Raiffeisen Bk Intl Ag Ord

Good afternoon, ladies and gentlemen, and welcome to the Q3 2022 conference call of Raiffeisen Bank International. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Johann Strobl, Chief Executive Officer. Please go ahead, sir.

Thank you very much. Good afternoon, ladies and gentlemen, and welcome to our third quarter results presentation. Thank you for joining us today. We can again report very strong earnings, a strong capital position, and good loan growth, and of course, excellent management of risk in these uncertain times. Starting with the group consolidated results year to date, consolidated profit stands at 2.8 billion and record growth in core revenues. Our CT1 ratio improves to 14.6%, reflecting good RWA management in Russia in the third quarter. Despite all that is happening in Russia and Ukraine, we can report 8% loan growth so far this year, and in particular loan growth coming from our core CE and SCE markets, while at the same time shrinking loan books in Russia and Belarus. As you well know, the results that we are reporting today include the full consolidation of our Russian subsidiary, which together with a strong Euro-Rubel rate has performed very well this year. As you perhaps also know, it is currently not possible for us to receive dividends from our Russian subsidiary, and this has implications on our capital steering approach, which I will discuss in a few minutes. If we turn to the next page, what we see is that the Russian business has been very strong, but I'm also satisfied with the rest of the group as it's delivering very nicely. If we exclude earnings from Russia, Belarus, but also the one-off gain from the disposal of Bulgaria, we have earned 822 million in the first nine months of 2022. which works out to an ROE of 11%. This has been driven by very good core revenues with 9 months NII and NFCI up 38% and 18% respectively. As I just mentioned, we have grown the loan book nicely in our key markets, in particular in local currency terms. We have seen 11% growth in the Czech Republic, 18% in Hungary, 9% in Slovakia and 22% in Romania. Going forward, however, we do expect loan demand to moderate. I mentioned our CT1 ratio on the previous slide at 14.6% as of Q3. Looking ahead to next year, we will increase our CETV1 target to 13.5% from January and to 14% by the end of the year. At the same time, we are also steering the bank so that the group CETV1 still remain above 13%, even if we have to deconsolidate Russia for zero, meaning we receive nothing for the equity. I won't say much on risk here, as Hannes will cover this extensively as always, but I simply wish to highlight that we have continued to build up our stock of risk overlays, which are now at €776 million, equal to 71 basis points of CT1. If you look at the next slide, what you can see is What I was already stated, a nice increase in net interest income where the bigger part is attributed or was delivered by higher level liability margin in several countries. There is also an FX effect from the ruble and to a smaller extent also from volumes. The NFCI is significantly increased, but there again a big portion comes from the Russian business, from FX business, but also from settlement and payments. If we turn to the next slide, then you see more details. You see the split up between the total group NII and those without the The Russian-Belarus business, and what you see here is, and I'm now on slide 7, also a very nice improvement if we compare the development with last year. And the same holds true also for the net fee and commission income. And I said before, outstanding, of course, is the FX business, but also clearing and payment was good. Turning to the next page I have mentioned the year-to-date loan growth what we see here that already in the third quarter overall the loan growth was slowing down of course this is driven by a reduction also in the loan volume in Russia and Belarus and also The deposit inflow is less strong than it was in the second quarter. Moving to the next slide, number nine. What we see here is the development of the C to one ratio from end of June to end of September. I think what I should highlight here is On the waterfall, the 62 basis points are the credit risk. This is the result to a large extent of the optimization of the liquidity management in Russia with changing of the structure that RWAs could be reduced significantly as we see here. We have driven by the Thank you very much. Our structural FX position from the participants, especially in Russia, is increasing, thus requiring more RWAs and capital. We had seen another positive impact from the OCI and one remark to the retained earnings here. Dividend accrual is also considered, which is in the level of 43 basis points. If we move to the next slide, a few words to our capital steering approach. I mentioned in my introduction that we are raising our CT1 targets From the beginning of next year to 13.5% and by the end of the year to 14%, these reflect our increased capital requirements, which we expect from next year onwards. To be clear, the new capital targets assume that Russia is part of the group. At the same time, we are also steering the