demand, the services of external consultants are used. Extensive controlling rights and the approval processes with minority shareholders are defined in numerous participation agreements, which serve as the basis of these contracts. The extent to which the company holds these rights is determined by the percentage of holding. These rights are pursued by Raiffeisen International's management and staff members. The financial development of these companies is continually documented and analyzed in monthly, quarterly and annual reports.

In particular, recognizing, quantifying, assessing, and actively controlling risks form an important core expertise of the Group. Raiffeisen International has constantly developed its risk management in the past years, adapting it to the steadily changing environment.

The economic crisis shaped the development of Raiffeisen International's risk management in 2009. The focus in retail risk management was on an intensification of collections, loan restructuring, stress tests, and scenario analyses at the portfolio level. In corporate risk management, an early warning system was established in light of the crisis, workout management was expedited, and more stress tests were conducted.

In general, Raiffeisen International's risk management is governed by Group-wide guidelines for credit policy. This ensures coordinated application in all network units of the criteria centrally adopted by the Managing Board. Work on area-wide implementation of the advanced approach of Basel II likewise contributes to standardization.

Raiffeisen International's business is subject to currency fluctuations due to numerous activities outside the euro area. This concerns income and expenses incurred in foreign currencies, the own funds requirement of asset positions in foreign currencies, and the equity of material participations. Rate changes therefore lead not only to fluctuations of Raiffeisen International's consolidated capital, but also to changes of the own funds requirement for credit risk.

Principles of Risk Management

  • The management of risks arising from or relating to loans, countries, markets, liquidity and other operations is undertaken at all levels of corporate activity.
  • The Group-wide application of directives ensures the consistent and coherent implementation of a risk management approach whose formulation occurs in consultation with RZB, the company's corporate parent.
  • The risk management principles applying to the corporate operations and SME divisions are contained in a handbook – the credit manual – whose use is obligatory for the entire Raiffeisen International Group. The credit manual is derived from that of the RZB Group.
  • The rating methods applied are to be implemented throughout the Group.
  • The credit directives are reformulated and approved on an annual basis, with this forming part of the budgeting and planning processes.
  • The management of business activities and of risks are handled by discrete teams whose operations are strictly separated.
  • Provisions constituted for non-performing corporate loans take into account risks of losses arising from individual provisions and portfolio-based provisions. Provisions are generally made for non-performing loans provided to private customers using the portfolio approach.
  • Approval has to be secured from the Group's head office prior to introducing new retail products.

Basel II and risk process optimization

Uniform and harmonized processes and valuation methods are the declared goal of all Raiffeisen International activities in the areas of Basel II and risk process optimization.

To that end, the concept of consistent and Group-wide implementation of Basel II was again systematically pursued in 2009. The goals involved go far beyond implementing methods of measuring credit risk for regulatory purposes. Development of the key pillars of the credit management process, i.e. risk measurement and management, continued steadily.

It is the aim of the Basel II center of excellence in Vienna to maintain the high level achieved in credit risk management. Optimization of the risk process with special attention to data quality and comprehensive collateral management will be consistently continued in all of the network's banks and leasing units in the years ahead.

Further information concerning risk management is presented in the management report and in the notes to the consolidated financial statements.

Internal control and risk management system in regard to the Group accounting process

Balanced, complete financial reporting is an important goal for Raiffeisen International and its corporate bodies. Complying with all relevant provisions of law is, of course, a basic prerequisite for that. The Managing Board bears responsibility for establishing and arranging an internal control and risk management system in regard to the accounting process that meets the requirements of the Company. The aim of this internal control system is to support the management by ensuring effective and continuously improved internal controls in regard to accounting. The control system is geared to compliance with standards and regulations, on the one hand, and to creation of optimal conditions for specific control measures, on the other.

The Annual Financial Statement is prepared on the basis of the applicable Austrian laws, including principally the Austrian Commercial Code (UGB), which governs the composition of such statements.

Control environment

An internal control system has already existed at Raiffeisen International for years in the form of directives and instructions for strategically important subject areas. It comprises:

  • The assignment of authority for the approval of Group and company directives and department and division instructions.
  • Process descriptions for the preparation, quality control, approval, publication, implementation, and monitoring of directives and instructions.
  • Rules for the revision and suspension of directives and instructions.

The management of the respective network unit is responsible for implementing the Group instructions. Compliance with these Group rules is monitored in the context of audits.

Risk Assessment

Material risks in regard to the Group accounting process are evaluated and monitored by the Managing Board. Complex accounting principles can lead to an increased risk of error, and the same is true of non-uniform principles of valuation, particularly for financial instruments that are essential in the Group. Furthermore, a difficult business environment also poses the risk of material errors in reporting. To prepare consolidated financial statements, it is necessary to estimate various asset and liability items for which no reliable fair value can be determined. This applies especially to testing participations for impairment and calculating provisions for pensions, severance payments, and anniversary bonuses and other provisions.

Control measures

It is the task of the employees and managers responsible for accounting in the Group units to provide a complete picture and correct valuation of all transactions. The Managing Board is responsible for seeing to it that prescribed internal control measures, such as separation of duties and the "second-set-of-eyes" principle, are implemented.

Accounting is performed by Raiffeisen-Invest-GmbH, Vienna. Business transactions are recorded partly by manual and partly by automated means. The records are processed by means of the data processing systems of Raiffeisen Informatik GmbH, Vienna. Only modules of the standard software SAP were used for that in 2009. The system is protected in regard to IT security by restrictive granting of authorization. The examination and release of processed records is performed by an internal department of Raiffeisen International Bank-Holding AG, Vienna.

Preparing the information required by the Austrian Commercial Code for the notes to the annual financial statements is the final activity performed in preparing the annual financial statements.

The general control environment also comprises the middle management level (department heads) in addition to the Managing Board. All control measures are applied in the current business process to ensure that potential errors or divergences in the financial reporting are prevented or detected and corrected. The control measures range from the examination of periodic results by the management to the specific reconciliation of accounts to the analysis of ongoing processes in the accounting department.

The annual financial statements of Raiffeisen International Bank-Holding AG, Vienna, together with the management report, are dealt with in the Audit Committee of the Supervisory Board. They are furthermore submitted to the Supervisory Board for ratification. The ratified annual financial statements, of which note is subsequently taken by the Annual General Meeting, are published on the Company's website and in the official gazette of the Wiener Zeitung and are submitted to the commercial register.

Information and communication

Guidelines and regulations regarding financial reporting are regularly updated by the management and communicated to all relevant employees.

Furthermore, discussions are regularly held in various bodies concerning financial reporting and related guidelines and regulations. Those bodies include department heads and senior employees from the accounting department in addition to the management. The work in the bodies aims, among other things, to ensure that the guidelines and regulations that concern accounting are observed and that weaknesses and opportunities for improvement in the accounting process are identified and communicated.

Moreover, employees in accounting are continuously trained regarding new developments in their field in order to be able to recognize unintended misreporting early.

Monitoring

The Managing Board and the controlling department are responsible for continuous companywide monitoring. Furthermore, the department heads are responsible for monitoring their respective areas. Inspections and plausibility checks are conducted at regular intervals.

Internal auditing is also involved in the monitoring process. The internal auditing function is performed by the Group audit department of RZB based on an annually updated service level agreement and standards specific to internal auditing that apply Group-wide.

The Group audit division independently and regularly checks for compliance with internal rules in the head office. The head of the audit division reports directly to the Managing Board.

Human resources

Crisis-driven adjustments

The number of persons employed by Raiffeisen International Bank-Holding AG, Vienna (salaried employees and freelancers, excluding employees on leave) developed in 2009 as follows:

2009 2008
On Dec 31 on annnual
average
On Dec 31 on annnual
average
356 351 331 292

As a result of the changed business environment, the exercise of various holding functions necessitated an expansion of personnel.

