Highlights for 2001

• Group assets up by 22.3%
• Profit before tax up by 28.4%
• Return on equity before taxes up by 13.3%
• Corporate banking business getting even better
• RZB aiming for top position in investment banking
• Continued expansion in Central and Eastern Europe

The RZB Group can look back at 2001 as yet another successful year in its long history. Raiffeisen Zentralbank Österreich AG continued to show excellent growth, improving its market position despite an increasingly difficult business environment.

The group’s 2001 results, published for the first time according to International Accounting Standards (IAS), illustrate this trend. Group assets rose 22.3% compared with 2000, reaching about € 44.6 billion. "RZB has posted consistently good growth due to its continued high profitability. We have successfully used the chances available to us in 2001 to improve our market position yet again," said RZB Chairman of the Board Walter Rothensteiner. He added that much of the group’s continued success was based on strong organic growth at all of its units.

RZB’s earnings increased at a similar pace as asset growth, with net interest income after provisioning rising 18.5% during 2001. Net commissions jumped 42.9% in the course of the year, while trading profit soared 44.2%. As a result, the group’s return on assets (before taxes) improved to 0.57% from 0.55%, this is the top performance among Austria’s main banks.

Profits before tax increased by 28.4% to about € 232 million, reflecting not only RZB’s strength in Central and Eastern Europe (CEE), but also a slight improvement in margins in the group’s Austrian corporate banking business. "RZB produced these excellent results even though the group ploughed further investments into expansion -- a strategy necessary to ensure a solid basis for future growth and profitability," said Rothensteiner. During 2001, RZB focused on expanding its IT infrastructure and bank network. General administrative expenses increased by 45.3% as a result of this emphasis on expansion.

RZB’s strategy supports growth

The group’s large-scale investments increased its cost/earnings ratio to 71.1% from 66.2%, while simultaneously reducing the group’s return on equity before taxes to 13.3% from 14.4%. These short-term declines are the logical consequences of the group’s long-term strategy. "Our strategy is clear", said Rothensteiner: "Through its dynamic growth RZB is positioning itself in the CEE market at a time when market share is relatively easy to obtain and this will ensure our long-term success. There is a definite window of opportunity in CEE, because of the region’s still widely untapped market potential, as there also is in Austria following the consolidation of the local banking market."

2001: A year of acquisitions

The year 2001 will go down as an important one for acquisitions within the Raiffeisen group.RZB acquired Austria’s Centro Internationale Handelsbank AG, Hrvatska Poštanska Banka d.d in Bosnia and Herzegovina, and Romania’s Banca Agricolã S.A. These takeovers – especially the acquisition of one of Romania’s oldest finance houses – significantly boosted the number of employees in the group by 80.1% to 14,459 at the end of 2001. The bank is also proud that it has created 2,500 new jobs for highly qualified staff through its expansion push.

Key Player in Central and Eastern Europe

RZB has expanded its network in Central and Eastern Europe significantly in recent years, consolidating its position as the leading network bank in the region. As a universal bank with region-wide reach, RZB offers an excellent range of products for its commercial customers, as well as for retail clients in 13 CEE nations. "We determinedly pushed on with our expansion. For example, with our subsidiary in Yugoslavia, which we set up in record time, we have stayed true to our pioneer role. This has helped our bank to the best starting position in this newly opened market", said Herbert Stepic, RZB’s deputy chairman and head of the group’s international business.

In addition to the organic growth achieved through the founding of Raiffeisenbank Jugoslavija a.d., the group’s CEE network has been supplemented by the acquisition of Raiffeisenbank HPB d.d. and Banca Agricolã-Raiffeisen S.A. The latter two banks will be merged with Raiffeisenbank d.d. Bosna i Hercegovina and Raiffeisenbank (Romania) S.A., respectively, this year. RZB continued its dynamic acquisition policy during 2002, taking over Slovenia’s Krekova banka d.d. in the spring, Stepic added.

In 2001, the total assets of RZB’s subsidiaries in CEE jumped 67% to € 11.4 billion. Only € 500 million of a total growth of € 4.5 billion came from acquisitions. The return on equity (before taxes) of RZB’s CEE subsidiaries reached 24.4% in 2001, making it the region’s benchmark. The group’s branch network in CEE has contributed overproportionally to earnings on a continual basis. The group employed 11,300 staff in 494 branches (2000: 185 branches) in the region, a growth in employment of 107% from 2000.

