RBI: No exit from Russia without compensation – Raiffeisenzeitung

Raiffeisen Bank International (RBI) achieved consolidated earnings of EUR 2.08 billion in the first nine months of 2024, which represents a year-on-year decline of 1.5 percent. Without Russia and Belarus, the accumulated result was 856 million euros, including provisions for mortgage loans in foreign currencies in Poland to 493 million euros. The bank’s total assets increased by 3.9 percent to nearly 206 billion euros in the reporting period.

At an analyst conference, RBI CEO Johann Strobl spoke of a “reasonable result” and emphasized that several measures had been implemented to reduce business in Russia: “You can already see the results.”

According to Strobl, the reduction of the loan portfolio in Russia is happening faster than expected. Loans have decreased by almost 67 percent from the peak in the second quarter of 2022 and 23 percent compared to the previous quarter. Part of the decline is also due to the fall in the value of the ruble. However, it will take years before the entire loan portfolio is reduced. The background is that interest rates in Russia have risen significantly. So there are few reasons for customers to refinance their loans, the RBI CEO explained.

The Russian subsidiary also recorded a quarterly decline of 26 percent in deposits. In addition, the payment transaction business was also severely restricted. In Russia we work with a very small number of customers who are particularly active internationally, Strobl continued. The CEO accepts that the ECB supports the path chosen. But the basic question arises: “What kind of bank is this that offers very few services?”

“Efforts to leave Russia will continue.”

Johann Strobl
© RBI/David Sailer

Until possible exit plans are implemented, accelerated business reduction is “the main scenario” for the bank. “However, we have not yet reached the point where we have to leave (have to) leave without any compensation,” said Strobl. Efforts “for a partial or complete exit” will continue. In the spring, the bank had to abandon the Strabag deal due to possible sanctions violations.The fact that an exit from Russia is becoming more complicated is also reflected in the order A preliminary injunction issued by a Russian court in September, which prevents the disposal of the bank’s Russian subsidiary, makes sales efforts even more difficult and will inevitably lead to further delays pressure on the RBI CEO. The bank is fighting this decision using all legal means.

Stable income

In the meantime, the RBI also feels that the peak in the banking industry seems to have passed due to economic weakness and the falling yield curve. Core income (net interest and commission income) for the entire group fell by 2 percent to EUR 6.43 billion in the first three quarters. However, net interest income recorded a positive development, increasing by EUR 166 million to EUR 4.35 billion. This was largely driven by South East Europe with higher loan volumes and Slovakia due to higher interest rates in the euro area compared to the previous year.

However, a downward trend was seen at the group’s head offices, which primarily reflected higher interest rate sensitivity in the short-term investment segment of the corporate client business. Overall, RBI’s lending business increased by 1 percent year-on-year to EUR 100.1 billion in the reporting period. Net commission income, on the other hand, fell by around 12 percent to just under 2.08 billion euros. And the operating result was also 5.2 percent weaker.

RBI’s equity Tier 1 (CET1) capital ratio excluding Russia recently rose to 15.3 percent. “Even a complete deconsolidation of the bank’s Russian subsidiary with a book value of zero could be fully mitigated by current capital reserves,” the bank said. A decline in the Tier 1 equity capital ratio to approximately 14.7 percent by the end of 2024. Strobl attributes this, among other things, to higher risk-weighted assets (RWA) and loan growth to which expected in the last quarter.When it comes to the ratio of non-performing loans, ie bad loans, the RBI comes to 2 percent (+0.1 percentage point).

“The quality of RBI’s loan portfolio has remained very stable over the past twelve months. “

Hannes Mösenbacher
© David Sailer

Low risk costs

In his statement on the quarterly results, Chief Risk Officer Hannes Mösenbacher emphasized that the operating environment is still fragile, but that the recovery of the economy is on the way. “The quality of RBI’s loan portfolio has remained very stable over the past twelve months,” Mösenbacher said. The risk costs were around 30 basis points in the third quarter excluding Russia and Belarus and should not exceed 35 basis points this year.

Next year, Mösenbacher expects risk costs in the group excluding Russia and Belarus to be between 40 and 50 basis points. Poland is a “sore subject” for the RBI this year, where almost all disputes over foreign currency (Swiss franc and euro) loans end up in court. “We have prepared ourselves well for this,” said Mösenbacher and have taken measures for almost 90 percent of cases. An in-court and out-of-court settlement strategy has also been introduced to reduce financial losses, legal fees and litigation costs. The benefits should be evident in the coming year.

The bank expects the return on equity (ROE) for the year as a whole, excluding Belarus and Russia, to be 7.5 percent. At the half-year mark, the RBI still expected around 10 percent. The outlook for net interest income is unchanged. In 2024 it is expected to be around 4.1 billion euros and net commission income around 1.8 billion euros. As previously expected, customer requests should grow 4 to 5 percent. Administrative costs should grow to around 3.3 billion euros, which should lead to a cost-income ratio of around 52 percent. “Any decision on the issuance of shares will depend on the capital position of the group excluding Russia,” the RBI said.