Raiffeisen International had a total of 56,530 employees as of 31 December 2009, (measured in full-time equivalents), which is 10.8 per cent or 6,846 persons less than at the end of 2008. Because of the financial crisis and its very noticeable effects on the real economy in 2009, Raiffeisen International was forced to adjust the number of its employees to current business needs.

The change in general conditions made it necessary to increase the number of employees in some areas, including compliance, risk management, collections, and workout. However, in

Development of personnel

other areas, such as sales, fewer employees were needed.

The average age of employees remains relatively low at 34.6 years and thus corresponds to Raiffeisen International's image as a young and dynamic company. With 76 per cent of the employees being university graduates, the workforce exhibits a very high level of qualification. 67 per cent of the employees are women.

Human Resources Controlling

To optimize management of its personnel, Raiffeisen International began to develop an internal human resources controlling system in 2008. This system was successfully implemented in 2009.

Geographical distribution of employees as of the balance sheet date

Data relevant to personnel, e.g. including the return on investment of human capital, training days per employee, the turnover rate, personnel costs per employee, and profit per employee, have been collected and internally evaluated to create a solid basis for business decisions.

Commitment to performance and management development

Performance management

Commitment to performance enjoys an especially important status in times of crisis-driven cost reductions. The well-established performance management system that has existed in Raiffeisen International's entire network for some years forms an efficient basis for that. In line with its purpose, all management personnel as well as all employees in most network units were integrated into the performance management process in 2009. Further standardization of performance evaluation and hence better comparability across all markets of the Group will be sought in 2010. Moreover, the goal agreement system is to be improved at the management level in order to harmonize company and employee goals effectively.

Management development

Systematic identification and promotion of top performers and high potentials continued in 2009 despite the difficult environment. Particularly in times of change it is important to counteract an exodus of such talent by responding appropriately.

A number of activities to ensure top performers' loyalty to the company and systematic promotion were started in the network units. The above-mentioned human resources controlling system makes the success of those activities measurable and visible throughout the Group.

eLearning expanded

In spite of cost reduction considerations, the strategy established in the previous years of training a large number of employees flexibly and efficiently by way of eLearning was successfully continued in the reporting period. The basis for that is the Group-wide learning management system.

Corporate Responsibility Corporate Responsibility in a difficult environment

Corporate responsibility, the commitment to social responsibility and environmental sustainability is an integral part of Raiffeisen International's corporate identity. In its implementation, this means a mindset and a management method that focus on harmonizing economic, social, and environmental demands. The goal at Raiffeisen International is therefore responsible corporate conduct that transcends individual measures.

The commitment to corporate responsibility is reflected in the modern Raiffeisen principles, which originated in the concept of "helping people to help themselves" developed by Friedrich Wilhelm Raiffeisen. These principles make Raiffeisen International a reliable partner for customers, investors, and employees, and demonstrate a dedication to responsibility especially in difficult economic times.

Corporate responsibility within the framework of business activity

An important aspect of corporate sustainability is linking responsible conduct with the company 's original business purpose. Raiffeisen International accomplishes that by ensuring that the highest standards are observed in the areas of compliance and corruption prevention as well as by assuming environmental responsibility in the financing of facilities for the use of renewable energy sources and capital investments to enhance energy efficiency. Raiffeisen International demonstrates social commitment directly related to core business through financial inclusion, financial education, and microfinance.

The report can be requested at any time at www.ri.co.atInvestor RelationsFinancial Reports & Figures.

Outlook Economic Prospects

After the deep recession in the first half of 2009, a significant recovery of the world economy started in the second half of the year. Major factors for the trend reversal in Europe included the support measures taken by various governments, the injection of liquidity by the ECB, the revival of exports, and the restocking of inventories. On the other hand, consumer demand is likely to recover slowly due to rising unemployment rates trailing the cyclical curve. Moreover, credit growth will probably continue to stagnate due to necessary further consolidation of the financial sector. Since some of the supporting effects will fade this year, real GDP growth of only 1.4 per cent in the euro area is expected for the full year 2010. That would put it just under the estimate for 2011 which is at 1.5 per cent, but it is nonetheless significantly above the minus 3.9 per cent reported for 2009.

The national economies of Central and Eastern Europe should also continue to lag significantly behind their growth potential in 2010. There are several factors responsible for this: the inflows of foreign direct investments are likely to be significantly below the level of the past years again in 2010. Furthermore, credit growth will probably turn out to be extremely moderate, and public budgets are likely to remain very heavily strained. Nevertheless, average real GDP growth of about 2.6 per cent is expected for the CEE national economies in 2010 (2009: minus 6.0 per cent).

Among the relatively new EU member states of Central Europe (Czech Republic, Hungary, Poland, Slovakia, and Slovenia), Poland probably remains the country with the best growth prospects. The Czech Republic, Slovakia, and Slovenia should also show positive GDP growth, but it is likely at best to match that of the euro area. Stagnation of GDP is expected for Hungary. Altogether, the region should achieve a plus of about 1.4 per cent on average (2009: minus 1.8 per cent) in 2010, and thus just above the GDP growth forecast for the eurozone area.

The transition countries in Southeastern Europe (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania, and Serbia) will probably continue to be forced to reduce their current account deficits, which are in some cases still high. Unlike before 2009, the financial sector is unlikely to be able to stimulate domestic consumer demand substantially. The state of public finances will probably also hardly allow any expansion of government capital spending. The region's average GDP growth in 2010 should thus come to only about 0.7 per cent (2009: minus 5.7 per cent).

The CIS countries (Belarus, Russia, and Ukraine) oriented to basic materials suffered the most from the global economic crisis. However, the decline of real GDP by almost 8.3 per cent in 2009 also lays the foundation for a significant recovery. Above all, the price of oil, which is very important for Russia, already rose sharply in the second half of 2009, and demand for steel recovered strongly. The region's average GDP growth should reach about 2.5 per cent.

The real economic environment should remain disinflationary in 2010 given that the CEE national economies are likely to lag considerably behind their growth potential, and unemployment rates are likely to show a further upwards trend. The sharpest inflation decline is expected in the CIS, where average inflation rates will probably not only fall significantly below the 10 per cent mark, but might hit their lowest level since the beginning of the transformation at about 7.1 per cent (2009: 12.9 per cent). The same applies to the transition states of Southeastern Europe, whose average inflation rate in 2010 should come to only about 4.0 per cent (2009: 4.7 per cent). Regarding the relatively new EU member states of Central Europe, an average inflation rate of about 2.5 per cent is forecast for 2010 (2009: 2.8 per cent).

Outlook for Raiffeisen International

The financial and economic crisis again had a big hand in shaping the past business year. The recession continued to dominate in the first few months, causing severe fluctuations of currency exchange rates in some of our target markets and affecting our business trend and actions in the entire year through higher provisioning for impairment losses and cost-cutting programs. Fortunately, however, economic development turned appreciably upward in the course of the year. Our business model, geared to universal bank services with a transparent product range strictly oriented to customer needs, consistently proved itself. As the financial crisis ebbed, the problems of procuring liquidity in the banking sector were also overcome. Nevertheless, the consequences of the economic crisis will continue to be felt for some time.

The broad diversification of our bank network in 15 countries again proved very advantageous in the crisis, because individual countries were affected quite differently. We remain committed to that and will expand our presence and business where we see appropriate growth potential. We hope to gain impetus from the expected economic recovery in the CEE region. That is likely to be stronger in Central Europe, Southeastern Europe, and Russia than in the CIS Other segment, where the recovery will probably start later due to continuing problems in Ukraine.

We further developed and considerably expanded our risk management in the past year and took extensive precautions for possible risks. We expect the rise of non-performing loans to continue in 2010, but their upward momentum appears to have broken with the onset of the economic recovery. The strict cost management introduced in the period under review will continue in 2010.

Other information

Events of special importance taking place after the balance sheet date

No events took place after the balance sheet date that could materially influence the company's assets, finances or earnings.

