Chapter 6: Risks

The risk management systems are based on statutory provisions and the Raiffeisen Group risk
policy (risk policy for short). The risk policy is reviewed and updated annually. The Raiffeisen
Group views entering into risks as one of its core competences, but only with full knowledge of
their extent and dynamics and only when the requirements in terms of systems, staff resources
and expertise are met. The aim of the risk policy is to limit the negative impact of risks on
earnings and protect the Raiffeisen Group from high exceptional losses while preserving and
strengthening its good reputation. Group Risk Controlling is responsible for ensuring that the
risk policy is observed and enforced. The Compliance unit ensures that regulatory provisions are
adhered to.
The Raiffeisen Group controls the key risk categories using special processes and overall
limits. Risks that cannot be reliably quantified are limited by qualitative stipulations. Risk
control is completed by independent monitoring of the risk profile.
Group Risk Management, which reports to the Head of the Finance department, is responsible
for the independent monitoring of risks. This primarily involves monitoring compliance with the
limits stipulated by the Board of Directors and the Executive Board and also evaluates the risk
situation on a regular basis as part of the reporting process.
The risk management process is valid for all risk categories, in other words for credit risks,
market risks and operational risks. It incorporates the following components:

Risk identification
Risk measurement and assessment
Risk management
Risk limitation, through the setting of appropriate limits
Risk monitoring

The goal of the Raiffeisen Groups risk management systems is to:

ensure that effective controls are in place at all levels;

ensure that any risks entered into are in line with accepted levels of risk tolerance;
create the conditions for entering into and systematically managing risks in a deliberate,
targeted and controlled manner;
make the best possible use of risk tolerance, in other words to ensure that risks are
only entered into if they offer suitable return potential.

The business units of the Raiffeisen Group Raiffeisen banks and Raiffeisen Switzerland
manage their credit risk autonomously, although in accordance with Group-wide standards.

Credit risks are defined in risk policy as the risk of losses caused by clients or other
counterparties failing to fulfill render contractual payments as anticipated. Credit risks are
inherent in loans, irrevocable credit commitments, contingent liabilities and trading products.
Risks also accrue from debt, equity and other securities that may involve losses when the issuer
defaults.
The Raiffeisen Group identifies, assesses, manages and monitors the following risks in its
lending business:

Counterparty risks - accrue from the potential default of a debtor or counterparty. A

debtor or counterparty is considered to be in default when receivables are more than 90
days over- due.
Collateral risks - accrue from impairments in the value of collateral.
Concentration risks - arise from the uneven distribution of credit receivables from
individual borrowers or in individual coverage categories, industries or geographic areas.
Country risks means the risk of losses caused by country-specific events.

Another important risk that Raiffeisen deals with is the operational risk which means the danger
of losses arising as a result of the unsuitability or failure of internal procedures, persons, IT and
security systems, buildings and equipment, as a result of external events or through the
interference of third parties. In addition to the financial impact, the Raiffeisen Group also takes
into account the consequences of operational risks for reputation and compliance.
The Raiffeisen Group strives to avoid or reduce operational risks at the point where they arise. In
the case of business-critical processes, emergency and catastrophe planning measures are in
place to manage operational risks.
Each function within Raiffeisen is responsible for identifying and managing the operational risk
arising as a result of its own activities. Group Risk Management is responsible for maintaining
the group-wide inventory of operational risks and for analysing and evaluating operational risk
data. It is also in charge of the concepts, methods and instruments used to manage operational
risks and monitors the risk situation and the implementation of risk reduction measures.
In specific risk assessments, operational risks are identified, categorized by cause and impact and
evaluated according to the frequency or probability of occurrence and the extent of losses. The
risk register is updated dynamically. Risk management measures are defined, implementation of
which is periodically monitored by Group Risk Management.
The results of the risk assessment are reported to the Executive Board and the Board of Directors
of Raiffeisen Switzerland via an aggregated risk profile which also receive quarterly updates on
the extent to which measures have been implemented.