RZB received many national and international awards in 2001 for the high quality of its services in the region. Among others, it was awarded the prize for "Best Bank in Central and Eastern Europe" by the finance magazine Global Finance, as well as the prize for "Bank of the Year 2001 in Central and Eastern Europe" by The Banker, another of the finance industry’s top publications.

Corporate Business

RZB continued to focus on the top 1,000 companies in Austria during 2001. The group was able to secure its position as the No. 2 in corporate finance serves in Austria, after rising to this position in 2000. "We aim to build on this achievement in the future, by focusing on improving our relationships with our customers", said Karl Sevelda, the board member responsible for corporate client relations.

The quality of the group’s customer service was confirmed by a survey conducted by Roland Berger, which showed that 95% of RZB customers are "satisfied" or "very satisfied" with the group and that 70% of the customers polled have actively recommended RZB services to other firms. Furthermore, a number of branch publications have praised the standards of RZB services – for example, The Banker voted RZB "Bank of the Year in Austria".

Good customer relations, better margins, higher profits

The continued consolidation of the Austrian banking market has encouraged RZB to make new acquisitions and strengthen its partnerships with its customers. Net loans to Austrian and international companies serviced out of Vienna rose 5.7% compared with 2000. Total earnings from this sector rose 33.1% due to improvements in margins at our domestic loan business. RZB has managed to secure its top position in the corporate finance sector, as well as enjoy continued growth in earnings trade and export financing. The bank also received the award for " Trade Finance Bank in Austria" from Global Finance.

RZB No.1 in Syndication in Austria and CEE

RZB maintained its position as the No. 1 in bank loan syndication in Austria and in CEE, arranging 25 large–scale loans in CEE in 2001. The loan arranged for the Slovak oil company Slovnaft was voted "Deal of the Year" in CEE as "Best Loan" by the magazine Euromoney. The corporate customer businesses of RZB's CEE units rose faster than average for the region’s market, putting its subsidiaries among the top commercial banks in their respective countries, with loan market shares of up to 20.2% nd deposit market shares of as much as 24.6% (both figures for Tatra banka a.s., Slovakia).

Risk provisions – Sharp increase from a low base

Risk provisions for RZB’s loan business rose by 95% in 2001 to € 104.7 million because of worsening economic conditions, some large singular cases and the traditionally cautious nature of RZB concerning financial risk. These provisions were mostly necessitated through the group’s Austrian business (€ 69 million), while provisions for RZB’s CEE business declined noticeably to € 18 million. According to Mr. Sevelda, this increase in risky debt is from a low base. "RZB had an exceptionally good year 2000 in Austria in this respect", said Sevelda. "In addition, at 0.46% our risk provision ratio – allocations to provisions in per cent of risk assets - was significantly lower than those of our main competitors. That shows our good risk management."

Treasury and Investment Banking

The group’s treasury business has been one of RZB’s most profitable segments for many years and, despite difficult market conditions, produced excellent earnings again in 2001. "An example of the good, international reputation of RZB-Treasury is RZB’s inclusion in the circle of banks involved in the fixing of the EONIA swap guide rate and in fixing of the EURIBOR for the money market", said Helfried Marek, board member in charge of treasury and investment banking.

New structure of investment banking

The investment banking sector, particularly stock issuing, was affected by poor market conditions, which caused the entire branch to contract. "RZB could not remove itself from this environment, though it fought back well and has set up by far the most modern securities and currency trading room in Central and Eastern Europe with its Global Trading Center in Vienna", said Marek: "We have used the recent downswing to restructure our investment banking business, giving it an ideal starting position to take advantage of the expected improvement in the market and develop to be the No.1 in Austrian investment banking."

RZB acquired Raiffeisen Centrobank AG (RCB) in 2001, giving the group an excellent opportunity to complete the reorganization of its investment banking segment. Raiffeisen Zentralbank found a perfect partner in RCB, an agile speciality bank, and used it as an ideal platform for a powerful equity house. The investment banking department in Raiffeisen Zentralbank has been re-focused on commercial-bank nearer fixed income products. This new structure came into being at the start of 2002.