On 22 February 2010, Raiffeisen International published an ad-hoc release which addressed the issue of the examination of a potential merger between Raiffeisen International and RZB as one of several strategic options under review. At the time of the editorial deadline, no official decisions were made to implement any of these options.

Research and development

As a holding company, Raiffeisen International Bank-Holding AG does not engage in any research and development activities.

Proposal concerning the use of profit

The Managing Board will propose to the Annual General Meeting that a dividend of € 0.20 per ordinary share be paid.

Balance Sheet as of 31 December, 2009

Assets

1,708
5,514,896
531,696,654.61 209,025
88,289
Treasury stock 19,860
97,713
91,373
6,340
30
3,163
818
1,571
774
5,395,494,048.51 5,304,163
5,393,095,875.50 5,301,459
3. Securities held as investments 59,902.87 53
5,300,726
680
1,365
Software 1,339
31.12.2008
TEUR
A. Anlagevermögen
I. Intangible assets
II. Tangible fixed assets
Other fcilities, operating
furnishings and fittings
III. Financial investments
1. Shares held in affiliates
2. Participations
B. Current Assets
I. Inventories
1. Merchandise
2. Unbilled services
3. Down payments made
II. Receiveables and other assets
1. Trade receiveables
2. Accounts receiveable from affiliates
3. Other receiveables and assets
III. Securities and stakes held
IV. Cash on hand at banks
( (thereof at affiliates € 446,775,966.16;
previous year: € 88,289 thousand)
C. Prepayments and accrued income
31.12.2009
EUR
1,033,043.57
1,365,129.44
5,392,355,906.45
680,066.18
411,662.60
7,301,944.95
24,240.00
7,737,847.55
0.00
32,505,506.79
7,326,766.96
39,832,273.75
37,348,508.23
446,778,025.08
7,122,005.13
5,934,312,708.25

Liabilities

31.12.2009
EUR
31.12.2008
TEUR
A. Equity
I. Equity capital 471,735,875.00 471,736
II. Capital reserves
1. Committed 1,852,592,104.11 1,852,592
2. Non-committed 97,066,398.80 97,066
1,949,658,502.91 1,949,658
III. Retained earnings reserves
1. Legally constituted reserves 5,000,000.00 5,000
2. Other reserves (freely disposable)
of which, profits carried forward:
€ 37.348.508,23;
750,427,080.83 932,781
previous year: € 19.860 thousand 755,427,080.83 937,781
IV. Participation rights capital 600,000,000.00 0
V. Unappropriated retained earnings
of which, profits carried forward: € 1,404,592.96;
31,500,000.00 144,331
previous year: € 23.220 thousand 3,808,321,458.74 3,503,506
B. Provisions
1. For severance payments 2,351,905.85 1,272
2. For pensions 4,960,352.91 4,769
3. Other provisions 27,806,597.29 47,524
35,118,856.05 53,565
C. Liabilities
1. Liabilities to banks 818,210,222.18 1,377,208
2. Accounts payable 5,307,196.90 5,615
3. Liabilities to affiliates 1,258,692,290.22 571,890
4. Other liabilities
thereof from taxes: € 89.262,39 thousand;
previous year: € 100 thousand
thereof from social security:
€ 600,953.43; prvious year: € 540 thousand
1,857,569.41 1,706
2,084,067,278.71 1,956,419
D. Accrual and deferred income 6,805,114.75 1,436
5,934,312,708.25 5,514,926
Contingent liabilities from guarantees
Outstanding commitments to pay in
2,350,808,430.92
1,648,626.15
3,070,751
1,649

Income Statement for financial year 2009

2009 2008
EUR TEUR
1. Revenues 69,070,089.80 52,540
2. Other operating income 5,655,544.52 1,551
3. Other income
a) Earnings from the disposal of assets with the exception of financial assets 9,204.12 0
b) Income from the retransferring of reserves 11,571,994.44 3,148
c) Other income 8,771,584.30 13,213
20,352,782.86 16,361
4. Material costs and other costs of services
a)
Material costs
-742,622.59 -7,726
b)
Costs of services
-19,041,251.89 -9,171
-19,783,874.48 -16,897
5. Staff costs
a) Salaries -39,579,320.96 -35,252
b) Expenditures for severance payments
and outlays to providential funds for staff members -1,646,136.86 -953
c) Expenditures pension funds -812,581.30 -612
d) Legally-required expenditures for social charges
and for fee-derived charges and compulsory contributions -7,195,037.92 -6,597
e) Other social account payments -1,077,338.97 -614
-50,310,416.01 -44,028
6. Depreciation of intangible and
tangible fixed assets -1,163,799.12 -982
7. Other operating expenditures
a) Taxes
0.00 -41
b) Others -86,529,865.87 -73,641
-86,529,865.87 -73,682
8. Sum of 1 to 7 (operating income) -62,709,538.30 -65,137
9. Earnings from participations 277,795,874.73 308,928
of which due from affiliates € 277,785,902.47;
previous year. € 308.923 thousand
10. Earnings from other securities held as investments 1,549.78 2
11. Other interest and similar earnings 28,135,143.15 28,528
of which due from affiliates: € 25,816,044.95;
previous year: € 26.145 thousand
12. Earnings from the disposal of
financial investments 18,535,816.51 5,014
13. Expenditures for financial investments -270,558,028.80 -43,486
of which a) depreciation: € 270,000,000.00; previous year: € 42.414 thousand
b) Expenditures undertaken by affiliates
€ 270,450,000.00; previous year: € 1.073 thousand
14. Interest and similar expenditures -94,208,910.79 -190,536
of which due to affiliates: € 94.208.910,79;
previous year: € 154,965 thousand
15. Sum of 9 to 14 (financial result) -40,298,555.42 108,450
16. Income from ordinary business operations -103,008,093.72 43,313
17. Extraordinary income 0.00 1,135
18. Income taxes 10,749,863.70 25,663
19. Annual net income -92,258,230.02 70,111
20. Release of retained revenue 182,353,637.06 51,000
21. Net income 90,095,407.04 121,111
22. Compensation for participation rights capital -60,000,000.00 0
23. Profit carried forward from previous year 1,404,592.96 23,220
24. Unappropriated retained income 31,500,000.00 144,331

Notes to the financial statements

as of December 31, 2009

of Raiffeisen International Bank-Holding AG

A. Notes to the methods of accounting and valuation

General principles

.

These financial statements were compiled using principles of orderly accounting and adhere to the definition of true and fair depiction contained in Section 222 (2) of the Austrian Commercial Code. The result is the most accurate depiction possible of the company's assets, finances and earnings.

These financial statements were prepared in accordance with the principle of completeness.

The valuation of the individual assets and liabilities was carried out using and assuming the individual evaluation and going concern principles.

The principle of prudence was taken into account by reporting only those earnings actually realized as of the balance sheet date. The income statement provided for all recognizable risks and pending losses.

Fixed assets

Intangible and tangible fixed assets are valuated at their costs of procurement less scheduled depreciation.

Scheduled depreciation is carried out using the straight-line method and assuming a term of utility of three to five years (for intangible assets) and two to ten years (for tangible fixed assets).

Additions recognized in the first half of the business year are fully depreciated at the annual rate; those recognized in the second half, at half of the annual rate.

Assets of negligible value (whose cost of procurement is to up € 400) are fully depreciated in the year of their acquisition. They are reported in the fixed assets tables as additions and disposals.

Financial investments (stakes held in affiliates, participations, and securities held as investments) are, as a general rule, valuated as their costs of procurement.

Non-scheduled depreciation is carried out on shares held in affiliates and participations in those cases in which their fair values are lower as of the balance sheet date than their carrying values, and when these value impairments are set to be long-term in nature. Write-ups are performed up to the costs of procurement in those cases in which the reasons for the value impairments no longer exist. In 2009, non-scheduled depreciation was carried out in the amount of € 270,000,000.00 (previous year: € 0 thousand).

Securities held as investments are recognized according to the principle of the lower of cost or market. In the year under review, write-ups were carried out in the amount of € 7,053.11 (previous year: € 0 thousand).