IT risks is convered by a reliable IT infrastructure which is indispensable for providing services

in the banking business. Correspondingly, Raiffeisen attaches a great deal of importance to
monitoring and controlling IT and managing related threats and risks.
Information security risks are gaining importance, especially with respect to bank reputation
and the Swiss banking industry. This is why the risks require extensive management. The
management strategy is based on regular analyses of prevailing threats. Appropriate, effective
information security measures are instituted on the basis of the strategy to protect the integrity,
confidentiality, availability and audit trails of information and infrastructure. Raiffeisen complies
with recognised standards and established practices throughout this process.
The market risk is another important feature in which Raiffeisen Group is heavily involved in
and it consists in balance sheet business, interest rate fluctuations, things that can have a
significant influence on interest income. Up-to-date procedures are in place to measure the risk
in the bank book associated with fluctuating interest rates. The procedures model variable
positions based on a model that replicates historical interest rate fluctuations with money and
capital market rates. These positions are managed on a decentralised basis in the responsible
units. In order to a better assessment of this risk, Raiffeisen Group has appealed to FICO a
specialized company in this field.
The FICO Economic Impact Service is a patent-pending analytic service that helps lenders
adjust their use of risk scores based on economic projections and lender-defined scenarios. The
service examines up to 150 different economic indicators, then scientifically calibrates credit risk
estimates to expected market conditions, at the account level. With the ability to build on both
internally derived score models and standard credit scores, the FICO Economic Impact Service
provides lenders with unprecedented insight into the changing nature of risk under different
economic conditions. FICOs Decision Management solutions combine trusted advice, worldclass analytics and innovative applications to give organizations the power to automate, improve
and connect decisions across their business.
Liquidity risks are controlled using commercial criteria and monitored by Treasury and Group
Risk Controlling in accordance with banking law. Risk controlling involves, among other things,
simulating liquidity inflows and outflows over different time horizons using various scenarios.
These scenarios include the impact of bank funding crises and general liquidity crises.
Monitoring is based on statutory limits as well as additional limits that are set by Raiffeisen
Switzerland's Board of Directors .
Reporting on compliance with sensitivity and position limits and the assessment of the risk
situation by Group Risk Controlling is primarily conducted via three reports, namely:

Weekly interest rate risk report to responsible Executive Board members

Monthly risk report to the Executive Board
Quarterly risk report to the Board of Directors

Chapter 7: Business Model

The vision and mission are the guidelines of their activities that speak for what they want to
become and in which direction they want to go. The values establish the main coordinates of
their behaviour towards customers, shareholders, competitors and/or colleagues.

Vision
Raiffeisen Bank is the leader of the banking market through quality, dynamism and innovation.
With high quality products and services, with a constant dynamic attitude and a focus on
innovation, Raiffeisen Bank can become the first option bank for customers and can be
acknowledged as the leader of the banking market.

Mission
As stated in its website, the companys mission is : Raiffeisen Bank is a long-term partner for
all its customers, offering a complete range of high standard financial services and generating
an above average Return on Equity.
Raiffeisen Bank is an universal bank, belonging to a group that offers integrated financial
services in the following fields: banking, investment banking, financial analysis and consultancy,
leasing and finally, insurance. High standards apply to each aspect of their activity: quality
services and products, investments in infrastructure and the original Raiffeisen concept for
model branch, multiple distribution channels, constant innovation in terms of products,
alternative or tailor made solutions for the customers specific needs.

Values

Focus on Customer Needs Raiffeisen Group provides financial services to customers,

regularly review their consumers expectations and needs to optimise the range of products and

services provided by their workforce. The company also continuously improve their internal
rules and procedures, in order to emphasise the innovation and improvement process.
Increase Shareholder Value the company strives for continuous and sustainable growth in
the shareholders value by achieving an outstanding Return on Equity. They have as main longterm goal to lead international banking group in Central and Eastern Europe.
Uphold Solid General Ethics Raiffeisen Group bases their entire work on fundamental
ethical values, paying attention also on trust- based relationship with their customers having as
principles the integrity and honesty.
Lead, Motivate and Empower People The company sets operational and strategic goals to
lead the entire Group in order to have a successful implementation. The leaders of Raiffeisen
Bank develop a clear business vision and viable strategies. They create an organisational
environment that supports and rewards profitable growth. They set challenging but achievable
goals and continuously search for future opportunities.

