OREANDA-NEWS. On 27 March 2008 Raiffeisen International Bank-Holding AG, a member of the RZB Group headed by Raiffeisen Zentralbank Osterreich AG, utilized the growth dynamics in Central and Eastern European markets and once again achieved a record result on the back of a strong development of customer business. Consolidated profit (after tax and minorities) surged by 41.7 per cent to 841 million euros (2006: 594 million euros). Profit before tax crossed the 1 billion euros threshold for the first time and amounted to 1.24 billion euros (2006: 891 million euros). Earnings per share rose from 4.17 in 2006 to 5.80 euros. The Managing Board will propose the General Shareholders Meeting to increase the dividend per share for the business year 2007 by 0.22 euros to 0.93 euros (2006: 0.71 euros). Based on that proposal the payout would amount to 143.8 million euros. (All data according to International Financial Reporting Standards (IFRS). All data related to the business year 2006 are displayed without one-off or special effects for reasons of better comparison.)

Herbert Stepic, CEO of Raiffeisen International, said, "Despite the turbulences on the global credit and capital markets we have had an outstanding year 2007. We have very successfully placed our Secondary Public Offering in an extremely challenging market environment and closed the year with yet another record result. The increase in consolidated profit of 247 million euros in 2007 is larger than our total consolidated profit was in 2004, at 209 million euros. This underlines that the traditional customer-focused banking business in our markets is characterized by both strong growth and strong profitability. We have earned confidence by having achieved all strategic and financial goals set at the IPO in 2005 on time."

Strong volume growth in customer business — total assets plus 30 per cent

In 2007, Raiffeisen International continued to utilize the positive growth environment in CEE and notably extended its customer business. Loans and advances to customers grew by 39.5 per cent to 48.9 billion euros (2006: 35.0 billion euros), while deposits from customers increased by 22.0 per cent to 40.5 billion euros (2006: 33.2 billion euros).

The balance sheet total at year-end 2007 increased almost exclusively organically by 30.2 per cent to 72.7 billion euros. For comparison: At year-end 2002, the balance sheet total amounted to 14.4 billion euros. The average annual growth rate of the balance sheet total was 38 per cent during the past five years.

Strong earnings growth in customer business — Operating income plus 32 per cent

The operating result of Raiffeisen International has again developed very positively in 2007.

Operating income surged by 32.2 per cent to 3.79 billion euros (2006: 2.87 billion euros). This increase was driven by the two most important customer-related components: interest income and commission income.

Net interest income increased by 37.1 per cent to 2.42 billion euros (2006: 1.76 billion euros). Net commission income advanced by 33.9 per cent to 1.25 billion euros (2006: 0.93 billion euros). Due to the difficult market environment and a special effect in the previous year, trading profit declined by 26.8 per cent to 127.9 million euros (2006: 174.8 million euros).

The increase in general administrative expenses was slightly lower than the increase in operating income, which was primarily due to strict cost management. In total, general administrative expenses rose by 29.0 per cent to 2.18 billion euros (2006: 1.69 billion euros). The resulting profit from operating activities increased by 36.9 per cent to 1.61 billion euros (2006: 1.17 billion euros). The cost/income ratio, which represents general administrative expenses in relation to operating income, thus further improved as planned from 59.1 per cent to 57.6 per cent.

Sound development of risk provisions

With an increase of 15.6 per cent, allocations to provisioning for impairment losses remained significantly below business volume growth in 2007. New allocations increased by 15.6 per cent to 357.0 million euros (2006: 308.9 million euros). The risk/earnings ratio, i.e. the ratio of provisioning for impairment losses to net interest income, improved from 17.5 per cent in 2006 to 14.8 per cent. The net provisioning ratio — based on the risk-weighted assets of the banking book — decreased by 13 basis points to 0.84 per cent. It amounted to 1.41 per cent (2006: 1.69 per cent) in the retail customer segment, and decreased from 0.70 per cent in 2006 to 0.57 per cent in the corporate customer segment.

More than 60 per cent of provisioning for impairment losses was attributable to the retail customer segment, a total of 218 million euros was allocated to this segment. The corporate customer segment accounted for the balance. In regional terms, the operations in the CIS booked new provisioning for impairment losses with a share of 47 per cent, or 169 million euros, while new allocations in Southeastern Europe were very moderate. That region had a risk/earnings ratio of only 9.2 per cent.

Very sound capital base — Tier 1 ratio above 10 per cent

Raiffeisen International increased equity including consolidated profit and minority interests in the reporting year by 44 per cent, or 2,033 million euros. It amounted to 6,622 million euros as of the balance sheet date (2006: 4,590 million euros). The return on equity before tax sank due to the strong increase in average equity by 1.6 percentage points to 25.7 per cent (2006: 27.3 per cent).