Exchange rate hedges undertaken for participations taking the form of hedging relationships are recognized using the individual evaluation principle. This is applied at the hedging relationship level.

Current Assets

Trade goods are recognized at average costs of procurement.

Unbilled services are valued at cost, which includes production wages, purchased services, and appropriate shares of production overhead.

Inventory risks that arise from duration of storage and reduced usability are taken into account by means of appropriate value discounts.

Receivables are recognized at their nominal values, unless individually-applicable risks are recognizable. In such cases, they are recognized at the lower value. Receivables maintained in foreign currencies are recognized at the buying rate prevailing on the date of their coming into existence, or at the buying rate prevailing on the balance sheet date, should that be lower.

Securities and shares (proprietary shares) are recognized as a general rule at their costs of procurement, less any writedowns performed, in those cases in which the stock quote as of the balance sheet date is lower than the costs of procurement. Propriety shares committed to the Share Incentive Program (SIP) are depreciated using the straight-line method over the term remaining of the program in question (terms of three years each).

To strengthen and reward corporate high-achievers' sense of affiliation with the Group, Raiffeisen International's Managing Board has set up a Share Incentive Program (SIP) with the approval of the Supervisory Board. This performance-determined allotment of shares goes to top managers who have completed a three-year qualifying period. The allotment is based on four agreements with largely identical content, taking effect on July 1, 2006 (2006 SIP tranche matured in 2009), May 1, 2007 (2007 SIP tranche), May 1, 2008 (2008 SIP tranche) and June 1, 2009 (SIP tranche 2009).

The eligible persons for inclusion in the Share Incentive Program are members of the Managing Board of Raiffeisen International and its subsidiaries as well as selected senior executives of Raiffeisen International Bank-Holding AG. To participate in the SIP, these top managers have to invest their own funds by purchasing Raiffeisen International shares. Once purchased, the shares have to be retained by the managers for three years.

The number of shares allotted depends upon the manager's fulfillment of two equally weighted performance indicators. The first indicator is the performance of Raiffeisen International during the qualifying period, as measured in the period's average ROE (return on equity). The second indicator is the total shareholder return rating of Raiffeisen International stock compared with all banks listed in the Dow Jones EURO STOXX Banks index.

A tranche of the remuneration program matured in 2009 (the 2006 SIP tranche). In accordance with the terms of the program, the maximum number of shares to be allotted, i.e., maturing shares, was not reached , as the set performance criteria were not met.

The shares required for the SIP were obtained in the framework of an own-share buyback program. As of December 31, 2009, the company held 984,511 (previous year: 1,029,012) of its own shares (equivalent to 0.64 per cent, or € 3,003 thousand of the company's total equity). Of the total, 536,763 shares (previous year: 202,377 shares) were dedicated to the SIP. Of these, 50,905 shares were accounted for by the allotment in 2007, 83,368 shares by the allotment in 2008, and 402,463 shares by the allotment in 2009.

Provisions

All of the benefits-oriented provisions comprised of provisions for social capital (provision for severance payments and pensions)—with the exceptions of the pensions compiled for two members of the Managing Board--are determined, in accordance with IAS 19 – Employee Benefits, using the Projected Unit Credit Method. The right of choice contained in IAS 19.92 (corridor method) is not exercised.

Used in the actuarial calculation of severance payments and pension commitments is an assumed rate of annual interest of 4.75 per cent (previous year: 6.0 per cent). The parameters used in calculating obligations to severance payments remained unchanged from the previous year: an annual average increase in wages of 3 per cent and a career trend of 2 per cent per annum (previous year: 2 per cent). The individual employee turnover rate remained unchanged at between 0 per cent and 10 per cent.

The biometric basis of the calculations made for provisions for social capital was furnished by the Association of Austrian Actuaries' underlying calculations for pension insurance – Pagler & Pagler – contained in the version for staff members, and incorporating a life expectancy factor. The calculations assume a beginning of the drawing of pensions at the age of 60 for women and at the age of 65 for men. The calculations also take into account the legal stipulations governing the transition from working life to pensioner status, and the special features of individual-level contracts. The pensionable age for women is in compliance with the retirement age as contained in the Austrian constitution.

In accordance with contractual conditions, the provisions for pensions constituted for two executive board members correspond to the amount of coverage provided by pension reinsurance policies taken out to meet the obligations. The parameters used in calculating obligations to severance payments remained unchanged from the previous year: an annual average increase in current pension payments of 3 per cent and a career trend of 2 per cent per annum.

Provisions for other items are formed in the amount of their prospective availment. They take into account all recognizable risks and all liabilities whose amount has not yet been determined.

Liabilities

The liabilities are recognized at their amounts of repayment, with this being determined using the principle of prudence. Liabilities maintained in foreign currencies are recognized at their costs of procurement, or at the foreign exchange rate prevailing at the balance sheet date, should that be higher.

Income statement

Profit and loss are calculated using the total cost procedure.

B. Notes to the balance sheet items

1. Assets

Fixed Assets

The development and composition of fixed assets are detailed in appendix I (fixed assets table reported in accordance with Section 226 (1) of the Austrian Commercial Code). The data for affiliates required by the Austrian Commercial Code are shown in Appendix II of these notes (reporting of shares held in affiliates as of December 31, 2009 in accordance with Section 238 (2) Austrian Commercial Code).

To secure against the risks arising from the maintaining of equity in local currencies of the following companies

  • 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,

currency hedges were entered into with Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna, in the past. As of 31 December 2009, the currency risk was hedged only for Raiffeisenbank a.s., Prague, as a result of a change in hedging strategy.

Hedging relationships were set up for the above participations. This ensures that the countervailing development of the associated foreign currency's value will be compensated by the interplay between the underlying (participation) and the hedge. The assessment of the hedge's efficiency takes into consideration the local currency's performance. Such hedges can, however, also make use of currencies showing a great degree of correlation. The changes in values are reported in the valuation of participations (for the underlying) and in the receivables due or from affiliates (for the hedge).

There is no impact on the income statement, providing that the hedge is effective. In 2008, hedges for participations in VAT Raiffeisen Bank Aval, Kiev, and OAO Priorbank, Minsk, became partly ineffective. This partial hedge ineffectiveness resulted in a negative earnings impact of € 93,936 thousand.

Current assets

Inventories amounted to € 7,737,847.55 as of December 31, 2009 (previous year: € 3,163 thousand) and comprised trading goods of € 411,662.60, not yet billable services of € 7,301,944.95, and prepayments made of € 24,240.00.

The accounts receivable from affiliates came to € 32,505,506.79 (previous year: € 91.373 thousand). This item is comprised of accounts receivable amounting to € 13,848,203.88 (previous year: € 12,765 thousand) and other receivables amounting to € 18,449,477.34 (previous year: € 78,608 thousand) and financial receivables amounting to € 207,825.57 (previous year: € 0 thousand). Other receivables consist mainly of compensation due to tax apportionment in the amount of € 13,366,214.69 (previous year: € 32,750 thousand), internal invoicing of fidelity insurance in the amount of € 2,808,368.92 (previous year: € 0 thousand), and a set-off claim in the amount of € 2,105,086.32 (previous year: € 0 thousand). Financial receivables consist mainly of promises of performance including related interest receivables in the amount of € 193,825.57 (previous year: € 0 thousand).

Accounts receivable from affiliates amounting to € 32,311,681.22 (previous year: € 91,373 thousand) had a remaining term of maturity of less than one year at 31 December 2009 and 2008. The rest of the receivables totaling € 193,825.57 (previous year: € 0 thousand) have a remaining term of maturity of over one year as at 31 December 2009 and 2008.

