Annual Report 2019 B u l g a r i a 2 FINLAN D NO RWAY Helsinki Oslo Stockholm Tallinn BALT IC SEA ESTO NIA SWEDEN Riga LATVIA DENMAR K Moscow NORTH SEA Co penhagen LITHUANIA RUSSIA Vilnius Minsk RUSSIA Dublin IRELAND BELARUS UNITED KINGDOM Amsterdam Berlin POLAN D Warsaw Lo ndon NETHERLANDS G ERMA NY BELG IUM Brussels Frankfurt Kiev Prague LUXEMBOURG UKRAINE CZECH RE PUBLIC Paris SLOVAKIA KA ZAKHSTAN Vienna Bratislava MOLDOVA SWITZERLAN D AUSTRIA Budapest Chisinau FRANCE Bern LIECHTEN - STEIN Ma ribor HUNGARY SLOVENIA ROMA NIA Zagreb CR OA TI A ARAL Belgrade SEA BOSNIA AND SERBIA Bucha rest HERZ EGOWINA Sarajevo Pristina C UZBEKISTAN ITALY MONTEN EGRO Soa BLACK SEA ASPIAN KOSOVO Co rsica Podgorica BULG ARI A Skopje GEORGIA Rome Tbilisi Tirana MACEDONIA Istanbul PORTUGAL Madrid ALBANIA ARME NIA Baku Sardinia Yerevan ASERBAIJAN SE Lisbon GREECE Ankara A TURKMENISTA N SPAIN Athens TURKE Y Asgabat MEDITERRANEAN SEA Sicily Tunis Algiers IRAN SYRI A IRAQ Tehran ALGERIA TUNISIA MOROCCO CYPRUS Nico sia www.rbinternational.com HEAD OFFICE AND NE TW ORK BANKS BRANCHES, REPRESENTATIVE OFFICES AN D OTHER UNITS 3 FINLAN D NO RWAY Helsinki Oslo Stockholm Tallinn BALT IC SEA ESTO NIA SWEDEN Riga LATVIA DENMAR K Moscow NORTH SEA Co penhagen LITHUANIA RUSSIA Vilnius Minsk RUSSIA Dublin IRELAND BELARUS UNITED KINGDOM Amsterdam Berlin POLAN D Warsaw Lo ndon NETHERLANDS G ERMA NY BELG IUM Brussels Frankfurt Kiev Prague LUXEMBOURG UKRAINE CZECH RE PUBLIC Paris SLOVAKIA KA ZAKHSTAN Vienna Bratislava MOLDOVA SWITZERLAN D AUSTRIA Budapest Chisinau FRANCE Bern LIECHTEN - STEIN Ma ribor HUNGARY SLOVENIA ROMA NIA Zagreb CR OA TI A ARAL Belgrade SEA BOSNIA AND SERBIA Bucha rest HERZ EGOWINA Sarajevo Pristina C UZBEKISTAN ITALY MONTEN EGRO Soa BLACK SEA ASPIAN KOSOVO Co rsica Podgorica BULG ARI A Skopje GEORGIA Rome Tbilisi Tirana MACEDONIA Istanbul PORTUGAL Madrid ALBANIA ARME NIA Baku Sardinia Yerevan ASERBAIJAN SE Lisbon GREECE Ankara A TURKMENISTA N SPAIN Athens TURKE Y Asgabat MEDITERRANEAN SEA Sicily Tunis Algiers IRAN SYRI A IRAQ Tehran ALGERIA TUNISIA MOROCCO CYPRUS Nico sia www.rbinternational.com HEAD OFFICE AND NE TW ORK BANKS BRANCHES, REPRESENTATIVE OFFICES AN D OTHER UNITS 4 Financial Highlights Monetary values in BGN Thousand 2019 Change 2018 2017 Income Statement Net interest income after provisioning for possible loan losses 208,934 8% 194,061 203,154 Net commission income 93,199 13% 82,398 75,492 Trading profit (loss) 21,039 (1%) 21,254 18,620 Administrative and other operating expenses (194,531) 13% (171,679) (165,446) Profit / (loss) before income tax 142,929 (1%) 144,526 147,963 Profit / (loss) for the financial year 129,682 (1%) 131,549 134,465 Balance Sheet Loans and advances to banks 342,342 54% 221,752 345,268 Loans and advances to customers 5,680,903 17% 4,845,064 4,185,576 Deposits from banks 70,502 (27%) 96,140 59,907 Deposits from customers 7,258,722 17% 6,214,181 5,391,470 Equity 913,830 0% 910,473 922,699 Total assets 8,817,765 13% 7,777,437 6,998,905 Regulatory own funds Total own funds 1,115,801 (1%) 1,123,303 1,150,292 Own funds requirement / According to Local Regulations 390,282 24% 315,674 281,772 Excess cover 725,519 (10%) 807,629 868,520 Core capital ratio (TIER I) 15.94% (15%) 18.82% 21.41% Own funds ratio 22.87% (20%) 28.47% 32.66% Performance Return of equity (ROE) before tax 17.3% 0% 17.4% 17.7% Cost/income ratio 53.1% (2%) 54.1% 55.3% Return on assets (ROA) before tax 1.7% (14%) 2.0% 2.2% Provisions for possible loan losses/risk-weighted assets/ According to Local Regulations 144,168 (4%) 150,220 173,668 Resources Number of staff on balance-sheet date 2,784 3% 2,711 2,711 Banking outlets on balance-sheet date 134 1% 133 134 Official Exchange Rate (BNB) 1 EUR BGN BGN BGN 1,95583 1,95583 1,95583 Source: Audited Separate Financial Statements of Raiffeisenbank (Bulgaria) EAD as at 31 December 2019. 5 Contents General Information 6 The Bank’s Management 8 Statement by the Chairman of the Supervisory Board 10 Statement by the Chairman of the Management Board 12 Vision and Mission 14 Raiffeisen Bank International at a Glance 16 Economic Growth in Bulgaria in 2019 19 Activity of Raiffeisen Group in Bulgaria in 2019 23 Corporate Banking and Capital markets 25 Financial Institutions and Sovereigns 26 Retail Banking 28 Micro Business 29 Sales and Distribution Channels 29 Human resources 31 Risk management 32 Information Technology 33 Operations 34 Raiffaisen Group in Bulgaria 35 Raiffeisen Leasing Bulgaria OOD 35 Raiffeisen Asset Management (Bulgaria) EAD 36 Raiffeisen Insurance Broker 38 Corporate Governance Statement 40 Notes to the Financial Statements 59 Addresses 168 6 General Information Establishment of the Bank Raiffeisenbank (Bulgaria) EAD is the first greenfield foreign investment in the Bulgarian banking sector made in 1994. Main Shareholder Raiffeisenbank (Bulgaria) EAD is indirectly a 100 per cent subsidiary of Raiffeisen Bank International AG, Vienna. With