Raiffeisen Group has as a main strategy for differentiation the flexilibity by offering a variety of
services customized for each customer depending on their needs being also flexible considering
the customers requirements.
The core of Raiffeisen current sustainability strategy reads: We create sustainable value
which lays out their short but also medium and long-term goals in the form of nine strategis and
operational core areas with respect to the all Raiffeisen Group.
The strategy is built on Raiffeisen values and defines a clear path. In order to create sustainable
value for their stakeholders in times of global interdependence and highly variable social,
ecological and economic framework conditions, they focus on three key matters, which have
formulated as their contribution to sustainable development: value creation, trust and
transformation.

Success with clearly defined core competencies

Raiffeisen Capital Management has several clearly defined competency areas, in which the fund
management has acquired many years of experience and particular expertise. Altogether, more
than 90 percent of the total fund volume is managed from the companys headquarters in Vienna.
This includes the bond funds segment, with traditional products such as Euro bonds and
international bonds, as well as funds specialised in European high-yield and corporates, and
Eastern European bonds.
Another important key competency area is multi-asset strategies. In the equities segment,
Raiffeisen Capital Management is recognised around the world as a specialist for global
emerging markets and for European equity markets as well. Since 2013, the company has been
intensifying its activities regarding socially responsible investments. By establishing the
department "Sustainable and Responsible Investments", the Asset Management Group has
repositioned and extended its core expertise. Above and beyond this, Raiffeisen Capital
Management works together with highly qualified international partners to offer top-level
management quality in each and every asset class, in addition to its own core competencies.
Their core values concern personal relationships with their clients that are founded on proximity.
The Central Banks core areas of competency are Treasury & Trade and Counterparty & Country
Risk Management. This comprises the following services:

Product and advisory services for asset and liability management in the areas of
investments, refinancing and balance sheet protection
Ensuring the supply of cash
Providing access to the foreign exchange and capital markets

Partnership
Raiffeisen Group is a major bank which strategically operates with different parteners, mostly
stores for which they grant several free monthly interest for the goods or services that the
consumer gets. The number of month with free interest rates differes for each partner.
Some of their most important partners for this company, here in Romania, are:

Altex
Media Galaxy
E-mag
Vodafone
B&B Collection
Baumax
Baby Comfort
Benvenuti
BGS
Kika
Christian Tour
Leonardo
Medicover

An important partnership is between Raiffeisen and Vodafone, here in Romania. The shopping
card Raiffeisen Vodafone offers the customer the possibility to have special offers when buying
a smartphone or paying monthly subscription with a significant price reduction. Moreover,
Vodafone gives the customer which uses the shopping card from Raiffeisen some loyalty points
which they can use in order to get some special offers to some of the Vodafone products.
Another important partnership is the choice of getting the Steaua shopping card. As a benefit,
you can freely enter on the Ghencea stadium, and get the products which you can buy from the
inside with a discount.
Moreover, the company has concluded a strategic partnership with SMURD, in order to
encourage the PIOS payments. This partnership focuses on the PIOS payments with their
customers debit card. Anytime a payment is done through this alternative, 0.2% from the total
amount is redirected to the SMURD account.
The company has also concluded some partnerships with the government. One of the most
important is the prima casa program, where the government is taking the role of a guarantor
for the customers which can take advantage of this program. Moreover, the interest rate are
lower, considering the fact that the government takes this role, the bank considers the risk lower
than a simple credit. One of the major advantage that Raiffeisen group offers, is the fact that they

have concluded the biggest number of contract through this program, comparing to the
competition, which had a larger set of conditions.
Target Customers
The general classification for the target customer, according to the legislation is:

By the residence (from Central Europe or not)