Other receivables and assets came to € 7,326,766.96 (previous year: € 6,341 thousand), which is mainly comprised of the premium reserves accruing from reinsurance policies of € 4,947,199.21 (previous year: € 4,794 thousand), ,and receivables accruing from Vienna's tax authorities of € 922,273.67 (previous year: € 545 thousand), and receivables for payroll accounting of € 730,640.81 (previous year: € 704 thousand). Other receivables to the amount of € 5,829,463.17 (previous year: € 5,448 thousand) had a remaining term to maturity of more than one year as at December 31, 2009 and December 31, 2008. The remaining receivables totaling € 1,497,303.79 (previous year: € 893 thousand) have a remaining term to maturity of up to one year.

Other receivables include income amounting to € 491,190.21 (previous year: € 655 thousand), which will not affect until liquidity after the balance sheet date.

As in the previous year, voting rights for the activation of deferred taxes were not exercised in 2009.

The securities and shares amounted to € 37,348,508.23 (previous year: € 19,860 thousand) and included 984,511 (previous year: 1,029,012) proprietary shares, of which 536,736 (previous year: 202,377) shares are devoted to the company's Share Incentive Program (SIP) (details are provided in the section on provisions on page 28).

For the payout of the 2006 SIP, 45,947 of own shares were needed, of which 15,939 were allotted to Managing Board members and executives of Raiffeisen International, and 30,008 to executives of subsidiaries. These claims were serviced through suitable use of shares dedicated to the SIP (45,947 shares). Selling the shares allotted to the executives of subsidiaries (30,008 shares) to the relevant network companies resulted in a gain on disposal of € 108,028.80.

Holdings of own shares (984,511 shares, or 0.64 per cent of the capital stock) were written up by € 18,510,443.10 to the lower of market on 31 December 2009 (€ 39.50) or cost in accordance with the terms of the share incentive program (SIP). Furthermore, the shares dedicated to the SIP of Raiffeisen International were written down in 2009 by € 442,712.07 in accordance with the conditions set in the SIP.

Cash at credit institutes came to € 446,775,966.16 (previous year: € 88,289 thousand). Most of this is deposited at Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna; all of it with affiliated companies. These deposits had a remaining term of one year in as of 31 December 2009 and 2008. Cash on hand amounted to € 2,058.92 (previous year: € 0 thousand).

Prepaid expenses and deferred income

Prepaid expenses amounted to € 7,122,005.13 (previous year: € 1,708 thousand). This item mainly concerns data processing expenses of € 3,341,055.14 (previous year: € 0 thousand), insurance expenses of € 2,625,339.62 (previous year: € 7 thousand), advertising expenses of € 642,525.99 (previous year: € 969 thousand), prepaid expense reimbursements to the Austrian Financial Supervisory Authority of € 333,234.00 (previous year: € 151 thousand), consulting expenses of € 95,000.00 (previous year: € 0 thousand), and usage fees of € 56,181.43 (previous year: € 385 thousand).

2. Liabilities

Equity

The company's capital stock as of December 31, 2009 was unchanged in comparison with the previous balance sheet date at € 471,735,875.00 and consisted of 154,667,500 no-par unit shares (bearer shares).

At the Annual General Meeting on June 5, 2007, the Managing Board was authorized with the Supervisory Board's approval to increase the company's capital stock by up to € 217,724,250.00 within five years of entering the relevant changes in the articles of association in the register of companies by issuing up to 71,385,000 new ordinary bearer shares with voting rights against contributions in cash and/or in kind (authorized capital). An amount of € 36,287,375.00 (11,897,500 unit shares) was used for the capital increase on October 5, 2007 (secondary public offering).

As of 31 December 2008, unused authorized capital amounted to € 181,436,875.00.

At the Annual General Meeting on June 10, 2008, the company's capital stock was increased contingently in accordance with Section 159 (2) 1 of the Austrian Joint Stock Companies Act by up to € 47,174,587.50 by issuing up to 15,466,750 ordinary bearer shares (contingent capital). The contingent capital increase may only be implemented to the extent that holders of convertible bonds issued on the basis of the resolution taken by the Annual General Meeting on June 10, 2008 actually exercise their right to convert those bonds into shares of the company. The amount of issue and the conversion rate shall be determined on the basis of recognized methods of investment mathematics as well as the current price of Raiffeisen International Bank-Holding AG shares in a recognized pricing procedure. The amount of issue must not be less than the pro-rata amount of the nominal capital. The new shares issued under the contingent capital increase are entitled to receive the dividend that corresponds to that of the company's shares trading on the stock exchange at the time of the issue. The Managing Board is authorized with the approval of the Supervisory Board to determine further details of implementing the contingent increase of capital, and the Supervisory Board may adopt corresponding changes in the articles of association.

Shares of Raiffeisen International Bank-Holding AG have been listed on the Vienna Stock Exchange in the Prime Market segment since April 25, 2005. The issue price amounted to € 32.50, and the first price was fixed at € 39.00. On April 28, 2005, the stock was admitted to Austria's ATX stock index. On December 31, 2009, Raiffeisen International stock was quoting at € 39.50.

Also at the Annual General Meeting on June 10, 2008, the Managing Board was authorized in accordance with Section 174 (2) of the Austrian Joint Stock Companies Act to issue convertible bonds with approval of the Supervisory Board in a single issue or several tranches within five years from the date of the authorizing resolution for a total nominal amount of up to € 2,000,000,000.00. A conversion or subscription right to obtain up to 15,466,750 ordinary bearer shares of the company with a corresponding pro-rata share in the subscribed capital of a maximum € 47,173,587.50 is attached to the convertible bonds. The issue may also be accomplished indirectly by means of a guarantee for an issue of convertible bonds by a subsidiary in which the company owns up to 100% directly or indirectly with conversion right to shares of the company. The Managing Board is moreover authorized to determine all further conditions concerning the issue (including its currency) and the conversion procedure for the convertible bonds. The subscription right of shareholders is excluded.

At the Annual General Meeting of 9 June 2009, the Managing Board was authorized to issue participation rights having equity characteristics under Section 174 of the Austrian Stock Corporation Act for a nominal total of up to € 2,000,000,000.00 in one or more tranches within five years from the date of the authorizing resolution subject to Supervisory Board approval and excluding the subscription right of shareholders.

On 4 August 2009, Raiffeisen International issued participation rights capital as provided by Section 174 of the Austrian Stock Corporation Act for a nominal amount of € 600,000,000.00 after approval by the Supervisory Board. The participation rights capital was entirely subscribed by Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna.

In accordance with the terms of the issue, the participation rights capital is issued for the duration of the company, i.e., without the subscriber of the participation rights capital having the option of ordinary or extraordinary notice of termination. It takes part to the same extent as the share capital does in loss as defined under company law. Its status in case of the Company's liquidation, dissolution, or insolvency is that of a subordinated creditor, but it is to be serviced as being of the same rank as the share capital. The claim to liquidation proceeds is limited at 100 per cent of nominal value in the first ten years, and at 150 per cent as of 2019, provided the increase in enterprise value is covered. Compensation for the participation rights capital amounts to 10 per cent in the first five years, and annual premiums are provided for thereafter. The increase of annual compensation is capped at the average of the respective 12-month Euribor plus 12 per cent per year.

Payment of compensation for the participation rights capital depends on its being covered in the year's profit after changes in reserves. Compensation that is not covered in the year's profit after changes in reserves lapses and is not to be paid later. If the Company retains profits without a legal or regulatory order to that effect, compensation for the participation rights capital then not paid out will increase the liquidation claim.

The participation rights capital can be paid back with notice of termination by the issuer only under analogous application of the provisions of the Austrian Stock Corporation Act concerning capital reductions or under corresponding application of the provisions of Section 102a of the Austrian Banking Act. The settlement amount corresponds to the nominal value of the participation rights capital until 2018, and increases to 150 per cent of the nominal value as of 2019.

Committed capital reserves of € 1,852,592,104.11 and non-committed capital reserves of € 97,066,398.80 were completely unchanged in the year under review.

