Apart from operating expenses, Raiffeisen Bank International reported better-than-expected results for the first quarter of 2017 on Wednesday. After merging with its parent bank, consolidated profit reached 220 million euros, which beat the consensus estimate of analysts in a Reuters poll by a staggering 46%. The Hungarian subsidiary posted EUR 18 million profit in Q1.
Highlights of the earnings report:
as the banking group’s risk-weighted assets (RWA) grew by 3% over Q416, the CET1 ratio came in at 12.6% by the end of March;
The ratio of non-performing loans (NPL) dropped further to 8.3%;
risk costs turned out favourably, especially on eastern European markets therefore the contribution of these markets to consolidated profit improved further;
net interest margin stabilised;
operating income was helped by foreign exchange changes, as well.
As you can see in the table below, RBI’s key profits beat the market’s call, only operating expenses were less favourable than expected.
Raiffeisen Bank International merged with its parent bank Raiffeisen Zentralbank in March, which shored up the merged unit’s profits and balance. As of 1 January 2017, items from the statement of financial position and income statement, as well as the consolidated subsidiaries of RZB AG were integrated into the RBI Group for better comparability.
It is good news for shareholders that as a result of a major 20% drop in interest expenses, net interest income grew by 5% year on year. Net fee and commission income went up 10%. Net provisioning has not been as low as in Q1 since the onset of the financial crisis. Net provisioning for impairment losses amounted to only EUR 80 mn in Q1 and the NPL coverage ratio came in at 74.0%
The last time RBI’s after-tax profit was this robust was five years ago, in early 2012. The record, of course, also has to do with the merger.
The bank’s loan stock edged up 2% compared to the (subsequently adjusted) base period, and its deposit pool expanded by 5%, while total assets stagnated.
As regards the subsidiaries, the Czech, Slovakian and Romanian units continue to perform reliably well, but the Hungarian arm is also catching up. It posted EUR 18 mn net profit in January-March. The biggest contribution was made by the Russian subsidiary. Its EUR 118 mn net profit constitutes more than half of the banking group’s total Q1 profits.
The bank has given the following outlook:
it targets a CET1 ratio (fully loaded) of around 13% in the medium term.
after stabilizing loan volumes, RBI looks to resume growth with an average yearly percentage increase in the low single digit area.
it expects net provisioning for impairment losses for 2017 to be below the level of 2016 (EUR 758 million).
RBI expects an NPL ratio of around 8% by the end of 2017, and over the medium term it expects this to reduce further.
the bank further aims to achieve a cost/income ratio of between 50 and 55% in the medium term, unchanged from its previous target.
its medium term return on equity before tax target is unchanged at around 14%, with a consolidated return on equity target of approximately 11%.