Banking customers (central bank, commercial banks)
Financial (financial institutions, securities companies, stock companies, investment
funds)
Non-financial (corporate, legal persons with a trade quality, individuals in special
relations with the bank)
Natural persons

Out of this classification, in general, the bank considers that the target customers are in general,
the big clients (corporates) and SMEs.
Chapter 8 : Internal growth strategies
In order to adapt to the present needs of the customers, Raiffeisen has made a number of
important refinements to its business strategy in the CEE region. One has been to diversify its
range of financial products and services. Although credit services remain important to RBIs
aggregate revenue stream, securities services and other fee-based products are making a stronger
contribution to bank revenue and have been accorded higher prominence in the banks growth
strategy. To support this, Raiffeisen has adapted its internal structure and governance.
They used the new product development strategy by launching different products:

shopping cards (Steaua football team card, Vodafone shopping card)

programs for which they collaborated with the government (Prima Casa) in order to
keep up with the trend.
Debit cards with discounts for PIOS payments (SMURD card)

All these products created important competitive advantage among its competitors on the market.

Chapter 9 : External growth strategies

a. Mergers and Acquisitions

The Investment Banking Department activities include financial analysis and valuation
services for investment projects and companies, consultancy for developing new activities and
business lines, for both Raiffeisen group and external clients.
The Investment Banking Department comprises professionals which have been involved in top
transactions, both locally and at a regional level, which involved rendering high quality services
enabling the maximisation of client interests, in a constantly changing economic environment.
Some of the most important M&A transactions in which the members of the Investment
Banking Department have been involved:

Acquisition by Raiffeisen Leasing of the leasing portfolio of ING Lease buy side
advisor (2014);

Acquisition by Raiffeisen Bank of the Retail Division of Citibank Europe Plc, Romanian
subsidiary buy side advisor (2013);

Intermediation of the largest transaction in the agriculture sector in Romania which

involved the sale of a business operating 14,000 ha in the South-Eastern part of the
country buy side advisor (2013);

Sale of the automotive division by Spumotim Timisoara, a top company in the

polyurethane foam segment sell side advisor (2011);

Obtaining approval from EU Commission for some measures from the Romanian state
meant to sustain Oltchim SA financial advisor for the company on State support
measures (2007 - 2011) ;

Acquisition by Petrom (OMV Group) of a wind energy producer, Wind Power Park buy
side advisor (2010);
Sell side consultant for Delaco shareholders, a top dairy producer in Romania, for the sale
to Bongrain SA (2010);
Sale of a stake in Continental Hotels to the investment fund PPF Investments sell side
advisor (2006);

Acquisition made in Romania by the most important steel producer in the world - LNM
Holdings NV (currently Mittal Steel) Sidex (2001), Tepro, Petrotub and Siderurgica
Hunedoara (2003).

b. Strategic alliances
One of the most important strategic alliances is between = to increase anti-fraud knowledge
and certification among its employees. In partnering with the ACFE, the worlds largest
provider of anti-fraud training and education, Vienna-based RBI becomes the newest
member of the ACFE Corporate Alliance.
Organisations worldwide lose an estimated 5 percent of their revenues each year to fraud,
according to the ACFEs 2012 Report to the Nations on Occupational Fraud and Abuse,

and it takes them an average of 18 months to discover a fraud after it occurs. By joining the
ACFE Corporate Alliance, RBI is signaling a proactive approach to the prevention,
detection and deterrence of fraud.
By this alliance, ACFE will provide with special training programs for all the Raiffeisen
employees to recognise and take the fastest measures in order to discover and prevent
fraud.
By entering this strategic alliance with the worlds leading anti-fraud organization,
Raiffeisen expects to build and maintain a solid foundation of anti-fraud knowledge, stay
up-to-date with new developments including emerging fraud patterns, and learn new
strategies, techniques and best practices when it comes to fraud prevention. The ultimate
objective in Fraud Risk Management activities, however, is to protect the assets of the
Group, customers, and shareholders from any fraudulent behaviour.