The Tier 1 ratio for the banking book increased by 1.6 percentage points to 11.4 per cent. The Tier 1 ratio including market risk — as measured by total risk assets of 54.0 billion euros — results in a value of 10.5 per cent for 2007 (plus 1.5 percentage points). The own funds ratio rose by 1.4 percentage points to 12.4 per cent. "We have a very sound capital base. This cushion gives us security and additional leeway in case of acquisitions", said Martin Grull, CFO of Raiffeisen International.

Stable funding due to high customer deposit volumes

Total funding of Raiffeisen International amounted to 64.2 billion euros at year-end 2007. The majority of this came from customer deposits with a share of 63 per cent. About 18 per cent came from short-term refinancing, while medium- and long-term refinancing accounted for 17 per cent of the total volume, 2 per cent was accounted for by subordinated liabilities.

"We are able to cover a high and stable share of funding from customer deposits. This is a real benefit in the current environment. In addition, we have a good reputation in the syndicated loan market, which ensures constant access to long-term funding ", added Grull. The well-established cooperation with supranational institutions like the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) or the World Bank affiliate International Finance Corporation (IFC) provides the company with attractive sources of long-term refinancing. RZB and the Austrian Raiffeisen Banking Group are additional important and reliable funding sources.

Good results in the 4th quarter 2007

In the 4th quarter 2007, Raiffeisen International earned a record net interest income (after provisioning) of 600.2 million euros, representing an increase of 38 per cent compared to the same quarter of the previous year. Net commission income of 354.8 million euros was also significantly — by 30 per cent — above the 4th quarter 2006. Consolidated profit amounted to 215.6 million euros and was 38 per cent up compared to the 4th quarter 2006, and only slightly below the previous quarter. Despite the specifics of the 4th quarter with regard to cost allocation it was the second-best quarterly result in the company's history.

Largest sales network leverages strong growth of customer base

The branch is still the centre of the relationship with the customer. In addition, it is also a key to position the brand. In the year under review, the already far-reaching branch network was further extended. The number of business outlets operated by Raiffeisen International rose by 167. At the balance sheet date, the entire sales network of Raiffeisen International in CEE comprised 3,015 business outlets in 16 markets. In the meantime, a leasing company was opened in the Republic of Moldova, thus expanding the presence with operative units to 17 markets.

"We have set another milestone in the development of our company with the opening of the 3,000th branch in CEE. We are able to service our customers region-wide like no other international bank. In the high-growth markets of Russia and Ukraine we run by far the largest branch networks of all Western banks. This is a cornerstone of our business success in the future", said Stepic.

Due to the further expansion and optimization of the sales network and thanks to its high service standards as well as products that are closely aligned with demand, Raiffeisen International was again able to attract numerous new customers. The number of customers was 12.1 million at the end of 2006 and rose to 13.7 million by the end of 2007.

These dynamics are also reflected in the development of staff. At the balance sheet date, the company employed 58,365 people, representing an increase of 5,633 or 10.7 per cent.

Integration projects proceed as scheduled

The integration and transformation projects of the three banks acquired over the past years (Bank Aval in Ukraine in 2005, Impexbank in Russia and eBanka in the Czech Republic, both in 2006) proceed as scheduled. In November 2007, the important legal merger of former ZAO Raiffeisenbank Austria and OAO Impexbank to the new ZAO Raiffeisenbank was completed. The bank that emerged unites Raiffeisen's tradition with Impexbank's outstanding distribution network. The legal merger of Raiffeisenbank a.s. and eBanka a.s. is scheduled to be completed in 2008.

Segment reporting

Raiffeisen International classifies its business according to customer groups and regional segments.

Business segments

Raiffeisen International made increases in its customer segments in the business year 2007. The success of its strategy of expanding retail activities is reflected in a clear improvement of results from that business area.

Corporate customers

With a 54 per cent share of total earnings, the corporate customer segment is the largest and continues to develop satisfactorily. Earnings before tax rose by 43 per cent to 669 million euros, which was higher than business volume growth. Risk assets allocable to the segment increased by 30 per cent to 24.7 billion euros. With an increase of 39 per cent, net interest income contributed to the good result, as did net commission income, which rose by 26 per cent. General administrative expenses increased by 32 per cent. The cost/income ratio improved by another 0.9 percentage points to 35.8 per cent. Only a moderate increase in provisioning for impairment losses of 17 per cent was registered, which was below the increase in net interest income. Since the equity allocable to the segment rose by 50 per cent, the return on equity fell slightly, by 1.5 percentage points to 30.2 per cent. The average number of employees climbed by 10 per cent to 8,089.