Strength in Securities Issues, Trading and Sales

RZB was the lead manager or co-lead manager in more than 60 bond issues in Vienna during 2001. In addition, the bank’s CEE subsidiaries played leading roles in several large-scale securities emissions – for example, Moscow-based ZAO Raiffeisenbank Austria, lead managed or co-lead managed 28 % of all Russian corporate bond issues last year. The group’s equity sales business did suffer in 2001 due to the negative trend in international stock markets. Even so, RZB was the only Austrian bank to be involved in all share emissions on the Vienna Stock Exchange last year. In addition, RZB made a number of private placements on the Vienna market. The group’s securities trading business did well despite difficult market conditions. Although RZB was unable to reach the record levels of stock trading seen in 2000, this was more than compensated for by increases in volumes of fixed-income securities trading.

Retail Banking

RZB’s retail banking business includes its units in CEE and its private banking subsidiary Kathrein Co. Privatgeschäftsbank AG. Retail banking in CEE has enormous potential because of the lack of development of the market. Harnessing this potential has helped RZB's retail banking beat its ambitious goals for the region: In 1999, RZB selected a small number of CEE countries to start its retail banking business and was serving more than one million customers by September 2001 – and more than 1.1 million by the end of the year. The acquisition of Romanian Banca Agricolã brought more than 300,000 new customers to RZB and the unit has been able to attract a further 80,000 customers since the takeover. From the start of 2001, RZB began offering retail banking services at all of its CEE subsidiaries.

Mr. Stepic is especially proud of the success of the newest Raiffeisen bank in CEE: "Raiffeisenbank Jugoslavija only started its retail banking activities in October 2001, but managed to become the No. 1 in new deposits within only three months."

This segment’s results also reveal the group’s high level of investment in retail banking, in particular investment in the building up of distribution and service networks – bank branches, call centres and e-banking – as well as the setting up of customer service teams. This investment will build the basis for the future earnings of this high-growth business segment.

Transaction Services

The transaction services segment comprises RZB’s entire payment transaction system, including cash management, card business in Austria, the group’s custody service and the back-office services of RSC Raiffeisen Daten Service Center GmbH. This segment produced double-digit growth again in 2001, both in terms of transaction volume and earnings. "RZB believes its technological advantage is one of the keys to future success. Developments within the transaction services department have been impressive. Our strategy is really bearing fruit", said Board Member Karl Stoss, who took over this division in March 2002.

Raiffeisen – Market Leader in Internet

RZB considers itself to be the leading Internet-oriented banking group in Austria and CEE. The group widened its palette of Internet products once again during 2001, introducing its new online trading platform raiffeisen-trade.com in September. This service gives Raiffeisen's customers direct connections to 19 stock exchanges in the region, as well as an excellent range of content, a transparent fee structure and user-friendly design. RZB took on a pioneer role again in Austria during 2001, bringing in new software to meet specific customer needs. The RZB-Customer Bridge offers an electronic solution for guarantee business, RZB-F.@.S.T. is an Internet-based transaction payment solution for inter-bank transactions and RZB-e.Custody provides RZB customers with Internet-based securities account reporting.

According to the Austrian Internet Monitor for the 4th Quarter of 2001, the Austrian Raiffeisen Banking Group (RBG) provided the No.1 online banking service in Austria with around 366,000 customers, or a market share of 45%. The RBG succeeded in increasing the number of its Internet customers by 52.5% in the course of 2001, a much faster rate than the market average.

Raiffeisen – excellent cooperation; best known bank in Austria

Cooperation between the members of the Raiffeisen Bank Group (RBG) – which RZB heads – improved further during 2001. The group almost doubled the amount of syndicated loans it provided for its customers and set up a joint cost-cutting program in payment transactions and card business. As Moody’s, the world renowned rating agency, said in its most recent report on RZB, "Its dominant market share in retail banking and relatively strong profitability make the Raiffeisenbanken the strongest banking group in the domestic market."

"The excellent cooperation between the members of the RBG proved to be an important advantage during the introduction of the euro. At the time of the changeover, about a third of all the cash requirements for the Austrian market were handled by RBG via RZB", said Manfred Url, who is in charge of RZB’s marketing, IT and RBG issues. The group’s marketing and advertising have been prime examples for good cooperation for many years. "Ninety-three percent of Austrians recognize the name Raiffeisen instantly – by far the highest level of recognition among local banks. This is a result of almost 30 years of successful coordination", said Url.