Annual Report 2016 Bulgaria 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 2016 Change 2015 2014 Income Statement Net interest income after provisioning for possible loan losses 204,177 34% 152,193 132,761 Net commission income 70,661 3% 68,475 64,195 Trading profit (loss) 16,587 14% 14,538 17,088 Administrative and other operating expenses (166,356) (5%) (174,432) (172,244) Profit / (loss) before income tax 146,691 116% 67,799 51,118 Profit / (loss) for the financial year 132,641 115% 61,615 46,553 Balance Sheet Loans and advances to banks 382,178 (51%) 780,127 392,937 Loans and advances to customers 3,789,679 7% 3,555,168 3,611,798 Deposits from banks 31,763 (37%) 48,325 51,446 Deposits from customers 4,748,602 0% 4,759,901 4,235,399 Equity 910,497 0% 910,327 909,630 Total assets 6,323,964 (2%) 6,459,550 5,981,352 Regulatory own funds Total own funds 1,114,860 (6%) 1,181,061 1,143,628 Own funds requirement / According to Local Regulations 262,045 1% 258,597 250,530 Excess cover 852,815 (8%) 922,463 893,098 Core capital ratio (TIER I) 22.98% (10%) 25.43% 25.87% Own funds ratio 34.04% (7%) 36.54% 36.52% Performance Return of equity (ROE) before tax 17.38% 117% 8.02% 5.9% Cost/income ratio 55.26% (3%) 57.15% 53.2% Return on assets (ROA) before tax 2.31% 111% 1.10% 0.8% Provisions for possible loan losses/risk-weighted assets/ According to Local Regulations 240,760 (14%) 278,960 300,833 Resources Number of staff on balance-sheet date 2,736 (1%) 2,767 2,917 Banking outlets on balance-sheet date 136 (7%) 147 154 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 2016. 5 Contents General Information 6 The Bank’s Management 8 Statement by the Chairman of the Supervisory Board 9 Statement by the Chairman of the Management Board 10 Vision and Mission 11 Corporate Social Responsibility 12 Raiffeisen Bank International at a Glance 13 Economic Growth 14 Activity of Raiffeisen Group in Bulgaria in 2016 18 Corporate Banking 20 Capital Market 20 Group Securities Services 21 Financial Institutions and Sovereigns 21 Retail Banking 22 Micro Busness 22 Sales and Distribution Channels 23 Operations 25 Human resources 27 Raiffeisen Leasing Bulgaria OOD 29 Raiffeisen Asset Management (Bulgaria) EAD 30 Raiffeisen Insurance Broker 32 Corporate Governance Statement 34 Notes to the Financial Statements 54 Addresses 122 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 in 2016 there are no acquisition or transfer of own shares. The capital of Raiffeisenbank (Bulgaria) EAD could be increased upon the decision of the sole shareholder through the means foreseen in the Commerce act: • 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 particular rights of the Supervisory Board and the Board of Directors, related with the capital increase or acquisition of own shares. Banking License Raiffeisenbank (Bulgaria) EAD has a full banking license for domestic and overseas banking and financial operations. 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 bonds and securities trading on the local and the international money and capital markets, asset management, global security services, etc. The Bank’s activity does not harm ecology and environment. As a credit institution, the Bank has not established research and development and innovation activities. 7 The Credit Rating of Raiffeisenbank (Bulgaria) EAD Assigned by Fitch Ratings is as follows: • Long Term Issuer Default Rating: BBB- • Short Term Issuer Default Rating: F3 • Outlook: stable Correspondent Relations Raiffeisenbank (Bulgaria) EAD has established correspondent banking relations with over 1,100 banks world-wide and maintains accounts in major currencies with first-class foreign banks. Branch network As at the end of 2016 the network of Raiffeisenbank (Bulgaria) EAD totaled 136 branches. Financial instruments and risk management policies used The Bank’s activities mainly involve the creation, acquisition and disposition of financial instruments. As a result of this, the Bank is exposed to credit, liquidity, market and capital risk. The policies on managing those risks are disclosed in detail in Note 4 to the Bank’s annual financial statements enclosed thereto. Events after the date of the annual financial statements There are no subsequent events that would require either adjustments or additional disclosures in the annual financial statements. 8 The Bank’s Management Shareholders Raiffeisen SEE Region Holding GmbH, Austria – 100 per cent Supervisory Board Chairman: Helmut Breit SB Members: Kurt Bruckner Ferenc Berszan Herbert Stepic Management Board Chairman: Oliver Roegl Members of the Board: Tzenka Petkova Ani Angelova Martin Pytlik Evelina Miltenova (until 30.06.2016) Dobromir Dobrev 9 Statement by the Chairman of the Supervisory Board Ladies and Gentlemen, Financial year 2016 was marked by two main features: firstly, the market environment, which remained challenging due to the very low interest rates and the continuing regulatory and political pressure, and secondly, due to the start of the merger valuation process of RBI and RCB. The requirements for the capitalization of the banks were considerably increased after the financial crisis in 2008, and on the other hand the international and national regulators tightened significantly their regulations and requirements. In February 2015, we started the implementation of our transformation program, which aims at strengthening our capital base. Our target was Common Equity Tier 1 (according to the full requirements of the Regulation) (CET1) to reach at least 12 per cent, as well as to reduce the complicacy and the costs. By 31st December 2016 CET1 it reached 13.6 per cent, bringing RBI to its target well ahead of schedule. Following the extensive valuation phase, on 5th October 2016, the Management and the Supervisory Board of RBI and RCB adopted a decision in principle for the merger of RBI and RCB. On 24th January 2017, the Extraordinary General Assembly of RBI approved the merger with RCB with a clear majority. The merger became reality after its entry in the Commercial Register in March 2017. The advantages of the merger are based on previous achievements that include the geographical presence of attractive growing markets in CEE, the top five market positioning in 9 out of 14 Helmut Breit markets, as well as the stable business in Austria. The focus Chairman of the Supervisory Board of will continue to be the establishing and strengthening of long- Raiffeisenbank (Bulgaria) EAD term relationships with customers across all local markets. As a customer-oriented universal bank, an important role in our general focus play the solutions, meeting the needs of corporate clients, based on the access to the local market and our extensive network, as well as our comprehensive offers to the individual clients in CEE. In 2016, the Bulgarian economy reported a second consecutive year of sustainable growth of over 3 per cent and our expectations are that this growth will continue in the coming years. This will have a positive impact on the banking sector and on welfare in general.