Annual Report 2018 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 2018 Change 2017 2016 Income Statement Net interest income after provisioning for possible loan losses 194,061 -4% 203,154 204,177 Net commission income 82,398 9% 75,492 70,661 Trading profit (loss) 21,254 14% 18,620 16,587 Administrative and other operating expenses -171,679 4% -165,446 -166,356 Profit / (loss) before income tax 144,526 -2% 147,963 146,691 Profit / (loss) for the financial year 131,549 -2% 134,465 132,641 Balance Sheet Loans and advances to banks 221,752 -36% 345,268 382,178 Loans and advances to customers 4,845,064 16% 4,185,576 3,789,679 Deposits from banks 96,140 60% 59,907 31,763 Deposits from customers 6,214,181 15% 5,391,470 4,748,602 Equity 910,473 -1% 922,699 910,497 Total assets 7,777,437 11% 6,998,905 6,323,964 Regulatory own funds Total own funds 1,123,303 -2% 1,150,292 1,114,860 Own funds requirement / According to Local Regulations 315,674 12% 281,772 262,045 Excess cover 807,629 -7% 868,520 852,815 Core capital ratio (TIER I) 18.82% -12% 21.41% 22.98% Own funds ratio 28.47% -13% 32.66% 34.04% Performance Return of equity (ROE) before tax 17.4% -2% 17.7% 17.4% Cost/income ratio 54.1% -2% 55.3% 55.3% Return on assets (ROA) before tax 2.0% -10% 2.2% 2.3% Provisions for possible loan losses/risk-weighted assets/ According to Local Regulations 150,220 -14% 173,668 240,760 Resources Number of staff on balance-sheet date 2,711 0% 2,711 2,736 Banking outlets on balance-sheet date 133 -1% 134 136 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 2017. RBB Monetary values in BGN tsd 2018 Change 2017 2016 Income Statement 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 13 Raiffeisen Bank International at a Glance 14 Economic Growth in Bulgaria in 2018 17 Activity of Raiffeisen Group in Bulgaria in 2018 21 Corporate Banking and Capital markets 23 Group Securities Services 24 Financial Institutions and Sovereigns 24 Retail Banking 25 Micro Business 26 Sales and Distribution Channels 26 Human resources 27 Risk management 28 Information Technology 30 Operations 30 Raiffaisen Group in Bulgaria 31 Raiffeisen Leasing Bulgaria OOD 31 Raiffeisen Asset Management (Bulgaria) EAD 32 Raiffeisen Insurance Broker 34 Corporate Governance Statement 36 Notes to the Financial Statements 55 Addresses 166 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 2018. The capital of Raiffeisenbank (Bulgaria) EAD can be increased upon decision of the sole shareholder through the means provided by the Commerce act: • Issuance of new shares; • Increasing the face value of shares already issued; • Converting bonds into shares. The Articles of association of Raiffeisenbank (Bulgaria) EAD do not provide for particular 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, 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 harm 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: F3 • 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 2018 the branch network of Raiffeisenbank (Bulgaria) EAD consists of 133 offices. 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. Events After the Date of the Annual Financial Statements There are no events after the reporting date that would require adjustments or further disclosures in the annual financial statements. 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 (from 28.06.2018 – registered in the CR) Kurt Bruckner (until 28.06.2018 – deleted from the CR) Fabian Stenzel (from 28.06.2018 – registered in the CR) Ferenc Berszan (until 28.06.2018 – deleted from the CR) Robert Wagenleitner Management Board Chairman: Oliver Roegl Members of the Board: Dobromir Dobrev Ani Angelova Martin Pytlik Nedialko Mihaylov 9 In 2018 the bank paid to the members of the Management Board and the Supervisory Board remunerations amounting to BGN 3,187 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 per cent 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. In March 2017, Nedialko Mihaylov was elected as a member of the Board of Directors of Cash Services Company AD. In the past year, the board members or 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 provision to grant members of the Supervisory and Management Board rights to acquire shares or bonds 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 2018. Ernst & Young Audit also provides audit services and reviews of historical financial information requested by the auditors of the Parent Company. In 2018, the auditing company Ernst & Young Audit also conducted a tax consultation on "Transfer Pricing on Contracts with Raiffeisen Bank International AG” in the form of historical records.