group so that our CT1 ratio remains above 13%, even if we are forced to deconsolidate at zero. This is very similar to the approach we shared with you in Q2. As I mentioned in the introduction, we are currently unable to upstream dividends from Russia to the head office. As a consequence, we will need to calibrate our dividend policy accordingly. This means that any decision on dividends will be based on the capital position of the group excluding Russia. Finally, as we announced on Monday, we have decided not to call our 6 and 1 8% 81 note at the first call date next month. Moving to the next slide, this is a CET1 outlook towards year end. I finished on the slide before, December 14.6. We have a couple of indications which we can share with you. We assume a retained earnings of 60 pips in Q4. We assume and we have some buffer for additional RWA requirements Depending on the liquidity placements, what we can find in Russia, we have a negative FX impact assumed, as we assume a Euro-Ruble rate at 68. And then there are some inorganic and other elements, regulatory model calibrations, which have to be considered as well. And all this together brings us to the above 14% CT1 ratio on group level by the end of the year. As I have stated, whatever CT1 is generated in Russia will not be invested in RWA somewhere else in the group. And I have already mentioned the 43 basis points. Thank you very much. and you have it here what if we had to do this by end of September so then the landing point would have been at 13.3 so good above our target we have a 4.3 billion the one capital which is deconsolidated and in this simple assumption at zero And on the other hand, we have 21.5 billion of RWAs also be deconsolidated. If you add this up together, then you drop from the 14.6 to the 13.3. As this was fully focused on the CD1, For those who want to see the full potential, full impact, you would then also consider the intragroup subordinated instruments, which are in the amount of 30 pips. And with that, I would move to the capital requirements on slide 13. So you see here the actual numbers for CT1 Tier 1 Total Capital. I think what's important for you is also our expectations for 2023. We expect an increased Biller 2 requirements based on some preliminary discussions, what we had with the regulator. Thank you very much. Thank you. from the various network banks, which on group level would mean another increase by 30 basis points to 56. So this adds up to by the end of next year of about 100 basis points. Coming to the next slide, the MREL. You see the numbers. You are aware that we could issue Some benchmark issues in the third quarter. And in addition to that, we have a senior one also in October. So all together, this brought our MREL to above the requirement, which, as we shared with you last time, was for a short period of time a bottleneck. within our group, and please find also on this slide the additional requirements from the resolution groups within our group, so Czech Republic, Slovakia, Hungary, Croatia, and Romania. Turning to the next slide, I have already mentioned our funding activities, so I think here I do not have to talk about history. What we can see here in the numbers is that the liquidity ratios on group level, all what you have, the LCR, NSFR, the loan deposit ratio, all they are very nicely throughout the group. Moving to the next slide, some more details on Russia. I mentioned it at several locations during my presentation already that The Russian bank is developing very well according to our risk policies and to our steering. So compared to Q2, we saw further improvements, a reduction in credit RWAs, but also in the RWA requirements from the liquidity placements. and of course we allocate some operational and market risk which increased a little bit. So overall we have a very strong capital. We have on local standards CT1 ratio of 13.6 which again is up and which is a very nice buffer. And what you can also see on this slide that we also have A very good loan-deposit ratio, meanwhile, in the bank. Moving to slide 17, we have adjusted the macro outlook. Probably not to such an extent as others did. We probably, at some point during this year, we had been a little bit more pessimistic. We see... The impact of the supply shock in the euro area and we assume a technical recession in the winter. But overall, we remain positive in most of the countries, of course, in South Europe better because it's more service related industries will dominate. And yeah, we see further Subtitles by the Amara.org community Infrastructure, electricity is challenged. Moving to slide 18. Here it's just for your report. Probably you follow it from other sources. We have seen in the core countries significant anti-inflationary measures by the various governments and You see also the impact on the various price baskets. Yeah, unfortunately, we have seen another what is called a windfall tax in Hungary, a cap on mortgage rates, and we'll see if more comes. And there is still an ongoing discussion Windfall tax in the Czech Republic. From the parameters we have seen so far, this could lead to a reduction by 30 million.

Moving to slide 19, an update on our guidance.