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Raiffeisen International Achieves Best Quarterly Result


10 May 2006

Raiffeisen International Achieves Best Quarterly Result

First-quarter profit before tax grows by 45 per cent to € 194 million. Retail banking significantly increases its pre-tax profit by 84 per cent to a total of € 51 million. Profit contribution from the CIS soars by 88 per cent to a total of € 57 million. After the successful acquisition of Impexbank, Raiffeisen International is now the leading western bank in the CIS.

With the result for the first quarter 2006, Raiffeisen International Bank-Holding AG achieved the highest quarterly profit in its history. The company recorded a first-quarter profit before tax of € 193.9 million. This is a rise by 45.4 per cent or € 60.6 million compared to the same period last year (€ 133.3 million). Profit after tax for the quarter amounted to € 151.5 million, which is an increase of 38.6 per cent (Q1/2005: € 109.3 million). After deducting third-party interests, this translates into a consolidated profit for the period of € 124.2 million, which is 33.9 per cent above the comparable figure for the previous year (€ 92.8 million). All figures are based on International Financial Reporting Standards (IFRS).

Herbert Stepic, CEO of Raiffeisen International, commented on the result, "We succeeded in getting a good start on the 2006 business year and are thus on target for the total year. It is not only the level of the result that is satisfactory, but primarily also the mix. Every fourth euro earned already comes from Retail banking."

Balance-sheet total rose to € 42 billion

The balance-sheet total of Raiffeisen International amounted to € 42.0 billion after the first quarter, which is an increase of 3.2 per cent over the figure for year-end 2005. In comparison to the first quarter 2005, total assets grew by one third or € 10.5 billion. Loans and advances to customers rose by 4.2 per cent since the end of 2005 and amounted to € 25.8 billion.

Deposits from customers rose by 3.4 per cent and totaled € 25.7 billion. Deposits from banks went up by 1.2 per cent to € 10.4 billion during the first three months of 2006, as compared to the end of 2005.

Sound expansion of operations

In comparison to the first quarter 2005, operating income clearly went up, namely by 48.1 per cent or € 192.8 million, and amounted to € 594.6 million. Net interest income recorded the biggest growth: It went up by 46.2 per cent to € 378.2 million. This growth is thus considerably above that of the mean balance-sheet total (plus 38 per cent), which is primarily due to interest margin improvement by 10 basis points, amounting to 3.65 per cent. This improvement is the result of above-average growth of the business volume in regions with higher interest margins.

For Martin Grüll, CFO of Raiffeisen International, this results from the group’s strategic positioning: "We are growing especially in regions where significantly higher margins can be earned. Our strategy to enter into growth markets as an early mover and with broad geographical coverage is paying off. In Southeastern Europe and the CIS not only growth rates but also margins are the highest."

General administrative expenses rose less than operating income, namely by 44.3 per cent to € 347.5 million. The cost/income ratio consequently improved by 3.2 percentage points to 58.4 per cent.

Resulting profit from operating activities thus went up by 53.6 per cent, or € 86.2 million, to € 247.1 million. Provisioning for impairment losses went up by € 7.7 million to € 55.4 million compared to the fourth quarter 2005. Compared with the same period last year they grew by € 26.9 million. The biggest increase, namely € 12.1 million, comes from CIS. This is a logical consequence from the strong growth of business volume, but also from the fact that Bank Aval was not consolidated in the first quarter of 2005.

As compared to the end of the year, the staff number grew by 487 and totaled 44,101.

Equity continues to grow

Equity rose by 4.2 per cent, or € 136.7 million, to € 3,413 million since year-end 2005. The increase is mainly due to the profit after tax for the current period of € 151.5 million. Moreover, equity increased on account of exchange-rate fluctuations regarding Central and Eastern European currencies and capital hedges transacted in this connection in the net amount of € 11 million.

Total own funds expanded by € 58.6 million or 2.0 per cent to € 2,996.2 million. The own funds ratio was at 9.4 per cent, after 9.8 per cent at the end of the year. The core capital ratio (Tier 1, banking book) amounted to 8.6 per cent (2005: 9.0 per cent).The core capital ratio (Tier 1, including market risk) was 7.6 per cent (2005: 8.0 per cent).