Retail customers

As expected, the retail customer segment had the strongest growth of earnings before tax of all segments in the reporting year with a plus of 85 per cent, or 223 million euros, to 487 million euros. Investments in new business outlets and products made in the last few years contributed to that good result. However, that this investment program is still not completed is also reflected in

30 per cent higher general administrative expenses. For that reason, the cost/income ratio of 68.3 per cent in the reporting period was still relatively high, but was 4.0 percentage points below the preceding year’s figure.

The risk assets allocable to retail customers rose by 34 per cent to 19.0 billion euros. The higher volume also required more extensive provisioning for impairment losses, which nevertheless only increased by 14 per cent to 218 million euros. The return on equity rose significantly, from 24.8 per cent to 29.5 per cent. The average number of employees in this segment increased, from 38,677 to 44,582.

Treasury

Earnings in the treasury segment declined in the reporting period. At 188 million euros, earnings before tax were 22 per cent, or 53 million euros, below the preceding year’s high level. The 2006 result had been influenced by a favourable currency environment for the Group and by a special effect of 33 million euros due to a positive valuation result from an open position taken in connection with the Impexbank acquisition. Derivative instruments were used to reduce yield curve risk. That gave rise to a valuation result of minus 30 million euros in 2007. Excluding those effects, earnings development in the treasury segment would be positive.

Risk assets in the segment increased by 10 per cent to 5.9 billion euros. General administrative expenses grew moderately by only 19 per cent. The return on equity fell by 11.8 percentage points on the preceding year to 32.9 per cent. The average number of employees rose by 17 per cent in the reporting year to 1,244.

Participations and other

The one-off effects in 2006 (sales of Raiffeisenbank Ukraine and the minority stake in Bank TuranAlem) were booked in the participations and other segment, which had a positive result of 507 million euros. Adjusted for these one-off effects, the segment’s result in 2006 were minus

81 million euros.

This figure in 2007 was minus 106 million euros. The result is negative because in addition to net income from equity holdings and non-banking activities, the segment includes the costs of central group management. Those remain in the segment and are not distributed to the other business areas. It also includes the computational results from the investment of equity.

Regional segments

Commonwealth of Independent States (CIS)

The CIS segment registered strong growth of its loan portfolio and income, in line with strategy. Profit before tax increased in the reporting year by 27 per cent, or 78 million euros, to

369 million euros despite the deconsolidation of Raiffeisenbank Ukraine in the preceding year. The return on equity fell by 5.6 percentage points to 26.7 per cent because of the significantly larger equity base (plus 53 per cent) and absence of Raiffeisenbank Ukraine, which did not tie up very much capital. Regarding the region’s development, it should be noted that Impexbank was only included for five months of the comparable period and some special effects were also registered.

The region’s net interest income was the highest of all the segments. It rose by 47 per cent, or 280 million euros, to 880 million euros and thus developed even more dynamically than balance sheet assets, which increased more than usual by 6.0 billion euros to 19.9 billion euros thanks to a significant growth of lending business. The group unit in Russia achieved especially strong expansion. That led to improvement of the net interest margin by 13 basis points to 5.13 per cent. The risk-weighted assets developed analogously to the growth of balance sheet assets and rose by 42 per cent to 15.9 billion euros.

Provisioning for impairment losses increased in the reporting period from 127 million euros before to 169 million euros. This increase by one-third was a result of the strong expansion of business volume in both the retail and corporate customer segments and was largely attributable to the two already merged Russian banks. The risk/earnings ratio improved by 2.0 percentage points to 19.2 per cent.

Net commission income registered an increase of 72 million euros to 393 million euros. At

220 million euros, payment transfers contributed the most, which was largely due to the group unit in Ukraine. Foreign exchange and notes/coins business contributed 98 million euros.

Trading profit declined from 83 million euros to 41 million euros. The result on interest-related transactions fell by 23 per cent to 16 million euros, and the result on currency-related business was down significantly. Another factor for the decline was a foreign exchange position taken in connection with the acquisition of Impexbank, which had led to a positive valuation result of

33 million euros in 2006. Adjusted for that special effect in the comparable period, development of trading profit was stable in the reporting year.

Outlook 2008

Building on its successful mid-market strategy, the corporate customer segment will make the largest contribution to profit before tax again in 2008. In the retail business, Raiffeisen International continues to emphasize expansion of the branch network to support the broadening of its customer base. Moreover, the company will further develop its product range in the areas of asset management and insurance in the current year.

The management has set the goal for consolidated profit in 2008 of about 1 billion euros. It is aimed to grow the balance sheet total by at least 20 per cent per year in the period to 2010, with the strongest increases targeted in the retail customer segment.

Raiffeisen International has set a return on equity (ROE) before tax of more than 25 per cent as a goal for 2010. That does not take into account any acquisitions or capital increases. The cost/income ratio should come to about 56 per cent. The company's target risk/earnings ratio is about 15 per cent.