Retained earnings reserves comprise statutory reserves, unchanged at the previous year's amount of € 5,000,000.00, and other (freely disposable) reserves of € 750,427,080,83 (previous year: € 932,781 thousand). In the year under review, other (freely disposable) reserves of € 182,353,637.06 (previous year: € 51,000 thousand) were written back in favor of profit for the year. Of other (freely disposable) reserves, an amount of € 37,348,508.23 (previous year: € 19,860 thousand) constitutes the reserve for own shares.

Committed capital reserves and statutory retained earnings reserves exceed the amount required by Section 130 (3) of the Austrian Joint Stock Companies Act.

Provisions

Provisions amounted to € 35,118,865.05 (previous year: € 53,565 thousand) and consisted of provisions for severance payments of € 2,351,905.85 (previous year: € 1,272 thousand), provisions for pensions of € 4,960,352.91 (previous year: € 4,769 thousand), and other provisions of € 27,806,597.29 (previous year: € 47,524).

Other reserves to the amount of € 27,806,597.29 (previous year: € 47,524 thousand) mainly refer to reserves for outstanding invoices amounting to € 9,094,261.36 (previous year: € 12,653 thousand), reserves for balance sheet and other premiums of € 8,117,928.00 (previous year: € 12,965 thousand), for risks arising from affiliates of € 5,950,000.00 (previous year: € 5.500 thousand), reserves constituted for potential losses from derivative financial instruments of € 2,245,968.25 (previous year: € 14,093 thousand), ,and reserves for vacations which have yet to be taken totaling € 1,773,439.68 (previous year: € 1,606 thousand).

Liabilities

The deposits from banks amounted to € 818,210,222.18 (previous year: € 1,377,208 thousand). As of 31 December 2009 these liabilities owed to Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna (an affiliated company). Included in the previous year's value of € 1,377,208 thousand are € 500,000 thousand owed to Raiffeisen Malta Bank plc., Sliema (an affiliated company), which were redeemed in 2009. Of these liabilities, € 650,000,000.00 (previous year € 0 thousand) have a remaining term of up to five years as at 31 December 2009 and € 168,210,222.18 (previous year € 1,377,208 thousand) have a remaining term of up to one year.

Accounts payable stood at € 5,307,196.90 on the balance sheet date (previous year: € 5,615 thousand), with domestic business accounting for € 2,996,134.52 (previous year: € 2,047 thousand), and foreign business for € 2,311,062.38 (previous year: € 3,567 thousand). The residual term of invoices as of December 31, 2009 and 2008 was a period of up to one year.

Liabilities due to affiliated companies amounting to € 1,258,692,290.22 (previous year: € 571,890 thousand) encompass € 1,250,195010.34 (€ 563,849 thousand) of financial liabilities, other liabilities of € 2,415,992.12 (previous year: € 2,438 thousand), and accounts payable totaling € 6,081,287.76 (previous year: € 5,603 thousand).

Financial obligations in the year under review consist mainly of two promissory notes issued (including accrued interest) in the amount of € 1,169,223,048.61 (previous year: € 503,384 thousand), which are subordinated in the meaning of Section 45 (4) of the Austrian Commercial Code. Furthermore, obligations consist of compensation for participation rights capital in the amount of € 60,000,000.00 (previous year: € 0 thousand) and to Raiffeisen Zentralbank Österreich Aktiengesellschaft, Vienna, from netting rate hedging transactions (hedging relationship) in the amount of € 20,697,772.84 (previous year: € 59,871).

Other liabilities of € 2,331,500.00 (previous year: € 2,411 thousand) primarily refer to prepayments received.

Liabilities of € 1,150,000,000.00 (previous year: € 500,000 thousand) have a remaining term to maturity of more than five years, and liabilities of € 108,692,290.22 (previous year: € 71,891 thousand) a remaining term of maturity of up to one year.

The other liabilities come to € 1,857,569.41 (previous year: € 1,706 thousand) and are comprised of € 89,262.39 (previous year: € 100 thousand) arising from tax liabilities; of € 600,953.43 (previous year: € 540 thousand) arising from social security liabilities; and of € 1,167,353.59 (previous year: € 1,066 thousand) from other liabilities.

All these other liabilities had a remaining term of up to one year as at 31 December 2009 and 2008.

Reported in the miscellaneous liabilities are expenditures amounting to € 670,552.84 (previous year: € 891 thousand) and which will affect liquidity and only take effect after the balance sheet date.

Accruals and deferred items

Accruals and deferred items of € 6,805,114.75 (previous year: € 1,435 thousand) concern deferred commissions received and settling of insurance benefits and have a residual term of up to one year as of December 31, 2009 and 2008.

Data concerning other financial obligations

Of the following Of the following
year 5 years
Obligations from leasing contracts (data processing
and motor vehicle leasing) 442,000.00 2,417,037.17
Previous year: 452,000.00 2,471,721.27
Rent obligations 4,322,000.00 23,634.467.52
Previous year: 3,312,240.00 18.112.685.96
Obligations to affiliated companies in connection with
technical implementation of Basel II 2,216,000.00 12,117,996.30
Previous year: 1,905,000.00 10,417,320.83
Other obligations to affiliated companies (based on
service level agreements) 25,896,000.00 141,609,942.36
Previous year: 24,340,000.00 133,101,096.58
32,876,000.00 179,779,443.36
Previous year: 30,009,240.00 164.102,824.64
Thereof to associated companies 32,539,000.00 177,933,968.51
Previous year 29,688,240.00 162,346,448.64

Contingent liabilities

Contingent liabilities amounted to € 2,350,808,430.92 as of December 31, 2009 (previous year: € 3,070,751 thousand) and were composed as follows:

€000
Guarantees to affiliated companies 2,070,042,985.92 2,814,986
Guarantees to third parties 280,765,445.00 255,765
2,350,808,430.92 3.070.751

Raiffeisen International made a counter-guarantee to Eastern European Invest GmbH, Vienna, for defaults arising from the loan portfolios taken over by it up to an amount of € 4,095,000,000.00. As of 31 December 2009, the outstanding amount stood at € 1,903,704,393.19 (previous: € 2,814,986 thousand). The counter-guarantee is free of charge.

Furthermore, the Company gave guarantees for loans granted by third parties to network banks. Those guarantees amounted to € 270,765,445.00 (previous year: € 245,765 thousand).

Raiffeisen International issued a limited letter of comfort of up to € 10,000,000.00 (previous year: € 10,000 thousand) to Raiffeisen Bank Kosovo J.S.C., Prishtina, in favor of Kosovo Pensions Savings Trust, Prishtina.

Further letters of comfort were issued to Raiffeisen Rent DOO, Belgrade, and to Raiffeisen Leasing d.o.o., Sarajevo.

As of the 2009 balance sheet date, Raiffeisen International had made stand-by facilities of € 404,415,521.31 available to affiliated companies (previous year: € 435,000 thousand).

Outstanding obligations to make capital contributions amount to €1,648,626.15 (previous year: € 1,649 thousand), with obligations to European Investment Fund S.A., Luxembourg, accounting for € 1,600,000.00 (previous year: € 1,600 thousand).

As of the balance sheet date, the following derivative financial instruments were in effect:

Currency Nominal amount Fair value
Currency unit thousands €000
Interest-related
Credit default swaps EUR 100,000 165
Cross currency swaps SKK 5,859,925 3,533
Interest rate swaps CZK 321,893 31

The fair value through profit and loss of derivatives is determined by discounting future cash flows on the accrual method. Appropriate provisions are formed for impending losses from derivative financial instruments.

C. Notes to the income statement

Revenues amounted to € 69,070,089.80 (previous year: € 52,540 thousand) and result from consulting and management services and from providing information technology and data processing services, a business newly acquired through the merger.

Revenues are distributed geographically as follows: Central and Eastern European countries with € 22,872,326.77 (previous year: € 11,907 thousand), Southeastern European countries with € 26,834,079.21 (previous year € 25,125 thousand), CIS with € 15,265,565.97 (previous year € 10,528 thousand), Austria with € 2,597,512.62 (previous year: € 3,808 thousand), and others countries with € 1,500,605.23 (previous year: € 1,172 thousand).