this regard, there were no acquired and transferred own shares in 2019. The capital of Raiffeisenbank (Bulgaria) EAD can be increased upon decision of the sole shareholder through the means provided by the Commercial law: • Issuance of new shares; • Increasing the face value of shares already issued, or • Converting bonds into shares. The Articles of association of Raiffeisenbank (Bulgaria) EAD do not provide for rights of the Supervisory board and the Management Board, related to the increase of the bank's capital or acquisition of own shares. Banking License Raiffeisenbank (Bulgaria) EAD has a full banking license with the right to operate in the country and abroad. Business profile Raiffeisenbank (Bulgaria) EAD is a universal commercial bank, providing services to large corporate customers, small and medium-sized enterprises, retail clients, financial institutions and institutional clients. The bank also performs operations on the domestic and international money and capital markets of bonds, shares, asset management, etc. The bank is well integrated into the local financial and banking infrastructure and is licensed by the BNB, the primary and secondary dealer of Government Securities. The bank is also an investment intermediary, licensed by the Securities and Exchange Commission. The bank's activities do not cause harm to ecology and the environment. Raiffeisenbank (Bulgaria) EAD is a credit institution and as such does not support a research and development unit. 7 The rating of Raiffeisenbank (Bulgaria) EAD Assigned by Fitch Ratings as follows: • Long Term Rating: BBB • Short Term Rating: F2 • Outlook: stable. Correspondent Relations As part of an international banking group, Raiffeisenbank (Bulgaria) EAD uses a broad network of correspondent banks, which provides a fast and efficient access to the global financial markets (USA, Western Europe, Asia). Branch Network At the end of 2019, the branch network of Raiffeisenbank (Bulgaria) EAD consists of 134 offices. 8 The Bank’s Management Shareholders Raiffeisen SEE Region Holding GmbH, Austria – 100 per cent. Supervisory Board Chairman: Martin Gruell SB Members: Helmut Breit Gerda Lottersberger-Roschitz Monika Ruch Robert Wagenleitner Fabian Stenzel (on 22.08.2019 – deleted from the CR) Management Board Chairman: Oliver Roegl Members of the Board: Dobromir Dobrev Ani Angelova Martin Pytlik Nedialko Mihaylov 9 In 2019, the bank paid to the members of the Management Board and the Supervisory Board remunerations amounting to BGN 3,530 thousand. The members of the Management and Supervisory Board of the bank do not hold participating interests in commercial companies as unlimited liability partners and do not own more than 25 percent of the capital of another company. The Chairman of the Management Board, Oliver Roegl, is a member of the Supervisory Board of Raiffeisen Banka a.d. Beograd. He is also a member of the Management Board of the Association of the Banks in Bulgaria. Until 30.09.2019 (Date of deletion in CR), Nedialko Mihaylov was a member of the Board of Directors of Cash Services Company AD. As of 17.06.2019, Dobromir Dobrev is a member of the Management Board of the “Atanas Burov” Foundation. In the past year, the board members or their respective related parties have not concluded with the bank contracts that go beyond the ordinary activity or significantly deviate from the market conditions. At present, there is no option which entitles members of the Supervisory and Management Board to acquire shares or debentures of the bank. Financial instruments and risk management policies used The bank's business mainly involves the creation, acquisition, and disposal of financial instruments. As a result, the bank is exposed to credit, liquidity, market, and capital risk. The risk management policies applicable to those risks are further disclosed in note 4 of the accompanying annual financial statements of the bank. Additional Audit Services The auditing companies auditing the annual financial statements of the bank (individual and consolidated) also issue a Report on factual findings regarding the reliability of the internal control systems under Art. 76, para. 7, item 1 of the Law on Credit Institutions and Ordinance 14, Art. 5 on the content of the audit report for supervisory purposes as of 31 December 2019. Ernst & Young Audit also provides audit services and reviews of historical financial information requested by the auditors of the Parent Company. In 2019, the auditing company Ernst & Young Audit also conducted a review of the condensed interim individual financial statements of the bank as of 30 September 2019. Events after the date of the annual financial statements The spread of COVID-19 is already assessed as an event with a significant impact on the global demand and supply of economic and financial resources, as there is significant uncertainty in the economic activity of many businesses and economic entities.