Return on equity before tax (profit for the quarter before tax in relation to mean equity) has improved by 1.9 percentage points since the end of 2005 and it amounted to 23.7 per cent.

Segment Reporting

The business activities of Raiffeisen International are divided into segments according to its business lines and regions.

Retail banking experiences a significant profit increase

Retail Customers is the business segment that experienced the strongest growth of all segments. During the period under review, it increased its profit before tax by 84 per cent or € 23.3 million to € 51.0 million. The number of retail customers exceeded the 10-million mark during the first quarter. These are served through 2,508 business outlets (2005: 2,443). This segment already contributes as much as 26 per cent to total profit before tax. The return on equity (before tax) of this segment improved from 18.9 per cent in the first quarter of the expired business year to 20.0 per cent this year.

The segment Corporate Customers achieved an increase in its pre-tax result of 46.0 per cent, or € 37.0 million, and totaled € 117.5 million. It thus continues to be the largest and most profitable business segment, holding a share of 61 per cent in the total result. The return on equity (before tax) of this segment obtained 30.6 per cent.

The Treasury segment recorded an increase in profit before tax of 33.8 per cent and amounted to € 50.3 million (Q1/2005: € 37.6 million). The return on equity (before tax) was 35.5 per cent.

The negative profit contribution of the segment Participations and Other went up from € 12.5 million to € 25 million. This segment comprises all non-banking-specific activities, including refinancing, and the management of equity participations.

Clearly higher CIS contribution to the result

The segment Central Europe comprises the Czech Republic, Hungary, Poland, Slovakia and Slovenia. For the period under review (Q1/2006), its profit before tax improved by 35.3 per cent to € 78.9 million (Q1/2005: € 58.3 million). ROE before tax rose to 22.3 per cent (Q1/2005: 20.6 per cent), the cost/income ratio declined to 56.8 per cent (Q1/2005: 63.1 per cent).

Southeastern Europe covers Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Romania, as well as Serbia and Montenegro. Profit before tax from this segment rose by 29.5 per cent to € 57.5 million (Q1/2005: € 44.4 million) for the first quarter 2006. ROE before tax amounted to 22.2 per cent (Q1/2005: 24.9 per cent), the cost/income ratio declined to 59.7 per cent (Q1/2005: 61.9 per cent).

The CIS segment includes Belarus, Kazakhstan, Russia and the Ukraine. For the period under review (Q1/2006), the profit before tax amounted to € 57.4 million, which is an increase of 87.6 per cent over the same period last year (Q1/2005: € 30.6 million). ROE before tax amounted to 27.9 per cent (Q1/2005: 39.8 per cent), the cost/income ratio was 59.2 per cent (Q1/2005: 45.7 per cent).

Acquisition of Impexbank closed

By closing the acquisition of Russian Impexbank on 28 April 2006, Raiffeisen International has become the biggest banking group in Russia and the leading western banking group in the CIS. In terms of balance-sheet total, it is the seventh-largest bank on the Russian market with its population of 143 million. Impexbank will be consolidated into the Raiffeisen International Group for the first time in the second quarter 2006.

Outlook

The management expects strong earnings growth for the medium term in the CIS and above all in Ukraine and Russia. However, restructuring measures in Ukraine and Russia, due to the acquisition of Bank Aval and Impexbank, will burden earnings in the short term. Raiffeisen International continues to judge the potential for the countries of Southeastern Europe optimistically, but somewhat more cautiously because of restrictions on credit growth prescribed by supervisory authorities. In Central Europe, the company is increasingly focusing on the fast-growing segment of asset management products in addition to traditional business.

By management’s estimates, the balance-sheet total will grow by at least 20 per cent annually in the period to 2008. The strongest increases will be seen in the CIS, partly because of the acquisitions made there. Raiffeisen International’s management expects an increase of more than 25 per cent in consolidated profit for the Raiffeisen International Group in 2006 (consolidated profit was € 382 million in 2005) excluding the Impexbank results and the gain resulting from a possible sale of Raiffeisenbank Ukraine.