The change in the total of not yet billable services amounted to € 5,655,544,52 in the year under review (previous year: € 1,551 thousand).

Expenditures for materials and other procured production services amounted to € 19,783,874.48 in the year under review (previous year: € 16,897 thousand) and consisted of € 742,622.59 in expenses for materials and € 19,041,251.89 in expenditures for procured services.

Other operating income of € 20,352,782.86 (previous year: € 16,361 thousand) is comprised of € 11,571,994.44 (previous year: € 3,148 thousand) from the release of provisions and € 8,771,584.30 (previous year: € 13,213 thousand) of sundry operating income and € 9,204.12 (previous: year € 0 thousand) from the disposal of tangible assets. The item sundry operating income mainly related to income from the invoicing of intra-group services. Other operating income from the previous year includes € 8,749,305.80 in revenues from stand-by agreements, which were shown in 2009 under other interest and similar income.

Staff costs amounted to € 50,310,416.01 (previous year: € 44,028 thousand). This included expenses on severance payments and retirement benefits, of which € 1.646.136.86 (previous year: € 953 thousand) were for retirement benefits and € 1,155,555.89 (previous year: € 527 thousand) for severance payments.

Other operating expenditures totaling € 86,529,865.87 (previous year: € 73,682 thousand) resulted entirely from sundry administrative expenses.

Sundry operating expenditures amounting to € 86,529,865.87 (previous year: 73,641 thousand) primarily related to IT-related costs at € 29,988,019.17 (previous year: € 19,265 thousand), legal, advisory and consulting expenses of € 29,880,593.25 (previous year: € 29,656 thousand), premises rental expenses of € 5,575,062.09 (previous year € 3,704 thousand), advertising, PR and promotional expenses amounting to € 5,126,559.02 (previous year: € 5,516 thousand), expenses for third party personnel of € 4,812,966.68 (previous year: € 6,367 thousand), and traveling expenses of € 3,258,982.16 (previous year: € 4,185 thousand).

The division of auditing and consulting expenses into expenses for auditing and expenses for tax consulting and additional consulting services may be gathered from the consolidated financial statements.

Gains from taxes on income of € 10,749,863.70 (previous year: € 25,663 thousand) mainly consisted of income from tax credits resulting from the levy of taxes in the amount of € 13,366,214.69 (previous year: € 32,750 thousand). Furthermore, the item includes in particular expenditures for non-Austrian withholding tax amounting to € 2,290,987.31 (previous year: € 7.556 thousand).

The company has been a member of the Viennese-based Raiffeisen Zentralbank Österreich Aktiengesellschaft corporate group, as defined by Section 9 Corporate Tax Code, since the 2005 financial year.

Extraordinary income of € 1,135,177.91 consisted of the merger gain from transferring the assets of Raiffeisen International GROUP-IT GmbH, Vienna, to Raiffeisen International.

D. Other disclosures

In the 2009 financial year, the company employed an average of 351 (previous year: 292) staff members (salaried employees).

The Supervisory Board was comprised in the period under review of the following members:

Walter Rothensteiner (Chairman) Manfred Url (Deputy Chairman) Patrick Butler Stewart Gager Dr. Kurt Geiger (since 14 August 2009) Karl Sevelda Johann Strobl

Remuneration of the Supervisory Board:

Meeting on June 5, 2007, the Annual General Meeting set the annual remuneration of the members of the Supervisory Board to be € 330,000. The AGM commissioned the board with the determination of this sum's distribution. Meeting on June 5, 2007, the Supervisory Board set the distribution to be carried out as follows: chairman, € 70,000; deputy chairman, € 60,000; members, € 50,000. No recompense is provided for attendance of meetings. In financial year 2009, the Supervisory Board's remuneration came to € 305,000. In 2008, remuneration for the Supervisory Board amounted to € 330,000 (with this not including cash reimbursements). No contracts requiring approval, as defined by Section 95 (5) 12 of the Securities Act, were concluded in 2009 with Supervisory Board members.

The Managing Board was comprised in 2009 of the following members:

Herbert Stepic (Chairman) Aris Bogdaneris Rainer Franz Martin Grüll Peter Lennkh Heinz Wiedner

Remuneration of Managing Board:

The following remuneration was paid to Raiffeisen International Bank-Holding AG's Managing Board:

€000 2009 2008
Preset and results-determined remuneration 4,610 5,544
Payments to pension funds and to reinsurers 97 79
Share-based payments (performance-based) 267 3676
Total 4,974 9,299

This chart lists preset and results-determined remuneration. This includes recompense for the holding of management positions in affiliated companies, bonuses and consideration. In financial year 2008, the share of results-determined remuneration came to 5.5 per cent (previous year: 60.7 per cent).

The chairman of the Managing Board continues to serve as a member of the Managing Board of Raiffeisen Zentralbank Österreich Aktiengesellschaft (RZB), Vienna. The reported remuneration also includes income from that position.

The performance-based components of the Managing Board's remuneration consist of bonus payments linked to the achievement of company objectives for profit after tax, return on risk-adjusted capital, and cost/income ratio and to the achievement of annually agreed personal objectives and the value of an allotment of shares in the framework of the share incentive program (see page 28). The entire Managing Board waived payment of an annual bonus for 2008. The value of the allotted shares corresponds to 100 per cent of the performance-based remuneration components. There were no material changes in the principles for profit-sharing compared with the preceding year.

In 2006, bonus commitments were made in connection with acquisitions to the Managing Board in the amount of € 4,750 thousand. Although the objectives set as conditions for payment were achieved by the subsidiaries in the years from 2006 to 2008 and hence bonus payments became payable in 2009, the Managing Board has waived any payment on this account.

As of 31 December 2009, guarantees existed for one member of the Managing Board in the amount of € 765,445.00 (previous year: € 765 thousand).

Expenditures for severance payments and for pensions came to:

Pension expenditure Severance payments
97 1,122
721 524
818 1,646

As of 31 December 2009, the following executives had been granted the right of authorized signature, with this power to be exercised jointly with a member of the Managing Board or with another person enjoying this unrestricted right:

Ferenc Berszan Kurt Bruckner Alexander Fleischmann (since 30 June 2009) Andras Hamori (since 8 June 2009) Gregor Höpler (since 8 June 2009) Renate Kattinger Robert Kaukal Paul Kocher (since 30 June 2009) Susanne Langer Herbert Maier Susanna Mitter Friedrich Sommer Rudolf Vogl Ursula Wirsching

This company forms part of the group headed by Raiffeisen-Landesbanken-Holding GmbH, Vienna (the ultimate corporate parent) and comprised of its affiliates. Like the rest of these affiliates, Raiffeisen International is fully consolidated in its corporate parent's accounts and is integrated in group operations. Raiffeisen International is also included in the consolidated accounts compiled by Raiffeisen Zentralbank Österreich AG, Vienna (this is the company responsible for compiling consolidated accounts for the minimum number of companies).

The shares of this company are traded on a regulated exchange, as defined by Section 2 Z 37 of the Banking Code. This requires Raiffeisen International pursuant to Section 245 (5) of the Austrian Commercial Code to compile consolidated accounts satisfying the precepts of the International Financial Reporting Standards.

The consolidated accounts are available for inspection at the headquarters of the respective company.

The audited company is a large corporation as defined in Section 221 of the Austrian Commercial Code, because shares of Raiffeisen International have been listed on the Vienna Stock Exchange since April 25, 2005.

Vienna, 26 February 2010

Raiffeisen International Bank-Holding AG

Herbert Stepic Martin Grüll Aris Bogdaneris

Rainer Franz Peter Lennkh Heinz Wiedner

Raiffeisen International Bank-Holding AG, Vienna

Costs of procurement as of 1.1.2009 Additions 2009 Disposals 2009 Costs of procurement as of 31.12.2009 Accumulated depreciation Carrying value 31.12.2009 Carrying value 31.12.2008 Appriciation 2009 Deprciation for the year 2009 Intangible Assets Software and licenses 2,920,962.55 465,253.56 -5,876.95 3,380,339.16 -2,347,295.59 1,033,043.57 1,338,759.02 0.00 770,969.01 Assets of negligible value 0.00 28,879.68 -28,879.68 0.00 0.00 0.00 0.00 0.00 28,879..68 2,920,962.55 494,133.24 -34,756.63 3,380,339.16 -2,347,295.59 1,033,043.57 1,338,759.02 0.00 799,848.69 Tangible fixed assets Other assets, Operating furnishings and fittings 2,197,229.26 323,770.83 -153,938.10 2,367,061.99 -1,001,932.55 1,365,129.44 1,364,817.77 0.00 312,970.95 Assets of negligible value 0.00 50,979.48 -50,979.48 0.00 0.00 0.00 0.00 0.00 50,979.48 2,197,229.26 374,750.31 -204,917.58 2,367,061.99 -1,001,932.55 1,365,129.44 1,364,817.77 0.00 363,950.43 Financial Investments Shares held in affiliates 5,350,938,239.23 365,491,542.69 -3,861,973.17 5,712,567,808.75 -320,211,902.30 5,392,355,906.45 5,300,726,336.93 0.00 270,000,000.0 Participations 680,066.18 0.00 0.00 680,066.18 0.00 680,066.18 680,066.18 0.00 0.00 Securities held in investments 68,118.10 0.00 0.00 68,118.10 -8,215.23 59,902.87 52,849.76 7,053.11 0.00 5,351,686,423.51 365,491,542.69 -3,861,973.17 5,713,315,993.03 -320,220,117.53 5,393,095,875.50 5,301,459,252.87 7,053.11 270,000,000.0 5,356,804,615.32 366,360,426.24 -4,101,647.38 5,719,063,394.18 -323,569,345.67 5,395,494,048.51 5,304,162,829.66 7,053.11 271,163,799.0

Fixed assets tables acc. to § 226 (1) Austrian Commercial Code

Appendix

Share held in
Participation capital Total Equity1) Annual income 1
Shares held in affiliates Currency millions % 000 000
Credit institutions
OAO Priorbank, Minsk BYR 361.735,7 87,7 788.572.592 209.669.596
Raiffeisen banka a.d., Belgrade RSD 27.466,2 100,0 47.247.570 3.181.412
Raiffeisenbank a.s., Prague CZK 3.347,6 51,0 13.230.329 1.856.595
Raiffeisenbank Austria d.d., Zagreb HRK 2.716,1 73,4 5.617.593 392.642
Raiffeisenbank (Bulgaria) EAD, Sofia BGN 603,4 100,0 907.450 50.995
Raiffeisenbank d.d. Bosna i Hercegovina, Sarajevo BAM 230,3 97,0 448.391 30.600
Raiffeisen Banka d.d., Maribor EUR 14,1 86,3 72.043 502
Raiffeisen Bank Kosovo J.S.C., Pristina EUR 58,0 100,0 81.073 6.950
Raiffeisen Bank Polska S.A., Warsaw PLN 1.168,9 100,0 2.463.543 116.986
Raiffeisen Bank S.A., Bucharest RON 1.190,1 99,5 2.213.847 310.993
Raiffeisen Bank Sh.a., Tirana ALL 4.348,2 100,0 24.366.418 4.621.327
Tatra banka a.s., Bratislava EUR 35,9 65,8 764.339 90.800
VAT Raiffeisen Bank Aval, Kiev UAH 2.888,1 96,2 7.828.788 -1.592.610
ZAO Raiffeisenbank, Moscow RUB 36.711,3 100,0 68.783.958 4.674.975
Financial institutions
Central Eastern European Finance Agency B.V., Amsterdam EUR 2,0 100,0 2.268 202
Eastern European Invest Holding GmbH, Vienna EUR 0,0 100,0 37.150 -3
RI Eastern European Finance B.V., Amsterdam EUR 0,4 100,0 14.271 5.718
RI FINANCE (JERSEY) LIMITED, St. Helier EUR 0,0 100,0 14 10
Tatra Leasing spol. S.r.o., Bratislava SKK 0,1 1,5 23.904 -2.524
Other companies
Centralised Raiffeisen International Service & Payments s.r.l., Bucharest RON 6,8 100,0 3.509 513 2)
GSI Group Software Investment AG, Zug CHF 29,4 100,0 -6.249 -777 3)
(previous: Raiffeisen International Liegenschaftsbesitz Holding GmbH)
Raiffeisen International Invest Holding GmbH, Vienna
EUR 0,0 100,0 15.465 -3
Plusfinance Membra a Grupului Raiffeisen Internationel S.R.L.,
Bucharest (previous: Raiffeisen Pensii – Broker de Pensii Private S.R.L.) RON 0,0 99,0 1.720.514 1.130.423 2)
Raiffeisen Training Center Ltd., Zagreb HRK 0,0 20,0 1.049 468 2)
RCR Ukraine LLC, Kiev UAH 0,3 100,0 x x 4)
Regional Card Processing Center s.r.o., Bratislava EUR 0,5 100,0 803 264
Reh Limited. Limassol USD 0,0 100,0 24.602 -14
RI-RBHU Holding GmbH, Vienna EUR 0,0 100,0 242.436 27.063 5)
RIRE Holding B.V., Amsterdam EUR 2,0 100,0 x x 4)
RISP Beteiligungs- und Finanzierungsmanagement GmbH, Vienna EUR 0,0 100,0 38 -6
RLI Holding Gesellschaft mbH, Vienna EUR 0,0 75,0 66.029 -8
Ukrainian Processing Center JSC, Kiev UAH 0,2 100,0 106.774 38.508

Appendix II

  • 1) The amounts of equity listed and the annual incomes reported for Austria-based subsidiaries stem from their prliminary accounts as of December 31,2009.
  • The fully-consolidated non-Austria based companies` equities and annual results as of December 31, 2009 are taken from their accounts compiled according to the International Financial Reporting Standards (IFRSs).
  • 2) The values listen under equity and the annual income have been taken from the local financial statements as of December 31, 2008.
  • 3) The IFRS Reporting Package provided by GSI Group Software Investment AG, Zug uses € instead of national currencies.
  • 4) The company was faounded in the year 2009.
  • 5 The values listen under equity and the annual income have been taken from the local financial statements as of June 30, 2009.
ebruary 2010
KPMG Austria GmbH
Wirtschaftsprüfungs- und Steuerberatungsgesellschaft
Mag. Bernhard Mechtler
Mag. Wilhelm Kovsca
Engagement Partner
Wirtschaftsprüfer
Wirtschaftsprüfer
(Austrian Chartered Accountants)

Publication details

Publisher: Raiffeisen International Bank‐Holding AG Editor: Investor Relations and Group Controlling & Accounting Editorial deadline: 1 March 2010

Place of Production: Vienna

Raiffeisen International Bank‐Holding AG

Am Stadtpark 3

1030 Vienna

Austria

Telephone: +43‐1‐71707 0

Fax: +43‐1‐71707 1715

Internet: www.ri.co.at

The forecasts, plans, and statements addressing the future are based on knowledge and assumptions of Raiffeisen International at the time at which they are drawn up. Like all statements addressing the future, they are exposed to risks and uncertainty factors that may lead to considerable deviations in the result. No guarantees can therefore be provided that the forecasts and targeted values, or the statements ad‐ dressing the future, will actually materialize.

We have exercised utmost diligence in the preparation of this annual report and checked the data contained therein. However, rounding, transmission, printing, and typographical errors cannot be ruled out. The present English version is a translation of the report that the company originally prepared in German. The company only rec‐ ognizes the German version as the authentic version.

Vienna, March 2010 The Board of Management of Raiffeisen International Bank-Holding AG
H. Stepic, CEO M. Grüll, CFO
A. Bogdaneris P. Lennkh
R. Franz H. Wiedner, COO

www.ri.co.at

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